<PAGE> 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 JUNE 30, 1997
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 159,015,892 shares of Registrant's without par value common stock
outstanding on July 31, 1997.
1
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PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ............................ $ 952,160 $ 915,636 $ 842,384
Interest bearing deposits in banks ................. 1,234 1,704 2,488
Trading account securities ......................... 6,585 1,873 10,935
Federal funds sold and securities
purchased under resale agreements ............. 18,726 8,116 463,295
Mortgages held for sale ............................ 144,931 119,202 112,328
Securities available for sale - at fair value ...... 4,423,024 4,743,933 4,368,844
Investment securities - fair value $55,535; $61,107;
and $67,226, respectively ..................... 54,972 60,444 66,796
Total loans (1) .................................... 15,132,937 14,260,747 13,688,675
Less allowance for loan losses ................ 212,689 199,058 196,486
----------- ----------- -----------
Net loans .......................................... 14,920,248 14,061,689 13,492,189
----------- ----------- -----------
Premises and equipment ............................. 323,536 311,793 312,702
Customers' acceptance liability .................... 42,573 56,248 54,830
Accrued income and other assets .................... 696,253 570,875 594,375
----------- ----------- -----------
TOTAL ASSETS ....................................... $21,584,242 $20,851,513 $20,321,166
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ................................. $14,591,064 $13,385,891 $13,112,831
Short-term borrowings .............................. 2,959,433 3,944,703 3,440,075
Bank acceptances outstanding ....................... 42,573 56,248 54,830
Long-term debt ..................................... 1,926,643 1,556,326 1,897,287
Accrued expenses and other liabilities ............. 424,200 396,831 340,847
----------- ----------- -----------
Total Liabilities ............................. 19,943,913 19,339,999 18,845,870
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized
300,000,000 shares; issued and outstanding
151,884,156; 151,884,156; and 141,402,769
shares, respectively ..................... 1,264,664 1,264,664 1,056,209
Less 7,076,546; 9,284,844; and 8,641,865
treasury shares, respectively ............ (160,557) (204,634) (199,619)
Capital surplus ............................... 251,968 237,348 239,396
Net unrealized losses on securities
available for sale ....................... (25,593) (14,569) (61,603)
Retained earnings ............................. 309,847 228,705 440,913
----------- ----------- -----------
Total Shareholders' Equity .................... 1,640,329 1,511,514 1,475,296
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $21,584,242 $20,851,513 $20,321,166
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(1) See page 8 for detail of total loans and total deposits.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands of dollars, except per share amounts) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
Interest and fee income 1997 1996 1997 1996
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Loans ........................................ $ 348,242 $ 295,639 $ 673,139 $ 585,768
Securities ................................... 78,127 76,575 156,326 157,228
Other ........................................ 2,783 2,865 4,871 6,379
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME .............. 429,152 375,079 834,336 749,375
------------ ------------ ------------ ------------
Interest Expense
Deposits ..................................... 130,254 112,959 246,630 226,494
Short-term borrowings ........................ 43,847 41,743 94,715 86,280
Long-term debt ............................... 29,875 31,084 56,295 62,590
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE ............. 203,976 185,786 397,640 375,364
------------ ------------ ------------ ------------
NET INTEREST INCOME ................ 225,176 189,293 436,696 374,011
------------ ------------ ------------ ------------
Provision for loan losses ......................... 26,382 11,843 45,274 23,666
------------ ------------ ------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 198,794 177,450 391,422 350,345
------------ ------------ ------------ ------------
Total non-interest income (1) ..................... 69,550 67,176 135,351 135,338
Total non-interest expense (1) .................... 156,126 145,466 311,441 288,962
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ......... 112,218 99,160 215,332 196,721
Provision for income taxes ........................ 39,672 34,072 76,336 68,808
------------ ------------ ------------ ------------
NET INCOME ......................... $ 72,546 $ 65,088 $ 138,996 $ 127,913
============ ============ ============ ============
PER COMMON SHARE (2)
Net income ................................... $ 0.46 $ 0.40 $ 0.88 $ 0.79
Cash dividends declared ...................... $ 0.18 $ 0.16 $ 0.36 $ 0.32
AVERAGE COMMON SHARES OUTSTANDING (2) ............. 159,244,641 160,825,633 158,179,654 162,120,544
</TABLE>
See notes to consolidated financial statements.
(1) See page 9 for detail of non-interest income and non-interest expense.
(2) Adjusted for the ten percent stock dividend distributed July 31, 1997.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON COMMON TREASURY TREASURY CAPITAL GAINS (LOSSES) RETAINED
SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL
- ----------------------------------- ------ ----- ------ ----- ------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1996:
Balance, beginning of period 141,403 $1,056,209 (8,352) $(180,632) $235,802 $40,972 $366,514 $1,518,865
Stock issued for acquisition 4,733 102,760 5,037 107,797
Net income 127,913 127,913
Cash dividends declared
($.32 per share) (53,514) (53,514)
Stock options exercised 81 1,760 (1,463) 297
Treasury shares purchased (5,881) (140,850) (582) (141,432)
Treasury shares sold:
Shareholder dividend
reinvestment plan 665 14,866 408 15,274
Employee benefit plans 112 2,477 194 2,671
Change in net unrealized gains
(losses) on securities
available for sale (102,575) (102,575)
------- ---------- ------ --------- -------- --------- -------- ----------
Balance, end of period 141,403 $1,056,209 (8,642) $(199,619) $239,396 $ (61,603) $440,913 $1,475,296
======= ========== ====== ========= ======== ========= ======== ==========
Six Months Ended June 30, 1997:
Balance, beginning of period 151,884 $1,264,664 (9,285) $(204,634) $237,348 $ (14,569) $228,705 $1,511,514
Stock issued for acquisition 2,881 65,220 12,560 77,780
Net income 138,996 138,996
Cash dividends declared
($.36 per share) (57,854) (57,854)
Stock options exercised 105 1,797 840
Treasury shares purchased (1,430) (37,581) (957) (37,581)
Treasury shares sold:
