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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file Number 0-2525
Huntington Bancshares Incorporated
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(Exact name of registrant as specified in its charter)
Maryland 31-0724920
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Huntington Center, 41 S. High Street, Columbus, OH 43287
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 480-8300
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
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(Title of class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 31, 1999, was $4,879,362,708. As of January 31, 2000,
227,992,927 shares of common stock without par value were outstanding.
Documents Incorporated By Reference
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Part III of this Form 10-K incorporates by reference certain information
from the registrant's definitive Proxy Statement for the 2000 Annual
Shareholders' Meeting.
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HUNTINGTON BANCSHARES INCORPORATED
INDEX
<TABLE>
<CAPTION>
Part I.
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Report of Management 28
Report of Independent Auditors 28
Consolidated Balance Sheets --
December 31, 1999 and 1998 29
Consolidated Statements of Income --
Year Ended December 31, 1999, 1998 and 1997 30
Consolidated Statements of Changes in Shareholders' Equity --
Year Ended December 31, 1999, 1998 and 1997 31
Consolidated Statements of Cash Flows --
Year Ended December 31, 1999, 1998 and 1997 32
Notes to Consolidated Financial Statements 33-55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 55
Part III.
Item 10. Directors and Executive Officers of the Registrant 56
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners and Management 56
Item 13. Certain Relationships and Related Transactions 56
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 56
</TABLE>
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Huntington Bancshares Incorporated
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Part I
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ITEM 1: BUSINESS
Huntington Bancshares Incorporated (Huntington), incorporated in Maryland
in 1966, is a multi-state bank holding company headquartered in Columbus, Ohio.
Its subsidiaries conduct a full-service commercial and consumer banking
business, engage in mortgage banking, lease financing, trust services, discount
brokerage services, underwriting credit life and disability insurance, selling
other insurance products, and issuing commercial paper guaranteed by Huntington,
and providing other financial products and services. At December 31, 1999,
Huntington's subsidiaries had 182 banking offices in Ohio, 125 banking offices
in Michigan, 137 banking offices in Florida, 36 banking offices in West
Virginia, 23 banking offices in Indiana, 12 banking offices in Kentucky, and one
foreign office in the Cayman Islands and Hong Kong, respectively. The Huntington
Mortgage Company (a wholly owned subsidiary) has loan origination offices
throughout the Midwest and East Coast. Foreign banking activities, in total or
with any individual country, are not significant to the operations of
Huntington. At December 31, 1999, Huntington and its subsidiaries had 9,516
full-time equivalent employees.
A brief discussion of Huntington's lines of business can be found in its
Management's Discussion and Analysis on page 11 of this report and the financial
statement results can be found in Note 22 of the Notes to Consolidated Financial
Statements on page 51.
Competition in the form of price and service from other banks and financial
companies such as savings and loans, credit unions, finance companies, and
brokerage firms is intense in most of the markets served by Huntington and its
subsidiaries. Mergers between and the expansion of financial institutions both
within and outside Ohio have provided significant competitive pressure in major
markets. Since 1995, when federal interstate banking legislation became
effective that made it permissible for bank holding companies in any state to
acquire banks in any other state, actual or potential competition in each of
Huntington's markets has been intensified. The same federal legislation permits
further competition through interstate branching, subject to certain limitations
by individual states. Internet banking, offered both by established traditional
institutions and by start-up Internet-only banks, constitutes another
significant form of competitive pressure on Huntington's business. Finally,
financial services reform legislation enacted in November 1999 (see
"Gramm-Leach-Bliley Act of 1999" below) eliminates the long-standing
Glass-Steagall Act restrictions on securities activities of bank holding
companies and banks. The new legislation permits bank holding companies that
elect to become financial holding companies to engage in defined securities and
insurance activities as well as to affiliate with securities and insurance
firms. The same legislation allows banks to have financial subsidiaries that may
engage in certain activities not otherwise permissible for banks.
In January 1999, Huntington consummated the merger of The Huntington State
Bank, its state bank subsidiary in Ohio, into The Huntington National Bank, an
interstate national bank. As a result, The Huntington National Bank is
Huntington's sole bank subsidiary.
REGULATORY MATTERS
GENERAL
As a registered bank holding company, Huntington is subject to the
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). Huntington is required to file with the Federal
Reserve Board reports and other information regarding its business operations
and the business operations of its subsidiaries. It is also subject to
examination by the Federal Reserve Board and is required to obtain Federal
Reserve Board approval prior to acquiring, directly or indirectly, ownership or
control of voting shares of any bank, if, after such acquisition, it would own
or control more than 5% of the voting stock of such bank. In addition, pursuant
to federal law and regulations promulgated by the Federal Reserve Board,
Huntington may only engage in, or own or control companies that engage in,
activities deemed by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto. Under legislation effective in 1996,
Huntington may, in most cases, commence permissible new nonbanking business
activities de novo with only subsequent notice to the Federal Reserve Board and
may acquire smaller companies that engage in permissible nonbanking activities
under an expedited procedure requiring only 12 business days notice to the
Federal Reserve Board.
Huntington's national bank subsidiary has deposits insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). It
is subject to supervision, examination, and regulation by the Office of the
Comptroller of the Currency ("OCC"). Certain deposits of Huntington's national
bank subsidiary were acquired from savings associations and are insured by the
Savings Association Insurance Fund ("SAIF") of the FDIC.
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Huntington's nonbank subsidiaries are also subject to supervision, examination,
and regulation by the Federal Reserve Board and examination by applicable
federal and state banking agencies. In addition to the impact of federal and
state supervision and regulation, the bank and nonbank subsidiaries of
Huntington are affected significantly by the actions of the Federal Reserve
Board as it attempts to control the money supply and credit availability in
order to influence the economy.
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to such
statutory or regulatory provisions.
HOLDING COMPANY STRUCTURE
Huntington's depository institution subsidiary is subject to affiliate
transaction restrictions under federal law which limit the transfer of funds by
the subsidiary bank to the parent and any nonbank subsidiaries of the parent,
whether in the form of loans, extensions of credit, investments, or asset
purchases. Such transfers by a subsidiary bank to its parent corporation or to
any individual nonbank subsidiary of the parent are limited in amount to 10% of
the subsidiary bank's capital and surplus and, with respect to such parent
together with all such nonbank subsidiaries of the parent, to an aggregate of
20% of the subsidiary bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specified amounts. In
addition, all affiliate transactions must be conducted on terms and under
circumstances that are substantially the same as such transactions with
unaffiliated entities. Under applicable regulations, at December 31, 1999,
approximately $217.5 million was available for loans to Huntington from its
subsidiary bank.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. Under the source of strength doctrine, the Federal Reserve
Board may require a bank holding company to make capital injections into a
troubled subsidiary bank, and may charge the bank holding company with engaging
in unsafe and unsound practices for failure to commit resources to such a
subsidiary bank. This capital injection may be required at times when Huntington
may not have the resources to provide it. Any loans by a holding company to its
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. Moreover, in the event of a bank
holding company's bankruptcy, any commitment by such holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to a priority of payment.
Federal law permits the OCC to order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. This statute also provides for the enforcement of any such pro rata
assessment of shareholders of such national bank to cover such impairment of
capital stock by sale, to the extent necessary, of the capital stock of any
assessed shareholder failing to pay the assessment. Huntington, as the sole
shareholder of its subsidiary bank, is subject to such provisions. Moreover, the
claims of a receiver of an insured depository institution for administrative
expenses and the claims of holders of deposit liabilities of such an institution
are accorded priority over the claims of general unsecured creditors of such an
institution, including the holders of the institution's note obligations, in the
event of a liquidation or other resolution of such institution. As a result of
such legislation, claims of a receiver for administrative expenses and claims of
holders of deposit liabilities of Huntington's depository subsidiary (including
the FDIC, as the subrogee of such holders) would receive priority over the
holders of notes and other senior debt of such subsidiary in the event of a
liquidation or other resolution and over the interests of Huntington as sole
shareholder of its subsidiary.
DIVIDEND RESTRICTIONS
Dividends from its subsidiary bank are a significant source of funds for
payment of dividends to Huntington's shareholders. In the year ended December
31, 1999, Huntington declared cash dividends to its shareholders of
approximately $175.8 million. There are, however, statutory limits on the amount
of dividends that Huntington's depository institution subsidiary can pay to
Huntington without regulatory approval.
Huntington's subsidiary bank may not, without prior regulatory approval,
pay a dividend in an amount greater than such bank's undivided profits. In
addition, the prior approval of the OCC is required for the payment of a
dividend by a national bank if the total of all dividends declared by the bank
in a calendar year would exceed the total of its net income for the year
combined with its retained net income for the two preceding years. Under these
provisions and in accordance with the above-described formula, Huntington's
subsidiary bank could, without regulatory approval, declare dividends to
Huntington in 2000 of approximately $317.0 million plus an additional amount
equal to its net profits during 2000.
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If, in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
and the OCC have issued policy statements that provide that insured banks and
bank holding companies should generally only pay dividends out of current
operating earnings.
FDIC INSURANCE
Under current FDIC practices, Huntington's bank subsidiary will not be
required to pay deposit insurance premiums during 2000. However, the bank
subsidiary will be required to make payments for the servicing of obligations of
the Financing Corporation ("FICO") issued in connection with the resolution of
savings and loan associations, so long as such obligations remain outstanding.
CAPITAL REQUIREMENTS
The Federal Reserve Board has issued risk-based capital ratio and leverage
ratio guidelines for bank holding companies such as Huntington. The risk-based
capital ratio guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations, takes off-balance sheet exposures into explicit
account in assessing capital adequacy, and minimizes disincentives to holding
liquid, low-risk assets. Under the guidelines and related policies, bank holding
companies must maintain capital sufficient to meet both a risk-based asset ratio
test and a leverage ratio test on a consolidated basis. The risk-based ratio is
determined by allocating assets and specified off-balance sheet commitments into
four weighted categories, with higher weighting being assigned to categories
perceived as representing greater risk. A bank holding company's capital (as
described below) is then divided by total risk weighted assets to yield the
risk-based ratio. The leverage ratio is determined by relating core capital (as
described below) to total assets adjusted as specified in the guidelines.
Huntington's subsidiary bank is subject to substantially similar capital
requirements.
Generally, under the applicable guidelines, a financial institution's
capital is divided into two tiers. Institutions that must incorporate market
risk exposure into their risk-based capital requirements may also have a third
tier of capital in the form of restricted short-term subordinated debt. "Tier
1", or core capital, includes common equity, noncumulative perpetual preferred
stock (excluding auction rate issues), and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and, with certain limited
exceptions, all other intangible assets. Bank holding companies, however, may
include cumulative preferred stock in their Tier 1 capital, up to a limit of 25%
of such Tier 1 capital. "Tier 2", or supplementary capital, includes, among
other things, cumulative and limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan and lease losses, subject to certain limitations. "Total
capital" is the sum of Tier 1 and Tier 2 capital.
The Federal Reserve Board and the other federal banking regulators require
that all intangible assets, with certain limited exceptions, be deducted from
Tier 1 capital. Under the Federal Reserve Board's rules the only types of
intangible assets that may be included in (i.e., not deducted from) a bank
holding company's capital are originated or purchased mortgage servicing rights
("MSRs"), non-mortgage servicing assets ("NMSAs"), and purchased credit card
relationships ("PCCRs"), provided that, in the aggregate, the total amount of
MSRs, NMSAs, and PCCRs included in capital does not exceed 100% of Tier 1
capital. NMSAs and PCCRs are subject to a separate aggregate sublimit of 25% of
Tier 1 capital. The amount of MSRs, NMSAs, and PCCRs that a bank holding company
may include in its capital is limited to the lesser of (a) 90% of such assets'
fair market value (as determined under the guidelines), or (b) 100% of such
assets' book value, each determined quarterly. Identifiable intangible assets
(i.e., intangible assets other than goodwill) other than MSRs, NMSAs, and PCCRs,
including core deposit intangibles, acquired on or before February 19, 1992 (the
date the Federal Reserve Board issued its original proposal for public comment),
generally will not be deducted from capital for supervisory purposes, although
they will continue to be deducted for purposes of evaluating applications filed
by bank holding companies.
Under the risk-based guidelines, financial institutions are required to
maintain a risk-based ratio (total capital to risk-weighted assets) of 8%, of
which 4% must be Tier 1 capital. The appropriate regulatory authority may set
higher capital requirements when an institution's circumstances warrant.
