<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 MARCH 31, 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 192,332,918 shares of Registrant's without par value common stock
outstanding on April 30, 1998.
1
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) March 31, December 31, March 31,
1998 1997 1997
--------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................ $ 1,023,138 $ 1,142,450 $ 976,777
Interest bearing deposits in banks................................. 2,378 39,618 1,761
Trading account securities......................................... 19,489 7,082 2,856
Federal funds sold and securities
purchased under resale agreements............................. 8,573 509,119 12,618
Mortgages held for sale............................................ 314,034 192,948 112,364
Securities available for sale - at fair value...................... 6,345,104 5,709,814 5,631,819
Investment securities - fair value $31,912; $33,383;
and $60,092, respectively..................................... 31,631 33,010 59,662
Total loans (1).................................................... 17,748,389 17,738,248 17,453,995
Less allowance for loan losses................................ 258,262 258,171 241,647
----------- ----------- -----------
Net loans.......................................................... 17,490,127 17,480,077 17,212,348
----------- ----------- -----------
Premises and equipment............................................. 400,331 389,481 389,036
Customers' acceptance liability.................................... 26,518 27,818 59,247
Accrued income and other assets.................................... 1,147,156 1,199,123 709,251
----------- ----------- -----------
TOTAL ASSETS....................................................... $26,808,479 $26,730,540 $25,167,739
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1)................................................. $17,700,544 $17,983,718 $16,976,046
Short-term borrowings.............................................. 3,241,383 3,141,671 3,474,015
Bank acceptances outstanding....................................... 26,518 27,818 59,247
Medium-term notes.................................................. 2,577,150 2,332,150 1,597,500
Subordinated notes and other long-term debt........................ 483,854 498,889 556,265
Company obligated mandatorily redeemable preferred capital
securities of subsidiary trust.................................. 200,000 200,000 200,000
Accrued expenses and other liabilities............................. 504,936 520,903 456,521
----------- ----------- -----------
Total Liabilities............................................. 24,734,385 24,705,149 23,319,594
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized 300,000,000 shares;
issued and outstanding 193,279,797; 193,279,797; and
182,384,332 shares, respectively......................... 1,528,768 1,528,768 1,291,071
Less 961,290; 1,543,371; and 6,831,006
treasury shares, respectively ........................... (25,218) (36,791) (154,822)
Capital surplus............................................... 394,715 404,235 418,866
Retained earnings............................................. 165,419 114,379 353,954
Accumulated other comprehensive income........................ 10,410 14,800 (60,924)
----------- ----------- -----------
Total Shareholders' Equity.................................... 2,074,094 2,025,391 1,848,145
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $26,808,479 $26,730,540 $25,167,739
=========== =========== ===========
</TABLE>
(1) See page 9 for detail of total loans and total deposits.
See notes to unaudited consolidated financial statements.
2
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) THREE MONTHS ENDED MARCH 31,
-----------------------------------
Interest and fee income 1998 1997
-------------- --------------
<S> <C> <C>
Loans....................................................... $ 400,807 $ 382,968
Securities.................................................. 97,171 90,490
Other....................................................... 4,502 2,416
------------ ------------
TOTAL INTEREST INCOME............................. 502,480 475,874
------------ ------------
Interest expense
Deposits.................................................... 162,252 148,373
Short-term borrowings....................................... 39,270 46,098
Medium-term notes........................................... 35,992 23,319
Subordinated notes and other long-term debt................. 10,118 10,533
------------ ------------
TOTAL INTEREST EXPENSE............................ 247,632 228,323
------------ ------------
NET INTEREST INCOME............................... 254,848 247,551
Provision for loan losses........................................ 22,181 22,380
------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES.............. 232,667 225,171
------------ ------------
Total non-interest income (1).................................... 96,767 76,731
Total non-interest expense (1)................................... 197,790 183,861
------------ ------------
INCOME BEFORE INCOME TAXES........................ 131,644 118,041
Provision for income taxes....................................... 42,158 40,862
------------ ------------
NET INCOME........................................ $ 89,486 $ 77,179
============ ============
PER COMMON SHARE (2)
Net income
Basic................................................... $0.47 $0.41
Diluted................................................. $0.46 $0.40
Cash dividends declared...................................... $0.20 $0.18
AVERAGE COMMON SHARES OUTSTANDING (2)............................. 192,161,096 189,082,054
</TABLE>
(1) See page 10 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
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(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>
Three Months Ended March 31, 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 77,179 77,179
Unrealized net holding losses on
securities available for sale
arising during the period (46,993) (46,993)
-----------
Total comprehensive income 30,186
-----------
Cash dividends declared ($0.18 per share) (33,069) (33,069)
Stock issued for acquisition 3,468 78,527 15,122 93,649
Stock options exercised 61 978 (686) 292
Treasury shares purchased (1,429) (37,578) (37,578)
Treasury shares sold:
Shareholder dividend reinvestment plan 285 6,325 1,101 7,426
Employee benefit plans 69 1,560 434 1,994
Pre-merger transactions of pooled
subsidiary 119 103 1,719 (2,234) (413)
------- ---------- ----- --------- -------- -------- -------- ----------
Balance, end of period 182,384 $1,291,071 (6,831) $(154,822) $418,866 $(60,924) $353,954 $1,848,145
======= ========== ===== ========= ======== ======== ======== ==========
THREE MONTHS ENDED MARCH 31, 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 89,486 89,486
