1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 1999
Commission File Number 0-2525
HUNTINGTON BANCSHARES INCORPORATED
MARYLAND 31-0724920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287
Registrant's telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
===== =====
There were 229,757,210 shares of Registrant's without par value common stock
outstanding on October 31, 1999.
2
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31, September 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------------------------------- ------------- ------------ -------------
ASSETS
Cash and due from banks .................................................... $ 972,164 $ 1,215,814 $ 1,143,684
Interest bearing deposits in banks ......................................... 7,325 102,564 2,776
Trading account securities ................................................. 3,964 3,839 13,039
Federal funds sold and securities
purchased under resale agreements ..................................... 10,310 135,764 14,641
Loans held for sale ........................................................ 681,505 466,664 300,076
Securities available for sale - at fair value .............................. 5,086,596 4,781,415 4,536,798
Investment securities - fair value $20,129; $25,044;
and $27,443, respectively ............................................. 20,110 24,934 26,937
Total loans (1) ............................................................ 20,009,020 19,454,551 19,137,552
Less allowance for loan losses ........................................ 295,612 290,948 286,122
----------- ----------- -----------
Net loans .................................................................. 19,713,408 19,163,603 18,851,430
----------- ----------- -----------
Bank owned life insurance .................................................. 756,008 727,837 620,614
Premises and equipment ..................................................... 434,584 447,038 526,454
Customers' acceptance liability ............................................ 24,684 22,591 18,027
Accrued income and other assets ............................................ 1,263,964 1,204,273 1,300,620
----------- ----------- -----------
TOTAL ASSETS ............................................................... $28,974,622 $28,296,336 $27,355,096
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ......................................................... $19,241,808 $19,722,772 $19,246,735
Short-term borrowings ...................................................... 2,501,862 2,216,644 1,782,208
Bank acceptances outstanding ............................................... 24,684 22,591 18,027
Medium-term notes .......................................................... 3,424,150 2,539,900 2,524,900
Subordinated notes and other long-term debt ................................ 700,597 707,359 731,779
Company obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Parent Company ..................... 300,000 300,000 300,000
Accrued expenses and other liabilities ..................................... 622,356 638,275 533,398
----------- ----------- -----------
Total Liabilities ..................................................... 26,815,457 26,147,541 25,137,047
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none issued or outstanding
Common stock - without par value; authorized 500,000,000 shares; issued
233,844,900, 212,596,344, and 212,596,344 shares, respectively;
outstanding 229,807,644, 210,746,337, and
211,476,187 shares, respectively ................................. 2,285,494 2,137,915 2,139,742
Treasury stock ........................................................ (112,229) (49,271) (28,765)
Accumulated other comprehensive income ................................ (73,746) 24,693 60,675
Retained earnings ..................................................... 59,646 35,458 46,397
----------- ----------- -----------
Total Shareholders' Equity ............................................ 2,159,165 2,148,795 2,218,049
----------- ----------- -----------
Total Liabilities and Shareholders' Equity ................................. $28,974,622 $28,296,336 $27,355,096
=========== =========== ===========
(1) See page 12 for detail of total loans and total deposits.
See notes to unaudited consolidated financial statements.
2
3
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands of dollars, except per share amounts) SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------ --------------------- -------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
Interest and fee income
Loans ........................................... $434,159 $421,745 $1,259,791 $1,221,686
Securities ...................................... 78,632 68,147 235,363 249,687
Other ........................................... 3,503 15,329 15,332 27,596
-------- -------- ---------- ----------
TOTAL INTEREST INCOME ................. 516,294 505,221 1,510,486 1,498,969
-------- -------- ---------- ----------
Interest expense
Deposits ........................................ 159,509 177,821 468,982 502,226
Short-term borrowings ........................... 26,700 17,152 87,703 75,317
Medium-term notes ............................... 46,575 42,163 120,682 129,839
Subordinated notes and other long-term debt ..... 15,079 16,570 44,019 37,795
-------- -------- ---------- ----------
TOTAL INTEREST EXPENSE ................ 247,863 253,706 721,386 745,177
-------- -------- ---------- ----------
NET INTEREST INCOME ................... 268,431 251,515 789,100 753,792
Provision for loan losses ............................ 22,076 24,160 68,407 70,936
-------- -------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES .. 246,355 227,355 720,693 682,856
-------- -------- ---------- ----------
Total non-interest income (1) ........................ 115,654 114,641 342,802 329,716
Total non-interest expense (1) ....................... 206,189 211,877 610,433 614,997
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES ............ 155,820 130,119 453,062 397,575
Provision for income taxes ........................... 50,233 41,364 145,928 127,025
-------- -------- ---------- ----------
NET INCOME ............................ $105,587 $ 88,755 $ 307,134 $ 270,550
======== ======== ========== ==========
PER COMMON SHARE (2)
Net income
Basic ...................................... $ 0.46 $ 0.38 $ 1.33 $ 1.16
Diluted .................................... $ 0.46 $ 0.38 $ 1.32 $ 1.15
Cash dividends declared ......................... $ 0.20 $ 0.18 $ 0.56 $ 0.50
AVERAGE COMMON SHARES (2)
Basic ...................................... 230,133 232,886 230,851 232,721
Diluted .................................... 232,015 234,845 232,853 235,060
(1) See page 13 for detail of non-interest income and non-interest expense.
(2) Adjusted for stock dividends and stock splits, as applicable.
See notes to unaudited consolidated financial statements.
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4
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ACCUMULATED
OTHER
COMMON COMMON TREASURY TREASURY COMPREHENSIVE RETAINED
SHARES STOCK SHARES STOCK INCOME EARNINGS TOTAL
- ------------------------------------------------ ------- ---------- -------- ---------- ------------- -------- ----------
Nine Months Ended September 30, 1998:
Balance, beginning of period 193,279 $1,933,003 (1,543) ($36,791) $14,800 $114,379 $2,025,391
Comprehensive Income:
Net income 270,550 270,550
Unrealized net holding gains on securities
available for sale arising during the
period 45,875 45,875
----------
Total comprehensive income 316,425
----------
Cash dividends declared (119,289) (119,289)
Stock issued for acquisition (3,815) 160 3,883 68
Stock options exercised (8,521) 642 12,151 3,630
10% stock dividend 19,317 218,871 (83) (219,243) (372)
Treasury shares purchased (315) (8,487) (8,487)
Treasury shares sold to
employee benefit plans 204 19 479 683
------- ---------- ------ --------- -------- -------- ----------
Balance, end of period 212,596 $2,139,742 (1,120) ($28,765) $60,675 $46,397 $2,218,049
======= ========== ====== ========= ======== ======== ==========
NINE MONTHS ENDED SEPTEMBER 30, 1999
BALANCE, BEGINNING OF PERIOD 212,596 $2,137,915 (1,850) ($49,271) $24,693 $35,458 $2,148,795
COMPREHENSIVE INCOME:
NET INCOME 307,134 307,134
UNREALIZED NET HOLDING LOSSES ON SECURITIES
AVAILABLE FOR SALE ARISING DURING THE
PERIOD (98,439) (98,439)
----------
TOTAL COMPREHENSIVE INCOME 208,695
----------
CASH DIVIDENDS DECLARED (130,011) (130,011)
STOCK OPTIONS EXERCISED (5,005) 294 8,193 3,188
10% STOCK DIVIDEND 21,249 152,584 (304) (152,935) (351)
TREASURY SHARES PURCHASED (2,201) (71,860) (71,860)
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 24 709 709
------- ---------- ------ --------- -------- --------- ----------
BALANCE, END OF PERIOD 233,845 $2,285,494 (4,037) ($112,229) ($73,746) $59,646 $2,159,165
======= ========== ====== ========= ======== ========= ==========
See notes to unaudited consolidated financial statements.
