<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 1999
Commission File Number 0-2525
HUNTINGTON BANCSHARES INCORPORATED
MARYLAND 31-0724920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287
Registrant's telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
=== ===
There were 230,313,894 shares of Registrant's without par value common stock
outstanding on July 30, 1999.
<PAGE> 2
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks .................................................... $ 996,065 $ 1,215,814 $ 1,151,784
Interest bearing deposits in banks ......................................... 7,978 102,564 278,400
Trading account securities ................................................. 12,058 3,839 30,244
Federal funds sold and securities
purchased under resale agreements ..................................... 10,233 135,764 707,377
Mortgages held for sale .................................................... 236,260 466,664 305,741
Securities available for sale - at fair value .............................. 4,573,160 4,781,415 4,467,986
Investment securities - fair value $21,350; $25,044;
and $29,898, respectively ............................................. 21,307 24,934 29,637
Total loans (1) ............................................................ 20,152,698 19,454,551 19,061,839
Less allowance for loan losses ........................................ 293,274 290,948 286,864
----------- ----------- -----------
Net loans .................................................................. 19,859,424 19,163,603 18,774,975
----------- ----------- -----------
Bank owned life insurance .................................................. 746,618 727,837 612,516
Premises and equipment ..................................................... 443,485 447,038 496,840
Customers' acceptance liability ............................................ 14,948 22,591 25,906
Accrued income and other assets ............................................ 1,239,544 1,204,273 1,305,813
----------- ----------- -----------
TOTAL ASSETS ............................................................... $28,161,080 $28,296,336 $28,187,219
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ......................................................... $18,933,161 $19,722,772 $19,666,248
Short-term borrowings ...................................................... 2,275,980 2,216,644 1,655,244
Bank acceptances outstanding ............................................... 14,948 22,591 25,906
Medium-term notes .......................................................... 3,199,900 2,539,900 3,147,150
Subordinated notes and other long-term debt ................................ 700,518 707,359 749,692
Company obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Parent Company .................... 300,000 300,000 300,000
Accrued expenses and other liabilities ..................................... 590,371 638,275 509,130
----------- ----------- -----------
Total Liabilities ..................................................... 26,014,878 26,147,541 26,053,370
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized 500,000,000 shares;
issued 212,596,344, 212,596,344, and 193,279,797 shares,
respectively; outstanding 209,710,432, 210,746,337, and
192,425,915 shares, respectively ................................. 2,152,076 2,152,076 1,528,768
Treasury stock ........................................................ (85,202) (49,271) (22,832)
Capital surplus ....................................................... (18,043) (14,161) 393,296
Accumulated other comprehensive income ................................ (55,564) 24,693 15,376
Retained earnings ..................................................... 152,935 35,458 219,241
----------- ----------- -----------
Total Shareholders' Equity ............................................ 2,146,202 2,148,795 2,133,849
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................. $28,161,080 $28,296,336 $28,187,219
=========== =========== ===========
</TABLE>
(1) See page 12 for detail of total loans and total deposits.
See notes to unaudited financial statements.
2
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(in thousands of dollars, except per share amounts) JUNE 30, JUNE 30,
- ----------------------------------------------------- ----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest and fee income
Loans .......................................... $ 415,451 $ 399,134 $ 825,632 $ 799,941
Securities ..................................... 77,879 84,369 156,731 181,540
Other .......................................... 5,170 7,765 11,829 12,267
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME ................ 498,500 491,268 994,192 993,748
------------ ------------ ------------ ------------
Interest expense
Deposits ....................................... 153,168 162,153 309,473 324,405
Short-term borrowings .......................... 30,528 24,343 61,003 58,165
Medium-term notes .............................. 39,353 46,236 74,107 87,676
Subordinated notes and other long-term debt .... 14,303 11,107 28,940 21,225
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE ............... 237,352 243,839 473,523 491,471
------------ ------------ ------------ ------------
NET INTEREST INCOME .................. 261,148 247,429 520,669 502,277
Provision for loan losses ........................... 21,026 24,595 46,331 46,776
------------ ------------ ------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES.. 240,122 222,834 474,338 455,501
------------ ------------ ------------ ------------
Total non-interest income (1) ....................... 117,276 119,656 227,148 215,075
Total non-interest expense (1) ...................... 202,138 206,678 404,244 403,120
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ........... 155,260 135,812 297,242 267,456
Provision for income taxes .......................... 50,285 43,503 95,695 85,661
------------ ------------ ------------ ------------
NET INCOME ........................... $ 104,975 $ 92,309 $ 201,547 $ 181,795
============ ============ ============ ============
PER COMMON SHARE (2)
Net income
Basic ..................................... $ 0.45 $ 0.40 $ 0.87 $ 0.78
Diluted ................................... $ 0.45 $ 0.39 $ 0.86 $ 0.77
Cash dividends declared ........................ $ 0.18 $ 0.16 $ 0.36 $ 0.32
AVERAGE COMMON SHARES (2)
Basic ..................................... 230,975,889 232,759,820 231,217,450 232,638,050
Diluted ................................... 233,154,045 236,130,212 233,278,544 235,660,798
</TABLE>
(1) See page 13 for detail of non-interest income and non-interest expense.
(2) Adjusted for the ten percent stock dividend distributed July 1999.
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>
Six Months Ended June 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 181,795 181,795
Unrealized net holding gains
on securities available for
sale arising during the period 576 576
----------
Total comprehensive income 182,371
----------
Cash dividends declared (76,933) (76,933)
Stock issued for acquisition 160 3,883 (3,815) 68
Stock options exercised 510 9,597 (7,328) 2,269
Treasury shares sold to
employee benefit plans 19 479 204 683
------- ---------- ------ -------- -------- -------- -------- ----------
Balance, end of period 193,279 $1,528,768 (854) $(22,832) $393,296 $ 15,376 $219,241 $2,133,849
======= ========== ====== ======== ======== ======== ======== ==========
SIX MONTHS ENDED JUNE 30, 1999:
BALANCE, BEGINNING OF PERIOD 212,596 $2,152,076 (1,850) $(49,271) $(14,161) $ 24,693 $ 35,458 $2,148,795
COMPREHENSIVE INCOME:
NET INCOME 201,547 201,547
UNREALIZED NET HOLDING LOSSES
ON SECURITIES AVAILABLE FOR
SALE ARISING DURING THE PERIOD (80,257) (80,257)
----------
TOTAL COMPREHENSIVE INCOME 121,290
----------
CASH DIVIDENDS DECLARED (84,070) (84,070)
STOCK OPTIONS EXERCISED 227 6,221 (3,882) 2,339
TREASURY SHARES PURCHASED (1,287) (42,861) (42,861)
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 24 709 709
------- ---------- ------ -------- -------- -------- -------- ----------
BALANCE, END OF PERIOD 212,596 $2,152,076 (2,886) $(85,202) $(18,043) $(55,564) $152,935 $2,146,202
======= ========== ====== ======== ======== ======== ======== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
(in thousands of dollars) 1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ................................................................. $ 201,547 $ 181,795
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ........................................ 46,331 46,776
Provision for depreciation and amortization ...................... 59,294 34,922
Deferred income tax expense ...................................... 20,432 12,265
Increase in trading account securities ........................... (8,219) (23,162)
Decrease (increase) in mortgages held for sale ................... 230,404 (112,793)
Net gains on sales of securities available for sale .............. (4,530) (17,405)
Net gains on sales of loans ...................................... -- (9,857)
(Increase) decrease in accrued income receivable ................. (12,849) 4,059
Net increase in other assets ..................................... (81,392) (56,326)
Decrease in accrued expenses ..................................... (23,459) (5,954)
Net increase (decrease) in other liabilities ..................... 15,531 (37,129)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................ 443,090 17,191
----------- -----------
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits in banks .................. 94,586 (238,782)
Proceeds from :
Maturities and calls of investment securities .......................... 3,610 3,319
Maturities and calls of securities available for sale .................. 425,168 387,959
Sales of securities available for sale ................................. 1,537,067 2,606,218
Purchases of securities available for sale ................................. (1,875,651) (1,611,060)
Proceeds from sales of loans ............................................... 2,853 132,712
Net loan originations, excluding sales ..................................... (745,835) (53,807)
Proceeds from disposal of premises and equipment ........................... 2,783 776
Purchases of premises and equipment ........................................ (37,704) (66,492)
Proceeds from sales of other real estate ................................... 5,727 7,058
Purchase of Bank Owned Life Insurance ...................................... -- (200,000)
Net cash received in purchase acquisitions ................................. -- 344,046
----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES...... (587,396) 1,311,947
----------- -----------
FINANCING ACTIVITIES
Decrease in total deposits ................................................. (789,583) (728,747)
Increase (decrease) in short-term borrowings ............................... 59,336 (1,486,427)
Proceeds from issuance of long-term debt ................................... -- 300,000
Maturity of long-term debt ................................................. (7,000) (47,538)
Proceeds from issuance of medium-term notes ................................ 1,675,000 1,020,000
Payment of medium-term notes ............................................... (1,015,000) (205,000)
Proceeds from issuance of capital securities ............................... -- 100,000
Dividends paid on common stock ............................................. (83,914) (76,786)
Repurchase of common stock ................................................. (42,861) --
Proceeds from issuance of common stock ..................................... 3,048 2,952
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES ................... (200,974) (1,121,546)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ...................... (345,280) 207,592
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 1,351,578 1,651,569
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 1,006,298 $ 1,859,161
=========== ===========
</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 periods presented.