Under the leverage guidelines, financial institutions are required to
maintain a leverage ratio (Tier 1 capital to adjusted total assets, as specified
in the guidelines) of at least 3%. The 3% minimum ratio is applicable only to
financial institutions that meet certain specified criteria, including excellent
asset quality, high liquidity, low interest rate exposure, and the highest
regulatory rating. Financial institutions not meeting these criteria are
required to maintain a leverage ratio that exceeds 3% by a cushion of at least
100 to 200 basis points.
The guidelines also provide that financial institutions experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory level.
Furthermore, the
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Federal Reserve Board's guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 leverage ratio" in evaluating proposals
for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio
of an institution's Tier 1 capital, less all intangibles, to total assets, less
all intangibles.
Failure to meet applicable capital guidelines could subject the financial
institution to a variety of enforcement remedies available to the federal
regulatory authorities, including limitations on the ability to pay dividends,
the issuance by the regulatory authority of a capital directive to increase
capital, and the termination of deposit insurance by the FDIC, as well as to the
measures described below under "Federal Deposit Insurance Corporation
Improvement Act of 1991" as applicable to undercapitalized institutions.
As of December 31, 1999, the Tier 1 risk-based capital ratio, total
risk-based capital ratio, and Tier 1 leverage ratio for Huntington were as
follows:
<TABLE>
<CAPTION>
Requirement Huntington
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<S> <C> <C>
Tier 1 Risk-Based Capital Ratio 4.00 % 7.52 %
Total Risk-Based Capital Ratio 8.00 % 10.72 %
Tier 1 Leverage Ratio 3.00 % 6.72 %
</TABLE>
As of December 31, 1999, Huntington's bank subsidiary also had capital in
excess of the minimum requirements. The risk-based capital standards of the
Federal Reserve Board, the OCC, and the FDIC specify that evaluations by the
banking agencies of a bank's capital adequacy will include an assessment of the
exposure to declines in the economic value of the bank's capital due to changes
in interest rates. These banking agencies issued a joint policy statement on
interest rate risk describing prudent methods for monitoring such risk that rely
principally on internal measures of exposure and active oversight of risk
management activities by senior management.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the bank regulatory and funding provisions of
the Federal Deposit Insurance Act and made revisions to several other federal
banking statutes. Among other things, FDICIA requires federal banking regulatory
authorities to take "prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. For these purposes,
FDICIA establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The federal banking regulatory agencies have adopted regulations to
implement the prompt corrective action provisions of FDICIA. Among other things,
the regulations define the relevant capital measures for the five capital
categories. An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject
to a regulatory order, agreement, or directive to meet and maintain a specific
capital level for any capital measure. An institution is deemed to be
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater, and, generally, a
Tier 1 leverage ratio of 4% or greater and the institution does not meet the
definition of a "well capitalized" institution. An institution that does not
meet one or more of the "adequately capitalized" tests is deemed to be
"undercapitalized". If the institution has a total risk-based capital ratio that
is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a
Tier 1 leverage ratio that is less than 3%, it is deemed to be "significantly
undercapitalized". Finally, an institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management fee
to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized institutions are subject to growth
limitations and are required to submit a capital restoration plan. If any
depository institution subsidiary of a holding company is required to submit a
capital restoration plan, the holding company would be required to provide a
limited guarantee regarding compliance with the plan as a condition of approval
of such plan by the appropriate federal banking agency. If an undercapitalized
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. Significantly undercapitalized institutions may
be subject to a number of requirements and restrictions, including orders to
sell sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions may not, beginning 60 days after
becoming critically undercapitalized, make any payment of principal or interest
on their subordinated debt. In addition, critically undercapitalized
institutions are subject to appointment of a receiver or conservator within 90
days of becoming critically undercapitalized.
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Under FDICIA, a depository institution that is not well capitalized is
generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market. Huntington
expects that the FDIC's brokered deposit rule will not adversely affect the
ability of its depository institution subsidiaries to accept brokered deposits.
Under the regulatory definition of brokered deposits, Huntington's depository
subsidiary had $530.0 million of brokered deposits at December 31, 1999.
FDICIA, as amended, directs that each federal banking regulatory agency
prescribe standards, by regulation or guideline, for depository institutions
relating to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, asset quality, earnings, and stock valuation. The Federal Reserve
Board and other federal banking agencies have adopted a regulation in the form
of guidelines covering most of these items. Huntington believes that the
regulation and guidelines will not have a material effect on the operations of
its depository institution subsidiaries.
INTERSTATE BRANCHING AND CONSOLIDATIONS
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") provides for nationwide interstate banking and branching. Under
the law, interstate acquisitions of banks or bank holding companies in any state
by bank holding companies in any other state became permissible in 1995, and
interstate branching and consolidations of existing bank subsidiaries in
different states became permissible in 1997. On June 30, 1997, Huntington
availed itself of the interstate branching and consolidation authority by
merging into its lead national bank subsidiary all of its other bank
subsidiaries, except The Huntington State Bank, which was subsequently merged
into Huntington's lead national bank subsidiary on January 29, 1999. As of that
date, The Huntington National Bank was Huntington's sole bank subsidiary. Future
bank acquisitions, if any, in states where Huntington formerly had a separate
bank subsidiary, will not require compliance with Riegle-Neal entry provisions.
GRAMM-LEACH-BLILEY ACT OF 1999
The United States Congress in 1999 enacted major financial services
modernization legislation, known as the "Gramm-Leach-Bliley Act of 1999"
("GLBA"), which was signed into law on November 12, 1999. Under GLBA, banks are
no longer prohibited by the Glass-Steagall Act from associating with, or having
management interlocks with, a business organization engaged principally in
securities activities. By qualifying as a new entity known as a "financial
holding company", a bank holding company may acquire new powers not otherwise
available to it. In order to qualify, a bank holding company's depository
subsidiaries must all be both well capitalized and well managed, and must be
meeting their Community Reinvestment Act obligations. The bank holding company
must also declare its intention to become a financial holding company to the
Federal Reserve Board and certify that its depository subsidiaries meet the
capitalization and management requirements. The repeal of the Glass-Steagall Act
and the availability of new powers both are effective on and after March 11,
2000.
Financial holding company powers relate to "financial activities" that are
determined by the Federal Reserve Board, in coordination with the Secretary of
the Treasury, to be financial in nature, incidental to an activity that is
financial in nature, or complementary to a financial activity (provided that the
complementary activity does not pose a safety and soundness risk). The statute
itself defines certain activities as financial in nature, including but not
limited to underwriting insurance or annuities; providing financial or
investment advice; underwriting, dealing in, or making markets in securities;
merchant banking, subject to significant limitations; insurance portfolio
investing, subject to significant limitations; and any activities previously
found by the Federal Reserve Board to be closely related to banking. A company
that is predominantly engaged in financial activities but is not a bank holding
company may, if it becomes a bank holding company and thereby also a financial
holding company, continue to engage in or retain a subsidiary engaging in those
nonfinancial activities the company or its subsidiary was lawfully engaged in on
September 30, 1999, but it may not expand those grandfathered activities or
initiate new nonfinancial activities. Such grandfathering is available for up to
fifteen years.
National and state banks are permitted under GLBA (subject to capital,
management, size, debt rating, and Community Reinvestment Act qualification
factors) to have "financial subsidiaries" that are permitted to engage in
financial activities not otherwise permissible. However, unlike financial
holding companies, financial subsidiaries may not engage in insurance or annuity
underwriting; developing or investing in real estate; merchant banking (for at
least five years); or insurance portfolio investing.
Other provisions of GLBA establish a system of functional regulation for
financial holding companies and banks involving the Securities and Exchange
Commission, the Commodity Futures Trading Commission, and state securities and
insurance regulators; deal with bank insurance sales and title insurance
activities in relation to state insurance regulation; prescribe consumer
protection standards for insurance sales; and establish minimum federal
standards of privacy to protect the confidentiality of the personal financial
information of consumers and regulate its use by financial institutions.
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In January, 2000, the Federal Reserve Board and the Office of the
Comptroller of the Currency issued, respectively, an interim and a proposed rule
governing the application process for becoming a financial holding company or a
financial subsidiary. Additional regulations are expected from these agencies
during the year 2000 for the implementation of GLBA.
GUIDE 3 INFORMATION
Information required by Industry Guide 3 relating to statistical
disclosure by bank holding companies is set forth in Items 7 and 8.
ITEM 2: PROPERTIES
The headquarters of Huntington and its lead subsidiary, The Huntington
National Bank, are located in the Huntington Center, a thirty-seven story office
building located in Columbus, Ohio. Of the building's total office space
available, Huntington leases approximately 39 percent. The lease term expires in
2015, with nine five-year renewal options for up to 45 years but with no
purchase option. The Huntington National Bank has an equity interest in the
entity that owns the building. Huntington's other major properties consist of a
thirteen-story and a twelve-story office building, both of which are located
adjacent to the Huntington Center; a twenty-one story office building, known as
the Huntington Building, located in Cleveland, Ohio; an eighteen-story office
building in Charleston, West Virginia; a three-story office building located in
Holland, Michigan; an office building in Lakeland, Florida; an eleven-story
office building in Sarasota, Florida; The Huntington Mortgage Company's
building, located in the greater Columbus area; an office complex located in
Troy, Michigan; and two data processing and operations centers located in Ohio.
Of these properties, Huntington owns the thirteen-story and twelve-story office
buildings. All of the other major properties are held under long-term leases.
Additionally, Huntington owns and occupies a 460,000 square foot Business
Service Center which serves as Huntington's primary Operations and Data Center.
In 1998, Huntington entered into a sale/leaseback agreement that included
the sale of 59 properties. The transaction included a mix of branch banking
offices, regional offices, and operational facilities, including certain
properties described above, which Huntington will continue to operate under a
long-term lease.
ITEM 3: LEGAL PROCEEDINGS
Information required by this item is set forth in Item 8 in Note 15 of
Notes to Consolidated Financial Statements on page 46.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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Part II
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ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock of Huntington Bancshares Incorporated is traded on the
Nasdaq Stock Market under the symbol "HBAN". The stock is listed as "HuntgBcshr"
or "HuntBanc" in most newspapers. As of January 31, 2000, Huntington had 33,539
shareholders of record.
Information regarding the high and low sale prices of Huntington Common
Stock and cash dividends declared on such shares, as required by this item, is
set forth in a table entitled "Market Prices, Key Ratios and Statistics
(Quarterly Data)" on page 26 in Item 7. Information regarding restrictions on
dividends, as required by this item, is set forth in Item 1 "Business-Regulatory
Matters-Dividend Restrictions" above and in Item 8 in Notes 7 and 19 of Notes to
Consolidated Financial Statements on pages 39 and 48, respectively.
ITEM 6: SELECTED FINANCIAL DATA
Information required by this item is set forth in Item 7 in Table 1 on page
9.
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HUNTINGTON BANCSHARES INCORPORATED
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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TABLE 1
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<TABLE>
<CAPTION>
CONSOLIDATED SELECTED FINANCIAL DATA YEAR ENDED DECEMBER 31,
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(in thousands of dollars, except per
share amounts) 1999 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Total interest income $ 2,026,002 $ 1,999,364 $ 1,981,473 $ 1,775,734 $ 1,709,627 $ 1,418,610
Total interest expense 984,240 978,271 954,243 880,648 856,860 546,880
Net interest income 1,041,762 1,021,093 1,027,230 895,086 852,767 871,730
Securities gains 12,972 29,793 7,978 17,620 9,380 2,297
Gains on sale of credit card portfolios 108,530 9,530 -- -- -- --
Provision for loan losses 88,447 105,242 107,797 76,371 36,712 21,954
Net income 422,074 301,768 292,663 304,269 281,801 276,320
Operating net income (1) 422,074 362,068 338,897 304,269 281,801 276,320
PER COMMON SHARE (2)
Net income
Basic 1.83 1.30 1.27 1.31 1.17 1.15
Diluted 1.82 1.29 1.25 1.29 1.16 1.15
Diluted--Operating (1) 1.82 1.54 1.45 1.29 1.16 1.15
Cash dividends declared 0.76 0.68 0.62 0.56 0.51 0.46
Book value at year-end 9.53 9.27 8.73 7.82 7.59 6.85
BALANCE SHEET HIGHLIGHTS
Total assets at year-end 29,036,953 28,296,336 26,730,540 24,371,946 23,495,337 20,688,505
Total long-term debt at year-end 697,677 707,359 498,889 550,531 517,202 555,514
Average long-term debt 702,974 620,688 526,379 515,664 529,140 561,872
Average shareholders' equity 2,146,735 2,064,241 1,893,788 1,776,151 1,742,826 1,621,443
Average total assets $28,739,450 $26,891,558 $25,150,659 $23,374,490 $22,098,785 $19,498,530
- ------------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
MARGIN ANALYSIS--AS A %
OF AVERAGE EARNING ASSETS (3)
Interest Income 7.97% 8.33% 8.52% 8.26% 8.43% 7.99%
Interest Expense 3.86 4.05 4.08 4.07 4.19 3.04
----------- ----------- ----------- ----------- ----------- -----------
NET INTEREST MARGIN 4.11% 4.28% 4.44% 4.19% 4.24% 4.95%
=========== =========== =========== =========== =========== ===========
RETURN ON
Average total assets 1.47% 1.12% 1.16% 1.30% 1.28% 1.42%
Average total assets--Operating (1) 1.47 1.35 1.35 1.30 1.28 1.42
Average shareholders' equity 19.66 14.62 15.44 17.13 16.17 17.04
Average shareholders' equity--Operating (1) 19.66 17.54 17.88 17.13 16.17 17.04
Dividend payout ratio 41.53 53.15 49.67 42.22 43.82 38.50
Average shareholders' equity to
average total assets 7.47 7.68 7.53 7.60 7.89 8.32
Tier I risk-based capital ratio 7.52 7.10 8.83 8.11 8.66 9.67
Total risk-based capital ratio 10.72 10.73 11.68 11.29 12.01 13.32
Tier I leverage ratio 6.72% 6.37% 7.77% 6.80% 6.99% 7.95%
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Full-time equivalent employees 9,516 10,159 9,485 9,467 9,083 9,642
Domestic and foreign banking offices 517 531 454 429 406 420
</TABLE>
(1) Excludes special charges, including merger costs, and related taxes.
