<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2000
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 250,849,355 shares of Registrant's without par value common stock
outstanding on October 31, 2000.
<PAGE> 2
HUNTINGTON BANCSHARES INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and 1999 and December 31, 1999 3
Consolidated Statements of Income -
For the three and nine months ended September 30, 2000
and 1999 4
Consolidated Statements of Changes in Shareholders' Equity -
For the nine months ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
For the nine months ended September 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II. OTHER INFORMATION
Item 2. Changes in securities and use of proceeds 31
Item 6. Exhibits and Reports on Form 8-K 31-32
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
(in thousands of dollars) 2000 1999 1999
------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks .................................... $ 980,199 $ 1,208,004 $ 972,164
Interest bearing deposits in banks ......................... 4,922 6,558 7,325
Trading account securities ................................. 17,770 7,975 3,964
Federal funds sold and securities
purchased under resale agreements ..................... 127,141 20,877 10,310
Loans held for sale ........................................ 115,541 141,723 681,505
Securities available for sale - at fair value .............. 4,696,241 4,870,203 5,086,596
Investment securities - fair value $17,000; $18,662;
and $20,129, respectively ............................. 17,053 18,765 20,110
Total loans (1) ............................................ 20,328,152 20,668,437 20,009,020
Less allowance for loan losses ........................ 294,686 299,309 295,612
------------ ------------ ------------
Net loans .................................................. 20,033,466 20,369,128 19,713,408
------------ ------------ ------------
Bank owned life insurance .................................. 793,856 765,399 756,008
Premises and equipment ..................................... 442,676 438,871 434,584
Customers' acceptance liability ............................ 14,065 17,167 24,684
Accrued income and other assets ............................ 1,334,263 1,172,283 1,263,964
------------ ------------ ------------
TOTAL ASSETS ............................................... $ 28,577,193 $ 29,036,953 $ 28,974,622
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ......................................... $ 19,533,166 $ 19,792,603 $ 19,241,808
Short-term borrowings ...................................... 2,133,311 2,121,989 2,501,862
Bank acceptances outstanding ............................... 14,065 17,167 24,684
Medium-term notes .......................................... 2,702,150 3,254,150 3,424,150
Subordinated notes and other long-term debt ................ 870,889 697,677 700,597
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 ..................... 740,047 671,011 622,356
------------ ------------ ------------
Total Liabilities ..................................... 26,293,628 26,854,597 26,815,457
------------ ------------ ------------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding ................................. --- --- ---
Common stock - without par value; authorized
500,000,000 shares; issued 257,866,256,
233,844,820, and 233,844,900 shares, respectively;
outstanding 250,849,574, 228,888,221, and
229,807,644 shares, respectively ................. 2,493,912 2,284,956 2,285,494
Treasury stock ........................................ (128,995) (137,268) (112,229)
Accumulated other comprehensive income ................ (81,647) (94,093) (73,746)
Retained earnings ..................................... 295 128,761 59,646
------------ ------------ ------------
Total Shareholders' Equity ............................ 2,283,565 2,182,356 2,159,165
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 28,577,193 $ 29,036,953 $ 28,974,622
============ ============ ============
</TABLE>
(1) See page 12 for detail on total loans and total deposits.
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------------
(in thousands of dollars, except per share amounts) 2000 1999 2000 1999
--------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and fee income
Loans ........................................ $ 459,860 $ 434,159 $ 1,348,103 $ 1,259,791
Securities ................................... 71,385 78,632 211,427 235,363
Other ........................................ 4,546 3,503 11,314 15,332
------------- ------------- ------------- -------------
TOTAL INTEREST INCOME .............. 535,791 516,294 1,570,844 1,510,486
------------- ------------- ------------- -------------
Interest expense
Deposits ..................................... 202,659 159,509 577,521 468,982
Short-term borrowings ........................ 30,998 26,700 80,978 87,703
Medium-term notes ............................ 44,292 46,575 143,489 120,682
Subordinated notes and other long-term debt .. 21,973 15,079 59,490 44,019
------------- ------------- ------------- -------------
TOTAL INTEREST EXPENSE ............. 299,922 247,863 861,478 721,386
------------- ------------- ------------- -------------
NET INTEREST INCOME ................ 235,869 268,431 709,366 789,100
Provision for loan losses ......................... 26,396 22,076 57,931 68,407
------------- ------------- ------------- -------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 209,473 246,355 651,435 720,693
------------- ------------- ------------- -------------
Total non-interest income(1)....................... 121,652 115,654 363,010 342,802
Total non-interest expense(1) ..................... 263,585 206,189 661,767 610,433
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES ......... 67,540 155,820 352,678 453,062
Provision for income taxes ........................ 17,010 50,233 100,454 145,928
------------- ------------- ------------- -------------
NET INCOME ......................... $ 50,530 $ 105,587 $ 252,224 $ 307,134
============= ============= ============= =============
PER COMMON SHARE(2)
Net income
Basic ................................... $0.20 $ 0.42 $ 1.02 $1.21
Diluted ................................. $0.20 $ 0.41 $ 1.01 $1.20
Cash dividends declared ........................... $0.20 $ 0.18 $ 0.56 $0.50
AVERAGE COMMON SHARES(2) ..........................
Basic ................................... 251,113,540 253,145,949 247,983,936 253,936,102
Diluted ................................. 252,032,874 255,216,297 248,908,848 256,138,420
</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 2000.
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
-------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER
-------------------- ------------------- COMPREHENSIVE RETAINED
In thousands SHARES AMOUNT SHARES AMOUNT INCOME (LOSS) EARNINGS TOTAL
------ ------ ------ ------ ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999:
Balance, beginning of period 212,596 $ 2,137,915 (1,850) $ (49,271) $ 24,693 $ 35,458 $ 2,148,795
Comprehensive Income:
Net income 307,134 307,134
Unrealized net holding losses on securities
available for sale arising during the period (98,439) (98,439)
-----------
Total comprehensive income 208,695
-----------
Cash Dividends declared (130,011) (130,011)
Stock options exercised (5,005) 294 8,193 3,188
10% stock dividend 21,249 152,584 (304) (152,935) (351)
Treasury shares purchased (2,201) (71,860) (71,860)
Treasury shares sold to
employee benefit plans 24 709 709
------- ----------- ------ --------- --------- -------- -----------
Balance, end of period 233,845 $ 2,285,494 (4,037) $ (112,229) $ (73,746) $ 59,646 $ 2,159,165
======= =========== ====== ========= ========= ======== ===========
NINE MONTHS ENDED SEPTEMBER 30, 2000:
BALANCE, BEGINNING OF PERIOD 233,845 $ 2,284,956 (4,957) $ (137,268) $ (94,093) $128,761 $ 2,182,356
Comprehensive Income:
Net income 252,224 252,224
Unrealized net holding losses on securities
available for sale arising during the period 12,446 12,446
-----------
Total comprehensive income 264,670
-----------
Stock issued for acquisition (29,399) 7,175 171,781 142,382
Cash dividends declared (139,028) (139,028)
Stock options exercised (3,128) 105 3,405 277
10% stock dividend 24,021 241,483 (1,182) (241,662) (179)
Treasury shares purchased (8,188) (167,612) (167,612)
Treasury shares sold to
employee benefit plans 30 699 699
------- ----------- ------ --------- --------- -------- -----------
Balance, end of period 257,866 $ 2,493,912 (7,017) $ (128,995) $ (81,647) $ 295 $ 2,283,565
======= =========== ====== ========= ========= ======== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
(in thousands of dollars) 2000 1999
------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Operating Activities
Net Income $ 252,224 $ 307,134
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 57,931 68,407
Provision for depreciation and amortization 85,053 85,691
Deferred income tax expense 59,114 42,854
Increase in trading account securities (9,795) (125)
Decrease in loans held for sale 26,182 328,262
Net gains on sales of securities available for sale (36,245) (5,067)
Losses on loan securitizations 4,118 ---
Increase in accrued income receivable (31,769) (30,331)
Net increase in other assets (43,571) (110,193)
Increase in accrued expenses 33,343 17,082
Decrease in other liabilities (10,807) (9,854)
Write-down of lease residual values 50,000 ---
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 435,778 693,860
----------- -----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks 1,636 95,239
Proceeds from
Maturities and calls of investment securities 1,692 4,796
Maturities and calls of securities available for sale 226,039 570,841
Sales of securities available for sale 1,096,042 1,660,969
Purchases of securities available for sale (168,418) (2,686,470)
Proceeds from securitizations/sales of loans 1,264,241 ---
Net loan originations, excluding sales (1,576,285) (1,168,814)
Proceeds from sale of premises and equipment 2,351 14,410
Purchases of premises and equipment (38,444) (52,801)
Net cash received in purchase acquisitions 12,004 ---
Proceeds from sales of other real estate 12,023 11,180
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 832,881 (1,550,650)
----------- -----------
FINANCING ACTIVITIES
Decrease in total deposits (688,000) (480,924)
Increase in short-term borrowings 1,322 285,218
Proceeds from issuance of long-term debt 150,000 ---
Maturity of long-term debt --- (7,000)
Proceeds from issuance of medium-term notes 530,000 2,082,000
Payment of medium-term notes (1,082,000) (1,197,750)
Dividends paid on common stock (134,707) (125,895)
Repurchases of common stock (167,612) (71,860)
Proceeds from issuance of common stock 797 3,897
----------- -----------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (1,390,200) 487,686
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS (121,541) (369,104)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,228,881 1,351,578
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,107,340 $ 982,474
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE> 7
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 Bancshares Incorporated's (Huntington) 1999
Annual Report on Form 10-K should be read in conjunction with these interim
financial statements.
B. Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform to the 2000 presentation. These reclassifications had no
effect on net income.
C. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement (as amended by Statements No. 137 and No. 138) establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows gains and losses from derivatives to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions for which hedge accounting is applied.
Statement No. 133, as amended, is effective for fiscal years beginning
after 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. Huntington expects to adopt Statement No. 133, as
amended, in the first quarter of 2001. Based on information available, the
impact of adoption is not expected to be material to the Consolidated Financial
Statements.
D. Acquisitions
Huntington acquired Empire Banc Corporation (Empire), a $506 million
one-bank holding company headquartered in Traverse City, Michigan, on June 23,
2000. Huntington reissued approximately 6.5 million shares of common stock in
the second quarter, all of which were purchased on the open market during the
first quarter 2000, in exchange for all of the common stock of Empire. In
addition, Huntington acquired J. Rolfe Davis Insurance Agency, Inc. (JRD),
headquartered in Maitland, Florida, on August 31, 2000. Huntington paid $8.2
million in cash and issued approximately 695,000 shares of common stock for all
of the common stock of JRD. Both transactions were accounted for as purchases;
accordingly, the results of Empire and JRD have been included in the unaudited
consolidated financial statements from the respective dates of acquisition.
7
<PAGE> 8
E. 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. The calculation of basic and
diluted earnings per share for each of the periods ended September 30, is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
(in thousands, except per share amounts) 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $50,530 $105,587 $252,224 $307,134
======= ======== ======== ========
Average common shares outstanding 251,114 253,146 247,984 253,936
Dilutive effect of stock options 919 2,070 925 2,202
------- ------- ------- -------
Diluted common shares outstanding 252,033 255,216 248,909 256,138
======= ======= ======= =======
Earnings per share
Basic $0.20 $0.42 $1.02 $1.21
Diluted $0.20 $0.41 $1.01 $1.20
</TABLE>
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
F. Comprehensive Income
Comprehensive Income includes net income as well as certain items that
are reported directly within a separate component of stockholders' equity that
bypasses net income. Currently, Huntington's only component of Other
Comprehensive Income is the unrealized gains (losses) on securities available
for sale. The related before and after tax amounts are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
(in thousands) 2000 1999 2000 1999
------- -------- ------- --------
<S> <C> <C> <C> <C>
Unrealized holding (losses) gains arising during the period:
Unrealized net gains (losses) $49,143 $(27,576) $55,772 $(147,391)
Related tax (expense) benefit (17,407) 9,744 (19,767) 52,245
------- -------- ------- --------
Net 31,736 (17,832) 36,005 (95,146)
------- -------- ------- --------
Less: Reclassification adjustment for net gains
realized during the period:
Realized net gains 11,379 537 36,245 5,067
Related tax expense (3,983) (188) (12,686) (1,774)
------- -------- ------- --------
Net 7,396 349 23,559 3,293
------- -------- ------- --------
Total Other Comprehensive Income (Loss) $24,340 $(18,181) $12,446 $(98,439)
======= ======== ======= ========
</TABLE>
8
<PAGE> 9
G. Lines of Business
Listed below is certain financial information regarding Huntington's
2000 and 1999 results by line of business. For a detailed description of the
individual segments, refer to Huntington's Management's Discussion and Analysis.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales(1) Group Other Consolidated
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income (FTE) $134,771 $ 67,999 $ 50,200 $ 7,641 $(22,720) $237,891
Provision for Loan Losses 7,820 3,016 15,477 83 --- 26,396
Non-Interest income 66,222 14,559 3,234 15,401 22,236 121,652
Non-Interest expense 136,093 30,320 64,126 14,606 18,440 263,585
Income Taxes/FTE Adjustment 17,668 15,236 (10,600) 2,586 (5,858) 19,032
-------- -------- -------- -------- -------- --------
Net income $ 39,412 $ 33,986 $(15,569) $ 5,767 $(13,066) $ 50,530
======== ======== ======== ======== ======== ========
Depreciation and Amortization $ 7,330 $ 566 $ 254 $ 380 $ 20,319 $ 28,849
======== ======== ======== ======== ======== ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,158 $ 7,168 $ 6,489 $ 620 $ 7,263 $ 28,698
Average Deposits $ 16,526 $ 1,627 $ 80 $ 612 $ 937 $ 19,782
Capital Expenditures $ 5 $ --- $ --- $ --- $ 10 $ 15
</TABLE>
(1) Includes a $32.5 million, net of tax, special charge to write-down lease
residual values. Excluding the charge, net income was $16.9 million.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income (FTE) $145,486 $ 62,932 $ 52,035 $ 8,053 $ 2,205 $270,711
Provision for Loan Losses 9,323 1,844 10,234 675 --- 22,076
Non-Interest income 73,987 14,681 1,147 12,697 13,142 115,654
Non-Interest expense 134,753 30,954 12,560 12,546 15,376 206,189
Income Taxes/FTE Adjustment 25,043 14,885 10,093 2,501 (9) 52,513
-------- -------- -------- -------- -------- --------
Net income $ 50,354 $ 29,930 $ 20,295 $ 5,028 $ (20) $105,587
======== ======== ======== ======== ======== ========
Depreciation and Amortization $ 9,906 $ 692 $ 189 $ 333 $ 15,277 $ 26,397
======== ======== ======== ======== ======== ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,642 $ 6,810 $ 6,344 $ 593 $ 7,412 $ 28,801
Average Deposits $ 16,785 $ 977 $ 66 $ 618 $ 753 $ 19,199
Capital Expenditures $ 5 $ 1 $ --- $ --- $ 9 $ 15
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales(2) Group Other Consolidated
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income (FTE) $399,392 $193,992 $144,375 $ 23,365 $(45,505) $715,619
Provision for Loan Losses 15,968 7,108 34,310 545 --- 57,931
Non-Interest income 204,841 45,679 13,448 40,715 58,327 363,010
Non-Interest expense 410,453 86,120 88,907 38,774 37,513 661,767
Income Taxes/FTE Adjustment 57,039 46,940 6,719 7,937 (11,928) 106,707
-------- -------- -------- -------- -------- --------
Net income $120,773 $ 99,503 $ 27,887 $ 16,824 $(12,763) $252,224
======== ======== ======== ======== ======== ========
Depreciation and Amortization $ 25,500 $ 1,831 $ 716 $ 964 $ 56,042 $ 85,053
======== ======== ======== ======== ======== ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,982 $ 7,031 $ 6,767 $ 602 $ 7,360 $ 28,742
Average Deposits $ 16,440 $ 1,445 $ 75 $ 637 $ 1,152 $ 19,749
Capital Expenditures $ 20 $ 2 $ 3 $ --- 13 $ 38
</TABLE>
(2) Includes a $32.5 million, net of tax, special charge to write-down lease
residual values. Excluding the charge, net income was $60.4 million.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income (FTE) $424,146 $185,246 $142,595 $ 24,748 $ 19,539 $796,274
Provision for Loan Losses 30,400 6,048 30,894 1,065 --- 68,407
Non-Interest income 217,471 44,675 2,183 37,930 40,543 342,802
Non-Interest expense 403,554 88,906 36,528 35,158 46,287 610,433
Income Taxes/FTE Adjustment 69,088 44,906 25,733 8,803 4,572 153,102
-------- -------- -------- -------- -------- --------
Net income $138,575 $ 90,061 $ 51,623 $ 17,652 $ 9,223 $307,134
======== ======== ======== ======== ======== ========
Depreciation and Amortization $ 34,445 $ 1,980 $ 557 $ 1,061 $ 47,648 $ 85,691
======== ======== ======== ======== ======== ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,647 $ 6,689 $ 6,083 $ 588 $ 7,646 $ 28,653
Average Deposits $ 16,960 $ 955 $ 65 $ 615 $ 540 $ 19,135
Capital Expenditures $ 14 $ 3 $ --- $ --- $ 36 $ 53
</TABLE>
10
<PAGE> 11
H. Security Sales and Loan Securitizations
During the first nine months of 2000, Huntington realized net
security and securitization gains of $32.1 million, compared with $5.1 million
in the same period a year ago. Security sales netted gains of $36.2 million
and included sales of portions of Huntington's investment in S1 Corporation
common stock and other investments for gains of $63.5 million. Substantially
offsetting these gains, were losses of $27.3 million related to the strategic
sales of $810 million of lower yielding securities.