These unaudited consolidated financial statements have been prepared according
to the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. The Notes to the Consolidated Financial Statements
appearing in Huntington's 1998 Annual Report on Form 10-K should be read in
conjunction with these interim financial statements.
B. Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1999 presentation. These reclassifications had
no effect on net income.
C. Comprehensive Income
Comprehensive Income includes net income as well as certain items that
are reported directly within a separate component of stockholders' equity that
bypass net income. Currently, Huntington's only component of Other Comprehensive
Income is the unrealized gains (losses) on securities available for sale. The
related before and after tax amounts are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Unrealized holding gains (losses)
arising during the period:
Unrealized net (losses) gains $(55,749) $ 22,000 $(119,815) $ 18,296
Related tax benefit (expense) 19,848 (7,729) 42,502 (6,407)
-------- -------- --------- --------
Net (35,901) 14,271 (77,313) 11,889
-------- -------- --------- --------
Reclassification adjustment
for net gains realized
during the period
Realized net gains (2,220) (14,316) (4,530) (17,405)
Related tax expense 777 5,011 1,586 6,092
-------- -------- --------- --------
Net (1,443) (9,305) (2,944) (11,313)
======== ======== ========= ========
Total Other Comprehensive Income $(37,344) $ 4,966 $ (80,257) $ 576
======== ======== ========= ========
</TABLE>
6
<PAGE> 7
D. New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement (as amended by
Statement No. 137) establishes accounting and reporting standards requiring that
every derivative instrument (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, as amended, is effective for fiscal years beginning
after June 15, 2000. It may be implemented earlier provided adoption occurs as
of the beginning of any fiscal quarter after issuance. The Statement cannot be
applied retroactively. 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 expects to adopt Statement 133, as amended, in the first
quarter of 2001. Based on information available, the impact of adoption is not
expected to be material to the Consolidated Financial Statements.
E. Trust Preferred Securities
In January 1997, Huntington Capital I ("the Trust"), a Delaware
statutory business trust owned by Huntington, issued $200 million of company
obligated mandatorily redeemable capital securities. The proceeds from the
issuance of the capital securities ($200 million) and common securities ($6.2
million) were used by the Trust to purchase from Huntington $206.2 million of
Floating Rate Junior Subordinated Debentures.
In 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, including $3.1 million of common securities purchased by Huntington,
were used by the Series B Trust to purchase from Huntington $103.1 million of
Series B Floating Rate Junior Subordinated Debentures.
The subordinated debentures are the sole assets of each trust and
Huntington owns all of the common securities of the trusts. Interest payments
made on the capital securities are reported as a component of interest expense
on long-term debt. The capital securities bear interest and mature as follows:
<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>
7
<PAGE> 8
The net proceeds received by Huntington from the sale of the capital
securities were used for general corporate purposes.
F. Special Charge
In October 1998, Huntington announced several initiatives to strengthen
its financial performance. These initiatives included the realignment of the
banking network; the exit of underperforming product lines and delivery
channels; the reduction of 1,000 work force positions, or approximately 10% of
the total employee base; and other cost savings measures. As a result of the
above initiatives, Huntington incurred a special charge of $90 million in the
fourth quarter of 1998. Refer to Note 2 in the Notes to the Consolidated
Financial Statements appearing in Huntington's 1998 Annual Report on Form 10-K
for further information.
The table below summarizes the major components of the special charge,
as well as the related amounts applied against the reserve through June 30,
1999. Huntington expects that the remaining reserve of $31 million, which
represents estimated future cash outlays, will be substantially utilized by the
end of 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
EMPLOYEE OPERATIONS RETAIL EXIT
(in millions of dollars) COSTS EQUIPMENT BANK OFFICES COSTS TOTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special Charge $26 $ 12 $20 $32 $ 90
Utilization:
Cash (8) -- -- (7) (15)
Non-cash -- (12) (5) (4) (21)
--- ---- --- --- ----
Balance as of December 31, 1998 18 -- 15 21 54
--- ---- --- --- ----
Utilization (4) -- (4) (5) (13)
--- ---- --- --- ----
Balance as of March 31, 1999 14 -- 11 16 41
--- ---- --- --- ----
Utilization (2) -- (1) (7) (10)
--- ---- --- --- ----
Balance as of June 30, 1999 $12 $ -- $10 $ 9 $ 31
=== ==== === === ====
</TABLE>
G. Earnings per Share
Basic earnings per share is the amount of earnings for the period
available to each share of common stock outstanding during the reporting period.
Diluted earnings per share is the amount of earnings available to each share of
common stock outstanding during the reporting period adjusted for the potential
issuance of common shares for stock options and the conversion impact of
convertible equity instruments.
8
<PAGE> 9
The calculation of basic and diluted earnings per share for each of the
periods ended June 30, is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $104,975 $ 92,309 $201,547 $181,795
Average common shares outstanding 230,976 232,760 231,217 232,638
Dilutive effect of stock options 2,178 3,370 2,062 3,023
-------- -------- -------- --------
Diluted common shares outstanding 233,154 236,130 233,279 235,661
======== ======== ======== ========
Earnings per share
Basic $ .45 $ .40 $ .87 $ .78
Diluted $ .45 $ .39 $ .86 $ .77
</TABLE>
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
H. LINES OF BUSINESS
Huntington segments its operations into five distinct lines of business:
Retail Banking; Corporate Banking; Dealer Sales; Private Financial Group; and
Treasury/Other. Line of business results are determined based upon Huntington's
business profitability reporting system, which assigns balance sheet and income
statement items to each of the business segments. The process is designed around
Huntington's organizational and management structure and accordingly, the
results are not necessarily comparable with similar information published by
other financial institutions. Results are revised periodically to reflect
enhancements to Huntington's profitability reporting system and changes in its
organizational structure. For a detailed description of the individual segments,
refer to Huntington's Management Discussion and Analysis.
