1
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Table 1
- ------------------------------------------------------------------------------------------------------------------------------
Consolidated Selected Financial Data Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per
share amounts) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
Total interest income . . $ 1,461,896 $ 1,219,721 $ 1,236,311 $ 1,202,286 $ 1,208,407 $ 1,266,770
Total interest expense . 737,333 463,671 440,111 504,846 659,918 780,759
Net interest income . . . 724,563 756,050 796,200 697,440 548,489 486,011
Securities gains . . . . 9,056 2,594 27,189 36,332 16,951 579
Provision for loan losses 28,721 15,284 79,294 81,562 62,061 76,434
Net income . . . . . . . 244,489 242,593 236,912 161,046 133,940 99,765
Per Common Share(1)
Net income . . . . . . . 1.78 1.78 1.76 1.21 1.01 .75
Cash dividends declared . .78 .68 .56 .48 .44 .39
Book value at year-end . 11.42 10.32 9.72 8.45 7.71 7.08
Balance Sheet Highlights
Total assets at year-end 20,254,598 17,770,640 17,618,707 16,246,526 14,500,477 13,671,182
Total long-term debt at year-end 2,103,024 1,214,052 762,310 478,872 261,168 206,578
Average long-term debt . 1,423,537 927,797 640,976 299,905 218,645 200,939
Average shareholders' equity 1,502,911 1,403,314 1,216,470 1,074,159 977,073 917,474
Average total assets . . $19,047,912 $16,749,850 $16,850,719 $15,165,151 $13,612,543 $13,489,939
- ------------------------------------------------------------------------------------------------------------------------------
Key Ratios and Statistics 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Margin Analysis As a %
of average earning assets(2)
Interest income . . . . . 8.34% 7.97% 8.03% 8.75% 9.85% 10.51%
Interest expense . . . . 4.19 3.01 2.83 3.63 5.30 6.37
----- ----- ----- ----- ----- -----
Net interest margin . . . 4.15% 4.96% 5.20% 5.12% 4.55% 4.14%
===== ===== ===== ===== ===== =====
Return on
Average total assets . . 1.28% 1.45% 1.41% 1.06% .98% .74%
Average earning assets . 1.39 1.57 1.53 1.16 1.08 .81
Average shareholders' equity 16.27 17.29 19.48 14.99 13.71 10.87
Dividend payout ratio . . . 43.82 38.50 32.47 38.99 42.86 51.52
Average shareholders' equity to
average total assets . . 7.89 8.38 7.22 7.08 7.18 6.80
Tier I risk-based capital ratio 8.39 9.55 9.60 9.39 9.07 8.68
Total risk-based capital ratio 12.03 13.57 14.02 12.56 11.27 11.19
Tier I leverage ratio . . . 6.87% 7.99% 7.03% 6.72% 7.00% 6.54%
- ------------------------------------------------------------------------------------------------------------------------------
Other Data 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Full-time equivalent employees 7,551 8,153 8,395 8,039 7,562 7,074
Banking offices . . . . . . 322 344 352 346 334 318
<FN>
(1)Restated for the five percent stock dividend distributed July 31, 1995.
(2)Presented on a fully tax equivalent basis assuming a 35% tax rate in years
1993 through 1995 and a 34% tax rate in years 1990 through 1992.
12
2
OVERVIEW
Huntington Bancshares Incorporated (Huntington) reported earnings of
$244.5 million in 1995, compared with $242.6 million and $236.9 million in 1994
and 1993, respectively. On a per share basis, net income was $1.78 in both
1995 and 1994 versus $1.76 in 1993. Per share amounts for all prior periods
have been restated to reflect the five percent stock dividend distributed to
shareholders in July 1995.
Huntington's returns on average assets (ROA) and average equity (ROE)
during 1995 were 1.28% and 16.27%. In the prior two years, ROA was 1.45% and
1.41%, and ROE was 17.29% and 19.48%.
Total assets were $20.3 billion at December 31, 1995, up 14% from the
end of last year due to strong loan volumes and a larger investment securities
portfolio. Loan growth was achieved in all major categories, with the
commercial and consumer components each contributing significantly to the
increased outstandings. Securities available for sale were higher as a 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 grew 5.6% from one year ago to $12.6 billion, due largely
to bank acquisitions consummated during 1995 and an increase in certificates of
deposit of $100,000 or more. The mix of deposits also changed, as retail
customers shifted their investment preferences, opting for the higher yields
available through certificates of deposit. As more fully discussed in the
"Liquidity Management" section, core deposits represent the company's most
significant source of funding. When combined with other core funding sources,
they continue to provide approximately 70% of Huntington's funding needs.
Huntington's short-term and long-term borrowings were also up from December 31,
1994, as a result of increased purchases of federal funds and the issuance of
additional medium-term notes.
Shareholders' equity was $1.5 billion at the most recent year end, an
increase of 7.6% over the last twelve months. Huntington's regulatory capital
ratios, including those of its bank subsidiaries, exceeded the levels
established for well-capitalized institutions.
- --------------------------------------------------------------------------------------------------------------------------------
Table 2
- --------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income Due to Changes in Average Volume and Interest Rates(1)
- --------------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis(2) 1995 1994
---------------------------------- ----------------------------------
(in millions of dollars) Increase (Decrease) Increase (Decrease)
From Previous From Previous
Year Due To: Year Due To:
---------------------------------- ----------------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
- --------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits in banks $ 1.1 $ (.1) $ 1.0 $ (1.3) $ .4 $ (.9)
Trading account securities . . . . .6 .2 .8 .2 .2 .4
Federal funds sold and securities
purchased under resale agreements (3.8) 1.8 (2.0) 1.5 .9 2.4
Mortgages held for sale . . . . . . (17.8) 1.7 (16.1) (32.5) (1.8) (34.3)
Taxable securities . . . . . . . . 64.2 18.7 82.9 (69.9) 13.7 (56.2)
Tax-exempt securities . . . . . . . (6.8) (1.0) (7.8) (7.6) (1.0) (8.6)
Total loans . . . . . . . . . . . . 136.8 43.8 180.6 119.1 (40.7) 78.4
------ ------ ------ ------ ------ ------
Total earning assets . . . . . 174.3 65.1 239.4 9.5 (28.3) (18.8)
------ ------ ------ ------ ------ ------
Interest bearing demand deposits . (4.0) 6.3 2.3 1.2 (5.0) (3.8)
Savings deposits . . . . . . . . . (5.3) 12.7 7.4 1.3 (9.8) (8.5)
Certificates of deposit of $100,000 or more 10.2 11.3 21.5 (9.1) 3.6 (5.5)
Other domestic time deposits . . . 41.1 53.7 94.8 (2.1) (.1) (2.2)
Foreign time deposits . . . . . . . (1.1) 5.9 4.8 (6.5) 3.6 (2.9)
Short-term borrowings . . . . . . . 41.9 63.5 105.4 (6.5) 23.8 17.3
Long-term debt . . . . . . . . . . 34.8 2.6 37.4 17.6 11.6 29.2
------ ------ ------ ------ ------ ------
Total interest bearing liabilities 117.6 156.0 273.6 (4.1) 27.7 23.6
------ ------ ------ ------ ------ ------
Net Interest Income . . . . . . $ 56.7 $ (90.9) $ (34.2) $ 13.6 $ (56.0) $ (42.4)
====== ====== ====== ====== ====== ======
<FN>
(1) The change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship
of the absolute dollar amounts of the change in each.
(2) Calculated assuming a 35% tax rate.
13
3
- -----------------------------------------------------------------------------------------------------------------------
Table 3
- -----------------------------------------------------------------------------------------------------------------------
Summary of Allowance for Loan Losses and Selected Statistics
- -----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR $200,492 $211,835 $153,654 $134,770 $123,622 $ 91,039
LOAN LOSSES
Commercial . . . . . . . . . . . . . . (12,084) (10,404) (20,289) (26,634) (26,610) (17,524)
Real estate
Construction . . . . . . . . . . . (391) (5,957) (422) (14,001) (34) (850)
Mortgage . . . . . . . . . . . . . (4,490) (5,428) (2,060) (6,665) (6,859) (8,115)
Consumer . . . . . . . . . . . . . . . (34,360) (23,356) (21,492) (25,621) (28,773) (26,276)
Lease financing . . . . . . . . . . . (4,243) (977) (1,329) (2,734) (1,338) (1,255)
-------- -------- -------- -------- -------- --------
Total loan losses . . . . . . . . . . (55,568) (46,122) (45,592) (75,655) (63,614) (54,020)
-------- -------- -------- -------- -------- --------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial . . . . . . . . . . . . . . 3,284 7,724 3,564 3,607 2,589 3,527
Real estate
Construction . . . . . . . . . . . 5 1 1 - 400 -
Mortgage . . . . . . . . . . . . . 653 506 352 120 736 179
Consumer . . . . . . . . . . . . . . . 9,727 9,503 9,058 8,313 6,781 6,229
Lease financing . . . . . . . . . . . 315 368 263 424 230 197
-------- -------- -------- -------- -------- --------
Total recoveries of loans previously
charged off 13,984 18,102 13,238 12,464 10,736 10,132
-------- -------- -------- -------- -------- --------
NET LOAN LOSSES . . . . . . . . . . . . (41,584) (28,020) (32,354) (63,191) (52,878) (43,888)
-------- -------- -------- -------- -------- --------
PROVISION FOR LOAN LOSSES . . . . . . . 28,721 15,284 79,294 81,562 62,061 76,434
ALLOWANCE OF ASSETS ACQUIRED/OTHER . . 6,827 1,393 11,241 513 1,965 37
-------- -------- -------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR . $194,456 $200,492 $211,835 $153,654 $ 134,770 $ 123,622
======== ======== ======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses . . . . . . . . . . .32% .24% .32% .69% .61% .52 %
Provision for loan losses .22% .13% .78% .89% .72% .91%
Allowance for loan losses as a %
of total loans (end of period) . . . 1.47% 1.63% 1.93% 1.61% 1.52% 1.42 %
Net loan loss coverage (1) . . . . . . 9.79x 13.62x 13.69x 4.98x 4.77x 4.82x
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Income before income taxes and the provision for loan losses to net loan
losses.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $724.6 million in 1995, compared
with $756.1 million and $796.2 million, respectively, in 1994 and 1993. The
net interest margin, on a fully tax equivalent basis, was 4.15% during the most
recent twelve months, a decrease from 4.96% in 1994 and 5.20% in 1993. The
reduced net interest income and lower margin were the result of narrowed
spreads. As illustrated in the table of "Consolidated Average Balances and
Interest Rates" on pages 24 and 25, Huntington's funding costs increased more
rapidly than the yields on earning assets. Competitive factors that influenced
the pricing of new loans and actions taken during 1994 to reduce earnings
sensitivity to rising rates also exerted downward pressure on the margin. The
larger investment securities portfolio in the second half of 1995 produced
additional net interest income for the company but, as anticipated by
management, caused further margin compression over the final six months of the
year. On the liability side, the mix of deposits shifted from non- and
lower-interest bearing accounts to certificates of deposit and other more
expensive liabilities as customers continued to seek higher yielding products.
Similar to what was experienced in 1995, net interest income and the margin in
1994 were lower than 1993, primarily because of the significant increase in
short-term interest rates during that period (250 basis point increase in the
federal funds rate).
For the year ended December 31, 1995, interest rate swaps and other
off-balance sheet financial instruments used for asset/liability management
purposes reduced interest income by $32.8 million and increased interest
expense by $23.0 million. These products
14
4
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 4
- ----------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------------------
Commercial . . . . $ 104,783 31.6% $ 120,582 29.8% $ 137,756 32.1% $ 90,711 33.5% $ 69,988 33.3%
Real estate
Construction . . 1,342 2.8 908 2.5 1,636 3.1 1,329 4.0 6,672 4.9
Mortgage . . . . 14,091 20.8 16,677 24.5 18,008 24.5 12,274 23.7 10,545 23.6
Consumer . . . . . 34,944 38.4 28,672 37.9 24,901 35.9 23,604 34.9 23,836 34.6
Lease financing . . 3,977 6.4 2,972 5.3 2,107 4.4 1,943 3.9 1,565 3.6
Unallocated . . . . 35,319 - 30,681 - 27,427 - 23,793 - 22,164 -
--------- ----- -------- ----- --------- ----- --------- ----- ---------- -----
Total . . . . . $ 194,456 100.0% $ 200,492 100.0% $ 211,835 100.0% $ 153,654 100.0% $ 134,770 100.0%
========= ===== ======== ===== ========= ===== ========= ===== ========== =====
- ----------------------------------------------------------------------------------------------------------------------------
increased interest income by $29.0 million and $61.0 million and decreased
interest expense by $5.6 million and $30.0 million in 1994 and 1993,
respectively. Included in the preceding amounts is amortization of deferred
gains and losses from terminated contracts, that decreased net interest income
by $28.6 million in 1995, and increased net interest income by $21.6 million in
1994 and $12.2 million in 1993. Expressed in terms of the margin, the effect
of the off-balance sheet portfolio was a reduction of 32 basis points in the
most recent twelve months, approximately 17 basis points of which related to
amortization of net losses from closed positions. A swap strategy initiated by
Huntington in late 1994 to create synthetic fixed rate wholesale liabilities,
while lowering 1995 funding costs from what would have resulted from a
comparable cash instrument, resulted in the majority of the remaining margin
reduction attributable to the off-balance sheet portfolio. In the two
preceding years, swaps and other interest rate contracts contributed 22 basis
points and 59 basis points, respectively, to the margin.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $28.7 million in 1995, $15.3 million in
1994, and $79.3 million in 1993. The increase from 1994 to 1995 was largely a
function of loan growth. Although higher in the second half versus the first
six months of the year, net charge-offs as a percent of average total loans
were only .32% for all of 1995. The lower provision in 1994, compared with
the immediately preceding year, was related to the low level of net loan losses
and the significant reduction in non-performing loans. Net charge-offs as a
percentage of average total loans were .24% in 1994 and .32% in 1993.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of losses inherent in the
loan portfolio. The procedures employed by Huntington in evaluating the
adequacy of the ALL include an analysis of specific credits that are generally
selected for review on the basis of size and relative risk, portfolio trends,
current and historical loss experience, prevailing economic conditions, and
other relevant factors. For analytical purposes, the ALL has been allocated to
various portfolio segments. However, the total ALL is available to absorb
losses from any segment of the portfolio. The methods used by Huntington to
allocate the ALL are also subject to change; accordingly, the December 31,
1995, allocation is not necessarily indicative of the trend of future loan
losses in any particular loan category.