During the third quarter and first nine months of 2000, Huntington
securitized and sold $326 million and $1.4 billion of automobile loans,
respectively. No securitization gains or losses were realized during the third
quarter; however, $4.1 million of losses were recorded during the first half of
the year.
Huntington also securitized $450 million and $730 million of
residential mortgage loans during the third quarter and first nine months of
2000, respectively. Huntington initially retained all of the resulting
securities and accordingly, reclassified the securitized amount from loans to
securities available for sale.
11
<PAGE> 12
--------------------------------------------------------------------------------
FINANCIAL REVIEW
--------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
(in thousands of dollars) 2000 1999 1999
--------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Commercial (unearned income $1,728; $2,550; $2,919)(1) .. $ 6,494,013 $ 6,300,414 $ 6,103,070
Real Estate
Construction ........................................ 1,288,897 1,236,776 1,140,187
Commercial .......................................... 2,218,825 2,151,673 2,178,699
Consumer
Loans (unearned income $4,523; $5,974; $6,577)(1) ... 6,403,858 6,793,295 6,646,202
Leases (unearned income $503,369; $410,239; $364,406) 3,007,446 2,741,735 2,506,509
Residential Mortgage ................................ 915,113 1,444,544 1,434,353
----------- ----------- -----------
TOTAL LOANS ........................................ $20,328,152 $20,668,437 $20,009,020
=========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
DEPOSIT COMPOSITION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
(in thousands of dollars) 2000 1999 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing ............................... $ 3,169,099 $ 3,418,100 $ 3,446,335
Interest bearing ................................... 4,359,430 4,046,472 3,992,281
Savings deposits ........................................ 3,541,828 3,793,423 3,913,900
Certificates of deposit
Less than $100,000 ................................... 5,927,733 5,547,266 5,614,179
$100,000 or more ..................................... 917,412 932,662 933,765
----------- ----------- -----------
TOTAL CORE DEPOSITS ................................ 17,915,502 17,737,923 17,900,460
----------- ----------- -----------
Other domestic time deposits of $100,000 or more ........ 1,296,810 1,188,465 855,505
Foreign time deposits ................................... 320,854 866,215 485,843
----------- ----------- -----------
TOTAL DEPOSITS ..................................... $19,533,166 $19,792,603 $19,241,808
=========== =========== ===========
</TABLE>
(1) Balance at September 1999, excludes $25 million of business credit card and
$518 million of consumer credit card receivables, respectively, classified as
"held for sale".
12
<PAGE> 13
--------------------------------------------------------------------------------
FINANCIAL REVIEW
--------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- PERCENT --------------------- PERCENT
(in thousands of dollars) 2000 1999 CHANGE 2000 1999 CHANGE
------------------------------------------- -------- -------- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts ....... $ 39,722 $ 41,700 (4.7)% $121,479 $113,541 7.0%
Brokerage and insurance income ............ 15,564 14,620 6.5 44,793 38,703 15.7
Trust services ............................ 13,181 12,625 4.4 39,209 39,202 0.0
Electronic banking fees ................... 11,238 9,771 15.0 32,337 27,219 18.8
Bank Owned Life Insurance income .......... 9,786 9,390 4.2 28,458 28,170 1.0
Mortgage banking .......................... 9,412 14,282 (34.1) 26,049 47,464 (45.1)
Credit card fees .......................... 1,744 6,626 (73.7) 4,877 18,223 (73.2)
Other ..................................... 9,626 6,103 57.7 33,681 25,213 33.6
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
AND SECURITIZATION GAINS ............... 110,273 115,117 (4.2) 330,883 337,735 (2.0)
Securities and securitization gains ....... 11,379 537 N.M. 32,127 5,067 N.M.
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME ................. $121,652 $115,654 5.2% $363,010 $342,802 5.9%
======== ======== ======== ========
</TABLE>
--------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- PERCENT --------------------- PERCENT
(in thousands of dollars) 2000 1999 CHANGE 2000 1999 CHANGE
------------------------------------------- -------- -------- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel and related costs .............. $109,463 $104,730 4.5% $315,940 $319,247 (1.0)%
Net occupancy ............................ 19,520 16,799 16.2 57,268 44,279 29.3
Equipment ................................ 18,983 16,059 18.2 57,258 48,505 18.1
Outside data processing and other services 15,531 15,929 (2.5) 45,869 47,244 (2.9)
Amortization of intangible assets ........ 10,311 9,326 10.6 28,713 27,990 2.6
Marketing ................................ 8,557 9,049 (5.4) 24,292 22,864 6.3
Telecommunications ....................... 6,480 7,412 (12.6) 19,701 21,411 (8.0)
Printing and supplies .................... 4,849 5,254 (7.7) 14,422 14,744 (2.2)
Legal and other professional services .... 4,719 4,754 (0.7) 14,034 15,301 (8.3)
Franchise and other taxes ................ 2,841 3,598 (21.0) 7,914 11,966 (33.9)
Other .................................... 12,331 13,279 (7.1) 26,356 36,882 (28.5)
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL
CHARGE ................................. 213,585 206,189 3.6 611,767 610,433 0.2
Special charge ............................ 50,000 --- N.M. 50,000 --- N.M.
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ............... $263,585 $206,189 27.8% $661,767 $610,433 8.4%
======== ======== ======== ========
</TABLE>
N.M. -- Not Meaningful.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
INTRODUCTION
Huntington is a multi-state financial holding company headquartered in
Columbus, Ohio. Its subsidiaries are engaged in full-service commercial and
consumer banking, mortgage banking, lease financing, trust services, discount
brokerage services, underwriting credit life and disability insurance, issuing
commercial paper guaranteed by Huntington, and selling other insurance and
financial products and services. Huntington's subsidiaries operate domestically
in offices located in Ohio, Michigan, Florida, West Virginia, Indiana, and
Kentucky. Huntington has foreign offices in the Cayman Islands and Hong Kong.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis of financial condition and results
of operations contains forward-looking statements about Huntington, including
descriptions of products or services, plans or objectives of its management for
future operations, and forecasts of its revenues, earnings, or other measures of
economic performance. Forward-looking statements can be identified by the fact
that they do not relate strictly to historical or current facts.
By their nature, forward-looking statements are subject to risks and
uncertainties. A number of factors--many of which are beyond Huntington's
control--could cause actual conditions, events, or results to differ
significantly from those described in the forward-looking statements. These
factors include, but are not limited to, changes in business and economic
conditions; movements in interest rates; competitive pressures on product
pricing and services; success and timing of business strategies; successful
integration of acquired businesses; the nature, extent, and timing of
governmental actions and reforms; and extended disruption of vital
infrastructure.
Forward-looking statements speak only as of the date they are made.
Huntington does not update forward-looking statements to reflect circumstances
or events that occur after the date the forward-looking statements are made or
to reflect the occurrence of unanticipated events, such as further market
deterioration that adversely affects credit quality, vehicle lease residual
values, and/or other asset values.
The management of Huntington encourages readers of this Form 10-Q to
understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance. The following discussion and analysis of
the financial performance of Huntington for the third quarter of 2000 should be
read in conjunction with the financial statements, notes, and other information
contained in this document.