UNREALIZED NET HOLDING LOSSES
ON SECURITIES AVAILABLE FOR
SALE ARISING DURING THE PERIOD (4,390) (4,390)
----------
TOTAL COMPREHENSIVE INCOME 85,096
----------
CASH DIVIDENDS DECLARED ($0.20 PER SHARE) (38,446) (38,446)
STOCK ISSUED FOR ACQUISITION 160 3,883 (3,815) 68
STOCK OPTIONS EXERCISED 403 7,218 (5,907) 1,311
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 19 472 202 674
------- ---------- ------ -------- -------- -------- -------- ----------
BALANCE, END OF PERIOD 193,279 $1,528,768 (961) $(25,218) $394,715 $ 10,410 $165,419 $2,074,094
======= ========== ====== ======== ======== ======== ======== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------------------
(in thousands of dollars) 1998 1997
------------------ ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income............................................................... $ 89,486 $ 77,179
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses............................................. 22,181 22,380
Provision for depreciation and amortization........................... 17,768 15,296
Deferred income tax expense........................................... 5,358 8,780
Increase in trading account securities................................ (12,407) (983)
(Increase) decrease in mortgages held for sale........................ (121,086) 9,058
Net gains on sales of securities...................................... (3,089) (2,098)
Decrease in accrued income receivable................................. 10,106 2,108
Net decrease (increase) in other assets............................... 17,152 (18,685)
Increase in accrued expenses.......................................... 11,907 20,667
Net (decrease) increase in other liabilities.......................... (30,835) 37,654
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 6,541 171,356
---------- ----------
Investing Activities
Decrease in interest bearing deposits in banks........................... 37,240 1,657
Proceeds from:
Maturities and calls of investment securities....................... 1,348 28,677
Maturities and calls of securities available for sale............... 191,087 175,283
Sales of securities ................................................ 485,158 596,740
Purchases of:
Investment securities............................................... - (1,595)
Securities available for sale....................................... (1,300,626) (827,663)
Proceeds from sales of loans............................................. 24,548 25,667
Net loan originations, excluding sales................................... (56,882) (433,233)
Proceeds from disposal of premises and equipment......................... 117 4,208
Purchases of premises and equipment...................................... (21,905) (12,997)
Proceeds from sales of other real estate................................. 4,802 3,333
Net cash received from purchase of subsidiaries.......................... - 9,204
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES......................... (635,113) (430,719)
---------- ----------
FINANCING ACTIVITIES
(Decrease) increase in total deposits.................................... (284,643) 94,197
Increase (decrease) in short-term borrowings............................. 99,712 (129,585)
Proceeds from issuance of long-term debt................................. - 22,676
Payment of long-term debt................................................ (15,000) (17,000)
Proceeds from issuance of medium-term notes.............................. 325,000 342,500
Payment of medium-term notes............................................. (80,000) (295,000)
Proceeds from issuance of capital securities............................. - 200,000
Dividends paid on common stock, including pre-merger dividends
of pooled subsidiary................................................ (38,339) (33,299)
Repurchase of common stock............................................... - (37,578)
Proceeds from issuance of common stock................................... 1,984 9,420
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 8,714 156,331
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS............................ (619,858) (103,032)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 1,651,569 1,092,427
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $1,031,711 $ 989,395
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements. 5
<PAGE> 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods. The Notes to the Consolidated Financial Statements appearing in
Huntington's 1997 Annual Report to Shareholders should be read in conjunction
with these interim financial statements.
B. 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>
March 31,
--------------------------
1998 1997
-------- ---------
<S> <C> <C>
Unrealized holding losses arising during the period:
Gross $(3,704) $(74,928)
Related tax benefit 1,322 29,299
------- --------
Net (2,382) (45,629)
------- --------
Reclassification adjustment for net gains realized
during the period:
Gross (3,089) (2,098)
Related tax expense 1,081 734
------- --------
Net (2,008) (1,364)
------- --------
Total Other Comprehensive Income (Loss) $(4,390) $(46,993)
======= ========
</TABLE>
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 financial statements.
C. 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 $286 million at the date of
acquisition. The transaction
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was accounted for as a pooling of interests; accordingly, all financial
information appearing in this report, except dividends per share, has been
restated to include the results of First Michigan.
The separate results of operations for Huntington and First Michigan
were as follows ($ in millions, except per share):
March 31,
For the Three Months Ended 1997
- -------------------------- --------
Net Interest Income:
Huntington $ 211.5
First Michigan 36.1
--------
Combined $ 247.6
========
Net Income:
Huntington $ 66.5
First Michigan 10.7
--------
Combined $ 77.2
========
Earnings (basic) per common share outstanding:
Huntington $ .42
First Michigan .39
Combined $ .41
D. In January 1997, Huntington Capital I, a Delaware statutory business trust
owned by Huntington, issued $200 million of company obligated mandatorily
redeemable capital securities. All of the common securities of Huntington
Capital I are owned by Huntington. The proceeds from the issuance of the capital
securities ($200 million) and common securities ($6.2 million) were used by
Huntington Capital I to purchase from Huntington $206.2 million of Floating Rate
Junior Subordinated Debentures. The subordinated debentures are the sole assets
of the trust, bear interest at a variable annual rate equal to LIBOR plus .70%,
and mature on February 1, 2027. Interest payments made on the capital securities
are reported as a component of interest expense on long-term debt.