At the most recent year end, the ALL of $194.5 million represented 1.47% of
total loans and covered 353.76% of non-performing loans; when combined with the
allowance for other real estate, it was 238.65% of total non-performing
assets. Additional information regarding the ALL and asset quality appears in
the section "CREDIT RISK".
NON-INTEREST INCOME
Non-interest income was $248.4 million in 1995, an increase of $26.1
million, or 11.7%, over the previous twelve months. The 1994 total of $222.3
million was $71.1 million, or 24.2%, lower than the corresponding amount for
1993 of $293.4 million. Excluding securities transactions, the respective
amounts were $239.3 million, $219.7 million, and $266.2 million. Huntington
achieved broad-based growth in non-interest income during the year just ended,
with all categories but mortgage banking income showing improvement.
Similarly, the decrease in non-interest income from 1993 to 1994 was largely
attributable to a significant downturn in mortgage banking operations.
15
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The major components of mortgage banking income were as follows:
- ---------------------------------------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------
Net servicing fees $15,233 $21,586 $15,105
Fee income 4,871 13,428 38,639
Gain on sale of
servicing rights 6,405 11,583 31,765
Other income 13,084 3,770 13,676
------- ------- -------
Total $39,593 $50,367 $99,185
======= ======= =======
Net servicing fees declined in 1995 due to a reduction in the average volume
and a change in the mix of loans serviced by Huntington during the year. The
decreased fee income was the result of a drop in mortgage loan production from
$2.2 billion in 1994 to $1.2 billion in the year just ended. Gains from
servicing sales were also lower, as Huntington only sold $1.1 billion of
servicing rights in 1995, compared with $2.2 billion in the prior year. At the
end of 1995, mortgage loans serviced by Huntington totaled $5.8 billion.
Other mortgage banking income was up from 1994 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. The
increased income from FAS 122 implementation relates primarily to 1995 sales of
retail loan production for which the retained servicing rights were
capitalized.
Although mortgage banking income reflected a year-to-year decline, cost
reductions from Huntington's restructuring initiatives enabled The Huntington
Mortgage Company to post a profit of $3.6 million in 1995 versus a loss of
$11.2 million in 1994. (See further discussion in the following section titled
"Non-Interest Expense").
Huntington realized gains from securities transactions of $9.1 million in
1995, $2.6 million in 1994, and $27.2 million in 1993. These gains resulted
principally from specific ALCO programs in each of the years. The majority of
the 1995 gains related to sales of short-term government securities, the
proceeds from which were reinvested in securities of moderately longer
duration. The 1994 activity was undertaken to sell certain fixed rate
securities in anticipation of increased market interest rates, while the more
significant sales of 1993 were the result of a program to change the earning
asset mix, by deploying proceeds from securities sales into loans.
Other non-interest income was up significantly in 1995 primarily because
of an $8.9 million gain on the sale of the company's Pennsylvania bank, higher
trading account profits, and volume-driven increases related to various
fee-based activities.
NON-INTEREST EXPENSE
The company's non-interest expenses declined in every quarter of 1995 and
were down $30.8 million, or 5.2%, from last year and $80.7 million,
- --------------------------------------------------------------------------------------------------------------------------------
TABLE 5
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies . . . . . . . . . . . . . . . $ 156 $317,713 $ 94,466
States and political subdivisions . . . . . . . . . . . . . . . . 67,448 153,649 232,721
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,330 32,158
-------- -------- --------
Total Investment Securities . . . . . . . . . . . . . . . . . $ 67,604 $475,692 $359,345
======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1995
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
1 - 5 years . . . . . . . . . . . . . . . . . . . . . . . . . $ 156 $ 156 7.75%
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 156
-------- --------
States and political subdivisions
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 27,340 27,592 9.63
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 23,637 24,496 9.25
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 12,638 13,040 7.73
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . 3,833 3,912 9.17
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,448 69,040
-------- --------
Total Investment Securities . . . . . . . . . . . . . . . . . . $ 67,604 $ 69,196
======== ========
(1)Weighted average yields were calculated on the basis of amortized cost and
have been adjusted to a fully tax equivalent basis, assuming a 35% tax rate.
At December 31, 1995, Huntington had no concentrations of securities by a
single issuer in excess of 10% of shareholders' equity.
16
6
or 12.5%, from 1993.
The drop in expenses for 1995 was primarily attributable to initiatives
begun in the preceding year to reduce operating costs through the restructuring
of certain business activities. The resulting decrease in full-time equivalent
employees contributed to a $7.8 million, or 2.6%, decline in salaries,
commissions, and benefits. These initiatives also gave rise to substantial
reductions in various components of other non-interest expense, particularly at
The Huntington Mortgage Company.
In September of the recent year, the FDIC lowered its assessment rates on
deposits insured by the Bank Insurance Fund (BIF) from 23 basis points to 4
basis points retroactive to June 1, 1995. In December, the FDIC further
lowered BIF assessment rates to zero, effective January 1, 1996. Currently,
the FDIC assessment on SAIF deposits remains at 23 basis points.
Non-interest expenses decreased
- --------------------------------------------------------------------------------------------------------------------------
TABLE 6
- --------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies . . . . . . . . . . . . . . . $4,228,170 $3,006,277 $3,691,190
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,974 298,216 148,874
---------- ---------- ----------
Total Securities Available for Sale . . . . . . . . . . . . . $4,721,144 $3,304,493 $3,840,064
========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Amortized cost and fair values by maturity at December 31, 1995
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . $ 176,502 $ 178,264 6.55%
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 228,234 231,018 6.10
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 162,352 160,596 5.46
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,088 569,878
---------- -----------
Federal Agencies
Mortgage-backed securities
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 1,097 1,124 8.08
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 110,192 114,723 7.60
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 712,804 724,317 6.99
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . . 58,762 60,695 7.80
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 882,855 900,859
---------- -----------
Other agencies
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 53,912 54,499 7.04
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 1,928,431 1,953,446 6.75
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 234,393 234,920 6.19
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . 509,735 514,568 6.54
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,726,471 2,757,433
---------- -----------
Total U.S. Treasury and Federal Agencies . . . . . . . . . . . . 4,176,414 4,228,170
---------- -----------
Other
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 6,818 6,826 5.99
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 22,352 23,578 7.33
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 230,651 240,965 6.41
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . 212,950 214,605 6.68
Marketable equity securities . . . . . . . . . . . . . . . . . 8,359 7,000 5.57
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,130 492,974
---------- -----------
Total Securities Available for Sale . . . . . . . . . . . . . . . $4,657,544 $ 4,721,144
========== ===========
(1)Weighted average yields were calculated on the basis of amortized cost.
At December 31, 1995, Huntington had no concentrations of securities by a
single issuer in excess of 10% of shareholders' equity.
17
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
from 1993 to 1994 mostly due to a sharp decline in amortization of purchased
mortgage servicing rights, as the unsurpassed levels of mortgage refinancings
experienced by Huntington in 1993 resulted in a significant acceleration of
expense. Reduced mortgage activity in 1994 also resulted in lower commission
expense during that period.
PROVISION FOR INCOME TAXES
The provision for income taxes was $134.0 million in 1995, compared with
$123.9 million in 1994 and $126.9 million in 1993. Huntington's effective tax
rate increased during the most recent twelve months as a result of a $2.1
million charge recorded in connection with the conversion of an existing thrift
to a bank charter, lower nontaxable interest income, and various nondeductible
expenses associated with bank acquisitions. The effective tax rate in 1994 was
down slightly from the immediately preceding year principally because of a $4.0
million charge in 1993 related to an acquired thrift.
INTEREST RATE RISK AND
LIQUIDITY MANAGEMENT
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income and net
income while managing volatility arising from shifts in interest rates. ALCO
oversees risk management, establishing broad policies and specific operating
limits that govern a variety of risks inherent in Huntington's operations
including interest rate, liquidity, and market risks. On and off-balance sheet
strategies and tactical programs are reviewed and monitored regularly by ALCO
to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing both the
business flows onto the balance sheet and the changing market and business
environment. Effective management of interest rate risk begins with
appropriately diversified financial instruments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly utilizes
a multiple of markets: money market, bond market, and futures and options
market. 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. Management reporting of this information
is regularly shared with the Board of Directors.
At December 31, 1995, the results of Huntington's internal interest
sensitivity analysis indicated that 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) would
be expected to reduce net interest income by less than 1%. A similar decline
is anticipated if rates were to fall 200 basis points. A 200 basis points
increase in rates could result in a decrease in net interest income of up to
1.7%.
Active interest rate risk management includes the use of various types of
off-balance sheet financial instruments, primarily interest rate swaps. These
are used to reduce risk in a variety of ways. For example, risk created by
different indices on assets and liabilities, by unequal terms to maturity of
assets and liabilities and by products that are appealing to customers but
incompatible with current risk limits are but a few risks that can be
eliminated or decreased in a cost efficient manner. The swap strategy has also
enabled Huntington to lower the costs of raising wholesale funds.
Other off-balance sheet instruments used to control risk effectively include
financial futures, interest rate caps and floors, options, and forward rate
agreements. These instruments are used regularly in mortgage banking,
securities investing, and wholesale funding. The use of these products versus
similar cash instruments is often preferable because, though they perform
financially quite similarly, they may require less capital and preserve access
to the marketplace for future needs.
Table 7 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. At December 31, 1995, the
marketplace anticipated flat to slightly lower short-term rates versus
expectations at the end of 1994 for significantly higher rates. Consequently,
the interest rate swap portfolio experienced substantial appreciation during
1995 and closed the year at a net unrealized gain of $10.9 million. 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. For purposes of the variable rate
information and the indexed amortizing swap maturities presented in the table
below, management made no assumptions with respect to future changes in
interest rates.
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
18
8
- -----------------------------------------------------------------------------
TABLE 7
- -----------------------------------------------------------------------------
INTEREST RATE SWAP PORTFOLIO
- -----------------------------------------------------------------------------
(in millions of dollars) December 31, 1995
- -----------------------------------------------------------------------------
Average
Notional Maturity Market Average Rate
Value (years) Value Receive Pay
----- ------- ----- ------- -----
ASSET CONVERSION SWAPS
Receive fixed $ 809 1.39 $ 2.6 5.67% 5.92%
Receive fixed-amortizing 306 2.73 (.5) 5.81 5.67
------ -------
Total asset conversion swaps $1,115 1.76 $ 2.1 5.71% 5.85%
====== =======
LIABILITY CONVERSION SWAPS
Receive fixed $ 851 3.74 $ 33.6 6.33% 5.68%
Receive fixed-amortizing 208 3.33 (2.5) 5.59 5.75
Pay fixed 2,083 .64 (20.9 ) 5.85 7.04
------ -------
TOTAL LIABILITY CONVERSION SWAPS $3,142 1.66 $ 10.2 5.96% 6.59%
====== =======
BASIS PROTECTION SWAPS $ 250 3.20 $ (1.4) 5.77% 5.87%
====== =======
have embedded written LIBOR-based caps. Also, receive fixed liability
conversion swaps with a notional value of $150 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
and are used to protect against changes in spreads. 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
also have embedded written periodic caps.
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 December
31, 1995, Huntington's credit risk from interest rate swaps used for
asset/liability management purposes was $62.5 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
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.
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. At
December 31, 1995, Huntington had deferred approximately $36.5 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 in Table 9.
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 $453 million at December 31, 1995. Total
credit exposure from such contracts, represented by those instruments with a
positive fair value, was $1.1 million at the most recent year end. These
separate activities, which are accounted for at fair value, are not a
- -------------------------------------------------------------------------------
Table 8
- -------------------------------------------------------------------------------
Interest Rate Swap Activity - Notional Values
- -------------------------------------------------------------------------------
(in millions)
- -------------------------------------------------------------------------------
Asset Liability Basis
Conversion Conversion Protection
---------- ---------- ----------
Balance at January 1, 1994 $2,281 $1,821 $ 2,800
Additions 1,063 2,079 350
Maturities/Amortization (236) (568) (100)
Terminations (600) -- (2,050)
------- ------ --------
Balance at December 31, 1994 2,508 3,332 1,000
------- ------ --------
Additions -- 1,140 --
Maturities/Amortization (198) (996) (750)
Terminations (1,195) (334) --
------- ------ --------
Balance at December 31, 1995 $1,115 $3,142 $ 250
======= ====== ========
19
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------------
TABLE 9
- ---------------------------------------------------------------------------------
INTEREST RATE SWAPS - DEFERRED GAINS AND LOSSES
- ---------------------------------------------------------------------------------
(in millions) Amortizing In
- ---------------------------------------------------------------------------------
1996 1997 1998 1999 Total
---- ---- ---- ---- -----
DECEMBER 31, 1995:
Deferred gains $ 15.0 $ 8.3 $ 7.0 $5.7 $ 36.0
Deferred losses (51.4) (19.4) (1.3) (.4) (72.5)
------- ------- ----- ---- -------
Net (losses) gains $(36.4) $(11.1) $ 5.7 $5.3 $(36.5)
======= ======= ===== ==== =======
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.
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The goal
of ALCO in this regard is to maintain an optimum balance of maturities among
Huntington's assets and liabilities such that sufficient cash, or access to
cash, is available at all times to meet the needs of borrowers, depositors, and
creditors, as well as to fund corporate expansion and other activities. A chief
source of Huntington's liquidity is derived from the large retail deposit base
accessible by its extensive network of geographically dispersed banking
offices. Retail deposits and other core funding sources provided approximately
70% or more of all funding needs in both 1995 and 1994. This core funding is
supplemented by Huntington's demonstrated ability to raise funds in capital
markets and to access national funds. Huntington's $4 billion bank note program
is a significant source of wholesale funding. Notes issuable under such
program may range in maturity from 30 days to 15 years, with interest based on
prevailing market rates. At the end of the most recent twelve months, a total
of $2.0 billion of bank notes was outstanding . A similar note program is
available to the parent company, the proceeds from which are used from time to
time to fund certain non-banking activities, finance acquisitions, repurchase
the company's stock, or for other general corporate purposes. Approximately
$175 million was outstanding at year end 1995 in connection with the parent
company program, with $750 million available for future use. Huntington also
has a fully available $200 million line of credit that supports commercial
paper borrowings and other short-term working capital needs.
In addition, Huntington has significant asset liquidity from its portfolio
of securities available for sale, loans that may be securitized and sold, and
maturing investments. ALCO regularly monitors the liquidity position and
ensures that various alternative strategies exist to cover unanticipated
reductions in presently available funding sources. At December 31, 1995,
sufficient liquidity was available to meet Huntington's short-term and
long-term funding needs.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
underwriting standards which emphasize "in-market" lending to established
borrowers. Highly leveraged transactions as well as industry or other
concentrations are avoided. The credit administration function also employs
extensive monitoring procedures to ensure problem loans are promptly identified
and adherence with corporate compliance policies. These procedures provide
executive management with information necessary to implement appropriate change
and take corrective action as needed.