Shareholder dividend
reinvestment plan 534 11,968 2,345 14,313
Employee benefit plans 118 2,673 672 3,345
Change in net unrealized gains
(losses) on securities
available for sale (11,024) (11,024)
------- ---------- ------ --------- -------- --------- -------- ----------
Balance, end of period 151,884 $1,264,664 (7,077) $(160,557) $251,968 $ (25,593) $309,847 $1,640,329
======= ========== ====== ========= ======== ========= ======== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands of dollars) SIX MONTHS ENDED JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ........................................................... $ 138,996 $ 127,913
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses .................................. 45,274 23,666
Provision for depreciation and amortization ................ 26,900 43,922
Deferred income tax expense ................................ 17,525 1,758
(Increase) decrease in trading account securities .......... (4,712) 1,989
(Increase) decrease in mortgages held for sale ............. (25,729) 47,377
Net gains on sales of securities ........................... (5,581) (7,290)
Decrease in accrued income receivable ...................... 6,328 7,653
Net increase in other assets ............................... (50,266) (34,793)
Increase (decrease) in accrued expenses .................... 2,558 (24,251)
Net increase in other liabilities .......................... 27,374 1,231
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 178,667 189,175
----------- -----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks ....................... 470 282,105
Proceeds from :
Maturities and calls of investment securities .................... 6,407 14,175
Maturities and calls of securities available for sale ............ 387,110 248,897
Sales of securities available for sale ........................... 1,169,631 1,826,034
Purchases of:
Investment securities ............................................ (1,179) (800)
Securities available for sale .................................... (1,063,814) (1,537,580)
Proceeds from sales of loans ......................................... 25,667 94,755
Net loan originations, excluding sales ............................... (630,325) (430,266)
Proceeds from disposal of premises and equipment ..................... 6,152 545
Purchases of premises and equipment .................................. (24,790) (21,676)
Proceeds from sales of other real estate ............................. 10,990 6,100
Net cash (paid) received from purchase of subsidiaries ............... (6,665) 631
----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (120,346) 482,920
----------- -----------
FINANCING ACTIVITIES
Increase in total deposits ........................................... 690,836 46,391
Decrease in short-term borrowings .................................... (995,616) (88,740)
Proceeds from issuance of long-term debt ............................. 677,500 300,424
Payment of long-term debt ............................................ (307,298) (506,275)
Dividends paid on common stock ....................................... (57,526) (53,515)
Acquisition of treasury stock ........................................ (37,581) (141,432)
Proceeds from issuance of treasury stock ............................. 18,498 18,242
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES ............. (11,187) (424,905)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ................ 47,134 247,190
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 923,752 1,058,489
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 970,886 $ 1,305,679
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods. The Notes to the Consolidated Financial Statements appearing in
Huntington's 1996 Annual Report to Shareholders should be read in conjunction
with these interim financial statements.
B. In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (FAS 125). The standard provides that,
following a transfer of financial assets, an entity is to recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished. The Statement is effective for transactions
occurring after December 31, 1996. The FASB also subsequently issued FAS No. 127
that delayed until January 1, 1998, the effective date of certain provisions of
FAS 125. Transactions subject to the later effective date include securities
lending, repurchase agreements, dollar rolls, and similar secured financing
arrangements. Application of the new rules did not have a material impact on
Huntington's accompanying consolidated financial statements. Huntington also
does not expect a material impact in the future.
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share" (FAS 128), which is required to be adopted on December 31, 1997. At that
time, Huntington will report both basic and diluted earnings per share, with all
prior periods restated to conform to the new method. The impact of FAS 128 is
not expected to be material.
C. Huntington acquired Citi-Bancshares, Inc. (Citi-Bancshares), a $548 million
one-bank holding company headquartered in Leesburg, Florida, in February 1997.
Huntington exchanged common stock and cash for all the common stock of
Citi-Bancshares. The transaction was accounted for as a purchase; accordingly,
the results of Citi-Bancshares have been included in the consolidated financial
statements from the date of acquisition.
In May 1997, Huntington entered into a merger agreement with First
Michigan Bank Corporation (First Michigan), a $3.7 billion bank holding company
headquartered in Holland, Michigan. Under the terms of the merger, First
Michigan shareholders will receive 1.155 shares of Huntington common stock for
every 1 share of First Michigan stock (as adjusted for the ten percent stock
dividend distributed July 31, 1997) in a transaction accounted for as a
pooling-of-interests. The acquisition is expected to be completed in the third
quarter of 1997, subject to shareholder and regulatory approvals.
In May 1997, Huntington entered into a merger agreement with The Bank
of Winter Park (Winter Park), a $90 million bank headquartered in Winter Park,
Florida. Under the terms of the merger, Huntington is to exchange common stock
for the outstanding shares of Winter Park in a transaction accounted for as a
purchase. The acquisition is expected to be completed in the fourth quarter of
1997, subject to shareholder and regulatory approvals.
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<PAGE> 7
D. Per common share amounts have been calculated based on the weighted average
number of common shares outstanding in each period, adjusted for the ten percent
stock dividend distributed July 31, 1997. The dilutive effects of unexercised
stock options and convertible debentures were not significant for any period
presented.
E. Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1997 presentation. These reclassifications had
no effect on net income.