(2) Adjusted for stock splits and stock dividends, as applicable.
(3) Presented on a fully tax equivalent basis assuming a 35% tax rate.
9
<PAGE> 11
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
INTRODUCTION
Huntington Bancshares Incorporated (Huntington) is a multi-state bank
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 Florida, Georgia,
Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, South
Carolina, and West Virginia. Huntington has foreign offices in the Cayman
Islands and Hong Kong.
In 1995, Congress passed the Private Securities Litigation Reform Act to
encourage corporations to provide investors with information about anticipated
future financial performance, goals, and strategies. The Act provides a safe
harbor for such disclosure, or in other words, protection from unwarranted
litigation if actual results are not the same as management's expectations. This
Financial Supplement to the Proxy, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements including certain plans, expectations, goals, and
projections that are subject to numerous assumptions, risks, and uncertainties.
Actual results could differ materially from those contained in or implied by
Huntington's statements due to a variety of factors including:
- changes in economic conditions and movements in interest rates;
- competitive pressures on product pricing and services;
- success and timing of business strategies and successful integration
of acquired businesses;
- the nature, extent, and timing of governmental actions and reforms;
and,
- extended disruption of vital infrastructure.
The management of Huntington encourages readers of this Financial
Supplement to the Proxy 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 year
should be read in conjunction with the financial statements, notes and other
information contained in this document.
OVERVIEW
Huntington reported net income of $422.1 million for 1999, compared with
$301.8 million and $292.7 million for 1998 and 1997, respectively. For the same
periods, diluted earnings per share (EPS) were $1.82, $1.29 and $1.25. All of
the following financial information is reported on an operating basis, except
where indicated. Operating results exclude special charges incurred in 1998
associated with several strategic actions that enhanced profitability and the
merger-related expenses incurred in 1997 in connection with the acquisition of
First Michigan Bank Corporation (First Michigan). Huntington's operating
earnings for 1999 were $422.1 million, compared with $362.1 million in 1998 and
$338.9 million in 1997. Diluted EPS was $1.82, compared with $1.54 in 1998 and
$1.45 in 1997, an increase of 18.2% and 25.5%, respectively. Per share amounts
for all prior periods have been restated to reflect the ten-percent stock
dividend distributed to shareholders in July 1999.
Return on average equity (ROE) was 19.66% for 1999, versus 17.54% and
17.88% for each of the two preceding years. Return on average assets (ROA) was
1.47% for the current year and 1.35% in each of the two previous years. Cash
basis results, presented in the table below, exclude amortization of goodwill
and other intangibles (net of income taxes) from net income and related asset
amounts from total assets and shareholders' equity:
1999 1998 1997
---- ---- ----
EPS $ 1.94 $ 1.64 $ 1.15
ROE 30.82% 24.35% 21.36%
ROA 1.61% 1.45% 1.41%
Total assets were $29.0 billion at December 31, 1999, up from $28.3 billion
from year-end 1998. In October of 1999, Huntington completed the sale of its
credit card portfolio to The Chase Manhattan Bank (Chase). Approximately $541
million in receivables were sold, resulting in a gain of $108.5 million. This
transaction was part of Huntington's strategy to exit specific business lines
and reinvest in businesses with higher growth potential. Under the terms of the
sale agreement, Huntington will work together with Chase to develop marketing
programs, sell the product through its Direct Bank and banking offices, and
receive origination fees along with a share of the revenue generated from new
receivables.
10
<PAGE> 12
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 2
- -----------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------
(in millions of dollars) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 6,300 $ 6,027 $ 5,271 $ 5,130 $ 4,869
Real Estate
Construction 1,237 919 864 699 524
Mortgage 3,596 3,640 3,598 3,623 3,552
Consumer
Loans 6,793 6,958 6,463 6,123 5,741
Lease financing 2,742 1,911 1,542 1,183 784
------------- ------------- ------------ ------------ -------------
TOTAL LOANS $ 20,668 $19,455 $17,738 $ 16,758 $ 15,470
============= ============= ============ ============ =============
</TABLE>
Note: There are no loans outstanding which would be considered a concentration
of lending in any particular industry or group of industries.
<TABLE>
<CAPTION>
TABLE 3
- -------------------------------------------------------------------------------------------------------------------------
MATURITY SCHEDULE OF SELECTED LOANS
- -------------------------------------------------------------------------------------------------------------------------
(in millions of dollars) DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 3,664 $ 1,744 $ 892 $6,300
Real estate - construction 542 502 193 1,237
---------- ---------- ---------- ----------
TOTAL $ 4,206 $ 2,246 $1,085 $7,537
========== ========== ========== ==========
Variable interest rates $ 1,408 $ 693
========== ==========
Fixed interest rates $ 838 $ 392
========== ==========
</TABLE>
Note: Loan balances above are net of unearned income and there are no loans
outstanding which would be a concentration of lending in any particular
industry or group of industries.
Adjusted for the impact of the credit card sale, average total loans grew
9.5% from 1998. Commercial loans grew by 8.7% while consumer loans grew by
11.4%, led by strong volumes in vehicle leasing and home equity loans. Average
loans secured by real estate, which include residential mortgage lending,
increased by 6.6% compared to 1998.
Core deposits represent Huntington's most significant source of funding.
When combined with other core funding sources, core deposits provide
approximately 71% of Huntington's funding needs. Core deposits were $16.9
billion, down $.7 billion, or 4.3%, from the prior year-end. This decline was
attributable to the runoff of retail certificates of deposit reinvested by
customers into alternative investments such as mutual funds and annuities,
including those sold by Huntington. Excluding time deposits, average core
deposits grew 11.7% with particular strength in savings and transaction account
products. Huntington continued to raise short-term wholesale monies and issue
unsecured medium-term notes as sources of additional funding.
LINES OF BUSINESS
Huntington views its operations as five distinct segments. Retail Banking,
Corporate Banking, Dealer Sales, and the Private Financial Group are the
company's major business lines. The fifth segment includes 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 22 in the Notes to Consolidated Financial Statements.
11
<PAGE> 13
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
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, credit cards,
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 $177.8 million for 1999 versus $129.5 million
for 1998, representing a 37.3% increase. A portion of the growth came from the
full year benefit of Huntington's acquisition of 60 banking offices in Florida
in June 1998. Excluding this impact, the Retail Banking business line grew
28.5%. Non-interest income for the year increased 15.0% over the prior year with
strength in service charges, brokerage and insurance income, and electronic
banking income. Mortgage banking revenues were off 6.3% as higher market rates
curtailed new loan production. Non-interest expenses were relatively flat for
the year as expense containment offset volume-related expense increases. This
segment contributed 42% of Huntington's 1999 net income and comprised 31% of its
total loan portfolio.
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 posted net income of $126.0 million for the year, a 11.6%
increase over 1998. The increase was the result of solid loan and deposit
growth, despite the impact of certain loan paydowns on significant larger
credits during the year, combined with lower charge-offs on portfolio loans.
This segment contributed 30% of Huntington's annual earnings and represented 35%
of the total loan 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.
Indirect consumer loans and leases comprise the vast majority of the business
and involve the financing of vehicles purchased by individuals through
dealerships.
Excluding the $37.8 million, net of tax, lease residual valuation
adjustment, net income totaled $71.0 million for 1999 and $55.1 million for
1998. Robust vehicle leasing volumes contributed to a 29% increase in net
income. Tighter expense control helped to mitigate weakness in non-interest
income, which included losses in 1999 realized from the disposition of leased
vehicles. This business line totaled 17% of Huntington's net income in the
recent twelve months and 31% of its outstanding loans.
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.
PFG achieved net income for the year just ended of $23.5 million, an
increase from $22.2 million in 1998. Net interest income for the year declined
8.0% due to lower loan volumes. Non-interest income increased for the same
period 10.9% primarily due to a 15.6% increase in service charges, a 6.2%
increase in trust revenue, and a 3.6% increase in credit card income. Direct
non-interest expenses declined 5.2% over the same period. This segment
represented 6% of Huntington's 1999 operating results and 3% of total loans at
December 31, 1999.
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 $5 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. Costs associated with
intangibles that have not been allocated to the major business lines are also
included in Other.
This segment reported net income of $61.5 million for the recent year. In
comparing annual results for 1999 with 1998, the increase was attributable to
higher non-interest income from gains realized from the credit card sale to
Chase and lower non-interest expenses in almost all categories (before
amortization of intangibles and other non-
12
<PAGE> 14
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
recurring expenses) offset by lower net interest income and securities gains.
Amortization of intangibles included a full year's impact from the Florida
branch acquisition that occurred in June 1998.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington's net interest income was $1,041.8 million in 1999, versus
$1,021.1 million in 1998, and $1,027.2 million in 1997. The net interest margin,
on a fully tax equivalent basis, was 4.11% during the recent twelve months,
compared with 4.28% and 4.44% in the two preceding years. The margin decline is
primarily due to the funding of loan growth through more expensive wholesale
funds as loan growth outpaced core deposit growth. Interest rate swaps and other
off-balance sheet financial instruments used for asset/liability management
purposes provided benefits of $21.6 million (8 basis points), $27.3 million (11
basis points) and $6.0 million (3 basis points) in each of the recent three
years.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses reflects management's evaluation of the
adequacy of the allowance for loan losses (ALL). The ALL represents management's
assessment of possible losses inherent in Huntington's loan portfolio.
Huntington allocates the ALL to each loan category based on a detailed credit
quality review performed periodically on specific commercial loans based on size
and relative risk and other relevant factors such as portfolio performance,
internal controls, and impacts from mergers and acquisitions. Loss factors are
applied on larger, commercial and industrial and commercial real estate credits
and represent management's estimate of
<TABLE>
<CAPTION>
TABLE 4
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES (1)
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
----------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
From Previous From Previous
Year Due To: Year Due To:
----------------------------------- ----------------------------------
Fully Tax Equivalent Basis (2) Yield/ Yield/
(in millions of dollars) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in banks $ (0.1) $(0.5) $ (0.6) $ 0.6 $ (0.1) $0.5
Trading account securities 0.1 0.1 0.2 0.0 0.0 0.0
Federal funds sold and securities purchased
under resale agreements (11.3) (0.4) (11.7) 10.4 0.1 10.5
Mortgages held for sale (4.0) 0.1 (3.9) 11.1 (1.0) 10.1
Taxable securities (0.7) (11.1) (11.8) (28.7) (2.3) (31.0)
Tax-exempt securities 4.1 (2.5) 1.6 (1.6) (1.8) (3.4)
Total loans 142.7 (90.8) 51.9 76.9 (47.2) 29.7
---------- ----------- ---------- ---------- ----------- ---------
TOTAL EARNING ASSETS 130.8 (105.1) 25.7 68.7 (52.3) 16.4
---------- ----------- ---------- ---------- ----------- ---------
Interest bearing demand deposits 13.4 (3.3) 10.1 10.2 1.8 12.0
Savings deposits 15.7 (3.7) 12.0 7.5 6.1 13.6
Other domestic time deposits (27.6) (25.1) (52.7) 24.1 (4.7) 19.4
Certificates of deposit of $100,000 or more (7.3) (7.6) (14.9) (3.0) 0.6 (2.4)
Foreign time deposits 13.4 (0.7) 12.7 (16.0) (0.3) (16.3)
Short-term borrowings 21.0 (4.4) 16.6 (35.8) (12.9) (48.7)
Medium-term notes 12.1 (6.7) 5.4 52.3 (3.9) 48.4
Subordinated notes and other long-term debt,
including capital securities 6.9 9.8 16.7 7.6 (9.5) (1.9)
---------- ----------- ---------- ---------- ----------- ---------
TOTAL INTEREST BEARING LIABILITIES 47.6 (41.7) 5.9 46.9 (22.8) 24.1
---------- ----------- ---------- ---------- ----------- ---------
NET INTEREST INCOME $ 83.2 $(63.4) $ 19.8 $ 21.8 $ (29.5) $(7.7)
========== =========== ========== ========== =========== =========
</TABLE>
(1) The change in interest rates due to both rate and volume has been allocated
between the factors in proportion of the relationship of the absolute
dollar amounts of the change in each.
