<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 September 30, 1998
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 211,066,512 shares of Registrant's without par value common stock
outstanding on October 31, 1998.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ............................................... $ 1,143,684 $ 1,142,450 $ 1,032,222
Interest bearing deposits in banks .................................... 2,776 39,618 7,580
Trading account securities ............................................ 13,039 7,082 54,297
Federal funds sold and securities
purchased under resale agreements ................................ 14,641 509,119 309,882
Mortgages held for sale ............................................... 300,076 192,948 145,584
Securities available for sale - at fair value ......................... 4,536,798 5,709,814 5,435,715
Investment securities - fair value $27,443; $33,383;
and $35,078, respectively ........................................ 26,937 33,010 34,514
Total loans (1) ....................................................... 19,137,552 17,738,248 17,692,634
Less allowance for loan losses ................................... 286,122 258,171 257,883
----------- ----------- -----------
Net loans ............................................................. 18,851,430 17,480,077 17,434,751
----------- ----------- -----------
Premises and equipment ................................................ 526,454 389,481 392,777
Customers' acceptance liability ....................................... 18,027 27,818 21,858
Accrued income and other assets ....................................... 1,921,234 1,199,123 706,955
----------- ----------- -----------
TOTAL ASSETS .......................................................... $27,355,096 $26,730,540 $25,576,135
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) .................................................... $19,246,735 $17,983,718 $17,589,786
Short-term borrowings ................................................. 1,782,208 3,141,671 2,659,557
Bank acceptances outstanding .......................................... 18,027 27,818 21,858
Medium-term notes ..................................................... 2,524,900 2,332,150 2,057,500
Subordinated notes and other long-term debt ........................... 731,779 498,889 542,831
Company obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
the junior subordinated debentures of the parent company ........... 300,000 200,000 200,000
Accrued expenses and other liabilities ................................ 533,398 520,903 558,612
----------- ----------- -----------
Total Liabilities ................................................ 25,137,047 24,705,149 23,630,144
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized
500,000,000 shares; issued and outstanding
212,596,344; 193,279,797; and 193,279,797 shares,
respectively ................................................ 2,152,076 1,528,768 1,528,771
Less 1,120,157; 1,543,371; and 2,148,882 treasury
shares, respectively ........................................ (28,765) (36,791) (49,494)
Capital surplus .................................................. (12,334) 404,235 401,847
Accumulated other comprehensive income ........................... 60,675 14,800 2,793
Retained earnings ................................................ 46,397 114,379 62,074
----------- ----------- -----------
Total Shareholders' Equity ....................................... 2,218,049 2,025,391 1,945,991
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $27,355,096 $26,730,540 $25,576,135
=========== =========== ===========
</TABLE>
(1) See page 10 for detail of total loans and total deposits.
See notes to unaudited consolidated financial statements.
2
<PAGE> 3
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest and fee income
Loans ................................................... $ 421,745 $ 409,395 $ 1,221,686 $ 1,203,144
Securities .............................................. 68,147 88,221 249,687 267,955
Other ................................................... 15,329 5,205 27,596 10,614
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME ......................... 505,221 502,821 1,498,969 1,481,713
------------ ------------ ------------ ------------
Interest expense
Deposits ................................................ 177,821 168,861 502,226 479,733
Short-term borrowings ................................... 17,152 36,692 75,317 115,648
Medium-term notes ....................................... 42,163 28,468 129,839 84,052
Subordinated notes and other long-term debt ............. 16,570 11,642 37,795 34,613
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE ........................ 253,706 245,663 745,177 714,046
------------ ------------ ------------ ------------
NET INTEREST INCOME ........................... 251,515 257,158 753,792 767,667
Provision for loan losses .................................... 24,160 28,351 70,936 81,562
------------ ------------ ------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES .......... 227,355 228,807 682,856 686,105
------------ ------------ ------------ ------------
Total non-interest income (1) ................................ 114,641 96,097 329,716 254,329
Total non-interest expense (1) ............................... 211,877 244,910 614,997 614,576
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES .................... 130,119 79,994 397,575 325,858
Provision for income taxes ................................... 41,364 38,762 127,025 123,844
------------ ------------ ------------ ------------
NET INCOME .................................... $ 88,755 $ 41,232 $ 270,550 $ 202,014
============ ============ ============ ============
PER COMMON SHARE (2)
Net income
Basic .............................................. $ 0.42 $ 0.20 $ 1.28 $ 0.96
Diluted ............................................ $ 0.42 $ 0.19 $ 1.27 $ 0.95
Cash dividends declared ................................. $ 0.20 $ 0.18 $ 0.56 $ 0.50
AVERAGE COMMON SHARES (2)
Basic .............................................. 211,714,154 210,369,843 211,564,966 209,618,332
Diluted ............................................ 213,495,729 213,055,682 213,690,791 212,070,038
</TABLE>
(1) See page 11 for detail of non-interest income and non-interest expense.
(2) Adjusted for stock splits and stock dividends, as applicable.