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5
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
(in thousands of dollars) 1999 1998
----------- -----------
OPERATING ACTIVITIES
Net Income ................................................................ $ 307,134 $ 270,550
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ....................................... 68,407 70,936
Provision for depreciation and amortization ..................... 85,691 57,887
Deferred income tax expense ..................................... 42,854 30,201
Increase in trading account securities .......................... (125) (5,957)
Decrease (increase) in mortgage loans held for sale ............. 328,262 (107,128)
Net gains on sales of securities ................................ (5,067) (28,020)
Net gains on sales of loans ..................................... -- (9,857)
(Increase) decrease in accrued income receivable ................ (30,331) 28,041
Net increase in other assets .................................... (110,193) (91,078)
Increase (decrease) in accrued expenses ......................... 17,082 (32,225)
Net decrease in other liabilities ............................... (9,854) (33,509)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............... 693,860 149,841
----------- -----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks ............................ 95,239 36,842
Proceeds from :
Maturities and calls of investment securities ......................... 4,796 5,999
Maturities and calls of securities available for sale ................. 570,841 932,590
Sales of securities available for sale ................................ 1,660,969 3,422,023
Purchases of securities available for sale ................................ (2,686,470) (2,959,346)
Proceeds from sales of loans .............................................. -- 132,712
Net loan originations, excluding sales .................................... (1,168,814) (156,227)
Proceeds from disposal of premises and equipment .......................... 14,410 809
Purchases of premises and equipment ....................................... (52,801) (105,518)
Proceeds from sales of other real estate .................................. 11,180 9,452
Purchase of Bank Owned Life Insurance ..................................... -- (200,000)
Net cash received in purchase acquisitions ................................ -- 344,046
----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES .... (1,550,650) 1,463,382
----------- -----------
FINANCING ACTIVITIES
Decrease in total deposits ................................................ (480,924) (1,154,770)
Increase (decrease) in short-term borrowings .............................. 285,218 (1,359,463)
Proceeds from issuance of long-term debt .................................. -- 300,000
Payment of long-term debt ................................................. (7,000) (65,538)
Proceeds from issuance of medium-term notes ............................... 2,082,000 1,020,000
Payment of medium-term notes .............................................. (1,197,750) (827,250)
Proceeds from issuance of capital securities .............................. -- 100,000
Dividends paid on common stock ............................................ (125,895) (115,272)
Repurchase of common stock ................................................ (71,860) (8,487)
Proceeds from issuance of common stock .................................... 3,897 4,313
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES .... 487,686 (2,106,467)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ..................... (369,104) (493,244)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 1,351,578 1,651,569
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 982,474 $ 1,158,325
=========== ===========
See notes to unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, which are, in the opinion
of management, necessary for a fair presentation of the consolidated financial
position, the results of operations, and cash flows for the periods presented.
These unaudited consolidated financial statements have been prepared according
to the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. The Notes to the Consolidated Financial Statements
appearing in Huntington's 1998 Annual Report on Form 10-K should be read in
conjunction with these interim financial statements.
B. RECLASSIFICATIONS
Certain amounts in the prior year's financial statements have been
reclassified to conform to the 1999 presentation. These reclassifications had no
effect on net income.
C. COMPREHENSIVE INCOME
Comprehensive Income includes net income as well as certain items that
are reported directly within a separate component of stockholders' equity that
bypass net income. Currently, Huntington's only component of Other Comprehensive
Income is the unrealized gains (losses) on securities available for sale. The
related before and after tax amounts are as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------------
1999 1998 1999 1998
-------- -------- --------- --------
Unrealized holding gains (losses)
Arising during the period:
Unrealized net (losses) gains $(27,576) $ 80,688 $(147,391) $ 98,984
Related tax benefit (expense) 9,744 (28,489) 52,245 (34,896)
-------- -------- --------- --------
Net (17,832) 52,199 (95,146) 64,088
-------- -------- --------- --------
Reclassification adjustment
For net gains realized
during the period
Realized net gains (537) (10,615) (5,067) (28,020)
Related tax expense 188 3,715 1,774 9,807
-------- -------- --------- --------
Net (349) (6,900) (3,293) (18,213)
-------- -------- --------- --------
Total Other Comprehensive Income $(18,181) $ 45,299 $ (98,439) $ 45,875
======== ======== ========= ========
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D. NEW ACCOUNTING PRONOUNCEMENTS
In September 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement (as amended by
Statement No. 137) establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The Statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows gains and losses from derivatives to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions for which
hedge accounting is applied.
Statement No. 133, as amended, is effective for fiscal years beginning
after September 15, 2000. It may be implemented earlier provided adoption occurs
as of the beginning of any fiscal quarter after issuance. The Statement cannot
be applied retroactively. Huntington expects to adopt Statement No. 133, as
amended, in the first quarter of 2001. Based on information available, the
impact of adoption is not expected to be material to the Consolidated Financial
Statements.
E. TRUST PREFERRED SECURITIES
In January 1997, Huntington Capital I ("the Trust"), a Delaware
statutory business trust owned by Huntington, issued $200 million of company
obligated mandatorily redeemable capital securities. The proceeds from the
issuance of the capital securities ($200 million) and common securities ($6.2
million) were used by the Trust to purchase from Huntington $206.2 million of
Floating Rate Junior Subordinated Debentures.
In September 1998, an additional $100 million of company obligated
mandatorily redeemable capital securities were issued by Huntington Capital II
("the Series B Trust"), a statutory business trust also owned by Huntington. The
proceeds, including $3.1 million of common securities purchased by Huntington,
were used by the Series B Trust to purchase from Huntington $103.1 million of
Series B Floating Rate Junior Subordinated Debentures.
The subordinated debentures are the sole assets of each trust and
Huntington owns all of the common securities of the trusts. Interest payments
made on the capital securities are reported as a component of interest expense
on long-term debt. The capital securities bear interest and mature as follows:
Variable Interest
Rate Maturity Date
----------------- -------------
Huntington Capital I LIBOR + .70% February 1, 2027
Huntington Capital II LIBOR + .625% September 15, 2028
The net proceeds received by Huntington from the sale of the capital
securities were used for general corporate purposes.
7
8
F. SPECIAL CHARGE
In October 1998, Huntington announced several initiatives to strengthen
its financial performance. These initiatives included the realignment of the
banking network; the exit of underperforming product lines and delivery
channels; the reduction of 1,000 work force positions, or approximately 10% of
the total employee base; and other cost savings measures. As a result of the
above initiatives, Huntington incurred a special charge of $90 million in the
fourth quarter of 1998. Refer to Note 2 in the Notes to the Consolidated
Financial Statements appearing in Huntington's 1998 Annual Report on Form 10-K
for further information.
The table below summarizes the major components of the special charge,
as well as the related amounts applied against the reserve through September 30,
1999. Huntington expects that the remaining reserve of $21 million, which
represents estimated future cash outlays, will be substantially utilized by the
end of 1999.
- -----------------------------------------------------------------------------------------------
EMPLOYEE OPERATIONS RETAIL EXIT
(in millions of dollars) COSTS EQUIPMENT BANK OFFICES COSTS TOTAL
- -----------------------------------------------------------------------------------------------
Special Charge $26 $ 12 $20 $32 $ 90
Utilization:
Cash (8) -- -- (7) (15)
Non-cash -- (12) (5) (4) (21)
--- ---- --- --- ----
Balance as of December 31, 1998 18 -- 15 21 54
--- ---- --- --- ----
Utilization (4) -- (4) (5) (13)
--- ---- --- --- ----
Balance as of March 31, 1999 14 -- 11 16 41
--- ---- --- --- ----
Utilization (2) -- (1) (7) (10)
--- ---- --- --- ----
Balance as of June 30, 1999 12 -- 10 9 31
--- ---- --- --- ----
Utilization (5) -- -- (5) (10)
--- ---- --- --- ----
Balance as of September 30, 1999 $ 7 $ -- $10 $ 4 $ 21
=== ==== === === ====
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G. 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
periods ended September 30, is as follows (in thousands, except per share
amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Income $105,587 $ 88,755 $307,134 $270,550
======== ======== ======== ========
Average common shares outstanding 230,133 232,886 230,851 232,721
Dilutive effect of stock options 1,882 1,959 2,002 2,339
-------- -------- -------- --------
Diluted common shares outstanding 232,015 234,845 232,853 235,060
======== ======== ======== ========
Earnings per share
Basic $ .46 $ .38 $ 1.33 $ 1.16
Diluted $ .46 $ .38 $ 1.32 $ 1.15
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
H. LINES OF BUSINESS
Huntington segments its operations into five distinct lines of business:
Retail Banking; Corporate Banking; Dealer Sales; Private Financial Group; and
Treasury/Other. Line of business results are determined based upon Huntington's
business profitability reporting system, which assigns balance sheet and income
statement items to each of the business segments. The process is designed around
Huntington's organizational and management structure and accordingly, the
results are not necessarily comparable with similar information published by
other financial institutions. Results are revised periodically to reflect
enhancements to Huntington's profitability reporting system and changes in its
organizational structure. For a detailed description of the individual segments,
refer to Huntington's Management Discussion and Analysis.