(2) Calculated assuming a 35% tax rate.
13
<PAGE> 15
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
the inherent loss. The portion of the allowance allocated to homogeneous
consumer loans is determined by applying projected loss ratios to various
segments of the loan portfolio giving consideration to existing economic
conditions and trends.
Projected loss ratios incorporate factors such as trends in past due and
non-accrual amounts, recent loan loss experience, current economic conditions,
risk characteristics, and concentrations of various loan categories. Actual loss
ratios experienced in the future, however, could vary from those projected
because a loan's performance depends not only on economic factors but also other
factors unique to each customer. The diversity in size of corporate commercial
loans can be significant as well and even if the projected number of loans
deteriorate, the dollar exposure could significantly vary from estimated
amounts. Additionally, the impact on individual customers from many economic
events that have occurred may yet be unknown. Such events include high energy
prices, low automobile and home sales in selected markets. To ensure adequacy to
a higher degree of confidence, an unallocated allowance is maintained. For
analytical purposes, the allocation of the ALL is provided in Table 6. While
amounts are allocated to various portfolio segments, the total ALL, less the
portion attributable to reserves as prescribed under provisions of Statement of
Financial Accounting Standard No. 114, is available to absorb losses from any
segment of the portfolio.
The provision for loan losses was $88.4 million in 1999, down from $105.2
million in 1998. Two years ago, the provision totaled $107.8 million. The
decline in the current year's provision is due in large part to the credit card
sale to Chase. Net charge-offs as a percent of average total loans declined to
.40% from .51% in 1998 and .50% in 1997. In 1999, commercial and consumer loan
losses declined 33.9% and 7.4%, respectively.
<TABLE>
<CAPTION>
TABLE 5
- ----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR $ 290,948 $ 258,171 $ 230,778 $ 222,487 $ 225,225
LOAN LOSSES
Commercial (16,203) (24,512) (23,276) (23,904) (15,947)
Real estate
Construction (638) (80) (375) --- (392)
Mortgage (3,803) (3,358) (2,663) (2,768) (5,086)
Consumer
Loans (78,688) (84,961) (74,761) (59,843) (39,000)
Leases (12,959) (13,444) (9,648) (4,492) (1,989)
-------------- -------------- --------------- -------------- --------------
Total loan losses (112,291) (126,355) (110,723) (91,007) (62,414)
-------------- -------------- --------------- -------------- --------------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial 5,303 4,546 4,373 4,884 3,696
Real estate
Construction 192 441 111 556 5
Mortgage 1,528 2,167 619 1,402 977
Consumer
Loans 22,650 23,140 16,382 13,457 11,156
Leases 2,532 1,554 1,057 721 303
-------------- -------------- --------------- -------------- --------------
Total recoveries 32,205 31,848 22,542 21,020 16,137
-------------- -------------- --------------- -------------- --------------
NET LOAN LOSSES (80,086) (94,507) (88,181) (69,987) (46,277)
-------------- -------------- --------------- -------------- --------------
PROVISION FOR LOAN LOSSES 88,447 105,242 107,797 76,371 36,712
ALLOWANCE ACQUIRED/OTHER --- 22,042 7,777 1,907 6,827
-------------- -------------- --------------- -------------- --------------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR $ 299,309 $ 290,948 $ 258,171 $ 230,778 $ 222,487
============== ============== =============== ============== ==============
AS A % OF AVERAGE TOTAL LOANS
Net loan losses 0.40% 0.51% 0.50% 0.44% 0.30%
Provision for loan losses 0.44% 0.57% 0.61% 0.48% 0.24%
Allowance for loan losses as a %
of total loans (end of period) 1.45% 1.50% 1.46% 1.38% 1.44%
Net loan loss coverage (1) 8.78x 6.72x 7.01x 7.62x 10.07x
</TABLE>
(1) Income before income taxes (excluding special charges) and the provision for
loan losses to net loan losses.
14
<PAGE> 16
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 6
- -------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------------------
Real Estate Consumer
--------------------------- --------------------------
(in thousands of dollars) Commercial Construction Mortgage Loans Leases Unallocated Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999:
AMOUNT $ 94,978 $15,452 $36,877 $ 78,655 $25,378 $47,969 $ 299,309
% OF LOANS TO TOTAL LOANS 30.5% 6.0% 17.4% 32.9% 13.2% --- 100.0%
1998:
Amount $ 82,129 $11,112 $40,070 $104,198 $17,823 $35,616 $ 290,948
% of Loans to Total Loans 31.0% 4.7% 18.7% 35.8% 9.8% --- 100.0%
1997:
Amount $ 86,439 $ 8,140 $38,598 $ 75,405 $ 6,631 $42,958 $ 258,171
% of Loans to Total Loans 29.7% 4.9% 20.3% 36.4% 8.7% --- 100.0%
1996:
Amount $113,555 $ 2,033 $18,987 $ 54,564 $ 3,457 $38,182 $ 230,778
% of Loans to Total Loans 30.6% 4.2% 21.6% 36.5% 7.1% --- 100.0%
1995:
Amount $119,200 $ 2,258 $18,179 $ 43,880 $ 3,651 $35,319 $ 222,487
% of Loans to Total Loans 31.5% 3.4% 23.0% 37.1% 5.0% --- 100.0%
</TABLE>
At December 31, 1999, the ALL was $299.3 million, representing 1.45% of
total loans, down slightly from 1.50% a year ago and 1.46% in 1997. The ALL
covered non-performing loans 3.6 times, which approximates the prior year's
level. Additional information regarding the ALL and asset quality appears in the
"Credit Risk" section.
NON-INTEREST INCOME
Excluding gains from securities sales and gains from the sale of credit
cards, non-interest income totaled $452.1 million in 1999, a 13.3% increase over
$398.9 million in 1998. Comparable non-interest income was $334.9 million in
1997. Significant improvements were experienced in several fee-based activities
as fee income as a percentage of total revenue increased from 28% in 1998 to 30%
in 1999. Service charges on deposit accounts increased 24% in 1999 due to
related pricing changes, growth in sales of cash management products, and an
overall higher level of transaction deposit accounts. Brokerage and insurance
income was up 42% because of higher retail investment and insurance sales
through Huntington's growing network of licensed investment and insurance
representatives combined with some customer migration from certificates of
deposit to investment products. Electronic banking fees grew nearly 28% in 1999
due to increased customer usage of Huntington's check card product and increased
Web Bank relationships.
Securities transactions netted gains of $13 million in 1999 compared with
$29.8 million for the same twelve-month period a year ago. In 1999, Huntington
sold a portion of its investment in common stock of S1 Corporation at a gain of
$31 million. Substantially offsetting this gain were losses from the sale of
fixed-income investments, as Huntington repositioned the portfolio of securities
available for sale.
NON-INTEREST EXPENSE
Excluding special charges and other non-recurring expenses, non-interest
expense was $815.3 million, versus $823.9 million and $751.9 million in the two
preceding years. Other non-recurring expenses totaled $96.8 million in 1999 and
included a $58.2 million valuation adjustment of vehicles underlying certain
direct financing leases. In addition, Huntington recorded costs related to the
company's "Huntington 2000+" program as well as other one-time expenses, which
included amounts paid for management consulting and other professional services
as well as $11 million for a special cash award to employees for achievement of
the program goals for 1999. "Huntington 2000+" is a collaborative effort among
all employees to evaluate processes and procedures and the way Huntington
conducts its business with a mission of maximizing efficiency through all
aspects of the organization.
As a result of the "Huntington 2000+" program, overall non-interest
expenses declined, despite a full year of expenses related to the June 1998
Florida branch acquisition. These banking office additions, along with
depreciation expense related to Huntington's operations center, which was
occupied in the second half of 1999, and Year 2000 system upgrades drove
increases in Net occupancy and Equipment expenses. Most other expense categories
declined, representing the success of the "Huntington 2000+" program.
15
<PAGE> 17
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
The efficiency ratio represents non-interest expense as a percentage of
fees and other income plus tax-equivalent net interest income and is a measure
of cost to generate a dollar of revenue. Huntington's efficiency ratio for 1999
improved to 51.76% from 55.80% in 1998.
During the fourth quarter of 1998, Huntington recorded a $90 million
special charge related to costs for several strategic actions that enhanced
profitability, including the sale or closure of underperforming banking offices
and the termination of certain business activities. At December 31, 1999,
Huntington had substantially completed all of its strategic initiatives,
including the sale or closure of identified banking offices, discontinuation of
various business activities and the targeted reductions in the workforce. All
significant components of the charge were utilized as of December 31, 1999. See
Note 17 to the Consolidated Financial Statements for additional information
regarding the 1998 Special Charges.
In connection with the acquisition of First Michigan in 1997, Huntington
incurred a merger-related charge of $51 million consisting primarily of
personnel, facilities, and systems costs, as well as $12 million of professional
fees and other costs to effect the business combination. All activities related
to this charge were completed by December 31, 1998.
PROVISION FOR INCOME TAXES
The provision for income taxes was $192.7 million in 1999, compared with
$138.4 million in 1998 and $166.5 million in 1997. Huntington's effective tax
rate approximated 31% in the recent and preceding year versus 36.3% in 1997. The
lower effective rate in 1999 and 1998 was due primarily to a higher mix of
tax-exempt income. Furthermore, during 1999, Huntington established a private
charitable foundation with an initial funding of $15 million. The private
foundation was established in order to realize significant federal income tax
benefits that are allowed under the Internal Revenue Code. The rate was higher
than normal in 1997 as a result of significant non-deductible expenses incurred
in connection with the First Michigan and other bank acquisitions.
INTEREST RATE RISK AND LIQUIDITY MANAGEMENT
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
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
<TABLE>
<CAPTION>
TABLE 7
- ----------------------------------------------------------------------------------------
INVESTMENT SECURITIES DECEMBER 31,
- ----------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and Federal Agencies $ --- $ 156 $ 656
States and political subdivisions 18,765 24,778 32,354
--------------- ------------- ------------
TOTAL INVESTMENT SECURITIES $ 18,765 $ 24,934 $33,010
=============== ============= ============
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE YIELD
- ----------------------------------------------------------------------------------------
States and political subdivisions
Under 1 year $ 2,410 $ 2,389 8.44%
1-5 years 12,911 12,855 7.54%
6-10 years 2,872 2,859 8.08%
Over 10 years 572 559 8.52%
--------------- -------------
Total 18,765 18,662
--------------- -------------
TOTAL INVESTMENT SECURITIES $ 18,765 $ 18,662
=============== =============
</TABLE>
Note: Weighted average yields were calculated on the basis of amortized cost and
have been adjusted to a fully tax equivalent basis, assuming a 35% tax rate.
16
<PAGE> 18
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
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 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 December 31, 1999, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be expected to decrease by
approximately 2.2% if rates rose 100 basis points and would drop an estimated
4.7% in the event of a 200 basis point increase. If rates declined 100 and 200
basis points, Huntington would benefit 2.2% and 4.4%, respectively.
