1
Exhibit 13
MANAGEMENT'S DISCUSSION and
Analysis of Financial Condition and
Results of Operations
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Table 1
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CONSOLIDATED SELECTED FINANCIAL DATA Year Ended December 31
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(in thousands of dollars, except per share amounts) 1997 1996 1995 1994 1993 1992
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SUMMARY OF OPERATIONS
Total interest income................. $1,981,473 $1,775,734 $1,709,627 $1,418,610 $1,410,401 $ 1,379,949
Total interest expense................ 954,243 880,648 856,860 546,880 514,812 588,591
Net interest income................... 1,027,230 895,086 852,767 871,730 895,589 791,358
Securities gains...................... 7,978 17,620 9,380 2,297 27,316 36,551
Provision for loan losses............. 107,797 76,371 36,712 21,954 84,682 88,213
Net income............................ 292,663 304,269 281,801 276,320 266,925 187,143
PER COMMON SHARE (1)
Net income
Basic.............................. 1.53 1.58 1.42 1.40 1.37 .97
Diluted............................ 1.52 1.57 1.41 1.39 1.35 .96
Cash dividends declared............... .76 .68 .62 .56 .46 .40
Book value at year-end................ 10.56 9.46 9.19 8.29 7.79 6.80
BALANCE SHEET HIGHLIGHTS
Total assets at year-end.............. 26,730,540 24,371,946 23,495,337 20,688,505 20,214,835 18,653,621
Total long-term debt at year-end...... 2,686,039 1,665,531 2,122,202 1,222,114 772,205 489,741
Average long-term debt................ 2,070,667 1,858,372 1,432,280 937,143 651,255 311,507
Average shareholders' equity.......... 1,893,788 1,776,151 1,742,826 1,621,443 1,415,839 1,254,383
Average total assets ................. $25,150,659 $23,374,490 $22,098,785 $19,498,530 $19,340,577 $17,464,877
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KEY RATIOS AND STATISTICS 1997 1996 1995 1994 1993 1992
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MARGIN ANALYSIS--AS A % OF AVERAGE EARNING ASSETS (2)
Interest income......................... 8.52% 8.26% 8.43% 7.99% 8.02% 8.75%
Interest expense........................ 4.08 4.07 4.19 3.04 2.88 3.67
---- ---- ---- ---- ---- ----
NET INTEREST MARGIN........................ 4.44% 4.19% 4.24% 4.95% 5.14% 5.08%
==== ==== ==== ==== ==== ====
RETURN ON
Average total assets.................... 1.16% 1.30% 1.28% 1.42% 1.38% 1.07%
Average earning assets.................. 1.25 1.40 1.38 1.54 1.50 1.17
Average shareholders' equity............ 15.44 17.13 16.17 17.04 18.85 14.92
Dividend payout ratio...................... 49.67 42.22 43.82 38.50 32.47 38.99
Average shareholders' equity to
average total assets.................... 7.53 7.60 7.89 8.32 7.32 7.18
Tier I risk-based capital ratio............ 8.83 8.11 8.66 9.67 9.78 9.50
Total risk-based capital ratio............. 11.68 11.29 12.01 13.32 13.81 12.39
Tier I leverage ratio...................... 7.77% 6.80% 6.99% 7.95% 7.12% 6.84%
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OTHER DATA 1997 1996 1995 1994 1993 1992
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Full-time equivalent employees............. 9,485 9,467 9,083 9,642 9,820 9,437
Banking offices............................ 454 429 406 420 423 416
<FN>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate in years
1993 through 1997 and a 34% tax rate in 1992.
2
MANAGEMENT'S DISCUSSION and
Analysis of Financial Condition and
Results of Operations
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INTRODUCTION
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Reform Act of 1995 to
encourage corporations to provide investors with information about the
company's anticipated future financial performance, goals, and strategies. The
act provides a safe harbor for such disclosure, or in other words, protection
from unwarranted litigation if actual results are not the same as management
expectations.
Huntington Bancshares Incorporated (Huntington) desires to provide its
shareholders with sound information about past performance and future trends.
Consequently, this Annual Report, including the Letter to Shareholders and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements that are subject to numerous
assumptions, risks, and uncertainties. Actual results could diVer materially
from those contained in or implied by The Huntington's statements for a variety
of factors including:
- - changes in economic conditions
- - movements in interest rates
- - competitive pressures on product pricing and services
- - success and timing of business strategies
- - the nature and extent of governmental actions and reforms
- - extended disruption of vital infrastructure.
The management of Huntington encourages readers of this report to understand
forward-looking statements to be strategic objectives rather than absolute
targets of future performance.
POOLING OF INTERESTS
On September 30, 1997, Huntington completed the acquisition of First Michigan
Bank Corporation (First Michigan), a $3.6 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for all of the outstanding common stock
of First Michigan in a pooling-of-interests transaction. First Michigan had
total loans and deposits
TABLE 2
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CHANGE IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES (1)
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
From Previous From Previous
Fully Tax Equivalent Basis (2) Year Due To: Year Due To:
-------------------------------------------------------------------------------------
(in millions of dollars) Volume Yield/Rate Total Volume Yield/Rate Total
- ------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits in banks..... $ (0.3) $ 0.0 $ (0.3) $ (0.7) $ (0.1) $(0.8)
Trading account securities............. (0.4) 0.1 (0.3) (0.4) (0.3) (0.7)
Federal funds sold and securities
purchased under resale agreements... (1.3) (0.1) (1.4) (1.5) (0.3) (1.8)
Mortgages held for sale................ 1.4 0.0 1.4 (1.5) 0.2 (1.3)
Taxable securities..................... 10.0 (3.9) 6.1 33.3 (10.3) 23.0
Tax-exempt securities.................. (2.6) 0.0 (2.6) (4.9) (0.4) (5.3)
Total loans............................ 145.6 56.7 202.3 71.3 (20.6) 50.7
------- ------ ------ ------ ------ -----
TOTAL EARNING ASSETS................ 152.4 52.8 205.2 95.6 (31.8) 63.8
------- ------ ------ ------ ------ -----
Interest bearing demand deposits....... 3.6 0.6 4.2 6.4 5.2 11.6
Savings deposits....................... 7.0 7.1 14.1 5.1 3.3 8.4
Other domestic time deposits........... 22.2 (2.8) 19.4 4.6 5.4 10.0
Certificates of deposit of $100,000 or more 22.6 1.3 23.9 14.5 (3.8) 10.7
Foreign time deposits.................. 4.5 (0.7) 3.8 2.7 (1.3) 1.4
Short-term borrowings.................. (4.3) (6.6) (10.9) (14.3) (20.0) (34.3)
Long-term debt, including capital securities 24.0 (5.0) 19.0 27.5 (11.5) 16.0
------- ------ ------ ------ ------ -----
TOTAL INTEREST BEARING LIABILITIES.. 79.6 (6.1) 73.5 46.5 (22.7) 23.8
------- ------ ------ ------ ------ -----
NET INTEREST INCOME. ............... $ 72.8 $ 58.9 $131.7 $ 49.1 $ (9.1) $40.0
======= ====== ====== ====== ====== =====
<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.
3
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of $2.7 billion and $3.1 billion, respectively, and total equity of $285.8
million at the date of acquisition. In connection with the transaction,
Huntington reported a $35.0 million restructuring charge consisting primarily of
personnel, facilities, and systems costs and incurred $12.2 million of
professional fees and other costs to effect the merger (reported on a combined
basis as "Special Charges"). Other one-time costs related to the First Michigan
acquisition were an additional loan loss provision of $4.8 million and
non-interest expenses of $4.0 million. All financial information appearing in
this report, except dividends per share, has been restated for the pooling of
interests with First Michigan. "Operating" results, as used below, refers to
Huntington's financial performance before the impact of the restructuring and
other merger-related charges.
OVERVIEW
On an operating basis, Huntington's net income was a record $338.9 million in
1997, compared with $304.3 million and $281.8 million in 1996 and 1995,
respectively. Basic (operating) earnings per share were $1.78 in 1997, versus
$1.58 in 1996 and $1.42 in 1995. Reported net income for the year just ended,
including the special charges, was $292.7 million, or $1.53 per share. Per share
amounts for all prior periods have been restated to reflect the ten percent
stock dividend distributed to shareholders in July 1997.
TABLE 3
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LOAN PORTFOLIO COMPOSITION December 31,
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(in millions of dollars) 1997 1996 1995 1994 1993
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Commercial............ $ 5,271 $ 5,130 $ 4,869 $ 4,285 $ 4,047
Real Estate
Construction....... 864 699 524 414 425
Mortgage........... 3,598 3,623 3,552 3,736 3,334
Consumer
Loans.............. 6,463 6,123 5,741 5,214 4,410
Leases............. 1,542 1,183 784 572 411
-------- ------- ------- ------- --------
TOTAL LOANS ..... $ 17,738 $16,758 $15,470 $14,221 $ 12,627
======== ======= ======= ======= ========
NOTE: There are no loans outstanding which would be considered a concentration
of lending in any particular industry or group of industries.
TABLE 4
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MATURITY SCHEDULE OF SELECTED LOANS
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(in thousands of dollars) December 31, 1997
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After One
Within But Within After
One Year Five Years Five Years Total
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Commercial................ $3,021,111 $1,551,162 $698,387 $5,270,660
Real estate -- construction 442,124 316,184 105,327 863,635
---------- ---------- -------- ----------
Total.................. $3,463,235 $1,867,346 $803,714 $6,134,295
========== ========== ======== ==========
Variable interest rates... $1,211,854 $596,453
========== ========
Fixed interest rates...... $ 655,492 $207,261
========== ========
Performance ratios were also strong on an operating basis with return on
average equity (ROE) at 17.88% for 1997, up from 17.13% and 16.18% in the
preceding two years. Return on average assets (ROA) improved to 1.35%, versus
1.30% and 1.28%, respectively, in 1996 and 1995.
Total assets were $26.7 billion at December 31, 1997, up 9.7% from year-end
1996. This growth was largely attributable to an increase in loans, as all major
categories but residential real estate showed higher outstanding balances at the
end of the recent twelve months. The smaller residential mortgage portfolio was
primarily the result of sales in 1997 of adjustable-rate loans that were
expected to experience significant prepayments. Temporary investments
(overnight federal funds sold) and Other assets were also up from last year.
Total deposits grew 9.6% from December 31, 1996, fueled by a 7.4% increase in
core deposits. Core deposits represent Huntington's most significant source of
funding; when combined with other core funding sources, they provide
approximately 70% of Huntington's funding needs.
Huntington's wholesale liability mix changed somewhat during the recent year,
as certain short-term borrowings were replaced upon maturity with floating rate
medium term notes having a contractual term greater than one year (a component
of long-term debt). Huntington also issued $200 million of capital securities in
January 1997 through a special-purpose subsidiary. The capital securities were a
cost-effective means of strengthening Huntington's regulatory capital position.
Shareholders' equity increased 13.4% from one year ago, primarily because of
retained earnings and the common stock issued by Huntington in its acquisition
of Citi-Bancshares, Inc., a $548 million one-bank holding company headquartered
in Leesburg, Florida.
4
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LINES OF BUSINESS
For internal reporting and planning purposes, Huntington segments its
operations into five distinct lines of business: Retail Banking, Corporate
Banking, Dealer Sales, Private Financial Group and Treasury/Other. Line of
business results are determined based upon Huntington's business profitability
reporting system which assigns balance sheet and income statement items to each
of the business segments identified above. This is a dynamic process that
attempts to mirror Huntington's organizational and management structure.
Accordingly, the results are not necessarily comparable with similar information
published by other financial institutions which may define business segments
differently. In addition, methodologies used to assign certain balance sheet,
income statement and overhead items may change as Huntington continues to
refine the data and its allocation assumptions used to present segment data.
A description of each line of business is discussed below:
RETAIL BANKING
Retail banking provides products and services to retail and community
banking business customers. This line of business includes credit cards, equity
loans, mortgage loans, installment loans, and deposit products. These products
and associated services are offered through Huntington's traditional branches,
in-store branches, Access Offices, Direct Bank, and Web Bank.
CORPORATE BANKING
Customers in this segment represent the small, middle-market, and large
corporate banking relationships which use a variety of banking products and
services including commercial loans, asset-based financing, international trade
services, and cash management services. Huntington's capital markets division
also provides alternative financing solutions for larger business clients.
These would include private placement debt and syndicated commercial lending.
EARNINGS CONTRIBUTION
- ---------------------
[PIE CHART]
Retail banking 50%
Corporate banking 22%
Dealer sales 16%
Private financial group 7%
Treasury/Other 5%
DEALER SALES
Dealer sales product offerings relate predominantly to the automotive sector
and include floor plan financing, indirect loans, and leases. The largest
portion of the business associated with this segment comes from customers who
finance through the dealership via Huntington's loan and leasing products.
PRIVATE FINANCIAL GROUP
Huntington's Private Financial Group (PFG) provides an array of products and
services designed to meet the needs of Huntington's higher wealth banking
customers. Revenue is derived through personal trust, asset management,
investment advisory, and other wealth management services. In conjunction with
these services, PFG offers not only Huntington's traditional banking products
but also investment and insurance alternatives. Huntington's Private Financial
Group provides customers with "one-stop shopping" for all their financial
needs.
TREASURY/OTHER
Huntington uses a match-funded transfer pricing system to allocate interest
income and interest expense to its business segments. This approach consolidates
Huntington's interest rate risk management into its Treasury operations. As part
of its overall interest rate risk and liquidity strategy, the Treasury Group
manages a $6 billion investment portfolio. Revenue and expense associated with
these activities are reported in this business unit. Additionally, the
Treasury/Other group also absorbs unassigned equity which may be used to fund
acquisitions or other internal growth initiatives. Costs associated with
intangibles that have not been allocated to the major business lines are housed
here.
EARNINGS CONTRIBUTED BY
BUSINESS SEGMENT
Retail banking provided 50% of Huntington's operating earnings for 1997.
While this group represents only 35% of Huntington's outstanding loan portfolio,
it also generates retail deposits which help to fund the total balance sheet.