7
<PAGE> 8
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Commercial ................................ $ 4,674,536 $ 4,462,636 $ 4,311,853
Real Estate
Construction ......................... 566,699 473,970 388,851
Commercial ........................... 1,713,632 1,617,078 1,683,195
Residential .......................... 1,215,916 1,120,800 1,138,177
Consumer
Loans ................................. 5,535,381 5,403,616 5,165,854
Leases ................................ 1,426,773 1,182,647 1,000,745
----------- ----------- -----------
TOTAL LOANS .......................... $15,132,937 $14,260,747 $13,688,675
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- -------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing ................. $ 2,380,651 $ 2,463,442 $ 1,905,876
Interest bearing ..................... 2,706,161 2,586,695 2,943,215
Savings deposits .......................... 2,826,522 2,624,383 2,542,802
Certificates of deposit of $100,000 or more 1,398,379 928,927 973,990
Other domestic time deposits .............. 4,888,351 4,371,994 4,396,161
Foreign time deposits ..................... 391,000 410,450 350,787
----------- ----------- -----------
TOTAL DEPOSITS ....................... $14,591,064 $13,385,891 $13,112,831
=========== =========== ===========
</TABLE>
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<PAGE> 9
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ PERCENT ---------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $24,700 $23,132 6.78 % $ 48,495 $ 45,593 6.37 %
Mortgage banking .................. 7,903 7,976 (0.92) 15,082 16,853 (10.51)
Trust services .................... 9,512 8,324 14.27 19,383 17,117 13.24
Electronic banking fees ........... 5,525 2,172 154.37 9,450 3,838 146.22
Credit card fees .................. 4,332 8,544 (49.30) 8,383 13,380 (37.35)
Investment product sales .......... 3,477 3,286 5.81 7,607 6,525 16.58
Securities gains .................. 3,604 200 N.M. 5,581 7,290 (23.44)
Other ............................. 10,497 13,542 (22.49) 21,370 24,742 (13.63)
------- ------- -------- --------
TOTAL NON-INTEREST INCOME ......... $69,550 $67,176 3.53 % $135,351 $135,338 0.01 %
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- PERCENT ----------------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ......................... $ 62,943 $ 56,776 10.86 % $123,605 $112,595 9.78 %
Commissions ...................... 3,920 3,480 12.64 8,325 7,087 17.47
Employee benefits ................ 13,508 14,801 (8.74) 29,956 32,017 (6.44)
Equipment ........................ 11,900 10,267 15.91 23,037 19,881 15.87
Net occupancy .................... 9,872 10,835 (8.89) 21,303 21,709 (1.87)
Advertising ...................... 4,830 4,052 19.20 11,251 6,917 62.66
Printing and supplies ............ 3,901 4,164 (6.32) 7,734 7,659 0.98
Credit card and electronic banking 3,693 4,023 (8.20) 6,346 7,595 (16.45)
Legal and loan collection ........ 2,704 2,498 8.25 5,058 4,392 15.16
Other ............................ 38,855 34,570 12.40 74,826 69,110 8.27
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ....... $156,126 $145,466 7.33 % $311,441 $288,962 7.78 %
======== ======== ======== ========
</TABLE>
N.M. - Not meaningful
9
<PAGE> 10
Management's Discussion and Analysis
INTRODUCTION
Management's discussion and analysis contains forward-looking
statements that are intended to enhance the reader's ability to assess the
future financial performance of Huntington Bancshares Incorporated (Huntington).
Because these statements are subject to numerous assumptions, risks, and
uncertainties, actual results could be materially different. The following
factors, among others, may have such an impact: changes in economic conditions;
movements in interest rates; competitive pressures on product pricing and
services; success and timing of business strategies; and the nature and extent
of legislative and regulatory actions and reforms.
On May 5, 1997, Huntington signed a definitive agreement to acquire
First Michigan Bank Corporation (First Michigan), a $3.7 billion bank holding
company headquartered in Holland, Michigan. Under the terms of the merger, the
shareholders of First Michigan will receive 1.155 shares of Huntington common
stock for every 1 share of First Michigan common stock (as adjusted for the 10%
stock dividend distributed by Huntington on July 31, 1997) in a fixed, tax-free
exchange. First Michigan had total loans and deposits of $2.7 billion and $3.0
billion, respectively, and total equity of $289.7 million at June 30, 1997. Upon
consummation of the pooling-of-interests transaction, Huntington expects to
report a restructuring charge estimated at $35 million. Other merger-related
costs of approximately $10 million will also be recognized when the deal is
completed. Subject to shareholder and regulatory approvals, the merger is
anticipated to close late in the third quarter of 1997.
OVERVIEW
Huntington reported record earnings of $72.5 million, or $.46 per
share, for the second quarter of 1997 compared with $65.1 million, or $.40 per
share, for the same period last year. For the first half of the year, net income
was $139.0 million, or $.88 per share, versus $127.9 million, or $.79 per share,
in the first six months of 1996. All per share amounts have been adjusted for
the 10% stock dividend distributed July 31, 1997.
Huntington's return on average equity (ROE) of 18.52% for the recent
quarter and 18.14% for the six months just ended was up from 17.56% and 16.77%
in the comparable periods last year. Return on average assets (ROA) also
improved to 1.35% and 1.31%, respectively, versus 1.32% and 1.29% in the same
periods one year ago.
Total assets were $21.6 billion at June 30, 1997, up 3.5% from year end
and 6.2% from second quarter 1996. This growth was attributable to a broad-based
increase in loans, with particularly strong results in the consumer category.
Also contributing to the higher asset total was the February 1997 acquisition of
Citi-Bancshares, Inc., a $548 million one-bank holding company headquartered in
Leesburg, Florida.
Total deposits grew 9.0% from December 31, 1996, and 11.3% compared
with one year ago. Core deposits represent Huntington's most significant source
of funding; when combined with other core funding sources, they provide
approximately 70% of Huntington's funding needs.
Huntington's wholesale liability mix changed somewhat since year end,
as certain short-term borrowings were replaced upon maturity with medium term
notes having a contractual term greater than one year (a component of long-term
debt). The January 1997 issuance of $200 million of capital
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<PAGE> 11
securities by a special-purpose subsidiary of Huntington also increased
long-term debt. The capital securities were a cost-effective means of
strengthening Huntington's regulatory capital position.
Shareholders' equity increased 8.5% versus December 31, 1996, and was
up 11.2% from one year ago. The higher equity was primarily the result of
retained earnings and the common stock issued by Huntington in the
Citi-Bancshares, Inc. acquisition.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $225.2 million and $436.7 million,
respectively, for the three and six months ended June 30, 1997, an increase of
19.0% for the quarter and 16.8% year-to-date. Interest rate swaps and other
off-balance sheet financial instruments used for asset/liability management
purposes provided a benefit of $0.5 million in the recent quarter and $2.3
million for the first half of 1997, versus reductions in the same periods one
year ago of $15.5 million and $30.6 million. Higher loan volumes also
contributed to the increase in net interest income. The net interest margin, on
a fully tax equivalent basis, was 4.50% during the three months just ended
compared with 4.15% in the second quarter of 1996. The latter percentage was
negatively impacted by off-balance sheet interest rate contracts that reduced
the margin by 34 basis points, a significant component of which was amortization
of net losses from closed positions. At June 30, 1997, deferred gains and losses
remaining to be amortized were immaterial.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $26.4 million in the second quarter
of 1997, up from $11.8 million in the same period last year. The year-to-date
provision was $45.3 million, compared with $23.7 million for the first half of
1996. Net charge-offs (annualized) as a percent of average total loans were .60%
in the quarter just ended and .52% for the six months, versus .46% for all of
1996.