<TABLE>
<CAPTION>
TABLE 8
- ----------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and Federal Agencies $4,165,342 $4,096,134 $ 5,001,034
Other 704,861 685,281 708,780
---------------- --------------- ---------------
TOTAL SECURITIES AVAILABLE FOR SALE $4,870,203 $4,781,415 $ 5,709,814
================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE YIELD (1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury
Under 1 year $ 801 $ 801 6.27%
1-5 years 51,371 49,328 5.18%
6-10 years 476,055 446,512 5.35%
---------------- ---------------
Total 528,227 496,641
---------------- ---------------
Federal Agencies
Mortgage-backed securities
1-5 years 4 4 8.13%
6-10 years 27,360 26,992 6.60%
Over 10 years 1,638,047 1,574,336 6.69%
---------------- ---------------
Total 1,665,411 1,601,332
---------------- ---------------
Other agencies
1-5 years 789,008 760,251 5.79%
6-10 years 498,790 469,696 5.72%
Over 10 years 868,124 837,422 6.33%
---------------- ---------------
Total 2,155,922 2,067,369
---------------- ---------------
Total U.S. Treasury and Federal Agencies 4,349,560 4,165,342
---------------- ---------------
Other
Under 1 year 20,805 20,832 9.04%
1-5 years 253,363 251,862 7.05%
6-10 years 130,486 125,951 6.54%
Over 10 years 251,333 239,975 6.02%
Marketable equity securities 10,524 66,241 5.51%
---------------- ---------------
Total 666,511 704,861
---------------- ---------------
TOTAL SECURITIES AVAILABLE FOR SALE $5,016,071 $4,870,203
================ ===============
</TABLE>
At December 31, 1999, Huntington had no concentrations of securities by a single
issuer in excess of 10% of shareholders' equity.
(1)Weighted average yields were calculated on the basis of amortized cost.
17
<PAGE> 19
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
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.
Table 9 below 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 December 31, 1999. As
is the case with cash securities, the market value of interest rate swaps is
largely a function of the financial market's expectations regarding the future
direction of interest rates. Accordingly, current market values are not
necessarily indicative of the future impact of the swaps on net interest income.
This will depend, in large part, on the shape of the yield curve as well as
interest rate levels. With respect to the variable rate information presented in
Table 9, 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 and receive-fixed liability conversion swaps with notional
values of $850 million and $100 million, respectively, 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 are based on
the notional values of the swap portfolio. These notional values do not
represent direct credit exposures. At December 31, 1999, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$55.4 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 billion at December 31, 1999. The credit
exposure from these contracts is not material and 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.
<TABLE>
<CAPTION>
TABLE 9
- -----------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAP PORTFOLIO DECEMBER 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSET CONVERSION SWAPS LIABILITY CONVERSION SWAPS
---------------------------------- --------------------------------- BASIS
Receive- Pay- Receive- Pay- PROTECTION
(in millions of dollars) fixed fixed Total fixed fixed Total SWAPS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional value $ 1,545 $ 200 $ 1,745 $ 1,805 $ 700 $2,505 $ 1,275
Average maturity (years) 3.0 1.7 2.9 3.9 1.6 3.3 0.6
Market value $ (31.7) $ 1.0 $ (30.7) $ (38.8) $ 3.0 $(35.8) $ 0.2
Average rate:
Receive 6.06% 6.14% 6.06% 6.18% 6.11% 6.17% 5.91%
Pay 6.13% 6.31% 6.16% 6.14% 6.13% 6.14% 5.83%
</TABLE>
18
<PAGE> 20
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The
objective of ALCO in this regard is to maintain an optimum balance of maturities
among Huntington's assets and liabilities such that sufficient cash, or access
to cash, is available at all times to meet the needs of borrowers, depositors,
and creditors, as well as to fund corporate expansion and other activities.
A chief source of Huntington's liquidity is derived from the large retail
deposit base accessible by its network of geographically dispersed banking
offices. This core funding is supplemented by Huntington's demonstrated ability
to raise funds in capital markets and to access funds nationwide. The bank
subsidiary's $6 billion domestic bank note and $2 billion European bank note
programs are significant sources of wholesale funding. Under these programs,
unsecured senior and subordinated notes are issuable with maturities ranging
from one month to thirty years. A similar $750 million note program exists at
the parent holding company, the proceeds from which are used from time to time
to fund certain non-banking activities, finance acquisitions, repurchase
Huntington's common stock, or for other general corporate purposes. At December
31, 1999, approximately $4 billion of notes were available under these programs
to fund Huntington's future activities. Huntington also has $300 million of
capital securities outstanding through its subsidiaries, Huntington Capital I
and II. A $200 million line of credit is also available to the parent holding
company to support commercial paper borrowings and other short-term working
capital needs.
TABLE 10
- -------------------------------------------------------------
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT OF
$100,000 OR MORE AS OF DECEMBER 31, 1999
- -------------------------------------------------------------
(in thousands of dollars)
- -------------------------------------------------------------
Three months or less $ 933,846
Over three through six months 505,041
Over six through twelve months 318,860
Over twelve months 272,804
---------------
Total $ 2,030,551
===============
While liability sources are many, significant liquidity is also available
from Huntington's investment and loan portfolios. ALCO regularly monitors the
overall liquidity position of the business and ensures that various alternative
strategies exist to cover unanticipated events. At the end of the recent year,
sufficient liquidity was available to meet estimated short-term and long-term
funding needs.
<TABLE>
<CAPTION>
TABLE 11
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end $2,065,192 $ 2,137,374 $3,064,344
Weighted average interest rate at year-end 4.69% 4.05% 5.26%
Maximum amount outstanding at month-end during the year $3,033,277 $ 2,897,385 $3,387,690
Average amount outstanding during the year $2,417,032 $ 1,980,648 $2,733,764
Weighted average interest rate during the year 4.50% 4.72% 5.15%
</TABLE>
CREDIT RISK
Credit risk represents the probability that a customer or counterparty may
not perform in accordance with contractual terms. Credit risk is inherent in the
financial services business and results from extending credit to customers,
purchasing mortgage-backed securities and entering into off-balance sheet
financial derivative instruments.
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending. Credit
personnel are integrally involved in the origination and underwriting process to
ensure adherence to risk policies and underwriting standards. Huntington also
manages credit risk through avoiding highly leveraged transactions, diversifying
to avoid excessive industry or other concentrations, selling participations to
third parties, and requiring collateral. 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,
19
<PAGE> 21
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
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 when
the loan is 90 days past due. When interest accruals are suspended, accrued
interest income is reversed with current year accruals charged to earnings and
prior year amounts generally charged off as a credit loss. Consumer loans are
not placed on non-accrual status; rather they are charged off in accordance with
regulatory statutes, which is generally no more than 120 days. A charge off may
be delayed in circumstances when collateral is repossessed and anticipated to
sell at a future date.
Total non-performing assets were $98.2 million and $96.1 million,
respectively, at December 31, 1999, and 1998. As of the same dates,
non-performing loans represented .40% of total loans, while non-performing
assets as a percent of total loans and other real estate were .47% and .49%,
respectively. Loans past due ninety days or more but continuing to accrue
interest were $61.3 million at December 31, 1999, versus $51.0 million one year
ago.
Huntington also actively manages potential problem loans that are current
as to principal and interest but require closer monitoring in the event of
deterioration in borrower performance. These potential problem credits totaled
$63.2 million at December 31, 1999.
<TABLE>
<CAPTION>
TABLE 12
- ----------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 42,958 $ 34,586 $36,459 $ 25,621 $ 28,282 $ 22,523
Real Estate
Construction 10,785 10,181 5,916 1,741 1,894 4,071
Commercial 16,131 13,243 10,212 14,843 13,276 11,537
Residential 11,866 14,419 13,394 12,835 11,971 9,393
------------ ----------- ----------- ----------- ----------- ------------
Total Non-accrual Loans 81,740 72,429 65,981 55,040 55,423 47,524
Renegotiated loans 1,330 4,706 5,822 4,422 5,320 3,768
------------ ----------- ----------- ----------- ----------- ------------
TOTAL NON-PERFORMING LOANS 83,070 77,135 71,803 59,462 60,743 51,292
------------ ----------- ----------- ----------- ----------- ------------
Other real estate, net 15,171 18,964 15,343 17,208 23,598 54,153
------------ ----------- ----------- ----------- ----------- ------------
TOTAL NON-PERFORMING ASSETS $ 98,241 $ 96,099 $87,146 $ 76,670 $ 84,341 $105,445
============ =========== =========== =========== =========== ============
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $ 61,287 $ 51,037 $49,608 $ 39,267 $ 30,937 $ 23,753
============ =========== =========== =========== =========== ============
NON-PERFORMING LOANS AS A % OF TOTAL LOANS 0.40% 0.40% 0.40% 0.35% 0.39% 0.36%
NON-PERFORMING ASSETS AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE 0.47% 0.49% 0.49% 0.46% 0.54% 0.74%
ALLOWANCE FOR LOAN LOSSES AS A % OF NON-
PERFORMING LOANS 360.31% 377.19% 359.55% 388.11% 366.28% 439.10%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 299.85% 301.00% 294.32% 297.12% 250.06% 199.12%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE TO
TOTAL LOANS 0.30% 0.26% 0.28% 0.23% 0.20% 0.17%
</TABLE>
Note: For 1999, the amount of interest income which would have been recorded
under the original terms for total loans classified as non-accrual or
renegotiated was $6.1 million. Amounts actually collected and recorded as
interest income for these loans totaled $3.5 million.
CAPITAL AND DIVIDENDS
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing excess
capital and continually strives to maintain an appropriate balance between
capital adequacy and returns to shareholders. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
20
<PAGE> 22
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
Average shareholders' equity was $2.1 billion for the twelve months ended
December 31, 1999, and 1998. Huntington's ratio of average equity to average
assets in the recent year was 7.47%, compared with 7.68% one year ago.
Risk-based capital guidelines established by the Federal Reserve Board set
minimum capital requirements and require institutions to calculate risk-based
capital ratios by assigning risk weightings to assets and off-balance sheet
items, such as interest rate swaps and loan commitments. These guidelines
further define "well-capitalized" levels for Tier 1, Total Capital, and Leverage
ratio purposes at 6%, 10%, and 5%, respectively. At the recent year end,
Huntington's Tier 1 capital ratio was 7.52%, its Total Capital ratio was 10.72%,
and its Leverage ratio was 6.72%, each of which exceeds the well-capitalized
requirements. Huntington's bank subsidiary also had regulatory capital ratios in
excess of the levels established for well-capitalized institutions.
Cash dividends declared were $.76 a share in 1999, up 11.8% from 1998. A
10% stock dividend was distributed to shareholders in the year just ended,
marking the twenty-sixth consecutive year in which Huntington has issued a stock
split or stock dividend.
During 1999, Huntington repurchased approximately 3.3 million shares of its
common stock through open market and privately negotiated transactions. The 16.5
million-share authorization (after adjusting for the July 1999 ten percent stock
dividend) approved by the Board of Directors in the third quarter of 1998 is
still in process of completion. As of December 31, 1999, 11.9 million shares
remained under the authorization. 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.
FOURTH QUARTER RESULTS
On an operating basis, earnings for the fourth quarter of 1999 were $114.9
million, or $.50 per share, compared with $91.5 million, or $.39 per share, in
the same period last year. ROE for the current and prior year quarter was 21.64%
and 17.87%, respectively. ROA was 1.57%, versus 1.31% in last year's final three
months. Cash basis ROE was 33.69%, up from 29.44% in the comparable period of
1998. Cash basis ROA was 1.71% versus 1.45% one year ago.
Net interest income was $252.7 million in the recent quarter, a decrease of
5.5% over the corresponding period last year. This decrease reflects the decline
associated with the credit card sale as well as non-recurring events caused by
the uncertainties involving the transition to the year 2000 such as higher
short-term LIBOR rates and cash reserve levels. After adjusting for the sale of
the credit card portfolio, average total loans grew 12% and average earning
assets increased 9% over prior quarter balances as a result of strong volumes in
automobile leasing and home equity lending. Core deposits declined 1.4%
(annualized), primarily due to slight declines in transaction accounts believed
to be related to customer uncertainty surrounding the year 2000.
The provision for loan losses, favorably impacted by the credit card sale,
was $20.0 million in the last quarter of the year, compared with $34.3 million
in the same period of 1998. Annualized net charge-offs declined to .32% from
.61% of average loans in the same periods.
Securities transactions for the recent quarter included the sale of a
portion of Huntington's investment in common stock of S1 Corporation, which
netted a gain of $7.3 million. Excluding securities gains and the $108.5 million
gain from the sale of Huntington's credit card portfolio as discussed above,
non-interest income was up 7.1% to $114.3 million for the recent quarter from
$106.7 million a year ago. Growth was negatively impacted by the fourth quarter
sale of the credit card portfolio combined with lower mortgage banking income.
Significant growth was seen in service charges on deposit accounts related to
expanded cash management sales and recent pricing changes. Increased check card
and Web Bank fees drove Electronic Banking fees up 25.4% from the same period a
year ago. Brokerage and insurance income was up 35.8% from the fourth quarter
1998, led by retail investment sales.