9
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
- -----------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $139,501 $65,033 $46,343 $ 6,908 $ 5,753 $263,538
Provision for Loan Losses 8,143 2,834 9,764 285 -- 21,026
Non-Interest Income 74,100 16,824 550 12,001 13,801 117,276
Non-Interest Expense 133,287 32,217 12,034 10,139 14,461 202,138
Income Taxes and FTE Adjustment 24,115 15,640 8,385 2,835 1,700 52,675
-------- ------- ------- ------- ------- --------
Net Income $ 48,056 $31,166 $16,710 $ 5,650 $ 3,393 $104,975
======== ======= ======= ======= ======= ========
Depreciation & Amortization $ 16,421 $ 2,235 $ 292 $ 374 $10,400 $ 29,722
======== ======= ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Identifiable Assets (avg.) $ 7,089 $ 7,280 $ 6,026 $ 578 $ 7,758 $ 28,731
Total Deposits (avg.) 16,897 1,006 64 516 590 19,073
Capital Expenditures 3 1 -- -- 16 20
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
- -----------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $131,001 $63,600 $38,580 $ 7,869 $ 8,960 $250,010
Provision for Loan Losses 7,955 3,332 12,927 381 -- 24,595
Non-Interest Income 58,951 17,299 1,699 10,243 31,464 119,656
Non-Interest Expense 134,336 36,448 12,515 9,960 13,419 206,678
Income Taxes and FTE Adjustment 15,870 13,692 4,941 2,588 8,993 46,084
-------- ------- ------- ------- ------- --------
Net Income $ 31,791 $27,427 $ 9,896 $ 5,183 $18,012 $ 92,309
======== ======= ======= ======= ======= ========
Depreciation & Amortization $ 12,972 $ 1,507 $ 148 $ 296 $ 2,231 $ 17,154
======== ======= ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Identifiable Assets (avg.) $ 6,997 $ 6,249 $ 5,141 $ 616 $ 7,069 $ 26,072
Total Deposits (avg.) 15,336 978 66 473 601 17,454
Capital Expenditures 7 1 -- -- 36 44
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
- -----------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $273,097 $131,758 $91,992 $14,404 $14,312 $525,563
Provision for Loan Losses 17,966 7,245 20,715 405 -- 46,331
Non-Interest Income 139,362 32,683 941 23,495 30,667 227,148
Non-Interest Expense 267,943 62,432 23,540 19,739 30,590 404,244
Income Taxes and FTE Adjustment 42,132 31,550 16,206 5,911 4,790 100,589
-------- -------- ------- ------- ------- --------
Net Income $ 84,418 $ 63,214 $32,472 $11,844 $ 9,599 $201,547
======== ======== ======= ======= ======= ========
Depreciation & Amortization $ 32,961 $ 4,228 $ 558 $ 747 $20,800 $ 59,294
======== ======== ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Identifiable Assets (avg.) $ 7,052 $ 7,235 $ 5,915 $ 591 $ 7,784 $ 28,577
Total Deposits (avg.) 17,028 1,004 62 522 486 19,102
Capital Expenditures 8 2 -- -- 28 38
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
- -----------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $264,960 $121,783 $80,291 $15,725 $24,754 $507,513
Provision for Loan Losses 21,448 5,557 19,041 730 -- 46,776
Non-Interest Income 113,614 34,092 3,375 20,692 43,302 215,075
Non-Interest Expense 263,324 69,385 24,883 19,542 25,986 403,120
Income Taxes and FTE Adjustment 31,228 26,945 13,231 5,375 14,118 90,897
-------- -------- ------- ------- ------- --------
Net Income $ 62,574 $ 53,988 $26,511 $10,770 $27,952 $181,795
======== ======== ======= ======= ======= ========
Depreciation & Amortization $ 24,915 $ 2,962 $ 310 $ 587 $ 6,148 $ 34,922
======== ======== ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Identifiable Assets (avg.) $ 6,857 $ 6,371 $ 5,085 $ 613 $ 7,274 $ 26,200
Total Deposits (avg.) 15,289 951 61 469 698 17,468
Capital Expenditures 14 2 -- -- 50 66
</TABLE>
11
<PAGE> 12
<TABLE>
- ----------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
<CAPTION>
- ----------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- ----------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Commercial ......................................... $ 6,185,228 $ 6,026,736 $ 5,843,190
Real Estate
Construction .................................. 1,040,861 919,326 820,015
Commercial .................................... 2,255,103 2,231,786 2,281,330
Residential ................................... 1,418,090 1,408,289 1,536,510
Consumer
Loans .......................................... 6,995,922 6,958,054 6,886,107
Leases ......................................... 2,257,692 1,910,642 1,695,101
----------- ----------- -----------
20,152,896 19,454,833 19,062,253
Unearned Income on Loans ........................... (198) (282) (414)
----------- ----------- -----------
TOTAL LOANS ................................... $20,152,698 $19,454,551 $19,061,839
=========== =========== ===========
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- ----------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing ......................... $ 2,864,898 $ 3,129,199 $ 2,847,307
Interest bearing ............................. 4,683,698 4,642,147 4,618,674
Savings deposits .................................. 3,979,230 3,690,040 3,456,810
Other domestic time deposits ...................... 5,374,687 6,186,985 6,694,770
----------- ----------- -----------
TOTAL CORE DEPOSITS .......................... 16,902,513 17,648,371 17,617,561
----------- ----------- -----------
Certificates of deposit of $100,000 or more........ 1,634,203 1,699,261 2,008,887
Foreign time deposits ............................. 396,445 375,140 39,800
----------- ----------- -----------
TOTAL DEPOSITS ............................... $18,933,161 $19,722,772 $19,666,248
=========== =========== ===========
</TABLE>
12
<PAGE> 13
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
(in thousands of dollars) JUNE 30, JUNE 30,
- ------------------------------------------------------- --------------------- PERCENT --------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts ................... $ 36,065 $ 30,428 18.53% $ 71,841 $ 59,918 19.90%
Mortgage banking ...................................... 17,224 15,191 13.38 33,182 29,348 13.06
Trust services ........................................ 13,143 12,745 3.12 26,577 25,328 4.93
Brokerage and insurance income ........................ 12,540 8,520 47.18 24,083 16,805 43.31
Electronic banking fees ............................... 9,410 7,520 25.13 17,448 13,268 31.50
Bank Owned Life Insurance income ...................... 9,390 7,168 31.00 18,780 12,516 50.05
Credit card fees ...................................... 6,255 5,450 14.77 11,597 10,345 12.10
Other ................................................. 11,029 18,318 (39.79) 19,110 30,142 (36.60)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS...... 115,056 105,340 9.22 222,618 197,670 12.62
-------- -------- -------- --------
Securities gains ...................................... 2,220 14,316 (84.49) 4,530 17,405 (73.97)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............................. $117,276 $119,656 (1.99)% $227,148 $215,075 5.61%
======== ======== ======== ========
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
(in thousands of dollars) JUNE 30, JUNE 30,
- ------------------------------------------------------- --------------------- PERCENT --------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel and related costs ........................... $107,263 $108,483 (1.12)% $214,517 $213,195 0.62%
Outside data processing and other services............. 15,923 16,988 (6.27) 31,315 36,330 (13.80)
Equipment ............................................. 15,573 15,688 (0.73) 32,446 30,837 5.22
Net occupancy ......................................... 13,563 14,063 (3.56) 27,480 27,502 (0.08)
Amortization of intangible assets ..................... 9,336 3,393 175.15 18,664 6,786 175.04
Telecommunications .................................... 6,935 7,450 (6.91) 13,999 13,463 3.98
Marketing ............................................. 6,902 8,315 (16.99) 13,200 15,247 (13.43)
Legal and other professional services ................. 5,803 6,234 (6.91) 10,547 12,022 (12.27)
Printing and supplies ................................. 4,734 5,611 (15.63) 9,490 11,372 (16.55)
Franchise and other taxes ............................. 3,981 5,526 (27.96) 8,368 11,026 (24.11)
Other ................................................. 12,125 14,927 (18.77) 24,218 25,340 (4.43)
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ............................ $202,138 $206,678 (2.20)% $404,244 $403,120 0.28%
======== ======== ======== ========
</TABLE>
13
<PAGE> 14
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 Form 10-Q, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statements including certain plans, expectations, goals, and
projections--including without limitation those relating to Huntington's Year
2000 readiness--that are subject to numerous assumptions, risks, and
uncertainties. Actual results could differ materially from those contained in or
implied by Huntington's statements due to a variety of factors including:
o changes in economic conditions;
o movements in interest rates;
o competitive pressures on product pricing and services;
o success and timing of business strategies;
o successful integration of acquired businesses;
o the nature, extent, and timing of governmental actions and reforms;
o risks of Year 2000 disruption; and,
o extended disruption of vital infrastructure.
The management of Huntington encourages readers of this Form 10-Q to understand
forward-looking statements to be strategic objectives rather than absolute
targets of future performance.
OVERVIEW
Huntington reported net income of $105.0 million for the second quarter
of 1999 versus $92.3 million one year ago. In these same periods, diluted
earnings per share increased 16.3%, from $.43 to $.50. For the first six months
of the year, net income was $201.5 million, compared with $181.8 million in the
same period last year. Diluted earnings per share for the six month periods was
$.95 and $.85, respectively, an increase of 11.8%. After adjusting for the ten
percent stock dividend distributed July 30, 1999, diluted earnings per share for
the three and six months ended June 30, 1999, was $.45 and $.86, respectively,
compared with $.39 and $.77 for the same periods in 1998.