The retail banking group earns a "deposit credit" for generating these favorably
priced liabilities. This credit favorably impacts the earnings contribution of
the retail banking operation. Corporate banking includes a lending portfolio
which represents approximately 29% of Huntington's total loans and was
responsible for 22% of operating earnings. Dealer sales contributed 16% to 1997
operating earnings and represents 33% of the loans outstanding. PFG, a very
profitable and growing business segment, generated 7% of the annual operating
earnings mostly driven by its fee-based services. Treasury/Other includes
approximately $8 million of securities gains in 1997 as well as the earnings
stream associated with the Huntington's securities portfolio.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $1,027.2 million in 1997, compared
with $895.1 million and $852.8 million, respectively, in 1996 and 1995. Interest
rate swaps and other off-balance sheet financial instruments used for
asset/liability management purposes provided a benefit of $6.0 million in the
recent year
5
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versus reductions of $52.1 million in 1996 and $55.8 million in 1995. A 10%
increase in average loan volumes also contributed to the increase in net
interest income. The net interest margin, on a fully tax equivalent basis, was
4.44% during the recent twelve months, versus 4.19% and 4.24% in the two
preceding years. The latter percentages were negatively impacted by off-balance
sheet interest rate contracts that reduced the margin by 24 basis points and 27
basis points, respectively, a significant component of which was amortization of
net losses from closed positions. At December 31, 1997, deferred gains and
losses remaining to be amortized were immaterial.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses, including the additional provision of $4.8
million from the First Michigan acquisition, was $107.8 million in 1997, up from
$76.4 million in 1996 and $36.7 million in 1995. Net charge-offs as a percent of
average total loans were .50% and .44%, respectively, in the two most recent
years, compared with .30% in 1995. The higher losses were principally related to
the consumer portfolio, indicative of general market trends.
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, 1997 allocation is not
necessarily indicative of the trend of future loan losses in any particular loan
category.
At the recent year end, the ALL of $258.2 million represented 1.46% of total
loans and covered non-performing loans 3.6 times. When combined with the
allowance for other real estate, it was 294% 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 $342.8 million in 1997, versus $314.1 million and
$275.1 million, respectively, in 1996 and 1995. Excluding securities
transactions, non-interest income increased 13.0% offer last year. Substantially
all major categories showed increases, with particularly strong results in
mortgage banking, electronic banking, and investment product sales. Included
within mortgage banking income is $12.2 million of gains from the aforementioned
sale of residential mortgages.
Huntington also achieved broad-based growth in non-interest income from 1995
to 1996. The "Other" component of non-interest income was higher in 1995 because
of an $8.9 million gain on the sale of Huntington's Pennsylvania bank.
NON-INTEREST EXPENSE
Non-interest expense totaled $803.1 million in the year just ended. On an
operating basis, non-interest expense was $751.9 million, compared with $675.5
million and $662.1 million in the two preceding years. The efficiency ratio for
the recent twelve months improved to 54.9%, versus 56.6% in 1996 and 59.2% in
1995.
Personnel costs (salaries, commissions, and benefits) were up approximately
8.9% from 1996, which is indicative of more full-time equivalent employees and
normal salary adjustments. The increase in the commissions component of
personnel costs represents a change in the way in which Huntington compensates
employees as a result of its proactive selling emphasis. Advertising and
marketing expenses were higher in 1997, as Huntington undertook a major campaign
to promote and solidify brand awareness in its markets. Volume driven expenses,
acquisitions, and new business initiatives also contributed to an increase in
various other components of non-interest expense.
Among the other expenses that showed increases during the recent twelve
months was contract programming, which rose in connection with Huntington's
company-wide commitment to prepare all of its computer systems for the year
2000. The "Year 2000" issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Professional
fees for outside services (primarily programming) as well as internal staff
costs have been, and will continue to be, incurred to alter programs that have
time-sensitive software which may recognize a "00" date as the year 1900 versus
2000. Huntington anticipates substantially all reprogramming will be completed
by December 31, 1998, allowing the opportunity in 1999 to fully test the systems
and make any further refinements that are needed. The failure of certain third
parties to adequately address Year 2000 could adversely impact Huntington.
Consequently, Huntington is communicating with customers, suppliers, and others
to identify any potential problems. During 1997, Huntington expensed as incurred
$3.1 million of contract programming costs for the Year 2000 project. An
additional $10.0 million of these costs is expected to be incurred in the future
to get Huntington's systems fully compliant. However, none of these costs is
expected to materially impact Huntington's results of operations in any one
period.
In 1996, non-interest expense increased only 2.0% when comparing results with
the immediately preceding year. Two Florida banks acquired under the purchase
method of accounting represented $11.1 million of the overall increase.
Excluding this amount, non-interest expense would have been flat between the two
periods. FDIC insurance was down significantly, as Huntington benefited from the
reduction in assessment rates on bank deposits that occurred in the latter part
of 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes was $166.5 million in 1997, compared with
$153.0 million in 1996 and $147.3 million in 1995. Huntington's effective tax
rate increased to 36.3%, versus 33.5% and 34.3% in the two preceding years. The
higher rate in 1997 was primarily a result of various nondeductible expenses
incurred in connection with the First Michigan and other bank acquisitions.
6
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TABLE 5
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SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
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(in thousands of dollars) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR ...... $ 230,778 $ 222,487 $ 225,225 $ 233,123 $ 173,241 $ 153,038
LOAN LOSSES
Commercial ..................................... (23,276) (23,904) (15,947) (11,450) (21,643) (30,165)
Real estate
Construction ................................ (375) -- (392) (5,957) (432) (14,001)
Mortgage .................................... (2,663) (2,768) (5,086) (5,840) (3,642) (8,253)
Consumer
Loans ....................................... (74,761) (59,843) (39,000) (27,283) (24,036) (29,156)
Leases ...................................... (9,648) (4,492) (1,989) (962) (1,084) (872)
--------- --------- --------- --------- --------- ---------
Total loan losses .............................. (110,723) (91,007) (62,414) (51,492) (50,837) (82,447)
--------- --------- --------- --------- --------- ---------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial ..................................... 4,373 4,884 3,696 8,204 3,922 4,077
Real estate
Construction ................................ 111 556 5 1 6 --
Mortgage .................................... 619 1,402 977 859 407 286
Consumer
Loans ....................................... 16,382 13,457 11,156 10,830 10,216 9,339
Leases ...................................... 1,057 721 303 353 245 222
--------- --------- --------- --------- --------- ---------
Total recoveries of loans previously charged off 22,542 21,020 16,137 20,247 14,796 13,924
--------- --------- --------- --------- --------- ---------
NET LOAN LOSSES ................................... (88,181) (69,987) (46,277) (31,245) (36,041) (68,523)
--------- --------- --------- --------- --------- ---------
PROVISION FOR LOAN LOSSES ......................... 107,797 76,371 36,712 21,954 84,682 88,213
ALLOWANCE ACQUIRED/OTHER .......................... 7,777 1,907 6,827 1,393 11,241 513
--------- --------- --------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR ............ $ 258,171 $ 230,778 $ 222,487 $ 225,225 $ 233,123 $ 173,241
========= ========= ========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses ................................ 0.50% 0.44% 0.30% 0.23% 0.31% 0.65%
Provision for loan losses ...................... 0.61% 0.48% 0.24% 0.16% 0.72% 0.83%
Allowance for loan losses as a %
of total loans (end of period) ................. 1.46% 1.38% 1.44% 1.58% 1.85% 1.57%
Net loan loss coverage (1) ........................ 6.43X 7.62x 10.07x 13.86x 13.52x 5.18x
<FN>
(1) Income before income taxes and the provision for loan losses to net loan
losses.
- --------------------------------------------------------------------------------
TABLE 6
- ----------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
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............ $ 86,439 29.7% $113,555 30.6% $119,200 31.5% $133,542 30.1% $148,804 32.0%
Real estate
Construction....... 8,140 4.9 2,033 4.2 2,258 3.4 1,454 2.9 2,059 3.4
Mortgage........... 38,598 20.3 18,987 21.6 18,179 23.0 20,601 26.3 21,128 26.4
Consumer..............
Loans.............. 75,405 36.4 54,564 36.5 43,880 37.1 36,315 36.7 31,905 34.9
Leases............. 6,631 8.7 3,457 7.1 3,651 5.0 2,632 4.0 1,800 3.3
Unallocated........... 42,958 -- 38,182 -- 35,319 -- 30,681 -- 27,427 --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total................. $258,171 100.0% $230,778 100.0% $222,487 100.0% $225,225 100.0% $233,123 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
7
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TABLE 7
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INVESTMENT SECURITIES December 31,
- ----------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------
U.S Treasury and Federal Agencies......... $ 656 $111,559 $ 168,819
States and political subdivisions......... 32,354 233,458 245,482
Other..................................... -- 118 2,530
------- -------- ---------
Total Investment Securities............... $33,010 $345,135 $ 416,831
======= ======== =========
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AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1997
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- ----------------------------------------------------------------------------------
U.S Treasury and Federal Agencies
1-5 years.............................. $ 656 $ 656 6.57%
------- --------
Total................................ 656 656
------- --------
States and political subdivisions
Under 1 year........................... 6,311 6,310 9.10
1-5 years.............................. 13,592 13,719 7.89
6-10 years............................. 9,605 9,788 7.91
offer 10 years.......................... 2,846 2,910 9.10
------- --------
Total................................ 32,354 32,727
------- --------
Total Investment Securities............... $33,010 $ 33,383
======= ========
<FN>
(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.
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. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty settlement, and market risks.
On and off-balance sheet strategies and tactics are reviewed and monitored
regularly by ALCO to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing the business
flows onto the balance sheet, wholesale investment and funding, and the changing
market and business environment. Effective management of interest rate risk
begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses
a variety of global markets -- money, bond, futures, and options -- as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process. A key
element in this process is Huntington's estimation of the amount that net
interest income will change offer a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet financial
instruments, accounting for significant variables that are believed to be
affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, cash flows of loans and deposits, principal
amortization on revolving credit instruments, and balance sheet growth
assumptions. The model also captures embedded options, e.g. interest rate
caps/floors or call options, and accounts for changes in rate relationships as
various rate indices lead or lag changes in market rates. While these
assumptions are inherently uncertain, management assigns probabilities and,
therefore, believes that, at any point in time, the model provides a reasonably
accurate estimate of Huntington's interest rate risk exposure. Management
reporting of this information is regularly shared with the Board of Directors.
At December 31, 1997, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be relatively unchanged by a
100 basis points increase or a 100-200 basis points decrease in the federal
funds rate (assuming the change occurs evenly offer the next year and that
corresponding changes in other market rates occur as forecasted). Net interest
income would be expected to decrease 1.6% if rates rose 200 basis points.
Active interest rate risk management necessitates the use of various types of
off-balance sheet financial instruments, primarily interest rate swaps. Risk
that is created by different indices on products, by unequal terms to maturity
of assets and liabilities, and by products that are appealing to customers but
incompatible with current risk limits can be eliminated or decreased in a cost
efficient manner by utilizing interest rate swaps. Often, the swap strategy has
enabled Huntington to lower the overall cost of raising wholesale funds.
Similarly, financial futures, interest rate caps and floors, options, and
forward rate agreements are used to control financial risk effectively.
off-balance sheet instruments are often preferable to similar cash instruments
because, though performing identically, they require less capital while
preserving access to the marketplace.
Table 9, on page 22 of the 1997 Annual Report, 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. As
is the case with cash securities, the market value of interest rate swaps is
largely a function of the financial market's expectations regarding the future
direction of interest rates. Accordingly, current market values are not
necessarily indicative
8
- ------------------------------------------------------------------------------
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.
With respect to the variable rate information and the indexed amortizing swap
maturities presented in Table 9, management made no assumptions regarding future
changes in interest rates.
The pay rates on Huntington's receive-fixed swaps vary based on movements in
the applicable London interbank offered rate (LIBOR). Receive-fixed asset
conversion swaps and receive-fixed liability conversion swaps with notional
values of $200 million and $300 million, respectively, have embedded written
LIBOR-based call options. Also, receive-fixed liability conversion swaps with a
notional value of $150 million have embedded written LIBOR-based caps. The
portfolio of amortizing swaps consists primarily of contracts that are indexed
to the prepayment experience of a specified pool of mortgage loans. As market
interest rates change, the amortization of the notional value of the swap will
also change, generally slowing as rates increase and accelerating when rates
fall. Basis swaps are contracts which provide for both parties to receive
interest payments according to different rate indices and are used to protect
against changes in spreads between market rates. The receive and pay amounts
applicable to Huntington's basis swaps are based predominantly on LIBOR.
The notional values of the swap portfolio represent contractual amounts on
which interest payments to be exchanged are based. These notional values do not
represent direct credit exposures. At December 31, 1997, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$66.5 million, which represents the sum of the aggregate fair value of positions
that have become favorable to Huntington, including any accrued interest
receivable due from counterparties. In order to minimize the risk that a swap
counterparty will not satisfy its interest payment obligation under the terms of
the contract, Huntington performs credit reviews on all counterparties,
restricts the number of counterparties used to a select group of high quality
institutions, obtains collateral, and enters into formal netting arrangements.
Huntington has never experienced any past due amounts from a swap counterparty
and does not anticipate nonperformance in the future by any such counterparties.
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 $179 million at December 31, 1997. Total credit
exposure from such contracts is not material. These separate activities, which
are accounted for at fair value, are not a significant part of
TABLE 8
- -------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
- -------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- -------------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies ... $5,001,034 $4,714,821 $4,519,310
Other Securities ..................... 708,780 494,572 531,522
---------- ---------- ----------
Total Securities Available for Sale $5,709,814 $5,209,393 $5,050,832
========== ========== ==========
- -------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1997
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- -------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year ...................... $ 1,001 $ 1,012 7.13%
1-5 years ......................... 409,364 407,936 5.60
6-10 years ........................ 320,497 320,726 5.77
---------- ----------
Total ........................... 730,862 729,674
---------- ----------
Federal Agencies
Mortgage-backed securities
Under 1 year .................... 2,223 2,216 6.68
1-5 years ....................... 169,877 170,177 6.54
6-10 years ...................... 497,496 494,016 6.28
offer 10 years .................. 698,906 705,031 6.70
---------- ----------
Total ......................... 1,368,502 1,371,440
---------- ----------
Other agencies
Under 1 year .................... 984 992 8.29
1-5 years ....................... 1,590,592 1,594,409 6.26
6-10 years ...................... 787,682 792,359 6.63
offer 10 years .................. 509,713 512,160 6.67
---------- ----------
Total ......................... 2,888,971 2,899,920
---------- ----------
Total U.S. Treasury and
Federal Agencies .................. 4,988,335 5,001,034
---------- ----------
Other Securities
Under 1 year ...................... 13,940 13,925 9.78
1-5 years ......................... 211,943 214,772 7.30
6-10 years ........................ 199,849 205,771 8.15
offer 10 years .................... 210,688 213,183 5.53
Marketable equity securities ...... 62,164 61,129 5.61
---------- ----------
Total ........................... 698,584 708,780
---------- ----------
Total Securities Available for Sale .. $5,686,919 $5,709,814
========== ==========
At December 31, 1997, Huntington had no concentrations of securities by a single
issuer in excess of 10% of shareholders' equity.