E. 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.
F. 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.
7
<PAGE> 8
The calculation of basic and diluted earnings per share for each of the
periods ended March 31 is as follows:
(In thousands, except per share amounts) 1998 1997
-------- --------
Net income $ 89,486 $ 77,179
======== ========
Average common shares outstanding 192,161 189,082
Dilutive effect of stock options 2,211 2,138
-------- --------
Diluted common shares outstanding 194,372 191,220
======== ========
Earnings per share
Basic $ .47 $ .41
Diluted $ .46 $ .40
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
8
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) MARCH 31, December 31, March 31,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Commercial.................................... $ 5,441,107 $ 5,270,660 $ 5,391,832
Real Estate
Construction............................. 846,715 863,635 755,219
Commercial............................... 2,367,823 2,370,652 2,228,117
Residential.............................. 1,083,566 1,228,446 1,600,137
Consumer
Loans..................................... 6,423,582 6,462,716 6,153,585
Leases.................................... 1,585,596 1,542,139 1,325,105
----------- ----------- -----------
TOTAL LOANS.............................. $17,748,389 $17,738,248 $17,453,995
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) MARCH 31, December 31, March 31,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing..................... $ 2,516,765 $ 2,549,518 $ 2,786,287
Interest bearing......................... 3,785,550 3,762,862 3,213,361
Savings deposits.............................. 3,229,359 3,133,014 3,204,941
Other domestic time deposits.................. 6,012,135 6,115,534 5,680,917
----------- ----------- -----------
Total core deposits...................... 15,543,809 15,560,928 14,885,506
----------- ----------- -----------
Certificates of deposit of $100,000 or more... 2,018,818 1,903,657 1,707,040
Foreign time deposits......................... 137,917 519,133 383,500
----------- ----------- -----------
TOTAL DEPOSITS........................... $17,700,544 $17,983,718 $16,976,046
=========== =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ---------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED
MARCH 31,
---------------------------------- PERCENT
1998 1997 CHANGE
- ------------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts .............................. $30,837 $27,594 11.8.%
Mortgage banking ................................................. 14,157 8,997 57.4
Trust services ................................................... 12,583 12,145 3.6
Brokerage and insurance income.................................... 8,285 7,084 17.0
Electronic banking fees........................................... 5,731 4,364 31.3
Credit card fees.................................................. 4,859 4,195 15.8
Other............................................................. 17,226 10,254 68.0
-------- -------
Total non-interest income before securities gains................. 93,678 74,633 25.5
-------- -------
Securities gains.................................................. 3,089 2,098 47.2
-------- -------
TOTAL NON-INTEREST INCOME ........................................ $96,767 $76,731 26.1%
======== =======
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED
MARCH 31,
---------------------------------- PERCENT
1998 1997 CHANGE
- ------------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C>
Personnel and related costs....................................... $104,712 $97,241 7.7 %
Outside data processing and other services........................ 16,586 12,567 32.0
Equipment ........................................................ 15,149 13,188 14.9
Net occupancy .................................................... 13,439 13,332 0.8
Marketing......................................................... 6,932 8,965 (22.7)
Telecommunications................................................ 6,023 4,967 21.3
Legal and other professional services............................. 5,788 5,429 6.6
Printing and supplies............................................. 5,761 4,927 16.9
Franchise and other taxes......................................... 5,500 5,240 5.0
Amortization of intangible assets................................. 3,393 2,946 15.2
Other............................................................. 14,507 15,059 (3.7)
-------- -------
TOTAL NON-INTEREST EXPENSE ....................................... $197,790 183,861 7.6 %
======== =======
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Report 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 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; 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.
ACQUISITIONS
In December 1997, Huntington signed a definitive agreement with
NationsBank Corporation (NationsBank) to acquire sixty banking offices in
Florida. The branch acquisition is expected to add approximately $1.6 billion in
loans and $2.6 billion in deposits. The deposit premium, which is subject to
final determination based upon the deposit levels at the closing of the
transaction, is projected to be approximately $523 million. The transaction is
expected to close late in the second quarter of 1998.
Although Huntington continually monitors and investigates suitable
acquisition opportunities, Huntington has no material written or oral
acquisition agreements or understandings with specific entities except as
described above.
OVERVIEW
Huntington reported earnings of $89.5 million for the first quarter of
1998 compared with $77.2 million for the same period last year. Basic earnings
per share were $.47, an increase of 14.6% from $.41 per share for the first
three months of 1997. On a diluted basis, the per share results were $.46 and
$.40, respectively. Huntington's return on average assets (ROA) was 1.38% for
the quarter just ended versus 1.27% one year ago. Return on average equity (ROE)
was 17.73%, up from 17.42% in the first quarter of 1997.
Total assets were $26.8 billion at March 31, 1998, an increase of 6.5%
from one year ago but flat with the recent year-end. The increase over the last
twelve months is the result of a larger investment securities portfolio as well
as loan growth in the last nine months of 1997, and higher volumes of mortgages
held for sale. Average total loans outstanding for the recent quarter grew 6.5%
over the same period last year, after adjusting for the impact of single-family
residential mortgage loans sold in
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the past several months. During the first quarter of 1998, Huntington
experienced only a modest increase in its loans outstanding. The slower rate of
growth is attributable to competitive pressures combined with large prepayments
in the commercial lending portfolio. Huntington believes it is critical to
maintain its pricing discipline in the lending process. Accordingly, should
current trends in the marketplace continue, future loan growth may also be
suppressed.
Core deposits were flat with year end but were up $658.3 million
from March 31, 1997. Average core deposits increased $1.1 billion, or 7.2%,
versus the first quarter of last year, fueled by 7.9% growth in transaction
accounts.
Huntington's wholesale liability position also expanded in the past
year as new asset volumes outpaced deposit growth. Most of the incremental
wholesale funding was in the form of unsecured medium-term bank notes.
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. A detailed description of the lines
of business is contained in 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 months ended March 31, 1998:
<TABLE>
<CAPTION>
(In thousands of dollars)
Average Average
Revenues Net Income Total Assets Total Deposits
-------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Retail Banking $186,009 $40,044 $7,486,890 $15,153,177
Corporate Banking 72,942 23,985 5,880,611 919,816
Dealer Sales 42,042 12,118 5,116,160 56,551
Private Financial Group 20,806 5,454 629,878 503,309
Treasury / Other 29,816 7,885 7,216,761 849,359
-------- ------- ----------- -----------
Total $351,615 $89,486 $26,330,300 $17,482,212
======== ======= =========== ===========
</TABLE>
12
<PAGE> 13
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the quarter was $254.8 million, up $7.3
million, or 2.9%, from the same period a year ago. The increase was largely the
result of growth in investment securities and other earning assets, as the
highly competitive marketplace continues to erode loan margins across much of
the banking industry. Huntington's margin dropped from 4.39% in the first three
months of 1997 to 4.30% in the quarter just ended. Management expects margin
compression to be a continuing challenge in the ensuing quarters which may
continue to depress growth in net interest income.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $22.2 million in the first quarter of
1998, down slightly from $22.4 million in the same period last year. Annualized
net charge-offs as a percentage of average total loans was .51% for the recent
three months, compared with .42% in the same period last year and .50% for full
year 1997.
NON-INTEREST INCOME
Non-interest income, excluding net gains from the sale of investment
securities, was $93.7 million for the first quarter of 1998, compared with $74.6
million for the first three months of 1997. The 25.5% increase is attributable
to higher mortgage banking income associated with strong origination activity,
growth in service charges on deposit accounts, and income generated from the
$400 million Bank Owned Life Insurance policy purchased by Huntington in
December 1997. Electronic banking fees and brokerage revenues also showed
considerable improvement.
NON-INTEREST EXPENSE
Non-interest expense increased 7.6%, or $13.9 million, from one year
ago. The primary drivers were higher sales commissions (a component of
"Personnel and related costs"); increases in outside services, in part due to
Year 2000 expenses; and an increase in the number of ATMs deployed by Huntington
that fueled an increase in telecommunications costs. In addition, 1997 purchase
acquisitions impacted last year's first quarter expenses only partially but
affected results for all of the recent quarter.