NON-INTEREST INCOME
Non-interest income, excluding securities transactions, was $65.9
million and $129.8 million, respectively, in the recent three and six month
periods. Adjusted for non-recurring income recognized in second quarter 1996
from the sale of a portion of Huntington's interest in credit card payment
processing contracts, non-interest income increased approximately 5.0% from the
corresponding periods last year. Growth in electronic banking fees and trust
revenues was particularly strong. The year-to-date decrease in the "mortgage
banking" and "other" income components was largely attributable to non-recurring
gains reported in the first half of 1996 from the sale of portfolio loans.
NON-INTEREST EXPENSE
Non-interest expense was $156.1 million in the three months just ended
and $311.4 million in the first half of the year, up from $145.5 million and
$289.0 million in the year-ago periods. The full quarter impact of the
Citi-Bancshares, Inc. acquisition combined with higher advertising and marketing
expenses in 1997 represent the majority of the increase. Adjusted for the impact
of the acquisition, expenses increased only 4.9% and 5.8%, respectively, versus
the same periods last year. Personnel costs (salaries, commissions, and
benefits) were up approximately 7.0% on both a quarter and year-to-date basis,
which is indicative of more full-time equivalent employees and normal salary
adjustments. The larger organization, driven by higher business volumes,
acquisitions, and new business initiatives, also
11
<PAGE> 12
contributed to an increase in various other components of non-interest expense.
The efficiency ratio for the recent three months was solid at 53.5% compared
with 56.9% in second quarter 1996.
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, 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 both
the business flows onto the balance sheet and the changing market and business
environment. Effective management of interest rate risk begins with
appropriately diversified investments and funding sources. To accomplish its
overall balance sheet objectives, Huntington regularly accesses a variety of
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 financial
instruments, accounting for significant variables which are believed to be
affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, principal amortization and maturities on other
financial instruments, and balance sheet growth assumptions. The model captures
embedded options, e.g. interest rate caps/floors or call options, and accounts
for changes in rate relationships, as various rate indices lead or lag changes
in market rates. While these assumptions are inherently uncertain, management
utilizes probabilities and, therefore, believes that the model provides an
accurate estimate of Huntington's interest rate risk exposure. Management
reporting of this information is regularly shared with the Board of Directors.
At June 30, 1997, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be relatively unchanged by a
100 basis points increase or decrease in the federal funds rate (assuming the
change occurs evenly over the next year and that corresponding changes in other
market rates occur as forecasted). Net interest income would also be
approximately the same if rates were to fall 200 basis points but would be
expected to decrease 1.4% if rates rose 200 basis points.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk that is created by different indices on products, by unequal terms to
maturity of assets and liabilities, and by products that are appealing to
customers but incompatible with current risk limits can be eliminated or
decreased in a cost efficient manner by utilizing interest rate swaps. In
addition, the swap strategy has enabled Huntington to lower the overall cost of
raising wholesale funds. Similarly, financial futures, interest rate caps and
floors, options, and forward rate agreements are used to control financial risk
effectively. Off-balance sheet instruments are often preferable to similar cash
instruments because, though performing identically, they require less capital
while preserving access to the marketplace.
12
<PAGE> 13
The following table illustrates the approximate market values,
estimated maturities and weighted average rates of the interest rate swaps used
by Huntington in its interest rate risk management program. The valuation of
interest rate swap contracts is largely a function of the financial market's
expectations regarding the future direction of interest rates. 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. With respect to the variable
rate information and the indexed amortizing swap maturities presented in the
table below, management made no assumptions regarding future changes in interest
rates.
<TABLE>
<CAPTION>
Average Average Rate
Notional Maturity Market -------------------
(dollars in millions) Value (years) Value Receive Pay
- --------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1997:
ASSET CONVERSION SWAPS
Receive fixed $ 700 1.58 $(4.3) 5.80% 5.82%
Receive fixed-amortizing 92 1.00 (.5) 5.27 5.91
------ -----
TOTAL ASSET CONVERSION SWAPS $ 792 1.51 $(4.8) 5.73% 5.83%
====== =====
LIABILITY CONVERSION SWAPS
Receive fixed $1,080 2.36 $13.3 6.26% 5.77%
Receive fixed-amortizing 194 2.00 (2.5) 5.63 5.69
Pay fixed 50 .19 (.2) 5.81 8.05
------ -----
TOTAL LIABILITY CONVERSION SWAPS $1,324 2.23 $10.6 6.15% 5.85%
====== =====
BASIS PROTECTION SWAPS $ 285 1.87 $ (.3) 5.82% 5.82%
====== =====
</TABLE>
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London inter-bank offered rate (LIBOR).
Receive-fixed asset conversion swaps with a notional value of $200 million have
embedded written LIBOR-based call options. Also, receive-fixed liability
conversion swaps with a notional value of $150 million have embedded written
LIBOR-based caps. The portfolio of amortizing swaps consists primarily of
contracts that are indexed to the prepayment experience of a specified pool of
mortgage loans. As market interest rates change, the amortization of the
notional value of the swap will also change, generally slowing as rates increase
and accelerating when rates fall. Basis swaps are contracts which provide for
both parties to receive interest payments according to different rate indices
and are used to protect against changes in spreads between market rates. The
receive and pay amounts applicable to Huntington's basis swaps are based
predominantly on LIBOR.
The notional values of the swap portfolio represent contractual amounts
on which interest payments to be exchanged are based. These notional values do
not represent direct credit exposures. At June 30, 1997, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$45.5 million, which represents the sum of the aggregate fair value of positions
that have become favorable to Huntington, including any accrued interest
receivable due from counterparties. In order to minimize the risk that a swap
counterparty will not satisfy its interest payment obligation under the terms of
the contract, Huntington performs credit reviews on all counterparties,
restricts the number of counterparties used to a select group of high quality
institutions, obtains collateral, and enters into formal netting arrangements.
Huntington has never experienced any past due amounts from a swap counterparty
and does not anticipate nonperformance in the future by any such counterparties.
13
<PAGE> 14
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 $258 million at the recent quarter-end.
These separate activities, which are accounted for at fair value, are not a
significant part of Huntington's operations. Accordingly, they have been
excluded from the above discussion of off-balance sheet financial instruments
and the related tables.