(1) Weighted average yields were calculated on the basis of amortized cost.
9
- --------------------------------------------------------------------------------
Huntington's operations. Accordingly, they have been excluded from the above
discussion of off-balance sheet financial instruments and the related table.
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The
objective 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 network of geographically dispersed banking
Offices. This core funding is supplemented by Huntington's demonstrated ability
to raise funds in capital markets and to access funds nationwide. Huntington's
$6.75 billion domestic note and $2 billion European note programs are
significant sources of wholesale funding. Under these programs, unsecured senior
and subordinated notes are issuable with maturities ranging from one month to
thirty years. At year-end 1997, $6.8 billion of notes were available to fund
Huntington's future activities. As mentioned previously, Huntington raised $200
million in 1997 through the sale of capital securities by its wholly-owned
subsidiary, Huntington Capital I. A $200 million line of credit is also
available to support commercial paper borrowings and other short-term working
capital needs.
While liability sources are many, significant liquidity is also available
from Huntington's investment and loan portfolios. ALCO regularly monitors the
overall liquidity position of the business and ensures that various alternative
strategies exist to coffer unanticipated events. At December 31, 1997,
sufficient liquidity was available to meet estimated short-term and long-term
funding needs.
TABLE 9
- -----------------------------------------------------------------------------------
INTEREST RATE SWAP PORTFOLIO
- -----------------------------------------------------------------------------------
(in millions of dollars) December 31, 1997
- -----------------------------------------------------------------------------------
Average
Notional Maturity Market Average Rate
Value (years) Value Receive Pay
- -----------------------------------------------------------------------------------
ASSET CONVERSION SWAPS
Receive fixed................. $ 450 1.60 $(0.3) 6.13% 5.84%
Receive fixed-amortizing...... 92 0.25 (0.1) 5.27 5.84
------ -----
TOTAL ASSET CONVERSION SWAPS.. $ 542 1.37 $(0.4) 5.98% 5.84%
====== =====
LIABILITY CONVERSION SWAPS
Receive fixed................. $1,580 2.01 $25.1 6.41% 5.86%
Receive fixed-amortizing...... 187 1.50 (0.7) 5.63 5.97
Pay fixed..................... 150 1.64 (0.1) 5.86 5.56
------ -----
TOTAL LIABILITY CONVERSION SWAPS $1,917 1.93 $24.3 6.29% 5.85%
====== =====
BASIS PROTECTION SWAPS........ $ 735 1.17 $(0.1) 5.89% 5.77%
====== =====
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of consistent
underwriting standards that emphasize "in-market" lending to established
borrowers. Highly leveraged transactions and excessive industry or other
concentrations are avoided. The credit administration function also employs
extensive monitoring procedures to ensure problem loans are promptly identified
and that loans adhere to corporate policy. These procedures provide executive
management with the information necessary to implement appropriate change and
take corrective action as needed.
Asset quality continues to compare favorably with Huntington's peers in the
banking industry. Non-performing assets, consisting of loans that are no longer
accruing interest, loans that have been renegotiated based upon financial
difficulties of the borrower, and real estate acquired through foreclosure,
totaled $87.2 million at the most recent year end. As of this same date,
non-performing loans represented .40% of total loans and non-performing assets
as a percent of total loans and other real estate were only .49%. Loans past due
ninety days or more but continuing to accrue interest (primarily consumer and
residential real estate) were $49.6 million.
There were also loans outstanding of $54.2 million and $50.7 million,
respectively, at December 31, 1997, and 1996, that were current as to principal
and interest which Huntington considered to be potential problem credits. These
loans are closely monitored 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 business growth and acquisition
opportunities. Huntington also recognizes the importance of managing excess
capital and continually strives to maintain an appropriate balance between
capital adequacy and returns to shareholders. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
10
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 10
- ----------------------------------------------------------------------------------------------------------------------------
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 OR MORE AS OF DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
- ----------------------------------------------------------------------------------------------------------------------------
Three months or less...................................................................................... $ 932,440
offer three through six months............................................................................. 380,370
offer six through twelve months............................................................................ 438,106
offer twelve months........................................................................................ 152,741
-----------
Total..................................................................................................... $ 1,903,657
===========
TABLE 11
- -------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end.................................... $3,064,344 $3,309,445 $2,962,252
Weighted average interest rate at year-end............. 5.26% 5.21% 5.06%
Maximum amount outstanding at
month-end during the year........................... $3,387,690 $3,309,445 $2,968,772
Average amount outstanding during the year............. $2,733,764 $2,766,185 $2,264,330
Weighted average interest rate during the year......... 5.15% 5.16% 5.68%
TABLE 12
- ----------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS December 31,
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Non-accrual loans........................ $ 65,981 $ 55,040 $ 55,423 $ 47,524 $ 81,310 $ 95,842
Renegotiated loans....................... 5,822 4,422 5,320 3,768 3,080 3,500
--------- -------- -------- ---------- ---------- ----------
TOTAL NON-PERFORMING LOANS............... 71,803 59,462 60,743 51,292 84,390 99,342
--------- -------- -------- ---------- ---------- ----------
Other real estate, net................... 15,343 17,208 23,598 54,153 66,578 75,266
--------- -------- -------- ---------- ---------- ----------
TOTAL NON-PERFORMING ASSETS.............. $ 87,146 $ 76,670 $ 84,341 $ 105,445 $ 150,968 $ 174,608
========= ======== ======== ========== ========== ==========
NON-PERFORMING LOANS AS A % OF TOTAL LOANS 0.40% 0.35% 0.39% 0.36% 0.67% 0.90%
NON-PERFORMING ASSETS AS A % OF TOTAL LOANS
AND OTHER REAL ESTATE................. 0.49% 0.46% 0.54% 0.74% 1.19% 1.58%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS.................. 359.55% 388.11% 366.28% 439.10% 276.24% 174.39%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 294.32% 297.12% 250.06% 199.12% 146.25% 99.35%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE.. $ 49,608 $ 39,267 $ 30,937 $ 23,753 $ 28,623 $ 29,567
========= ======== ======== ========== ========== ==========
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
TO TOTAL LOANS........................ 0.28% 0.23% 0.20% 0.17% 0.23% 0.27%
NOTE: For 1997, the amount of interest income which would have been recorded
under the original terms for total loans classified as non-accrual or
renegotiated was $7.8 million. Amounts actually collected and recorded as
interest income for these loans totaled $0.8 million.
11
- --------------------------------------------------------------------------------
Huntington's ratio of average equity to average assets offer the last twelve
months was 7.53%, compared with 7.60% and 7.88%, respectively, in the two
preceding years. Largely as a result of the sale of capital securities by its
special-purpose subsidiary, Huntington showed improvement during the recent
year in each of the key regulatory capital ratios. In addition, its bank
subsidiaries had regulatory capital ratios in excess of the levels established
for "well-capitalized" institutions.
Cash dividends declared were $.76 per share in 1997, up 11.8% from the
corresponding amount in 1996 of $.68 per share. A 10% stock dividend was also
distributed to shareholders in the year just ended, marking the twenty-fourth
consecutive year in which Huntington has issued a stock split or stock dividend.
On February 21, 1996, the Board of Directors authorized Huntington to
repurchase up to 12.1 million additional shares of its common stock (as adjusted
for subsequent stock dividends) through open market purchases and privately
negotiated transactions. The authorization represents a continuation of the
common stock repurchase program begun in August 1987 and provides that the
shares will be reserved for reissue in connection with Huntington's dividend
reinvestment and employee benefit plans as well as for other corporate purposes.
Huntington purchased 1.9 million shares in 1997 at an aggregate cost of $56.2
million, leaving 2.6 million shares available for repurchase. Upon announcement
of the merger with First Michigan, Huntington suspended its common stock
repurchase program. The program was temporarily reactivated for the limited
purpose of acquiring shares for reissue in the purchase business combination
with The Bank of Winter Park, a $90 million institution headquartered in Winter
Park, Florida. With the closing of the Winter Park acquisition in October 1997,
the common stock repurchase program was again suspended.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1997 was a record $90.6 million,
compared with $79.1 million in the same period last year. Basic earnings per
share were $.47, versus $.42 per share one year ago. ROE and ROA for the most
recent quarter were 18.23% and 1.41%, respectively, up from 17.69% and 1.32% in
the final three months of 1996.
Net interest income was $259.6 million in the recent quarter, an increase of
13.3% offer the corresponding period of the prior year. An improved margin,
coupled with growth in average earning assets (principally loans), drove the
increase.
The provision for loan losses was $26.2 million in the last quarter of the
year, compared with $25.0 million in the same period of 1996. Net charge-offs
(annualized) were .61% of average loans in the recent three months, virtually
unchanged from .60% in the final quarter one year ago.
Non-interest income, excluding securities gains, was $87.5 million for the
three months ended December 31, 1997, an increase of 18.3% from the fourth
quarter of the preceding year. Similar to the full year results, improvements
occurred across most of the major categories.
Non-interest expense totaled $188.5 million in the most recent three months,
versus $165.0 million in the final quarter of 1996. The increase was primarily
attributable to the same items referred to above in the discussion of annual
results.
PENDING ACQUISITION
In December 1997, Huntington announced that it was the successful bidder for
60 banking Offices in Florida to be sold by NationsBank Corporation in
connection with the merger of NationsBank and Barnett Banks Inc. These Offices
are in what Huntington believes to be very good markets and complement nicely
its existing presence in central and west coast Florida. In addition to its
assumption of $2.6 billion of low cost core deposits, Huntington is purchasing
approximately $1.6 billion of high quality loans. The deposit premium, which is
subject to final determination based on the deposit levels at the closing of the
transaction, is projected to be $523 million, using the latest information
available from NationsBank. To preserve its strong capital base, Huntington
expects to issue $300 million of common stock and another $250 million of
capital securities on or before the closing of the branch purchase in mid-1998.
The new capital amounts are estimates only and could change based on
Huntington's asset growth, the ultimate deposit premium paid, and other
developments offer the next few months.
12
Selected ANNUAL INCOME STATEMENT Data
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
except per share amounts) 1997 1996 1995 1994 1993 1992
- --------------------------------------- ---------- --------- ---------- ---------- ---------- ----------
TOTAL INTEREST INCOME.................. $1,981,473 $1,775,734 $ 1,709,627 $1,418,610 $1,410,401 $1,379,949
TOTAL INTEREST EXPENSE................. 954,243 880,648 856,860 546,880 514,812 588,591
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME.................... 1,027,230 895,086 852,767 871,730 895,589 791,358
Provision for loan losses.............. 107,797 76,371 36,712 21,954 84,682 88,213
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........... 919,433 818,715 816,055 849,776 810,907 703,145
---------- ---------- ---------- ---------- ---------- ----------
Service charges on deposit accounts.... 117,852 107,669 97,505 88,457 83,570 73,503
Mortgage banking....................... 55,715 43,942 39,309 47,194 63,964 53,227
Trust services......................... 48,102 42,237 37,627 35,278 33,879 30,269
Electronic banking fees................ 22,656 12,013 6,190 3,405 2,078 1,634
Credit card fees....................... 20,374 23,093 18,757 18,589 18,084 16,587
Investment product sales............... 19,024 13,950 9,704 8,058 10,616 6,420
Securities gains....................... 7,978 17,620 9,380 2,297 27,316 36,551
Other.................................. 51,138 53,539 56,618 41,436 41,693 32,030
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME.............. 342,839 314,063 275,090 244,714 281,200 250,221
---------- ---------- ---------- ---------- ---------- ----------
Salaries............................... 297,415 273,316 263,552 265,336 262,755 240,321
Commissions............................ 21,398 14,587 10,347 11,463 21,510 18,810
Employee benefits...................... 70,030 69,289 69,059 68,955 65,021 54,966
Equipment.............................. 57,867 50,887 44,646 44,806 43,012 39,396
Net occupancy.......................... 49,509 49,676 47,824 46,304 45,496 41,387
Advertising............................ 24,662 14,947 13,757 17,570 15,141 15,114
Printing and supplies.................. 21,584 19,602 18,103 18,379 18,405 17,489
Credit card and electronic banking..... 14,171 16,355 14,076 13,951 12,170 11,028
Legal and loan collection.............. 13,418 11,106 9,658 9,098 12,378 14,142
Special charges........................ 47,163 -- -- -- -- --
FDIC insurance......................... 2,774 1,261 17,974 30,451 30,042 29,900
Other.................................. 183,117 154,484 153,065 157,207 163,521 204,370
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE............. 803,108 675,510 662,061 683,520 689,451 686,923
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES............. 459,164 457,268 429,084 410,970 402,656 266,443
Provision for income taxes............. 166,501 152,999 147,283 134,650 135,731 79,300
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME............................. $ 292,663 $ 304,269 $ 281,801 $ 276,320 $ 266,925 $ 187,143
========== ========== ========== ========== ========== ==========
PER COMMON SHARE (1)
Net income
Basic............................... $1.53 $1.58 $1.42 $1.40 $1.37 $ .97
Diluted............................. $1.52 $1.57 $1.41 $1.39 $1.35 $ .96
Cash dividends declared................ $ .76 $ .68 $ .62 $ .56 $ .46 $ .40
FULLY TAX EQUIVALENT MARGIN
Net Interest Income.................... $1,027,230 $ 895,086 $ 852,767 $ 871,730 $ 895,589 $ 791,358
Tax Equivalent Adjustment (2) ......... 11,864 12,363 14,602 18,405 21,072 23,376
---------- --------- ---------- ---------- ---------- ----------
Tax Equivalent Net Interest Income..... $1,039,094 $ 907,449 $ 867,369 $ 890,135 $ 916,661 $ 814,734
========== ========= ========== ========== ========== ==========
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate in years 1993 through 1997 and a 34% tax
rate in 1992.