"Year 2000" expenses relate to professional fees for outside services
(primarily programming) as well as internal staff costs that have been, and will
continue to be, incurred to alter programs that have time-sensitive software
which may recognize a "00" date as the year 1900 versus 2000. Huntington
anticipates substantially all reprogramming will be completed by December 31,
1998, allowing the opportunity in 1999 to fully test the systems and make any
further refinements that are needed. The failure of certain third parties to
adequately address Year 2000 could also adversely impact Huntington.
Consequently, Huntington is communicating with customers, suppliers, and others
to identify any potential problems. Huntington's management estimates an
additional $8.2 million of Year 2000 costs will be incurred in the future to get
Huntington's systems fully compliant. These costs, however, are not expected to
materially impact Huntington's results of operations in any one period.
During the recent quarter, the operations of Huntington's Western
Michigan region, formerly First Michigan Bank Corporation, were successfully
converted to Huntington's primary
13
<PAGE> 14
operating platform. This is expected to create efficiencies as well as the
opportunity to enhance the products and services provided customers in the
Western Michigan market.
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income
and net income while managing volatility arising from shifts in interest rates.
The Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty settlement, and market risks.
On and off-balance sheet strategies and tactics are reviewed and monitored
regularly by ALCO to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing the
business flows onto the balance sheet, wholesale investment and funding, and the
changing market and business environment. Effective management of interest rate
risk begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses a
variety of global markets--money, bond, and futures and options--as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process.
A key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet 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.
While these assumptions are inherently uncertain, management assigns
probabilities and, therefore, believes that, at any point in time, the model
provides a reasonably accurate estimate of Huntington's interest rate risk
exposure. This information is regularly shared with the Board of Directors.
At March 31, 1998, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be relatively unchanged by 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 100 basis points, net
interest income would be expected to decrease by 1.2%. An increase of 200 basis
points would result in a 2.4% reduction.
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
14
<PAGE> 15
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 March 31, 1998:
<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 $ 575 1.85 $ .1 6.15% 5.66%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,980 1.55 $ 26.0 6.28% 5.68%
Receive fixed-amortizing 185 1.25 ( .2) 5.63% 5.69%
Pay fixed 400 0.62 .2 5.73% 5.49%
------ ------
TOTAL LIABILITY CONVERSION
SWAPS $2,565 1.38 $ 26.0 6.15% 5.65%
====== ======
BASIS PROTECTION SWAPS $ 785 1.05 $( .5) 5.68% 5.72%
====== ======
</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 $300
million and $500 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 March 31, 1998, Huntington's credit risk from interest rate swaps
used for asset/liability management purposes was $72.1 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
15
<PAGE> 16
under the terms of the contract, Huntington performs credit reviews on all
counterparties, restricts the number of counterparties used to a select group of
high quality institutions, obtains collateral, and enters into formal netting
arrangements. Huntington has never experienced any past due amounts from a swap
counterparty.
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $195 million at March 31, 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 $95.1 million at March 31, 1998. Non-performing loans represented .47%
of total loans and non-performing assets as a percentage of total loans and
other real estate were only .54%, 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 $65.0 million.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of losses inherent in the loan
portfolio. The procedures employed by Huntington 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. The reserve ratio increased to 1.46% at the recent quarter end versus
1.38% one year ago. At March 31, 1998, the ALL covered non-performing loans 3.1
times. When the ALL is combined with the allowance for other real estate owned,
the reserves were 270% of total nonperforming assets.
CAPITAL
Huntington recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. 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
16
<PAGE> 17
business growth and acquisition opportunities. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
Huntington's ratio of average equity to average assets in the first
three months of 1998 was 7.77%, compared with 7.31% in the same period last
year. At March 31, 1998, Tier 1 and Total Risk-based Capital Ratios were 8.91%
and 11.57%, respectively. Huntington's two bank subsidiaries also had regulatory
capital ratios in excess of the levels established for "well-capitalized"
institutions.
In March 1998, Huntington filed a registration statement with the
Securities and Exchange Commission for the purpose of registering for sale up to
8.5 million shares of its common stock. Management continues to evaluate various
capital management alternatives in connection with the pending branch
acquisition, and is uncertain as to the ultimate size and timing of the common
stock offering. Huntington is, however, committed to maintaining its long
history of strong capital and expects, subject to market conditions and other
developments, to issue a combination of trust preferred securities and
subordinated notes on or before the closing of the acquisition.
The Board of Directors authorized Huntington, on February 21, 1996, to
repurchase up to 12.1 million additional shares of its common stock (as adjusted
for subsequent stock dividends) through open market purchases and privately
negotiated transactions. The authorization represents a continuation of the
common stock repurchase program begun in August 1987 and provides that the
shares will be reserved for reissue in connection with Huntington's benefit
plans as well as for other corporate purposes. The repurchase program is
currently suspended but Huntington has approximately 2.6 million shares
remaining under the authorization.
17
<PAGE> 18
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
-------------- -------------- ------------
THREE MONTHS ENDED MARCH 31, 1998 1997 % Change
-------------- -------------- ------------
<S> <C> <C> <C>
NET INCOME......................................... $89,486 $77,179 15.9%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic.................................... $0.47 $0.41 14.6
Diluted.................................. $0.46 $0.40 15.0
Cash dividends declared....................... $0.20 $0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING (1).............. 192,161 189,082 1.6
KEY RATIOS
Return on:
Average total assets.......................... 1.38% 1.27% 8.7
Average shareholders' equity.................. 17.73% 17.42% 1.8
Efficiency ratio................................... 56.32% 56.64% (0.6)
Average equity/average assets...................... 7.77% 7.31% 6.3
Net interest margin................................ 4.30% 4.39% (2.1)
- --------------------------------------------------- -------------- -------------- ------------
AT MARCH 31, 1998 1997 % Change
-------------- -------------- ------------
Total Loans........................................ $17,748,389 $17,453,995 1.7%
Total Deposits..................................... $17,700,544 $16,976,046 4.3
Total Assets....................................... $26,808,479 $25,167,739 6.5
Shareholders' Equity............................... $ 2,074,094 $ 1,848,145 12.2
Period-End Shares Outstanding (1).................. 192,319 191,584 0.4
Shareholders' Equity Per Common Share (1).......... $10.78 $9.65 11.7
Regulatory Capital Data:
Total Risk-Adjusted Assets...................... $22,553,563 $20,547,936 9.8
Tier 1 Risk-Based Capital Ratio................. 8.91% 9.04% (1.4)
Total Risk-Based Capital Ratio.................. 11.57% 12.18% (5.0)
Tier 1 Leverage Ratio........................... 7.72% 7.62% 1.3
</TABLE>
(1) Adjusted for stock splits and stock dividends, as applicable.