ASSET QUALITY
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending to
established borrowers. Highly leveraged transactions and excessive industry or
other concentrations are avoided. The credit administration function also
employs extensive monitoring procedures to ensure problem loans are promptly
identified and that loans adhere to corporate policy. These procedures provide
executive management with the information necessary to implement appropriate
change and take corrective action as needed.
Asset quality continues to be strong. Non-performing assets, consisting
of loans that are no longer accruing interest, loans that have been renegotiated
based upon financial difficulties of the borrower, and real estate acquired
through foreclosure, totaled $70.6 million at June 30, 1997, down 10.3% from one
year ago. Non-performing loans represented .38% of total loans and
non-performing assets as a percent of total loans and other real estate were
only .47%. Loans past due ninety days or more but continuing to accrue interest
(primarily consumer and residential real estate) were $35.2 million at the
recent quarter-end.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of losses inherent in the loan
portfolio. The procedures employed by Huntington in evaluating the adequacy of
the ALL include an analysis of specific credits that are generally selected for
review on the basis of size and relative risk, portfolio trends, current and
historical loss experience, prevailing economic conditions, and other relevant
factors. At June 30, 1997, the ALL represented 1.41% of total loans and covered
non-performing loans 3.75 times; when combined with the allowance for other real
estate, it was 297.5% of total non-performing 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 excess
capital and continually strives to maintain an appropriate balance between
capital adequacy and returns to shareholders. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
Huntington's ratio of average equity to average assets was 7.26% in the
recent quarter compared with 7.51% in the same three months one year ago. As of
June 30, 1997, the ratio strengthened to 7.60%. Huntington showed improvement
during the first half of the year in each of the key regulatory capital ratios,
as the proceeds from the January 1997 issuance of $200 million of capital
securities by Huntington's special-purpose subsidiary are considered a component
of Tier 1 capital under Federal Reserve Board guidelines. In addition, its bank
subsidiaries had regulatory capital ratios in excess of the levels established
for "well-capitalized" institutions.
14
<PAGE> 15
On February 21, 1996, the Board of Directors authorized Huntington to
repurchase up to 12.1 million additional shares of its common stock (as adjusted
for subsequent stock dividends) through open market purchases and privately
negotiated transactions. The authorization represents a continuation of the
common stock repurchase program begun in August 1987 and provides that the
shares will be reserved for reissue in connection with Huntington's benefit
plans as well as for other corporate purposes. Huntington purchased 1.4 million
shares in the first six months of 1997 at an aggregate cost of $37.6 million,
leaving 3.1 million shares available for repurchase. Upon announcement of the
pending merger with First Michigan (discussed above), Huntington suspended its
common stock repurchase program. The program was temporarily reactivated
effective June 19, 1997, for the limited purpose of acquiring no more than
550,000 shares for reissue in a pending purchase business combination with The
Bank of Winter Park, a $90 million institution headquartered in Winter Park,
Florida.
15
<PAGE> 16
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
---- ---- --------
THREE MONTHS ENDED JUNE 30, 1997 1996 % CHANGE
---- ---- --------
<S> <C> <C> <C>
NET INCOME .............................. $ 72,546 $ 65,088 11.5 %
PER COMMON SHARE AMOUNTS(1)..............
Net income ......................... $ 0.46 $ 0.40 15.0
Cash dividends declared ............ $ 0.18 $ 0.16 12.5
AVERAGE COMMON SHARES OUTSTANDING(1) .... 159,245 160,826 (1.0)
KEY RATIOS
Return on:
Average total assets ............... 1.35% 1.32% 2.3
Average shareholders' equity ....... 18.52% 17.56% 5.5
Efficiency ratio ........................ 53.46% 56.86% (6.0)
Average equity/average assets ........... 7.26% 7.51% (3.3)
Net Interest Margin ..................... 4.50% 4.15% 8.4
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------- ---- ---- --------
SIX MONTHS ENDED JUNE 30, 1997 1996 % CHANGE
---- ---- --------
<S> <C> <C> <C>
NET INCOME .............................. $ 138,996 $ 127,913 8.7 %
PER COMMON SHARE AMOUNTS(1)..............
Net income ......................... $ 0.88 $ 0.79 11.4
Cash dividends declared ............ $ 0.36 $ 0.32 12.5
AVERAGE COMMON SHARES OUTSTANDING(1) .... 158,180 162,121 (2.4)
KEY RATIOS
Return on:
Average total assets ............... 1.31% 1.29% 1.6
Average shareholders' equity ....... 18.14% 16.77% 8.2
Efficiency ratio ........................ 54.82% 57.53% (4.7)
Average equity/average assets ........... 7.24% 7.70% (6.0)
Net Interest Margin ..................... 4.43% 4.09% 8.3
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------- ---- ---- --------
AT JUNE 30, 1997 1996 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Total Loans ............................. $ 15,132,937 $ 13,688,675 10.6 %
Total Deposits .......................... $ 14,591,064 $ 13,112,831 11.3
Total Assets ............................ $ 21,584,242 $ 20,321,166 6.2
Shareholders' Equity .................... $ 1,640,329 $ 1,475,296 11.2
Period-End Shares Outstanding (1) ....... 159,288,371 160,640,693 (0.8)
Shareholders' Equity Per Common Share (1) $ 10.30 $ 9.18 12.2
Total Risk-Adjusted Assets .............. $ 18,201,642 $ 16,834,872 8.1
Tier 1 Risk-Based Capital Ratio ......... 8.90% 8.05% 10.6
Total Risk-Based Capital Ratio .......... 12.26% 11.59% 5.8
Tier 1 Leverage Ratio ................... 7.55% 6.81% 10.9
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 1997.