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) ACCUMULATED
OTHER
COMMON COMMON TREASURY TREASURY CAPITAL COMPREHENSIVE RETAINED
SHARES STOCK SHARES STOCK SURPLUS INCOME EARNINGS TOTAL
- ------------------------------------------- ------- ---------- -------- ---------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1997:
Balance, beginning of period 182,265 $1,290,968 (9,285) $(204,634) $401,176 $(13,931) $312,079 $1,785,658
Comprehensive Income:
Net income 202,014 202,014
Unrealized net holding gains on
securities available for sale arising
during the period 16,724 16,724
----------
Total comprehensive income 218,738
----------
Stock issued for acquisitions 2,881 65,220 12,560 77,780
Cash dividends declared (104,445) (104,445)
Stock options exercised 242 3,415 (1,921) 1,494
10% stock dividend 9,181 236,214 5,274 124,920 (51,487) (309,847) (200)
Treasury shares purchased (1,930) (53,427) (2,748) (56,175)
Treasury shares sold:
Shareholder dividend reinvestment plan 534 11,968 2,345 14,313
Employee benefit plans 135 3,044 810 3,854
Pre-merger transactions of pooled
subsidiary 1,833 1,589 41,112 (37,727) 4,974
------- ---------- ------ -------- -------- -------- -------- ----------
Balance, end of period 193,279 $1,528,771 (2,149) $(49,494) $401,847 $ 2,793 $ 62,074 $1,945,991
======= ========== ====== ======== ======== ======== ======== ==========
NINE MONTHS ENDED SEPTEMBER 30, 1998:
BALANCE, BEGINNING OF PERIOD 193,279 $1,528,768 (1,543) $(36,791) $404,235 $ 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
----------
STOCK ISSUED FOR ACQUISITION 160 3,883 (3,815) 68
CASH DIVIDENDS DECLARED (119,289) (119,289)
STOCK OPTIONS EXERCISED 642 12,151 (8,521) 3,630
10% STOCK DIVIDEND 19,317 623,308 (83) (404,437) (219,243) (372)
TREASURY SHARES PURCHASED (315) (8,487) (8,487)
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 19 479 204 683
------- ---------- ------ -------- -------- -------- -------- ----------
BALANCE, END OF PERIOD 212,596 $2,152,076 (1,120) $(28,765) $(12,334) $ 60,675 $ 46,397 $2,218,049
======= ========== ====== ======== ======== ======== ======== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
(in thousands of dollars) 1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ................................................................... $ 270,550 $ 202,014
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses .......................................... 70,936 81,562
Provision for depreciation and amortization ........................ 57,887 46,605
Deferred income tax expense ........................................ 30,201 20,954
Increase in trading account securities ............................. (5,957) (52,424)
Increase in mortgages held for sale ................................ (107,128) (24,162)
Net gains on sales of securities ................................... (28,020) (6,944)
Net gains on sales of loans ........................................ (9,857) (7,432)
Decrease in accrued income receivable .............................. 28,041 12,939
Net increase in other assets ....................................... (91,078) (55,722)
(Decrease) increase in accrued expenses ............................ (32,225) 60,226
Net (decrease) increase in other liabilities ....................... (33,509) 45,790
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................. 149,841 323,406
----------- -----------
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits in banks .................... 36,842 (4,162)
Proceeds from :
Maturities and calls of investment securities ............................ 5,999 88,306
Maturities and calls of securities available for sale .................... 932,590 606,012
Sales of securities ...................................................... 3,422,023 1,876,997
Purchases of:
Investment securities .................................................... -- (2,962)
Securities available for sale ............................................ (2,959,346) (2,267,962)
Proceeds from sales of loans ................................................. 132,712 408,258
Net loan originations, excluding sales ....................................... (156,227) (1,092,320)
Proceeds from disposal of premises and equipment ............................. 809 6,381
Purchases of premises and equipment .......................................... (105,518) (39,487)
Proceeds from sales of other real estate ..................................... 9,452 13,848
Purchase of Bank Owned Life Insurance ........................................ (200,000) --
Net cash received (paid) in purchase acquisitions ............................ 344,046 (6,665)
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES........ 1,463,382 (413,756)
----------- -----------
FINANCING ACTIVITIES
(Decrease) increase in total deposits ........................................ (1,154,770) 717,165
Decrease in short-term borrowings ............................................ (1,359,463) (944,043)
Proceeds from issuance of long-term debt ..................................... 300,000 108,050
Payment of long-term debt .................................................... (65,538) (115,923)
Proceeds from issuance of medium-term notes .................................. 1,020,000 1,367,500
Payment of medium-term notes ................................................. (827,250) (860,000)
Proceeds from issuance of capital securities ................................. 100,000 200,000
Dividends paid on common stock, including pre-merger dividends
of pooled subsidiary ..................................................... (115,272) (101,221)
Repurchase of common stock ................................................... (8,487) (56,175)
Proceeds from issuance of common stock ....................................... 4,313 24,674
----------- -----------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES ....... (2,106,467) 340,027
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ........................ (493,244) 249,677
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 1,651,569 1,092,427
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 1,158,325 $ 1,342,104
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
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 interim
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 1997 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 with the 1998 presentation. These reclassifications had
no effect on net income.
C. Recent Accounting Pronouncements
Pursuant to the Financial Accounting Standards Board (FASB) Statement
No. 130, "Reporting Comprehensive Income", the Consolidated Statements of
Changes in Shareholders' Equity include a new measure called "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:
<TABLE>
<CAPTION>
(in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unrealized holding gains arising during the period:
Unrealized net gains $ 80,688 $ 44,465 $ 98,984 $ 33,052
Related tax expense (28,489) (15,785) (34,896) (11,814)
-------- -------- -------- --------
Net 52,199 28,680 64,088 21,238
-------- -------- -------- --------
Reclassification adjustment
for net gains realized
during the period
Realized net gains (10,615) (1,242) (28,020) (6,944)
Related tax expense 3,715 435 9,807 2,430
-------- -------- -------- --------
Net (6,900) (807) (18,213) (4,514)
-------- -------- -------- --------
Total Other Comprehensive Income $ 45,299 $ 27,873 $ 45,875 $ 16,724
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
In June 1997, the FASB issued Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information". The provisions of this
Statement require disclosure of financial and descriptive information about an
enterprise's operating segments. The Statement defines an operating segment as a
component of an enterprise that engages in business activities that generate
revenue and incur expense. A segment is further defined as a component whose
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance, and for which discrete
financial information is available. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This Statement is effective for fiscal years beginning after December 15, 1997;
however, it is not required to be applied for interim reporting in the initial
year of application. Accordingly, no segment information is included in the
notes to these unaudited consolidated financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) 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 is effective for fiscal years beginning after June
15, 1999. It may be implemented earlier provided adoption occurs as of the
beginning of any fiscal quarter after issuance. Statement 133 cannot be applied
retroactively. This Statement must be applied to (a) all free-standing
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997.
Huntington has not yet quantified the impact of adopting Statement No.
133. Based on information available at this time, Huntington does not expect it
to be material to the consolidated financial statements.
D. Acquisitions
On June 26, 1998, Huntington completed the acquisition of sixty former
Barnett Banks banking offices in Florida from NationsBank Corporation. The
transaction was accounted for as a purchase, and accordingly, the assets
acquired and liabilities assumed were recorded at estimated fair value. The
purchase added approximately $1.3 billion in loans and $2.3 billion in deposits.
Intangible assets arising from the deal totaled approximately $454.2 million.
The acquired branches' results of operations have been included in Huntington's
consolidated totals from the date of the acquisition only.
7
<PAGE> 8
On September 30, 1997, Huntington completed the acquisition of First
Michigan Bank Corporation (First Michigan), a $3.7 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for all of the outstanding common stock
of First Michigan. First Michigan had total loans and deposits of $2.7 billion
and $3.1 billion, respectively, and total equity of $286 million at the date of
acquisition. The transaction was accounted for as a pooling of interests;
accordingly, all financial information appearing in this report, except
dividends per share, has been restated to include the results of First Michigan.
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 June 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 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:
<TABLE>
<CAPTION>
Variable Interest
Rate Maturity Date
----------------- -------------
<S> <C> <C>
Huntington Capital I LIBOR + .70% February 1, 2027
Huntington Capital II LIBOR + .625% June 15, 2028
</TABLE>
The net proceeds received by Huntington from the sale of the capital
securities were used for general corporate purposes.