13
Consolidated AVERAGE
BALANCES AND INTEREST RATES
- --------------------------------------------------------------------------------
1997 1996
--------------------------- ---------------------------
INTEREST Interest
Fully Tax Equivalent Basis (1) AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(in millions of dollars) BALANCE EXPENSE RATE Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest bearing deposits in banks........................... $ 9 $ .5 5.47% $ 14 $ .8 5.85%
Trading account securities................................... 11 .6 5.70 16 .9 5.66
Federal funds sold and securities purchased under resale
agreements................................................. 44 2.4 5.50 67 3.8 6.03
Mortgages held for sale...................................... 131 10.1 7.75 113 8.7 7.74
Securities:
Taxable................................................... 5,351 339.8 6.35 5,194 333.7 6.42
Tax exempt................................................ 264 25.3 9.55 291 27.9 9.59
------- -------- ------- -------
Total Securities....................................... 5,615 365.1 6.50 5,485 361.6 6.59
------- -------- ------- -------
Loans
Commercial................................................ 5,302 456.6 8.61 4,955 396.9 8.01
Real Estate
Construction........................................... 813 73.8 8.85 580 50.7 8.75
Mortgage............................................... 3,761 326.9 8.71 3,614 312.3 8.64
Consumer
Loans.................................................. 6,299 574.8 9.12 5,880 528.4 8.99
Leases................................................. 1,406 106.7 7.59 950 74.8 7.87
------- -------- ------- -------
Total Loans............................................ 17,581 1,538.8 8.75 15,979 1,363.1 8.53
Allowance for loan losses/loan fees.................... 253 75.8 231 49.2
------- -------- ------- --------
Net loans.............................................. 17,328 1,614.6 9.18 15,748 1,412.3 8.84
------- -------- ------- -------
Total earning assets................................... 23,391 1,993.3 8.52% 21,674 1,788.1 8.26%
------- -------- ------- -------
Cash and due from banks...................................... 910 901
All other assets............................................. 1,103 1,031
------- -------
TOTAL ASSETS ................................................ $25,151 $23,375
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits............................... $ 2,774 $ 2,664
Interest bearing demand deposits............................. 3,204 84.4 2.64% 3,068 80.2 2.61%
Savings deposits............................................. 3,056 100.4 3.28 2,836 86.3 3.04
Other domestic time deposits................................. 5,857 329.7 5.63 5,463 310.3 5.68
------- -------- ------- -------
Total core deposits....................................... 14,891 514.5 4.25 14,031 476.8 4.19
------- -------- ------- -------
Certificates of deposit of $100,000 or more.................. 1,922 109.4 5.70 1,525 85.5 5.61
Foreign time deposits........................................ 382 22.2 5.81 305 18.4 6.03
------- -------- ------- -------
Total deposits............................................ 17,195 646.1 4.48 15,861 580.7 4.40
------- -------- ------- -------
Short-term borrowings........................................ 3,294 172.7 5.24 3,375 183.6 5.44
Long-term debt, including capital securities................. 2,254 135.4 6.01 1,858 116.4 6.26
------- -------- ------- -------
Total interest bearing liabilities........................ 19,969 954.2 4.78% 18,430 880.7 4.78%
------- -------- ------- -------
All other liabilities........................................ 514 505
Shareholders' equity......................................... 1,894 1,776
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $25,151 $23,375
======= =======
Net interest rate spread..................................... 3.74% 3.48%
Impact of non-interest bearing funds on margin............... .70% .71%
NET INTEREST INCOME/MARGIN................................... $1,039.1 4.44% $ 907.4 4.19%
======== =======
<FN>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate in 1993
through 1997 and a 34% tax rate in 1992.
Average loan balances include non-accruing loans. Loan income includes
cash received on non-accruing loans.
14
1995 1994 1993 1992
- ----------------------------- --------------------------- -------------------------- ---------------------------
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 $ 1.6 5.99% $ 8 $ .5 6.23% $ 30 $ 1.3 4.27% $ 88 $ 4.7 5.29%
23 1.6 7.29 14 .9 6.16 10 .5 5.04 22 1.2 5.43
93 5.6 6.10 134 5.8 4.30 103 3.3 3.22 157 5.9 3.77
133 10.0 7.58 367 25.9 7.06 827 60.2 7.28 681 55.0 8.09
4,679 310.7 6.64 3,713 226.5 6.10 4,703 284.5 6.05 3,965 276.9 6.99
342 33.2 9.73 419 42.0 10.03 464 49.6 10.70 520 50.6 9.73
------- -------- -------- -------- ------- -------- ------- -------
5,021 343.9 6.85 4,132 268.5 6.50 5,167 334.1 6.47 4,485 327.5 7.30
------- -------- -------- -------- ------- -------- ------- -------
4,703 403.3 8.58 4,140 350.1 8.46 3,823 321.5 8.41 3,602 300.0 8.33
473 41.6 8.79 396 30.6 7.73 445 31.1 6.99 456 30.7 6.73
3,834 328.1 8.56 3,474 278.3 8.01 3,084 253.9 8.24 2,698 241.7 8.96
5,508 494.2 8.97 4,837 401.6 8.31 4,008 364.6 9.10 3,585 381.4 10.64
657 51.0 7.76 485 34.7 7.15 349 27.8 7.97 263 23.3 8.86
------- -------- -------- -------- ------- -------- ------- -------
15,175 1,318.2 8.69 13,332 1,095.3 8.21 11,709 998.9 8.53 10,604 977.1 9.22
227 43.4 235 40.1 215 33.2 163 31.7
------- -------- -------- -------- ------- -------- ------- -------
14,948 1,361.6 8.97 13,097 1,135.4 8.52 11,494 1,032.1 8.82 10,441 1,008.8 9.51
------- -------- -------- -------- ------- -------- ------- -------
20,471 1,724.3 8.43% 17,987 1,437.0 7.99% 17,846 1,431.5 8.02% 16,037 1,403.1 8.75%
------- -------- -------- -------- ------- -------- ------- -------
883 841 787 723
972 906 923 868
------- -------- ------- -------
$22,099 $ 19,499 $19,341 $17,465
======= ======== ======= =======
$ 2,477 $ 2,390 $ 2,384 $ 1,964
2,815 68.6 2.44% 2,984 65.9 2.21% 2,908 70.2 2.41% 2,710 82.9 3.06%
2,666 77.9 2.92 2,935 68.0 2.32 2,863 75.4 2.63 2,351 83.9 3.57
5,382 300.3 5.58 4,383 187.3 4.27 4,376 187.6 4.29 4,846 250.2 5.17
------- -------- -------- -------- ------- -------- ------- -------
13,340 446.8 4.11 12,692 321.2 3.12 12,531 333.2 3.28 11,871 417.0 4.21
------- -------- -------- -------- ------- -------- ------- -------
1,269 74.8 5.89 914 39.3 4.30 1,049 39.8 3.79 1,463 66.7 4.56
262 17.0 6.50 286 12.2 4.25 455 15.0 3.30 153 5.7 3.73
------- -------- -------- -------- ------- -------- ------- -------
14,871 538.6 4.34 13,892 372.7 3.24 14,035 388.0 3.33 13,487 489.4 4.25
------- -------- -------- -------- ------- -------- ------- -------
3,622 217.9 6.02 2,763 111.1 4.02 2,943 92.8 3.16 2,166 76.3 3.53
1,432 100.4 7.01 937 63.1 6.74 651 34.0 5.24 312 22.7 7.27
------- -------- -------- -------- ------- -------- ------- -------
17,448 856.9 4.91% 15,202 546.9 3.60% 15,245 514.8 3.38% 14,001 588.4 4.21%
------- -------- -------- -------- ------- -------- ------- -------
432 286 297 246
1,742 1,621 1,415 1,254
------- -------- ------- -------
$22,099 $ 19,499 $19,341 $17,465
======= ======== ======= =======
3.52% 4.39% 4.64% 4.54%
.72% .56% .50% .54%
$ 867.4 4.24% $ 890.1 4.95% $ 916.7 5.14% $ 814.7 5.08%
======== ======== ======== =======
15
MARKET PRICES, KEY RATIOS AND
STATISTICS, NON-PERFORMING ASSETS
(Quarterly Data)
- --------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1) 1997 1996
- ----------------------------------------- ----------------------------------------------------------------------------------------
IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
--- ---- --- -- --- ---- --- --
High..................................... $ 38 7/8 $ 37 3/4 $ 27 1/4 $ 28 7/8 $ 26 1/4 $ 21 3/8 $ 20 7/8 $ 20 1/8
Low...................................... 31 1/2 27 1/4 23 5/8 22 3/4 20 13/16 19 5/16 19 9/16 18 5/8
Close.................................... 36 36 1/16 26 3/4 23 7/8 24 20 15/16 19 3/4 19 3/4
Cash dividends declared.................. $.20 $.20 $.18 $.18 $.18 $.18 $.16 $.16
<FN>
(1) Restated for the ten percent stock dividend distributed July 31, 1997.
Note: Stock price quotations were obtained from NASDAQ
- --------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
MARGIN ANALYSIS--AS A %
OF AVERAGE EARNING ASSETS (1) 1997 1996
- ------------------------------------------ -------------------------------------- --------------------------------------
IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
--- ---- --- -- --- ---- --- --
Interest Income.......................... 8.48% 8.53% 8.61% 8.42% 8.16% 8.25% 8.28% 8.24%
Interest Expense......................... 4.04 4.12 4.07 4.03 3.97 4.00 4.04 4.12
---- ---- ---- ---- ---- ---- ---- ----
Net Interest Margin................... 4.44% 4.41% 4.54% 4.39% 4.19% 4.25% 4.24% 4.12%
==== ==== ==== ==== ==== ==== ==== ====
RETURN ON
Average total assets.................. 1.41% 0.65% 1.33% 1.27% 1.32% 1.33% 1.31% 1.26%
Average earning assets................ 1.53% 0.69% 1.43% 1.37% 1.42% 1.42% 1.41% 1.36%
Average shareholders' equity.......... 18.23% 8.41% 18.07% 17.42% 17.69% 17.75% 17.30% 15.94%
<FN>
(1) Presented on a fully tax equivalent basis assuming a 35% tax rate.
NON-PERFORMING ASSETS
(QUARTER-END)
(in thousands of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
--------- ------- -------- --------- ------- -------- ------- -------
Non-accrual loans........................... $ 65,981 $72,385 $ 61,105 $ 64,764 $55,040 $ 57,346 $58,311 $63,540
Renegotiated loans.......................... 5,822 6,069 4,449 4,490 4,422 5,725 6,726 6,334
--------- ------- -------- --------- ------- -------- ------- -------
TOTAL NON-PERFORMING LOANS.................. 71,803 78,454 65,554 69,254 59,462 63,071 65,037 69,874
--------- ------- -------- --------- ------- -------- ------- -------
Other real estate, net...................... 15,343 13,762 14,434 20,300 17,208 16,321 23,213 22,219
--------- ------- -------- --------- ------- -------- ------- -------
TOTAL NON-PERFORMING ASSETS................. $ 87,146 $92,216 $ 79,988 $ 89,554 $76,670 $ 79,392 $88,250 $92,093
========= ======= ======== ========= ======= ======== ======= =======
NON-PERFORMING LOANS AS A % OF TOTAL LOANS.. 0.40% 0.44% 0.37% 0.40% 0.35% 0.39% 0.41% 0.45%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE... 0.49% 0.52% 0.45% 0.51% 0.46% 0.48% 0.55% 0.59%
ALLOWANCE FOR LOAN LOSSES AS A
% OF NON-PERFORMING LOANS............... 359.55% 328.71% 378.11% 348.93% 388.11% 366.24% 348.52% 324.34%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS... 294.32% 277.31% 306.51% 266.89% 297.12% 282.47% 246.01% 234.94%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE..... $ 49,608 $43,120 $ 40,967 $ 42,023 $39,267 $ 40,301 $35,094 $30,345
========= ======= ======== ========= ======= ======== ======= =======
16
Selected QUARTERLY INCOME
STATEMENT Data
- --------------------------------------------------------------------------------
(in thousands of dollars, 1997 1996
--------------------------------------- ---------------------------------------
except per share amounts) IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
- ----------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME ................... $499,760 $502,821 $503,018 $475,874 $452,716 $445,453 $439,514 $438,051
TOTAL INTEREST EXPENSE................... 240,197 245,663 240,060 228,323 223,664 219,217 216,822 220,945
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME...................... 259,563 257,158 262,958 247,551 229,052 226,236 222,692 217,106
-------- -------- -------- -------- -------- -------- -------- --------
Provision for loan losses................ 26,235 28,351 30,831 22,38 25,038 22,978 14,160 14,195
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES............. 233,328 228,807 232,127 225,171 204,014 203,258 208,532 202,911
-------- -------- -------- -------- -------- -------- -------- --------
Service charges on deposit accounts ..... 31,035 30,382 28,841 27,594 27,434 27,262 26,971 26,002
Mortgage banking ........................ 15,889 20,672 10,157 8,997 10,420 11,897 10,684 10,941
Trust services .......................... 12,019 12,124 11,814 12,145 10,724 10,381 10,320 10,812
Electronic banking fees.................. 6,153 5,947 6,192 4,364 3,999 3,452 2,558 2,004
Credit card fees......................... 6,583 5,073 4,523 4,195 5,235 4,255 8,696 4,907
Investment product sales ................ 4,703 4,987 4,315 5,019 3,487 3,054 3,653 3,756
Securities gains......................... 1,034 1,242 3,604 2,098 4,240 6,172 102 7,106
Other ................................... 11,094 15,670 12,055 12,319 12,631 14,911 13,787 12,210
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............... 88,510 96,097 81,501 76,731 78,170 81,384 76,771 77,738
-------- -------- -------- -------- -------- -------- -------- --------
Salaries ................................ 74,390 76,068 74,769 72,188 70,041 69,480 67,287 66,508
Commissions ............................. 6,111 6,139 4,437 4,711 3,581 3,407 3,737 3,862
Employee benefits ....................... 15,286 18,259 16,813 19,672 13,668 17,129 18,042 20,450
Equipment ............................... 16,004 14,503 14,173 13,187 14,152 12,854 12,312 11,569
Net occupancy............................ 11,755 12,772 11,650 13,332 12,002 12,351 12,607 12,716
Advertising.............................. 5,356 6,139 5,830 7,337 3,236 3,495 4,689 3,527
Printing and supplies ................... 6,239 5,384 5,035 4,926 5,216 4,771 5,133 4,482
Credit card and electronic banking....... 3,738 3,581 3,965 2,887 3,875 4,490 4,226 3,764
Legal and loan collection................ 3,975 3,541 3,186 2,716 4,004 2,235 2,714 2,153
Special charges.......................... -- 47,163 -- -- -- -- -- --
Other ................................... 45,678 51,361 45,947 42,905 35,233 38,261 41,270 40,981
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE .............. 188,532 244,910 185,805 183,861 165,008 168,473 172,017 170,012
-------- -------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES .............. 133,306 79,994 127,823 118,041 117,176 116,169 113,286 110,637
Provision for income taxes .............. 42,657 38,762 44,220 40,862 38,044 38,725 37,997 38,233
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME............................... $ 90,649 $ 41,232 $ 83,603 $ 77,179 $ 79,132 $ 77,444 $ 75,289 $72,404
======== ======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Basic................................. $.47 $.22 $.44 $.41 $.42 $.40 $.39 $.37
Diluted............................... $.47 $.21 $.43 $.40 $.41 $.40 $.39 $.37
Cash dividends declared ................. $.20 $.20 $.18 $.18 $.18 $.18 $.16 $.16
FULLY TAX EQUIVALENT MARGIN
Net Interest Income...................... $259,563 $257,158 $262,958 $247,551 $229,052 $226,236 $222,692 $217,106
Tax Equivalent Adjustment (2) ........... 2,754 3,115 2,948 3,047 3,018 3,026 3,123 3,196
-------- -------- -------- -------- -------- -------- -------- --------
Tax Equivalent Net Interest Income....... $262,317 $260,273 $265,906 $250,598 $232,070 $229,262 $225,815 $220,302
======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate.