9
10
H. LINES OF BUSINESS - CONTINUED
THREE MONTHS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $143,439 $66,035 $52,807 $ 6,955 $ 1,475 $270,711
Provision for Loan Losses 8,304 4,040 9,130 602 -- 22,076
Non-Interest Income 70,471 17,927 1,107 11,798 14,351 115,654
Non-Interest Expense 133,388 31,350 12,224 10,239 18,988 206,189
Income Taxes and FTE Adjustment 23,971 16,138 10,822 2,629 (1,047) 52,513
-------- ------- ------- ------- ------- --------
Net Income $ 48,247 $32,434 $21,738 $ 5,283 $(2,115) $105,587
======== ======= ======= ======= ======= ========
Depreciation & Amortization $ 13,855 $ 2,119 $ 282 $ 354 $ 9,787 $ 26,397
======== ======= ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets $ 6,981 $ 7,249 $ 6,291 $ 583 $ 7,697 $ 28,801
Average Total Deposits 16,792 1,007 64 537 799 19,199
Capital Expenditures 5 1 -- -- 9 15
THREE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $139,710 $67,782 $41,130 $ 8,037 $(2,577) $254,082
Provision for Loan Losses 5,924 7,743 10,296 197 -- 24,160
Non-Interest Income 56,788 18,804 2,034 10,465 26,550 114,641
Non-Interest Expense 141,593 32,863 12,129 9,596 15,696 211,877
Income Taxes and FTE Adjustment 16,213 15,219 6,865 2,883 2,751 43,931
-------- ------- ------- ------- ------- --------
Net Income $ 32,768 $30,761 $13,874 $ 5,826 $ 5,526 $ 88,755
======== ======= ======= ======= ======= ========
Depreciation & Amortization $ 12,153 $ 1,018 $ 54 $ 188 $ 9,552 $ 22,965
======== ======= ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets $ 7,359 $ 6,893 $ 5,362 $ 633 $ 7,268 $ 27,515
Average Total Deposits 17,433 1,032 64 474 322 19,325
Capital Expenditures 19 2 -- -- 19 40
10
11
NINE MONTHS ENDED SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- -------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $416,536 $197,793 $144,799 $21,359 $15,787 $796,274
Provision for Loan Losses 26,270 11,285 29,845 1,007 -- 68,407
Non-Interest Income 209,833 50,610 2,048 35,293 45,018 342,802
Non-Interest Expense 401,331 93,782 35,764 29,978 49,578 610,433
Income Taxes and FTE Adjustment 66,103 47,688 27,028 8,540 3,743 153,102
-------- -------- -------- ------- ------- --------
Net Income $132,665 $ 95,648 $ 54,210 $17,127 $ 7,484 $307,134
======== ======== ======== ======= ======= ========
Depreciation & Amortization $ 46,816 $ 6,347 $ 840 $ 1,101 $30,587 $ 85,691
======== ======== ======== ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets $ 7,028 $ 7,240 $ 6,042 $ 588 $ 7,755 $ 28,653
Average Total Deposits 16,948 1,005 63 527 592 19,135
Capital Expenditures 13 3 -- -- 37 53
NINE MONTHS ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- -------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $404,670 $189,565 $121,421 $23,762 $22,177 $761,595
Provision for Loan Losses 27,372 13,300 29,337 927 -- 70,936
Non-Interest Income 170,402 52,896 5,409 31,157 69,852 329,716
Non-Interest Expense 404,917 102,248 37,012 29,138 41,682 614,997
Income Taxes and FTE Adjustment 47,441 42,164 20,096 8,258 16,869 134,828
-------- -------- -------- ------- ------- --------
Net Income $ 95,342 $ 84,749 $ 40,385 $16,596 $33,478 $270,550
======== ======== ======== ======= ======= ========
Depreciation & Amortization $ 37,068 $ 3,980 $ 364 $ 775 $15,700 $ 57,887
======== ======== ======== ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets $ 7,026 $ 6,547 $ 5,178 $ 620 $ 7,272 $ 26,643
Average Total Deposits 16,012 978 62 471 571 18,094
Capital Expenditures 33 4 -- -- 69 106
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- --------------------------------------------------------------------------------
FINANCIAL REVIEW
LOAN PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------- ------------- ------------ -------------
Commercial (1) ............................... $ 6,103,070 $ 6,026,736 $ 5,894,899
Real Estate
Construction ............................ 1,140,187 919,326 826,301
Commercial .............................. 2,178,699 2,231,786 2,254,991
Residential ............................. 1,434,353 1,408,289 1,478,354
Consumer
Loans (1) ................................ 6,646,372 6,958,054 6,908,927
Leases ................................... 2,506,509 1,910,642 1,774,429
------------ ------------ ------------
20,009,190 19,454,833 19,137,901
Unearned income on loans ..................... (170) (282) (349)
------------ ------------ ------------
TOTAL LOANS ............................. $ 20,009,020 $ 19,454,551 $ 19,137,552
============ ============ ============
DEPOSIT COMPOSITION
- -------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------- ------------- ------------ -------------
Demand deposits
Non-interest bearing .................... $ 2,888,886 $ 3,129,199 $ 2,863,784
Interest bearing ........................ 4,549,729 4,642,147 4,244,527
Savings deposits ............................. 3,913,901 3,690,040 3,636,995
Other domestic time deposits ................. 5,707,685 6,186,985 6,560,886
------------ ------------ ------------
TOTAL CORE DEPOSITS ..................... 17,060,201 17,648,371 17,306,192
------------ ------------ ------------
Certificates of deposit of $100,000 or more .. 1,695,764 1,699,261 1,825,802
Foreign time deposits ........................ 485,843 375,140 114,741
------------ ------------ ------------
TOTAL DEPOSITS .......................... $ 19,241,808 $ 19,722,772 $ 19,246,735
============ ============ ============
(1) Balance at September 1999, excludes $25 million of business credit card and
$518 million of consumer credit card receivables, respectively, classified as
"held for sale".
12
13
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
ANALYSIS OF NON-INTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands of dollars) SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------------------- --------------------- PERCENT --------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- -------
Service charges on deposit accounts ................ $ 41,700 $ 32,493 28.3% $113,541 $ 92,411 22.9%
Brokerage and insurance ............................ 14,620 10,057 45.4 38,703 26,862 44.1
Mortgage banking ................................... 14,282 15,270 (6.5) 47,464 44,618 6.4
Trust services ..................................... 12,625 12,502 1.0 39,202 37,830 3.6
Electronic banking fees ............................ 9,771 7,897 23.7 27,219 21,165 28.6
Bank Owned Life Insurance income ................... 9,390 8,098 16.0 28,170 20,614 36.7
Credit card fees ................................... 6,626 5,197 27.5 18,223 15,542 17.3
Other .............................................. 6,103 12,512 (51.2) 25,213 42,654 (40.9)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS .. 115,117 104,026 10.7 337,735 301,696 11.9
-------- -------- -------- --------
Securities gains ................................... 537 10,615 (94.9) 5,067 28,020 (81.9)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME .......................... $115,654 $114,641 0.9% $342,802 $329,716 4.0%
======== ======== ======== ========
ANALYSIS OF NON-INTEREST EXPENSE
- ------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands of dollars) SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------------------- --------------------- PERCENT --------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- -------
Personnel and related costs ........................ $104,730 $111,744 (6.3)% $319,247 $324,939 (1.8)%
Net occupancy ...................................... 16,799 15,019 11.9 44,279 42,521 4.1
Equipment .......................................... 16,059 15,001 7.1 48,505 45,838 5.8
Outside data processing and other services ......... 15,929 17,550 (9.2) 47,244 53,880 (12.3)
Amortization of intangible assets .................. 9,326 9,467 (1.5) 27,990 16,253 72.2
Marketing .......................................... 8,722 8,762 (0.5) 21,922 24,009 (8.7)
Telecommunications ................................. 7,412 7,793 (4.9) 21,411 21,256 0.7
Printing and supplies .............................. 5,254 5,851 (10.2) 14,744 17,223 (14.4)
Legal and other professional services .............. 4,754 5,291 (10.1) 15,301 17,313 (11.6)
Franchise and other taxes .......................... 3,598 5,523 (34.9) 11,966 16,549 (27.7)
Other .............................................. 13,606 9,876 37.8 37,824 35,216 7.4
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ......................... $206,189 $211,877 (2.7)% $610,433 $614,997 (0.7)%
======== ======== ======== ========
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
Huntington Bancshares Incorporated (Huntington) is a multi-state bank
holding company headquartered in Columbus, Ohio. Its subsidiaries are engaged in
full-service commercial and consumer banking, mortgage banking, lease financing,
trust services, discount brokerage services, underwriting credit life and
disability insurance, issuing commercial paper guaranteed by Huntington, and
selling other insurance and financial products and services. Huntington's
subsidiaries operate domestically in offices located in Ohio, Michigan, Florida,
West Virginia, Indiana, and Kentucky. Huntington has foreign offices in the
Cayman Islands and Hong Kong.