8
<PAGE> 9
F. 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:
<TABLE>
<CAPTION>
(In thousands, except THREE MONTHS ENDED NINE MONTHS ENDED
per share amounts) SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 88,755 $ 41,232 $270,550 $202,014
======== ======== ======== ========
Average common shares outstanding 211,714 210,370 211,565 209,618
Dilutive effect of stock options 1,782 1,686 2,126 2,452
-------- -------- -------- --------
Diluted common shares outstanding 213,496 213,056 213,691 212,070
======== ======== ======== ========
Earnings per share
Basic $ .42 $ .20 $ 1.28 $ .96
Diluted $ .42 $ .19 $ 1.27 $ .95
</TABLE>
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
9
<PAGE> 10
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL REVIEW
<CAPTION>
- ----------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- ----------------------------------------------------------------------------------------------------
(in thousands of dollars)
SEPTEMBER 30, December 31, September 30,
1998 1997 1997
------------- ------------ ------------
<S> <C> <C> <C>
Commercial ....................................... $ 5,894,899 $ 5,270,660 $ 5,341,003
Real Estate
Construction ................................ 826,301 863,635 884,724
Commercial .................................. 2,254,991 2,370,652 2,278,754
Residential ................................. 1,478,354 1,228,446 1,272,806
Consumer
Loans ........................................ 6,908,578 6,462,716 6,415,914
Leases ....................................... 1,774,429 1,542,139 1,499,433
----------- ----------- -----------
Total Loans ................................. $19,137,552 $17,738,248 $17,692,634
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- ----------------------------------------------------------------------------------------------------
(in thousands of dollars)
SEPTEMBER 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing ........................ $ 2,863,784 $ 2,549,518 $ 2,544,022
Interest bearing ............................ 4,244,527 3,762,862 3,591,275
Savings deposits ................................. 3,636,995 3,133,014 3,023,174
Other domestic time deposits ..................... 6,560,886 6,115,534 6,057,623
----------- ----------- -----------
TOTAL CORE DEPOSITS ......................... 17,306,192 15,560,928 15,216,094
----------- ----------- -----------
Certificates of deposit of $100,000 or more....... 1,825,802 1,903,657 2,106,091
Foreign time deposits ............................ 114,741 519,133 267,601
----------- ----------- -----------
Total Deposits .............................. $19,246,735 $17,983,718 $17,589,786
=========== =========== ===========
</TABLE>
10
<PAGE> 11
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL REVIEW
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- PERCENT --------------------- PERCENT
1998 1997 CHANGE 1998 1997 CHANGE
-------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts ................... $ 32,493 $30,382 6.9% $ 92,411 $ 86,817 6.4%
Mortgage banking ...................................... 15,270 20,672 (26.1) 44,618 39,826 12.0
Trust services ........................................ 12,502 12,124 3.1 37,830 36,083 4.8
Brokerage and insurance income ........................ 10,057 7,614 32.1 26,862 20,953 28.2
Electronic banking fees ............................... 7,897 5,965 32.4 21,165 16,529 28.0
Credit card fees ...................................... 5,197 5,112 1.7 15,542 13,833 12.4
Other ................................................. 20,610 12,986 58.7 63,268 33,344 89.7
-------- ------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS...... 104,026 94,855 9.7 301,696 247,385 22.0
-------- ------- -------- --------
Securities gains ...................................... 10,615 1,242 N.M. 28,020 6,944 N.M.
-------- ------- -------- --------
TOTAL NON-INTEREST INCOME ............................. $114,641 $96,097 19.3% $329,716 $254,329 29.6%
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- PERCENT --------------------- PERCENT
1998 1997 CHANGE 1998 1997 CHANGE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel and related costs ........................... $111,744 $101,334 10.3% $324,939 $295,577 9.9%
Outside data processing and other services ............ 17,550 16,665 5.3 53,880 47,616 13.2
Equipment ............................................. 15,001 14,503 3.4 45,838 41,863 9.5
Net occupancy ......................................... 15,019 12,772 17.6 42,521 37,754 12.6
Marketing ............................................. 8,762 7,845 11.7 24,009 24,595 (2.4)
Telecommunications .................................... 7,793 5,639 38.2 21,256 15,892 33.8
Legal and other professional services ................. 5,291 6,095 (13.2) 17,313 16,613 4.2
Printing and supplies ................................. 5,851 5,384 8.7 17,223 15,345 12.2
Franchise and other taxes ............................. 5,523 4,685 17.9 16,549 15,260 8.4
Amortization of intangible assets ..................... 9,467 3,382 179.9 16,253 9,734 67.0
Other ................................................. 9,876 15,443 (36.0) 35,216 43,164 (18.4)
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGES...... 211,877 193,747 9.4 614,997 563,413 9.2
-------- -------- -------- --------
Special charges and other merger costs ................ -- 51,163 N.M. -- 51,163 N.M.
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ............................ $211,877 $244,910 (13.5)% $614,997 $614,576 0.1%
======== ======== ======== ========
</TABLE>
N.M. - Not meaningful.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
Forward-Looking Statements
- --------------------------
Congress passed the Private Securities Litigation Reform Act of 1995 to
encourage corporations to provide investors with information about the company's
anticipated future financial performance, goals, and strategies. The act
provides a safe harbor for such disclosure, or in other words, protection from
unwarranted litigation if actual results are not the same as management's
expectations.
Huntington Bancshares Incorporated (Huntington) desires to provide its
shareholders with sound information about past performance and future trends.
Consequently, this Quarterly Report, 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:
changes in economic conditions; movements in interest rates; competitive
pressures on product pricing and services; success and timing of business
strategies; the successful integration of acquired businesses; the nature and
extent of governmental actions and reforms; and extended disruption of vital
infrastructure. The management of Huntington encourages readers of this report
to understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance.
Florida Branch Purchase
- -----------------------
On June 26, 1998, Huntington completed the acquisition of sixty former
Barnett Banks banking offices in Florida from NationsBank Corporation (the
Branch Purchase). The transaction was accounted for as a purchase; accordingly,
the assets acquired and liabilities assumed were recorded at estimated fair
value. The Branch Purchase added approximately $1.3 billion in loans and $2.3
billion in deposits. Intangible assets arising from the deal totaled
approximately $454.2 million. The acquired branches' results of operations have
been included in Huntington's consolidated totals from the date of the
acquisition only.
OVERVIEW
Net income was $88.8 million for the third quarter of 1998, or $.42
per diluted share, versus $41.2 million, or $.19 per diluted share, in the same
period last year. For the nine months just ended, net income and diluted
earnings per share were $270.6 million and $1.27, respectively, compared with
$202.0 million and $.95 one year ago. On an operating basis, defined as earnings
before merger-related charges, net income was up 1.5% and 9.0%, respectively,
over the same periods in 1997 while diluted earnings per share improved 2.4% in
the recent quarter and 8.5% year-to-date. The balance of
12
<PAGE> 13
Management's Discussion and Analysis refers to Huntington's results on an
operating basis.
The following table presents Huntington's return on average equity
(ROE) and return on average assets (ROA) on both a reported and cash basis.
<TABLE>
<CAPTION>
ROE ROA
------------------------------------ ----------------------------------
3rd Qtr. YTD 3rd Qtr. YTD
---------------- ---------------- -------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REPORTED 16.43% 17.85% 17.27% 17.79% 1.28% 1.42% 1.36% 1.32%
CASH BASIS* 26.59% 21.37% 22.71% 21.30% 1.43% 1.49% 1.45% 1.39%
</TABLE>
* Tangible or "Cash Basis" results exclude from earnings amortization of
goodwill and other intangibles. Related asset amounts are also excluded from
total assets and shareholders' equity.