18
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1998 AND DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) MARCH 31, 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......................... $ 656 $ 656 $ 656 $ 656
------- ------- ------- -------
Total.......................... 656 656 656 656
------- ------- ------- -------
States and political subdivisions
Under 1 year...................... 6,818 6,795 6,311 6,310
1-5 years......................... 12,561 12,655 13,592 13,719
6-10 years........................ 8,880 9,040 9,605 9,788
Over 10 years..................... 2,716 2,766 2,846 2,910
------- ------- ------- -------
Total.......................... 30,975 31,256 32,354 32,727
------- ------- ------- -------
Total Investment Securities............ $31,631 $31,912 $33,010 $33,383
======= ======= ======= =======
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- -----------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1998 AND DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) MARCH 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year................................ $ 701 $ 706 $ 1,001 $ 1,012
1-5 years................................... 305,370 306,419 409,364 407,936
6-10 years.................................. 749,542 746,054 320,497 320,726
---------- ---------- ---------- ----------
Total.................................... 1,055,613 1,053,179 730,862 729,674
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year................................ 903 902 2,223 2,216
1-5 years................................... 273,230 272,911 169,877 170,177
6-10 years.................................. 218,440 218,173 497,496 494,016
Over 10 years............................... 794,371 798,102 698,906 705,031
---------- ---------- ---------- ----------
Total.................................... 1,286,944 1,290,088 1,368,502 1,371,440
---------- ---------- ---------- ----------
Other agencies
Under 1 year................................ 991 994 984 992
1-5 years................................... 1,827,588 1,830,565 1,590,592 1,594,409
6-10 years.................................. 833,746 837,532 787,682 792,359
Over 10 years............................... 630,666 629,983 509,713 512,160
---------- ---------- ---------- ----------
Total.................................... 3,292,991 3,299,074 2,888,971 2,899,920
---------- ---------- ---------- ----------
Other
Under 1 year................................ 11,125 11,074 13,940 13,925
1-5 years................................... 215,838 218,876 211,943 214,772
6-10 years.................................. 194,527 199,339 199,849 205,771
Over 10 years............................... 263,294 265,698 210,688 213,183
Marketable equity securities................ 8,670 7,776 62,164 61,129
---------- ---------- ---------- ----------
Total.................................... 693,454 702,763 698,584 708,780
---------- ---------- ---------- ----------
Total Securities Available for Sale.............. $6,329,002 $6,345,104 $5,686,919 $5,709,814
========== ========== ========== ==========
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
1998 1997
-------- -----------------------------------------------
I Q IV Q III Q II Q I Q
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD............... $258,171 $257,883 $247,867 $241,647 $230,778
Allowance of assets acquired/other........................... -- 1,600 -- 149 6,028
Loan losses.................................................. (27,566) (33,344) (24,354) (30,301) (22,724)
Recoveries of loans previously charged off................... 5,476 5,797 6,019 5,541 5,185
Provision for loan losses.................................... 22,181 26,235 28,351 30,831 22,380
-------- -------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD...................... $258,262 $258,171 $257,883 $247,867 $241,647
======== ======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized................................ 0.51% 0.61% 0.41% 0.56% 0.42%
Provision for loan losses--annualized...................... 0.51% 0.59% 0.63% 0.70% 0.53%
Allowance for loan losses as a % of total loans.............. 1.46% 1.46% 1.46% 1.39% 1.38%
Net loan loss coverage (1)................................... 6.96x 5.79x 5.91x 6.41x 8.01x
</TABLE>
(1) Income before taxes and the provision for loan losses to net loan losses.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Quarter-End) 1998 1997
------- ----------------------------------------------
(in thousands of dollars) I Q IV Q III Q II Q I Q
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans............................................ $79,888 $65,981 $72,385 $61,105 $64,764
Renegotiated loans........................................... 3,173 5,822 6,069 4,449 4,490
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS................................... 83,061 71,803 78,454 65,554 69,254
------- ------- ------- ------- -------
Other real estate, net....................................... 12,005 15,343 13,762 14,434 20,300
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS.................................. $95,066 $87,146 $92,216 $79,988 $89,554
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS........................................... 0.47% 0.40% 0.44% 0.37% 0.40%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE..................... 0.54% 0.49% 0.52% 0.45% 0.51%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS....................................... 310.93% 359.55% 328.71% 378.11% 348.93%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS..................... 270.07% 294.32% 277.31% 306.51% 266.89%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE...................... $64,959 $49,608 $43,120 $40,967 $42,023
======= ======= ======= ======= =======
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 1ST QUARTER 1998 4th Quarter 1997
-------------------------- ----------------------
(in millions of dollars) AVERAGE YIELD/ Average Yield/
BALANCE RATE Balance Rate
----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks.................................... $ 9 5.35% $ 5 5.37%
Trading account securities............................................ 8 5.48 12 5.89
Federal funds sold and securities purchased under resale agreements... 21 6.57 20 5.48
Mortgages held for sale............................................... 219 7.24 177 8.27
Securities:
Taxable......................................................... 5,906 6.35 5,308 6.37
Tax exempt...................................................... 237 9.23 246 9.39
------- ------
Total Securities........................................... 6,143 6.46 5,554 6.51
------- ------
Loans:
Commercial....................................................... 5,306 8.58 5,312 8.55
Real Estate
Construction................................................ 823 8.85 875 8.93
Mortgage.................................................... 3,520 8.65 3,639 8.65
Consumer
Loans...................................................... 6,428 9.40 6,441 9.22
Leases..................................................... 1,564 7.13 1,521 7.43
------- ------
Total Consumer loans....................................... 7,992 8.96 7,962 8.88
------- ------
Total Loans........................................................... 17,641 8.78 17,788 8.74
Allowance for loan losses/loan fees................................... 265 268
------- -------
Net loans............................................................. 17,376 9.20 17,520 9.14
------- -------
Total earning assets.................................................. 24,041 8.48% 23,556 8.51%
------- -------
Cash and due from banks............................................... 917 951
All other assets...................................................... 1,637 1,190
------- -------