Asset quality continues to be strong. Non-performing assets, which include
loans that are no longer accruing interest, loans that have been renegotiated
based upon financial difficulties of the borrower, and real estate acquired
through foreclosure, totaled $77.0 million at the most recent year end and were
down $19.4 million, or 20.1%, from one year ago. As of December 31, 1995,
non-performing loans represented .41% of total loans and non-performing assets
as a percent of total loans and other real estate were only .58%.
Huntington also has certain loans which are past due ninety days or more but
have not been placed on nonaccrual status. These loans, which total $27.0
million at year end 1995, are primarily consumer and residential real estate
loans that are considered well-secured and in the process of collection. There
were also loans outstanding of $49.0 million and $51.5 million, respectively,
at December 31, 1995 and 1994, that Huntington considers to be potential
- ---------------------------------------------------------------------------------
TABLE 10
- ---------------------------------------------------------------------------------
MATURITIES OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
AS OF DECEMBER 31, 1995 (in thousands of dollars)
- ---------------------------------------------------------------------------------
Three months or less . . . . . . . . . . $529,560
Over three through six months . . . . . . 171,864
Over six through twelve months . . . . . 85,161
Over twelve months . . . . . . . . . . . 122,818
--------
Total . . . . . . . . . . . . . . . . . . $909,403
========
NOTE: All foreign time deposits are denominated in amounts greater than
$100,000.
20
10
- ----------------------------------------------------------------------------------------------------------------------
TABLE 11
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end . . . . . . . . . . . . . . . . . . $2,854,142 $1,442,138 $2,164,752
Weighted average interest rate at year-end . . . . . . 5.12% 4.82% 2.62%
Maximum amount outstanding at month-end during the year $2,854,142 $1,798,524 $2,361,306
Average amount outstanding during the year . . . . . . $2,154,114 $1,374,741 $1,964,282
Weighted average interest rate during the year . . . . 5.77% 3.58% 2.89%
BANK NOTES WITH ORIGINAL MATURITIES OF LESS THAN ONE YEAR
Balance at year-end . . . . . . . . . . . . . . . . . . $ 494,000 $1,264,000 $ 860,000
Weighted average interest rate at year-end . . . . . . 6.17% 5.55% 3.49%
Maximum amount outstanding at month-end during the year $ 1,401,000 $1,364,000 $1,000,000
Average amount outstanding during the year . . . . . . $ 1,127,228 $1,138,280 $ 719,767
Weighted average interest rate during the year . . . . 6.67% 4.48% 3.55%
- ----------------------------------------------------------------------------------------------------------------------
problem credits and is closely monitoring for any further deterioration in
borrower performance.
CAPITAL AND DIVIDENDS
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 the ability to capitalize on business
growth and acquisition opportunities. The company also recognizes the
importance of managing excess capital and continually strives to maintain an
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 over the last twelve
months was 7.89%, compared with 8.38% and 7.22%, respectively, in the two
preceding years. As presented below, the December 31 regulatory
- ----------------------------------------------------------------------------------------------------------------------
TABLE 12
- ----------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
Non-accrual loans . . . . . . . . . . . $ 50,669 $ 41,929 $ 75,933 $ 87,541 $139,024 $ 100,899
Renegotiated loans . . . . . . . . . . . 4,299 2,550 1,254 2,508 5,491 9,447
--------- -------- --------- ---------- -------- ---------
TOTAL NON-PERFORMING LOANS . . . . . . . 54,968 44,479 77,187 90,049 144,515 110,346
--------- -------- --------- ---------- -------- ---------
Other real estate, net . . . . . . . . . 22,026 51,909 62,446 73,130 99,646 57,467
--------- -------- --------- ---------- -------- ---------
TOTAL NON-PERFORMING ASSETS . . . . . . $ 76,994 $ 96,388 $ 139,633 $ 163,179 $244,161 $167,813
========= ======== ========= ========== ======== =========
NON-PERFORMING LOANS AS A % OF
TOTAL LOANS . . . . . . . . . . . . . .41% .36% .70% .95% 1.63% 1.27%
NON-PERFORMING ASSETS AS A % OF
TOTAL LOANS AND OTHER REAL ESTATE . . .58% .78% 1.27% 1.70% 2.72% 1.91%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS . . . . . . . . 353.76% 450.76% 274.44% 170.63% 93.26% 112.03%
ALLOWANCE FOR LOAN LOSSES AND
OTHER REAL ESTATE AS A % OF
NON-PERFORMING ASSETS . . . . . . . . 238.65% 193.13% 143.41% 95.22% 56.53% 74.36%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $27,018 $20,877 $ 25,550 $24,298 $36,270 $30,169
========= ======== ========= ========== ======== =========
ACCRUING LOANS PAST DUE 90 DAYS
OR MORE TO TOTAL LOANS . . . . . . . .20% .17% .23% .26% .41% .35%
NOTE: The amount of interest income which would have been recorded under the
original terms for total loans classified as non-accrual or renegotiated
was $6.0 million in 1995 and $5.6 million in 1994. Amounts actually
collected and recorded as interest income for these loans totalled $0.8
million and $1.7 million, respectively.
21
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
capital ratios exceeded the levels established for "well-capitalized"
institutions:
"Well
1995 1994 Capitalized"
---- ---- -----------
Tier 1 risk-based
capital ratio 8.39% 9.55% 6.00%
Total risk-based
capital ratio 12.03 13.57 10.00
Leverage ratio 6.87 7.99 5.00
Cash dividends declared were $.78 a share in 1995, up 14.7% from the
corresponding amount in 1994 of $.68 per share. A 5% stock dividend was also
distributed to shareholders in 1995.
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 July 1995 stock dividend) through open market purchases and
privately negotiated transactions. The authorization represents a continuation
of the common stock repurchase program begun in August 1987 and provides that
the shares will be reserved for reissue in connection with Huntington's benefit
plans as well as for other corporate purposes. The company acquired 9.6
million shares in 1995 at an aggregate cost of $204.6 million. Approximately
4.7 million of the repurchased shares were reissued in January 1996 in the
acquisition of the Peoples Bank of Lakeland, Florida. As of December 31, 1995,
3.9 million shares were available for repurchase. Huntington's management
believes the majority of these shares will be repurchased in the first half of
1996.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1995 was $65.5 million, or $.49
per share, compared with $52.5 million, or $.39 per share, in the same period
last year. ROA and ROE for the most recent quarter were 1.31% and 17.50%,
respectively, versus 1.22% and 14.78% in the final three months of 1994.
Net interest income was $181.9 million in the quarter just ended versus
$177.3 million in the corresponding period of the prior year. Though spreads
available in the marketplace remained narrow in the latter part of 1995,
evidenced by the 56 basis points quarter-to-quarter drop in the margin, net
interest income was up 2.6% due to increased balance sheet leverage from
Huntington's strong loan growth and larger investment securities portfolio.
The provision for loan losses was $12.1 million in the last quarter of
the year, compared with $2.5 million in the same period of 1994. Net
charge-offs were .53% of average loans in the recent three months, up from .31%
in both the preceding quarter and the final quarter of 1994. The 1995 loss
ratio was adversely affected by a single charge-off totaling $4.9 million.
Non-interest income was $68.4 million and $50.9 million, respectively,
for the three months ended December 31, 1995 and 1994. All major categories
showed increases over the prior year. Securities transactions were not
significant in either period. Included in the fourth quarter 1995 amounts was
a gain of $8.9 million from the sale of Huntington's Pennsylvania bank as well
as a gain of $2.8 million on the sale of residential mortgages from the loan
portfolio.
Non-interest expense totaled $138.8 million in the most recent three
months, down 5.3% from the corresponding period last year. This reduction
resulted largely from a drop in BIF assessment rates, as well as the
restructuring of certain business activities, including the company's mortgage
banking operations.
The provision for income taxes was $33.8 million in the fourth quarter
of 1995, up significantly from $26.5 million in the same period a year ago.
The higher provision relates principally to increased pre-tax earnings.
- -------------------------------------------------------------------------------
Table 13
- -------------------------------------------------------------------------------
Loan Portfolio Composition December 31,
- -------------------------------------------------------------------------------
(in millions of dollars) 1995 1994 1993 1992 1991
Commercial . . . . . . . . . $ 4,190 $ 3,669 $ 3,507 $3,191 $2,960
Real estate
Construction . . . . . . . 368 305 337 379 439
Mortgage . . . . . . . . . 2,756 3,002 2,685 2,252 2,097
Consumer . . . . . . . . . . 5,094 4,642 3,944 3,325 3,061
Lease financing . . . . . . . 854 646 481 368 321
------- ------- ------- ------ ------
TOTAL LOANS . . . . . . $13,262 $12,264 $10,954 $9,515 $8,878
======= ======= ======= ====== ======
- -------------------------------------------------------------------------------
NOTE: There are no loans outstanding which would be considered a concentration
of lending in any particular industry or group of industries.
- -------------------------------------------------------------------------------
Table 14
- -------------------------------------------------------------------------------
Maturity Schedule of Selected Loans
- -------------------------------------------------------------------------------
(in thousands of dollars) December 31, 1995
- -------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------- ---------- -------- ----------
Commercial . . . . . . . . . $2,554,535 $1,243,862 $391,840 $4,190,237
Real estate construction . 161,081 145,251 61,557 367,889
---------- ---------- -------- ----------
Total . . . . . . . . . $2,715,616 $1,389,113 $453,397 $4,558,126
========== ========== ======== ==========
Variable interest rates . . . $1,112,299 $345,454
========== ========
Fixed interest rates . . . . $ 276,814 $107,943
========== ========
- -------------------------------------------------------------------------------
22
12
SELECTED ANNUAL INCOME STATEMENT DATA
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) Year Ended December 31,
1995 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------
TOTAL INTEREST INCOME . . . . $1,461,896 $ 1,219,721 $1,236,311 $ 1,202,286 $1,208,407 $1,266,770
TOTAL INTEREST EXPENSE . . . . 737,333 463,671 440,111 504,846 659,918 780,759
----------- ----------- ---------- ----------- ---------- ----------
NET INTEREST INCOME . . . . . 724,563 756,050 796,200 697,440 548,489 486,011
Provision for loan losses . . . 28,721 15,284 79,294 81,562 62,061 76,434
----------- ----------- ---------- ----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . 695,842 740,766 716,906 615,878 486,428 409,577
----------- ----------- ---------- ----------- ---------- ----------
Service charges on deposit accounts 85,118 76,836 73,172 64,471 57,024 50,559
Mortgage banking . . . . . . . 39,593 50,367 99,185 63,297 41,753 33,949
Trust services . . . . . . . . 30,377 28,448 27,948 25,129 24,435 23,769
Credit card fees . . . . . . . 23,495 20,999 19,381 17,550 16,585 15,025
Investment product sales . . . 8,121 6,624 9,016 5,193 2,548 746
Securities gains . . . . . . . 9,056 2,594 27,189 36,332 16,951 579
Other . . . . . . . . . . . . . 52,630 36,446 37,474 28,680 28,545 30,087
----------- ----------- ---------- ----------- ---------- ----------
TOTAL NON-INTEREST INCOME . . 248,390 222,314 293,365 240,652 187,841 154,714
----------- ----------- ---------- ----------- ---------- ----------
Salaries . . . . . . . . . . . 220,168 226,668 226,405 206,429 175,749 162,621
Commissions . . . . . . . . . . 9,843 10,775 20,992 18,310 9,307 5,908
Employee benefits . . . . . . . 57,790 58,158 55,259 46,596 42,435 37,504
Net occupancy . . . . . . . . . 41,263 40,291 39,955 36,272 33,542 32,464
Equipment . . . . . . . . . . . 38,271 38,792 37,230 34,184 31,735 29,608
FDIC insurance . . . . . . . . 15,056 25,271 25,322 25,500 22,126 12,200
Printing and supplies . . . . . 14,147 14,821 14,721 13,588 12,599 12,625
Credit card . . . . . . . . . . 13,407 13,493 11,835 10,987 9,710 7,354
Advertising . . . . . . . . . . 11,271 15,320 13,259 13,308 10,526 9,460
Legal and loan collection . . . 8,643 8,298 11,361 13,109 10,807 12,471
Other . . . . . . . . . . . . . 135,925 144,719 190,141 204,812 125,615 107,013
----------- ----------- ---------- ----------- ---------- ----------
TOTAL NON-INTEREST EXPENSE . . 565,784 596,606 646,480 623,095 484,151 429,228
----------- ----------- ---------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES . . 378,448 366,474 363,791 233,435 190,118 135,063
Provision for income taxes . . 133,959 123,881 126,879 72,389 56,178 35,298
----------- ----------- ---------- ----------- ---------- ----------
Net Income . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912 $ 161,046 $ 133,940 $ 99,765
=========== =========== ========== =========== ========== ==========
PER COMMON SHARE(1)
Net income . . . . . . . . . $1.78 $1.78 $1.76 $1.21 $1.01 $.75
Cash dividends declared . . $.78 $.68 $.56 $.48 $.44 $.39
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income . . . . . . $ 724,563 $ 756,050 $ 796,200 $ 697,440 $ 548,489 $ 486,011
Tax Equivalent Adjustment(2) . 6,766 9,505 11,670 14,897 18,007 21,321
----------- ----------- ---------- ----------- ---------- ----------
Tax Equivalent Net Interest Income 731,329 765,555 807,870 712,337 566,496 $507,332
=========== =========== ========== =========== ========== ==========
(1)Adjusted for the five percent stock dividend distributed July 31, 1995.
(2)Calculated assuming a 35% tax rate in years 1993 through 1995 and a 34% tax
rate in years 1990 through 1992.