Total assets were $27.4 billion at the recent quarter end, compared
with $26.7 billion at December 31, 1997, and $25.6 billion one year ago. Total
assets grew only 2.6% since year end despite completion of the Branch Purchase,
as a result of Huntington's strategic repositioning of the balance sheet that
commenced in the second quarter of 1998. These initiatives included the sale of
$3.4 billion of securities available for sale, the exit of out-of-market credit
card operations through the sale of approximately $90 million of loans
outstanding, and the closure of the Pittsburgh indirect loan production office.
Huntington also reactivated its share repurchase program and is negotiating a
sale/leaseback agreement related to approximately $180 million of its real
estate properties.
After adjusting for the impact of the Branch Purchase and loan
sales/securitizations, average total loans outstanding were up 3.3% in the
recent quarter and 4.3% in the first nine months of the year versus the same
periods one year ago. Commercial and retail loan growth remained firm; however,
mortgage refinancing activity coupled with the impact of the General Motors
strike on automobile dealer floor plan lending softened overall loan growth.
Average core deposits, adjusted for the Branch Purchase, increased 2.1% for the
quarter and 4.0% year-to-date, with transaction accounts up approximately 12% in
both periods.
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 to reflect
enhancements to Huntington's profitability reporting system and changes in
13
<PAGE> 14
organizational structure. For a detailed description of the lines of business,
please refer to Huntington's Annual Report on Form 10-K for the year ended
December 31, 1997.
The following summary contains selected financial information by
business segment for the three and nine months ended September 30, 1998 (in
thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Average Average
Revenues* Net Income Total Assets Total Deposits
--------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Retail Banking $202,253 $35,550 $ 8,459,474 $16,842,726
Corporate Banking 79,822 28,716 6,344,071 1,013,478
Dealer Sales 43,155 11,615 5,341,844 64,077
Private Financial Group 19,511 6,134 615,452 519,785
Treasury / Other 23,982 6,740 6,753,665 884,468
-------- ------- ----------- -----------
Total $368,723 $88,755 $27,514,506 $19,324,534
======== ======= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Average Average
Revenues* Net Income Total Assets Total Deposits
--------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Retail Banking $ 599,682 $114,446 $ 8,231,574 $15,743,553
Corporate Banking 224,046 71,489 5,821,251 969,218
Dealer Sales 126,820 33,183 5,165,230 62,271
Private Financial Group 57,793 16,748 597,263 510,694
Treasury / Other 82,970 34,684 6,827,878 807,778
---------- -------- ----------- -----------
Total $1,091,311 $270,550 $26,643,196 $18,093,514
========== ======== =========== ===========
</TABLE>
* Reported on a fully taxable equivalent basis, assuming a 35% tax rate.
RESULTS OF OPERATIONS
Net Interest Income
- -------------------
Net interest income for the three and nine months ended September 30,
1998, was $251.5 million and $753.8 million, respectively, down modestly
(approximately 2%) when compared with the same periods last year. The decline is
primarily due to the drop in earning asset yields, as the highly competitive
marketplace continues to erode loan margins across much of the banking industry.
The net interest margin, on a fully tax equivalent basis, was 4.18% during the
three months just ended compared with 4.41% in the third quarter of 1997. On a
year-to-date basis, the net interest margin was 4.24% versus 4.43% for the first
nine months of last year. Interest rate swaps and other off-balance sheet
financial instruments used for asset/liability management purposes
14
<PAGE> 15
provided a benefit of $4.0 million in the recent quarter and $12.2 million on a
year-to-date basis, up from $1.2 million and $3.5 million, respectively, in the
same periods one year ago. Management expects margin pressures to continue in
the ensuing quarters, which could depress future growth in net interest income.
Provision For Loan Losses
- -------------------------
The provision for loan losses was $24.2 million in the third quarter
of 1998. Excluding the $4.8 million additional provision taken last year in
connection with the First Michigan acquisition, the recent quarter's provision
was roughly flat with the same period of 1997. For the first nine months of the
year, the provision was $70.9 million, compared with $76.8 million (adjusted for
the one-time merger provision) one year ago. Annualized net charge-offs as a
percentage of average total loans were .52% for the recent quarter and .48% for
the nine months, versus .41% and .46% for the same periods last year.
Non-Interest Income
- -------------------
Non-Interest income, excluding securities gains, was $104.0 million and
$301.7 million, respectively, in the recent three and nine month periods.
Particularly strong growth was seen in electronic banking revenue, up 32.4% from
the year-ago quarter. Nearly eight percent of Huntington's deposit customer base
now has an account with Huntington's Web Bank, with a goal of 10% by year-end
1999. Insurance and brokerage income was up 32.1% from the same quarter a year
ago, in part the result of a Huntington initiative to have at least one employee
licensed to sell investment products in each of its banking offices. Off-balance
sheet managed assets, namely insurance in force, trust assets, proprietary
mutual funds, and mortgage loans serviced totaled $21.2 billion at September 30,
1998, and continue to grow at an annualized rate of 24.9%. Income from Bank
Owned Life Insurance was $8.1 million and $20.6 million, respectively, in the
recent quarter and first nine months of the year. Huntington owned no such
policies in the comparable periods of 1997. Adjusted for one-time gains last
year from portfolio sales of residential real estate loans, mortgage banking
income increased 11.7% and 35.9%, respectively in the recent three and nine
months compared with the same periods of 1997.
Non-Interest Expense
- --------------------
Non-Interest expense, excluding merger-related charges, totaled $211.9
million in the third quarter and $615.0 million for the first nine months of
1998, up from $193.7 million and $563.4 million in the same periods one year
ago. The expense growth is attributable to increased volumes from fee-based
businesses, higher telecommunication costs resulting from continued expansion of
Huntington's ATM network, contract programming for Year 2000 upgrades, costs of
systems conversions, and the impact of the Branch Purchase. Non-Interest
expenses in the third quarter of 1997 included various one-time merger-related
costs of $51.2 million, consisting primarily of personnel, facilities, and
systems costs, as well as professional fees and other costs to effect the merger
with First Michigan.
Huntington believes it is well positioned to realize significant
efficiencies in the future given its movement to a common operating platform,
the merger of its subsidiary banks into a single interstate charter, the
completion of two significant acquisitions, and a
15
<PAGE> 16
substantial reduction in the number of its operations and processing centers.
The company recently announced several additional strategic actions that are
expected to enhance profitability, including its plans to close or sell
approximately 39 banking offices and outsource certain back-office functions
such as customer retail lockbox and employee benefit administration. Once fully
implemented, these strategic actions are expected to add approximately $125
million in sustainable annual pre-tax profit improvements.