17
Report of MANAGEMENT
- --------------------------------------------------------------------------------
The integrity of the financial statements and other financial information
contained in this Annual Report is the responsibility of the management of
Huntington. Such financial information has been prepared in accordance with
generally accepted accounting principles, based on the best estimates and
judgment of management.
Huntington maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are executed and recorded in
accordance with management's authorization and that the assets of Huntington are
properly safeguarded. This system includes the careful selection and training of
staff, the communication of policies and procedures consistent with the highest
standards of business conduct, and the maintenance of an internal audit
function.
The Audit Committee of the Board of Directors is composed entirely of outside
directors and it meets periodically with both internal and independent auditors
to review the results and recommendations of their audits. This Committee
selects the independent auditor with the approval of shareholders.
The accounting firm of Ernst & Young LLP has been engaged by Huntington to
audit its financial statements, and their report appears below.
/s/ Frank Wobst /s/ Gerald R. Williams
Frank Wobst Gerald R. Williams
Chairman and Executive Vice President
Chief Executive Officer and Chief Financial Officer
Report of ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
Huntington Bancshares Incorporated
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 1997 and 1996, 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,
1997. 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. The consolidated financial statements give
retroactive effect to the merger of Huntington Bancshares Incorporated and First
Michigan Bank Corporation (First Michigan), which has been accounted for using
the pooling of interests accounting method as described in Note 2 to the
consolidated financial statements. We did not audit the 1996 and 1995 financial
statements of First Michigan, which statements reflect total assets constituting
14% for 1996 and net income constituting 14% for 1996 and 13% for 1995 of the
related consolidated financial statement totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts for First Michigan, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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, based on our audits, and for 1996 and 1995, the report of
other auditors, 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
January 14, 1998
18
Consolidated
BALANCE SHEEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- ----------------------------------------------------------------------------- ------------- -----------
ASSETS
Cash and due from banks....................................................... $ 1,142,450 $ 1,071,361
Interest bearing deposits in banks............................................ 39,618 3,418
Trading account securities.................................................... 7,082 1,873
Federal funds sold and securities purchased under resale agreements........... 509,119 21,066
Mortgages held for sale....................................................... 192,948 121,422
Securities available for sale-- at fair value................................. 5,709,814 5,209,393
Investment securities-- fair value $33,383 and $354,702, respectively......... 33,010 345,135
Total loans................................................................... 17,738,248 16,758,155
Less allowance for loan losses............................................. 258,171 230,778
------------- -----------
Net loans..................................................................... 17,480,077 16,527,377
------------- -----------
Premises and equipment........................................................ 389,481 380,460
Customers' acceptance liability............................................... 27,818 56,248
Accrued income and other assets............................................... 1,199,123 634,193
------------- -----------
TOTAL ASSETS.................................................................. $ 26,730,540 $24,371,946
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing....................................................... $ 2,549,518 $ 2,825,586
Interest bearing........................................................... 3,762,862 3,181,512
Savings deposits.............................................................. 3,133,014 3,040,719
Certificates of deposit of $100,000 or more................................... 1,903,657 1,506,914
Other domestic time deposits.................................................. 6,115,534 5,437,131
Foreign time deposits......................................................... 519,133 410,450
------------- -----------
Total deposits............................................................. 17,983,718 16,402,312
------------- -----------
Short-term borrowings......................................................... 3,286,671 4,028,255
Bank acceptances outstanding.................................................. 27,818 56,248
Long-term debt................................................................ 2,686,039 1,665,531
Company-obligated mandatorily redeemable capital securities
of Huntington Capital I.................................................... 200,000 --
Accrued expenses and other liabilities........................................ 520,903 433,942
------------- -----------
Total Liabilities.......................................................... 24,705,149 22,586,288
------------- -----------
Shareholders' Equity
Preferred stock -- authorized 6,617,808 shares; none outstanding
Common stock -- without par value; authorized 300,000,000 shares; issued
and outstanding-- 193,279,797 and 182,265,457 shares, respectively...... 1,528,768 1,290,968
Less 1,543,371 and 9,284,844 treasury shares, respectively................. (36,791) (204,634)
Capital surplus............................................................ 404,235 401,176
Net unrealized gains (losses) on securities available for sale............. 14,800 (13,931)
Retained earnings.......................................................... 114,379 312,079
------------- -----------
Total Shareholders' Equity.................................................... 2,025,391 1,785,658
------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $26,730,540 $24,371,946
============= ===========
See notes to consolidated financial statements.
19
Consolidated
STATEMEMENTS OF INCOME
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(in thousands of dollars, except per share amounts) 1997 1996 1995
- ------------------------------------------------------- ---------- ---------- ----------
Interest and fee income
Loans............................................... $1,611,541 $1,411,551 $1,357,975
Securities.......................................... 356,388 349,937 332,932
Other............................................... 13,544 14,246 18,720
---------- ---------- ----------
TOTAL INTEREST INCOME............................ 1,981,473 1,775,734 1,709,627
---------- ---------- ----------
Interest Expense
Deposits............................................ 646,121 580,686 538,668
Short-term borrowings............................... 172,745 183,584 217,818
Long-term debt...................................... 135,377 116,378 100,374
---------- ---------- ----------
TOTAL INTEREST EXPENSE........................... 954,243 880,648 856,860
---------- ---------- ----------
NET INTEREST INCOME.............................. 1,027,230 895,086 852,767
---------- ---------- ----------
Provision for loan losses.............................. 107,797 76,371 36,712
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................................. 919,433 818,715 816,055
---------- ---------- ----------
Total non-interest income ............................. 342,839 314,063 275,090
Total non-interest expense ............................ 803,108 675,510 662,061
---------- ---------- ----------
INCOME BEFORE INCOME TAXES.......................... 459,164 457,268 429,084
Provision for income taxes....................... 166,501 152,999 147,283
---------- ---------- ----------
NET INCOME ........................................ $ 292,663 $ 304,269 $ 281,801
========== ========== ==========
PER COMMON SHARE (1)
Net income
Basic............................................ $1.53 $1.58 $1.42
Diluted.......................................... $1.52 $1.57 $1.41
Cash dividends declared............................. $ .76 $ .68 $ .62
AVERAGE COMMON SHARES OUTSTANDING (1) ................ 190,804,039 192,491,596 198,429,594
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
See notes to consolidated financial statements.
20
Consolidated Statements of
CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
NET UNREALIZED
COMMON COMMON TREASURY TREASURY CAPITAL GAINS (LOSSES) RETAINED
(in thousands, except per share amounts) SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE-- JANUARY 1, 1995................ 151,720 $930,154 (905) $(16,577) $339,695 $(66,224) $448,223 $ 1,635,271
Stock issued for acquisitions............ 3,510 3,434 20,061 (985) 8,474 30,984
Net income............................... 281,801 281,801
Cash dividends declared ($.62 per share). (106,493) (106,493)
5% stock dividend........................ 6,732 140,146 (45) (140,272) (126)
Stock options exercised.................. 231 4,155 7 (2,809) 1,353
Treasury shares purchased................ (9,625) (204,645) (204,645)
Treasury shares sold:
Shareholder dividend reinvestment plan 1,553 28,609 437 (1,114) 27,932
Employee benefit plans................ 439 7,826 213 (45) 7,994
Conversion of convertible notes.......... 41 311 311
Change in net unrealized gains (losses)
on securities available for sale... 105,246 105,246
Pre-merger transactions of pooled subsidiary 1,169 1,012 22,319 4,753 (35,019) (6,935)
------- ---------- ------ -------- -------- ------- --------- -----------
BALANCE-- DECEMBER 31, 1995.............. 163,172 1,075,057 (8,352) (180,632) 382,732 42,790 452,746 1,772,693
------- ---------- ------ -------- -------- ------- --------- -----------
Stock issued for acquisitions............ 4,733 102,760 5,037 107,797
Net income............................... 304,269 304,269
Cash dividends declared ($.68 per share). (111,120) (111,120)
Stock options exercised ................. 284 5,385 (4,318) 1,067
10% stock dividend....................... 10,431 208,110 2,837 78,030 2,444 (288,790) (206)
Treasury shares purchased................ (10,419) (246,341) (2,819) (249,160)
Treasury shares sold:
Shareholder dividend reinvestment plan 1,405 31,189 805 31,994
Employee benefit plans................ 227 4,975 397 5,372
Conversion of convertible notes.......... 50 345 345
Change in net unrealized gains (losses)
on securities available for sale... (56,721) (56,721)
Pre-merger transactions of pooled subsidiary 8,612 7,456 16,898 (45,026) (20,672)
------- ---------- ------ -------- -------- ------- --------- -----------
BALANCE-- DECEMBER 31, 1996.............. 182,265 1,290,968 (9,285) (204,634) 401,176 (13,931) 312,079 1,785,658
------- ---------- ------ -------- -------- ------- --------- -----------
Stock issued for acquisitions............ 3,244 73,775 16,463 90,238
Net income............................... 292,663 292,663
Cash dividends declared ($.76 per share). (128,013) (128,013)
Stock options exercised.................. 461 7,000 (3,641) 3,359
10% stock dividend....................... 9,181 236,214 5,274 124,920 (51,488) (309,846) (200)
Treasury shares purchased................ (1,930) (53,427) (2,748) (56,175)
Treasury shares sold:
Shareholder dividend reinvestment plan 534 11,968 2,345 14,313
Employee benefit plans................ 159 3,607 1,110 4,717
Change in net unrealized gains (losses)
on securities available for sale...... 28,731 28,731
Pre-merger transactions of pooled subsidiary 1,833 1,586 41,018 (52,504) (9,900)
------- ---------- ------ -------- -------- ------- --------- -----------
BALANCE-- DECEMBER 31, 1997.............. 193,279 $1,528,768 (1,543) $(36,791) $404,235 $14,800 $ 114,379 $ 2,025,391
======= ========== ====== ======== ======== ======= ========= ===========
See notes to consolidated financial statements.
21
Consolidated Statements
of CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------- ------------ ----------- -------------
OPERATING ACTIVITIES
Net Income ..................................................................... $ 292,663 $ 304,269 $ 281,801
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses ................................................... 107,797 76,371 36,712
Provision for depreciation and amortization ................................. 63,383 91,903 76,488
Deferred income tax expense ................................................. 47,687 29,703 25,841
(Increase) decrease in trading account securities ........................... (5,209) 11,051 (3,497)
(Increase) decrease in mortgages held for sale .............................. (71,526) 46,909 (27,218)
Gain on sale of subsidiary .................................................. - - (8,939)
Net gains on sales of securities ............................................ (7,978) (17,620) (9,380)
Net gains on sales of loans ................................................. (12,200) (1,382) (1,274)
(Increase) decrease in accrued income receivable ............................ (7,003) 6,319 (24,849)
Net increase in other assets ................................................ (111,259) (53,471) (35,704)
Increase (decrease) in accrued expenses ..................................... 15,993 (20,029) 116,927
Net increase in other liabilities ........................................... 11,228 5,111 3,862
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 323,576 479,134 430,770
----------- ----------- -----------
INVESTING ACTIVITIES
(Increase) decrease in interest bearing deposits in banks...................... (36,185) 286,537 (282,730)
Proceeds from:
Maturities and calls of investment securities ............................... 90,287 104,180 213,753
Maturities and calls of securities available for sale ....................... 787,788 477,462 246,839
Sales of securities ......................................................... 2,297,166 2,743,036 2,659,785
Purchases of:
Investment securities ....................................................... (2,962) (19,247) (9,111)
Securities available for sale ............................................... (2,958,135) (3,111,606) (3,823,767)
Proceeds from sales of loans ................................................... 357,396 110,737 306,105
Net loan originations, excluding sales ......................................... (1,209,015) (1,354,362) (1,521,898)
Proceeds from disposal of premises and equipment ............................... 8,243 1,664 2,902
Purchases of premises and equipment ............................................ (45,849) (51,617) (44,723)
Proceeds from sales of other real estate ....................................... 17,441 18,627 30,133
Purchase of corporate-owned life insurance ..................................... (400,000) - -
Net cash (paid) received from purchase of subsidiaries ......................... (2,294) 631 165,803
----------- ----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES ................................... (1,096,119) (793,958) (2,056,909)
----------- ----------- -----------
FINANCING ACTIVITIES
Increase in total deposits ..................................................... 1,025,005 521,255 723,427
(Decrease) increase in short-term borrowings ................................... (751,930) 469,785 581,914
Proceeds from issuance of long-term debt ....................................... 1,742,651 870,698 1,095,220
Payment of long-term debt ...................................................... (722,372) (1,418,421) (208,550)
Proceeds from issuance of capital securities ................................... 200,000 - -
Dividends paid on common stock, including pre-merger
dividends of pooled subsidiary .............................................. (132,760) (125,379) (118,906)
Repurchase of common stock ..................................................... (56,175) (258,415) (206,556)
Proceeds from issuance of common stock ......................................... 27,266 43,971 41,557
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................ 1,331,685 103,494 1,908,106
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ...................................... 559,142 (211,330) 281,967
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 1,092,427 1,303,757 1,021,790
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 1,651,569 $ 1,092,427 $ 1,303,757
=========== =========== ===========
NOTE: Huntington made interest payments of $964,203, $886,020, and $783,275 in
1997, 1996, and 1995, respectively. Federal income tax payments were $114,755 in
1997, $120,645 in 1996, and $112,598 in 1995.