16
<PAGE> 17
FINANCIAL REVIEW
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30,
1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
1-5 years .................. $ 156 $ 156 $ 156 $ 156
------- ------- ------- -------
Total ................... 156 156 156 156
------- ------- ------- -------
States and political subdivisions
Under 1 year ............... 18,674 18,736 13,875 13,955
1-5 years .................. 17,390 17,679 22,283 22,706
6-10 years ................. 18,253 18,449 20,143 20,304
Over 10 years .............. 499 515 3,987 3,986
------- ------- ------- -------
Total ................... 54,816 55,379 60,288 60,951
------- ------- ------- -------
Total Investment Securities ..... $54,972 $55,535 $60,444 $61,107
======= ======= ======= =======
</TABLE>
17
<PAGE> 18
FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE
30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year ...................... $ 6,977 $ 7,036 $ 58,572 $ 58,835
1-5 years ......................... 536,380 527,926 390,881 384,021
6-10 years ........................ 165,236 157,857 159,747 153,489
---------- ---------- ---------- ----------
Total .......................... 708,593 692,819 609,200 596,345
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ...................... 78 80 -- --
1-5 years ......................... 25,337 25,187 179,601 182,239
6-10 years ........................ 731,243 717,459 842,331 830,653
Over 10 years ..................... 408,698 410,182 259,214 259,519
---------- ---------- ---------- ----------
Total .......................... 1,165,356 1,152,908 1,281,146 1,272,411
---------- ---------- ---------- ----------
Other agencies
Under 1 year ...................... 8,270 8,275 63,586 63,823
1-5 years ......................... 1,440,178 1,431,139 1,843,924 1,845,256
6-10 years ........................ 236,327 235,817 176,519 175,143
Over 10 years ..................... 430,355 428,061 343,946 341,968
---------- ---------- ---------- ----------
Total .......................... 2,115,130 2,103,292 2,427,975 2,426,190
---------- ---------- ---------- ----------
Total U.S. Treasury and Federal agencies 3,989,079 3,949,019 4,318,321 4,294,946
---------- ---------- ---------- ----------
Other
Under 1 year ...................... 7,306 7,449 7,305 7,497
1-5 years ......................... 7,701 7,946 9,304 9,706
6-10 years ........................ 191,830 191,740 157,904 158,906
Over 10 years ..................... 258,784 259,531 265,534 265,649
Marketable equity securities ...... 8,480 7,339 8,480 7,229
---------- ---------- ---------- ----------
Total .......................... 474,101 474,005 448,527 448,987
---------- ---------- ---------- ----------
Total Securities Available for Sale .... $4,463,180 $4,423,024 $4,766,848 $4,743,933
========== ========== ========== ==========
</TABLE>
18
<PAGE> 19
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- ---------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 208,763 $ 197,375 $ 199,058 $ 194,456
Allowance of assets acquired/other ............ 149 0 6,177 2,200
Loan losses ................................... (27,639) (17,417) (47,598) (33,124)
Recoveries of loans previously charged off .... 5,034 4,685 9,778 9,288
Provision for loan losses ..................... 26,382 11,843 45,274 23,666
--------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD ....... $ 212,689 $ 196,486 $ 212,689 $ 196,486
========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ................. 0.60 % 0.38 % 0.52 % 0.36 %
Provision for loan losses--annualized ....... 0.70 % 0.35 % 0.62 % 0.36 %
Allowance for loan losses as a % of total loans 1.41 % 1.44 % 1.41 % 1.44 %
Net loan loss coverage (1) .................... 6.13 x 8.72 x 6.89 x 9.25 x
</TABLE>
(1) Income before taxes and the provision for loan losses to net loan losses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Quarter-End) 1997 1996
---------------------- -------------------------------------
(in thousands of dollars) II Q I Q IV Q III Q II Q
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans ...................... $53,545 $57,912 $47,155 $49,800 $51,470
Renegotiated loans ..................... 3,206 3,313 3,326 5,174 5,558
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS ............. 56,751 61,225 50,481 54,974 57,028
------- ------- ------- ------- -------
Other real estate, net ................. 13,869 19,850 16,772 15,610 21,720
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS ............ $70,620 $81,075 $67,253 $70,584 $78,748
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ..................... 0.38% 0.41% 0.35% 0.39% 0.42%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE 0.47% 0.54% 0.47% 0.51% 0.57%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS ................. 374.78% 340.98% 394.32% 364.20% 344.54%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 297.52% 254.48% 291.69% 274.54% 238.03%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $35,185 $35,852 $34,056 $32,382 $29,859
======= ======= ======= ======= =======
</TABLE>
19
<PAGE> 20
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
Fully Tax Equivalent Basis (1) 2ND QUARTER 1997 1ST QUARTER 1997
-------------------------- --------------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE
-------------------------- --------------------------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks ................................ $ 1 4.61% $ 1 6.77%
Trading account securities ........................................ 11 5.67 8 5.29
Federal funds sold and securities purchased under resale agreements 30 5.53 20 5.78
Mortgages held for sale ........................................... 114 7.69 86 7.74
Securities:
Taxable ..................................................... 4,867 6.36 4,878 6.36
Tax exempt .................................................. 92 8.55 91 8.96
------- -------
Total Securities ....................................... 4,959 6.41 4,969 6.41
------- -------
Loans
Commercial ................................................... 4,689 8.45 4,531 8.41
Real Estate
Construction ............................................ 535 9.03 496 8.83
Mortgage ................................................ 2,921 8.58 2,792 8.50
Consumer
Loans .................................................. 5,487 9.19 5,421 8.78
Leases ................................................. 1,382 7.63 1,252 7.84
------- -------
Total Loans ............................................. 15,014 8.69 14,492 8.53
Allowance for loan losses/loan fees ..................... 216 208
------- -------
Net loans ............................................... 14,798 9.25 14,284 9.00
------- -------
Total earning assets .................................... 20,129 8.54% 19,576 8.34%
------- -------
Cash and due from banks ........................................... 802 774
All other assets .................................................. 915 920
------- -------
TOTAL ASSETS ...................................................... $21,630 $21,062
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing demand deposits ......................... $ 2,403 $ 2,305
Interest bearing demand deposits ............................. 2,597 2.25% 2,574 2.37%