In connection with the initiatives, Huntington plans to eliminate
approximately 1,000 positions, or roughly 10% of its work force, within the next
six to nine months. In the fourth quarter of 1998, Huntington expects to record
a restructuring charge of approximately $90 million, pre-tax, to cover employee
transition costs, banking office and ATM closures, and other costs related to
these strategic actions.
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 a systems
failure or other computer errors, leading to possible disruptions in operations
or creation of erroneous results.
Huntington, in an enterprise-wide effort, is taking steps to ensure
that its internal systems are secure from such failure and that its current
products will perform. A Year 2000 Plan (the Plan) for the entire organization
addresses all systems, software, hardware, and infrastructure components. In
addition, business processes are being assessed and validated throughout the
company.
The Plan identifies and addresses "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's progress towards meeting the Plan's goals for both IT and
Non-IT systems, which follows a five phase approach recommended by federal bank
regulators, is as follows:
<TABLE>
<CAPTION>
MISSION CRITICAL NON-MISSION CRITICAL
--------------------- ---------------------
Percent Completion Percent Completion
Phase Complete Date Complete Date
- ------------------- -------- ---- -------- ----
<S> <C> <C> <C> <C>
Awareness 100% 06/30/1998 100% 06/30/1998
Assessment 100% 09/30/1998 95% 03/31/1999
Renovation 80% 12/31/1998 80% 03/31/1999
Testing/Validation 30% 12/31/1998 30% 06/30/1999
Implementation 10% 06/30/1999 5% 10/31/1999
</TABLE>
16
<PAGE> 17
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.
Huntington has identified approximately ten material third-party relationships
with a focus on those considered "Mission Critical". Huntington is presently
working with each of these parties to test transactions and/or interfaces
between its processors, obtain appropriate information from each party, and
assess each party's ability to be prepared for the Year 2000.
Over forty full-time staff members are dedicated to the Year 2000
effort and, on a part-time basis, multitudes of internal personnel from various
disciplines throughout the Huntington organization are also working on this
project. Furthermore, Huntington has engaged an independent consultant to
establish a Year 2000 Program Management Office (PMO). This PMO organizes
Huntington's Year 2000 project management activities beyond the technical
information services group into all business units. This PMO creates the
methodology that is used in every business unit and also brings a quality
assurance process that reviews the thoroughness of the actions taken to remedy
the Year 2000 problem.
Identifiable costs for the Year 2000 project incurred for the three
month and nine-month periods ended September 30, 1998, were $4.4 million and
$8.9 million, respectively. Management estimates it will cost an additional $20
million to bring its systems and business processes into compliance. However,
these expenses are not expected to materially impact operating results in any
one period. These estimated costs incorporate not only incremental third-party
expenses but also include salary and benefit costs of employees redeployed and
full implementation of a call center to handle increased customer inquiries
before and after January 1, 2000.
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 problem loans and credit
losses in the event that borrowers fail to properly respond to the problem.
These risks, along with the risk of Huntington failing to adequately complete
the remaining phases of its project work 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 impacts to Huntington or to
third parties which provide Mission Critical services to Huntington. 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 now complete and have been
tested and validated for all core business processes. Huntington's senior
management presently believe that 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,
17
<PAGE> 18
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 financial
instruments, accounting for significant variables that are believed to be
affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, cash flows of loans and deposits, principal
amortization on revolving credit instruments, and balance sheet growth
assumptions. The model also captures embedded options, 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 the model provides a reasonably accurate estimate of
Huntington's interest rate risk exposure at any point in time, even though these
assumptions are inherently uncertain. This information is regularly shared with
the Board of Directors.
At September 30, 1998, the results of Huntington's interest sensitivity
analysis indicated that net interest income would change by less than 1% given a
100 basis point increase or a 100-200 basis point 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). If interest
rates rose 200 basis points, net interest income would be expected to decrease
by 2%.
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,
1998.
18
<PAGE> 19
<TABLE>
<CAPTION>
Average Average Rate
Notional Maturity Market -----------------
(Dollars in millions) Value (years) Value Receive Pay
-------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
ASSET CONVERSION SWAPS
Received fixed $ 975 1.18 $10.2 6.24% 5.65%
====== =====
LIABILITY CONVERSION
SWAPS
Receive fixed $1,895 3.44 $62.1 6.30% 5.70%
Receive fixed-amortizing 163 1.15 0.8 5.63 5.59
Pay fixed 850 2.27 (9.9) 5.66 5.43
------ -----
TOTAL LIABILITY
CONVERSION SWAPS $2,908 2.96 $53.0 6.07% 5.61%
====== =====
BASIS PROTECTION SWAPS $ 685 0.55 $(0.5) 5.48% 5.75%
====== =====
</TABLE>
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). Asset
conversion swaps and liability conversion swaps with notional values of $700
million and $950 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, 1998, Huntington's credit risk from interest rate
swaps used for asset/liability management purposes was $128.7 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.
19
<PAGE> 20
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 $423 million at September 30, 1998. 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 to
established borrowers. Highly leveraged transactions as well as excessive
industry and 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.
Huntington continues to compare favorably with its peers in terms of
asset quality. 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 $95.8 million at September 30, 1998. Non-performing loans represented
.39% of total loans, and non-performing assets as a percentage of total loans
and other real estate were only .50%, as of this same date. Loans past due
ninety days or more but continuing to accrue interest, including consumer and
residential real estate credits were $64.0 million at September 30, 1998.
The allowance for loan losses (ALL) was $286.1 million at September 30,
1998, and 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 to evaluate 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 historic loss experience,
prevailing economic conditions, and other relevant factors. During the third
quarter, Huntington maintained its reserve ratio at 1.50% compared with 1.46%
one year ago. At September 30, 1998, the ALL covered non-performing loans 3.8
times. When the ALL is combined with the allowance for other real estate owned,
the reserves were nearly three times 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 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.
Shareholders' equity at September 30, 1998, was $2.2 billion versus
$1.9 billion one year ago. Huntington's ratio of average equity to average
assets was 7.79% in the
20
<PAGE> 21
recent quarter compared with 7.67% in the same three months of last year. For
the nine-months just ended, the ratio was 7.86%, up from 7.45% in the same
period of 1997.
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 7.37%, its total risk-based
capital ratio was 11.19%, and its leverage ratio was 6.52%, each of which
exceeds the "well-capitalized" requirements. Huntington's two bank subsidiaries
also had regulatory capital ratios in excess of the levels established for
"well-capitalized" institutions.
On September 14, 1998, the Board of Directors authorized the
reactivation of Huntington's common stock repurchase program, which was
previously suspended in May 1997 due to the First Michigan pooling-of-interests
merger transaction. In connection with the reinstatement of the program, the
Board of Directors also increased the number of shares authorized for repurchase
to 15 million, up from approximately 3 million shares remaining when the plan
was suspended. The shares will be purchased through open market purchases 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 September 1998, Huntington repurchased approximately 315,000 shares.
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 the Huntington's Annual
Report on Form 10K for the year ended December 31, 1997. Quantitative and
qualitative disclosures for the current period can be found on pages 17 through
20.