See notes to consolidated financial statements.
22
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.
On January 1, 1997, Huntington adopted Financial Accounting Standards Board
(FASB) Statement No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (FAS 125). The Statement is effective
for transactions occurring after December 31, 1996. However, transactions such
as securities lending, repurchase agreements, dollar rolls, and similar secured
financing arrangements are not subject to the provisions of FAS 125 until
January 1, 1998. The standard provides that, following a transfer of
financial assets, an entity is to recognize the financial and servicing
assets it controls and the liabilities it has incurred, derecognize financial
assets when control has been surrendered, and derecognize liabilities when
extinguished. The adoption of FAS 125 did not have a material impact on
Huntington's consolidated financial statements. The impact of the delayed
provisions is also not expected to be material.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
(FAS 128). FAS 128 replaced the calculation of primary and fully diluted
earnings per share (EPS) with basic and diluted EPS. Unlike primary EPS, basic
EPS excludes any dilutive effects of options, warrants, and convertible
securities. Diluted EPS is very similar to fully diluted EPS. All EPS amounts
presented have been restated, as applicable, to conform with the new
requirements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). Each of the new statements is
effective for periods beginning after December 15, 1997, and requires that
certain additional information be reported in the financial statements and
related notes. Huntington will adopt FAS 130 in the first quarter of 1998 and
expects to provide the segment disclosures required by FAS 131 in its 1998
Annual Report to Shareholders.
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 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.
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 generally reversed. Huntington uses the
cost recovery method in accounting for cash received on non-accrual loans. Under
this method, cash receipts are applied entirely against principal until the loan
has been collected in full, after which time any additional cash receipts are
recognized as interest income.
Net direct loan origination costs/fees, when material, 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.
The portion of the allowance for loan losses related to impaired loans
(non-accruing and restructured credits, exclusive of smaller, homogeneous loans)
is based on discounted cash flows using the loans' initial effective interest
rate or the fair value of the collateral for collateral-dependent loans.
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, as applicable.
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.
Capitalized mortgage servicing rights are evaluated for impairment based on
the fair value of those rights, using a disaggregated approach. Mortgage
servicing rights are amortized on an accelerated basis over the estimated period
of net servicing revenue.
23
1. ACCOUNTING POLICIES (Continued)
PURCHASE BUSINESS COMBINATIONS: Net assets of entities acquired, for which
the purchase method of accounting was used by Huntington, were recorded at their
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 up to 25 years. Core deposits and other identifiable acquired
intangible assets are amortized 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. Purchased 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 generally 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.
The FASB has issued a draft statement, "Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities." A final statement is
expected to be issued in the second quarter of 1998, the provisions of which
must be adopted by Huntington no later than January 1, 2000. Upon the FASB's
issuance of a final standard, Huntington intends to complete its analysis of
the financial statement impact of adopting the new rules.
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."
2. MERGERS AND ACQUISITIONS
On September 30, 1997, Huntington acquired First
Michigan Bank Corporation, a $3.6 billion bank holding company headquartered in
Holland, Michigan. Huntington issued approximately 32.2 million shares of its
common stock to the shareholders of First Michigan based upon an exchange ratio
of 1.155 shares of Huntington common stock for each outstanding share of First
Michigan common stock in a transaction accounted for as a pooling of interests.
All financial information previously reported by Huntington, except dividends
per share, has been restated for the First Michigan acquisition.
Separate results of operations for Huntington and First Michigan for periods
preceding the merger were as follows:
- --------------------------------------------------------------
NINE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
(in thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------
Net interest income
Huntington ........... $655,364 $758,824 $724,563
First Michigan ....... 112,303 136,262 128,204
-------- -------- --------
Combined ............. $767,667 $895,086 $852,767
======== ======== ========
Net income (loss)
Huntington ........... $214,717 $262,101 $244,489
First Michigan ....... (12,703) 42,168 37,312
-------- -------- --------
Combined ............. $202,014 $304,269 $281,801
======== ======== ========
Earnings (loss) per share
Basic
Huntington ......... $1.36 $1.63 $1.47
First Michigan ..... (0.46) 1.52 1.35
Combined ........... $1.06 $1.58 $1.42
Diluted
Huntington ......... $1.34 $1.62 $1.46
First Michigan ..... (0.45) 1.51 1.33
Combined ........... $1.04 $1.57 $1.41
In connection with the acquisition of First Michigan, Huntington reported a
restructuring charge of $35.0 million consisting primarily of personnel,
facilities, and systems costs, and incurred $12.2 million of professional fees
and other costs to effect the merger (reported on a combined basis as "Special
charges"). Other one-time costs related to the acquisition were an additional
loan loss provision of $4.8 million and non-interest expenses of $4.0 million.
It is anticipated that the $23.1 million restructuring charge accrual
(predominantly consisting of personnel-related costs) remaining at December 31,
1997 will be used during 1998.
Also in 1997, Huntington consummated two acquisitions which were accounted
for as purchases. On February 28, 1997, Huntington acquired Citi-Bancshares,
Inc. (Citi-Bancshares), a $548 million one-bank holding company headquartered in
Leesburg, Florida. The purchase price was distributed to Citi-Bancshares
shareholders in the form of $47.7 million in cash and 2.9 million shares of
Huntington common stock. On October 31,
24
1997, Huntington acquired The Bank of Winter Park (Winter Park), a $90 million
bank headquartered in Winter Park, Florida, for approximately 364 thousand
shares of Huntington common stock. Results of operations include these acquired
businesses from the date of acquisition only. Pro forma results of operations of
Citi-Bancshares and Winter Park have been excluded due to the immaterial impact
on Huntington's consolidated earnings.
In December 1997, Huntington announced the acquisition of sixty banking
offices in Florida to be sold by NationsBank Corporation in connection with the
merger of NationsBank and Barnett Banks Inc. The branch acquisition is expected
to add $1.6 billion in loans and $2.6 billion in deposits. The deposit premium,
which is subject to final determination based on the deposit levels at the
closing of the transaction, is projected to be $523 million. Huntington intends
to raise $300 million of common equity and will sell an additional $250 million
of trust preferred (capital) securities in connection with the transaction. The
new capital amounts are estimates only and could change based on Huntington's
asset growth, the ultimate deposit premium paid, and other developments over the
next few months. The acquisition is expected to close in the second quarter of
1998.
- --------------------------------------------------------------------------------
3. SECURITIES AVAILABLE FOR SALE
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1997, and 1996 were:
- --------------------------------------------------------------------------------
UNREALIZED
---------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
AT DECEMBER 31, 1997
U.S. Treasury ............ $ 730,862 $ 4,501 $ 5,689 $ 729,674
Federal Agencies
Mortgage-backed
securities .......... 1,368,502 8,031 5,093 1,371,440
Other agencies ........ 2,888,971 16,049 5,100 2,899,920
---------- ---------- ---------- ----------
Total U.S. Treasury and
Federal Agencies .... 4,988,335 28,581 15,882 5,001,034
Other Securities ......... 698,584 11,953 1,757 708,780
---------- ---------- ---------- ----------
Total securities
available for sale .. $5,686,919 $ 40,534 $ 17,639 $5,709,814
========== ========== ========== ==========
AT DECEMBER 31, 1996
U.S. Treasury ............ $ 801,671 $ 2,374 $ 14,618 $ 789,427
Federal Agencies
Mortgage-backed
securities .......... 1,354,565 4,399 13,161 1,345,803
Other agencies ........ 2,581,768 10,951 13,128 2,579,591
---------- ---------- ---------- ----------
Total U.S. Treasury and
Federal Agencies .... 4,738,004 17,724 40,907 4,714,821
Other Securities ......... 493,322 4,000 2,750 494,572
---------- ---------- ---------- ----------
Total securities
available for sale .. $5,231,326 $ 21,724 $ 43,657 $5,209,393
========== ========== ========== ==========
Amortized cost and fair values by contractual maturity at December 31, 1997,
and 1996 were:
- --------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1997
Under 1 year ........................... $ 18,148 $ 18,145
1-D5 years ............................. 2,381,776 2,387,294
6-D10 years ............................ 1,805,524 1,812,872
Over 10 years .......................... 1,419,307 1,430,374
Marketable equity securities ........... 62,164 61,129
---------- ----------
Total ............................... $5,686,919 $5,709,814
========== ==========
AT DECEMBER 31, 1996
Under 1 year ........................... $ 254,248 $ 254,758
1-D5 years ............................. 2,725,307 2,723,809
6-D10 years ............................ 1,359,097 1,340,908
Over 10 years .......................... 871,974 870,469
Marketable equity securities ........... 20,700 19,449
---------- ----------
Total ............................... $5,231,326 $5,209,393
========== ==========
Gross gains from sales of securities of $12.3 million, $24.7 million, and
$12.8 million were realized in 1997, 1996 and 1995, respectively. Gross losses
totaled $4.3 million in 1997, $7.1 million in 1996, and $3.5 million in 1995.
In 1997, Huntington securitized and transferred to securities available for
sale $115.1 million of residential mortgage loans.
- --------------------------------------------------------------------------------
4. INVESTMENT SECURITIES
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1997, and 1996 were:
- --------------------------------------------------------------------------------
UNREALIZED
---------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1997
U.S. Treasury and
Federal Agencies ...... $ 656 $ - $ - $ 656
States and political
subdivisions .......... 32,354 471 98 32,727
-------- -------- -------- --------
Total investment
securities ......... $ 33,010 $ 471 $ 98 $ 33,383
======== ======== ======== ========
AT DECEMBER 31, 1996
U.S. Treasury ............ $ 27,317 $ 159 $ 64 $ 27,412
Federal Agencies
Mortgage-backed
securities .......... 62,539 466 177 62,828
Other agencies ........ 21,703 22 46 21,679
-------- -------- -------- --------
Total U.S. Treasury and
Federal Agencies .... 111,559 647 287 111,919
States and political
subdivisions .......... 233,458 9,932 725 242,665
Other Securities ......... 118 - - 118
-------- -------- -------- --------
Total investment
securities .......... $345,135 $ 10,579 $ 1,012 $354,702
======== ======== ======== ========
25
- --------------------------------------------------------------------------------
4. INVESTMENT SECURITIES (Continued)
Amortized cost and fair values by contractual maturity at December 31, 1997,
and 1996 were:
- ----------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- ----------------------------------------------------------------
AT DECEMBER 31, 1997
Under 1 year ...................... $ 6,311 $ 6,310
1-D5 years ........................ 14,248 14,375
6-D10 years ....................... 9,605 9,788
Over 10 years ..................... 2,846 2,910
-------- --------
Total .......................... $ 33,010 $ 33,383
======== ========
AT DECEMBER 31, 1996
Under 1 year ...................... $ 96,886 $ 97,336
1-D5 years ........................ 160,128 165,925
6-D10 years ....................... 80,894 84,141
Over 10 years ..................... 7,227 7,300
-------- --------
Total .......................... $345,135 $354,702
======== ========
The portfolio of investment securities acquired in the First Michigan
acquisition was sold and/or transferred to the available for sale category to
maintain Huntington's existing interest rate risk position. At the date of
sale/transfer, amortized cost and fair value were $225.3 million and $233.5
million, respectively.
- --------------------------------------------------------------------------------
5. LOANS
At December 31, 1997, and 1996, loans were comprised of the following:
- -----------------------------------------------------------------
(in thousands of dollars) 1997 1996
- -----------------------------------------------------------------
Commercial ................... $ 5,270,660 $ 5,129,836
Real estate
Construction .............. 863,635 699,013
Commercial ................ 2,370,652 2,138,361
Residential ............... 1,228,446 1,485,568
Consumer
Loans ..................... 6,462,716 6,122,730
Leases .................... 1,542,139 1,182,647
----------- -----------
Total loans ............. $17,738,248 $16,758,155
=========== ===========
Huntington's subsidiaries have granted loans to its executive offcers,
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) 1997 1996
- -----------------------------------------------------------------
Balance, beginning of year . $ 173,491 $ 174,435
Loans made .............. 126,503 55,170
Repayments .............. (46,828) (48,312)
Changes due to status of
executive offcers
and directors ......... (46,195) (7,802)
--------- ---------
Balance, end of year ....... $ 206,971 $ 173,491
========= =========
6. 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) 1997 1996 1995
- --------------------------------------------------------------------------
Balance, beginning of year $ 230,778 $ 222,487 $ 225,225
Allowance acquired/other . 7,777 1,907 6,827
Loan losses .............. (110,723) (91,007) (62,414)
Recoveries of loans
previously charged off 22,542 21,020 16,137
Provision for loan losses 107,797 76,371 36,712
--------- --------- ---------
Balance, end of year ..... $ 258,171 $ 230,778 $ 222,487
========= ========= =========
Approximately $34.8 million and $29.3 million of non-performing loans
presented in Table 12 of Management's Discussion and Analysis are considered
impaired (as defined in FASB Statement No. 114) at December 31, 1997, and
1996, respectively. Included in these amounts are $20.6 million and $11.8
million of impaired loans for which the related allowance for loan losses was
$6.4 million and $4.8 million at December 31, 1997, and 1996. Principally as a
result of write-downs, $14.2 million and $17.5 million of impaired loans do not
have an allowance for loan losses. The average recorded investment in impaired
loans during the years ended December 31, 1997, and 1996, was approximately
$34.0 million and $31.5 million, respectively.