ACQUISITIONS
Huntington acquired Empire Banc Corporation (Empire), a $506 million one-bank
holding company headquartered in Traverse City, Michigan, on June 23, 2000.
Huntington reissued approximately 6.5 million shares of common stock, all of
which were purchased on the open market during the first quarter 2000, in
exchange for all of the common stock of Empire. Total loans and deposits
increased $395 million and $435 million, respectively, at the date of the
merger. Additionally, Huntington acquired J. Rolfe Davis Insurance Agency, Inc.
(JRD), headquartered in Maitland, Florida, on August 31, 2000. Huntington paid
$8.2 million in cash and issued approximately 695,000 shares of common stock
for all of the common stock of JRD. Both transactions were accounted for as
purchases; accordingly, the results of Empire and JRD
14
<PAGE> 15
have been included in the unaudited consolidated financial statements from the
respective dates of acquisition.
OVERVIEW
Huntington reported net income of $50.5 million, or $.20 per share, for
the third quarter and $252.2 million, or $1.01 per share, for the first nine
months of 2000. In the same periods last year, net income totaled $105.6
million, or $.41 per share, and $307.1 million, or $1.20 per share. The current
quarter results include a special charge of $32.5 million after-tax, or $.13 per
share, to write-down residual values associated with Huntington's $3.0 billion
vehicle lease portfolio. Excluding the special charge, earnings per share for
the third quarter and first nine months of 2000 were $.33 and $1.14,
respectively. On this same basis, Huntington's return on average assets (ROA)
was 1.15% and 1.32% in the recent three and nine-month periods and its return on
average equity (ROE) was 14.04% and 16.87%.
Huntington's "cash basis" earnings per share (which excludes the effect
of amortization of goodwill and other intangibles as well as the special lease
charge) was $.36 for the quarter just ended, compared with $.44 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, were 1.30% and 22.74% for the third quarter of 2000, respectively. For
the first nine months of the year, cash basis ROA and ROE were 1.46% and 26.28%,
respectively.
Total assets at September 30, 2000, were $28.6 billion, down from $29.0
billion at year-end. The reduction is indicative of a balance sheet
repositioning program undertaken in 2000 that included automobile loan
securitizations totaling $1.3 billion and the sale of approximately $810
million of lower-yielding securities from Huntington's investment portfolio.
These transactions reduced Huntington's reliance on wholesale funding sources
and mitigated the impact of future interest rate increases on its earnings.
Managed total loans, which include securitized loans, increased at an
annualized rate of 9% versus the second quarter of this year and 10% over the
third quarter 1999, after adjusting for the impact of the Empire acquisition and
the fourth quarter 1999 sale of Huntington's credit card portfolio. Managed
consumer loans grew 22% on a linked-quarter annualized basis driven by
automobile financing and home equity lending, each of which grew 22%. Commercial
loans declined from the previous quarter, but were up 4% from a year ago.
Core deposits totaled $18.2 billion during the third quarter of 2000.
Adjusting for Empire, average core deposits were relatively unchanged compared
with both the immediately preceding quarter and the third quarter of last year.
Customer demand for the new Premier deposit accounts, which are variable rate
accounts designed to attract larger deposit relationships, has been strong, with
$2.0 billion in balances at the end of the recent quarter. In addition,
Huntington further refined its deposit product offerings in the third quarter by
adding free checking and introducing money manager relationship products, which
reward customers with tailored deposit pricing, product options, and fee waivers
based on the customer's total banking and investment relationship with
Huntington.
Short and medium-term borrowings were below the December 31, 1999
levels, due to the aforementioned balance sheet repositioning. Long-term debt
increased over the same period as Huntington issued $150 million of regulatory
capital qualifying subordinated notes in the first quarter through its bank
subsidiary.
15
<PAGE> 16
LINES OF BUSINESS
Retail Banking, Corporate Banking, Dealer Sales, and the Private
Financial Group are the company's major business lines. A fifth segment includes
the impact of Huntington's Treasury function and other unallocated assets,
liabilities, revenue, and expense. 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. This 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. Below is a brief description of each
line of business and a discussion of the business segment results, which can be
found in Note G to the unaudited consolidated financial statements.
RETAIL BANKING
--------------
Retail Banking provides products and services to retail and business
banking customers. This business unit's products include home equity loans,
first mortgage loans, installment loans, small business loans, deposit products,
as well as investment and insurance services. These products and services are
offered through Huntington's traditional banking network, in-store branches,
Direct Bank, and Web Bank.
Retail Banking net income was $39.4 million and $120.8 million for the
third quarter and the first nine months of 2000, respectively. Results for last
year include the impact of the fourth quarter 1999 sale of Huntington's credit
card portfolio as well as $2.5 million of gains on branch sales in the second
quarter of 1999. Net interest income for the recent quarter, on a fully tax
equivalent basis, remained relatively unchanged compared with the second quarter
of this year and the same period a year ago. The provision for loan losses
increased $3.9 million from the immediately preceding quarter principally due to
significant loan growth. Non-interest income, as adjusted for the special items
in 1999, was relatively unchanged from a year ago as significantly lower
mortgage banking income offset growth in retail investment sales, service charge
income, and electronic banking fees. Non-interest expenses increased 3% compared
with both the quarterly and year-to-date periods last year reflecting
investments in personnel and technology to support Huntington's revenue growth
initiatives. Retail Banking contributed 47% of Huntington's net income for the
quarter and comprised 32% of the organization's loan and lease portfolio. The
net income contribution figure is based on Huntington's performance before the
special charge discussed later in the section (hereafter defined as "adjusted
net income").
CORPORATE BANKING
-----------------
Customers in this segment represent the middle-market and large
corporate banking relationships which use a variety of banking products and
services including, but not limited to, commercial loans, asset based financing,
international trade, and cash management. Huntington's capital markets division
also provides alternative financing solutions for larger business clients,
including privately placed debt, syndicated commercial lending, and the sale of
interest rate protection products.
Corporate Banking's net interest income was up in the quarter driven by
loan growth. Non-interest expense was slightly below last year's levels on both
a quarterly and year-to-date basis as cost containment continues to be strong.
16
<PAGE> 17
This segment contributed 41% of Huntington's adjusted net income for the
quarter and comprised 34% of the organization's loan and lease portfolio.
DEALER SALES
------------
Dealer Sales product offerings pertain to the automobile lending sector
and include floor plan financing, as well as indirect consumer loans and leases.
The consumer activities comprise the vast majority of the business and involve
the financing of vehicles purchased or leased by individuals through
dealerships.
Dealer Sales' results reflect the impact of the $32.5 million after-tax
charge recorded during the third quarter to write-down vehicle lease residual
values. Excluding the charge, net income was $16.9 million for the recent
quarter and $60.4 million for the first nine months of the year versus $20.3
million and $51.6 million in the same periods of 1999. Non-interest income for
the first nine months of 2000 includes gains of $6.1 million on loan
securitizations completed during the first half of the year; no securitization
gains were recorded during the third quarter. Higher net charge-offs resulted in
increases in the provision for loan losses for the three and nine month periods
compared with the prior year. This business line constituted 20% of Huntington's
adjusted net income for the quarter and 31% of its outstanding loans and leases
at the end of the period.
PRIVATE FINANCIAL GROUP
-----------------------
Huntington's Private Financial Group (PFG) provides an array of
products and services designed to meet the needs of Huntington's higher wealth
banking customers. Revenue is derived through the sale of personal trust, asset
management, investment advisory, insurance, and deposit and loan products and
services. PFG provides customers with "one-stop shopping" for all their
financial needs.
The Private Financial Group reported net income of $5.8 million for the
quarter just ended, and $16.8 million for the first nine months. The increase in
the quarterly results is due to a 21% increase in non-interest income from
higher trust and insurance revenue. The increase in expenses for the same period
is primarily due to an increase in sales commissions related to the revenue
growth. This segment represented 7% of Huntington's adjusted net income and 3%
of total loans and leases.
TREASURY / OTHER
----------------
Huntington uses a match-funded transfer pricing system to allocate
interest income and interest expense to its business segments. This approach
consolidates the interest rate risk management of Huntington into its Treasury
Group. As part of its overall interest rate risk and liquidity management
strategy, the Treasury Group administers an investment portfolio of
approximately $4.7 billion. Revenue and expense associated with these activities
remain within the Treasury Group. Additionally, the Treasury/Other segment
absorbs unassigned assets, liabilities, equity, revenue, and expense that cannot
be directly assigned or allocated to one of Huntington's lines of business.