In 1995, Congress passed the Private Securities Litigation Reform Act to
encourage corporations to provide investors with information about anticipated
future financial performance, goals, and strategies. The Act provides a safe
harbor for such disclosure, or in other words, protection from unwarranted
litigation if actual results are not the same as management's expectations. This
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, contains forward-looking statements including certain
plans, expectations, goals, and projections--including without limitation those
relating to Huntington's Year 2000 readiness--that are subject to numerous
assumptions, risks, and uncertainties. Actual results could differ materially
from those contained in or implied by Huntington's statements due to a variety
of factors including:
o changes in economic conditions and movements in interest rates;
o competitive pressures on product pricing and services;
o success and timing of business strategies and successful integration of
acquired businesses;
o the nature, extent, and timing of governmental actions and reforms; and,
o risks of Year 2000 disruption and extended disruption of vital
infrastructure.
The management of Huntington encourages readers of this Form 10-Q to
understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance. The following discussion and analysis of
the financial performance of Huntington for the third quarter of 1999 should be
read in conjunction with the financial statements, notes and other information
contained herein.
Huntington reported net income of $105.6 million for the third quarter
of 1999 versus $88.8 million one year ago. In these same periods, diluted
earnings per share increased 21.1%, from $.38 to $.46. For the first nine months
of the year, net income was $307.1 million, compared with $270.6 million in the
same period last year. Diluted earnings per share for the nine month periods was
$1.32 and $1.15, respectively, an increase of 14.8%. Return on average assets
(ROA) was 1.45% and 1.43% for the third quarter and first nine months of 1999,
respectively, compared with 1.28% and 1.36% for the same periods a year ago.
Return on average equity (ROE) increased to 19.07% in the recent quarter, versus
16.43% in the third quarter last year. On a year-to-date basis, ROE was 19.01%
in 1999 and 17.27% in 1998.
Huntington's "cash basis" diluted earnings per share, which excludes the
effect of goodwill and other intangible assets amortization, net of tax, rose to
$.49 in the recent three months, compared with $.41 per share in last year's
third quarter. Cash basis ROA and ROE, which are computed using cash basis
earnings as a percentage of average tangible assets and average tangible equity
were 1.59% and 29.54%, respectively. Under this same basis for the first nine
months of 1999, ROA was 1.57% and ROE was 29.90%. Huntington's efficiency ratio
for the quarter just ended was 51.02%, a 5.4 percentage point improvement from
one year ago.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Total assets were $29.0 billion at September 30, 1999, compared with
$27.4 billion twelve months ago. The increase was primarily the result of strong
loan growth, particularly in the consumer area. Loans held for sale increased
during the recent quarter due to the recently announced decision by Huntington
to sell its retail and corporate credit card receivables. The sale closed in
October 1999. Commercial loans, including non-residential real estate, were up
approximately 6.3% versus the third quarter one year ago. In this same period,
consumer loans grew nearly 10%, primarily in the areas of vehicle leasing and
home equity lending.
On the funding side of the balance sheet, average core deposits were
$17.1 billion in the recent quarter, representing a decline of 2% versus the
same three months of 1998. Retail certificates of deposit drove the decrease as
all other categories were up from last year. Huntington continued to raise
short-term wholesale monies and issue unsecured medium-term notes as sources of
additional funding.
LINES OF BUSINESS
Huntington segments its operations into five distinct lines of business:
Retail Banking, Corporate Banking, Dealer Sales, Private Financial Group, and
Treasury/Other. Line of business results are determined based upon Huntington's
business profitability reporting system, which assigns balance sheet and income
statement items to each of the business segments. The process is designed around
Huntington's organizational and management structure, and accordingly, the
results are not necessarily comparable to similar information published by other
financial institutions. Below is a discussion of the business segment results,
which can be found in the notes to the unaudited consolidated financial
statements.
Retail Banking - Retail Banking net income was $48.2 million and $132.7 million
for the third quarter and the first nine months of 1999, respectively. This
represents a 47.2% and 39.1% increase, respectively, over 1998. Non-interest
income for the recent quarter increased 24.1% over the same period a year ago
with strength in service charges, brokerage and insurance income, and electronic
banking income. Mortgage banking revenues were off 17.4% as higher market rates
curtailed new production. Non-interest expenses were flat versus the comparable
periods of 1998. This segment contributed 43% of Huntington's year-to-date 1999
net income and comprised 31% of its total loan portfolio.
Corporate Banking - Corporate Banking posted net income of $32.4 million for the
third quarter, a 5.4% increase over 1998. For the first nine months, net income
was $95.6 million versus $84.7 million one year ago. The larger increase
year-to-date was the result of solid loan and deposit growth in the first half
of the year. The recent quarter's performance was impacted by certain paydowns
of significant larger credits. This segment contributed 31% of Huntington's
third quarter earnings and represented 35% of the total loan portfolio.
Dealer Sales - Net income totaled $21.7 million and $54.2 million for the recent
quarter and year-to-date periods, respectively, up 56.7% and 34.2% from one year
ago. Increased vehicle leasing volumes pushed net interest income higher.
Tighter expense control also helped to mitigate weakness in non-interest income.
This business line totaled 21% of Huntington's net income in the recent three
months and 30% of its outstanding loans.
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Private Financial Group - The Private Financial Group achieved net income for
the quarter just ended of $5.3 million, 9.3% lower than the year-ago quarter,
and $17.1 million for the first nine months, an increase of 3.2% over the same
period last year. Net interest income for the quarter declined 13.5% due to
lower loan and deposit volumes. Non-interest income increased for the same
period 12.7% primarily due to increases in service charges, trust revenue, and
credit card income. This segment represented 5% of Huntington's third quarter
1999 operating results and 3% of total loans at September 30, 1999.
Treasury/Other - This segment reported a net loss of $2.1 million for the recent
quarter and net income of $7.5 million for the nine months just ended. In
comparing third quarter 1999 results to the same period last year, the primary
difference was $10.6 million of securities gains in 1998 versus only $.5 million
in this quarter. In terms of the nine month results, the lower securities gains
and increased amortization of intangibles subsequent to the Florida branch
acquisition in June 1998 drove net income down versus last year.
RESULTS OF OPERATIONS
NET INTEREST INCOME
- -------------------
Net interest income for the three and nine months ended September 30,
1999, was $268.4 million and $789.1 million, increases of 6.7% and 4.7%,
respectively, when compared with the same periods last year. The increase in the
recent quarter is primarily attributable to growth in earning assets, though the
net interest margin did increase modestly to 4.22%, compared with 4.18% in
1998's third quarter. Higher earning assets also drove the year-to-date
increase.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses is the charge to earnings that management
estimates to be necessary to maintain the allowance for loan losses at a level
adequate to absorb inherent losses in the loan and lease portfolios. The
provision for loan losses was $22.1 million in the third quarter of 1999, down
from $24.2 million one year ago. On a year-to-date basis, the provision was
$68.4 million, also down from $70.9 million in the first nine months of 1998.
Annualized net charge-offs as a percentage of average total loans were .39% and
.43% in the three and nine months just ended. Loan losses totaled .52% and .48%
in the same periods last year.
NON-INTEREST INCOME
- -------------------
Excluding gains from securities transactions, non-interest income was
$115.1 million for the recent three months and $337.7 million for the first nine
months of the year. Substantial improvements were experienced in several
fee-based activities. Brokerage and insurance income increased 45.4% in the
quarter due to Huntington's growing network of licensed investment and insurance
representatives, coupled with an advertising campaign promoting the company's
proprietary annuity product. The 28.3% increase in service charges was the
result of higher fee income from retail deposit accounts and growth in sales of
cash management products targeted to small businesses. Electronic banking income
was up 23.7% primarily due to the increasing popularity of Huntington's check
card product, along with an expanded number of on-line
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
banking customers. Income from Bank Owned Life Insurance was $9.4 million and
$28.2 million, respectively, in the three months and nine months ended September
30, 1999, compared with $8.1 million and $20.6 million for the same periods a
year ago. Included within other non-interest income for the recent nine month
period is $2.5 million of gains from the June 1998 sale of branch banking
offices in Michigan. Included in this category last year is a gain of $9.5
million from the June 1998 sale of Huntington's out-of-market credit card
portfolio.
Securities transactions netted gains of $.5 million in the quarter just
ended and $5.1 million year-to-date. Huntington sold a portion of its common
stock investment in Security First Technologies Corporation in the second
quarter of 1999 at a gain of $23 million. Substantially offsetting this gain
were losses from the sale of fixed-income investments as Huntington repositioned
the portfolio to improve returns.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense totaled $206.2 million in the third quarter, a
decrease of 2.7% from one year ago. For the first nine months of 1999,
non-interest expense totaled $610.4 million, a slight decrease from the same
period in 1998. Adjusting for last year's Florida branch acquisition, which
largely impacted only the second half of 1998, non-interest expense declined
approximately 5.5%. Also adjusted for the purchase acquisition, personnel costs
were down 6.3% and 5.5% for the recent three and nine month periods as
Huntington has substantially completed its planned staffing reductions.