- --------------------------------------------------------------------------------
7. PREMISES AND EQUIPMENT
At December 31, 1997, and 1996, premises and equipment stated at cost were
comprised of the following:
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- --------------------------------------------------------------------------
Land ........................................... $ 58,909 $ 56,343
Buildings ...................................... 298,724 291,873
Leasehold improvements ......................... 93,485 86,776
Equipment ...................................... 355,668 331,107
-------- --------
Total premises and equipment ................ 806,786 766,099
Less accumulated depreciation and amortization . 417,305 385,639
-------- --------
Net premises and equipment ..................... $389,481 $380,460
======== ========
Depreciation and amortization charged to expense and rental income credited
to occupancy expense were as follows:
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------------
Occupancy expense ................. $15,243 $14,491 $13,372
Equipment expense ................. 26,140 25,001 21,620
------- ------- -------
Total depreciation and amortization $41,383 $39,492 $34,992
======= ======= =======
Rental income credited to
occupancy expense .............. $14,842 $11,966 $11,497
======= ======= =======
26
- --------------------------------------------------------------------------------
8. SHORT-TERM BORROWINGS
At December 31, 1997, and 1996, short-term borrowings were comprised of the
following:
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- --------------------------------------------------------------------------
Federal funds purchased and securities
sold under agreements to repurchase .... $3,064,344 $3,309,445
Medium-term notes with original
maturities less than one year
Parent company ......................... 40,000 140,000
Subsidiary bank ........................ 105,000 505,300
Commercial paper .......................... 40,050 37,418
Other ..................................... 37,277 36,092
---------- ----------
Total short-term borrowings ............... $3,286,671 $4,028,255
========== ==========
Information concerning securities sold under agreements to repurchase is
summarized as follows:
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- --------------------------------------------------------------------------
Average balance during the year .......... $1,253,724 $1,200,065
Average interest rate during the year ..... 4.58% 4.41%
Maximum month-end
balance during the year ................ $1,356,785 $1,382,433
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 the 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 August 23, 2000. There were no
borrowings under the line in 1997 or 1996.
Securities pledged to secure public or trust deposits, repurchase agreements,
and for other purposes were $2.1 billion and $2.0 billion at December 31, 1997,
and 1996, respectively.
- --------------------------------------------------------------------------------
9. CAPITAL SECURITIES
In January 1997, Huntington Capital I, a Delaware statutory business trust
(the "Trust") owned by Huntington, issued $200 million of company-obligated
mandatorily redeemable capital securities (the "Capital Securities"). All of the
common securities of Huntington Capital I are owned by Huntington. The proceeds
from the issuance of the Capital Securities ($200 million) and common securities
($6.2 million) were used by Huntington Capital I to purchase from Huntington
$206.2 million of Floating Rate Junior Subordinated Debentures. The subordinated
debentures are the sole assets of the trust, bear interest at a variable annual
rate equal to LIBOR plus .70%, and mature on February 1, 2027. Interest payments
made on the capital securities are reported as a component of interest expense
on long-term debt.
Huntington has fully and unconditionally guaranteed, on a subordinated basis
(the "Guarantee"), payment of: (i) any accumulated and unpaid distributions
required to be paid on the Capital Securities; (ii) the redemption price with
respect to any Capital Securities called for redemption by the Trust; or, (iii)
amounts due upon the voluntary or involuntary dissolution or liquidation of the
Trust, as set forth in the Guarantee. The Guarantee will apply to the payment of
distributions only to the extent that the Trust has suffcient funds available to
make such payments.
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT
At December 31, 1997, and 1996, long-term debt was comprised of the
following:
- -------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- -------------------------------------------------------------------------------
Subordinated notes, 7 5/8%, maturing in 2003,
face value $150,000 at December 31, 1997,
and 1996, net of discount ................... $ 149,657 $ 149,587
Subordinated notes, 7 7/8%, maturing in 2002,
face value $150,000 at December 31, 1997,
and 1996, net of discount ................... 149,376 149,249
Subordinated notes, 6 3/4%, maturing in 2003,
face value $100,000 at December 31, 1997,
and 1996, net of discount ................... 99,819 99,786
Medium-term notes with original maturities
greater than one year
Parent company (maturing through 2002) ...... 180,000 205,000
Subsidiary bank (maturing through 2007) ..... 2,007,150 935,000
Federal Home Loan Bank notes
maturing through 1999 ....................... 95,500 121,668
Other .......................................... 4,537 5,241
---------- ----------
Total long-term debt ........................... $2,686,039 $1,665,531
========== ==========
PARENT COMPANY OBLIGATIONS
The 77U8% Notes are not redeemable prior to maturity in 2002, and do not
provide for any sinking fund. Interest rate swaps were used by Huntington to
convert the Notes to a variable interest rate. At December 31, 1997, the
effective interest rate on the synthetically altered Notes was 6.37%.
The Medium-term notes had weighted average interest rates of 5.99% and 5.92%
at December 31, 1997, and 1996, respectively.
SUBSIDIARY OBLIGATIONS
The 75U8% Notes and the 63U4% Notes were issued by The Huntington National
Bank in 1993. Adjusted for the effects of interest rate swaps, the rates were
5.91% and 6.16% at December 31, 1997. 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 5.98% and
5.57% at December 31, 1997, and 1996, respectively. The stated interest rates on
certain notes have also been modified by interest rate swaps. At December 31,
1997, the weighted average effective interest rate on the synthetically altered
Medium-term bank notes was 5.83%.
The Federal Home Loan Bank notes mature serially from February 1998 through
December 1999, and had a weighted average interest rate of 6.12% and 5.84% at
December 31, 1997, and 1996, respectively. These advances cannot be prepaid
without penalty.
27
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT (Continued)
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, 1997, Huntington was in compliance with all
such covenants.
The following table summarizes the maturities of Huntington's long-term debt:
- --------------------------------------------------------------
YEAR (in thousands of dollars)
- --------------------------------------------------------------
1998.......................... $1,015,500
1999.......................... 590,000
2000.......................... 205,000
2001.......................... 279,536
2002.......................... 242,150
2003 and thereafter........... 355,000
----------
2,687,186
Discount...................... (1,147)
----------
Total......................... $2,686,039
==========
- --------------------------------------------------------------------------------
11. OPERATING LEASES
At December 31, 1997, 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, 1997.
- -----------------------------------------------------------------
YEAR (in thousands of dollars)
- -----------------------------------------------------------------
1998 .............................. $ 20,115
1999 .............................. 18,354
2000 .............................. 18,684
2001 .............................. 17,750
2002 .............................. 16,359
2003 and thereafter................ 90,969
--------
Total minimum payments ............ $182,231
========
Total minimum lease payments have not been reduced by minimum sublease
rentals of $61.8 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 $25.2 million for 1997 compared with $23.0 million in 1996 and $23.6
million in 1995.
12. 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, purchased 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, 1997, Huntington's credit risk from these off-balance sheet arrangements,
including trading activities, was approximately $73.2 million.
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1997, and 1996, is presented in the following table:
- ------------------------------------------------------------------
(in millions of dollars) 1997 1996
- ------------------------------------------------------------------
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial ........................ $4,058 $3,540
Consumer .......................... 2,992 2,913
Other ............................. 314 334
Standby letters of credit ........... 677 657
Commercial letters of credit ........ 132 92
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps ............... 3,194 2,868
Purchased interest rate options ... 679 635
Interest rate forwards and futures 267 179
Trading activities
Interest rate swaps ............... 126 298
Interest rate options ............. 53 153
Interest rate futures ............. - 50
28
- --------------------------------------------------------------------------------
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 46% of standby letters of
credit are collateralized, and approximately 86% 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 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.
- --------------------------------------------------------------------------------
13. 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.
- --------------------------------------------------------------------------------
14. 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 table reconciles the funded status of the pension plan at the
applicable September 30 measurement dates with the amounts recognized in the
consolidated balance sheet at December 31, 1997, and 1996.
- -----------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- -----------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEfiT OBLIGATIONS
Vested benefit obligation ................. $ 132,605 $ 107,235
========= =========
Accumulated benefit obligation$ ........... 143,682 $ 114,271
========= =========
Projected benefit obligation.................. $ 178,325 $ 163,113
Plan assets, at fair value ................... 194,336 158,903
--------- ---------
Projected benefit obligation (less)
greater than plan assets .................. (16,011) 4,210
Unrecognized transition asset,
net of amortization ....................... 1,986 2,459
Unrecognized net gain ........................ 26,920 20,251
Unrecognized prior service cost .............. 14,905 517
--------- ---------
Accrued pension cost ...................... $ 27,800 $ 27,437
========= =========
The following table shows the components of pension cost recognized in 1997,
1996, and 1995, and the assumptions used in determining the benefit
liabilities and costs.
- ----------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------
NET PENSION COST INCLUDED
THE FOLLOWING COMPONENTS
Service cost-benefits earned
during the period ................. $ 10,698 $ 11,243 $ 10,934
Interest cost on projected
benefit obligation ................ 12,502 11,731 10,394
Net amortization and deferral ....... 21,021 (3,508) 15,941
Actual return on plan assets ........ (36,313) (9,099) (26,586)
-------- -------- --------
Net pension expense ............... $ 7,908 $ 10,367 $ 10,683
======== ======== ========
29
- --------------------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The discount rate used for benefit obligations was 7.50% in 1997, 7.75% in
1996, and 7.50% in 1995. The rate of salary increases was 5.0% in each of the
three years. The expected long-term rate of return on plan assets was 8.75% for
the same periods.
Huntington also sponsors an unfunded Supplemental Executive Retirement Plan,
a non-qualified plan that provides certain key offcers of Huntington and its
subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1997, and 1996, the accrued pension cost for
this plan totaled $10.5 million and $9.4 million, respectively. Pension expense
for this plan was $1.3 million in 1997, 1996, and 1995.
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) 1997 1996 1995
- ---------------------------------------------------------------------------
Service cost ....................... $ 959 $ 1,214 $ 986
Interest cost ...................... 2,386 2,832 2,594
Amortization of
transition obligation ........... 1,331 1,331 1,331
Net amortization and deferral ...... (64) 506 363
------- ------- -------
Net periodic post-retirement
benefit cost .................... $ 4,612 $ 5,883 $ 5,274
======= ======= =======
The following table sets forth the status of the post-retirement benefit
obligation at December 31:
- ----------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- ----------------------------------------------------------------------------------
ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION
Retirees ........................................... $ 21,622 $ 19,038
Fully eligible active plan participants ............ 5,796 5,299
Other active plan participants ..................... 11,723 8,992
Total accumulated post-retirement -------- --------
benefit obligation .............................. 39,141 33,329
Unrecognized net gain ........................... 5,281 8,977
Unrecognized prior service cost ................. (6,474) (5,003)
Unrecognized transition obligation ............. (19,679) (21,009)
Benefits paid in fourth quarter .................... (628) (491)
-------- --------
Accrued post-retirement benefit cost .......... $ 17,641 $ 15,803
======== ========
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligations was 7.50% in 1997, 7.75% in 1996, and
7.50% in 1995. The 1998 health care cost trend rate was projected to be 9.25%
for pre-65 participants and 8.00% for post-65 participants compared with
estimates of 10.00% and 8.50% in 1997. These rates are assumed to decrease
gradually until they reach 5.25% 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, 1997, by $1.2 million and the aggregate
of the service and interest components of net periodic post-retirement
benefit cost for 1997 by $171,000.
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,
together with the defined contribution plan sponsored by First Michigan prior
to the acquisition, was $9.7 million in 1997, $9.0 million in 1996, and $7.4
million in 1995.
- --------------------------------------------------------------------------------
15. INCOME TAXES
The following is a summary of the provision for income taxes:
- ----------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------------
Currently payable
Federal................... $ 115,197 $ 114,183 $ 116,415
State..................... 3,617 3,076 4,556
----------- ----------- ---------
Total current .......... 118,814 117,259 120,971
----------- ----------- ---------
Deferred tax expense (benefit)
Federal................... 46,088 34,378 26,484
State..................... 1,599 1,362 (172)
----------- ----------- ---------
Total deferred.......... 47,687 35,740 26,312
----------- ----------- ---------
Total provision for income taxes $ 166,501 $ 152,999 $ 147,283
=========== =========== =========
Included in the above amounts was tax expense associated with securities
transactions totaling $2.9 million in 1997, $6.2 million in 1996, and $3.3
million in 1995.
The following is a reconcilement of income tax expense to the amount computed
at the statutory rate of 35%.
- ---------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ---------------------------------------------------------------------------------
Pre-tax income computed
at the statutory rate ........... $ 160,708 $ 160,043 $ 150,179
Increases (decreases):
Tax-exempt interest income ...... (7,101) (7,623) (8,909)
State income taxes .............. 3,391 2,885 2,849
Other-net ....................... 9,503 (2,306) 3,164
--------- --------- ---------
Provision for income taxes ......... $ 166,501 $ 152,999 $ 147,283
========= ========= =========
30
- --------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities at
December 31, 1997, and 1996 are as follows:
- ------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- ------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses ......... $ 85,873 $ 72,494
Securities ........................ - 7,499
Pension and other employee benefits 28,131 24,138
Other ............................. 12,535 10,705
-------- --------
Total deferred tax assets ....... 126,539 114,836
-------- --------
Deferred tax liabilities:
Financial instruments ............. 3,736 5,359
Leasefinancing .................... 181,987 120,708
Mortgage servicing rights ......... 14,094 8,575
Premises and equipment ............ 12,201 15,148
Revalued liabilities N net ........ 4,774 5,061
Securities ........................ 8,192 -
Other ............................. 14,547 11,908
-------- --------
Total deferred tax liabilities .. 239,531 166,759
-------- --------
Net deferred tax liability ...... $112,992 $ 51,923
======== ========
- --------------------------------------------------------------------------------
16. EARNINGS PER SHARE
Basic earnings per share is the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. Diluted
earnings per share is the amount of earnings available to each share of common
stock outstanding during the reporting period adjusted for the potential
issuance of common shares for stock options and the conversion impact of
convertible equity instruments.
The calculation of basic and diluted earnings per share for each of the three
years ended December 31 is as follows:
- -----------------------------------------------------------------
(in thousands, except per share) 1997 1996 1995
- -----------------------------------------------------------------
Net income ............... $292,663 $304,269 $281,801
Impact of convertible debt - 13 41
-------- -------- --------
Diluted net income .... $292,663 $304,282 $281,842
======== ======== ========
Average common
shares outstanding .... 190,804 192,492 198,430
Dilutive effect of:
Stock options ......... 2,330 1,810 1,490
Convertible debt ...... - 30 93
-------- -------- --------
Diluted common
shares outstanding 193,134 194,332 200,013
======== ======== ========
Earnings per share
Basic ................. $ 1.53 $ 1.58 $ 1.42
Diluted ............... $ 1.52 $ 1.57 $ 1.41
Average common shares outstanding and the dilutive effect of stock options
and convertible debt have been adjusted for subsequent stock dividends and stock
splits, as applicable.