In the recent three months, Huntington's "cash basis" diluted earnings
per share, which excludes the effect of amortization of goodwill and other
intangibles rose to $.48 on a post-stock dividend basis, compared with $.41 per
share in the same period last year. Cash basis ROA and ROE, which are computed
using cash basis earnings as a percentage of average tangible assets and average
tangible equity, respectively, were 1.61% and 30.61%, respectively. Under this
same basis for the first six months of 1999, ROA was 1.57% and ROE was 30.12%.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Huntington's efficiency ratio showed improvement for the fourth consecutive
quarter, and at 50.93% is fast approaching Huntington's goal of being under 50%
by December 31, 1999.
Total assets were $28.2 billion at June 30, 1999, in line with the
December 31, 1998, and June 30, 1998, amounts. Huntington's asset composition
changed over these periods as investment securities declined and total loans
increased. These changes are indicative of the strategic repositioning of the
balance sheet that began last year for the purpose of driving higher equity
returns. Commercial loan growth, including real estate lending, was strong in
the recent quarter with average balances up approximately 8.4% versus one year
ago. In this same period, consumer loans, after adjusting for the out-of-market
credit card sale in the prior year, grew nearly 7.2%. This was driven by
significant increases in vehicle lease volumes and home equity lending.
Core deposits totaled $17.0 billion at June 30, 1999. Average core
deposits declined 2.5% versus the second quarter of last year (after adjusting
for the Florida branch acquisition that occurred late in the second quarter of
1998). This reduction was attributable, in large part, to maturities of more
expensive certificates of deposit.
LINES OF BUSINESS
Huntington segments its operations into five distinct lines of business:
Retail Banking, Corporate Banking, Dealer Sales, Private Financial Group, and
Treasury/Other. Line of business results are determined based upon Huntington's
business profitability reporting system, which assigns balance sheet and income
statement items to each of the business segments. The process is designed around
Huntington's organizational and management structure, and accordingly, the
results are not necessarily comparable to similar information published by other
financial institutions. Below is a discussion of the results, which can be found
in the notes to the unaudited consolidated financial statements, for the three
and six months ended June 30, 1999 and 1998.
Retail Banking - Retail Banking net income was $48.1 million and $84.4 million
for the second quarter and the first six months of 1999, respectively. This
represents a 51% and 35% increase, respectively, over 1998. Excluding the impact
of the Florida branch acquisition in 1998, net income increased 34% and 19%,
respectively. The increase was attained despite continued net interest margin
pressures, as non-interest income continued to show strong growth in service
charges, brokerage and insurance income, and electronic banking income. This
segment contributed 42% of Huntington's 1999 year-to-date net income and
comprised 31% of its total loan portfolio.
Corporate Banking - Corporate Banking continued to post strong results as net
income of $31.2 million for the second quarter represented a 14% increase over
1998. For the first six months, net income was $63.2 million versus $54.0
million one year ago. Robust loan and deposit growth fueled the higher earnings.
This segment contributed 30% of Huntington's second quarter earnings and
represented 35% of the total loan portfolio.
Dealer Sales - Net income totaled $16.7 million and $32.5 million for the recent
quarter and year-to-date periods, respectively, up 69% and 22% over 1998.
Significant loan growth, particularly the vehicle lease product, drove net
interest income higher. This business line
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
totaled 16% of Huntington's net income in the recent three months and 30% of its
outstanding loans.
Private Financial Group - The Private Financial Group achieved net income of
$5.7 million for the quarter just ended, and $11.8 million for the first six
months, increases of 9% and 10% over the same periods one year ago. This segment
represented 5% of Huntington's second quarter 1999 operating results and 3% of
total loans at June 30, 1999.
Treasury/Other - This segment reported net income of $3.4 million and $9.6
million, respectively, in the recent quarter and six months. Huntington's
smaller investment portfolio, reduced securities gains, and increased
amortization of intangibles, subsequent to the acquisition of sixty branches in
Florida in June 1998, drove net income lower versus last year.
RESULTS OF OPERATIONS
Net Interest Income
- -------------------
Net interest income for the three and six months ended June 30, 1999,
was $261.1 million and $520.7 million, increases of 5.5% and 3.7%, respectively,
when compared with the same periods last year. The aforementioned loan growth
primarily drove this improvement. The net interest margin, on a fully tax
equivalent basis, was 4.14% during the three months just ended compared with
4.23% in the second quarter of 1998. On a year-to-date basis, the net interest
margin dropped from 4.27% a year ago to 4.16% for 1999. Margin compression
continues in terms of loan pricing pressures and accelerating competition for
core deposits, which has driven more expensive funding.
Provision For Loan Losses
- -------------------------
The provision for loan losses was $21.0 million in the second quarter of
1999, down from $24.6 million in the same period of 1998. The provision for the
first half of the year was $46.3 million, in line with the first six months of
1998. The lower provision in the quarter was consistent with improvements in
actual loan losses as annualized net charge-offs as a percentage of average
total loans were .38% for the recent three months, versus .41% in the same
period last year.
Non-Interest Income
- -------------------
Non-interest income was $117.3 million for the recent three months and
$227.1 million for the first six months of 1999. Growth over the same quarter a
year ago was experienced in all categories. Brokerage and insurance income
increased 47% primarily due to an expanded sales force of licensed investment
representatives as well as higher sales of a proprietary annuity product.
Electronic banking income was up 25% as a result of increased ATM/check card
revenue and Web Bank fees from a growing on-line banking customer base. An
increase in fees generated by cash management products as well as expanded
banking presence in the state of Florida fueled an 18% improvement in service
charges on deposits. Mortgage banking revenue increased over 13% despite a
slowing of refinancing activity. Income from Bank Owned Life Insurance was $9.4
million and $18.8 million, respectively, in the three months and six months
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
ended June 30, 1999, compared with $7.5 million and $12.5 million for the same
periods a year ago. Included within other non-interest income for the recent
quarter is $2.5 million of gains from the sale of branch banking offices in
Michigan. Included in this category in the year ago quarter is a gain of $9.5
million from the sale of Huntington's out-of-market credit card portfolio.
Securities transactions for the quarter just ended include a $23 million
gain from the sale by Huntington of a portion of its common stock investment in
Security First Technologies Corporation. Substantially offsetting this gain were
losses from the sale of fixed-income investments, as Huntington repositioned the
portfolio of securities available for sale to improve future returns.
Non-Interest Expense
- --------------------
Non-interest expense totaled $202.1 million in the second quarter--a
decrease of 2.2% from one year ago--and $404.2 million for the first six months
of 1999--a slight increase of .3% over the same period in 1998. Excluding the
impact of last year's Florida branch acquisition, non-interest expense declined
approximately 10% and 7%, respectively, over the same periods. Personnel costs
were down 7% as Huntington has substantially completed its planned staffing
reductions. Corporate-wide purchasing and related efficiency initiatives also
resulted in reductions in outside services, printing and supplies,
telecommunications, and legal and other professional fees.
Huntington announced several strategic actions in 1998 that have
directly impacted the current year's results, including the closing/sale of
approximately 39 underperforming banking offices. During the first six months of
1999, Huntington closed 26 and sold 3 of these offices; the remainder are
expected to be sold or closed during the second half of the year. Huntington
also exited certain business activities, as discussed in the 1998 Annual Report
on Form 10-K.
YEAR 2000
The Year 2000 problem is the result of many existing computer programs
using only the last two-digits, as opposed to four digits, to indicate the year.
Such computer systems may be unable to recognize a year that begins with "20"
instead of "19". If not corrected, many computer programs could cause systems to
fail or other computer errors, leading to possible disruptions in operations or
creation of erroneous results.
Huntington systems have been tested and adjusted for the Year 2000 date
change. Today all Huntington systems are performing under stringent Year 2000
scenarios. Huntington met the Year 2000 readiness goals and timetables
established by the Federal Financial Institutions Examination Council (FFIEC).
Huntington, in an enterprise-wide effort, has carefully adhered to its
Year 2000 Plan (the Plan), which addresses all systems, software, hardware, and
infrastructure components. In connection therewith, business processes were
assessed and validated throughout the organization. The Plan identified and
addressed "Mission Critical" and "Non-mission Critical" components for
Information Technology (IT) systems, Non-information Technology (Non-IT)
systems, and business processes. IT includes, for example, systems that service
loan and deposit customers. Non-IT systems include, among other things, security
systems, elevators, utilities, and voice/data communications. An application,
system, or process is Mission Critical if it is vital to the successful
continuance of a core business activity.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Huntington's progress towards completing the Plan's goals for both IT
and Non-IT systems, followed a five phase approach recommended by federal bank
regulators, 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 100% 12/31/1998
Renovation 100% 06/30/1999 100% 06/30/1999
Testing/Validation 100% 06/30/1999 100% 06/30/1999
Implementation 100% 06/30/1999 98% 09/09/1999
</TABLE>
As indicated in the table above, implementation is pending only for a
small portion of Non-mission Critical systems that are Year 2000 ready but for
which system delivery and installation extends into early September.