Decreased costs for outside services, printing and supplies, telecommunications,
and legal and other professional services were the result of ongoing
corporate-wide efficiency initiatives. Increases in occupancy and equipment
expenses were the result of banking office additions and other strategic
spending, particularly in the state of Florida. Depreciation expense related to
Huntington's new operations center in Columbus, Ohio, also contributed to the
increase.
Huntington announced several strategic actions in 1998 that have
directly impacted the current year's results, including the closing and/or sale
of approximately 33 underperforming banking offices. Huntington closed 26 and
sold 7 of these offices during the first nine months of 1999 with an additional
6 offices expected to be sold or closed prior to March 31, 2000. Huntington also
exited certain business activities, as discussed in the 1998 Annual Report on
Form 10-K.
YEAR 2000
The Year 2000 problem is the result of many existing computer programs
using only the last two-digits, as opposed to four digits, to indicate the year.
Such computer systems may be unable to recognize a year that begins with "20"
instead of "19". If not corrected, many computer programs could cause systems to
fail or other computer errors, leading to possible disruptions in operations or
creation of erroneous results.
Huntington engaged an independent consultant to establish a Year 2000
Program Management Office (PMO). The PMO organized Huntington's Year 2000
project management activities beyond the technical information services group
into all business units. The PMO helped create the methodology that is used in
every business unit and also afforded a quality assurance process with respect
to the actions taken to remedy the Year 2000 problem. A
17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
multitude of internal personnel from various disciplines throughout the
Huntington organization have been actively working on this project.
Huntington systems have been tested and adjusted for the Year 2000 date
change. Today all Huntington systems are performing under stringent Year 2000
scenarios. Huntington met the Year 2000 readiness goals and timetables
established by the Federal Financial Institutions Examination Council (FFIEC).
Huntington, in an enterprise-wide effort, has carefully adhered to its
Year 2000 Plan (the Plan), which addresses all systems, software, hardware, and
infrastructure components. In connection with implementation of the Plan,
business processes were assessed and validated throughout the organization. The
Plan identified and addressed "Mission Critical" and "Non-mission Critical"
components for Information Technology (IT) systems, Non-information Technology
(Non-IT) systems, and business processes. IT includes, for example, systems that
service loan and deposit customers. Non-IT systems include, among other things,
security systems, elevators, utilities, and voice/data communications. An
application, system, or process is Mission Critical if it is vital to the
successful continuance of a core business activity. Huntington has fully
completed the Plan's goals for both IT and Non-IT systems, following a five
phase approach recommended by federal bank regulators.
Beginning November 1, 1999, Huntington placed a freeze on all changes to
major business processes and systems that will be in effect until March 1, 2000.
The purpose of this freeze is to further protect the organization from Year 2000
disruption caused by changes that have not been validated as Year 2000 ready
being introduced to otherwise ready business processes and systems. A command
center has been established to address any incidents that may occur and
coordinate status reporting during this period. In addition, a call center
committee has been formed to handle the expected customer inquires and ensure
consistent communication is provided to all employees and customers. As part of
Huntington's contingency planning, staffing in all areas of the organization is
being coordinated through this command center to ensure adequate coverage in
case of an incident. Event drills are taking place in early December to train
employees to handle a sample failure scenario. While the company cannot predict
what will happen, Huntington is addressing a `worst case' scenario (i.e., loss
of power, loss of telecommunications, etc.) in its contingency planning.
Furthermore, Huntington has identified and performed "due diligence" on
approximately 350 vendors, with a focus on twenty-one vendors considered
"Mission Critical." Huntington has worked with each of these parties to test
transactions and/or interfaces between its processors, obtained appropriate
information from each party, and assessed each party's ability to be prepared
for the Year 2000. Huntington depends on various third-party vendors, suppliers,
and service providers. The activities undertaken by these third parties can vary
from processing and settlement of automated teller transactions to mortgage loan
processing. Huntington will be dependent on the continued service by its
vendors, suppliers, service providers, and ultimately its customers' continued
operations in order to avoid business interruptions. Any interruption in a third
party's ability to provide goods and services, such as issues with
telecommunication links, power, and transportation, could present problems to
Huntington's ability to service its customers.
Identifiable costs for the Year 2000 project incurred in the third
quarter and first nine months of 1999 were $1.9 million and $10.0 million,
respectively. Management estimates it will cost up to an additional $5 million
to keep its systems and business processes Year 2000 ready
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
and to implement elements of its contingency plan, if necessary. These expenses
are not expected to materially impact operating results in any one period. The
estimates incorporate not only incremental third-party expenses for consultants
and others but also include salary and benefit costs of employees redeployed and
full implementation of the command center, regional command posts, and call
center. Also included are due diligence expenses related to monitoring
Huntington's vendors' and service providers' readiness.
Major business risks associated with the Year 2000 problem include, but
are not limited to, infrastructure failures, disruptions to the economy in
general, excessive cash withdrawal activity, closure of government offices,
foreign banks, and clearing houses, and increased non-performing loans and
credit losses in the event that borrowers fail to properly respond to the
problem, and other factors outside of Huntington's control. These risks, along
with unforeseen, and therefore unidentified circumstances involving Huntington's
systems, and the resulting possible inability to properly process core business
transactions and meet contractual servicing agreements, could expose Huntington
to loss of revenues, litigation, and asset quality deterioration.
The Year 2000 problem is unique in that it has never previously
occurred; thus, it is not possible to completely foresee or quantify the overall
or any specific financial or operational impact to Huntington or to third
parties which provide Mission Critical services to the company. Huntington has,
however, implemented several proactive processes to identify and mitigate risk
involving systems and processes over which it has control, including
strengthening its Business Resumption Plan for the Year 2000 by adding
alternatives for systems and networks in support of critical applications. The
modifications to Huntington's contingency plan are complete. Huntington's senior
management believes successful modifications to existing systems and conversions
to new systems will substantially reduce the risk of Year 2000 disruption.
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income and
net income while managing volatility arising from shifts in interest rates. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty settlement, and market risks.
On and off-balance sheet strategies and tactics are reviewed and monitored
regularly by ALCO to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing the
business flows onto the balance sheet, wholesale investment and funding, and the
changing market and business environment. Effective management of interest rate
risk begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses a
variety of global markets--money, bond, and futures and options--as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process.
A key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
financial instruments, accounting for significant variables that may be affected
by interest rates. These include prepayment speeds on mortgages and consumer
installment loans, cash flows of loans and deposits, principal amortization on
revolving credit instruments, and balance sheet growth assumptions. The model
also captures embedded options, for example, interest rate caps, floors, or call
options, and accounts for changes in rate relationships, as various rate indices
lead or lag changes in market rates. Management believes, at any point in time,
the model provides a reasonably accurate estimate of Huntington's interest rate
risk exposure, even though these assumptions are inherently uncertain. This
information is regularly shared with the Board of Directors.
At September 30, 1999, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be expected to decrease by
approximately 2% if rates rose 100 basis points and would drop an estimated 4%
in the event of a 200 basis point increase. Huntington is relatively neutral to
a 100 basis point drop in rates but would benefit 3% if rates declined 200 basis
points.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk created by different indices on products, by unequal terms to maturity of
assets and liabilities, and by products that are appealing to customers but
incompatible with current risk limits can be eliminated or decreased in a cost
efficient manner by utilizing interest rate swaps. Often, the swap strategy has
enabled Huntington to lower the overall cost of raising wholesale funds.
Similarly, financial futures, interest rate caps and floors, options, and
forward rate agreements are used to control financial risk effectively.
Off-balance sheet instruments perform identically to similar cash instruments
but are often preferable because they require less capital while preserving
access to the marketplace.
The following table illustrates the approximate market values, estimated
maturities, and weighted average rates of the interest rate swaps used by
Huntington in its interest rate risk management program at September 30, 1999:
Average Average Rate
Notional Maturity Market ------------
(Dollars in millions) Value (years) Value Receive Pay
- ----------------------------- ----- ------- ----- ------- ---
ASSET CONVERSION SWAPS
Receive fixed $1,545 2.91 $(17.4) 6.09% 5.42%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,790 4.16 $(22.3) 6.18% 5.50%
Receive fixed-amortizing 123 0.15 0.0 5.63% 5.38%
Pay fixed 775 0.52 0.8 5.38% 5.28%
------ ------
TOTAL LIABILITY
CONVERSION SWAPS $2,688 2.92 $(21.5) 5.92% 5.43%
====== ======
BASIS PROTECTION SWAPS $1,375 0.83 $ (0.1) 5.40% 5.41%
====== ======
20
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
As is the case with cash securities, the market value of interest rate
swaps is largely a function of the financial market's expectations regarding the
future direction of interest rates. Accordingly, current market values are not
necessarily indicative of the future impact of the swaps on net interest income.