21
<PAGE> 22
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
- -------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
- -------------------------------------------------------- -------- -------- --------
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997 % Change
- -------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME ............................................. $ 88,755 $ 41,232 115.3 %
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ......................................... $ 0.42 $ 0.20 110.0
Diluted ....................................... $ 0.42 $ 0.19 121.1
Cash dividends declared ............................ $ 0.20 $ 0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING--DILUTED (1) .......... 213,496 213,056 0.2
KEY RATIOS
Return on:
Average total assets ............................... 1.28% 0.65% 96.9
Average shareholders' equity ....................... 16.43% 8.41% 95.4
Efficiency ratio ........................................ 56.46% 55.11% 2.4
Average equity/average assets ........................... 7.79% 7.67% 1.6
Net interest margin ..................................... 4.18% 4.41% (5.2)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Per Common Share Amounts (1)
Net income
Basic ......................................... $ 0.45 $ 0.21 114.3
Diluted ....................................... $ 0.45 $ 0.21 114.3
Return on:
Average total assets ............................... 1.43% 0.71% 101.4
Average shareholders' equity ....................... 26.59% 10.49% 153.5
</TABLE>
<TABLE>
- -------------------------------------------------------- -------- -------- --------
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 % Change
- -------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME .............................................. $270,550 $202,014 33.9 %
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ......................................... $ 1.28 $ 0.96 33.3
Diluted ....................................... $ 1.27 $ 0.95 33.7
Cash dividends declared ............................ $ 0.56 $ 0.50 12.0
AVERAGE COMMON SHARES OUTSTANDING--DILUTED (1) 213,691 212,070 0.8
KEY RATIOS
Return on:
Average total assets ............................... 1.36% 1.08% 25.9
Average shareholders' equity ....................... 17.27% 14.48% 19.3
Efficiency ratio ........................................ 56.80% 55.26% 2.8
Average equity/average assets ........................... 7.86% 7.45% 5.5
Net interest margin ..................................... 4.24% 4.43% (4.3)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Per Common Share Amounts (1)
Net income
Basic ......................................... $ 1.35 $ 1.01 33.7
Diluted ....................................... $ 1.33 $ 1.00 33.0
Return on:
Average total assets ............................... 1.45% 1.14% 27.2
Average shareholders' equity ....................... 22.71% 17.48% 29.9
Period-End Shares Outstanding (1) ....................... 211,476 210,247 0.6
Shareholders' Equity Per Common Share (1) ............... $ 10.49 $ 9.26 13.3
</TABLE>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles. Related asset amounts also excluded from total assets
and shareholders' equity.
22
<PAGE> 23
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL REVIEW
<CAPTION>
- ----------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 1998 AND DECEMBER
31, 1997
- ----------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and Federal Agencies
1-5 years ........................... $ 156 $ 156 $ 656 $ 656
------- ------- ------- -------
Total ............................ 156 156 656 656
------- ------- ------- -------
States and political subdivisions
Under 1 year ........................ 5,143 5,115 6,311 6,310
1-5 years ........................... 13,024 13,231 13,592 13,719
6-10 years .......................... 6,738 6,997 9,605 9,788
Over 10 years ....................... 1,876 1,944 2,846 2,910
------- ------- ------- -------
Total ............................ 26,781 27,287 32,354 32,727
------- ------- ------- -------
Total Investment Securities .............. $26,937 $27,443 $33,010 $33,383
======= ======= ======= =======
</TABLE>
23
<PAGE> 24
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 1998 AND DECEMBER
31, 1997
- -----------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year ............................. $ 1,700 $ 1,713 $ 1,001 $ 1,012
1-5 years ................................ 114,327 119,384 409,364 407,936
6-10 years ............................... 257,160 267,001 320,497 320,726
---------- ---------- ---------- ----------
Total ................................. 373,187 388,098 730,862 729,674
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ............................. 1 1 2,223 2,216
1-5 years ................................ 12 12 169,877 170,177
6-10 years ............................... 20,387 20,973 497,496 494,016
Over 10 years ............................ 1,038,480 1,060,913 698,906 705,031
---------- ---------- ---------- ----------
Total ................................. 1,058,880 1,081,899 1,368,502 1,371,440
---------- ---------- ---------- ----------
Other agencies
Under 1 year ............................. 27,896 27,830 984 992
1-5 years ................................ 1,076,183 1,094,975 1,590,592 1,594,409
6-10 years ............................... 404,849 414,041 787,682 792,359
Over 10 years ............................ 597,637 608,286 509,713 512,160
---------- ---------- ---------- ----------
Total ................................. 2,106,565 2,145,132 2,888,971 2,899,920
---------- ---------- ---------- ----------
Other
Under 1 year ............................. 81,012 81,001 13,940 13,925
1-5 years ................................ 144,801 148,082 211,943 214,772
6-10 years ............................... 249,072 256,858 199,849 205,771
Over 10 years ............................ 421,064 428,227 210,688 213,183
Marketable equity securities ............. 8,359 7,501 62,164 61,129
---------- ---------- ---------- ----------
Total ................................. 904,308 921,669 698,584 708,780
---------- ---------- ---------- ----------
Total Securities Available for Sale............ $4,442,940 $4,536,798 $5,686,919 $5,709,814
========== ========== ========== ==========
</TABLE>
24
<PAGE> 25
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL REVIEW
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ........... $ 286,864 $ 247,867 $ 258,171 $ 230,778
Allowance of assets acquired/other ....................... -- -- 22,042 6,177
Loan losses .............................................. (33,095) (24,354) (89,516) (77,379)
Recoveries of loans previously charged off ............... 8,193 6,019 24,489 16,745
Provision for loan losses ................................ 24,160 28,351 70,936 81,562
--------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD .................. $ 286,122 $ 257,883 $ 286,122 $ 257,883
========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ............................ 0.52% 0.41% 0.48% 0.46%
Provision for loan losses--annualized .................. 0.51% 0.63% 0.52% 0.62%
Allowance for loan losses as a % of total loans........... 1.50% 1.46% 1.50% 1.46%
Net loan loss coverage (1) ............................... 6.20 x 5.91 x 7.20 X 6.72 x
</TABLE>
(1) Income before taxes and the provision for loan losses to net loan losses.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- ---------------------------------------------------------------------------------------------------------------------------
(Quarter-End)
(in thousands of dollars) 1998 1997
---------------------------------- --------------------
III Q II Q I Q IV Q III Q