23
13
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES
(ANNUAL DATA)
- -------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis(1) 1995 1994
(in millions of dollars) -------------------------------- ------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- --------------------------------------------- -------------------------------- ------------------------------
ASSETS
Interest bearing deposits in banks . . . . . $ 21 $ 1.3 5.99% $ 4 $ .3 7.57%
Trading account securities . . . . . . . . . 23 1.7 7.29 14 .9 6.16
Federal funds sold and securities purchased
under resale agreements . . . . . . . . . 46 3.0 6.45 115 5.0 4.32
Mortgages held for sale . . . . . . . . . . . 130 9.8 7.58 367 25.9 7.06
Securities:
Taxable . . . . . . . . . . . . . . . . 4,191 281.6 6.72 3,217 198.6 6.17
Tax Exempt . . . . . . . . . . . . . . . 124 12.6 10.30 190 20.5 10.80
-------- -------- ------- --------
Total Securities . . . . . . . . . . . . 4,315 294.2 6.82 3,407 219.1 6.43
-------- -------- ------- --------
Loans
Commercial . . . . . . . . . . . . . . . . 4,049 341.1 8.43 3,565 302.2 8.48
Real Estate
Construction . . . . . . . . . . . . . . 339 29.1 8.58 298 23.1 7.75
Mortgage . . . . . . . . . . . . . . . . 3,070 256.6 8.36 2,786 220.3 7.91
Consumer . . . . . . . . . . . . . . . . . 4,892 434.3 8.88 4,316 354.2 8.21
Lease financing . . . . . . . . . . . . . 731 57.1 7.81 556 40.8 7.34
-------- -------- ------- --------
Total loans . . . . . . . . . . . . . . 13,081 1,118.2 8.55 11,521 940.6 8.16
Allowance for loan losses/loan fees . . 200 40.4 212 37.4
-------- -------- ------- --------
Net loans . . . . . . . . . . . . . . . 12,881 1,158.6 8.86 11,309 978.0 8.49
-------- -------- ------- --------
Total earning assets . . . . . . . . . . 17,616 $1,468.6 8.34% 15,428 $1,229.2 7.97%
-------- -------- ------- --------
Cash and due from banks . . . . . . . . . . . 780 741
All other assets . . . . . . . . . . . . . . 852 793
-------- -------
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 19,048 $16,750
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing . . . . . . . . . . . $ 2,179 $ 2,116
Interest bearing . . . . . . . . . . . . . 2,539 $ 62.2 2.45% 2,713 $ 59.9 2.21%
Savings deposits . . . . . . . . . . . . . . 2,053 56.4 2.75 2,281 49.0 2.15
Certificates of deposit of $100,000 or more . 812 47.1 5.80 607 25.6 4.22
Other domestic time deposits . . . . . . . . 4,383 242.9 5.54 3,523 148.1 4.20
Foreign time deposits . . . . . . . . . . . . 261 17.0 6.50 286 12.2 4.25
-------- -------- ------- --------
Total deposits . . . . . . . . . . . . . . 12,227 425.6 3.48 11,526 294.8 3.13
-------- -------- ------- --------
Short-term borrowings . . . . . . . . . . . . 3,491 212.1 6.08 2,629 106.7 4.06
Long-term debt . . . . . . . . . . . . . . . 1,424 99.6 7.00 928 62.2 6.71
-------- -------- ------- --------
Interest bearing liabilities . . . . . . . 14,963 $ 737.3 4.93% 12,967 $ 463.7 3.58%
-------- -------- ------- --------
All other liabilities . . . . . . . . . . . . 403 264
Shareholders' equity . . . . . . . . . . . . 1,503 1,403
======== =======
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . $ 19,048 $16,750
======== =======
Net interest rate spread . . . . . . . . . . 3.41% 4.39%
Impact of non-interest bearing funds on margin .74% .57%
NET INTEREST INCOME/MARGIN . . . . . . . . . $ 731.3 4.15% $ 765.5 4.96%
======== ========
<FN>
(1)Fully tax equivalent yields are calculated assuming a 35% tax rate in years
1993 through 1995 and a 34% tax rate in years 1990 through 1992. Average loan
balances include non-accruing loans. Loan income includes cash received on
non-accruing loans.
24
14
- -----------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
Interest Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
$ 26 $ 1.1 4.16% $ 81 $ 4.0 4.88% $ 52 $ 3.8 7.32% $ 63 $5.4 8.71%
10 .5 5.04 22 1.2 5.43 27 1.8 6.83 9 .8 8.69
78 2.6 3.36 126 4.9 3.90 152 8.8 5.76 231 18.4 7.94
827 60.2 7.28 681 55.1 8.09 386 34.0 8.80 274 27.0 9.86
4,199 254.9 6.07 3,510 244.9 6.98 2,761 235.5 8.53 2,802 248.9 8.88
260 29.1 11.22 336 31.7 9.43 396 41.6 10.51 458 47.9 10.47
- -------- -------- -------- --------- -------- -------- ------- --------
4,459 284.0 6.37 3,846 276.6 7.19 3,157 277.1 8.78 3,260 296.8 9.10
- -------- -------- -------- --------- -------- -------- ------- --------
3,293 281.3 8.54 3,076 257.6 8.38 2,967 274.3 9.24 2,921 307.9 10.54
368 26.1 7.09 393 26.4 6.71 457 38.2 8.37 547 57.4 10.49
2,473 203.6 8.24 2,145 191.2 8.92 2,036 202.9 9.96 1,947 203.1 10.44
3,575 323.8 9.06 3,190 340.7 10.68 2,904 336.6 11.59 2,710 324.1 11.96
424 34.4 8.11 342 30.8 9.00 314 30.0 9.57 298 29.1 9.75
- -------- -------- -------- --------- -------- -------- ------- --------
10,133 869.2 8.58 9,146 846.7 9.26 8,678 882.0 10.16 8,423 921.6 10.94
194 30.4 144 28.6 131 19.2 100 18.1
- -------- -------- -------- --------- -------- -------- ------- --------
9,939 899.6 8.88 9,002 875.3 9.57 8,547 901.2 10.38 8,323 939.7 11.16
- -------- -------- -------- --------- -------- -------- ------- --------
15,533 $1,248.0 8.03% 13,902 $ 1,217.1 8.75% 12,452 $1,226.7 9.85% 12,260 $1,288.1 10.51%
- -------- -------- -------- --------- -------- -------- ------- --------
693 636 567 670
819 771 725 660
- -------- -------- -------- -------
$ 16,851 $ 15,165 $ 13,613 $13,490
======== ======== ======== =======
$ 2,141 $ 1,749 $ 1,401 $ 1,393
2,662 $ 63.7 2.39% 2,513 $ 76.5 3.05% 2,210 $ 103.3 4.68% 2,070 $ 112.1 5.42%
2,229 57.5 2.58 1,770 64.1 3.62 1,326 64.9 4.89 1,228 61.3 4.99
831 31.1 3.74 1,251 56.7 4.53 1,523 100.1 6.57 1,714 142.8 8.34
3,572 150.3 4.21 4,066 206.8 5.09 4,223 288.5 6.83 3,894 307.1 7.89
455 15.0 3.30 153 5.7 3.73 69 3.8 5.56 40 3.2 7.85
- -------- -------- -------- --------- -------- -------- ------- --------
11,890 317.6 3.26 11,502 409.8 4.20 10,752 560.6 5.99 10,339 626.5 7.00
- -------- -------- -------- --------- -------- -------- ------- --------
2,825 89.4 3.17 2,062 72.9 3.54 1,406 81.2 5.77 1,731 136.5 7.89
640 33.1 5.18 300 22.1 7.36 219 18.4 8.41 20 117.8 8.88
- -------- -------- -------- --------- -------- -------- ------- --------
13,214 $ 440.1 3.33% 12,115 $ 504.8 4.17% 10,976 $ 660.2 6.01% 10,878 $780.8 7.18%
- -------- -------- -------- --------- -------- -------- ------- --------
280 227 259 302
1,216 1,074 977 917
- -------- -------- -------- -------
$ 16,851 $ 15,165 $ 13,613 $13,490
======== ======== ======== =======
4.70% 4.58% 3.84% 3.33%
.50% .54% .71% .81%
$ 807.9 5.20% $ 712.3 5.12% $ 566.5 4.55% $ 507.3 4.14%
======== ========= ======== =========
25
15
MARKET PRICES, KEY RATIOS AND STATISTICS,
NON-PERFORMING ASSETS (QUARTERLY DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY(1) 1995 1994
IV Q III Q II Q I Q IV Q III Q II Q I Q
High . . . . . . . . . . . . . . . . $25 3/8 $23 5/8 $20 1/8 $18 1/8 $18 $20 5/8 $21 1/8 $18 3/8
Low . . . . . . . . . . . . . . . . . 22 3/8 20 1/4 17 1/8 16 1/8 15 7/8 17 1/4 17 16 7/8
Close . . . . . . . . . . . . . . . . 24 22 1/2 19 3/4 17 3/8 16 1/2 17 1/4 19 1/4 17 1/2
Cash dividends declared . . . . . . . .20 .20 .19 .19 .19 .19 .15 .15
<FN>
(1)Restated for the five percent stock dividend distributed July 31, 1995.
Note: Stock price quotations were obtained from NASDAQ.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 1995 1994
MARGIN ANALYSIS -- AS A %
OF AVERAGE EARNING ASSETS(1) IV Q III Q II Q I Q IV Q III Q II Q I Q
Interest income . . . . . . 8.26% 8.37% 8.38% 8.26% 8.11% 7.98% 7.91% 7.86%
Interest expense . . . . . 4.28 4.19 4.17 4.00 3.57 3.09 2.78 2.55
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Margin . . 3.98% 4.18% 4.21% 4.26% 4.54% 4.89% 5.13% 5.31%
RETURN ON
Average total assets . . . 1.31% 1.34% 1.25% 1.23% 1.22% 1.35% 1.64% 1.60%
Average earning assets . . 1.41% 1.45% 1.35% 1.33% 1.32% 1.46% 1.78% 1.73%
Average shareholders' equity 17.50% 17.03% 15.08% 15.08% 14.78% 15.77% 19.43% 19.26%
<FN>
(1)Presented on a fully tax equivalent basis assuming a 35% tax rate.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS 1995 1994
(QUARTER-END)
(in thousands of dollars) IV Q III Q II Q I Q IV Q III Q II Q I Q
Non-accrual loans . . . . $ 50,669 $ 41,997 $ 41,554 $ 41,576 $ 41,929 $ 40,313 $ 61,015 $ 60,060
Renegotiated loans . . . 4,299 4,313 13,424 11,568 2,550 13,547 5,737 8,048
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-PERFORMING LOANS 54,968 46,310 54,978 53,144 44,479 53,860 66,752 68,108
-------- -------- -------- -------- -------- -------- -------- --------
Other real estate, net . 22,026 23,668 24,029 26,558 51,909 51,558 59,157 65,664
-------- -------- -------- -------- -------- -------- -------- --------
Total Non-Performing Assets $ 76,994 $ 69,978 $ 79,007 $ 79,702 $ 96,388 $105,418 $125,909 $133,772
======== ======== ======== ======== ======== ======== ======== ========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS .41% .34% .42% .41% .36% .45% .57% .61%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND
OTHER REAL ESTATE .58% .52% .60% .62% .78% .88% 1.08% 1.20%
ALLOWANCE FOR LOAN LOSSES
AS A % OF NON-PERFORMING
LOANS 353.76% 428.79% 360.62% 378.38% 450.76% 382.41% 318.31% 314.37%
ALLOWANCE FOR LOAN LOSSES
AND OTHER REAL ESTATE AS
A % OF NON-PERFORMING
ASSETS 238.65% 263.26% 234.30% 235.10% 193.13% 181.70% 160.22% 152.27%
ACCRUING LOANS PAST DUE
90 DAYS OR MORE . . . $ 27,018 $ 24,001 $ 20,685 $ 19,771 $ 20,877 $ 24,182 $ 23,464 $ 19,601
======== ======== ======== ======== ======== ======== ======== ========
26
16
SELECTED QUARTERLY INCOME STATEMENT DATA
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
(in thousands of dollars,
except per share amounts) IV Q III Q II Q I Q IV Q III Q II Q I Q
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME . . $381,437 $377,859 $360,203 $342,397 $318,875 $301,724 $297,485 $301,637
TOTAL INTEREST EXPENSE . . 199,551 191,281 180,313 166,188 141,625 118,173 105,403 98,470
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME . . . 181,886 186,578 179,890 176,209 177,250 183,551 192,082 203,167
Provision for loan losses . 12,139 7,187 4,787 4,608 2,488 1,113 3,219 8,464
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 169,747 179,391 175,103 171,601 174,762 182,438 188,863 194,703
-------- -------- -------- -------- -------- -------- -------- --------
Service charges on
deposit accounts . . . . 21,008 21,109 20,487 22,514 19,417 19,628 19,225 18,566
Mortgage banking . . . . . 11,315 9,678 7,959 10,641 8,630 9,246 15,418 17,073
Trust services . . . . . . 7,424 7,312 7,586 8,055 6,686 6,732 6,902 8,128
Credit card fees . . . . . 7,190 5,939 5,467 4,899 5,873 5,846 4,933 4,347
Securities gains (losses) . 302 2,315 6,379 60 (55) 648 203 1,798
Investment product sales. . 2,292 2,159 1,971 1,699 1,307 1,694 1,750 1,873
Other . . . . . . . . . . . 18,830 12,692 10,021 11,087 9,012 9,999 10,553 6,882
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME 68,361 61,204 59,870 58,955 50,870 53,793 58,984 58,667
-------- -------- -------- -------- -------- -------- -------- --------
Salaries . . . . . . . . . 54,695 54,391 54,974 56,108 54,314 57,740 57,535 57,079
Commissions . . . . . . . . 3,149 3,074 1,932 1,688 1,523 3,547 2,624 3,081
Employee benefits . . . . . 12,752 13,958 15,419 15,661 13,091 13,388 15,244 16,435
Net occupancy . . . . . . . 10,459 10,039 10,079 10,686 9,962 10,593 9,621 10,115
Equipment . . . . . . . . . 9,406 9,470 9,593 9,802 10,151 9,651 9,491 9,499
FDIC insurance . . . . . . 1,820 151 6,549 6,536 6,218 5,992 6,530 6,531
Printing and supplies . . . 3,705 3,508 3,362 3,572 3,911 3,734 3,710 3,466
Credit card . . . . . . . . 3,695 3,398 3,196 3,118 3,426 3,777 3,219 3,071
Advertising . . . . . . . . 2,179 3,149 2,912 3,031 4,152 2,684 4,296 4,188
Legal and loan collection . 2,758 1,857 1,905 2,123 3,370 1,719 1,808 1,401
Other . . . . . . . . . . . 34,209 35,855 32,477 33,384 36,498 38,531 33,117 36,573
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 138,827 138,850 142,398 145,709 146,616 151,356 147,195 151,439
-------- -------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 99,281 101,745 92,575 84,847 79,016 84,875 100,652 101,931
Provision for income taxes 33,752 35,808 34,414 29,985 26,520 28,973 33,199 35,189
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME . . . . . . . . $ 65,529 $ 65,937 $ 58,161 $ 54,862 $ 52,496 $ 55,902 $ 67,453 $ 66,742
======== ======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE(1)
Net income . . . . . . . $.49 $.48 $.42 $.39 $.39 $.41 $.49 $.49
Cash dividends declared $.20 $.20 $.19 $.19 $.19 $.19 $.15 $.15
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income . . . . $181,886 $186,578 $179,890 $176,209 $177,250 $183,551 $192,082 $203,167
Tax Equivalent Adjustment(2) 1,523 1,635 1,723 1,885 2,042 2,211 2,545 2,707
-------- -------- -------- -------- -------- -------- -------- --------
Tax Equivalent Net Interest Income $183,409 $188,213 $181,613 $178,094 $179,292 $185,762 $194,627 $205,874
======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1)Adjusted for the five percent stock dividend distributed July 31, 1995.