- --------------------------------------------------------------------------------
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1997, and 1996:
- --------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) IQ IIQ IIIQ IVQ
- --------------------------------------------------------------------------------
1997
Interest income ......... $475,874 $503,018 $502,821 $499,760
Interest expense ........ 228,323 240,060 245,663 240,197
-------- -------- -------- --------
Net interest income ..... 247,551 262,958 257,158 259,563
-------- -------- -------- --------
Provision for loan losses 22,380 30,831 28,351 26,235
Securities gains ........ 2,098 3,604 1,242 1,034
Non-interest income ..... 74,633 77,897 94,855 87,476
Non-interest expense .... 183,861 185,805 244,910 188,532
-------- -------- -------- --------
Income before
income taxes ......... 118,041 127,823 79,994 133,306
Provision for
income taxes ......... 40,862 44,220 38,762 42,657
-------- -------- -------- --------
Net income .............. $ 77,179 $ 83,603 $ 41,232 $ 90,649
======== ======== ======== ========
Net income per common share (1)
Basic............. $.41 $.44 $.22 $.47
Diluted........... $.40 $.43 $.21 $.47
- -----------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) IQ IIQ IIIQ IVQ
- -----------------------------------------------------------------------------------
1996
Interest income ............... $438,051 $439,514 $445,453 $452,716
Interest expense .............. 220,945 216,822 219,217 223,664
-------- -------- -------- --------
Net interest income ........... 217,106 222,692 226,236 229,052
-------- -------- -------- --------
Provision for loan losses ..... 14,195 14,160 22,978 25,038
Securities gains .............. 7,106 102 6,172 4,240
Non-interest income ........... 70,632 76,669 75,212 73,930
Non-interest expense .......... 170,012 172,017 168,473 165,008
-------- -------- -------- --------
Income before
income taxes ............... 110,637 113,286 116,169 117,176
Provision for
income taxes ............... 38,233 37,997 38,725 38,044
-------- -------- -------- --------
Net income .................... $ 72,404 $ 75,289 $ 77,444 $ 79,132
======== ======== ======== ========
Net income per common share (1)
Basic ...................... $ .37 $ .39 $ .40 $ .42
Diluted .................... $ .37 $ .39 $ .40 $ .41
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
</FN>
31
- --------------------------------------------------------------------------------
18. NON-INTEREST INCOME
A summary of the components of non-interest income for the three years ended
December 31 follows:
- ------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ------------------------------------------------------------------
Service charges on
deposit accounts .... $117,852 $107,669 $ 97,505
Mortgage banking ....... 55,715 43,942 39,309
Trust services ......... 48,102 42,237 37,627
Electronic banking fees 22,656 12,013 6,190
Credit card fees ....... 20,374 23,093 18,757
Investment product sales 19,024 13,950 9,704
Securities gains ....... 7,978 17,620 9,380
Other .................. 51,138 53,539 56,618
-------- -------- --------
TOTAL NON-INTEREST
INCOME ............ $342,839 $314,063 $275,090
======== ======== ========
- --------------------------------------------------------------------------------
19. NON-INTEREST EXPENSE
A summary of the components of non-interest expense for the three years ended
December 31 follows:
- -------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- -------------------------------------------------------------------
Salaries ................ $297,415 $273,316 $263,552
Commissions ............. 21,398 14,587 10,347
Employee benefits ....... 70,030 69,289 69,059
Equipment ............... 57,867 50,887 44,646
Net occupancy ........... 49,509 49,676 47,824
Special charges ......... 47,163 - N
Advertising ............. 24,662 14,947 13,757
Printing and supplies ... 21,584 19,602 18,103
Credit card and
electronic banking ... 14,171 16,355 14,076
Legal and loan collection 13,418 11,106 9,658
FDIC insurance .......... 2,774 1,261 17,974
Other ................... 183,117 154,484 153,065
-------- -------- --------
TOTAL NON-INTEREST
EXPENSE ............ $803,108 $675,510 $662,061
======== ======== ========
- --------------------------------------------------------------------------------
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
corporate-owned life insurance and 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, 1997
- --------------------------------------------------------------------------
CARRYING FAIR
(in thousands of dollars) AMOUNT VALUE
- --------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets .... $ 1,691,187 $ 1,691,187
Trading account securities .... 7,082 7,082
Mortgages held for sale ....... 192,948 192,948
Securities .................... 5,742,824 5,743,197
Loans ......................... 17,480,077 17,777,451
Customers' acceptance liability 27,818 27,818
Interest rate contracts:
Asset/liability management .. 17,557 42,547
Customer accommodation ...... 2,606 2,606
FINANCIAL LIABILITIES:
Deposits ...................... (17,983,718) (18,012,315)
Short-term borrowings ......... (3,286,671) (3,286,671)
Bank acceptances outstanding .. (27,818) (27,818)
Long-term debt ................ (2,686,039) (2,713,831)
Capital securities ............ (200,000) (192,726)
Interest rate contracts:
Asset/liability management .. - (2,554)
Customer accommodation ...... (1,859) (1,859)
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.
AT DECEMBER 31, 1997
- --------------------------------------------------------------------------
CARRYING FAIR
(in thousands of dollars) AMOUNT VALUE
- --------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets .... $ 1,095,845 $ 1,095,845
Trading account securities .... 1,873 1,873
Mortgages held for sale ....... 121,422 121,422
Securities .................... 5,554,528 5,564,094
Loans ......................... 16,527,377 16,679,749
Customers' acceptance liability 56,248 56,248
Interest rate contracts:
Asset/liability management .. 4,898 27,403
Customer accommodation ...... 4,239 4,239
FINANCIAL LIABILITIES:
Deposits ...................... (16,402,312) (16,227,820)
Short-term borrowings ......... (4,028,255) (4,028,255)
Bank acceptances outstanding .. (56,248) (56,248)
Long-term debt ................ (1,665,531) (1,678,498)
Interest rate contracts:
Asset/liability management .. (8) (11,291)
Customer accommodation ...... (3,493) (3,493)
32
- --------------------------------------------------------------------------------
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. 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 interest 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.
- --------------------------------------------------------------------------------
21. STOCK OPTIONS
Huntington sponsors non-qualified and incentive stock option plans
covering key employees. Approximately 18.0 million shares have been authorized
under the plans, 6.9 million of which were available at December 31, 1997, for
future grants. All options granted have a maximum term of ten years. Options
granted on or after May 18, 1994, vest ratably over four years; all grants
preceding this date became fully exercisable after one year.
Huntington has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees' (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of Huntington's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Huntington's stock option activity and related information for the three
years ended December 31, is summarized below:
1997 1996 1995
-------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(in thousands, except per share) OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ------------------------------------------------------------ ---------- --------- ----------- --------- -----------
Outstanding at beginning of period ........... 4,688 $13.70 4,624 $11.95 4,558 $10.40
Granted ...................................... 1,203 27.65 1,036 19.38 1,035 15.24
Exercised .................................... (810) 14.80 (917) 11.15 (913) 7.66
Forfeited/Expired ............................ (156) 17.26 (55) 16.23 (56) 15.98
----- ----- -----
Outstanding at end of period ................. 4,925 $16.81 4,688 $13.70 4,624 $11.95
===== ===== =====
Exercisable at end of period ................. 2,947 $12.77 2,834 $10.96 2,723 $ 9.95
===== ===== =====
Weighted average fair value of options granted
during the year ......................... $ 7.63 $ 5.52 $ 3.94
Exercise prices for options outstanding as of December 31, 1997, ranged from
$3.71 to $32.75. The weighted average remaining contractual life of these
options is 6.7 years.
The fair value of the options presented above was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1997, 1996, and 1995, respectively: risk-free interest
rates of 6.44%, 6.78%, and 6.24%; dividend yields of 2.86%, 3.41%, and 4.11%;
volatility factors of the expected market price of Huntington's common stock of
.262, .280, and .294; and a weighted average expected option life of 6 years.
Because the effect of applying the fair value method to Huntington's stock
options results in net income and earnings per share that are not materially
different from amounts reported in the consolidated statements of income, pro
forma information has not been provided.
33
- --------------------------------------------------------------------------------
22. REGULATORY MATTERS
The bank subsidiaries of Huntington are required to maintain reserve balances
with the Federal Reserve Bank. During 1997, the average balances were $104.0
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 1998 of approximately $48.8 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, 1997, the subsidiary banks could
lend to Huntington $172.5 million, subject to the qualifying collateral
requirements defined in the regulations.
Huntington and its bank subsidiaries are subject to various regulatory
capital requirements administered by federal and state banking agencies. Failure
to meet minimum capital requirements can initiate certain actions by regulators
that, if undertaken, could have a material effect on Huntington's and its bank
subsidiaries' financial statements. Capital adequacy guidelines require
minimum ratios of 4.00% for Tier I risk-based capital, 8.00% for total
risk-based capital, and 3.00% for Tier I leverage. To be considered well
capitalized under the regulatory framework for prompt corrective action, the
ratios are 6.00%, 10.00%, and 5.00%, respectively.
Capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings of assets and
certain off-balance sheet items, and other factors. Management believes, as of
December 31, 1997, that Huntington met all capital adequacy requirements. In
addition, each bank subsidiary had regulatory capital ratios in excess of the
levels established for well capitalized institutions.
Presented in the table below are the capital ratios of Huntington and its
lead subsidiary, The Huntington National Bank as well as a comparison of the
period-end capital balances with the related amounts established by the
regulators.
CAPITAL AMOUNTS
---------------------------------------------------------
(in millions of dollars) RATIOS ACTUAL MINIMUM WELL CAPITALIZED
- ------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997:
Tier I Risk-Based Capital
Huntington Bancshares Incorporated ........ 8.83% $1,954 $ 885 $1,328
The Huntington National Bank .............. 6.62 1,456 880 1,321
Total Risk-Based Capital
Huntington Bancshares Incorporated ........ 11.68 2,584 1,770 2,213
The Huntington National Bank .............. 11.10 2,443 1,761 2,201
Tier I Leverage
Huntington Bancshares Incorporated ........ 7.77 1,954 755 1,258
The Huntington National Bank .............. 5.70 1,456 766 1,276
AS OF DECEMBER 31, 1996:
Tier I Risk-Based Capital
Huntington Bancshares Incorporated ........ 8.11% $1,615 $ 797 $1,195
The Huntington National Bank .............. 7.93 1,546 780 1,170
Total Risk-Based Capital
Huntington Bancshares Incorporated ........ 11.29 2,248 1,594 1,992
The Huntington National Bank .............. 11.40 2,223 1,559 1,949
Tier I Leverage
Huntington Bancshares Incorporated ........ 6.80 1,615 713 1,188
The Huntington National Bank .............. 6.65 1,546 698 1,163
- --------------------------------------------------------------------------------
34
23. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (in thousands of dollars) DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents .................................................... $ 285,926 $ 64,129
Securities available for sale ................................................ 7,635 7,229
Due from subsidiaries
Bank subsidiaries ......................................................... 600,578 200,000
Non-bank subsidiaries ..................................................... 10,297 286,936
Investment in subsidiaries on the equity method
Bank subsidiaries ......................................................... 1,721,789 1,675,982
Non-bank subsidiaries ..................................................... 29,411 44,357
Excess of cost of investment in subsidiaries over net assets acquired ........ 12,155 28,731
Other assets ................................................................. 89,321 91,415
---------- ----------
TOTAL ASSETS ........................................................... $2,757,112 $2,398,779
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings ........................................................ $ 80,525 $ 140,011
Long-term debt
Subsidiary trust .......................................................... 206,186 --
Unaffliated companies ..................................................... 333,914 358,786
Dividends payable ............................................................ 38,591 28,899
Accrued expenses and other liabilities ....................................... 72,505 85,425
---------- ----------
Total Liabilities ......................................................... 731,721 613,121
Shareholders' Equity ......................................................... 2,025,391 1,785,658
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $2,757,112 $2,398,779
========== ==========
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (in thousands of dollars) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from
Bank subsidiaries ...................................................... $ 228,892 $ 348,516 $ 234,676
Non-bank subsidiaries .................................................. 2,961 6,385 7,855
Interest from
Bank subsidiaries ...................................................... 18,227 3,482 2,879
Non-bank subsidiaries .................................................. 19,032 11,787 7,577
Other ..................................................................... 1,537 813 826
--------- --------- ---------
TOTAL INCOME ........................................................ 270,649 370,983 253,813
--------- --------- ---------
EXPENSE
Interest on debt .......................................................... 36,128 23,716 15,806
Other ..................................................................... 30,020 18,295 19,052
--------- --------- ---------
TOTAL EXPENSE ....................................................... 66,148 42,011 34,858
--------- --------- ---------
Income before income taxes and equity in undistributed
net income of subsidiaries .............................................. 204,501 328,972 218,955
Income tax benefit ........................................................... (8,630) (13,986) (10,161)
--------- --------- ---------
Income before equity in undistributed net income of subsidiaries ............. 213,131 342,958 229,116
--------- --------- ---------
Equity in undistributed net income of
Bank subsidiaries ...................................................... 80,523 (48,616) 47,555
Non-bank subsidiaries .................................................. (991) 9,927 5,130
--------- --------- ---------
NET INCOME .......................................................... $ 292,663 $ 304,269 $ 281,801
========= ========= =========
35
- --------------------------------------------------------------------------------
23. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income ..................................................................... $ 292,663 $ 304,269 $ 281,801
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries .......................... (79,532) 38,689 (52,685)
Amortization ................................................................ 3,460 5,285 4,085
Increase in other assets .................................................... (4,961) (26,139) (5,888)
Decrease in other liabilities ............................................... (13,942) (18,340) (10,357)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 197,688 303,764 216,956
--------- --------- ---------
INVESTING ACTIVITIES
(Advances to) repayments from subsidiaries ..................................... (71,485) (167,289) 16,539
Decrease (increase) in investments in subsidiaries ............................. 197,263 (1,433) (9,697)
Other .......................................................................... (15,000) (4,775) (2,801)
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES...................... 110,778 (173,497) 4,041
--------- --------- ---------
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings ................................... (100,000) 75,000 55,000
Proceeds from issuance of long-term debt ....................................... 200,000 85,000 95,000
Payment of long-term debt ...................................................... (25,000) (346) (50,598)
Dividends paid on common stock ................................................. (132,760) (125,379) (118,906)
Acquisition of treasury stock .................................................. (56,175) (258,415) (206,556)
Proceeds from issuance of treasury stock ....................................... 27,266 43,971 41,557
--------- --------- ---------
NET CASH USED FOR FINANCING ACTIVITIES ................................... (86,669) (180,169) (184,503)
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS ...................................... 221,797 (49,902) 36,494
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................... 64,129 114,031 77,537
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................. $ 285,926 $ 64,129 $ 114,031
========= ========= =========