Savings deposits ............................................. 2,738 3.47 2,591 3.32
Other domestic time deposits ................................. 4,774 5.56 4,462 5.53
------- -------
Total core deposits ..................................... 12,512 4.14 11,932 4.09
------- -------
Certificates of deposit of $100,000 or more ....................... 1,327 5.57 1,017 5.35
Foreign time deposits ............................................. 501 5.71 401 5.65
------- -------
Total deposits ............................................... 14,340 4.37 13,350 4.26
------- -------
Short-term borrowings ............................................. 3,320 5.22 3,958 5.14
Long-term debt .................................................... 1,954 6.07 1,790 5.90
------- -------
Interest bearing liabilities ................................. 17,211 4.73% 16,793 4.65%
------- -------
All other liabilities ............................................. 445 446
Shareholders' equity .............................................. 1,571 1,518
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $21,630 $21,062
======= =======
Net interest rate spread .......................................... 3.81% 3.69%
Impact of non-interest bearing funds on margin .................... 0.69% 0.66%
NET INTEREST MARGIN ............................................... 4.50% 4.35%
</TABLE>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate
20
<PAGE> 21
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
4TH QUARTER 1996 3RD QUARTER 1996 2ND QUARTER 1996
- ------------------------- ------------------------- -------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE BALANCE RATE
- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
$ 2 5.26% $ 2 5.91% $ 2 9.43%
16 5.69 15 5.83 14 5.47
25 5.55 17 6.61 29 5.33
101 7.97 109 8.23 117 7.62
4,632 6.35 4,593 6.39 4,609 6.52
85 8.89 89 9.32 96 9.75
- ------- ------- -------
4,717 6.40 4,682 6.44 4,705 6.58
- ------- ------- -------
4,415 7.62 4,275 7.72 4,319 7.68
454 8.45 413 8.46 386 8.50
2,761 8.53 2,793 8.50 2,783 8.49
5,365 8.79 5,225 8.85 5,142 9.04
1,112 7.90 991 7.88 885 7.85
- ------- ------- -------
14,107 8.29 13,697 8.34 13,515 8.40
206 202 199
- ------- ------- -------
13,901 8.60 13,495 8.73 13,316 8.75
- ------- ------- -------
18,968 8.04% 18,522 8.15% 18,382 8.19%
- ------- ------- -------
772 754 755
903 853 906
- ------- ------- -------
$20,437 $19,927 $19,844
======= ======= =======
$ 2,349 $ 2,315 $ 2,307
2,540 2.34% 2,561 2.36% 2,595 2.40%
2,518 3.32 2,474 3.21 2,437 3.19
4,402 5.64 4,417 5.56 4,406 5.61
- ------- ------- -------
11,809 4.14 11,767 4.08 11,745 4.10
- ------- ------- -------
987 5.33 1,011 5.25 971 5.37
390 5.71 343 5.85 219 6.17
- ------- ------- -------
13,186 4.30 13,121 4.24 12,935 4.26
- ------- ------- -------
3,775 5.17 3,114 5.35 3,061 5.39
1,526 5.73 1,810 6.22 1,927 6.40
- ------- ------- -------
16,138 4.64% 15,730 4.69% 15,616 4.75%
- ------- ------- -------
442 406 430
1,508 1,476 1,491
- ------- ------- -------
$20,437 $19,927 $19,844
======= ======= =======
3.40% 3.46% 3.44%
0.70% 0.70% 0.71%
4.10% 4.16% 4.15%
</TABLE>
21
<PAGE> 22
SELECTED QUARTERLY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------- --------------------------------------
(in thousands of dollars, except per share amounts) IIQ IQ IVQ IIIQ IIQ
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ............. $429,152 $405,184 $382,667 $378,422 $375,079
TOTAL INTEREST EXPENSE ............ 203,976 193,664 189,555 186,721 185,786
-------- -------- -------- -------- --------
NET INTEREST INCOME ............... 225,176 211,520 193,112 191,701 189,293
Provision for loan losses ......... 26,382 18,892 21,134 20,250 11,843
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ....... 198,794 192,628 171,978 171,451 177,450
-------- -------- -------- -------- --------
Service charges on deposit accounts 24,700 23,795 23,418 23,342 23,132
Mortgage banking .................. 7,903 7,179 8,492 9,680 7,976
Trust services .................... 9,512 9,871 8,461 8,432 8,324
Electronic banking fees ........... 5,525 3,925 3,532 2,988 2,172
Credit card fees .................. 4,332 4,051 5,034 4,092 8,544
Investment product sales .......... 3,477 4,130 3,000 2,694 3,286
Securities gains .................. 3,604 1,977 4,240 6,173 200
Other ............................. 10,497 10,873 10,450 13,627 13,542
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ......... 69,550 65,801 66,627 71,028 67,176
-------- -------- -------- -------- --------
Salaries .......................... 62,943 60,662 58,083 58,475 56,776
Commissions ....................... 3,920 4,405 3,441 3,117 3,480
Employee benefits ................. 13,508 16,448 10,952 13,858 14,801
Equipment ......................... 11,900 11,137 11,578 10,670 10,267
Net occupancy ..................... 9,872 11,431 10,232 10,602 10,835
Advertising ....................... 4,830 6,421 2,685 2,845 4,052
Printing and supplies ............. 3,901 3,833 3,967 3,712 4,164
Credit card and electronic banking 3,693 2,653 3,659 4,255 4,023
Legal and loan collection ......... 2,704 2,354 3,658 2,000 2,498
Other ............................. 38,855 35,971 29,151 32,044 34,570
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ........ 156,126 155,315 137,406 141,578 145,466
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........ 112,218 103,114 101,199 100,901 99,160
Provision for income taxes ........ 39,672 36,664 33,474 34,438 34,072
-------- -------- -------- -------- --------
NET INCOME ........................ $ 72,546 $ 66,450 $ 67,725 $ 66,463 $ 65,088
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income ...................... $ 0.46 $ 0.42 $ 0.43 $ 0.42 $ 0.40
Cash dividends declared ......... $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.16
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ............... $225,176 $211,520 $193,112 $191,701 $189,293
Tax Equivalent Adjustment (2) ..... 1,264 1,285 1,210 1,204 1,319
======== ======== ======== ======== ========
Tax Equivalent Net Interest Income $226,440 $212,805 $194,322 $192,905 $190,612
======== ======== ======== ======== ========
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 1997.
(2) Calculated assuming a 35% tax rate.
22
<PAGE> 23
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 4. Submission of Matters to a Vote of Security Holders
Huntington Bancshares Incorporated held its annual meeting of
shareholders on April 24, 1997. At that meeting, shareholders approved
the following management proposals:
<TABLE>
<CAPTION>
ABSTAIN/ BROKER
FOR AGAINST WITHHELD NON-VOTES
--- ------- -------- ---------
<S> <C> <C> <C> <C>
1. Election of directors
to serve as Class I
Directors until the year 2000
Annual Meeting of Shareholders
as follows:
Robert H. Schottenstein 113,842,586 1,308,664
Zuheir Sofia 113,775,803 1,375,447
William J. Williams 113,894,975 1,256,275
2. Proposal to approve the
Huntington Bancshares Incorporated
Amended and Restated 1994
Stock Option Plan
106,466,507 4,578,971 1,712,271 2,393,501
3. Ratification of Ernst &
Young LLP to serve as independent
auditors for the Corporation
for the year 1997
114,094,908 625,580 396,020 34,742
</TABLE>
23
<PAGE> 24
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.