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 and performed "due diligence" on approximately 350
vendors, with a focus on twenty-one vendors 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 have been dedicated to the Year 2000
effort and, on a part-time basis, multitudes of internal personnel from various
disciplines throughout the Huntington organization have also actively worked on
this project. Furthermore, Huntington engaged an independent consultant to
establish a Year 2000 Program Management Office (PMO). The PMO organized
Huntington's Year 2000 project management activities beyond the technical
information services group into all business units. The PMO helped create the
methodology that is used in every business unit and also afforded a quality
assurance process with respect to the actions taken to remedy the Year 2000
problem.
Identifiable costs for the Year 2000 project incurred in the second
quarter and first six months of 1999 were $3.5 million and $8.1 million,
respectively. Management estimates it will cost up to an additional $7 million
to keep its systems and business processes in compliance and to implement
elements of its contingency plan, if necessary. 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 command
center, regional command posts, and a call center to handle anticipated customer
inquiries before and after January 1, 2000. In addition, the estimated costs
also include
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
due diligence expenses related to monitoring its vendors' and service providers'
readiness.
Major business risks associated with the Year 2000 problem include, but
are not limited to, infrastructure failures, disruptions to the economy in
general, excessive cash withdrawal activity, closure of government offices,
foreign banks, and clearing houses, increased non-performing loans and credit
losses in the event that borrowers fail to properly respond to the problem, and
other factors outside of Huntington's control. These risks, along with
unforeseen, and therefore unidentified circumstances involving Huntington's
systems, and the resulting possible inability to properly process core business
transactions and meet contractual servicing agreements, could expose Huntington
to loss of revenues, litigation, and asset quality deterioration.
The Year 2000 problem is unique in that it has never previously
occurred; thus, it is not possible to completely foresee or quantify the overall
or any specific financial or operational impacts to Huntington or to third
parties which provide Mission Critical services to the company. Huntington has,
however, implemented several proactive processes to identify and mitigate risk
involving systems and processes over which it has control, including
strengthening its Business Resumption Plan for the Year 2000 by adding
alternatives for systems and networks in support of critical applications. The
modifications to Huntington's contingency plan are complete and have been tested
and validated for all core business processes. Huntington's senior management
believes successful modifications to existing systems and conversions to new
systems will substantially reduce the risk of Year 2000 disruption.
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income and
net income while managing volatility arising from shifts in interest rates. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty settlement, and market risks.
On and off-balance sheet strategies and tactics are reviewed and monitored
regularly by ALCO to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing the
business flows onto the balance sheet, wholesale investment and funding, and the
changing market and business environment. Effective management of interest rate
risk begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses a
variety of global markets--money, bond, and futures and options--as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process.
A key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet financial
instruments, accounting for significant variables that may be affected by
interest rates. These include prepayment speeds on mortgages and consumer
installment loans, cash flows of loans and deposits, principal amortization on
revolving credit instruments, and balance sheet growth assumptions. The model
also captures embedded options, for example, interest rate caps,
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
floors, or call options, and accounts for changes in rate relationships, as
various rate indices lead or lag changes in market rates. Management believes,
at any point in time, the model provides a reasonably accurate estimate of
Huntington's interest rate risk exposure, even though these assumptions are
inherently uncertain. This information is regularly shared with the Board of
Directors.
At June 30, 1999, the results of Huntington's interest sensitivity
analysis indicated that net interest income would increase by approximately 2%
given a 100 basis point decrease and 3% given a 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).
Net interest income would be expected to decrease by approximately 2% if
rates rose 100 basis points and would drop 4% in the event of a 200 basis point
increase.
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 June 30, 1999:
<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 $1,245 2.88 $(12.0) 6.00% 5.07%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,850 4.03 $(11.3) 6.17% 5.10%
Receive fixed-amortizing 131 0.41 (0.1) 5.63% 5.09%
Pay fixed 875 0.72 (0.5) 5.01% 5.23%
------ ------
TOTAL LIABILITY
CONVERSION SWAPS $2,856 2.85 $(11.9) 5.79% 5.14%
====== ======
BASIS PROTECTION SWAPS $1,375 1.08 $ .1 5.01% 4.99%
====== ======
</TABLE>
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
As is the case with cash securities, the market value of interest rate
swaps is largely a function of the financial market's expectations regarding the
future direction of interest rates. Accordingly, current market values are not
necessarily indicative of the future impact of the swaps on net interest income.
This will depend, in large part, on the shape of the yield curve as well as
interest rate levels. Management made no assumptions regarding future changes in
interest rates with respect to the variable rate information and the indexed
amortizing swap maturities presented in the table above.
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London interbank offered rate (LIBOR). Receive-fixed
asset conversion swaps and pay-fixed liability conversion swaps with notional
values of $950 million and $550 million, respectively, have embedded written
LIBOR-based call options. The portfolio of amortizing swaps consists primarily
of contracts that are indexed to the prepayment experience of a specified pool
of mortgage loans. As market interest rates change, the amortization of the
notional value of the swap will also change, generally slowing as rates increase
and accelerating when rates fall. Basis swaps are contracts that provide for
both parties to receive interest payments according to different rate indices
and are used to protect against changes in spreads between market rates. The
receive and pay amounts applicable to Huntington's basis swaps are based
predominantly on LIBOR.
The contractual interest payments are based on the notional values of
the swap portfolio. These notional values do not represent direct credit
exposures. At June 30, 1999, Huntington's credit risk from interest rate swaps
used for asset/liability management purposes was $58.7 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.
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 $822 million at June 30, 1999. Total credit
exposure from such contracts is not material. These separate activities, which
are accounted for at fair value, are not a significant part of Huntington's
operations. Accordingly, they have been excluded from the above discussion of
off-balance sheet financial instruments and the related table.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending. Highly
leveraged transactions as well as excessive industry and other concentrations
are avoided. The credit administration function employs extensive risk
management techniques, including forecasting, to ensure that loans adhere to
corporate policy and problem loans are promptly identified. These procedures
provide executive management with the information necessary to implement policy
adjustments where necessary, and take corrective actions on a proactive basis.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Non-performing assets consist of loans that are no longer accruing interest,
loans that have been renegotiated based upon financial difficulties of the
borrower, and real estate acquired through foreclosure. Commercial and real
estate loans are placed on non-accrual status and stop accruing interest when
collection of principal or interest is in doubt or generally when the loan is 90
days past due. When interest accruals are suspended, accrued interest income is
reversed with current year accruals charged to earnings and prior year amounts
generally charged off as a credit loss. Consumer loans are not placed on
non-accrual status; rather they are charged off in accordance with regulatory
statutes, which is generally no more than 120 days. A charge off may be delayed
in circumstances when collateral is repossessed and anticipated to sell at a
future date. Total non-performing assets were $93.6 million and $101.7 million,
respectively, at June 30, 1999, and 1998. As of the recent quarter end,
non-performing loans represented .38% of total loans versus .42% a year ago.
Non-performing assets as a percent of total loans and other real estate were
.46% and .53% for the comparable periods. Loans past due ninety days or more but
continuing to accrue interest were $54.3 million at June 30, 1999, up slightly
from $50.6 million one year ago and $51.0 from March 31, 1999.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of probable losses inherent in
the loan portfolio. The procedures employed by Huntington to evaluate the
adequacy of the ALL include an analysis of specific credits and the application
of relevant reserve factors that represent relative risk (based on portfolio
trends, current and historic loss experience, and prevailing economic
conditions) to specific portfolio segments. Specific reserves are established on
larger, commercial and industrial and commercial real estate credits and are
based on discounted cash flow models using the loan's initial effective rate or
the fair value of the collateral for collateral-dependent loans. Allocated
reserves include management's assessment of portfolio performance, internal
controls, and other pertinent risk factors. For analytical purposes, the ALL has
been allocated to various portfolio segments. However, the total ALL less the
portion attributable to reserves as prescribed under provisions of SFAS No. 114,
is available to absorb losses from any segment of the portfolio. Unallocated
reserves are based on levels of criticized/classified assets, delinquencies
present in the accruing loan portfolios, and the level of nonperforming loans.