(2)Calculated assuming a 35% tax rate.
27
17
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) DECEMBER 31, 1995 1994
------------- -------------
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 860,958 $ 885,327
Interest bearing deposits in banks . . . . . . . . . . . . . . . . . . . . 284,393 3,059
Trading account securities . . . . . . . . . . . . . . . . . . . . . . . . 12,924 9,427
Federal funds sold and securities purchased under resale agreements . . . . 197,531 5,329
Mortgages held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 159,705 138,997
Securities available for sale -- at fair value . . . . . . . . . . . . . . 4,721,144 3,304,493
Investment securities -- fair value $69,196 and $474,147, respectively . . 67,604 475,692
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,261,667 12,264,436
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . 194,456 200,492
------------- -------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,067,211 12,063,944
------------- -------------
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 296,465 288,793
Customers' acceptance liability . . . . . . . . . . . . . . . . . . . . . . 56,926 53,883
Accrued income and other assets . . . . . . . . . . . . . . . . . . . . . . 529,737 541,696
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,254,598 $17,770,640
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,088,074 $ 2,169,095
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,772,845 2,646,785
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,207,378 2,227,406
Certificates of deposit of $100,000 or more . . . . . . . . . . . . . . . . 909,403 605,763
Other domestic time deposits . . . . . . . . . . . . . . . . . . . . . . . 4,384,949 3,909,061
Foreign time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,933 406,957
------------- -------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,636,582 11,965,067
------------- -------------
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,514,773 2,898,201
Bank acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . 56,926 53,883
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,103,024 1,214,052
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . 424,428 227,617
------------- -------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,735,733 16,358,820
------------- -------------
Shareholders' equity
Preferred stock -- authorized 6,617,808 shares; none outstanding
Common stock -- without par value; authorized 200,000,000 shares;
issued and outstanding -- 141,402,769 and 131,119,504 shares, respectively 1,056,209 912,318
Less 8,351,978 and 904,739 treasury shares, respectively . . . . . . . . (180,632) (16,577)
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,802 215,084
Net unrealized gains (losses) on securities available for sale . . . . . 40,972 (63,289)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,514 364,284
------------- -------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 1,518,865 1,411,820
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . $ 20,254,598 $17,770,640
============= =============
See notes to consolidated financial statements.
28
18
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts)
YEAR ENDED DECEMBER 31, 1995 1994 1993
----------- ----------- -----------
Interest and fee income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,156,446 $ 975,604 $ 896,932
Securities
Taxable . . . . . . . . . . . . . . . . . . . . . . . . 281,633 198,594 254,795
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . 8,099 13,663 20,268
Mortgages held for sale . . . . . . . . . . . . . . . . . 9,807 25,886 60,188
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,911 5,974 4,128
----------- ----------- -----------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . 1,461,896 1,219,721 1,236,311
----------- ----------- -----------
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 425,631 294,780 317,545
Short-term borrowings . . . . . . . . . . . . . . . . . . 212,110 106,646 89,444
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 99,592 62,245 33,122
----------- ----------- -----------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . 737,333 463,671 440,111
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . 724,563 756,050 796,200
----------- ----------- -----------
Provision for loan losses . . . . . . . . . . . . . . . . . . 28,721 15,284 79,294
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . 695,842 740,766 716,906
----------- ----------- -----------
Total non-interest income . . . . . . . . . . . . . . . . . 248,390 222,314 293,365
Total non-interest expense . . . . . . . . . . . . . . . . . 565,784 596,606 646,480
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE . . . . . . . . . . . 378,448 366,474 363,791
Provision for income taxes . . . . . . . . . . . . . . . . . 133,959 123,881 126,879
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912
=========== =========== ===========
PER COMMON SHARE(1)
Net income . . . . . . . . . . . . . . . . . . . . . . . . $1.78 $1.78 $1.76
Cash dividends . . . . . . . . . . . . . . . . . . . . . . $.78 $.68 $.56
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 137,702,243 136,209,760 134,729,322
See notes to consolidated financial statements.
<FN>
(1) Restated for the five percent stock dividend distributed July 31, 1995.
29
19
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) Net Unrealized
Common Common Treasury Treasury Capital Gains (Losses) Retained
Shares Stock Shares Stock Surplus on Securities Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE -- JANUARY 1, 1993 93,740 $ 634,763 (303) $ (6,069) $ 212,603 -- $ 288,372 $1,129,669
Stock issued for acquisitions . . 1,972 42,052 42,052
Net income . . . . . . . . . . . 236,912 236,912
Cash dividends declared
($.56 per share) . . . . . . . (68,064) (68,064)
Stock options exercised . . . . . 336 8,278 1,049 (6,897) 2,430
10% stock dividend . . . . . . . 8,479 224,544 (18) (224,747) (203)
Treasury shares purchased . . . . (1,447) (36,795) (36,795)
Treasury shares sold:
Shareholder dividend
reinvestment plan . . . . . 408 9,561 353 (59) 9,855
Employee benefit plans . . . . 416 9,735 691 (117) 10,309
Conversion of convertible notes . 36 346 346
Change in valuation allowance
for marketable equity securities 1,098 1,098
Pre-merger transactions
of pooled banks . . . . . . . 184 402 1,472 (4,846) (2,972)
------- ---------- ------- -------- --------- ------- --------- ----------
BALANCE -- DECEMBER 31, 1993 104,411 902,107 (608) (15,290) 216,168 -- 221,652 1,324,637
------- ---------- ------- -------- --------- ------- --------- ----------
Change in accounting method
for securities . . . . . . . . $65,548 1,624 67,172
Stock issued for acquisition. . . 573 9,842 1,318 24,984 (2,026) 32,800
Net income . . . . . . . . . . . 242,593 242,593
Cash dividends declared
($.68 per share) . . . . . . . (93,176) (93,176)
Stock options exercised . . . . . 290 6,625 775 (5,669) 1,731
Five-for-four stock split . . . . 26,088 (160)
Treasury shares purchased . . . . (3,537) (73,634) (73,634)
Treasury shares sold:
Shareholder dividend
reinvestment plan . . . . . . 1,159 26,635 30 (2,151) 24,514
Employee benefit plans . . . . 633 14,103 137 (589) 13,651
Conversion of convertible notes . 48 369 369
Change in net unrealized gains
(losses) on securities
available for sale . . . . . . (128,837) (128,837)
------- ---------- ------- -------- --------- ------- --------- ----------
BALANCE -- DECEMBER 31, 1994 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 . . . . . . . . . . . 244,489 244,489
Cash dividends declared
($.78 per share) . . . . . . . (106,493) (106,493)
Stock options exercised . . . . . 231 4,155 7 (2,809) 1,353
5% stock dividend . . . . . . . . 6,732 140,146 (45) (140,272) (126)
Treasury shares purchased . . . . (9,625) (204,645) (204,645)
Treasury shares sold:
Shareholder dividend
reinvestment plan . . . . . 1,553 28,609 437 (1,114) 27,932
Employee benefit plans . . . . 439 7,826 213 (45) 7,994
Conversion of convertible notes . 41 311 311
Change in net unrealized gains
(losses) on securities
available for sale . . . . . . 105,246 105,246
------- ---------- ------- --------- --------- ------- --------- ----------
BALANCE -- DECEMBER 31, 1995. . . 141,403 $1,056,209 (8,352) $(180,632) $ 235,802 $40,972 $ 366,514 $1,518,865
======= ========== ======= ========= ========= ======= ========= ==========
See notes to consolidated financial statements.
30
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) YEAR ENDED DECEMBER 31, 1995 1994 1993
------------- ------------ ------------
OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses . . . . . . . . . . . . . . . 28,721 15,284 79,294
Provision for depreciation and amortization . . . . . . 68,763 84,215 127,459
Deferred income tax expense (benefit) . . . . . . . . . 26,694 57,329 (30,412)
(Increase) decrease in trading account securities . . . (3,497) 12,537 (20,681)
(Increase) decrease in mortgages held for sale . . . . . (20,708) 893,341 (288,296)
Gain on sale of subsidiary . . . . . . . . . . . . . . . (8,939) -- --
Net gains on sales of securities . . . . . . . . . . . . (9,056) (2,594) (27,189)
(Increase) decrease in accrued income receivable . . . . (23,331) (247) 3,924
Net increase in other assets . . . . . . . . . . . . . . (37,053) (59,397) (63,791)
Increase (decrease) in accrued expenses . . . . . . . . 112,963 (22,033) (8,775)
Net increase (decrease) in other liabilities . . . . . . 879 (46,649) 48,157
------------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . 379,925 1,174,379 56,602
------------- ------------ ------------
INVESTING ACTIVITIES
(Increase) decrease in interest bearing deposits in banks . (281,334) 9,551 152,077
Proceeds from:
Maturities and calls of investment securities . . . . . . 82,082 86,027 308,654
Maturities and calls of securities available for sale . . 216,878 317,031 542,062
Sales of investment securities . . . . . . . . . . . . . . -- -- 252,590
Sales of securities available for sale . . . . . . . . . . 2,653,545 2,316,843 2,306,111
Purchases of:
Investment securities . . . . . . . . . . . . . . . . . . (2,660) (230,676) (239,164)
Securities available for sale . . . . . . . . . . . . . . (3,719,144) (2,146,362) (2,956,527)
Proceeds from sales of loans . . . . . . . . . . . . . . . . 306,105 -- --
Net loan originations, excluding sales . . . . . . . . . . (1,267,185) (1,187,428) (959,314)
Proceeds from disposal of premises and equipment . . . . . . 2,902 1,200 13,035
Purchases of premises and equipment . . . . . . . . . . . . (33,429) (25,938) (56,820)
Proceeds from sales of other real estate . . . . . . . . . . 30,133 44,484 24,169
Net cash received (paid) from purchase/sale of subsidiaries 165,803 2,670 (13,173)
------------- ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES . . . . . . . (1,846,304) (812,598) (626,300)
------------- ------------ ------------
FINANCING ACTIVITIES
Increase (decrease) in total deposits . . . . . . . . . . . 397,675 (240,219) (300,206)
Increase (decrease) in short-term borrowings . . . . . . . . 620,369 (303,287) 517,008
Proceeds from issuance of long-term debt . . . . . . . . . . 1,095,220 475,000 560,961
Payment of long-term debt . . . . . . . . . . . . . . . . . (206,166) (26,415) (278,611)
Dividends paid on common stock . . . . . . . . . . . . . . . (105,520) (87,545) (61,892)
Acquisition of treasury stock . . . . . . . . . . . . . . . (204,645) (73,634) (36,795)
Proceeds from issuance of treasury stock . . . . . . . . . . 37,279 39,896 22,594
------------- ------------ ------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,634,212 (216,204) 423,059
------------- ------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . 167,833 145,577 (146,639)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . 890,656 745,079 891,718
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . $ 1,058,489 $ 890,656 $ 745,079
============= ============ ============
<FN>
NOTE: Huntington made interest payments of $667,712, $451,694, and $430,701 in
1995, 1994, and 1993, respectively. Federal income tax payments were $100,039
in 1995, $97,775 in 1994, and $155,457 in 1993.
See notes to consolidated financial statements.
31
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
NATURE OF OPERATIONS: Huntington Bancshares Incorporated (Huntington) is a
multi-state bank holding company organized under Maryland law in 1966 and
headquartered in Columbus, Ohio. Through its subsidiaries, Huntington conducts
a full-service commercial and consumer banking business and provides other
financial products and services, principally to domestic customers.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Huntington and its subsidiaries and are presented on the basis of
generally accepted accounting principles (GAAP). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been reclassified to conform with the current year's
presentation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in
the financial statements. Actual results could differ from those estimates.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (FAS 121). The Statement prescribes the accounting for the impairment
of long-lived assets and goodwill related to those assets. The new rules
specify when assets should be reviewed for impairment, how to determine whether
an asset or group of assets is impaired, how to measure an impairment loss, and
what financial statement disclosures are necessary. Also prescribed is the
accounting for long-lived assets and identifiable intangibles that a company
plans to dispose of, other than those that are a part of a discontinued
operation. Any impairment of a long-lived asset resulting from management's
review is to be recognized as a component of non-interest expense. The
adoption of FAS 121, which will occur in the first quarter of 1996, is not
expected to have a material effect on Huntington's consolidated financial
statements.
SECURITIES: Debt securities that Huntington has both the positive intent
and ability to hold to maturity are classified as investments and are carried
at amortized cost. Securities purchased with the intention of recognizing
short-term profits are placed in the trading account and carried at fair value.
Securities not classified as investments or trading are designated
available-for-sale and carried at fair value. Unrealized gains and losses on
securities classified as available-for-sale are carried as a separate component
of shareholders' equity. Unrealized gains and losses on securities classified
as trading are reported in earnings. The amortized cost of specific securities
sold is used to compute realized gains and losses.
On November 15, 1995, the FASB issued a Special Report entitled: "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (the Guide). As permitted by the Guide, concurrent with
its adoption in December 1995, Huntington made a one-time reclassification of
securities with an amortized cost of $327.6 million and an unrealized gain of
$1.5 million from the investment category to available-for-sale.
LOANS: Loans are stated at the principal amount outstanding, net of unearned
discount. Interest income on loans is primarily accrued based on principal
amounts outstanding. Income from lease financing is recognized on a basis to
achieve a constant periodic rate of return on the outstanding investment. The
accrual of interest income is discontinued when the collection of principal,
interest, or both is doubtful. When interest accruals are suspended, interest
income accrued in the current period is reversed. 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.
Significant nonrefundable loan fees and certain direct loan origination
costs are deferred and amortized over the term of the loan as a yield
adjustment.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses reflects
management's judgment as to the level considered appropriate to absorb
potential losses inherent in the loan portfolio. This judgment is based on
a review of individual loans, historical loss experience, economic conditions,
portfolio trends, and other factors. The allowance is increased by provisions
charged to earnings and reduced by charge-offs, net of recoveries.
OTHER REAL ESTATE: Other real estate, acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower
of cost or fair value less estimated costs of disposition. At the date of
acquisition, any losses are charged to the allowance for loan losses.