Non-interest expense, excluding other non-recurring expenses and special
charges, totaled $204.9 million in the most recent three months, versus $208.9
million in the final three months of 1998. The decline is due to Huntington's
emphasis on efficiency and cost containment. Decreased personnel and related
expenses helped offset higher occupancy and equipment costs associated with
strategic spending for new banking offices and the move to Huntington's new
operations center. During the fourth quarter of 1999, Huntington recorded $96.8
million in costs related to the company's "Huntington 2000+" program as well as
other one-time expenses. Please refer to Huntington's previous discussion under
Non-Interest Expense for further details.
The provision for income taxes was $46.8 million for the recent quarter,
compared with $41.0 million in 1998. Huntington's effective tax rate for the
respective quarterly periods was 28.9% and 31.0%, representing the impact of the
establishment and contribution of $15 million to the private charitable
foundation.
21
<PAGE> 23
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
YEAR 2000
Huntington, in an enterprise-wide effort, completed its preparations in
1999 for the Year 2000 date change. Huntington's Year 2000 Plan (the Plan)
addressed all systems, software, hardware, and infrastructure components. The
Plan also addressed various third-party vendors and service providers to ensure
that continued service was in place for core business activities. Furthermore,
the Plan included the update of all of Huntington's contingency plans in the
event that problems related to the Year 2000 date change arose. In addition,
Huntington placed a freeze on all changes to major business processes and
systems beginning on November 1, 1999. The purpose of this freeze was to ensure
that new programs would not be introduced to the company's existing processes
and systems that already had been validated for Year 2000 readiness. This freeze
was lifted earlier than planned on February 1, 2000.
Identifiable costs for the Year 2000 project incurred in 1999 approximated
$13 million, bringing the total cost of the project to roughly $30 million over
a three-year period. These costs incorporated not only incremental third-party
expenses but also included the salary and benefit costs of employees redeployed
and costs of the call center which handled an increased number of customer
inquiries before and after January 1, 2000. A minimal amount of expenses will be
incurred in 2000 but is not expected to materially impact the operating results
in any one period.
Huntington benefited from all of the additional work and expense by
improving its systems and processes, increasing its internal controls through
the auditing and quality assurance programs, improving relationships among
business lines, and updating all of its contingency plans. To date, Huntington
has not experienced any business disruptions or corruption of its systems.
Huntington will continue to monitor its systems and third party relationships
throughout 2000 to address unanticipated problems (which may include problems
associated with non-Year 2000 compliant third parties and disruptions to the
economy in general) and ensure that all processes continue to function properly.
PENDING ACQUISITION
On February 7, 2000, Huntington announced that it had entered into a merger
agreement with Empire Banc Corporation, a $506 million one-bank holding company
headquartered in Traverse City, Michigan. Huntington will issue its common stock
at a ratio of 2.0355 shares for each outstanding share of Empire Banc common
stock in a transaction that will be accounted for as a purchase. Huntington
plans to purchase on the open market and then reissue approximately 6.5 million
shares in connection with the transaction. The merger is expected to be
completed by the end of the second quarter of 2000.
22
<PAGE> 24
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
- -------------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------- ----------------------------------- -----------------------------------
INTEREST INTEREST
Fully Tax Equivalent Basis (1) AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(in millions of dollars) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ---------------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks $ 9 $ 0.4 4.04% $ 10 $ 1.0 5.22%
Trading account securities 13 0.8 5.89 11 0.6 5.71
Federal funds sold and securities purchased
under resale agreements 22 1.2 5.58 229 12.9 5.64
Mortgages held for sale 232 16.3 7.03 289 20.2 6.99
Securities:
Taxable 4,885 297.0 6.08 4,896 308.8 6.31
Tax exempt 297 23.5 7.90 247 21.9 8.83
--------- --------- --------- ---------
Total Securities 5,182 320.5 6.18 5,143 330.7 6.43
--------- --------- --------- ---------
Loans:
Commercial 6,128 483.4 7.89 5,629 469.0 8.33
Real Estate
Construction 1,064 86.1 8.09 829 71.7 8.65
Mortgage 3,660 288.6 7.88 3,604 304.2 8.44
Consumer
Loans 6,938 575.7 8.30 6,679 593.9 8.89
Leases 2,299 154.5 6.72 1,693 120.1 7.09
--------- --------- --------- ---------
Total Consumer 9,237 730.2 7.91 8,372 714.0 8.53
--------- --------- --------- ---------
Total Loans 20,089 1,588.3 7.91 18,434 1,558.9 8.46
--------- --------- --------- ---------
Allowance for loan losses/loan fees 301 107.9 280 85.4
--------- --------- --------- ---------
Net loans(2) 19,788 1,696.2 8.44 18,154 1,644.3 8.92
--------- --------- --------- ---------
Total earning assets 25,547 2,035.4 7.97% 24,116 2,009.7 8.33%
--------- --------- --------- ---------
Cash and due from banks 1,039 975
All other assets 2,454 2,081
--------- ---------
TOTAL ASSETS $ 28,739 $ 26,892
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits $ 3,497 $ 3,287
Interest bearing demand deposits 4,097 106.5 2.60% 3,585 96.4 2.69%
Savings deposits 3,740 126.0 3.37 3,277 114.0 3.48
Other domestic time deposits 5,773 296.4 5.13 6,291 349.1 5.55
--------- --------- --------- ---------
Total core deposits 17,107 528.9 3.89 16,440 559.5 4.25
--------- --------- --------- ---------
Certificates of deposit of $100,000 or more 1,737 92.1 5.30 1,870 107.0 5.72
Foreign time deposits 363 18.6 5.14 103 5.9 5.66
--------- --------- --------- ---------
Total deposits 19,207 639.6 4.07 18,413 672.4 4.44
--------- --------- --------- ---------
Short-term borrowings 2,549 114.3 4.48 2,084 97.7 4.83
Medium-term notes 3,122 170.0 5.45 2,903 164.6 5.67
Subordinated notes and other long-term debt,
including capital securities 1,003 60.3 6.01 876 43.6 4.98
--------- --------- --------- ---------
Total interest bearing liabilities 22,384 984.2 4.40% 20,989 978.3 4.66%
--------- --------- --------- ---------
All other liabilities 711 552
Shareholders' equity 2,147 2,064
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,739 $ 26,892
========= =========
Net interest rate spread 3.57% 3.67%
Impact of non interest bearing funds on margin 0.54% 0.61%
NET INTEREST MARGIN $ 1,051.2 4.11% $ 1,031.4 4.28%
========= =========
</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. Individual components include non-accrual
balances and related interest received.
23
<PAGE> 25
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------- ------------------------------ ------------------------------ --------------------------------
INTEREST INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ------------------------------- ------------------------------ ------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9 $ 0.5 5.47 % $ 14 $ 0.8 5.85 % $ 26 $ 1.6 5.99 % $ 8 $ 0.5 6.23 %
10 0.6 5.70 16 0.9 5.66 23 1.6 7.29 14 0.9 6.16
44 2.4 5.50 67 3.8 6.03 93 5.6 6.10 134 5.8 4.30
131 10.1 7.75 113 8.7 7.74 133 10.0 7.58 367 25.9 7.06
5,351 339.8 6.35 5,194 333.7 6.42 4,679 310.7 6.64 3,713 226.5 6.10
264 25.3 9.55 291 27.9 9.59 342 33.2 9.73 419 42.0 10.03
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
5,615 365.1 6.50 5,485 361.6 6.59 5,021 343.9 6.85 4,132 268.5 6.50
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
5,302 456.6 8.61 4,955 396.9 8.01 4,703 403.3 8.58 4,140 350.1 8.46
813 73.8 8.85 580 50.7 8.75 473 41.6 8.79 396 30.6 7.73
3,761 326.9 8.71 3,614 312.3 8.64 3,834 328.1 8.56 3,474 278.3 8.01
6,299 574.8 9.12 5,880 528.4 8.99 5,508 494.2 8.97 4,837 401.6 8.31
1,406 106.7 7.59 950 74.8 7.87 657 51.0 7.76 485 34.7 7.15
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
7,705 681.5 8.84 6,830 603.2 8.83 6,165 545.2 8.84 5,322 436.3 8.20
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
17,581 1,538.8 8.75 15,979 1,363.1 8.53 15,175 1,318.2 8.69 13,332 1,095.3 8.21
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
253 75.8 231 49.2 227 43.4 235 40.1
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
17,328 1,614.6 9.18 15,748 1,412.3 8.84 14,948 1,361.6 8.97 13,097 1,135.4 8.52
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
23,391 1,993.3 8.52 % 21,674 1,788.1 8.26 % 20,471 1,724.3 8.43 % 17,987 1,437.0 7.99 %
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
910 901 883 841
1,103 1,031 972 906
- ---------- ---------- ---------- ----------
$ 25,151 $ 23,375 $ 22,099 $ 19,499
========== ========== ========== ==========
$ 2,774 $ 2,664 $ 2,477 $ 2,390
3,204 84.4 2.64 % 3,068 80.2 2.61 % 2,815 68.6 2.44 % 2,984 65.9 2.21 %
3,056 100.4 3.28 2,836 86.3 3.04 2,666 77.9 2.92 2,935 68.0 2.32
5,857 329.7 5.63 5,463 310.3 5.68 5,382 300.3 5.58 4,383 187.3 4.27
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
14,891 514.5 4.25 14,031 476.8 4.19 13,340 446.8 4.11 12,692 321.2 3.12
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
1,922 109.4 5.70 1,525 85.5 5.61 1,269 74.8 5.89 914 39.3 4.30
382 22.2 5.81 305 18.4 6.03 262 17.0 6.50 286 12.2 4.25
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
17,195 646.1 4.48 15,861 580.7 4.40 14,871 538.6 4.34 13,892 372.7 3.24
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
2,826 146.4 5.18 2,883 149.1 5.17 2,422 138.1 5.70 1,606 59.2 3.68
1,983 116.2 5.86 1,835 120.2 6.55 2,103 146.4 6.96 1,532 75.2 4.91
739 45.5 6.16 516 30.7 5.96 529 33.8 6.38 562 39.8 7.09
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
19,969 954.2 4.78 % 18,430 880.7 4.78 % 17,448 856.9 4.91 % 15,202 546.9 3.60 %
- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
514 505 432 286
1,894 1,776 1,742 1,621
- ---------- ---------- ---------- ----------
$ 25,151 $ 23,375 $ 22,099 $ 19,499
========== ========== ========== ==========
3.74 % 3.48 % 3.52 % 4.39 %
0.70 % 0.71 % 0.72 % 0.56 %
$1,039.1 4.44 % $ 907.4 4.19 % $ 867.4 4.24 % $ 890.1 4.95 %
=========== =========== =========== ==========
</TABLE>
24
<PAGE> 26
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED ANNUAL INCOME STATEMENT DATA
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(in thousands of dollars, ----------------------------------------------------------------------
except per share amounts) 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME $2,026,002 $1,999,364 $1,981,473 $1,775,734 $1,709,627 $1,418,610
TOTAL INTEREST EXPENSE 984,240 978,271 954,243 880,648 856,860 546,880
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME 1,041,762 1,021,093 1,027,230 895,086 852,767 871,730
Provision for loan losses 88,447 105,242 107,797 76,371 36,712 21,954
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 953,315 915,851 919,433 818,715 816,055 849,776
---------- ---------- ---------- ---------- ---------- ----------
Service charges on deposit accounts 156,315 126,403 117,852 107,669 97,505 88,457
Mortgage banking 56,890 60,006 55,715 43,942 39,309 47,194
Brokerage and insurance income 52,076 36,710 27,084 20,856 17,979 14,721
Trust services 52,030 50,754 48,102 42,237 37,627 35,278
Bank Owned Life Insurance income 37,560 28,712 -- -- -- --
Electronic banking fees 37,301 29,202 22,705 12,013 6,190 3,405
Credit card fees 23,314 21,909 20,467 23,086 18,757 18,589
Other 36,587 45,181 42,936 46,640 48,343 34,773
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
AND CREDIT CARD PORTFOLIO SALE GAINS 452,073 398,877 334,861 296,443 265,710 242,417
---------- ---------- ---------- ---------- ---------- ----------
Securities gains 12,972 29,793 7,978 17,620 9,380 2,297
Gains on sale of credit card portfolios 108,530 9,530 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME 573,575 438,200 342,839 314,063 275,090 244,714
---------- ---------- ---------- ---------- ---------- ----------
Personnel and related costs 419,901 428,539 392,793 360,865 344,905 347,361
Equipment 66,666 62,040 57,867 50,887 44,646 44,806
Outside data processing and other services 62,886 74,795 66,683 58,367 53,582 56,424
Net occupancy 62,169 54,123 49,509 49,676 47,824 46,304
Amortization of intangible assets 37,297 25,689 13,019 10,220 9,471 9,612
Marketing 31,076 32,260 32,782 20,331 17,598 20,074
Telecommunications 28,519 29,429 21,527 16,567 13,946 13,068
Legal and other professional services 21,169 25,160 24,931 20,313 18,656 18,457
Printing and supplies 20,227 23,673 21,584 19,602 18,103 18,379
Franchise and other taxes 14,674 22,103 19,836 20,359 17,083 16,149
Other 50,744 46,118 51,414 48,323 76,247 92,886
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL
CHARGES AND OTHER NON-RECURRING EXPENSES 815,328 823,929 751,945 675,510 662,061 683,520
---------- ---------- ---------- ---------- ---------- ----------
Special charges, including merger costs -- 90,000 51,163 -- -- --
Other non-recurring expenses 96,791 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 912,119 913,929 803,108 675,510 662,061 683,520
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 614,771 440,122 459,164 457,268 429,084 410,970
Provision for income taxes 192,697 138,354 166,501 152,999 147,283 134,650
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME $ 422,074 $ 301,768 $ 292,663 $ 304,269 $ 281,801 $ 276,320
========== ========== ========== ========== ========== ==========
PER COMMON SHARE (1)
Net income
Basic $ 1.83 $ 1.30 $ 1.27 $ 1.31 $ 1.17 $ 1.15
Diluted $ 1.82 $ 1.29 $ 1.25 $ 1.29 $ 1.16 $ 1.15
Cash dividends declared $ 0.76 $ 0.68 $ 0.62 $ 0.56 $ 0.51 $ 0.46
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income $1,041,762 $1,021,093 $1,027,230 $ 895,086 $ 852,767 $ 871,730
Tax Equivalent Adjustment (2) 9,423 10,307 11,864 12,363 14,602 18,405
---------- ---------- ---------- ---------- ---------- ----------
Tax Equivalent Net Interest Income $1,051,185 $1,031,400 $1,039,094 $ 907,449 $ 867,369 $ 890,135
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate.