Total unallocated reserves were 12% at the recent quarter end versus 13% one
year ago.
The reserve ratio was 1.46% at the recent quarter end versus 1.50% at June 30,
1998. The ALL covered non-performing loans nearly 3.8 times and when combined
with the allowance for other real estate owned, was 311% of total nonperforming
assets.
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. Capital is managed at each subsidiary based upon
the respective risks and growth opportunities, as well as regulatory
requirements. Huntington's ratio of average equity to average assets was 7.52%
in the recent quarter compared with 8.02% in the same three months of last year.
For the six month period, the ratio was 7.49%, versus 7.90% in the first half of
1998.
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 7.29%, its total risk-based
capital ratio was 10.65%, and its leverage ratio was 6.45%, each of which
exceeds the well-capitalized requirements. Huntington's bank subsidiary also had
regulatory capital ratios in excess of the levels established for
well-capitalized institutions.
In the third quarter of 1998, the Board of Directors authorized the
reactivation of Huntington's common stock repurchase program. In connection with
the reinstatement of the program, the Board of Directors also increased the
number of shares authorized for repurchase to 15 million (before adjusting for
the aforementioned ten percent stock dividend), up from approximately 3 million
shares remaining when the plan was suspended. The shares are to be purchased
through open market and privately negotiated transactions. Repurchased shares
will be reserved for reissue in connection with Huntington's dividend
reinvestment, stock option, and other benefit plans as well as for stock
dividends and other corporate purposes. In the first half of the year,
Huntington repurchased approximately 1.3 million shares. Adjusted for the
recently issued stock dividend, approximately 13.8 million shares remain
available for repurchase under the program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect
the quantitative and qualitative disclosures presented in Huntington's Annual
Report on Form 10-K for the year ended December 31, 1998. Quantitative and
qualitative disclosures for the current period are found on pages 18 through 21.
23
<PAGE> 24
<TABLE>
- ------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998 % Change
- ------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME ............................................ $104,975 $ 92,309 13.7%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ...................................... $ 0.45 $ 0.40 12.5
Diluted .................................... $ 0.45 $ 0.39 15.4
Cash dividends declared ......................... $ 0.18 $ 0.16 12.5
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) ......... 233,154 236,130 (1.3)
KEY RATIOS
Return on:
Average total assets ................................ 1.47% 1.42% 3.5
Average shareholders' equity ........................ 19.48% 17.70% 10.1
Efficiency ratio ...................................... 50.93% 58.78% (13.4)
Average equity/average assets ......................... 7.52% 8.02% (6.2)
Net interest margin ................................... 4.14% 4.23% (2.1)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) ............ $ 0.48 $ 0.41 17.1
Return on:
Average total assets ................................ 1.61% 1.49% 8.1
Average shareholders' equity ........................ 30.61% 21.17% 44.6
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998 % Change
- ------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME ............................................ $201,547 $181,795 10.9%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ....................................... $ 0.87 $ 0.78 11.5
Diluted ..................................... $ 0.86 $ 0.77 11.7
Cash dividends declared .......................... $ 0.36 $ 0.32 12.5
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) ......... 233,278 235,661 (1.0)
KEY RATIOS
Return on:
Average total assets ................................ 1.42% 1.40% 1.4
Average shareholders' equity ........................ 18.98% 17.72% 7.1
Efficiency ratio ...................................... 51.54% 56.97% (9.5)
Average equity/average assets ......................... 7.49% 7.90% (5.1)
Net interest margin ................................... 4.16% 4.27% (2.6)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) ............ $ 0.93 $ 0.80 16.3
Return on:
Average total assets ................................ 1.57% 1.47% 6.8
Average shareholders' equity ........................ 30.12% 21.13% 42.5
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 1999.
(2) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles. Related asset amounts excluded from total assets and
shareholders' equity.
24
<PAGE> 25
<TABLE>
- -----------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE- AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30, 1999 AND
DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year ...................... $ 803 $ 807 $ 1,000 $ 1,007
1-5 years ......................... 77,126 76,025 63,537 65,364
6-10 years ........................ 431,252 414,748 169,959 176,945
---------- ---------- ---------- ----------
Total .......................... 509,181 491,580 234,496 243,316
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
1-5 years ......................... 8 8 11 11
6-10 years ........................ 41,151 41,282 87,342 89,162
Over 10 years ..................... 1,187,768 1,151,168 1,356,722 1,363,015
---------- ---------- ---------- ----------
Total .......................... 1,228,927 1,192,458 1,444,075 1,452,188
---------- ---------- ---------- ----------
Other agencies
1-5 years ......................... 812,028 791,741 968,753 975,253
6-10 years ........................ 503,376 485,791 678,245 684,230
Over 10 years ..................... 903,074 884,689 740,139 741,147
---------- ---------- ---------- ----------
Total .......................... 2,218,478 2,162,221 2,387,137 2,400,630
---------- ---------- ---------- ----------
Other
Under 1 year ...................... 20,641 20,714 7,492 7,478
1-5 years ......................... 247,960 248,553 188,551 190,871
6-10 years ........................ 146,882 144,674 204,788 210,698
Over 10 years ..................... 276,593 268,225 268,319 268,930
Marketable equity securities ...... 10,645 44,735 8,359 7,304
---------- ---------- ---------- ----------
Total .......................... 702,721 726,901 677,509 685,281
---------- ---------- ---------- ----------
Total Securities Available for Sale .... $4,659,307 $4,573,160 $4,743,217 $4,781,415
========== ========== ========== ==========
</TABLE>
25
<PAGE> 26
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ....... $291,066 $258,262 $290,948 $258,171
Allowance acquired/other ............................. -- 22,042 -- 22,042
Loan losses .......................................... (27,123) (28,855) (59,654) (56,421)
Recoveries of loans previously charged off ........... 8,305 10,820 15,649 16,296
Provision for loan losses ............................ 21,026 24,595 46,331 46,776
-------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD .............. $293,274 $286,864 $293,274 $286,864
======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ........................ 0.38% 0.41% 0.45% 0.46%
Provision for loan losses--annualized .............. 0.42% 0.55% 0.47% 0.53%
Allowance for loan losses as a % of total loans ...... 1.46% 1.50% 1.46% 1.50%
Net loan loss coverage (1) ........................... 9.37X 8.89x 7.81X 7.83x
</TABLE>
(1) Income before taxes and the provision for loan losses to net loan losses.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- -----------------------------------------------------------------------------------------------------------------
1999 1998
-------------------- ----------------------------------
II Q I Q IV Q III Q II Q
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial .................................. $37,840 $37,594 $34,586 $38,020 $ 39,940
Real Estate
Construction ............................. 7,877 7,540 10,181 6,948 8,929
Commercial ............................... 13,028 14,133 13,243 10,427 10,953
Residential .............................. 15,192 14,849 14,419 14,815 15,545
------- ------- ------- ------- --------
Total Nonaccrual Loans ................ 73,937 74,116 72,429 70,210 75,367
Renegotiated loans ............................. 2,827 2,764 4,706 4,798 4,770
------- ------- ------- ------- --------
TOTAL NON-PERFORMING LOANS ..................... 76,764 76,880 77,135 75,008 80,137
Other real estate, net ......................... 16,839 17,853 18,964 20,812 21,516
------- ------- ------- ------- --------
TOTAL NON-PERFORMING ASSETS .................... $93,603 $94,733 $96,099 $95,820 $101,653
======= ======= ======= ======= ========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ............................. 0.38% 0.39% 0.40% 0.39% 0.42%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE ....... 0.46% 0.48% 0.49% 0.50% 0.53%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS ......................... 382.05% 378.60% 377.19% 381.46% 357.97%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS ....... 311.32% 305.33% 301.00% 296.69% 280.64%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE ........ $54,305 $51,039 $51,037 $63,998 $ 50,614
======= ======= ======= ======= ========
</TABLE>
26
<PAGE> 27
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<CAPTION>
Fully Tax Equivalent Basis (1) 2ND QUARTER 1999 1ST QUARTER 1999
--------------------- ---------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
- -------------------------------------------------------------------------- BALANCE RATE BALANCE RATE
------- ------ ------- ------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks ....................................... $ 8 3.75% $ 8 4.93%