Amortization expense of intangible assets is also a significant component of
Treasury/Other.
This segment's results were a net loss of $13.7 million and $13.4
million in the recent quarter and nine months. The declines from last year were
attributable to higher interest rates and the balance sheet repositioning
strategy noted earlier. As more fully discussed later, net interest income at
risk is now being managed to a lower level, consistent with Huntington's goal of
a more stable revenue base.
17
<PAGE> 18
RESULTS OF OPERATIONS
For comparative purposes versus prior periods, all growth amounts and
rates in this section exclude the current period's special lease charge and are
adjusted for the impact of acquisitions, securitization activities, and the
fourth quarter 1999 credit card sale.
NET INTEREST INCOME
-------------------
Net interest income for the three and nine months ended September 30,
2000, was $235.9 million and $709.4 million, respectively, down $20.9 million,
or 8% compared with the same quarter last year and 7% on a year-to-date basis.
As discussed previously, rising interest rates and a substantial repositioning
of the balance sheet contributed to this decline. Compared with the immediately
preceding quarter, net interest income increased $4.1 million, or 7% annualized,
indicative of solid loan growth and improved core funding. The net interest
margin increased two basis points to 3.74% during the third quarter following
three consecutive quarters of decline.
PROVISION FOR LOAN LOSSES
-------------------------
The provision for loan losses is the charge to pre-tax earnings that
management estimates to be necessary to maintain the allowance for loan losses
at a level adequate to absorb inherent losses in the loan and lease portfolios.
The provision for loan losses was $26.4 million for the third quarter, up from
$22.1 million in the same period of 1999 primarily due to increased net
charge-offs. On a managed basis, annualized net charge-offs for the current
quarter increased to .45% from .39% for the third quarter of 1999. On a
year-to-date basis, the provision for loan losses was $57.9 million, down $10.5
million from last year. This decline reflects the lower level of charge-offs in
2000, as losses were .37% in the first nine months of the year versus .43% in
the same period last year.
NON-INTEREST INCOME
-------------------
Non-interest income, excluding securities and securitization gains, was
$110.3 million for the recent three months and $330.9 million for the first nine
months of the year. The quarterly total represents a 4% decline from last year
primarily due to a reduction in mortgage banking revenues in the prevailing
higher interest rate environment. Excluding mortgage banking, quarterly
non-interest income increased 3% from last year. Categories showing quarterly
growth were led by electronic banking income, which was up 15% as a result of
higher customer usage of Huntington's check card product, deposit account
growth, and expansion of Huntington's ATM network. Insurance income, another
area of particular focus for growth, was up 13%.
During the first nine months of 2000, Huntington realized security and
securitization gains of $32.1 million, compared with $5.1 million in the same
period a year ago. Sales of a portion of Huntington's investment in S1
Corporation common stock and other investment sales generated gains of $63.5
million in the current year. Substantially offsetting these gains, were losses
of $27.3 million related to the previously mentioned strategic sale of
lower-yielding investment securities. Huntington's auto securitization program
netted a $4.1 million loss for the first nine months of 2000. A $10.2 million
loss was recorded on the first-quarter transaction as Huntington securitized
lower-coupon loans as part of the previously discussed balance sheet
18
<PAGE> 19
repositioning. Gains totaling $6.1 million were realized on subsequent
securitization transactions.
NON-INTEREST EXPENSE
--------------------
Non-interest expense totaled $213.6 million in the third quarter, an
adjusted increase of 2% compared with the same period last year. For the first
nine months of 2000, non-interest expense remained relatively unchanged from
last year. Higher facility and equipment costs related to the new operations
center opened in the fall of 1999 and other expansion-related activities were
the primary drivers of quarterly expense growth. Additionally, Huntington has
made and will continue to make, investments in personnel and technology to
support its commitment to growing revenue, resulting in some increase in
expenses. However, during this process Huntington expects to maintain the
improved cost discipline that has developed within the organization in the past
year.
VEHICLE LEASE WRITE-DOWN
------------------------
During the third quarter, Huntington recorded a special charge of $50.0
million ($32.5 million after-tax) to write-down residual values related to its
$3.0 billion vehicle lease portfolio. Including this charge, the lease portfolio
has been written-down $108 million. Of this total, $79 million remained
available at September 30, 2000, to cover estimated losses inherent in the
portfolio. Based on management's projections, this $79 million will cover 100%
of the impairment losses in the portfolio given current market conditions.
Additionally, Huntington has taken actions, including no longer capitalizing the
value of customer-added options, that are expected to mitigate residual value
exposure on new business.
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
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, 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
gradual and directional shift in interest rates. The income simulation model
used by Huntington captures all assets, liabilities, and off-balance sheet
financial instruments, accounting for significant variables that are believed to
be affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, cash flows of loans and deposits, principal
amortization on revolving credit instruments, and balance sheet growth
assumptions. The model also captures embedded options, e.g. interest rate
caps/floors or call options, and accounts for changes in rate relationships, as
various rate indices
19
<PAGE> 20
lead or lag changes in market rates. While these assumptions are inherently
uncertain, management assigns probabilities and, therefore, believes at any
point in time that the model provides a reasonably accurate estimate of
Huntington's interest rate risk exposure. Management reporting of this
information is regularly shared with the Board of Directors.
At September 30, 2000, the results of Huntington's sensitivity analysis
indicated that net interest income would be expected to decline by approximately
1.4% if rates rose 100 basis points and would drop an estimated 2.9% in the
event of a gradual 200 basis point increase. If rates declined 100 and 200 basis
points, Huntington would benefit 1.4% and 2.6%, respectively. The sensitivity of
net interest income to changes in interest rates increased versus the second
quarter due to a change in the treatment of retained interests in securitized
loans dictated by a new accounting standard. The new rules require the impact of
changing rates on the retained interest to be included in net interest income
versus the prior treatment, which included the impact in non-interest income.
The change in reported sensitivity is not an incremental exposure to changing
interest rates. Huntington's recent analysis continues to show a meaningful
reduction in sensitivity to rising interest rates compared with year-end 1999,
in which the risk to a 200 basis point increase was 4.7%. This reflects the
balance sheet repositioning efforts as well as the impact of $2.7 billion
(notional value) of derivative contacts entered into in the first quarter of
this year. These consisted of pay-fixed interest rate swap contracts and
purchased interest rate caps.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk that is created by different indices on products, by unequal terms to
maturity of assets and liabilities, and by products that are appealing to
customers but incompatible with current risk limits can be eliminated or
decreased in a cost efficient manner by utilizing interest rate swaps. 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 are often preferable to similar cash
instruments because, though performing identically, they require less capital
while preserving access to the marketplace.
The following table illustrates the approximate market values,
estimated maturities, and weighted average rates of the interest rate swaps used
by Huntington in its interest rate risk management program at September 30,
2000.
<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
Receive fixed $1,500 2.1 $ (14.1) 6.07% 6.70%
Pay fixed 200 0.9 0.6 6.69% 6.31%
------ -------
Total Asset Conversion Swaps 1,700 1.9 (13.5) 6.14% 6.65%
------ -------
LIABILITY CONVERSION SWAPS
Receive fixed 1,550 4.9 (14.5) 6.59% 6.82%
Pay fixed 3,285 0.8 (2.2) 6.75% 6.72%
------ -------
Total Liability Conversion Swaps 4,835 2.1 (16.7) 6.70% 6.75%
------ -------
BASIS PROTECTION SWAPS 600 0.2 (0.1) 6.69% 6.64%
------ -------
TOTAL SWAP PORTFOLIO $7,135 1.9 $ (30.3) 6.57% 6.72%
====== =======
</TABLE>
As is the case with cash securities, the market value of interest rate
swaps is largely a function of the financial market's expectations regarding the
future direction of interest rates.
20
<PAGE> 21
Accordingly, current market values are not necessarily indicative of the future
impact of the swaps on net interest income. This will depend, in large part, on
the shape of the yield curve as well as interest rate levels. With respect to
the variable rate information presented in the table above, management made no
assumptions regarding future changes in interest rates.