25
<PAGE> 27
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
MARKET PRICES, KEY RATIOS AND STATISTICS (QUARTERLY DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- --------------------------------------------
IV Q III Q II Q I Q IV Q III Q IIQ IQ
--------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $30 3/4 $33 7/8 $34 $30 7/16 $28 5/8 $30 13/16 $31 7/16 $31 1/8
Low 21 7/16 24 11/16 27 11/16 27 3/16 21 1/2 20 26 7/8 26 7/16
Close 23 7/8 26 9/16 31 13/16 28 1/8 27 5/16 22 13/16 27 11/16 30 1/8
Cash dividends declared $0.20 $0.20 $0.18 $0.18 $0.18 $0.18 $0.16 $0.16
Note: Stock price quotations were obtained from Nasdaq.
- ------------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS (2)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- --------------------------------------------
IV Q III Q II Q I Q IV Q III Q IIQ IQ
--------------------------------------------- --------------------------------------------
MARGIN ANALYSIS - AS A %
OF AVERAGE EARNING ASSETS (3)
Interest Income 7.98% 8.07% 7.87% 7.98% 8.17% 8.33% 8.37% 8.48%
Interest Expense 4.04% 3.85% 3.73% 3.80% 3.93% 4.15% 4.14% 4.18%
-------- -------- -------- -------- -------- -------- -------- --------
Net Interest Margin 3.94% 4.22% 4.14% 4.18% 4.24% 4.18% 4.23% 4.30%
======== ======== ========= ======== ======== ======== ======== ========
RETURN ON
Average total assets 1.57% 1.45% 1.47% 1.38% 1.31% 1.28% 1.42% 1.38%
Average total
assets - cash basis 1.71% 1.59% 1.61% 1.52% 1.45% 1.43% 1.49% 1.44%
Average shareholders' equity 21.64% 19.07% 19.48% 18.47% 17.87% 16.43% 17.70% 17.73%
Average shareholders'
equity - cash basis 33.69% 29.54% 30.61% 29.58% 29.44% 26.59% 21.17% 21.09%
Efficiency ratio 52.97% 51.02% 50.93% 52.16% 52.98% 56.46% 58.78% 56.32%
- ------------------------------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- --------------------------------------------
(in millions of dollars) IV Q III Q II Q I Q IV Q III Q IIQ IQ
- -------------------------------------------------------------------------------------- --------------------------------------------
Total Risk-Adjusted Assets $ 25,298 $ 25,309 $ 24,829 $ 24,345 $ 24,239 $ 23,695 $ 23,739 $ 22,554
Tier 1 Risk-Based Capital Ratio 7.52% 7.32% 7.29% 7.20% 7.10% 7.35% 7.18% 8.91%
Total Risk-Based Capital Ratio 10.72% 10.62% 10.65% 10.70% 10.73% 11.18% 11.01% 11.57%
Tier 1 Leverage Ratio 6.72% 6.58% 6.45% 6.32% 6.37% 6.51% 6.72% 7.72%
</TABLE>
- ----------------------------------------------------------------------
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Presented on an "operating" basis (excludes 1998 special charges, net of
related taxes).
(3) Presented on a fully tax equivalent basis assuming a 35% tax rate.
26
<PAGE> 28
HUNTINGTON BANCSHARES INCORPORATED
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED QUARTERLY INCOME STATEMENT DATA
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
(in thousands of dollars, -------------------------------------- --------------------------------------
except per share amounts) IV Q III Q II Q I Q IV Q III Q II Q I Q
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME $515,516 $516,294 $498,500 $495,692 $500,395 $505,221 $491,268 $502,480
TOTAL INTEREST EXPENSE 262,854 247,863 237,352 236,171 233,094 253,706 243,839 247,632
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME 252,662 268,431 261,148 259,521 267,301 251,515 247,429 254,848
Provision for loan losses 20,040 22,076 21,026 25,305 34,306 24,160 24,595 22,181
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 232,622 246,355 240,122 234,216 232,995 227,355 222,834 232,667
-------- -------- -------- -------- -------- -------- -------- --------
Service charges on deposit accounts 42,774 41,700 36,065 35,776 33,992 32,493 30,428 29,490
Brokerage and insurance income 13,373 14,620 12,540 11,543 9,848 10,057 8,520 8,285
Trust services 12,828 12,625 13,143 13,434 12,924 12,502 12,745 12,583
Electronic banking fees 10,082 9,771 9,410 8,038 8,037 7,897 7,520 5,748
Mortgage banking 9,426 14,282 17,224 15,958 15,388 15,270 15,191 14,157
Bank Owned Life Insurance income 9,390 9,390 9,390 9,390 8,098 8,098 7,168 5,348
Credit card fees 5,091 6,626 6,255 5,342 6,367 5,197 5,450 4,895
Other 11,374 6,103 11,029 8,081 12,057 12,512 8,788 11,824
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
AND CREDIT CARD PORTFOLIO SALE GAINS 114,338 115,117 115,056 107,562 106,711 104,026 95,810 92,330
-------- -------- -------- -------- -------- -------- -------- --------
Securities gains 7,905 537 2,220 2,310 1,773 10,615 14,316 3,089
Gains on sale of credit card portfolios 108,530 -- -- -- -- -- 9,530 --
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME 230,773 115,654 117,276 109,872 108,484 114,641 119,656 95,419
-------- -------- -------- -------- -------- -------- -------- --------
Personnel and related costs 100,654 104,730 107,263 107,254 103,600 111,744 108,483 104,712
Equipment 18,161 16,059 15,573 16,873 16,202 15,001 15,688 15,149
Net occupancy 17,890 16,799 13,563 13,917 11,602 15,019 14,063 13,439
Outside data processing and other services 15,642 15,929 15,923 15,392 20,915 17,550 16,988 19,342
Marketing 9,154 8,722 6,902 6,298 8,251 8,762 8,315 6,932
Amortization of intangible assets 9,307 9,326 9,336 9,328 9,436 9,467 3,393 3,393
Telecommunications 7,108 7,412 6,935 7,064 8,173 7,793 7,450 6,013
Legal and other professional services 5,868 4,754 5,803 4,744 7,847 5,291 6,234 5,788
Printing and supplies 5,483 5,254 4,734 4,756 6,450 5,851 5,611 5,761
Franchise and other taxes 2,708 3,598 3,981 4,387 5,554 5,523 5,526 5,500
Other 12,920 13,606 12,125 12,093 10,902 9,876 14,927 10,413
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL
CHARGES AND OTHER NON-RECURRING EXPENSES 204,895 206,189 202,138 202,106 208,932 211,877 206,678 196,442
-------- -------- -------- -------- -------- -------- -------- --------
Special charges, including merger costs -- -- -- -- 90,000 -- -- --
Other non-recurring expenses 96,791 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 301,686 206,189 202,138 202,106 298,932 211,877 206,678 196,442
-------- -------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 161,709 155,820 155,260 141,982 42,547 130,119 135,812 131,644
Provision for income taxes 46,769 50,233 50,285 45,410 11,329 41,364 43,503 42,158
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME $114,940 $105,587 $104,975 $ 96,572 $ 31,218 $ 88,755 $ 92,309 $ 89,486
======== ======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income--Diluted $ 0.50 $ 0.46 $ 0.45 $ 0.41 $ 0.13 $ 0.38 $ 0.39 $ 0.38
Cash Dividends Declared $ 0.20 $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.16 $ 0.16
OPERATING RESULTS (2)
Net income $114,940 $105,587 $104,975 $ 96,572 $ 91,518 $ 88,755 $ 92,309 $ 89,486
Net income per common share
Diluted $ 0.50 $ 0.46 $ 0.45 $ 0.41 $ 0.39 $ 0.38 $ 0.39 $ 0.38
Diluted - Cash Basis (3) $ 0.53 $ 0.49 $ 0.48 $ 0.45 $ 0.43 $ 0.41 $ 0.41 $ 0.39
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Excludes 1998 special charges, net of related taxes.
(3) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles.
</TABLE>
27
<PAGE> 29
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information required by this item is set forth in Item 7 on pages 16
through 19 under the caption "Interest Rate Risk and Liquidity Management."
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The integrity of the financial statements and other financial information
contained in this Financial Supplement to the Proxy Statement is the
responsibility of the management of Huntington. Such financial information has
been prepared in accordance with generally accepted accounting principles, based
on the best estimates and judgment of management.
Huntington maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are executed and recorded in
accordance with management's authorization and that the assets of Huntington are
properly safeguarded. This system includes the careful selection and training of
staff, the communication of policies and procedures consistent with the highest
standards of business conduct, and the maintenance of an internal audit
function.
The Audit Committee of the Board of Directors is composed entirely of
outside directors and it meets periodically with both internal and independent
auditors to review the results and recommendations of their audits. This
Committee selects the independent auditor with the approval of shareholders.
The accounting firm of Ernst & Young LLP has been engaged by Huntington to
audit its financial statements, and their report appears below.