TOTAL ASSETS.......................................................... $26,330 $25,429
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits.................................... $ 2,979 $ 2,954
Interest bearing demand deposits................................. 3,250 2.68% 3,257 2.61%
Savings deposits................................................. 3,028 3.44 3,017 3.40
Other domestic time deposits..................................... 6,093 5.64 6,089 5.66
------- -------
Total core deposits......................................... 15,350 4.32 15,317 4.31
------- -------
Certificates of deposit of $100,000 or more........................... 1,935 5.78 2,004 5.79
Foreign time deposits................................................. 198 5.85 248 5.91
------- -------
Total deposits................................................... 17,483 4.54 17,569 4.54
------- -------
Short-term borrowings................................................. 3,050 5.22 2,442 5.11
Medium-term notes..................................................... 2,520 5.79 2,171 5.83
Subordinated notes and other long-term debt,
including capital securities....................................... 691 5.85 704 6.23
------- -------
Interest bearing liabilities..................................... 20,765 4.83% 19,932 4.81%
------- -------
All other liabilities................................................. 539 570
Shareholders' equity.................................................. 2,047 1,973
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $26,330 $25,429
======= =======
Net interest rate spread.............................................. 3.65% 3.70%
Impact of non-interest bearing funds on margin........................ 0.65% 0.74%
NET INTEREST MARGIN................................................... 4.30% 4.44%
</TABLE>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
22
<PAGE> 23
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- ---------------------------------------------------------------------------------------------------------
3rd Quarter 1997 2nd Quarter 1997 1st Quarter 1997
------------------------- ------------------------ --------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate
--------- ----------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 17 5.51% $ 2 5.68% $ 1 6.74%
8 5.90 11 5.67 8 5.29
75 5.50 39 5.71 41 5.52
146 7.30 115 7.63 87 7.71
5,241 6.36 5,422 6.36 5,433 6.35
255 9.10 275 9.05 283 9.18
--------- --------- ---------
5,496 6.49 5,697 6.50 5,716 6.49
--------- --------- ---------
5,264 8.65 5,405 8.65 5,221 8.60
862 9.10 788 9.17 728 9.05
3,865 8.72 3,845 8.74 3,695 8.66
6,366 9.15 6,242 9.24 6,144 8.88
1,465 7.53 1,382 7.63 1,252 7.84
--------- --------- ---------
7,831 8.85 7,624 8.95 7,396 8.70
--------- --------- ---------
17,822 8.77 17,662 8.82 17,040 8.68
254 250 240
--------- --------- ---------
17,568 9.18 17,412 9.32 16,800 9.10
--------- --------- ---------
23,564 8.52% 23,526 8.62% 22,893 8.43%
--------- --------- ---------
905 920 884
1,132 1,042 1,046
--------- --------- ---------
$25,347 $25,238 $24,583
========= ========= =========
$ 2,775 $ 2,739 $ 2,623
3,193 2.78% 3,239 2.55% 3,161 2.60%
3,048 3.19 3,121 3.34 3,006 3.21
5,995 5.65 5,809 5.61 5,525 5.60
--------- --------- ---------
15,011 4.29 14,908 4.21 14,315 4.17
--------- --------- ---------
2,085 5.76 1,940 5.68 1,652 5.52
379 5.83 501 5.79 401 5.73
--------- --------- ---------
17,475 4.54 17,349 4.46 16,368 4.38
--------- --------- ---------
2,822 5.25 3,154 5.19 3,639 5.10
1,785 5.91 1,621 5.96 1,612 5.87
793 6.23 777 6.42 684 6.16
--------- --------- ---------
20,100 4.83% 20,162 4.77% 19,680 4.70%
--------- --------- ---------
528 481 483
1,944 1,856 1,797
--------- --------- ---------
$25,347 $25,238 $24,583
========= ========= =========
3.69% 3.85% 3.73%
0.72% 0.69% 0.66%
4.41% 4.54% 4.39%
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997
--------- ----------------------------------------------------
(in thousands of dollars, except per share amounts) I Q IV Q III Q II Q I Q
- ---------------------------------------------------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME................................ $502,480 $499,760 $502,821 $503,018 $475,874
TOTAL INTEREST EXPENSE............................... 247,632 240,197 245,663 240,060 228,323
-------- -------- -------- -------- --------
NET INTEREST INCOME.................................. 254,848 259,563 257,158 262,958 247,551
Provision for loan losses............................ 22,181 26,235 28,351 30,831 22,380
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.......................... 232,667 233,328 228,807 232,127 225,171
-------- -------- -------- -------- --------
Service charges on deposit accounts ................. 30,837 31,035 30,382 28,841 27,594
Mortgage banking .................................... 14,157 15,889 20,672 10,157 8,997
Trust services ...................................... 12,583 12,019 12,124 11,815 12,145
Brokerage and insurance income....................... 8,285 6,131 7,615 6,254 7,084
Electronic banking fees.............................. 5,731 6,153 5,947 6,192 4,364
Credit card fees..................................... 4,859 6,583 5,073 4,522 4,195
Securities gains..................................... 3,089 1,034 1,243 3,604 2,098
Other................................................ 17,226 9,666 13,041 10,116 10,254
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ........................... 96,767 88,510 96,097 81,501 76,731
-------- -------- -------- -------- --------
Personnel and related costs.......................... 104,712 97,224 101,323 97,000 97,241
Outside data processing and other services........... 16,586 16,745 14,450 14,351 12,567
Equipment ........................................... 15,149 16,004 14,504 14,172 13,188
Net occupancy ....................................... 13,439 11,756 12,772 11,650 13,332
Marketing............................................ 6,932 8,187 7,845 7,785 8,965
Telecommunications................................... 6,023 5,636 5,642 5,283 4,967
Legal and other professional services................ 5,788 8,318 6,095 5,089 5,429
Printing and supplies................................ 5,761 6,240 5,383 5,034 4,927
Franchise and other taxes............................ 5,500 4,576 4,685 5,335 5,240
Amortization of intangible assets.................... 3,393 3,285 3,382 3,406 2,946
Special charges...................................... -- -- 47,163 -- --
Other................................................ 14,507 10,561 21,666 16,700 15,059
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE .......................... 197,790 188,532 244,910 185,805 183,861
-------- -------- -------- -------- --------
Income Before Income Taxes .......................... 131,644 133,306 79,994 127,823 118,041
Provision for income taxes .......................... 42,158 42,657 38,762 44,220 40,862
-------- -------- -------- -------- --------
NET INCOME .......................................... $ 89,486 $ 90,649 $ 41,232 $83,603 $ 77,179
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Basic........................................... $0.47 $0.47 $0.22 $0.44 $0.41
Diluted......................................... $0.46 $0.47 $0.21 $0.43 $0.40
Cash Dividends Declared............................. $0.20 $0.20 $0.20 $0.18 $0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ................................. $254,848 $259,563 $257,158 $262,958 $247,551
Tax Equivalent Adjustment (2) ....................... 2,655 2,754 3,115 2,948 3,047
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income .................. $257,503 $262,317 $260,273 $265,906 $250,598
======== ======== ======== ======== ========
</TABLE>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Calculated assuming a 35% tax rate.