This will depend, in large part, on the shape of the yield curve as well as
interest rate levels. Management made no assumptions regarding future changes in
interest rates with respect to the variable rate information and the indexed
amortizing swap maturities presented in the table above.
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London interbank offered rate (LIBOR). Receive-fixed
asset conversion swaps and pay-fixed liability conversion swaps with notional
values of $950 million and $550 million, respectively, have embedded written
LIBOR-based call options. The portfolio of amortizing swaps consists primarily
of contracts that are indexed to the prepayment experience of a specified pool
of mortgage loans. As market interest rates change, the amortization of the
notional value of the swap will also change, generally slowing as rates increase
and accelerating when rates fall. Basis swaps are contracts that provide for
both parties to receive interest payments according to different rate indices
and are used to protect against changes in spreads between market rates. The
receive and pay amounts applicable to Huntington's basis swaps are based
predominantly on LIBOR.
The contractual interest payments are based on the notional values of
the swap portfolio. These notional values do not represent direct credit
exposures. At September 30, 1999, Huntington's credit risk from interest rate
swaps used for asset/liability management purposes was $59.6 million, which
represents the sum of the aggregate fair value of positions that have become
favorable to Huntington, including any accrued interest receivable due from
counterparties. In order to minimize the risk that a swap counterparty will not
satisfy its interest payment obligation under the terms of the contract,
Huntington performs credit reviews on all counterparties, restricts the number
of counterparties used to a select group of high quality institutions, obtains
collateral, and enters into formal netting arrangements. Huntington has never
experienced any past due amounts from a swap counterparty.
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $1 billion at September 30, 1999. Total
credit exposure from such contracts is not material. These separate activities,
which are accounted for at fair value, are not a significant part of
Huntington's operations. Accordingly, they have been excluded from the above
discussion of off-balance sheet financial instruments and the related table.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending. Highly
leveraged transactions as well as excessive industry and other concentrations
are avoided. The credit administration function employs extensive risk
management techniques, including forecasting, to ensure that loans adhere to
corporate policy and problem loans are promptly identified. These procedures
provide executive management with the information necessary to implement policy
adjustments where necessary, and take corrective actions on a proactive basis.
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22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Non-performing assets consist of loans that are no longer accruing
interest, loans that have been renegotiated based upon financial difficulties of
the borrower, and real estate acquired through foreclosure. Commercial and real
estate loans are placed on non-accrual status and stop accruing interest when
collection of principal or interest is in doubt or generally when the loan is 90
days past due. When interest accruals are suspended, accrued interest income is
reversed with current year accruals charged to earnings and prior year amounts
generally charged off as a credit loss. Consumer loans are not placed on
non-accrual status; rather they are charged off in accordance with regulatory
statutes, which is generally no more than 120 days. A charge off may be delayed
in circumstances when collateral is repossessed and anticipated to sell at a
future date. Total non-performing assets were $93.3 million and $95.8 million,
respectively, at September 30, 1999, and 1998. As of the same dates,
non-performing loans represented .39% of total loans, while non-performing
assets as a percent of total loans and other real estate were .47% and .50%,
respectively. Loans past due ninety days or more but continuing to accrue
interest were $64.8 million at September 30, 1999, up only slightly from one
year ago.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of probable losses inherent in
the loan portfolio. The procedures employed by Huntington to evaluate the
adequacy of the ALL include an analysis of specific credits and the application
of relevant reserve factors that represent relative risk (based on portfolio
trends, current and historic loss experience, and prevailing economic
conditions) to specific portfolio segments. Specific reserves are established on
larger, impaired commercial and industrial and commercial real estate credits
and are based on discounted cash flow models using the loan's initial effective
rate or the fair value of the collateral for collateral-dependent loans.
Allocated reserves include management's assessment of portfolio performance,
internal controls, impacts from mergers and acquisitions, and other pertinent
risk factors. For analytical purposes, the ALL has been allocated to various
portfolio segments. However, the total ALL, less the portion attributable to
reserves as prescribed under provisions of SFAS No. 114, is available to absorb
losses from any segment of the portfolio. Unallocated reserves are based on
levels of criticized/classified assets, delinquencies in the accruing loan
portfolios, and the level of nonperforming loans. Total unallocated reserves
were 10% at the recent quarter end versus 12% one year ago. The reserve ratio
was 1.48% at the recent quarter end compared with 1.50% at the end of last
year's third quarter. As of September 30, 1999, the ALL covered non-performing
loans approximately 3.8 times and when combined with the allowance for other
real estate owned, was 316% of total nonperforming assets.
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. Capital is managed at each subsidiary based upon
the respective risks and growth opportunities, as well as regulatory
requirements. Huntington's ratio of average equity to average assets was 7.63%
in the recent quarter compared with 7.79% in the same three months of last year.
For the nine month period, the ratio was 7.54%, versus 7.86% in the first three
quarters of 1998.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Risk-based capital guidelines established by the Federal Reserve Board
set minimum capital requirements and require institutions to calculate
risk-based capital ratios by assigning risk weightings to assets and off-balance
sheet items, such as interest rate swaps and loan commitments. These guidelines
further define "well-capitalized" levels for Tier 1, Total Capital, and Leverage
ratio purposes at 6%, 10%, and 5%, respectively. At the recent quarter-end,
Huntington's Tier 1 risk-based capital ratio was 7.32%, its total risk-based
capital ratio was 10.62%, and its leverage ratio was 6.58%, each of which
exceeds the well-capitalized requirements. Huntington's bank subsidiary also had
regulatory capital ratios in excess of the levels established for
well-capitalized institutions.
Huntington's common stock repurchase program was reactivated in the
third quarter of 1998. In connection with the reinstatement of the program, the
Board of Directors also increased the number of shares authorized for repurchase
to 16.5 million (after adjusting for the ten percent stock dividend paid July
1999), up from approximately 3 million shares remaining when the plan was
suspended. The shares are to be purchased through open market and privately
negotiated transactions. Repurchased shares will be reserved for reissue in
connection with Huntington's dividend reinvestment, stock option, and other
benefit plans as well as for stock dividends and other corporate purposes. In
the first nine months of this year, Huntington repurchased approximately 2.6
million shares, leaving 12.6 million shares available for repurchase under the
program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect
the quantitative and qualitative disclosures presented in Huntington's Annual
Report on Form 10-K for the year ended December 31, 1998. Quantitative and
qualitative disclosures for the current period can be found on pages 19 through
21.
23
24
- --------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 % Change
- ------------------------------------------------ -------- -------- --------
NET INCOME ..................................... $105,587 $ 88,755 19.0%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ............................... $ 0.46 $ 0.38 21.1
Diluted ............................. $ 0.46 $ 0.38 21.1
Cash dividends declared .................. $ 0.20 $ 0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) .. 232,015 234,845 (1.2)
KEY RATIOS
Return on:
Average total assets ...................... 1.45% 1.28% 13.3
Average shareholders' equity .............. 19.07% 16.43% 16.1
Efficiency ratio ............................... 51.02% 56.46% (9.6)
Average equity/average assets .................. 7.63% 7.79% (2.1)
Net interest margin ............................ 4.22% 4.18% 1.0
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) ..... $ 0.49 $ 0.41 19.5
Return on:
Average total assets ...................... 1.59% 1.43% 11.2
Average shareholders' equity .............. 29.54% 26.59% 11.1
- ------------------------------------------------ -------- -------- --------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 % Change
- ------------------------------------------------ -------- -------- --------
NET INCOME ..................................... $307,134 $270,550 13.5%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ................................ $ 1.33 $ 1.16 14.7
Diluted .............................. $ 1.32 $ 1.15 14.8
Cash dividends declared ................... $ 0.56 $ 0.50 12.0
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) .. 232,853 235,060 (0.9)
KEY RATIOS
Return on:
Average total assets ...................... 1.43% 1.36% 5.1
Average shareholders' equity .............. 19.01% 17.27% 10.1
Efficiency ratio ............................... 51.36% 56.80% (9.6)
Average equity/average assets .................. 7.54% 7.86% (4.1)
Net interest margin ............................ 4.18% 4.24% (1.4)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) ..... $ 1.41 $ 1.21 16.5
Return on:
Average total assets ...................... 1.57% 1.45% 8.3
Average shareholders' equity .............. 29.90% 22.71% 31.7
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles. Related asset amounts excluded from total assets and
shareholders' equity.