Trading account securities ............................................... 15 5.41 18 5.20
Federal funds sold and securities purchased under resale agreements ...... 19 4.86 18 5.64
Mortgages held for sale .................................................. 269 6.96 359 6.75
Securities:
Taxable ............................................................ 4,914 5.99 4,926 6.05
Tax exempt ......................................................... 303 7.90 304 8.17
------- -------
Total Securities .............................................. 5,217 6.10 5,230 6.17
------- -------
Loans:
Commercial .......................................................... 6,182 7.73 6,067 7.90
Real Estate
Construction ................................................... 1,012 7.92 957 8.14
Mortgage ....................................................... 3,726 7.92 3,651 7.97
Consumer
Loans ......................................................... 6,907 8.25 6,873 8.38
Leases ........................................................ 2,175 6.72 2,015 6.94
------- -------
Total Consumer ................................................ 9,082 7.88 8,888 8.05
------- -------
Total Loans .............................................................. 20,002 7.84 19,563 7.99
------- -------
Allowance for loan losses ................................................ 297 299
------- -------
Net loans (3) ............................................................ 19,705 8.35 19,264 8.49
------- -------
Total earning assets ..................................................... 25,530 7.87% 25,196 7.98%
------- -------
Cash and due from banks .................................................. 1,044 1,064
All other assets ......................................................... 2,454 2,461
------- -------
TOTAL ASSETS ............................................................. $28,731 $28,422
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits ....................................... $ 3,511 $ 3,505
Interest bearing demand deposits .................................... 4,109 2.50% 4,061 2.46%
Savings deposits .................................................... 3,769 3.25 3,627 3.17
Other domestic time deposits ........................................ 5,715 5.07 6,047 5.27
------- -------
Total core deposits ............................................ 17,104 3.79 17,240 3.88
------- -------
Certificates of deposit of $100,000 or more .............................. 1,662 5.08 1,730 5.35
Foreign time deposits .................................................... 307 4.82 161 4.80
------- -------
Total deposits ...................................................... 19,073 3.95 19,131 4.06
------- -------
Short-term borrowings .................................................... 2,793 4.38 2,853 4.33
Medium-term notes ........................................................ 3,047 5.19 2,666 5.29
Subordinated notes and other long-term debt,
including preferred capital securities ................................ 1,004 5.70 1,007 5.81
------- -------
Interest bearing liabilities ........................................ 22,406 4.25% 22,152 4.32%
------- -------
All other liabilities .................................................... 653 644
Shareholders' equity ..................................................... 2,161 2,121
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,731 $28,422
======= =======
Net interest rate spread ................................................. 3.62% 3.66%
Impact of non-interest bearing funds on margin ........................... 0.52% 0.52%
NET INTEREST MARGIN ...................................................... 4.14% 4.18%
- --------------------------------------------------------------------------
</TABLE>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
(2) Excludes nonrecurring swap adjustment of $9.2 million.
(3) Net loan rate includes loan fees, whereas individual loan components above
are shown exclusive of fees.
27
<PAGE> 28
<TABLE>
- -----------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<CAPTION>
4th Quarter 1998 3rd Quarter 1998 2nd Quarter 1998
--------------------- --------------------- ---------------------
Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
$ 4 5.00% $ 31 5.20% $ 8 5.26%
12 5.62 11 5.87 12 5.81
34 5.48 689 5.62 168 5.63
377 6.73 275 7.10 282 7.08
4,518 6.16 4,077 6.34 5,107 6.34
292 8.16 234 8.86 225 9.27
------- ------- -------
4,810 6.28 4,311 6.47 5,332 6.47
------- ------- -------
5,954 7.99 5,763 8.36 5,482 8.46
864 8.24 811 8.83 816 8.73
3,689 8.21 3,760 8.43 3,444 8.62
6,912 8.62 6,896 8.77 6,474 8.82
1,850 7.00 1,728 7.11 1,627 7.15
------- ------- -------
8,762 8.28 8,624 8.44 8,101 8.48
------- ------- -------
19,269 8.17 18,958 8.43 17,843 8.51
------- ------- -------
296 293 266
------- ------- -------
18,973 8.68 18,665 8.87 17,577 8.99
------- ------- -------
24,506 8.17% 24,275 8.33% 23,645 8.37%
------- ------- -------
1,056 1,017 907
2,448 2,516 1,786
------- ------- -------
$27,714 $27,515 $26,072
======= ======= =======
$ 3,577 $ 3,466 $ 3,113
3,967 2.60% 3,898 2.77% 3,216 2.72%
3,546 3.38 3,428 3.56 3,099 3.51
6,459 5.43 6,619 5.53 5,985 5.62
------- ------- -------
17,549 4.10 17,411 4.27 15,413 4.33
------- ------- -------
1,755 5.65 1,884 5.71 1,909 5.74
56 4.86 30 5.39 132 5.80
------- ------- -------
19,360 4.27 19,325 4.45 17,454 4.53
------- ------- -------
2,123 4.36 1,515 4.75 2,044 4.97
2,526 5.48 2,952 5.70 3,222 5.71
1,020 5.88(2) 1,041 6.37 757 6.13
------- ------- -------
21,452 4.49% 21,367 4.72% 20,364 4.80%
------- ------- -------
653 539 503
2,032 2,143 2,092
------- ------- -------
$27,714 $27,515 $26,072
======= ======= =======
3.68% 3.61% 3.57%
0.56% 0.57% 0.66%
4.24%(2) 4.18% 4.23%
</TABLE>
28
<PAGE> 29
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
<CAPTION>
1999 1998
--------------------- ----------------------------------
(in thousands of dollars, except per share amounts) II Q I Q IV Q III Q II Q
- ------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ................................ $498,500 $495,692 $500,395 $505,221 $491,268
TOTAL INTEREST EXPENSE ............................... 237,352 236,171 233,094 253,706 243,839
-------- -------- -------- -------- --------
NET INTEREST INCOME .................................. 261,148 259,521 267,301 251,515 247,429
Provision for loan losses ............................ 21,026 25,305 34,306 24,160 24,595
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .......................... 240,122 234,216 232,995 227,355 222,834
-------- -------- -------- -------- --------
Service charges on deposit accounts .................. 36,065 35,776 33,992 32,493 30,428
Mortgage banking ..................................... 17,224 15,958 15,388 15,270 15,191
Trust services ....................................... 13,143 13,434 12,924 12,502 12,745
Brokerage and insurance income ....................... 12,540 11,543 9,848 10,057 8,520
Electronic banking fees .............................. 9,410 8,038 8,037 7,897 7,520
Bank Owned Life Insurance income ..................... 9,390 9,390 8,098 8,098 7,168
Credit card fees ..................................... 6,255 5,342 6,367 5,197 5,450
Other ................................................ 11,029 8,081 12,057 12,512 18,318
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS .... 115,056 107,562 106,711 104,026 105,340
-------- -------- -------- -------- --------
Securities gains ..................................... 2,220 2,310 1,773 10,615 14,316
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............................ 117,276 109,872 108,484 114,641 119,656
-------- -------- -------- -------- --------
Personnel and related costs .......................... 107,263 107,254 103,600 111,744 108,483
Outside data processing and other services ........... 15,923 15,392 20,915 17,550 16,988
Equipment ............................................ 15,573 16,873 16,202 15,001 15,688
Net occupancy ........................................ 13,563 13,917 11,602 15,019 14,063
Amortization of intangible assets .................... 9,336 9,328 9,436 9,467 3,393
Telecommunications ................................... 6,935 7,064 8,173 7,793 7,450
Marketing ............................................ 6,902 6,298 8,251 8,762 8,315
Legal and other professional services ................ 5,803 4,744 7,847 5,291 6,234
Printing and supplies ................................ 4,734 4,756 6,450 5,851 5,611
Franchise and other taxes ............................ 3,981 4,387 5,554 5,523 5,526
Special charges ...................................... -- -- 90,000 -- --
Other ................................................ 12,125 12,093 10,902 9,876 14,927
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ........................... 202,138 202,106 298,932 211,877 206,678
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........................... 155,260 141,982 42,547 130,119 135,812
Provision for income taxes ........................... 50,285 45,410 11,329 41,364 43,503
-------- -------- -------- -------- --------
NET INCOME ........................................... $104,975 $ 96,572 $ 31,218 $ 88,755 $ 92,309
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Diluted ......................................... $ 0.45 $ 0.41 $ 0.14 $ 0.38 $ 0.39
Diluted - Cash Basis ............................ $ 0.48 $ 0.45 $ 0.16 $ 0.41 $ 0.41
Cash Dividends Declared ............................. $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.16
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income .................................. $261,148 $259,521 $267,301 $251,515 $247,429
Tax Equivalent Adjustment (2) ........................ 2,390 2,504 2,504 2,567 2,581
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income ................... $263,538 $262,025 $269,805 $254,082 $250,010
======== ======== ======== ======== ========
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 1999.