24
<PAGE> 25
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: May 15, 1998 /s/ RALPH K. FRASIER
------------------------------------
Ralph K. Frasier
General Counsel and Secretary
Date: May 15, 1998 /s/ GERALD R. WILLIAMS
------------------------------------
Gerald R. Williams
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
<PAGE> 26
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.
( ii ) Bylaws -- previously filed as Exhibit
2(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, as amended and supplemented. 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.
27. Financial Data Schedule
(b) Reports on Form 8-K
1. A report on Form 8-K, dated January 14,
1998, was filed under report item numbers 5
and 7, concerning Huntington's results of
operations for the fourth quarter and year
ended December 31, 1997.
<PAGE> 27
2. A report on Form 8-K, dated March 11, 1998,
was filed under report item number 5
concerning the retirement of Zuheir Sofia,
President, Chief Operating Officer, and
Treasurer, and certain post-retirement
matters.
<PAGE> 1
Exhibit 3(i)(c)
HUNTINGTON BANCSHARES INCORPORATED
ARTICLES OF AMENDMENT
TO ARTICLES OF RESTATEMENT OF CHARTER
Huntington Bancshares Incorporated, a Maryland corporation having its
principal office in Baltimore City, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of the State of
Maryland that:
FIRST: ARTICLE FIFTH of the Charter of the Corporation is hereby
amended by striking out the first paragraph of ARTICLE FIFTH, and
inserting in lieu thereof the following:
"FIFTH: (a) The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is
506,617,808 shares, of which 500,000,000 shares shall be
Common Stock, without par value, and 6,617,808 shares shall be
Serial Preferred Stock, without par value."
SECOND: The Board of Directors of the Corporation, by resolutions
adopted at a meeting duly convened and held on January 21, 1998,
advised the foregoing amendment and directed that it be submitted for
consideration at a meeting of the stockholders entitled to vote
thereon.
THIRD: Notice, calling a meeting of the stockholders of the
Corporation, describing the foregoing amendment and stating that a
purpose of the meeting of the stockholders would be to take action
thereon, was given as required by law to all stockholders entitled to
vote thereon or to receive notice thereof. The foregoing amendment was
approved by the stockholders of the Corporation at a meeting held on
April 23, 1998, by the requisite vote under the Charter of the
Corporation and the laws of the State of Maryland.
FOURTH: The amendment of the Charter of the Corporation, as set forth
above, has been duly advised by the Board of Directors and approved by
the stockholders of the Corporation.
FIFTH: (a) The total number of shares of all classes of stock which the
Corporation was heretofore authorized to issue was 306,617,808 shares,
of which 300,000,000 shares were Common Stock, without par value, and
6,617,808 shares were Serial Preferred Stock, without par value. The
total number of shares of all classes of stock which the Corporation is
authorized to issue is increased by this amendment to 506,617,808
shares, of which 500,000,000 shares are Common Stock, without par
value, and 6,617,808 shares are Serial Preferred Stock, without par
value.
(b) The description of each class of stock which the
Corporation is authorized to issue has not been changed by this
amendment.
<PAGE> 2
IN WITNESS WHEREOF, Huntington Bancshares Incorporated has caused these
presents to be signed in its name and on its behalf by its President and
Secretary, and its corporate seal to be affixed hereto on April 24, 1998.
HUNTINGTON BANCSHARES INCORPORATED
/s/ ZUHEIR SOFIA
-------------------------------------
By: Zuheir Sofia, President
ATTEST:
/s/ RALPH K. FRASIER [SEAL]
- ------------------------------------
Ralph K. Frasier, Secretary
CERTIFICATE OF PRESIDENT
The undersigned, Zuheir Sofia, President of Huntington Bancshares
Incorporated, having executed the foregoing Articles of Amendment for and on
behalf of the Corporation, hereby acknowledges the Articles of Amendment to be
the corporate act of the Corporation and further certifies under penalty of
perjury that, to the best of his knowledge, information, and belief, the matters
and facts set forth herein with respect to approval hereof are true in all
material respects.
/s/ ZUHEIR SOFIA
-------------------------------------
Zuheir Sofia
2
<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
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. ALSO PRESENTED ARE RESTATED SCHEDULES PURSUANT TO FAS NO. 128,
"EARNINGS PER SHARE."