24
25
- ------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- ------------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year ..................... $ 802 $ 805 $ 1,000 $ 1,007
1-5 years ........................ 51,787 50,469 63,537 65,364
6-10 years ....................... 502,719 483,101 169,959 176,945
---------- ---------- ---------- ----------
Total ......................... 555,308 534,375 234,496 243,316
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
1-5 years ........................ 6 6 11 11
6-10 years ....................... 38,559 38,556 87,342 89,162
Over 10 years .................... 1,762,589 1,718,496 1,356,722 1,363,015
---------- ---------- ---------- ----------
Total ......................... 1,801,154 1,757,058 1,444,075 1,452,188
---------- ---------- ---------- ----------
Other agencies
1-5 years ........................ 763,946 741,179 968,753 975,253
6-10 years ....................... 510,421 487,862 678,245 684,230
Over 10 years .................... 885,195 861,710 740,139 741,147
---------- ---------- ---------- ----------
Total ......................... 2,159,562 2,090,751 2,387,137 2,400,630
---------- ---------- ---------- ----------
Other
Under 1 year ..................... 21,472 21,478 7,492 7,478
1-5 years ........................ 258,975 258,917 188,551 190,871
6-10 years ....................... 131,007 128,390 204,788 210,698
Over 10 years .................... 262,733 253,089 268,319 268,930
Marketable equity securities ..... 10,645 42,538 8,359 7,304
---------- ---------- ---------- ----------
Total ......................... 684,832 704,412 677,509 685,281
---------- ---------- ---------- ----------
Total Securities Available for Sale ... $5,200,856 $5,086,596 $4,743,217 $4,781,415
========== ========== ========== ==========
25
26
- -------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
LOAN LOSS EXPERIENCE
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD .... $293,274 $286,864 $290,948 $258,171
Allowance acquired/other .......................... -- -- -- 22,042
Loan losses ....................................... (27,782) (33,095) (87,436) (89,516)
Recoveries of loans previously charged off ........ 8,044 8,193 23,693 24,489
Provision for loan losses ......................... 22,076 24,160 68,407 70,936
-------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD ........... $295,612 $286,122 $295,612 $286,122
======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ..................... 0.39% 0.52% 0.43% 0.48%
Provision for loan losses--annualized ........... 0.43% 0.51% 0.46% 0.52%
Allowance for loan losses as a % of total loans ... 1.48% 1.50% 1.48% 1.50%
Net loan loss coverage (1) ........................ 9.01X 6.20x 8.18X 7.20x
(1) Income before taxes and the provision for loan losses to net loan losses.
NON-PERFORMING ASSETS AND PAST DUE LOANS
- ---------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------- --------------------
III Q II Q I Q IV Q III Q
------- ------- ------- ------- -------
Non-accrual loans:
Commercial .............................. $41,374 $37,840 $37,594 $34,586 $38,020
Real Estate
Construction ......................... 6,154 7,877 7,540 10,181 6,948
Commercial ........................... 15,751 13,028 14,133 13,243 10,427
Residential .......................... 13,094 15,192 14,849 14,419 14,815
------- ------- ------- ------- -------
Total Nonaccrual Loans ............ 76,373 73,937 74,116 72,429 70,210
Renegotiated loans ......................... 1,877 2,827 2,764 4,706 4,798
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS ................. 78,250 76,764 76,880 77,135 75,008
Other real estate, net ..................... 15,072 16,839 17,853 18,964 20,812
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS ................ $93,322 $93,603 $94,733 $96,099 $95,820
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ......................... 0.39% 0.38% 0.39% 0.40% 0.39%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE ... 0.47% 0.46% 0.48% 0.49% 0.50%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS ..................... 377.78% 382.05% 378.60% 377.19% 381.46%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS ... 315.82% 311.32% 305.33% 301.00% 296.69%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE .... $64,788 $54,305 $51,039 $51,037 $63,998
======= ======= ======= ======= =======
26
27
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
Fully Tax Equivalent Basis (1) 3RD QUARTER 1999 2ND QUARTER 1999
-------------------- --------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
- ----------------------------------------------------------------------- BALANCE RATE BALANCE RATE
------- ------- ------- ------
ASSETS
Interest bearing deposits in banks .................................... $ 8 3.64% $ 8 3.75%
Trading account securities ............................................ 7 5.64 15 5.41
Federal funds sold and securities purchased under resale agreements ... 20 5.39 19 4.86
Loans held for sale ................................................... 169 7.27 269 6.96
Securities:
Taxable ......................................................... 4,846 6.14 4,914 5.99
Tax exempt ...................................................... 295 7.76 303 7.90
------- -------
Total Securities ........................................... 5,141 6.24 5,217 6.10
------- -------
Loans:
Commercial ....................................................... 6,066 7.90 6,182 7.73
Real Estate
Construction ................................................ 1,103 8.13 1,012 7.92
Mortgage .................................................... 3,636 7.87 3,726 7.92
Consumer
Loans ...................................................... 7,093 8.29 6,907 8.25
Leases ..................................................... 2,365 6.75 2,175 6.72
------- -------
Total Consumer ............................................. 9,458 7.90 9,082 7.88
------- -------
Total Loans ........................................................... 20,263 7.91 20,002 7.84
------- -------
Allowance for loan losses ............................................. 301 297
------- -------
Net loans (2) ......................................................... 19,962 8.54 19,705 8.35
------- -------
Total earning assets .................................................. 25,608 8.07% 25,530 7.87%
------- -------
Cash and due from banks ............................................... 1,026 1,044
All other assets ...................................................... 2,468 2,454
------- -------
TOTAL ASSETS .......................................................... $28,801 $28,731
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits .................................... $ 3,509 $ 3,511
Interest bearing demand deposits ................................. 4,139 2.66% 4,109 2.50%
Savings deposits ................................................. 3,792 3.43 3,769 3.25
Other domestic time deposits ..................................... 5,631 5.04 5,715 5.07
------- -------
Total core deposits ......................................... 17,071 3.86 17,104 3.79
------- -------
Certificates of deposit of $100,000 or more ........................... 1,663 5.12 1,662 5.08
Foreign time deposits ................................................. 465 5.17 307 4.82
------- -------
Total deposits ................................................... 19,199 4.03 19,073 3.95
------- -------
Short-term borrowings ................................................. 2,331 4.54 2,793 4.38
Medium-term notes ..................................................... 3,415 5.44 3,047 5.19
Subordinated notes and other long-term debt,
including preferred capital securities ............................. 1,001 6.03 1,004 5.70
------- -------
Total interest bearing liabilities ............................... 22,437 4.39% 22,406 4.25%
------- -------
All other liabilities ................................................. 658 653
Shareholders' equity .................................................. 2,197 2,161
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $28,801 $28,731
======= =======
Net interest rate spread .............................................. 3.68% 3.62%
Impact of non-interest bearing funds on margin ........................ 0.54% 0.52%
NET INTEREST MARGIN ................................................... 4.22% 4.14%
- ---------------------------------------------------------
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
(2) Net loan rate includes loan fees, whereas individual loan components above
are shown exclusive of fees.
(3) Excludes nonrecurring interest rate swap adjustment of $9.2 million.