(2) Calculated assuming a 35% tax rate.
29
<PAGE> 30
<TABLE>
STOCK SUMMARY, KEY RATIOS AND STATISTICS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
- --------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------ -------------------------------------
II Q I Q IV Q III Q II Q
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
High ....................................... $34 $30 7/16 $28 5/8 $30 13/16 $31 7/16
Low ........................................ 27 11/16 27 3/16 21 1/2 20 26 7/8
Close ...................................... 31 13/16 28 1/8 27 5/16 22 13/16 27 13/16
Cash dividends declared .................... $0.18 $0.18 $0.18 $0.18 $0.16
</TABLE>
Note: Stock price quotations were obtained from NASDAQ.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
MARGIN ANALYSIS - AS A % ---------------------- -------------------------------------
OF AVERAGE EARNING ASSETS (2) II Q I Q IV Q III Q II Q
- -------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest Income ............................ 7.87% 7.98% 8.17% 8.33% 8.37%
Interest Expense ........................... 3.73% 3.80% 3.93% 4.15% 4.14%
------- ------- ------- ------- -------
Net Interest Margin ................... 4.14% 4.18% 4.24% 4.18% 4.23%
======= ======= ======= ======= =======
RETURN ON
- --------------------------------------------
Average total assets ....................... 1.47% 1.38% 1.31% 1.28% 1.42%
Average total assets - cash basis .......... 1.61% 1.52% 1.45% 1.43% 1.49%
Average shareholders' equity ............... 19.48% 18.47% 17.87% 16.43% 17.70%
Average shareholders' equity - cash basis... 30.61% 29.58% 29.44% 26.59% 21.17%
Efficiency Ratio ........................... 50.93% 52.16% 52.98% 56.46% 58.78%
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL DATA
- --------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------- -------------------------------------
(in millions of dollars) II Q I Q IV Q III Q II Q
- -------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Risk-Adjusted Assets ................. 24,829 24,345 24,239 23,695 23,728
Tier I Risk-Based Capital Ratio ............ 7.29% 7.20% 7.10% 7.35% 7.18%
Total Risk Based Capital Ratio ............. 10.65% 10.70% 10.73% 11.18% 11.01%
Tier I Leverage Ratio ...................... 6.45% 6.32% 6.37% 6.51% 6.72%
</TABLE>
- --------------------------------------------
(1) Adjusted for the ten percent stock dividend distributed July 1999.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
30
<PAGE> 31
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 4. Submission of Matters to a Vote of Security Holders
Huntington Bancshares Incorporated held its annual meeting of
shareholders on April 22, 1999. At that meeting, shareholders approved
the following management proposals:
<TABLE>
<CAPTION>
ABSTAIN/ BROKER
FOR AGAINST WITHHELD NON VOTES
--- ------- -------- ---------
<S> <C> <C> <C> <C>
1. Election of directors
to serve as Class III
Directors until the year
2002 Annual Meeting of
Shareholders as follows:
Don M. Casto III 174,931,961 1,651,364
Patricia T. Hayot 174,772,811 1,810,514
William J. Lhota 174,899,359 1,683,966
Timothy P. Smucker 174,988,700 1,594,625
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
2. Election of director to
serve until the year 2000
Annual Meeting of
Shareholders is as follows:
John B. Gerlach, Jr. 174,960,230 1,623,095
3. Proposal to approve
the Corporation's amended
and restated Incentive
Compensation Plan 157,189,951 14,378,785 3,044,642 1,969,947
4. Proposal to approve
the Corporation's amended
and restated Long-term
Incentive Compensation Plan 156,619,757 14,818,904 3,149,940 1,969,950
5. Ratification of Ernst &
Young LLP to serve as
independent auditors for
the Corporation for the
year 1999 174,469,372 1,193,027 896,454
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. (i)(a) Articles of Restatement of Charter,
Articles of Amendment to Articles of Restatement
of Charter, and Articles Supplementary previously
filed as Exhibit 3(i) to Annual Report on Form
10-K for the year ended December 31, 1993, and
incorporated herein by reference.
(i)(b) Articles of Amendment to Articles of
Restatement of Charter -- previously filed as
Exhibit 3(i)(b) to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, and
incorporated herein by reference.
(i)(c) Articles of Amendment to Articles of
Restatement of Charter --previously filed as
Exhibit 3(i)(c) to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, and
incorporated herein by reference.
(ii) Amended and Restated Bylaws -- previously
filed as Exhibit 3(ii) to Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference.
32
<PAGE> 33
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.
27. Financial Data Schedule
99. Earnings to Fixed Charges
(b) Reports on Form 8-K
1. A report on Form 8-K, dated April 14, 1999, was
filed under report item numbers 5 and 7,
concerning Huntington's results of operations for
the first quarter 1999.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Huntington
Bancshares Incorporated has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: August 16, 1999 /s/ Judith D. Fisher
---------------------------------
Judith D. Fisher
Executive Vice President and
Chief Financial Officer
Date: August 16, 1999 /s/ Anne W. Creek
---------------------------------
Anne W. Creek
Principal Accounting Officer
34
<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
JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 996,065
<INT-BEARING-DEPOSITS> 7,978
<FED-FUNDS-SOLD> 10,233
<TRADING-ASSETS> 12,058
<INVESTMENTS-HELD-FOR-SALE> 4,573,160
<INVESTMENTS-CARRYING> 21,307
<INVESTMENTS-MARKET> 21,350
<LOANS> 20,388,958
<ALLOWANCE> 293,274
<TOTAL-ASSETS> 28,161,080
<DEPOSITS> 18,933,161
<SHORT-TERM> 2,275,980
<LIABILITIES-OTHER> 605,319
<LONG-TERM> 700,518
0
0
<COMMON> 2,152,076
<OTHER-SE> (5,874)
<TOTAL-LIABILITIES-AND-EQUITY> 28,161,080
<INTEREST-LOAN> 825,632
<INTEREST-INVEST> 156,731
<INTEREST-OTHER> 11,829
<INTEREST-TOTAL> 994,192
<INTEREST-DEPOSIT> 309,473
<INTEREST-EXPENSE> 473,523
<INTEREST-INCOME-NET> 520,669
<LOAN-LOSSES> 46,331
<SECURITIES-GAINS> 4,530
<EXPENSE-OTHER> 404,244
<INCOME-PRETAX> 297,242
<INCOME-PRE-EXTRAORDINARY> 297,242
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,547
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 4.16
<LOANS-NON> 73,937
<LOANS-PAST> 54,305
<LOANS-TROUBLED> 2,827
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 290,948
<CHARGE-OFFS> 59,654
<RECOVERIES> 15,649
<ALLOWANCE-CLOSE> 293,274
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.
<TABLE>
HUNTINGTON BANCSHARES INCORPORATED
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before taxes ..................... $155,260 $135,812 $297,242 $267,456
Fixed charges:
Interest expense .................. 84,184 81,686 164,050 167,066
Interest factor of rent expense ... 1,609 2,380 4,074 4,646
-------- -------- -------- --------
Total fixed charges ............ 85,793 84,066 168,124 171,712
-------- -------- -------- --------
Earnings ................................ $241,053 $219,878 $465,366 $439,168
======== ======== ======== ========
Fixed charges ........................... $ 85,793 $ 84,066 $168,124 $171,712
======== ======== ======== ========
RATIO OF EARNINGS
TO FIXED CHARGES 2.81X 2.62X 2.77X 2.56X
INCLUDING INTEREST ON DEPOSITS
Income before taxes ..................... $155,260 $135,812 $297,242 $267,456
Fixed charges:
Interest expense .................. 237,352 243,839 473,523 491,471
Interest factor of rent expense ... 1,609 2,380 4,074 4,646
-------- -------- -------- --------
Total fixed charges ............ 238,961 246,219 477,597 496,117
-------- -------- -------- --------
Earnings ................................ $394,221 $382,031 $774,839 $763,573
======== ======== ======== ========
Fixed charges ........................... $238,961 $246,219 $477,597 $496,117
======== ======== ======== ========
RATIO OF EARNINGS
TO FIXED CHARGES 1.65X 1.55X 1.62X 1.54X
</TABLE>