Subsequent write-downs are included in non-interest expense. Realized losses
from disposition of the property and declines in fair value that are
considered permanent are charged to the reserve for other real estate.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for premises and 3
to 10 years for equipment.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are reported at the
lower of cost or aggregate market value primarily as determined by
outstanding commitments from investors.
Huntington adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights"
(FAS 122) during 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 capitalized after adoption of the new
standard. Mortgage servicing rights are amortized on an accelerated basis over
the estimated period of net servicing revenue. Adjustments to reduce amortized
cost to estimated fair value are included in non-interest income or
non-interest expense, as appropriate.
PURCHASE BUSINESS COMBINATIONS: Net assets of entities acquired in
transactions accounted for under the purchase method of accounting are recorded
at estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
generally ranging up to 25 years. Core deposits and other identifiable
acquired
32
22
- -----------------------------------------------------------------------------
intangible assets are amortized on an accelerated basis over their estimated
useful lives.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Huntington uses certain
off-balance sheet financial instruments, principally interest rate swaps, in
connection with its asset/liability management activities. Interest rate
options (including caps and floors), futures, and forwards are also used to
manage interest rate risk. Provided these instruments meet specific criteria,
they are considered hedges and accounted for under the accrual or deferral
methods, as more fully discussed below. Off-balance sheet financial
instruments that do not meet the required criteria are carried on the balance
sheet at fair value with realized and unrealized changes in that value
recognized in earnings. Similarly, if the hedged item is sold or its
outstanding balance otherwise declines below that of the related hedging
instrument, the off-balance sheet product (or applicable excess portion
thereof) is marked-to-market and the resulting gain or loss is included in
earnings.
Accrual accounting is used when the cash flows attributable to the hedging
instrument satisfy the objectives of the asset/liability management strategy.
Huntington uses the accrual method for substantially all of its interest rate
swaps as well as for interest rate options. Amounts receivable or payable
under these agreements are recognized as an adjustment to the interest income
or expense of the hedged item. There is no recognition on the balance sheet
for changes in the fair value of the hedging instrument, except for interest
rate swaps designated as hedges of securities available for sale, for which
changes in fair values are reported in shareholders' equity. Premiums paid for
interest rate options are deferred as a component of other assets and amortized
to interest income or expense over the contract term. Gains and losses on
terminated hedging instruments are also deferred and amortized to interest
income or expense over the remaining life of the hedged item.
Huntington employs deferral accounting when the market value of the hedging
instrument meets the objectives of the asset/liability management strategy and
the hedged item is reported at other than fair value. In such cases, gains and
losses associated with futures and forwards are deferred as an adjustment to
the carrying value of the related asset or liability and are recognized in the
corresponding interest income or expense accounts over the remaining life of
the hedged item.
STATEMENT OF CASH FLOWS: Cash and cash equivalents are defined as "Cash
and due from banks" and "Federal funds sold and securities purchased under
resale agreements."
EARNINGS PER SHARE: Per common share amounts have been calculated based
upon the weighted average number of common shares outstanding in each period,
as adjusted for the five percent stock dividend distributed July 31, 1995.
The dilutive effects of unexercised stock options are not significant.
2. SECURITIES AVAILABLE FOR SALE
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1995 and 1994 were:
- ---------------------------------------------------------------------------
UNREALIZED
----------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
AT DECEMBER 31, 1995
U.S. Treasury . . . . . . . . $ 567,088 $ 5,453 $ 2,663 $ 569,878
Federal Agencies
Mortgage-backed securities . 882,855 18,115 111 900,859
Other agencies . . . . . . . 2,726,471 33,814 2,852 2,757,433
---------- ------- --------- -----------
Total U.S. Treasury
and Federal Agencies . . 4,176,414 57,382 5,626 4,228,170
---------- ------- --------- -----------
Other debt securities . . . . 472,771 13,327 124 485,974
Marketable equity securities. 8,359 -- 1,359 7,000
---------- ------- --------- -----------
Total securities
available for sale . . . $4,657,544 $70,709 $ 7,109 $ 4,721,144
========== ======= ========= ===========
AT DECEMBER 31, 1994
U.S. Treasury . . . . . . . . $ 854,414 $ 475 $ 38,798 $ 816,091
Federal Agencies
Mortgage-backed securities . 501,530 1,473 13,246 489,757
Other agencies . . . . . . . 1,744,122 805 44,498 1,700,429
Total U.S. Treasury
and Federal Agencies. . . . 3,100,066 2,753 96,542 3,006,277
---------- ------- --------- -----------
Other debt securities . . . . 293,686 -- 1,894 291,792
Marketable equity securities. 8,359 -- 1,935 6,424
---------- ------- --------- -----------
Total securities
available for sale. . . . . $3,402,111 $ 2,753 $ 100,371 $ 3,304,493
========== ======= ========= ===========
Amortized cost and fair values by contractual maturity at December 31, 1995
and 1994 were:
- ----------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- ----------------------------------------------------------
AT DECEMBER 31, 1995
Under 1 year . . . . . . . . . $ 238,329 $ 240,713
1-5 years . . . . . . . . . . . 2,289,209 2,322,765
6-10 years . . . . . . . . . . 1,340,200 1,360,798
Over 10 years . . . . . . . . . 781,447 789,868
Marketable equity securities . 8,359 7,000
---------- ----------
Total . . . . . . . . . . . $4,657,544 $4,721,144
========== ==========
AT DECEMBER 31, 1994
Under 1 year . . . . . . . . . $ 556,481 $ 551,937
1-5 years . . . . . . . . . . . 1,281,983 1,254,657
6-10 years . . . . . . . . . . 1,084,241 1,043,878
Over 10 years . . . . . . . . . 471,047 447,597
Marketable equity securities . 8,359 6,424
---------- ----------
Total . . . . . . . . . . . $3,402,111 $3,304,493
========== ==========
Proceeds from sales of securities available for sale were $2.7 billion during
1995 and $2.3 billion in both 1994 and 1993. Gross gains of $12.5 million,
$15.2 million, and $25.9 million were realized in 1995, 1994, and 1993,
respectively. Gross losses totaled $3.5 million in 1995, $12.7 million in
1994, and $2.9 million in 1993.
33
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1995 and 1994 were:
- ----------------------------------------------------------------
UNREALIZED
----------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------
AT DECEMBER 31, 1995
U.S. Treasury . . . . $ 156 -- -- $ 156
States and political
subdivisions . . . 67,448 $1,704 $ 112 69,040
-------- ------ ------ -------
Total investment
securities . . . $ 67,604 $1,704 $ 112 $69,196
======== ====== ====== =======
AT DECEMBER 31, 1994
U.S. Treasury . . . . $ 150 -- -- $ 150
Federal Agencies
Mortgage-backed securities 8,313 $ 23 $ 53 8,283
Other agencies . . . 309,250 97 4,193 305,154
-------- ------ ------ -------
Total U.S. Treasury
and Federal Agencies 317,713 120 4,246 313,587
-------- ------ ------ -------
States and political
subdivisions . . . 153,649 3,996 1,335 156,310
Other securities . . 4,330 -- 80 4,250
-------- ------ ------ -------
Total investment
securities . . . $475,692 $4,116 $5,661 $474,147
======== ====== ====== =======
Amortized cost and fair values by contractual maturity at December 31, 1995
and 1994 were:
- --------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- --------------------------------------------------------
AT DECEMBER 31, 1995
Under 1 year . . . . . . . . . $ 27,340 $ 27,592
1-5 years . . . . . . . . . . . 23,793 24,652
6-10 years . . . . . . . . . . 12,638 13,040
Over 10 years . . . . . . . . . 3,833 3,912
-------- --------
Total . . . . . . . . . . . $ 67,604 $ 69,196
======== ========
AT DECEMBER 31, 1994
Under 1 year . . . . . . . . . $ 58,019 $ 58,738
1-5 years . . . . . . . . . . . 174,962 174,770
6-10 years . . . . . . . . . . 231,792 229,647
Over 10 years . . . . . . . . . 10,919 10,992
-------- --------
Total . . . . . . . . . . . $475,692 $474,147
======== ========
There were no sales of investment securities in 1995 or 1994. Proceeds from
sale of investment securities were $252.6 million in 1993. Gross gains of $5.6
million and gross losses of $1.4 million were realized from such sales.
4. LOANS
At December 31, 1995 and 1994, loans were comprised of the following:
- --------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------
Commercial . . . . . . . . . . . . . $ 4,190,237 $ 3,668,898
Real estate
Construction . . . . . . . . . . . 367,889 304,769
Commercial . . . . . . . . . . . . 1,578,891 1,378,398
Residential. . . . . . . . . . . . 1,176,715 1,624,367
Consumer (net of $11,632 and $11,651
unearned discount, respectively) . 5,094,036 4,641,946
Lease financing . . . . . . . . . . . 853,899 646,058
----------- -----------
Total loans . . . . . . . . . . . $13,261,667 $12,264,436
=========== ===========
Huntington's subsidiaries have granted loans to its officers, directors, and
their associates. Such loans were made in the ordinary course of business at
the banking subsidiaries' normal credit terms, including interest rate and
collateralization, and do not represent more than the normal risk of
collection. These loans to related parties are summarized as follows:
- ----------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------------
Balance, beginning of year. . . . . . . $ 98,225 $ 100,856
Loans made . . . . . . . . . . . . . 12,747 14,069
Repayments . . . . . . . . . . . . . (14,544) (21,066)
Changes due to status of executive
officers and directors. . . . . . 46,210 4,366
-------------- ---------------
Balance, end of year . . . . . . . . . $ 142,638 $ 98,225
============== ===============
5. ALLOWANCE FOR LOAN LOSSES
A summary of the transactions in the allowance for loan losses for the three
years ended December 31 follows:
- ---------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- ---------------------------------------------------------------------
Balance, beginning of year $200,492 $211,835 $153,654
Allowance of assets acquired/other 6,827 1,393 11,241
Loan losses . . . . . . . (55,568) (46,122) (45,592)
Recoveries of loans previously
charged off . . . . . 13,984 18,102 13,238
Provision for loan losses 28,721 15,284 79,294
-------- -------- --------
Balance, end of year . . $194,456 $200,492 $211,835
======== ======== ========
On January 1, 1995, Huntington adopted SFAS 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.
Under FAS 114, $27.1 million of the non-performing loans presented in Table
12 of Management's Discussion and Analysis were considered impaired at December
31, 1995. Included in this amount is $20 million of impaired loans for which
the related allowance for loan losses is $7.3 million and $7.1 million of
impaired loans that as a result of write-downs do not have an allowance for
loan losses. The average recorded investment in impaired loans during the year
ended December 31, 1995, was approximately $26 million.
34
24
6. PREMISES AND EQUIPMENT
At December 31, 1995 and 1994, premises and equipment stated at cost were
comprised of the following:
- ---------------------------------------------------------
(in thousands of dollars) 1995 1994
- ---------------------------------------------------------
Land . . . . . . . . . . . . . $ 47,353 $ 44,445
Buildings . . . . . . . . . . . 222,942 215,708
Leasehold improvements . . . . 80,987 79,350
Equipment . . . . . . . . . . . 265,607 250,049
-------- --------
Total premises and equipment 616,889 589,552
Less accumulated depreciation
and amortization . . . . . . 320,424 300,759
-------- --------
Net premises and equipment . . $296,465 $288,793
======== ========
Depreciation and amortization charged to expense and rental income credited
to occupancy expense were as follows:
- -----------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- -----------------------------------------------------------------
Occupancy expense . . . . . . $11,795 $11,382 $10,720
Equipment expense . . . . . . 17,555 16,588 16,399
------- ------- -------
Total depreciation and amortization $29,350 $27,970 $27,119
======= ======= =======
Rental income credited to
occupancy expense . . . . $11,447 $11,798 $12,264
======= ======= =======
7. SHORT-TERM BORROWINGS
At December 31, 1995 and 1994, short-term borrowings were comprised of the
following:
- ----------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------
Federal funds purchased and securities
sold under agreements to repurchase $2,854,142 $1,442,138
Medium-term bank notes with original
maturities of less than one year 494,000 1,264,000
Medium-term (Parent Company) notes with
original maturities of less than one year 80,000 25,000
Commercial paper . . . . . . . 69,096 50,987
Other . . . . . . . . . . . . . 17,535 116,076
---------- ----------
Total short-term borrowings . . $3,514,773 $2,898,201
========== ==========
Commercial paper is issued by Huntington Bancshares Financial
Corporation, a non-bank subsidiary, with principal and interest guaranteed by
Huntington Bancshares Incorporated (Parent Company).
Huntington has the ability to borrow under a line of credit totaling
$200 million to support commercial paper borrowings or other short-term working
capital needs. Under the terms of agreement, a quarterly fee must be paid and
there are no compensating balances required. The line is cancelable, by
Huntington, upon written notice and terminates September 30, 1997. There were
no borrowings under the line in 1995 or 1994.
Securities pledged to secure public or trust deposits, repurchase
agreements, and for other purposes were $1.5 billion and $1.7 billion at
December 31, 1995 and 1994, respectively.
8. LONG-TERM DEBT
At December 31, 1995 and 1994, long-term debt was comprised of the
following:
- ----------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------
Subordinated Notes, 7 5/8%, maturing in 2003,
face value $150,000 at December 31, 1995
and 1994, net of discount . . . $ 149,518 $ 149,450
Subordinated Notes, 7 7/8%, maturing in 2002,
face value $150,000 at December 31, 1995
and 1994, net of discount . . . 149,121 148,994
Subordinated Notes, 6 3/4%, maturing in 2003,
face value $100,000 at December 31, 1995
and 1994, net of discount . . . 99,753 99,720
Medium Term Bank Notes
maturing through 1997 . . . . . 1,510,000 616,600
Medium Term (Parent Company) Notes
maturing through 1998 . . . . . 95,000 50,000
Federal Home Loan Bank Notes
maturing through 1997 . . . . . 99,000 148,500
Other . . . . . . . . . . . . . . . 632 788
---------- ----------
Total long-term debt . . . . . . . $2,103,024 $1,214,052
========== ==========
PARENT COMPANY OBLIGATIONS:
The 7 7/8% Notes are not redeemable prior to maturity in 2002 and do no
provide for any sinking fund.
The Medium Term Notes had weighted average interest rates of 5.85% and
5.59% at December 31, 1995 and 1994, respectively.
SUBSIDIARY OBLIGATIONS:
The 7 5/8% Notes and the 6 3/4% Notes were both issued by The Huntingto
National Bank in 1993. These Notes are not redeemable prior to maturity in
2003, and do not provide for any sinking fund.