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 with notional values of $495 million have embedded
written LIBOR-based call options. 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 contractual amount of interest payments to be exchanged is based on
the notional values of the swap portfolio. These notional values do not
represent direct credit exposures. At September 30, 2000, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$64.4 million, which represents the sum of the aggregate fair value of positions
that have become favorable to Huntington, including any accrued interest
receivable due from counterparties. In order to minimize the risk that a swap
counterparty will not satisfy its interest payment obligation under the terms of
the contract, Huntington performs credit reviews on all counterparties,
restricts the number of counterparties used to a select group of high quality
institutions, obtains collateral, and enters into formal netting arrangements.
Huntington has never experienced any past due amounts from a swap counterparty
and does not anticipate nonperformance in the future by any such counterparties.
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $1.1 billion at September 30, 2000. The
credit exposure from these contracts is not material. Furthermore, 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.
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. Generally,
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 be sold at a future date.
Total non-performing assets were $88.5 million at September 30, 2000,
down $4.8 million from September 30, 1999. As of the same dates, non-performing
loans represented .38% and .39% of total loans, while non-performing assets as a
percent of total loans and other real estate
21
<PAGE> 22
improved to .44% from .47% one year ago. Loans past due ninety days or more but
continuing to accrue interest increased to $80.3 million at September 30, 2000
versus $64.8 million last year.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of losses inherent in the loan
portfolio. The procedures employed by Huntington to evaluate the adequacy of the
ALL include an analysis of specific credits and the application of relevant
reserve factors that represent relative risk (based on portfolio trends, current
and historic loss experience, and prevailing economic conditions) to specific
portfolio segments. Specific reserves are established on larger, impaired
commercial and industrial and commercial real estate credits and are based on
discounted cash flow models using the loan's initial effective rate or the fair
value of the collateral for collateral-dependent loans. Allocated reserves
include management's assessment of portfolio performance, internal controls,
impacts from mergers and acquisitions, and other pertinent risk factors. For
analytical purposes, the ALL has been allocated to various portfolio segments.
However, the total ALL, less the portion attributable to reserves as prescribed
under provisions of SFAS No. 114, is available to absorb losses from any segment
of the portfolio. Unallocated reserves are based on levels of
criticized/classified assets, delinquencies in the accruing loan portfolios, and
the level of nonperforming loans. Total unallocated reserves were 15% at
September 30, 2000, versus 10% one year ago.
The ALL reserve ratio was 1.45% at the recent quarter end compared with
1.48% at the end of the third quarter last year. As of September 30, 2000, the
ALL covered non-performing loans approximately 3.8 times and when combined with
the allowance for other real estate owned, was 327% of total nonperforming
assets.
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. Capital is managed at each subsidiary based upon
the respective risks and growth opportunities, as well as regulatory
requirements. Huntington's average equity to average assets increased to 8.20%
in the recent quarter from 7.63% in the same three months of last year.
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, loan commitments, and securitizations.
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 7.20%,
total risk-based capital ratio was 10.64%, and the leverage ratio was 6.80%.
Huntington's bank subsidiary also had regulatory capital ratios in excess of the
levels established for well-capitalized institutions.
During the second quarter, Huntington's Board of Directors authorized
the purchase of an additional 11 million shares under Huntington's common stock
repurchase program. The shares will be repurchased in the open market and in
privately negotiated transactions. Repurchased shares are being reserved for
reissue in connection with Huntington's dividend reinvestment and employee
benefit plans as well as for stock dividends, acquisitions, and other corporate
purposes. During the first nine months of 2000, Huntington repurchased
approximately 8.8 million shares of its common stock through open market and
privately negotiated transactions. Approximately 7.2 million of these shares
were reissued in connection with the acquisitions of Empire and JRD. As of
September 30, 2000, approximately 15.3 million shares remained available under
the authorization. Huntington has not repurchased any shares since September 30,
2000 as management
22
<PAGE> 23
is currently reviewing its capital management strategy, including future share
repurchases.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures for the current period are
found on pages 19 through 21 of this report, which includes changes in market
risk exposures from disclosures presented in Huntington's Annual Report on Form
10-K for the year ended December 31, 1999.
23
<PAGE> 24
--------------------------------------------------------------------------------
FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------
AMORTIZED Amortized
COST FAIR VALUE Cost Fair Value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year ................. $ --- $ --- $ 801 $ 801
1-5 years .................... 2,008 2,070 51,371 49,328
6-10 years ................... 86,719 82,744 476,055 446,512
Over 10 years ................ 413 422 --- ---
---------- ---------- ---------- ----------
Total ..................... 89,140 85,236 528,227 496,641
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ................. 136 135 --- ---
1-5 years .................... --- --- 4 4
6-10 years ................... 23,921 23,754 27,360 26,992
Over 10 years ................ 1,749,205 1,708,638 1,638,047 1,574,336
---------- ---------- ---------- ----------
Total ..................... 1,773,262 1,732,527 1,665,411 1,601,332
---------- ---------- ---------- ----------
Other agencies
1-5 years .................... 1,116,185 1,082,941 789,008 760,251
6-10 years ................... 236,131 227,925 498,790 469,696
Over 10 years ................ 789,110 767,636 868,124 837,422
---------- ---------- ---------- ----------
Total ..................... 2,141,426 2,078,502 2,155,922 2,067,369
---------- ---------- ---------- ----------
Other
Under 1 year ................. 22,015 21,965 20,805 20,832
1-5 years .................... 79,659 80,141 253,363 251,862
6-10 years ................... 75,793 74,057 130,486 125,951
Over 10 years ................ 584,390 560,536 251,333 239,975
Marketable equity securities . 56,897 63,277 10,524 66,241
---------- ---------- ---------- ----------
Total ..................... 818,754 799,976 666,511 704,861
---------- ---------- ---------- ----------
Total Securities Available for Sale $4,822,582 $4,696,241 $5,016,071 $4,870,203
========== ========== ========== ==========
</TABLE>
24
<PAGE> 25
--------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
-------------------------------------------------- -------- --------- --------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change
-------------------------------------------------- -------- --------- ---------
<S> <C> <C> <C>
NET INCOME(1) .................................... $ 83,030 $ 105,587 (21.4)%
PER COMMON SHARE AMOUNTS(2)
Net income
Basic .................................. $ 0.33 $ 0.42 (21.4)
Diluted ................................ $ 0.33 $ 0.41 (19.5)
Cash dividends declared ..................... $ 0.20 $ 0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING-DILUTED(2) ..... 252,033 255,216 (1.2)
KEY RATIOS
Return on:
Average total assets ........................ 1.15% 1.45% (20.7)
Average shareholders' equity ................ 14.04% 19.07% (26.4)
Efficiency ratio ................................. 58.38% 51.02% 14.4
Average equity/average assets .................... 8.20% 7.63% 7.5
Net interest margin .............................. 3.74% 4.22% (11.4)
TANGIBLE OR "CASH BASIS" RATIOS(3)
Net Income Per Common Share -- Diluted(2) ........ $ 0.36 $ 0.44 (18.2)
Return on:
Average total assets ........................ 1.30% 1.59% (18.2)
Average shareholders' equity ................ 22.74% 29.54% (23.0)
-------------------------------------------------- -------- --------- --------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change
-------------------------------------------------- -------- --------- --------
NET INCOME(1) .................................... $ 284,724 $ 307,134 (7.3)%
PER COMMON SHARE AMOUNTS(2)
Net income
Basic .................................. $ 1.15 $ 1.21 (5.0)
Diluted ................................ $ 1.14 $ 1.20 (5.0)
Cash dividends declared ..................... $ 0.56 $ 0.50 12.0
AVERAGE COMMON SHARES OUTSTANDING-DILUTED(2) ..... 248,909 256,138 (2.8)
KEY RATIOS
Return on:
Average total assets ........................ 1.32% 1.43% (7.7)
Average shareholders' equity ................ 16.87% 19.01% (11.3)
Efficiency ratio ................................. 55.71% 51.36% 8.5
Average equity/average assets .................... 7.84% 7.54% 4.1
Net interest margin .............................. 3.74% 4.18% (10.5)
TANGIBLE OR "CASH BASIS" RATIOS(3)
Net Income Per Common Share -- Diluted(2) ........ $ 1.24 $ 1.29 (3.9)
Return on:
Average total assets ........................ 1.46% 1.57% (7.0)
Average shareholders' equity ................ 26.28% 29.90% (12.1)
</TABLE>
(1) Presented on an "operating basis" (excludes 3Q 2000 special charge, net of
related taxes).
(2) Adjusted for the ten percent stock dividend distributed July 2000.
(3) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles and the special lease charge. Related asset amounts are
excluded from total assets and shareholders' equity.