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans ........................................ $70,210 $ 75,367 $79,888 $65,981 $72,385
Renegotiated loans ....................................... 4,798 4,770 3,173 5,822 6,069
------- -------- ------- ------- -------
TOTAL NON-PERFORMING LOANS ............................... 75,008 80,137 83,061 71,803 78,454
Other real estate, net ................................... 20,812 21,516 12,005 15,343 13,762
------- -------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS .............................. $95,820 $101,653 $95,066 $87,146 $92,216
======= ======== ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ....................................... 0.39% 0.42% 0.47% 0.40% 0.44%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE.................. 0.50% 0.53% 0.54% 0.49% 0.52%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS ................................... 381.46% 357.97% 310.93% 359.55% 328.71%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS ................. 296.69% 280.64% 270.07% 294.32% 277.31%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE .................. $63,998 $ 50,614 $64,959 $49,608 $43,120
======= ======== ======= ======= =======
</TABLE>
25
<PAGE> 26
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 3RD QUARTER 1998 2ND QUARTER 1998
----------------- -----------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE
------- ------ ------- ------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks ..................................... $ 31 5.20% $ 8 5.26%
Trading account securities ............................................. 11 5.87 12 5.81
Federal funds sold and securities purchased under resale agreements..... 689 5.62 168 5.63
Mortgages held for sale ................................................ 275 7.10 282 7.08
Securities:
Taxable .......................................................... 4,077 6.34 5,107 6.34
Tax exempt ....................................................... 234 8.86 225 9.27
------- -------
Total Securities ............................................ 4,311 6.47 5,332 6.47
------- -------
Loans:
Commercial ........................................................ 5,763 8.36 5,482 8.46
Real Estate
Construction ................................................. 811 8.83 816 8.73
Mortgage ..................................................... 3,760 8.43 3,444 8.62
Consumer
Loans ....................................................... 6,896 8.77 6,474 8.82
Leases ...................................................... 1,728 7.11 1,627 7.15
------- -------
Total Consumer loans ........................................ 8,624 8.44 8,101 8.48
------- -------
Total Loans ............................................................ 18,958 8.43 17,843 8.51
------- -------
Allowance for loan losses/loan fees .................................... 293 266
------- -------
Net loans .............................................................. 18,665 8.87 17,577 8.99
------- -------
Total earning assets ................................................... 24,275 8.33% 23,645 8.37%
------- -------
Cash and due from banks ................................................ 1,016 907
All other assets ....................................................... 2,517 1,786
------- -------
TOTAL ASSETS ........................................................... $27,515 $26,072
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits ..................................... $ 3,466 $ 3,113
Interest bearing demand deposits .................................. 3,898 2.77% 3,216 2.72%
Savings deposits .................................................. 3,428 3.56 3,099 3.51
Other domestic time deposits ...................................... 6,619 5.53 5,985 5.62
------- -------
Total core deposits .......................................... 17,411 4.27 15,413 4.33
------- -------
Certificates of deposit of $100,000 or more ............................ 1,884 5.71 1,909 5.74
Foreign time deposits .................................................. 30 5.39 132 5.80
------- -------
Total deposits .................................................... 19,325 4.45 17,454 4.53
------- -------
Short-term borrowings .................................................. 1,515 4.75 2,044 4.97
Medium-term notes ...................................................... 2,952 5.70 3,222 5.71
Subordinated notes and other long-term debt,
including capital securities ........................................ 1,041 6.37 757 6.13
------- -------
Interest bearing liabilities ...................................... 21,367 4.72% 20,364 4.80%
------- -------
All other liabilities .................................................. 539 503
Shareholders' equity ................................................... 2,143 2,092
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................. $27,515 $26,072
======= =======
Net interest rate spread ............................................... 3.61% 3.57%
Impact of non-interest bearing funds on margin ......................... 0.57% 0.66%
NET INTEREST MARGIN .................................................... 4.18% 4.23%
</TABLE>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
26
<PAGE> 27
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1ST QUARTER 1998 4th Quarter 1997 3rd Quarter 1997
----------------- ----------------- -----------------
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
$ 9 5.35% $ 5 5.37% $ 17 5.51%
8 5.48 12 5.89 8 5.90
21 6.57 20 5.48 75 5.50
219 7.24 177 8.27 146 7.30
5,906 6.35 5,308 6.37 5,241 6.36
237 9.23 246 9.39 255 9.10
------- ------- -------
6,143 6.46 5,554 6.51 5,496 6.49
------- ------- -------
5,306 8.58 5,312 8.55 5,264 8.65
823 8.85 875 8.93 862 9.10
3,520 8.65 3,639 8.65 3,865 8.72
6,428 8.96 6,441 9.22 6,366 9.15
1,564 7.13 1,521 7.43 1,465 7.53
------- ------- -------
7,992 8.61 7,962 8.88 7,831 8.85
------- ------- -------
17,641 8.78 17,788 8.74 17,822 8.77
------- ------- -------
265 268 254
------- ------- -------
17,376 9.20 17,520 9.14 17,568 9.18
------- ------- -------
24,041 8.48% 23,556 8.51% 23,564 8.52%
------- ------- -------
917 951 905
1,637 1,190 1,132
------- ------- -------
$26,330 $25,429 $25,347
======= ======= =======
$2,979 $ 2,954 $ 2,775
3,250 2.68% 3,257 2.61% 3,193 2.78%
3,028 3.44 3,017 3.40 3,048 3.19
6,093 5.64 6,089 5.66 5,995 5.65
------- ------- -------
15,350 4.32 15,317 4.31 15,011 4.29
------- ------- -------
1,935 5.78 2,004 5.79 2,085 5.76
198 5.85 248 5.91 379 5.83
------- ------- -------
17,483 4.54 17,569 4.54 17,475 4.54
------- ------- -------
2,656 5.16 2,424 5.22 2,692 5.42
2,914 5.77 2,189 5.96 1,915 6.03
691 5.85 704 6.23 793 6.23
------- ------- -------
20,765 4.83% 19,932 4.81% 20,100 4.83%
------- ------- -------
539 570 528
2,047 1,973 1,944
------- ------- -------
$26,330 $25,429 $25,347
======= ======= =======
3.65% 3.70% 3.69%
0.65% 0.74% 0.72%
4.30% 4.44% 4.41%
</TABLE>
27
<PAGE> 28
- --------------------------------------------------------------------------------
<TABLE>
SELECTED QUARTERLY INCOME STATEMENT DATA
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997
---------------------------------- ---------------------
(in thousands of dollars, except per share amounts) III Q II Q I Q IV Q III Q
- ------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ................................ $505,221 $491,268 $502,480 $499,760 $502,821
TOTAL INTEREST EXPENSE ............................... 253,706 243,839 247,632 240,197 245,663
-------- -------- -------- -------- --------
NET INTEREST INCOME .................................. 251,515 247,429 254,848 259,563 257,158
Provision for loan losses ............................ 24,160 24,595 22,181 26,235 28,351