The Medium Term Bank Notes had weighted average interest rates of 5.89%
and 5.68% at December 31, 1995 and 1994, respectively.
The Federal Home Loan Bank Notes mature serially over the period
beginning January 1996 through February 1997 and had a weighted average
interest rate of 6.41% and 6.25% at December 31, 1995 and 1994, respectively.
These advances cannot be prepaid without penalty.
The terms of Huntington's long-term debt obligations contain various
restrictive covenants including limitations on the acquisition of additional
debt in excess of specified levels, dividend payments, and the disposition of
subsidiaries. As of December 31, 1995, Huntington was in compliance with all
such covenants.
Interest rate swaps were used by Huntington to convert the Subordinated
Notes to a variable interest rate. The stated interest rates on certain of the
Medium Term Bank Notes have also been modified by interest rate swaps. At
December 31, 1995, the weighted average effective interest rate on the
synthetically altered Subordinated Notes and Medium Term Bank Notes was 5.82%
and 6.59%, respectively.
The following table summarizes the maturities of Huntington's
long-term debt.
- ---------------------------------------------------------------
Year (in thousands of dollars)
- ---------------------------------------------------------------
1996 . . . . . . . . . . . . . . $ 1,415,275
1997 . . . . . . . . . . . . . . 219,356
1998 . . . . . . . . . . . . . . 70,000
1999 . . . . . . . . . . . . . . --
2000 . . . . . . . . . . . . . . --
2001 and thereafter . . . . . . . 400,000
2,104,631
Discount . . . . . . . . . . . . (1,607)
----------
Total . . . . . . . . . . . . . . $2,103,024
==========
35
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
9. OPERATING LEASES
At December 31, 1995, Huntington and its subsidiaries were obligated under
noncancelable leases for land, buildings, and equipment. Many of these leases
contain renewal options, and certain leases provide options to purchase the
leased property during or at the expiration of the lease period at specified
prices. Some leases contain escalation clauses calling for rentals to be
adjusted for increased real estate taxes and other operating expenses, or
proportionately adjusted for increases in the consumer or other price indices.
The following summary reflects the future minimum rental payments, by year,
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1995.
- ----------------------------------------------------------------
Year (in thousands of dollars)
- ----------------------------------------------------------------
1996 . . . . . . . . . . . . . . . . . . . . $ 19,565
1997 . . . . . . . . . . . . . . . . . . . . 16,759
1998 . . . . . . . . . . . . . . . . . . . . 14,719
1999 . . . . . . . . . . . . . . . . . . . . 13,622
2000 . . . . . . . . . . . . . . . . . . . . 15,223
2001 and thereafter . . . . . . . . . . . . . 124,214
--------
Total Minimum Payments . . . . . . . . . . . $204,102
========
Total minimum lease payments have not been reduced by minimum sublease
rentals of $61.6 million due in the future under noncancelable subleases. The
rental expense for all operating leases, except those with terms of a month or
less, was $23.6 million for 1995, compared with $23.8 million in 1994 and $22.1
million in 1993.
- -------------------------------------------------------------------------------
10. OFF-BALANCE SHEET TRANSACTIONS
In the normal course of business, Huntington is party to financial
instruments with varying degrees of credit and market risk in excess of the
amounts reflected as assets and liabilities in the consolidated balance sheet.
Loan commitments and letters of credit are commonly used to meet the financing
needs of customers, while interest rate swaps, options, futures, and forwards
are an integral part of Huntington's asset/liability management activities. To
a much lesser extent, various financial instrument agreements are entered into
to assist customers in managing their exposure to interest rate fluctuations.
These customer agreements, for which Huntington counters interest rate risk
through offsetting third party contracts, are considered trading activities.
The credit risk arising from loan commitments and letters of credit,
represented by their contract amounts, is essentially the same as that involved
in extending loans to customers, and both arrangements are subject to
Huntington's standard credit policies and procedures. Collateral is obtained
based on management's credit assessment of the customer and, for commercial
transactions, may consist of accounts receivable, inventory, income-producing
properties, and other assets. Residential properties are the principal form of
collateral for consumer commitments.
Notional values of interest rate swaps and other off-balance sheet financial
instruments significantly exceed the credit risk associated with these
instruments and represent contractual balances on which calculations of amounts
to be exchanged are based. Credit exposure is limited to the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. Potential
credit losses are minimized through careful evaluation of counterparty credit
standing, selection of counterparties from a limited group of high quality
institutions, collateral agreements, and other contract provisions. At
December 31, 1995, Huntington's credit risk from these off-balance sheet
arrangements, including trading activities, was approximately $63.6 million.
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1995 and 1994, is presented in the following table:
- -------------------------------------------------------------------------------
(in millions of dollars) 1995 1994
- -------------------------------------------------------------------------------
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial . . . . . . . . . . . $2,857 $2,672
Consumer . . . . . . . . . . . . 2,561 2,169
Other . . . . . . . . . . . . . 360 218
Standby letters of credit . . . . . 424 416
Commercial letters of credit . . . 143 137
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps . . . . . . 4,507 6,840
Purchased interest rate options 600 1,130
Interest rate forwards and futures 231 92
Trading activities
Interest rate swaps . . . . . . 284 303
Interest rate options . . . . . 169 397
Commitments to extend credit generally have short-term, fixed expiration
dates, are variable rate, and contain clauses that permit Huntington to
terminate or otherwise renegotiate the contracts in the event of a significant
deterioration in the customer's credit quality. These arrangements normally
require the payment of a fee by the customer, the pricing of which is based on
prevailing market conditions, credit quality, probability of funding, and other
relevant factors. Since many of these commitments are expected to expire
without being drawn upon, the contract amounts are not necessarily indicative
of future cash requirements. The interest rate risk arising from these
financial instruments is insignificant as a result of their predominantly
short-term, variable rate nature.
Standby letters of credit are conditional commitments issued by Huntington
to guarantee the performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most of
these arrangements mature within two years. Approximately 40% of standby
letters of credit are collateralized, and approximately 85% are expected to
expire without being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments which facilitate customer trade transactions and have maturities of
no longer than ninety days. These instruments are normally secured by the
merchandise or cargo being traded.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount.
Huntington enters into swaps to synthetically alter
36
26
the repricing characteristics of designated earning assets and interest bearing
liabilities and, on a much more limited basis, as an intermediary for
customers. Because only interest payments are exchanged, cash requirements of
swaps are significantly less than the notional amounts.
Interest rate futures are commitments to either purchase or sell a financial
instrument at a future date for a specified price or yield and may be settled
in cash or through delivery of the underlying financial instrument. Forward
contracts, used primarily by Huntington in connection with its mortgage banking
activities, settle in cash at a specified future date based on the differential
between agreed interest rates applied to a notional amount. Huntington also
purchases interest rate options (e.g. caps and floors) to manage fluctuating
interest rates. Premiums paid for interest rate options grant Huntington the
right to receive at specified future dates the amount, if any, by which a
specified market interest rate exceeds the fixed cap rate or falls below the
fixed floor rate, applied to a notional amount. Exposure to loss from interest
rate contracts changes as interest rates fluctuate.
For more detailed information concerning off-balance sheet transactions,
refer to the "Interest Rate Risk Management" section of Management's Discussion
and Analysis.
- -------------------------------------------------------------------------------
11. STOCK OPTION PLANS
Huntington has non-qualified and incentive stock option plans covering key
employees. Under these plans, the exercise price of the options may not be
less than the fair market value of the common stock at the date of grant. As
of December 31, 1995 and 1994, options available for future grants totaled
8,059,586 and 8,729,428, respectively.
Huntington follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) in accounting for its stock options.
Under APB 25, because the exercise price of the options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized by Huntington. All outstanding options are considered common stock
equivalents for purposes of computing primary and fully-diluted earnings per
share.
Activity in the plans for 1995 and 1994 is summarized as follows:
Shares
Under
Option Price Range
- --------------------------------------------------------------------------
Outstanding at January 1, 1994 2,704,647 $ 2.57-$19.67
Granted . . . . . . . . . . 667,654 $ 19.57-$20.12
Exercised (559,578) $ 2.57-$16.50
Cancelled . . . . . . . . . (43,669) $ 7.06-$20.12
-------------------------------
Outstanding at December 31, 1994 2,769,054 $ 2.62-$20.12
- --------------------------------------------------------------------------
Exercisable at December 31, 1994 2,095,425 $ 2.62-$19.67
- --------------------------------------------------------------------------
OUTSTANDING AT JANUARY 1, 1995 2,769,054 $ 2.62-$20.12
GRANTED . . . . . . . . . . 696,300 $ 17.86-$21.44
EXERCISED . . . . . . . . . (352,867) $ 2.62-$20.12
CANCELLED (26,379) $ 13.46-$21.44
-------------------------------
OUTSTANDING AT DECEMBER 31, 1995 3,086,108 $ 6.18-$21.44
- --------------------------------------------------------------------------
EXERCISABLE AT DECEMBER 31, 1995 1,910,428 $ 6.18-$20.12
- --------------------------------------------------------------------------
12. LEGAL CONTINGENCIES
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. The aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
Huntington's consolidated financial position.
- -------------------------------------------------------------------------------
13. EMPLOYEE BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan
covering substantially all employees. The plan provides benefits based upon
length of service and compensation levels. The funding policy of Huntington is
to contribute an annual amount which is at least equal to the minimum funding
requirements but not more than that deductible under the Internal Revenue Code.
Plan assets, held in trust, primarily consist of mutual funds.
The following tables show the funded status of the plan at
December 31, 1995 and 1994, the components of pension cost recognized in 1995,
1994, and 1993, and the assumptions used in determining the benefit liabilities
and costs.
- --------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation . $ 76,711 $ 64,496
=============== ==============
Accumulated benefit obligation $ 82,958 $ 70,172
=============== ==============
Projected benefit obligation . $ 128,642 $ 104,381
Plan assets, at fair value . . 113,029 97,105
--------------- --------------
Projected benefit obligation in excess
of plan assets . . . . . . . 15,613 7,276
Unrecognized transition asset,
net of amortization . . . . 2,940 3,480
Unrecognized net gain . . . . 14,223 14,090
Unrecognized prior service cost (1,636) (1,776)
--------------- --------------
Accrued pension cost . . . . . $ 31,140 $ 23,070
=============== ==============
- -------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- -------------------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE
FOLLOWING COMPONENTS
Service cost--benefits earned
during the period . . . $ 9,399 $ 10,604 $ 7,485
Interest cost on projected
benefit obligation . . . 8,242 7,923 7,060
Net amortization and deferral 15,574 (12,111) (1,292)
Actual (return) loss on plan assets (24,247) 1,899 (7,448)
----------- ------------- -------------
Net pension expense . . . $ 8,968 $ 8,315 $ 5,805
=========== ============= =============
ACTUARIAL ASSUMPTIONS
Discount rate used for year-end
benefit obligations . . 7.50% 8.00% 7.00%
Rate of salary increases 5.00% 5.00% 5.00%
Long-term rate of return
on assets . . . . . . . 8.75% 8.75% 8.75%
Huntington also sponsors an unfunded Supplemental Executive Retirement Plan,
a non-qualified plan that provides certain key officers of Huntington and its
subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1995 and 1994, the accrued pension cost for
this plan totaled
37
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
$8.2 million and $7.0 million, respectively. Pension expense for this plan
was $1.3 million in 1995, $1.2 million in 1994, and $1.0 million in 1993.
Huntington's unfunded defined benefit post-retirement plan provides certain
health care and life insurance benefits to retired employees who have attained
the age of 55 and have at least 10 years of service. For any employee retiring
on or after January 1, 1993, Huntington's contribution is based upon the
employee's number of months of service and is limited to the actual cost of
coverage. The expected cost of providing these post-retirement benefits is
recognized in the financial statements during the employees' active service
period.
Net periodic post-retirement benefit cost included the following
components for the years ended December 31:
- ----------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------
Service cost . . . . . . . . . . . . . . $ 970 $1,458 $ 782
Interest cost . . . . . . . . . . . . . . 2,534 2,853 2,095
Amortization of transition obligation . . 1,261 1,261 1,261
Net amortization and deferral . . . . . . 397 722 -
------ ------ ------
Net periodic post-retirement benefit cost $5,162 $6,294 $4,138
====== ====== ======
The following table sets forth the status of the post-retirement benefit
obligation at December 31:
- ----------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------------
Accumulated post-retirement benefit obligation:
Retirees . . . . . . . . . . . . . . . $ 19,381 $ 20,426
Fully eligible active plan participants 6,309 7,045
Other active plan participants . . . . 10,109 9,805
-------- --------
Total accumulated post-retirement . .
benefit obligation . . . . . . . 35,799 37,276
Unrecognized net gain (loss) . . . . . 2,566 (1,352)
Unrecognized prior service cost . . . . (5,503) (6,320)
Unrecognized transition obligation . . (21,432) (22,693)
-------- --------
Accrued post-retirement benefit cost. $ 11,430 $ 6,911
======== ========
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% and 8.0%, respectively at December
31, 1995 and 1994. The 1995 health care cost trend rate was projected to be
10.75% for pre-65 participants and 9.0% for post-65 participants compared with
11.5% and 9.5% in 1994. These rates are assumed to decrease gradually until
they reach 5.5% in the year 2004 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated post-retirement benefit obligation as
of December 31, 1995, by $1.9 million and the aggregate of the service and
interest components of net periodic post-retirement benefit cost for 1995 by
$200,000.
Huntington has a contributory employee stock purchase plan available to
eligible employees. Employee contributions of up to 6% of eligible
compensation are matched 75% by Huntington. Huntington may also make
additional matching contributions up to an additional 25% of employee
contributions, at the discretion of the Board of Directors. Eligible employees
may contribute in excess of 6% up to an additional 10% on an after tax basis.
These additional contributions are not matched by Huntington. The cost of
providing this plan was $6.6 million in 1995, $8.2 million in 1994, and $6.7
million in 1993.
- --------------------------------------------------------------------------------
14. ACQUISITIONS
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 of the common stock of
Security and Reliance. Both transactions were accounted for as
pooling-of-interests; however, prior year financial statements have not been
restated due to immateriality. On July 16, 1995, Huntington acquired First
Seminole Bank, a $51 million bank headquartered in Lake Mary, Florida for cash
of $8.4 million in a transaction accounted for as a purchase.
In August 1995, Huntington signed a definitive merger agreement with Peoples
Bank of Lakeland (Peoples), a $534 million commercial bank headquartered in
Lakeland, Florida. The acquisition was completed on January 23, 1996, with
Huntington acquiring all of the common shares of Peoples in exchange for 4.7
million shares of Huntington common stock and cash of approximately $46.2
million. The transaction was accounted for as a purchase.