25
<PAGE> 26
FINANCIAL REVIEW
--------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
(in thousands of dollars) 2000 1999 2000 1999
----------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 296,891 $ 293,274 $ 299,309 $ 290,948
Allowance acquired ............................ --- --- 7,900 ---
Loan losses ................................... (29,499) (27,782) (77,916) (87,436)
Recoveries of loans previously charged off .... 5,705 8,044 20,325 23,693
Allowance of securitized loans ................ (4,807) --- (12,863) ---
Provision for loan losses ..................... 26,396 22,076 57,931 68,407
--------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD ....... $ 294,686 $ 295,612 $ 294,686 $ 295,612
========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ................. 0.46% 0.39% 0.37% 0.43%
Provision for loan losses--annualized ....... 0.51% 0.43% 0.37% 0.46%
Allowance for loan losses as a % of total loans 1.45% 1.48% 1.45% 1.48%
Net loan loss coverage(1) ..................... 6.05X 9.01x 8.00X 8.18x
</TABLE>
(1) Income before taxes (excluding 3Q 2000 special charge) and the provision for
loan losses to net loan losses.
--------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------- -------------------------
2000 1999
------------------------------------------- -------------------------
(in thousands of dollars) III Q II Q I Q IV Q III Q
------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial ............................. $44,918 $45,138 $44,404 $42,958 $41,374
Real Estate
Construction ........................ 7,973 8,736 7,696 10,785 6,154
Commercial .......................... 13,722 12,714 13,991 16,131 15,751
Residential Mortgage ................... 8,588 11,548 10,892 11,866 13,094
------- ------- ------- ------- -------
Total Nonaccrual Loans ........... 75,201 78,136 76,983 81,740 76,373
Renegotiated loans ........................ 1,311 1,317 1,324 1,330 1,877
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS ................ 76,512 79,453 78,307 83,070 78,250
Other real estate, net .................... 11,982 15,670 13,904 15,171 15,072
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS ............... $88,494 $95,123 $92,211 $98,241 $93,322
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ........................ 0.38% 0.39% 0.38% 0.40% 0.39%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE... 0.44% 0.46% 0.45% 0.47% 0.47%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS .................... 385.15% 373.67% 378.95% 360.31% 377.78%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS... 326.77% 306.89% 316.30% 299.85% 315.82%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE.... $80,290 $62,775 $60,156 $61,287 $64,788
======= ======= ======= ======= =======
</TABLE>
26
<PAGE> 27
--------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
---------------------- --------------------
Fully Tax Equivalent Basis(1) 3RD QUARTER 2000 2ND QUARTER 2000
---------------------- --------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
------------------------------------------------------------------------- BALANCE RATE BALANCE RATE
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks ...................................... $ 5 6.13% $ 6 5.13%
Trading account securities .............................................. 11 6.54 18 8.67
Federal funds sold and securities purchased under resale agreements ..... 136 6.43 105 6.10
Mortgages held for sale ................................................. 99 8.51 99 8.11
Securities:
Taxable ........................................................... 4,273 6.33 4,067 6.20
Tax exempt ........................................................ 270 7.57 276 7.63
------- -------
Total Securities ............................................. 4,543 6.40 4,343 6.29
------- -------
Loans:
Commercial ......................................................... 6,454 8.74 6,439 8.65
Real Estate
Construction .................................................. 1,283 8.88 1,254 8.72
Commercial .................................................... 2,193 8.60 2,172 8.51
Consumer
Loans ........................................................ 6,392 8.82 6,530 8.38
Leases ....................................................... 2,976 6.79 2,895 6.71
Residential Mortgage ......................................... 1,325 7.64 1,473 7.62
------- -------
Total Consumer.................. ............................. 10,693 8.11 10,898 7.83
------- -------
Total Loans ............................................................. 20,623 8.41 20,763 8.21
------- -------
Allowance for loan losses ............................................... 302 302
------- -------
Net loans(2) ............................................................ 20,321 8.90 20,461 8.69
------- -------
Total earning assets .................................................... 25,417 8.43% 25,334 8.27%
------- -------
Cash and due from banks ................................................. 968 1,046
All other assets ........................................................ 2,615 2,496
------- -------
Total Assets ............................................................ $28,698 $28,574
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits ...................................... $ 3,425 $ 3,485
Interest bearing demand deposits ................................... 4,385 3.47% 4,228 3.32%
Savings deposits ................................................... 3,528 4.14 3,583 4.21
Certificates of deposit ............................................ 6,826 5.87 6,520 5.57
------- -------
Total core deposits ........................................... 18,164 4.74 17,816 4.57
------- -------
Other domestic time deposits of $100,000 or more ........................ 1,057 6.63 1,233 6.24
Foreign time deposits ................................................... 561 6.63 626 6.66
------- -------
Total deposits ..................................................... 19,782 4.93 19,675 4.78
------- -------
Short-term borrowings ................................................... 2,014 6.12 1,761 5.77
Medium-term notes........................... ............................ 2,592 6.81 3,042 6.46
Subordinated notes and other long-term debt,
including preferred capital securities ............................... 1,171 7.39 1,148 7.08
------- -------
Interest bearing liabilities ....................................... 22,134 5.39% 22,141 5.21%
------- -------
All other liabilities ................................................... 787 743
Shareholders' equity .................................................... 2,352 2,205
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $28,698 $28,574
======= =======
Net interest rate spread ................................................ 3.04% 3.06%
Impact of non-interest bearing funds on margin .......................... 0.70% 0.66%
NET INTEREST MARGIN ..................................................... 3.74% 3.72%
-------------------------------------------------------------------------
</TABLE>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
(2) Net loan rate includes loan fees, whereas individual loan components above
are shown exclusive of fees.
27
<PAGE> 28
-----------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
------------------ ------------------- ---------------------
1ST QUARTER 2000 4th Quarter 1999 3rd Quarter 1999
------------------ ------------------- ---------------------
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
$ 6 3.69% $ 13 3.94% $ 8 3.64%
14 6.26 14 6.35 7 5.64
23 6.11 31 6.10 20 5.39
109 7.59 135 7.45 169 7.27
4,515 6.14 4,854 6.15 4,846 6.14
282 7.68 288 7.73 295 7.76
-------- -------- --------
4,797 6.23 5,142 6.23 5,141 6.24
-------- -------- --------
6,345 8.31 6,194 8.06 6,066 7.90
1,238 8.38 1,182 8.19 1,103 8.13
2,156 8.35 2,185 8.18 2,215 8.14
6,837 8.29 6,876 8.27 7,093 8.29
2,773 6.65 2,633 6.55 2,365 6.75
1,449 7.54 1,443 7.45 1,421 7.47
-------- -------- --------
11,059 7.78 10,952 7.75 10,879 7.85
-------- -------- --------
20,798 8.04 20,513 7.91 20,263 7.91
-------- -------- --------
306 309 301
-------- -------- --------
20,492 8.52 20,204 8.43 19,962 8.54
-------- -------- --------
25,747 8.08% 25,848 7.98% 25,608 8.07%
-------- -------- --------
1,058 1,024 1,026
2,454 2,434 2,468
-------- -------- --------
$28,953 $ 28,997 $ 28,801
======== ======== ========
$ 3,466 $ 3,460 $ 3,509
4,053 2.97% 4,077 2.76% 4,139 2.66%
3,645 3.80 3,768 3.61 3,792 3.43
6,533 5.38 6,572 5.18 6,496 5.05
-------- -------- --------
17,697 4.29 17,877 4.09 17,936 3.94
-------- -------- --------
1,445 6.03 1,029 5.85 798 5.08
649 5.65 517 5.40 465 5.17
-------- -------- --------
19,791 4.50 19,423 4.24 19,199 4.03
-------- -------- --------
1,954 5.10 2,226 4.74 2,331 4.54
3,283 6.18 3,347 5.88 3,415 5.44
1,004 6.82 1,000 6.51 1,001 6.03
-------- -------- --------
22,566 4.90% 22,536 4.64% 22,437 4.39%
-------- -------- --------
715 893 658
2,206 2,108 2,197
-------- -------- --------
$28,953 $ 28,997 $ 28,801
======== ======== ========
3.18% 3.34% 3.68%
0.60% 0.60% 0.54%
3.78% 3.94% 4.22%
</TABLE>
28
<PAGE> 29
--------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
---------------------------------- ---------------------
2000 1999
---------------------------------- ---------------------
(in thousands of dollars, except per share amounts) III Q II Q I Q IV Q III Q