( ii ) Bylaws -- previously filed as Exhibit 3(b) to Annual
Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference.
4. Instruments defining the Rights of Security Holders:
Reference is made to Articles Fifth, Eighth and Tenth of
Articles of Restatement of Charter, previously filed as Exhibit
3(i) to Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference. Also, reference is made to
Rights Plan, dated February 22, 1990, previously filed as
Exhibit 1 to Registration Statement on Form 8-A, and
incorporated herein by reference and to Amendment No. 1 to the
Rights Agreement, dated as of August 16, 1995, previously filed
as Exhibit 4(b) to Form 8-K filed with the Securities and
Exchange Commission on August 28, 1995, and incorporated herein
by reference. Instruments defining the rights of holders of
long-term debt will be furnished to the Securities and Exchange
Commission upon request.
10. (a) Agreement and Plan of Merger, dated May 5, 1997, between
Huntington Bancshares Incorporated and First Michigan Bank
Corporation -- previously filed as Exhibit 2(a) to Current
Report on Form 8-K, dated May 5, 1997, and incorporated herein
by reference.
(b) Supplemental Agreement, dated May 5, 1997, between
Huntington Bancshares Incorporated and First Michigan Bank
Corporation -- previously filed as Exhibit 2(b) to Current
Report on Form 8-K, dated May 5, 1997, and incorporated herein
by reference.
(c) Warrant Purchase Agreement, dated May 5, 1997, between
Huntington Bancshares Incorporated and First Michigan Bank
Corporation -- previously filed as Exhibit 2(c) to Current
Report on Form 8-K, dated May 5, 1997, and incorporated herein
by reference.
24
<PAGE> 25
(d) Warrant to Purchase 5,268,716 shares of First Michigan Bank
Corporation common stock, dated May 5, 1997 -- previously filed
as Exhibit 2(d) to Current Report on Form 8-K, dated May 5,
1997, and incorporated herein by reference.
11. Computation of Earnings Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
1. Three reports on Form 8-K were filed under report item numbers 5
and 7, during the second quarter of 1997. The first report was
dated April 9, 1997, concerning Huntington's results of
operations for the quarter ended March 31, 1997. Huntington
announced its pending acquisition of First Michigan Bank
Corporation in a report dated May 5, 1997. In a report dated
June 19, 1997, Huntington announced that it was temporarily
reactivating its stock repurchase program.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
(Registrant)
Date: August 14, 1997 /s/ Ralph K. Frasier
--------------------------------
Ralph K. Frasier
General Counsel and Secretary
Date: August 14, 1997 /s/ Gerald R. Williams
--------------------------------
Gerald R. Williams
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
26
<PAGE> 1
EXHIBIT 11
Huntington Bancshares Incorporated
Computation of Earnings Per Share
For Periods Ended June 30, 1997, and 1996
( in thousands of dollars, except per share amounts )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $ 72,546 $ 65,088 $ 138,996 $ 127,913
Effect of Convertible Debt -- 7 -- 13
------------ ------------ ------------ ------------
Fully Diluted Net Income $ 72,546 $ 65,095 $ 138,996 $ 127,926
============ ============ ============ ============
Average Common Shares Outstanding 159,244,641 160,825,633 158,179,654 162,120,544
Dilutive Effect of Stock Options 1,505,919 1,257,896 1,199,582 1,269,242
------------ ------------ ------------ ------------
Average Common Shares and Common
Share Equivalents -- Primary 160,750,560 162,083,529 159,379,236 163,389,786
Additional Dilutive Effect of Stock Options 97,337 -- 403,674 11,725
Dilutive Effect of Convertible Debt -- 57,409 -- 57,409
------------ ------------ ------------ ------------
Fully Diluted Shares 160,847,897 162,140,938 159,782,910 163,458,920
============ ============ ============ ============
Net Income per Common Share Outstanding $ 0.46 $ 0.40 $ 0.88 $ 0.79
Primary Earnings per Share $ 0.45 $ 0.40 $ 0.87 $ 0.78
Fully Diluted Earnings per Share $ 0.45 $ 0.40 $ 0.87 $ 0.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUNTINGTON
BANCSHARES INCORPORATED'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 952,160
<INT-BEARING-DEPOSITS> 1,234
<FED-FUNDS-SOLD> 18,726
<TRADING-ASSETS> 6,585
<INVESTMENTS-HELD-FOR-SALE> 4,423,024
<INVESTMENTS-CARRYING> 54,972
<INVESTMENTS-MARKET> 55,535
<LOANS> 15,132,937
<ALLOWANCE> 212,689
<TOTAL-ASSETS> 21,584,242
<DEPOSITS> 14,591,064
<SHORT-TERM> 2,959,433
<LIABILITIES-OTHER> 424,200
<LONG-TERM> 1,926,643
0
0
<COMMON> 1,264,664
<OTHER-SE> 375,665
<TOTAL-LIABILITIES-AND-EQUITY> 21,584,242
<INTEREST-LOAN> 673,139
<INTEREST-INVEST> 156,326
<INTEREST-OTHER> 4,871
<INTEREST-TOTAL> 834,336
<INTEREST-DEPOSIT> 246,630
<INTEREST-EXPENSE> 397,640
<INTEREST-INCOME-NET> 436,696
<LOAN-LOSSES> 45,274
<SECURITIES-GAINS> 5,581
<EXPENSE-OTHER> 311,441
<INCOME-PRETAX> 215,332
<INCOME-PRE-EXTRAORDINARY> 138,996
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,996
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 4.43
<LOANS-NON> 53,545
<LOANS-PAST> 35,185
<LOANS-TROUBLED> 3,206
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 199,058
<CHARGE-OFFS> 47,598
<RECOVERIES> 9,778
<ALLOWANCE-CLOSE> 212,689
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