38
28
- --------------------------------------------------------------------------------
15. INCOME TAXES
The following is a summary of the provision for income taxes:
- --------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
Currently payable
Federal .............................. $102,709 $ 62,648 $151,204
State ................................ 4,556 3,904 6,087
-------- -------- --------
Total current ...................... 107,265 66,552 157,291
Deferred tax expense(benefit)
Federal .............................. 26,866 56,624 (29,107)
State ................................ (172) 705 (1,305)
-------- -------- --------
Total deferred ..................... 26,694 57,329 (30,412)
-------- -------- --------
Total provision for income taxes ..... $133,959 $123,881 $126,879
======== ======== ========
Tax expense associated with securities transactions included in the above
amounts was $3.2 million in 1995, $908,000 in 1994, and $9.5 million in 1993.
The following is a reconcilement of income tax expense to the amount
computed at the statutory federal rate of 35%.
- --------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
Pre-tax income computed
at the statutory rate .............. $132,456 $128,266 $127,327
Increases (decreases):
Tax-exempt interest income ......... (4,180) (6,077) (8,236)
State income taxes ................. 2,849 2,996 3,109
Other-net .......................... 2,834 (1,304) 4,679
-------- -------- --------
Provision for income taxes ......... $133,959 $123,881 $126,879
======== ======== ========
The significant components of Huntington's deferred tax assets and
liabilities at December 31, 1995 and 1994 are as follows:
- --------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses ................ $ 59,472 $ 63,380
Allowance for other real estate losses ... 8,122 13,791
Securities ............................... -- 33,711
Pension and other employee benefits ...... 23,722 18,158
Other .................................... 11,471 11,806
-------- --------
Total deferred tax assets .............. 102,787 140,846
Deferred tax liabilities:
Financial instruments .................... 20,465 25,811
Lease financing .......................... 88,938 67,099
Premises and equipment ................... 8,795 7,790
Revalued liabilities-net ................. 4,678 7,779
Securities ............................... 22,061 --
Other .................................... 11,855 8,081
-------- --------
Total deferred tax liabilities ......... 156,792 116,560
-------- --------
Net deferred tax (liability) asset ..... $(54,005) $ 24,286
======== ========
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1995 and 1994.
- -------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) I Q II Q III Q IV Q
- -------------------------------------------------------------------------------
1995
Interest income ................ $342,397 $360,203 $377,859 $381,437
Interest expense ............... 166,188 180,313 191,281 199,551
-------- -------- -------- --------
Net interest income ............ 176,209 179,890 186,578 181,886
-------- -------- -------- --------
Provision for loan losses ...... 4,608 4,787 7,187 12,139
Securities gains ............... 60 6,379 2,315 302
Non-interest income ............ 58,895 53,491 58,889 68,059
Non-interest expense ........... 145,709 142,398 138,850 138,827
-------- -------- -------- --------
Income before income taxes...... 84,847 92,575 101,745 99,281
Provision for income taxes ..... 29,985 34,414 35,808 33,752
-------- -------- -------- --------
Net income ..................... $ 54,862 $ 58,161 $ 65,937 $ 65,529
======== ======== ======== ========
Net income per common share(1).. $.39 $.42 $.48 $.49
- -------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) I Q II Q III Q IV Q
- -------------------------------------------------------------------------------
1994
Interest income ................ $301,637 $297,485 $301,724 $318,875
Interest expense ............... 98,470 105,403 118,173 141,625
-------- -------- -------- --------
Net interest income ............ 203,167 192,082 183,551 177,250
-------- -------- -------- --------
Provision for loan losses ...... 8,464 3,219 1,113 2,488
Securities gains (losses) ...... 1,798 203 648 (55)
Non-interest income ............ 56,869 58,781 53,145 50,925
Non-interest expense ........... 151,439 147,195 151,356 146,616
-------- -------- -------- --------
Income before income taxes ..... 101,931 100,652 84,875 79,016
Provision for income taxes ..... 35,189 33,199 28,973 26,520
-------- -------- -------- --------
Net income ..................... $ 66,742 $ 67,453 $ 55,902 $ 52,496
======== ======== ======== ========
Net income per common share(1).. $.49 $.49 $.41 $.39
<FN>
(1) Restated for the five percent stock dividend distributed July 31, 1995.
- -------------------------------------------------------------------------------
17. REGULATORY RESTRICTIONS
The bank subsidiaries of Huntington are required to maintain reserve
balances with the Federal Reserve Bank. During 1995, the average balances were
$132.5 million.
Payment of dividends to Huntington by its subsidiary banks is subject to
various regulatory restrictions. Regulatory approval is required prior to the
declaration of any dividends in excess of available retained earnings. For
national banks, the amount of dividends that may be declared without regulatory
approval is further limited to the sum of net income for that year and retained
net income for the preceding two years, less any required transfers to surplus.
Huntington's subsidiary banks could, without regulatory approval, declare
dividends in 1996 of approximately $193.9 million plus an additional amount
equal to their net income through the date of declaration.
The subsidiary banks are also restricted as to the amount and type of
loans they may make to Huntington. At December 31, 1995, the subsidiary banks
could lend to Huntington $179 million, subject to the qualifying collateral
requirements defined in the regulations.
39
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
18. NON-INTEREST INCOME
A summary of the components in non-interest income for the three years ended
December 31 follows:
- ------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
---------- -------- --------
Service charges on deposit accounts ... $ 85,118 $ 76,836 $ 73,172
Mortgage banking ...................... 39,593 50,367 99,185
Trust services ........................ 30,377 28,448 27,948
Credit card fees ...................... 23,495 20,999 19,381
Investment product sales .............. 8,121 6,624 9,016
Securities gains ...................... 9,056 2,594 27,189
Other ................................. 52,630 36,446 37,474
---------- -------- --------
TOTAL NON-INTEREST INCOME .......... $ 248,390 $222,314 $293,365
========== ======== ========
- ------------------------------------------------------------------------------
19. NON-INTEREST EXPENSE
A summary of the components in non-interest expense for the three years ended
December 31 follows:
- ------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
---------- -------- --------
Salaries .............................. $ 220,168 $226,668 $226,405
Commissions ........................... 9,843 10,775 20,992
Employee benefits ..................... 57,790 58,158 55,259
Net occupancy ......................... 41,263 40,291 39,955
Equipment ............................. 38,271 38,792 37,230
FDIC insurance ....................... 15,056 25,271 25,322
Printing and supplies ................. 14,147 14,821 14,721
Credit card ........................... 13,407 13,493 11,835
Advertising ........................... 11,271 15,320 13,259
Legal and loan collection ............. 8,643 8,298 11,361
Other ................................. 135,925 144,719 190,141
---------- -------- --------
TOTAL NON-INTEREST EXPENSE ......... $ 565,784 $596,606 $646,480
========== ======== ========
- --------------------------------------------------------------------------------
40
30
- -------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington's financial
instruments are presented below. Certain assets, the most significant being
premises and equipment, do not meet the definition of a financial instrument
and are excluded from this disclosure. Similarly, mortgage servicing rights
and deposit base and other customer relationship intangibles are not considered
financial instruments and are not discussed below. Accordingly, this fair
value information is not intended to, and does not, represent Huntington's
underlying value. Many of the assets and liabilities subject to the disclosure
requirements are not actively traded, requiring fair values to be estimated by
management. These estimations necessarily involve the use of judgment about a
wide variety of factors, including but not limited to, relevancy of market
prices of comparable instruments, expected future cash flows, and appropriate
discount rates.
AT DECEMBER 31, 1995
- ----------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- ----------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets . . . $ 1,342,882 $ 1,342,882
Trading account securities. . . . 12,924 12,924
Mortgages held for sale . . . . 159,705 159,705
Securities . . . . . . . . . . . 4,780,281 4,781,873
Loans . . . . . . . . . . . . . 13,067,211 13,096,826
Customers' acceptance liability . 56,926 56,926
Interest rate contracts:
Asset/liability management . . 11,261 44,465
Customer accommodation . . . . 1,188 1,188
FINANCIAL LIABILITIES:
Deposits . . . . . . . . . . . . (12,636,582) (12,672,505)
Short-term borrowings . . . . . (3,514,773) (3,514,773)
Bank acceptances outstanding. . . (56,926) (56,926)
Long-term debt . . . . . . . . . (2,103,024) (2,132,567)
Interest rate contracts:
Asset/liability management . . -- (33,571)
Customer accommodation . . . . (970) (970)
- ----------------------------------------------------------------------
AT DECEMBER 31, 1994
- ----------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- ----------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets. . . . $ 893,715 $ 893,715
Trading account securities. . . . 9,427 9,427
Mortgages held for sale . . . . . 138,997 138,997
Securities . . . . . . . . . . . 3,782,742 3,781,197
Loans . . . . . . . . . . . . . 12,063,944 11,855,952
Customers' acceptance liability . 53,883 53,883
Interest rate contracts:
Asset/liability management . . 4,768 38,029
Customer accommodation . . . . 12,643 12,643
FINANCIAL LIABILITIES:
Deposits . . . . . . . . . . . . (11,965,067) (11,925,464)
Short-term borrowings . . . . . (2,898,201) (2,898,201)
Bank acceptances outstanding. . . (53,883) (53,883)
Long-term debt . . . . . . . . . (1,214,052) (1,183,634)
Interest rate contracts:
Asset/liability management. . . -- (300,729)
Customer accommodation . . . . (12,351) (12,351)
The terms and short-term nature of certain assets and liabilities
result in their carrying value approximating fair value. These include cash
and due from banks, interest bearing deposits in banks, trading account
securities, federal funds sold and securities purchased under resale
agreements, customers' acceptance liabilities, short-term borrowings, and bank
acceptances outstanding. Loan commitments and letters of credit generally have
short-term, variable rate features and contain clauses which limit Huntington's
exposure to changes in customer credit quality. Accordingly, their carrying
values, which are immaterial at the respective balance sheet dates, are
reasonable estimates of fair value. The following methods and assumptions were
used by Huntington to estimate the fair value of the remaining classes of
financial instruments:
Mortgages held for sale are valued at the lower of aggregate cost or market
value primarily as determined using outstanding commitments from investors.
Accordingly, the carrying amount of mortgages held for sale approximates
fair value.
Fair values of securities available for sale and investment securities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments. The carrying amount and fair value of securities exclude the
fair value of asset/liability management interet rate contracts designated
as hedges of securities available for sale.
For variable rate loans that reprice frequently, fair values are based
on carrying amounts, as adjusted for estimated credit losses. The fair
values for other loans are estimated using discounted cash flow analyses and
employ interest rates currently being offered for loans with similar terms.
The rates take into account the position of the yield curve, as well as an
adjustment for prepayment risk, operating costs, and profit. This value is
also reduced by an estimate of losses inherent in the loan portfolio.
Although not considered financial instruments, lease financing receivables
have been included in the loan totals at their carrying amounts.
The fair values of demand deposits, savings accounts, and money
market deposits are, by definition, equal to the amount payable
on demand. The fair values of fixed rate time deposits are
estimated by discounting cash flows using interest rates currently being
offered on certificates with similar maturities.
The fair values of Huntington's fixed rate long-term debt are based upon
quoted market prices or, in the absence of quoted market prices, discounted
cash flows using rates for similar debt with the same maturities. The
carrying amount of variable rate notes approximates fair value.
The fair values of interest rate swap agreements and other off-balance sheet
interest rate contracts are based upon quoted market prices or prices of
similar instruments, when available, or calculated with pricing models
using current rate assumptions.
41
31
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
21. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (in thousands of dollars) December 31, 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,020 $ 69,767
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,999 6,424
Due from non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,467 102,751
Investment in subsidiaries on the equity method
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,629,910 1,426,888
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,377 48,195
Excess of cost of investment in subsidiaries over net assets acquired . . . . . . . . 23,926 25,159
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,994 15,760
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,952,693 $ 1,694,944
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000 $ 25,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,121 198,994
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,881 25,908
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . 82,826 33,222
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433,828 283,124
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,518,865 1,411,820
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . $ 1,952,693 $ 1,694,944
=========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (in thousands of dollars) YEAR ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $209,201 $167,729 $127,414
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,730 5,245 5,356
Interest from
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,753 2,876 3,759
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,252 2,601 6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 407 824
-------- -------- --------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,747 178,858 137,359
-------- -------- --------
EXPENSE
Interest on borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,298 15,056 13,292
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,182 12,075 15,303
-------- -------- --------
TOTAL EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,480 27,131 28,595
-------- -------- --------
Income before income taxes and equity in undistributed net income of subsidiaries . . 198,267 151,727 108,764
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,936) (8,007) (8,324)
-------- -------- --------
Income before equity in undistributed net income of subsidiaries . . . . . . . . . . 206,203 159,734 117,088
-------- -------- --------
Equity in undistributed net income of
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,638 80,004 117,177
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,648 2,855 2,647
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $244,489 $242,593 $236,912
======== ======== ========
42
32
- --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (in thousands of dollars) YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries . . . . . . . . . . . . . . . . (38,286) (82,859) (119,824)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,707 4,974 2,400
(Gains) losses on sales of securities . . . . . . . . . . . . . . . . . . . . . . . (20) 25 21
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,990) (4,951) (5,400)
(Decrease) increase in other liabilities . . . . . . . . . . . . . . . . . . . . . (10,284) 295 (2,372)
---------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . 189,616 160,077 111,737
---------- --------- --------
INVESTING ACTIVITIES
Proceeds from sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . 431 173 329
Repayments from (advances to) subsidiaries . . . . . . . . . . . . . . . . . . . . . 20,789 (94,968) 94,485
Acquisitions and additional capitalization of subsidiaries . . . . . . . . . . . . . (9,697) (10) (31,944)
---------- --------- --------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES . . . . . . . . . . . . . . . 11,523 (94,805) 62,870
---------- --------- --------
FINANCING ACTIVITIES
Increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 25,000 --
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . 95,000 50,000 --
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,000) (23,184) (100,246)
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,520) (87,545) (61,892)
Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,645) (73,634) (36,795)
Proceeds from issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . 37,279 39,896 22,594
---------- --------- --------
NET CASH USED FOR FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . (172,886) (69,467) (176,339)
---------- --------- --------
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . 28,253 (4,195) (1,732)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . 69,767 73,962 75,694
---------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . $ 98,020 $ 69,767 $ 73,962
========== ========= ========
43
33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OR DIRECTORS AND SHAREHOLDERS
HUNTINGTON BANCSHARES INCORPORATED
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntington
Bancshares Incorporated and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
January 10, 1996
44