27
28
- ---------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
1ST QUARTER 1999 4th Quarter 1998 3rd Quarter 1998
----------------- ----------------- -----------------
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate
------- ------ ------- ------ ------- ------
$ 8 4.93% $ 4 5.00% $ 31 5.20%
18 5.20 12 5.62 11 5.87
18 5.64 34 5.48 689 5.62
359 6.75 377 6.73 275 7.10
4,926 6.05 4,518 6.16 4,077 6.34
304 8.17 292 8.16 234 8.86
------- ------- -------
5,230 6.17 4,810 6.28 4,311 6.47
------- ------- -------
6,067 7.90 5,954 7.99 5,763 8.36
957 8.14 864 8.24 811 8.83
3,651 7.97 3,689 8.21 3,760 8.43
6,873 8.38 6,912 8.62 6,896 8.77
2,015 6.94 1,850 7.00 1,728 7.11
------- ------- -------
8,888 8.05 8,762 8.28 8,624 8.44
------- ------- -------
19,563 7.99 19,269 8.17 18,958 8.43
------- ------- -------
299 296 293
------- ------- -------
19,264 8.49 18,973 8.68 18,665 8.87
------- ------- -------
25,196 7.98% 24,506 8.17% 24,275 8.33%
------- ------- -------
1,064 1,056 1,017
2,461 2,448 2,516
------- ------- -------
$28,422 $27,714 $27,515
======= ======= =======
$ 3,505 $ 3,577 $ 3,466
4,061 2.46% 3,967 2.60% 3,898 2.77%
3,627 3.17 3,546 3.38 3,428 3.56
6,047 5.27 6,459 5.43 6,619 5.53
------- ------- -------
17,240 3.88 17,549 4.10 17,411 4.27
------- ------- -------
1,730 5.35 1,755 5.65 1,884 5.71
161 4.80 56 4.86 30 5.39
------- ------- -------
19,131 4.06 19,360 4.27 19,325 4.45
------- ------- -------
2,853 4.33 2,123 4.36 1,515 4.75
2,666 5.29 2,526 5.48 2,952 5.70
1,007 5.81 1,020 5.88(3) 1,041 6.37
------- ------- -------
22,152 4.32% 21,452 4.49% 21,367 4.72%
------- ------- -------
644 653 539
2,121 2,032 2,143
------- ------- -------
$28,422 $27,714 $27,515
======= ======= =======
3.66% 3.68% 3.61%
0.52% 0.56% 0.57%
4.18% 4.24%(3) 4.18%
28
29
- ------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
1999 1998
---------------------------------- ---------------------
(in thousands of dollars, except per share amounts) III Q II Q I Q IV Q III Q
- ---------------------------------------------------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME .............................. $516,294 $498,500 $495,692 $500,395 $505,221
TOTAL INTEREST EXPENSE ............................. 247,863 237,352 236,171 233,094 253,706
-------- -------- -------- -------- --------
NET INTEREST INCOME ................................ 268,431 261,148 259,521 267,301 251,515
Provision for loan losses .......................... 22,076 21,026 25,305 34,306 24,160
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ........................ 246,355 240,122 234,216 232,995 227,355
-------- -------- -------- -------- --------
Service charges on deposit accounts ................ 41,700 36,065 35,776 33,992 32,493
Brokerage and insurance income ..................... 14,620 12,540 11,543 9,848 10,057
Mortgage banking ................................... 14,282 17,224 15,958 15,388 15,270
Trust services ..................................... 12,625 13,143 13,434 12,924 12,502
Electronic banking fees ............................ 9,771 9,410 8,038 8,037 7,897
Bank Owned Life Insurance income ................... 9,390 9,390 9,390 8,098 8,098
Credit card fees ................................... 6,626 6,255 5,342 6,367 5,197
Other .............................................. 6,103 11,029 8,081 12,057 12,512
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS .. 115,117 115,056 107,562 106,711 104,026
-------- -------- -------- -------- --------
Securities gains ................................... 537 2,220 2,310 1,773 10,615
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME .......................... 115,654 117,276 109,872 108,484 114,641
-------- -------- -------- -------- --------
Personnel and related costs ........................ 104,730 107,263 107,254 103,600 111,744
Net occupancy ...................................... 16,799 13,563 13,917 11,602 15,019
Equipment .......................................... 16,059 15,573 16,873 16,202 15,001
Outside data processing and other services ......... 15,929 15,923 15,392 20,915 17,550
Amortization of intangible assets .................. 9,326 9,336 9,328 9,436 9,467
Marketing .......................................... 8,722 6,902 6,298 8,251 8,762
Telecommunications ................................. 7,412 6,935 7,064 8,173 7,793
Printing and supplies .............................. 5,254 4,734 4,756 6,450 5,851
Legal and other professional services .............. 4,754 5,803 4,744 7,847 5,291
Franchise and other taxes .......................... 3,598 3,981 4,387 5,554 5,523
Special charges .................................... -- -- -- 90,000 --
Other .............................................. 13,606 12,125 12,093 10,902 9,876
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ......................... 206,189 202,138 202,106 298,932 211,877
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ......................... 155,820 155,260 141,982 42,547 130,119
Provision for income taxes ......................... 50,233 50,285 45,410 11,329 41,364
-------- -------- -------- -------- --------
NET INCOME ......................................... $105,587 $104,975 $ 96,572 $ 31,218 $ 88,755
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Diluted ....................................... $ 0.46 $ 0.45 $ 0.41 $ 0.13 $ 0.38
Diluted - Cash Basis .......................... $ 0.49 $ 0.48 $ 0.45 $ 0.17 $ 0.41
Cash Dividends Declared ........................... $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ................................ $268,431 $261,148 $259,521 $267,301 $251,515
Tax Equivalent Adjustment (2) ...................... 2,280 2,390 2,504 2,504 2,567
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income ................. $270,711 $263,538 $262,025 $269,805 $254,082
======== ======== ======== ======== ========
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate.
29
30
STOCK SUMMARY, KEY RATIOS AND STATISTICS
- --------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
- --------------------------------------------------------------------------------------------
1999 1998
------------------------------------ ----------------------
III Q II Q I Q IV Q III Q
--------- --------- -------- -------- ---------
High ..................... $33 7/8 $34 $30 7/16 $28 5/8 $30 13/16
Low ...................... 24 11/16 27 11/16 27 3/16 21 1/2 20
Close .................... 26 9/16 31 13/16 28 1/8 27 5/16 22 13/16
Cash dividends declared .. $0.20 $0.18 $0.18 $0.18 $0.18
Note: Stock price quotations were obtained from NASDAQ.
KEY RATIOS AND STATISTICS
- ------------------------------------------------------------------------------------------------
1999 1998
MARGIN ANALYSIS - AS A % ---------------------------- -----------------
OF AVERAGE EARNING ASSETS (2) III Q II Q I Q IV Q III Q
- -------------------------------------------- ------ ------ ------ ------ ------
Interest Income ............................ 8.07% 7.87% 7.98% 8.17% 8.33%
Interest Expense ........................... 3.85% 3.73% 3.80% 3.93% 4.15%
----- ----- ----- ----- -----
Net Interest Margin ................... 4.22% 4.14% 4.18% 4.24% 4.18%
===== ===== ===== ===== =====
RETURN ON
- --------------------------------------------
Average total assets ....................... 1.45% 1.47% 1.38% 1.31% 1.28%
Average total assets - cash basis .......... 1.59% 1.61% 1.52% 1.45% 1.43%
Average shareholders' equity ............... 19.07% 19.48% 18.47% 17.87% 16.43%
Average shareholders' equity - cash basis .. 29.54% 30.61% 29.58% 29.44% 26.59%
Efficiency Ratio ........................... 51.02% 50.93% 52.16% 52.98% 56.46%
REGULATORY CAPITAL DATA
- ----------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------
(in millions of dollars) III Q II Q I Q IV Q III Q
- ---------------------------------- ------- ------- ------- ------ ------
Total Risk-Adjusted Assets ....... $25,309 $24,829 $24,345 $24,239 $23,695
Tier I Risk-Based Capital Ratio .. 7.32% 7.29% 7.20% 7.10% 7.35%
Total Risk Based Capital Ratio ... 10.62% 10.65% 10.70% 10.73% 11.18%
Tier I Leverage Ratio ............ 6.58% 6.45% 6.32% 6.37% 6.51%
- --------------------------------------
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
30
31
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. ( i )( a ) Articles of Restatement of Charter,
Articles of Amendment to Articles of Restatement
of Charter, and Articles Supplementary previously
filed as Exhibit 3(i) to Annual Report on Form
10-K for the year ended December 31, 1993, and
incorporated herein by reference.
( i )( b ) Articles of Amendment to Articles of
Restatement of Charter -- previously filed as
Exhibit 3(i)(b) to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, and
incorporated herein by reference.
( i )( c ) Articles of Amendment to Articles of
Restatement of Charter --previously filed as
Exhibit 3(i)(c) to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, and
incorporated herein by reference.
( ii ) Amended and Restated Bylaws.
4. Instruments defining the Rights of Security
Holders:
Reference is made to Articles Fifth, Eighth and
Tenth of Articles of Restatement of Charter,
previously filed as Exhibit 3(i) to Annual Report
on Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference, as amended
and supplemented by Articles of Amendment to
Articles of Restatement of Charter, previously
filed as Exhibit 3(i)(c) to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998,
and incorporated herein by reference. Also,
reference is made to Rights Plan, dated February
22, 1990, previously filed as Exhibit 1 to
Registration Statement on Form 8-A, and
incorporated herein by reference and to Amendment
No. 1 to the Rights Agreement, dated as of August
16, 1995, previously filed as Exhibit 4(b) to Form
8-K filed with the Securities and Exchange
Commission on August 28, 1995, and incorporated
herein by reference. Instruments defining the
rights of holders of long-term debt will be
furnished to the Securities and Exchange
Commission upon request.
32
27. Financial Data Schedule
99. Earnings to Fixed Charges
(b) Reports on Form 8-K
1. A report on Form 8-K, dated July 14, 1999, was
filed under report item numbers 5 and 7,
concerning Huntington's results of operations for
the second quarter 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Huntington
Bancshares Incorporated has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
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(Registrant)
Date: November 15, 1999 /s/ Richard A. Cheap
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Richard A. Cheap
General Counsel and Secretary
Date: November 15, 1999 /s/ Anne W. Creek
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Anne W. Creek
Executive Vice President and Principal
Accounting Officer