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,023,138
<INT-BEARING-DEPOSITS> 2,378
<FED-FUNDS-SOLD> 8,573
<TRADING-ASSETS> 19,489
<INVESTMENTS-HELD-FOR-SALE> 6,345,104
<INVESTMENTS-CARRYING> 31,631
<INVESTMENTS-MARKET> 31,912
<LOANS> 18,062,423
<ALLOWANCE> 258,262
<TOTAL-ASSETS> 26,808,479
<DEPOSITS> 17,700,544
<SHORT-TERM> 3,241,383
<LIABILITIES-OTHER> 3,108,604
<LONG-TERM> 483,854
0
0
<COMMON> 1,528,768
<OTHER-SE> 545,326
<TOTAL-LIABILITIES-AND-EQUITY> 26,808,479
<INTEREST-LOAN> 400,807
<INTEREST-INVEST> 97,171
<INTEREST-OTHER> 4,502
<INTEREST-TOTAL> 502,480
<INTEREST-DEPOSIT> 162,252
<INTEREST-EXPENSE> 247,632
<INTEREST-INCOME-NET> 254,848
<LOAN-LOSSES> 22,181
<SECURITIES-GAINS> 3,089
<EXPENSE-OTHER> 197,790
<INCOME-PRETAX> 131,644
<INCOME-PRE-EXTRAORDINARY> 131,644
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,486
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 4.30
<LOANS-NON> 79,888
<LOANS-PAST> 64,959
<LOANS-TROUBLED> 3,173
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 258,171
<CHARGE-OFFS> 27,566
<RECOVERIES> 5,476
<ALLOWANCE-CLOSE> 258,262
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 1,032,222 1,105,343 976,777
<INT-BEARING-DEPOSITS> 7,580 1,776 1,761
<FED-FUNDS-SOLD> 309,882 20,547 12,618
<TRADING-ASSETS> 54,297 6,585 2,856
<INVESTMENTS-HELD-FOR-SALE> 5,435,715 5,152,257 5,631,819
<INVESTMENTS-CARRYING> 34,514 54,972 59,662
<INVESTMENTS-MARKET> 35,078 55,535 60,092
<LOANS> 17,838,218 17,970,867 17,566,359
<ALLOWANCE> 257,883 247,867 241,647
<TOTAL-ASSETS> 25,576,135 25,257,133 25,167,739
<DEPOSITS> 17,589,786 17,637,871 16,976,046
<SHORT-TERM> 2,659,557 2,745,175 3,474,015
<LIABILITIES-OTHER> 2,637,970 2,144,689 2,113,268
<LONG-TERM> 542,831 599,398 556,265
0 0 0
0 0 0
<COMMON> 1,528,771 1,292,477 1,291,071
<OTHER-SE> 417,220 637,523 557,074
<TOTAL-LIABILITIES-AND-EQUITY> 25,576,135 25,257,133 25,167,739
<INTEREST-LOAN> 1,203,144 792,708 382,968
<INTEREST-INVEST> 267,955 180,875 90,490
<INTEREST-OTHER> 10,614 5,309 2,416
<INTEREST-TOTAL> 1,481,713 978,892 475,874
<INTEREST-DEPOSIT> 479,733 310,871 148,373
<INTEREST-EXPENSE> 714,046 468,383 228,323
<INTEREST-INCOME-NET> 767,667 510,509 247,551
<LOAN-LOSSES> 81,562 53,211 22,380
<SECURITIES-GAINS> 6,944 5,701 2,098
<EXPENSE-OTHER> 614,576 369,666 183,861
<INCOME-PRETAX> 325,858 245,864 118,041
<INCOME-PRE-EXTRAORDINARY> 325,858 245,864 118,041
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 202,014 160,782 77,179
<EPS-PRIMARY> 1.06 0.85 0.41
<EPS-DILUTED> 1.05 0.83 0.40
<YIELD-ACTUAL> 4.43 4.47 4.39
<LOANS-NON> 72,385 61,105 64,764
<LOANS-PAST> 43,120 40,967 42,023
<LOANS-TROUBLED> 6,069 4,449 4,490
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 230,778 230,778 230,778
<CHARGE-OFFS> 77,379 53,025 22,724
<RECOVERIES> 16,745 10,726 5,185
<ALLOWANCE-CLOSE> 257,883 247,867 241,647
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 1,025,829 976,108 901,551
<INT-BEARING-DEPOSITS> 3,002 3,041 4,724
<FED-FUNDS-SOLD> 24,668 465,501 63,114
<TRADING-ASSETS> 11,444 10,935 13,466
<INVESTMENTS-HELD-FOR-SALE> 5,222,930 5,099,412 5,673,481
<INVESTMENTS-CARRYING> 367,308 66,796 74,213
<INVESTMENTS-MARKET> 376,473 67,226 75,392
<LOANS> 16,475,873 16,149,735 15,777,539
<ALLOWANCE> 230,989 226,669 226,627
<TOTAL-ASSETS> 23,998,460 23,626,111 23,382,990
<DEPOSITS> 16,153,791 15,953,494 15,811,559
<SHORT-TERM> 3,440,209 3,356,844 3,124,725
<LIABILITIES-OTHER> 2,117,058 2,093,936 2,184,824
<LONG-TERM> 520,713 488,501 502,689
0 0 0
0 0 0
<COMMON> 1,290,938 1,075,735 1,075,060
<OTHER-SE> 475,751 657,601 684,133
<TOTAL-LIABILITIES-AND-EQUITY> 23,998,460 23,626,111 23,382,990
<INTEREST-LOAN> 1,046,769 690,563 342,167
<INTEREST-INVEST> 265,365 179,220 91,242
<INTEREST-OTHER> 10,882 7,782 4,642
<INTEREST-TOTAL> 1,323,016 877,565 438,051
<INTEREST-DEPOSIT> 431,636 285,533 143,361
<INTEREST-EXPENSE> 656,983 437,767 220,945
<INTEREST-INCOME-NET> 666,033 439,798 217,106
<LOAN-LOSSES> 51,333 28,355 14,195
<SECURITIES-GAINS> 13,379 7,212 7,115
<EXPENSE-OTHER> 510,502 342,029 170,012
<INCOME-PRETAX> 340,092 223,923 110,637
<INCOME-PRE-EXTRAORDINARY> 340,092 223,923 110,637
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 225,137 147,693 72,404
<EPS-PRIMARY> 1.16 0.76 0.37
<EPS-DILUTED> 1.16 0.76 0.37
<YIELD-ACTUAL> 4.20 4.19 4.12
<LOANS-NON> 57,346 58,311 63,540
<LOANS-PAST> 40,301 35,094 30,345
<LOANS-TROUBLED> 5,725 6,726 6,334
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 222,487 226,628 222,487
<CHARGE-OFFS> 60,390 19,165 17,714
<RECOVERIES> 15,359 5,046 5,460
<ALLOWANCE-CLOSE> 230,989 226,669 226,628
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