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .......................... 227,355 222,834 232,667 233,328 228,807
-------- -------- -------- -------- --------
Service charges on deposit accounts .................. 32,493 30,428 29,490 31,035 30,382
Mortgage banking ..................................... 15,270 15,191 14,157 15,889 20,672
Trust services ....................................... 12,502 12,745 12,583 12,019 12,124
Brokerage and insurance income ....................... 10,057 8,520 8,285 6,131 7,614
Electronic banking fees .............................. 7,897 7,520 5,748 6,175 5,965
Credit card fees ..................................... 5,197 5,450 4,895 6,634 5,112
Other ................................................ 20,610 25,486 17,172 9,593 12,986
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS .... 104,026 105,340 92,330 87,476 94,855
-------- -------- -------- -------- --------
Securities gains ..................................... 10,615 14,316 3,089 1,034 1,242
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............................ 114,641 119,656 95,419 88,510 96,097
-------- -------- -------- -------- --------
Personnel and related costs .......................... 111,744 108,483 104,712 97,217 101,334
Outside data processing and other services ........... 17,550 16,988 19,342 19,067 16,665
Equipment ............................................ 15,001 15,688 15,149 16,004 14,503
Net occupancy ........................................ 15,019 14,063 13,439 11,755 12,772
Marketing ............................................ 8,762 8,315 6,932 8,187 7,845
Telecommunications ................................... 7,793 7,450 6,013 5,636 5,639
Legal and other professional services ................ 5,291 6,234 5,788 8,318 6,095
Printing and supplies ................................ 5,851 5,611 5,761 6,239 5,384
Franchise and other taxes ............................ 5,523 5,526 5,500 4,576 4,685
Amortization of intangible assets .................... 9,467 3,393 3,393 3,285 3,382
Special charges ...................................... 9,876 14,927 10,413 8,248 15,443
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGES..... 211,877 206,678 196,442 188,532 193,747
Special charges and other merger costs ............... -- -- -- -- 51,163
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ........................... 211,877 206,678 196,442 188,532 244,910
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........................... 130,119 135,812 131,644 133,306 79,994
Provision for income taxes ........................... 41,364 43,503 42,158 42,657 38,762
-------- -------- -------- -------- --------
NET INCOME ........................................... $ 88,755 $ 92,309 $ 89,486 $ 90,649 $ 41,232
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Basic ........................................... $ 0.42 $ 0.44 $ 0.42 $ 0.43 $ 0.20
Diluted ......................................... $ 0.42 $ 0.43 $ 0.42 $ 0.42 $ 0.19
Cash Dividends Declared ............................. $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income .................................. $251,515 $247,429 $254,848 259,563 257,158
Tax Equivalent Adjustment (2) ........................ 2,567 2,581 2,655 2,754 3,115
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income ................... $254,082 $250,010 $257,503 262,317 $260,273
======== ======== ======== ======== ========
</TABLE>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Calculated assuming a 35% tax rate.
28
<PAGE> 29
- -------------------------------------------------------------------------------
<TABLE>
QUARTERLY COMMON STOCK SUMMARY (1)
<CAPTION>
1998 1997
--------------------------------------- ------------------------
III Q II Q I Q IV Q III Q
- -------------------------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
High............................ $ 33 7/8 $ 34 1/16 $ 34 $ 35 5/16 $ 34 5/16
Low............................. 22 29 3/4 29 1/16 28 5/8 24 3/4
Close........................... 25 1/8 30 7/16 33 1/8 32 3/4 32 13/16
Cash dividends declared......... $0.20 $0.18 $0.18 $0.18 $0.18
</TABLE>
Note: Stock price quotations were obtained from NASDAQ.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
MARGIN ANALYSIS - AS A % 1998 1997
--------------------------- ----------------
OF AVERAGE EARNING ASSETS (2) III Q II Q I Q IV Q III Q
- --------------------------------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Interest Income ............................. 8.33% 8.37% 8.48% 8.51% 8.52%
Interest Expense ............................ 4.15 4.14 4.18 4.07 4.11
----- ----- ----- ----- -----
Net Interest Margin .................... 4.18% 4.23% 4.30% 4.44% 4.41%
RETURN ON
Average total assets ........................ 1.28% 1.42% 1.38% 1.41% 0.65%
Average total assets - cash basis ........... 1.43% 1.49% 1.44% 1.48% 0.71%
Average shareholders' equity ................ 16.43% 17.70% 17.73% 18.23% 8.41%
Average shareholders' equity - cash basis.... 26.59% 21.17% 21.09% 21.78% 10.49%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL DATA (3) 1998 1997
------------------------------- --------------------
(in thousands of dollars) III Q II Q I Q IV Q III Q
- ----------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Risk-Adjusted Assets .............. $23,695 $23,728 $22,554 $22,128 $21,389
Tier 1 Risk-Based Capital Ratio.......... 7.35% 7.18% 8.91% 8.83% 8.86%
Total Risk-Based Capital Ratio .......... 11.18% 11.01% 11.57% 11.68% 11.95%
Tier 1 Leverage Ratio ................... 6.51% 6.72% 7.72% 7.77% 7.54%
</TABLE>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
29
<PAGE> 30
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) Bylaws -- previously filed as Exhibit
3(ii) to Annual Report on Form 10-K for the
year ended December 31, 1997, 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
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.
<PAGE> 31
27. Financial Data Schedule
(b) Reports on Form 8-K
1. A report on Form 8-K, dated July 14, 1998,
was filed under report item numbers 5 and 7,
concerning Huntington's results of
operations for the second quarter of 1998.
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: November 16, 1998 /s/ Richard A. Cheap
-----------------------------------
Richard A. Cheap
General Counsel and Secretary
Date: November 16, 1998 /s/ Gerald R. Williams
-----------------------------------
Gerald R. Williams
Executive Vice President and
Chief Financial Officer (principal
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUNTINGTON
BANCSHARES INCORPORATED'S QUARTERLY REPORT ON FORM 10Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,143,684
<INT-BEARING-DEPOSITS> 2,776
<FED-FUNDS-SOLD> 14,641
<TRADING-ASSETS> 13,039
<INVESTMENTS-HELD-FOR-SALE> 4,536,798
<INVESTMENTS-CARRYING> 26,937
<INVESTMENTS-MARKET> 27,443
<LOANS> 19,437,628
<ALLOWANCE> 286,122
<TOTAL-ASSETS> 27,355,096
<DEPOSITS> 19,246,735
<SHORT-TERM> 1,782,208
<LIABILITIES-OTHER> 551,425
<LONG-TERM> 731,779
0
0
<COMMON> 2,152,076
<OTHER-SE> 65,973
<TOTAL-LIABILITIES-AND-EQUITY> 27,355,096
<INTEREST-LOAN> 1,221,686
<INTEREST-INVEST> 249,687
<INTEREST-OTHER> 27,596
<INTEREST-TOTAL> 1,498,969
<INTEREST-DEPOSIT> 502,226
<INTEREST-EXPENSE> 745,177
<INTEREST-INCOME-NET> 753,792
<LOAN-LOSSES> 70,936
<SECURITIES-GAINS> 28,020
<EXPENSE-OTHER> 614,997
<INCOME-PRETAX> 397,575
<INCOME-PRE-EXTRAORDINARY> 397,575
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,550
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 4.24
<LOANS-NON> 70,210
<LOANS-PAST> 63,998
<LOANS-TROUBLED> 4,798
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 258,171
<CHARGE-OFFS> 89,516
<RECOVERIES> 24,489
<ALLOWANCE-CLOSE> 286,122
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