-------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ...................... $535,791 $519,496 $515,557 $515,516 $516,294
TOTAL INTEREST EXPENSE ..................... 299,922 286,690 274,866 262,854 247,863
-------- -------- -------- -------- --------
NET INTEREST INCOME ........................ 235,869 232,806 240,691 252,662 268,431
Provision for loan losses .................. 26,396 15,834 15,701 20,040 22,076
NET INTEREST INCOME AFTER -------- -------- -------- -------- --------
PROVISION FOR LOAN LOSSES ................ 209,473 216,972 224,990 232,622 246,355
-------- -------- -------- -------- --------
Service charges on deposit accounts ........ 39,722 40,097 41,660 42,774 41,700
Brokerage and insurance income ............. 15,564 13,945 15,284 13,373 14,620
Trust services ............................. 13,181 13,165 12,863 12,828 12,625
Electronic banking fees .................... 11,238 11,250 9,849 10,082 9,771
Bank Owned Life Insurance income ........... 9,786 9,486 9,186 9,390 9,390
Mortgage banking ........................... 9,412 8,122 8,515 9,426 14,282
Credit card fees ........................... 1,744 1,340 1,793 5,091 6,626
Other ...................................... 9,626 12,066 11,989 11,374 6,103
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
AND SECURITIZATION GAINS .............. 110,273 109,471 111,139 114,338 115,117
-------- -------- -------- -------- --------
Securities and securitization gains ........ 11,379 6,193 14,555 7,905 537
Gains on sale of credit card portfolios .... -- -- -- 108,530 --
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME .................. 121,652 115,664 125,694 230,773 115,654
-------- -------- -------- -------- --------
Personnel and related costs ................ 109,463 104,133 102,344 100,654 104,730
Net occupancy .............................. 19,520 18,613 19,135 17,890 16,799
Equipment .................................. 18,983 18,863 19,412 18,161 16,059
Outside data processing and other services . 15,531 15,336 15,002 15,642 15,929
Amortization of intangible assets .......... 10,311 9,206 9,196 9,307 9,326
Marketing .................................. 8,557 7,742 7,993 9,642 9,049
Telecommunications ......................... 6,480 6,472 6,749 7,108 7,412
Printing and supplies ...................... 4,849 4,956 4,617 5,483 5,254
Legal and other professional services ...... 4,719 4,815 4,500 5,868 4,754
Franchise and other taxes .................. 2,841 2,635 2,438 2,708 3,598
Other ...................................... 12,331 5,305 8,720 12,432 13,279
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL
CHARGES ................................. 213,585 198,076 200,106 204,895 206,189
-------- -------- -------- -------- --------
Special charges ............................ 50,000 -- -- 96,791 --
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ................. 263,585 198,076 200,106 301,686 206,189
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ................. 67,540 134,560 150,578 161,709 155,820
Provision for income taxes ................. 17,010 37,039 46,405 46,769 50,233
-------- -------- -------- -------- --------
NET INCOME ................................. $ 50,530 $ 97,521 $104,173 $114,940 $105,587
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Diluted ............................... $ 0.20 $ 0.40 $ 0.42 $ 0.45 $ 0.41
Diluted - Cash Basis .................. $ 0.23 $ 0.43 $ 0.45 $ 0.48 $ 0.44
Cash Dividends Declared ................... $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ........................ $235,869 $232,806 $240,691 $252,662 $268,431
Tax Equivalent Adjustment (2) .............. 2,022 2,074 2,157 2,249 2,280
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income ......... $237,891 $234,880 $242,848 $254,911 $270,711
======== ======== ======== ======== ========
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 2000.
(2) Calculated assuming a 35% tax rate.
29
<PAGE> 30
--------------------------------------------------------------------------------
STOCK SUMMARY, KEY RATIOS AND STATISTICS, AND REGULATORY CAPITAL DATA
--------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY(1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------- ---------------------------
2000 1999
-------------------------------------- ---------------------------
III Q II Q I Q IV Q III Q
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High ................................................. $18 3/4 $20 13/16 $21 13/16 $27 15/16 $30 13/16
Low .................................................. 14 11/16 14 3/8 16 1/8 19 1/2 22 7/16
Close ................................................ 14 11/16 14 3/8 20 5/16 21 11/16 24 1/8
Cash dividends declared .............................. $0.20 $0.18 $0.18 $ 0.18 $ 0.18
</TABLE>
Note: Stock price quotations were obtained from NASDAQ.
--------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------- ---------------------------
2000 1999
----------------------------------- ---------------------------
MARGIN ANALYSIS - AS A %
OF AVERAGE EARNING ASSETS(2) III Q II Q I Q IV Q III Q
------------------------------------------------------ -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest Income ...................................... 8.43% 8.27% 8.08% 7.98% 8.07%
Interest Expense ..................................... 4.69% 4.55% 4.30% 4.04% 3.85%
-------- ------- -------- -------- --------
Net Interest Margin ............................. 3.74% 3.72% 3.78% 3.94% 4.22%
======== ======= ======== ======== ========
RETURN ON (3)
------------------------------------------------------
Average total assets ................................. 1.15% 1.37% 1.45% 1.57% 1.45%
Average total assets - cash basis .................... 1.30% 1.51% 1.58% 1.71% 1.59%
Average shareholders' equity ......................... 14.04% 17.79% 18.99% 21.64% 19.07%
Average shareholders' equity - cash basis ............ 22.74% 27.26% 29.01% 33.69% 29.54%
Efficiency Ratio(3)................................... 58.38% 54.85% 53.93% 52.97% 51.02%
<CAPTION>
----------------------------------- ---------------------------
2000 1999
REGULATORY CAPITAL DATA ----------------------------------- ---------------------------
(in millions of dollars) III Q II Q I Q IV Q III Q
------------------------------------------------------ -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Risk-Adjusted Assets ........................... $ 26,370 $25,900 $25,251 $ 25,298 $25,309
Tier 1 Risk-Based Capital Ratio ...................... 7.20% 7.40% 7.23% 7.52% 7.32%
Total Risk-Based Capital Ratio ....................... 10.64% 10.90% 10.90% 10.72% 10.62%
Tier 1 Leverage Ratio ................................ 6.80% 6.89% 6.45% 6.72% 6.58%
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 2000.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
(3) Excludes special charges.
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 2. Changes in securities and use of proceeds
(c) Unregistered shares
In conjunction with the August 23, 2000, acquisition
by Huntington of J. Rolfe Davis Insurance Agency,
Inc., an insurance agency headquartered in Orlando,
Florida ("JRD"), Huntington issued 695,210
unregistered shares of Huntington common stock,
without par value, to twenty-three shareholders of
JRD on August 31, 2000. The issuance of shares in
this transaction was deemed to be exempt from
registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) since this was a
transaction by an issuer not involving a public
offering.
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
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, and
incorporated herein by reference.
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4. Instruments defining the Rights of Security
Holders:
Reference is made to Articles Fifth, Eighth
and Tenth of Articles of Restatement of
Charter, as amended and supplemented. Also,
reference is made to Rights Plan, dated
February 22, 1990, previously filed as
Exhibit 1 to Registration Statement on Form
8-A, and incorporated herein by reference
and to Amendment No. 1 to the Rights
Agreement, dated as of August 16, 1995,
previously filed as Exhibit 4(b) to Form 8-K
filed with the Securities and Exchange
Commission on August 28, 1995, and
incorporated herein by reference.
Instruments defining the rights of holders
of long-term debt will be furnished to the
Securities and Exchange Commission upon
request.
27. Financial Data Schedule
99. Earnings to Fixed Charges
(b) Reports on Form 8-K
1. A report on Form 8-K, dated July 18, 2000,
was filed under report item numbers 5 and 7,
concerning Huntington's results of
operations for the second quarter 2000.
2. A report on Form 8-K, dated September 29,
2000, was filed under item numbers 5 and 7,
concerning Huntington's earnings
expectations for the third and fourth
quarters of 2000 and for the year 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Huntington
Bancshares Incorporated has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HUNTINGTON BANCSHARES INCORPORATED
----------------------------------
(Registrant)
Date: November 14, 2000 /s/ Richard A. Cheap
--------------------
Richard A. Cheap
General Counsel and Secretary
Date: November 14, 2000 /s/ Michael J. McMennamin
-------------------------------
Michael J. McMennamin
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