/s/ Frank Wobst /s/ Anne Creek
----------------------- ---------------------------
Frank Wobst Anne Creek
Chairman and Executive Vice President,
Chief Executive Officer Chief Financial Officer and Treasurer
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Huntington Bancshares Incorporated
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntington
Bancshares Incorporated and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young, LLP
Columbus, Ohio
January 13, 2000
28
<PAGE> 30
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
-----------------------------------
(in thousands of dollars) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,208,004 $ 1,215,814
Interest bearing deposits in banks 6,558 102,564
Trading account securities 7,975 3,839
Federal funds sold and securities purchased under resale agreements 20,877 135,764
Mortgages held for sale 141,723 466,664
Securities available for sale - at fair value 4,870,203 4,781,415
Investment securities - fair value $18,662 and $25,044, respectively 18,765 24,934
Total loans, net of unearned income 20,668,437 19,454,551
Less allowance for loan losses (299,309) (290,948)
------------- -------------
Net loans 20,369,128 19,163,603
------------- -------------
Bank owned life insurance 765,399 727,837
Premises and equipment 438,871 447,038
Customers' acceptance liability 17,167 22,591
Accrued income and other assets 1,172,283 1,204,273
------------- -------------
TOTAL ASSETS $ 29,036,953 $ 28,296,336
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 19,792,603 $19,722,772
Short-term borrowings 2,121,989 2,216,644
Bank acceptances outstanding 17,167 22,591
Medium-term notes 3,254,150 2,539,900
Subordinated notes and other long-term debt 697,677 707,359
Company obligated mandatorily redeemable preferred capital
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company 300,000 300,000
Accrued expenses and other liabilities 671,011 638,275
------------- -------------
Total Liabilities 26,854,597 26,147,541
------------- -------------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none issued or outstanding --- ---
Common stock - without par value; authorized
500,000,000 shares; issued 233,844,820 and 212,596,344
shares, respectively; outstanding 228,888,221 and 210,746,337
shares, respectively 2,284,956 2,137,915
Less 4,956,599 and 1,850,007 treasury shares, respectively (137,268) (49,271)
Accumulated other comprehensive (loss) income (94,093) 24,693
Retained earnings 128,761 35,458
------------- -------------
Total Shareholders' Equity 2,182,356 2,148,795
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,036,953 $ 28,296,336
============= =============
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 31
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------
(in thousands of dollars, except per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fee income
Loans $ 1,693,379 $ 1,641,081 $ 1,611,541
Securities 314,061 323,595 356,388
Other 18,562 34,688 13,544
------------ ------------ ------------
TOTAL INTEREST INCOME 2,026,002 1,999,364 1,981,473
------------ ------------ ------------
Interest expense
Deposits 639,605 672,433 646,121
Short-term borrowings 114,289 97,656 146,397
Medium-term notes 170,061 164,590 116,221
Subordinated notes and other long-term debt 60,285 43,592 45,504
------------ ------------ ------------
TOTAL INTEREST EXPENSE 984,240 978,271 954,243
------------ ------------ ------------
NET INTEREST INCOME 1,041,762 1,021,093 1,027,230
Provision for loan losses 88,447 105,242 107,797
------------ ------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 953,315 915,851 919,433
------------ ------------ ------------
Total non-interest income 573,575 438,200 342,839
Total non-interest expense 912,119 913,929 803,108
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 614,771 440,122 459,164
Provision for income taxes 192,697 138,354 166,501
------------ ------------ ------------
NET INCOME $ 422,074 $ 301,768 $ 292,663
============ ============ ============
PER COMMON SHARE
Net income
Basic $ 1.83 $ 1.30 $ 1.27
Diluted $ 1.82 $ 1.29 $ 1.25
Cash dividends declared $ 0.76 $ 0.68 $ 0.62
AVERAGE COMMON SHARES
Basic 230,508,637 232,569,064 230,872,887
Diluted 232,405,927 234,799,637 233,692,401
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 32
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON TREASURY COMPREHENSIVE
------------------- ----------------- (LOSS) RETAINED
(in thousands of dollars, except per share amounts) SHARES STOCK SHARES STOCK INCOME EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 1, 1997 182,265 $1,692,144 (9,285) $(204,634) $(13,931) $ 312,079 $1,785,658
Comprehensive Income:
Net income 292,663 292,663
Unrealized net holding gains on securities
available for sale arising during the period 28,731 28,731
-----------
Total comprehensive income 321,394
-----------
Stock issued for acquisitions 16,463 3,244 73,775 90,238
Cash dividends declared ($0.62 per share) (128,013) (128,013)
Stock options exercised (3,641) 461 7,000 3,359
10% stock dividend 9,181 184,726 5,274 124,920 (309,846) (200)
Treasury shares purchased (2,748) (1,930) (53,427) (56,175)
Treasury shares sold:
Shareholder dividend reinvestment plan 2,345 534 11,968 14,313
Employee benefit plans 1,110 159 3,607 4,717
Pre-merger transactions of pooled subsidiary 1,833 42,604 (52,504) (9,900)
--------- ----------- ------- ---------- --------- ---------- -----------
BALANCE -- DECEMBER 31, 1997 193,279 1,933,003 (1,543) (36,791) 14,800 114,379 2,025,391
--------- ----------- ------- ---------- --------- ---------- -----------
Comprehensive Income:
Net income 301,768 301,768
Unrealized net holding gains on securities
available for sale arising during the period 9,893 9,893
-----------
Total comprehensive income 311,661
-----------
Stock issued for acquisition (3,815) 160 3,883 68
Cash dividends declared ($0.68 per share) (161,447) (161,447)
Stock options exercised (10,348) 736 14,350 4,002
10% stock dividend 19,317 218,871 (83) (219,242) (371)
Treasury shares purchased (1,139) (31,192) (31,192)
Treasury shares sold to employee benefit plans 204 19 479 683
--------- ----------- ------- ---------- --------- ---------- -----------
BALANCE -- DECEMBER 31, 1998 212,596 2,137,915 (1,850) (49,271) 24,693 35,458 2,148,795
--------- ----------- ------- ---------- --------- ---------- -----------
COMPREHENSIVE INCOME:
NET INCOME 422,074 422,074
UNREALIZED NET HOLDING LOSSES ON SECURITIES
AVAILABLE FOR SALE ARISING DURING THE PERIOD (118,786) (118,786)
-----------
TOTAL COMPREHENSIVE INCOME 303,288
-----------
CASH DIVIDENDS DECLARED ($0.76 PER SHARE) (175,836) (175,836)
STOCK OPTIONS EXERCISED (5,543) 329 9,251 3,708
10% STOCK DIVIDEND 21,249 152,584 (304) (152,935) (351)
TREASURY SHARES PURCHASED (3,156) (97,957) (97,957)
TREASURY SHARES SOLD TO EMPLOYEE BENEFIT PLANS 24 709 709
--------- ----------- ------- ---------- --------- ---------- -----------
BALANCE -- DECEMBER 31, 1999 233,845 $2,284,956 (4,957) $(137,268) $(94,093) $ 128,761 $2,182,356
========= =========== ======= ========== ========= ========== ===========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 33
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
(in thousands of dollars) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 422,074 $ 301,768 $ 292,663
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 88,447 105,242 107,797
Provision for depreciation and amortization 112,491 80,956 63,383
Deferred income tax expense 84,748 2,769 47,687
(Increase) decrease in trading account securities (4,136) 3,243 (5,209)
Decrease (increase) in mortgages held for sale 324,941 (273,716) (71,526)
Net gains on sales of securities available for sale (12,972) (29,793) (7,978)
Net gains on sales of loans held for sale (108,623) (9,903) (12,200)
(Increase) decrease in accrued income receivable (28,164) 31,663 (7,003)
Net increase in other assets (44,353) (79,588) (111,259)
(Decrease) increase in accrued expenses (46,610) 65,938 15,993
Net increase (decrease) in other liabilities 48,620 (31,150) 11,228
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 836,463 167,429 323,576
----------- ----------- -----------
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits in banks 96,006 (62,946) (36,185)
Proceeds from :
Maturities and calls of investment securities 6,132 8,348 90,287
Maturities and calls of securities available for sale 651,716 1,356,659 787,788
Sales of securities available for sale 1,771,589 3,782,540 2,297,166
Purchases of :
Investment securities -- (355) (2,962)
Securities available for sale (2,685,503) (4,043,068) (2,958,135)
Proceeds from sales of loans held for sale 686,548 142,801 357,396
Net loan originations, excluding sales (1,853,343) (724,662) (1,209,015)
Proceeds from sale of premises and equipment 17,111 176,513 8,243
Purchases of premises and equipment (76,063) (147,045) (45,849)
Proceeds from sales of other real estate 12,570 13,856 17,441
Purchases of Bank Owned Life Insurance -- (300,000) (400,000)
Net cash received (paid) in purchase acquisitions -- 417,031 (2,294)
----------- ----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (1,373,237) 619,672 (1,096,119)
----------- ----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in total deposits 69,880 (495,638) 1,025,005
Decrease in short-term borrowings (94,655) (925,027) (251,629)
Proceeds from issuance of long-term debt -- 300,000 95,500
Payment of long-term debt (10,000) (90,038) (122,372)
Proceeds from issuance of medium-term notes 2,332,000 1,395,000 1,792,150
Payment of medium-term notes (1,617,750) (1,187,250) (1,245,300)
Proceeds from issuance of capital securities -- 100,000 200,000
Dividends paid on common stock, including pre-merger dividends
of pooled subsidiary (171,858) (157,632) (132,760)
Repurchases of common stock (97,957) (31,192) (56,175)
Proceeds from issuance of common stock 4,417 4,685 27,266
----------- ----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 414,077 (1,087,092) 1,331,685
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS (122,697) (299,991) 559,142
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,351,578 1,651,569 1,092,427
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,228,881 $ 1,351,578 $ 1,651,569
=========== =========== ===========
</TABLE>
NOTE: Huntington made interest payments of $987,513, $995,625, and $964,203 in
1999, 1998, and 1997, respectively. Federal income tax payments were
$80,832 in 1999, $77,407 in 1998, and $114,755 in 1997.
See notes to consolidated financial statements.
32
<PAGE> 34
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 | ACCOUNTING POLICIES
NATURE OF OPERATIONS: Huntington Bancshares Incorporated (Huntington) is a
multi-state bank holding company organized under Maryland law in 1966 and
headquartered in Columbus, Ohio. Through its subsidiaries, Huntington is 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 Florida, Georgia,
Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, South
Carolina, and West Virginia. Huntington also has foreign offices in the Cayman
Islands and Hong Kong.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Huntington and its subsidiaries and are presented in conformity with
accounting principles generally accepted in the United States (GAAP). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform to
the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in the
financial statements. Actual results could differ from those estimates.
NEW PRONOUNCEMENTS: In September 1998, the Financial Accounting Standards
Board issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This Statement (as amended by Statement No. 137)
establishes accounting and reporting standards requiring that every derivative
instrument 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 September 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.
SECURITIES: Debt securities that Huntington has both the positive intent
and ability to hold to maturity are classified as investments and are carried at
amortized cost. Securities purchased with the intention of recognizing
short-term profits are placed in the trading account and carried at fair value.
Securities not classified as investments or trading are designated available for
sale and carried at fair value. Unrealized gains and losses on securities
available for sale are carried as a separate component of accumulated other
comprehensive income in shareholders' equity. Unrealized gains and losses on
securities classified as trading are reported in earnings. The amortized cost of
specific securities sold is used to compute realized gains and losses.
LOANS AND LEASES: Loans and leases are stated at the principal amount
outstanding, net of unearned discount. Interest income on loans is primarily
accrued based on principal amounts outstanding. Income from lease financing is
recognized on a basis to achieve a constant periodic rate of return on the
outstanding investment.
Commercial and real estate loans are placed on non-accrual status and stop
accruing interest when collection of principal or interest is in doubt. 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.
Huntington uses the cost recovery method in accounting for cash received on
non-accrual loans. Under this method, cash receipts are applied entirely against
principal until the loan has been collected in full, after which time any
additional cash receipts are recognized as interest income.
Net direct loan origination costs/fees, when material, are deferred and
amortized over the term of the loan as a yield adjustment.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses reflects
management's judgment as to the level considered appropriate to absorb inherent
losses in the loan portfolio. This judgment is based on a review of individual
loans, historical loss experience, economic conditions, portfolio trends, and
other factors. The allowance is increased by provisions charged to earnings and
reduced by charge-offs, net of recoveries.
The portion of the allowance for loan losses related to impaired loans
(non-accruing and restructured credits, exclusive of smaller, homogeneous loans)
is based on discounted cash flows using the loans initial effective interest
rate or the fair value of the collateral for collateral-dependent loans.
33
<PAGE> 35
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 | ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE: Other real estate acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower of
cost or fair value less estimated costs of disposition. At the date of
acquisition, any losses are charged to the allowance for loan losses. Subsequent
write-downs are included in non-interest expense. Realized losses from
disposition of the property and declines in fair value that are considered
permanent are charged to the reserve for other real estate, as applicable.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for buildings, 10 to 20
years for building improvements, 10 years for land improvements, 3 to 7 years
for equipment, and 10 years for furniture and fixtures.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are reported at the
lower of cost or aggregate market value primarily as determined by outstanding
commitments from investors.
Capitalized mortgage servicing rights (MSRs) are evaluated for impairment
based on the fair value of those rights, using a disaggregated approach. MSRs
are amortized on an accelerated basis over the estimated period of net servicing
revenue.
BUSINESS COMBINATIONS: Net assets of entities acquired, for which the
purchase method of accounting was used by Huntington, were recorded at their
estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
generally up to 25 years. Core deposits and other identifiable acquired
intangible assets are amortized over their estimated useful lives. Management
reviews intangible assets arising from business combinations for impairment
whenever a significant event occurs that adversely affects operations or when
changes in circumstances indicate that the carrying value may not be
recoverable. Impairment is measured using estimates of the discounted future
earnings potential of the entity or assets acquired.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Huntington uses certain
off-balance sheet financial instruments, principally interest rate swaps, in
connection with its asset/liability management activities. Purchased interest
rate options (including caps and floors), futures, and forwards are also used to
manage interest rate risk. Provided these instruments meet specific criteria,
they are considered hedges and accounted for under the accrual or deferral
methods, as more fully discussed below. Off-balance sheet financial instruments
that do not meet the required criteria are carried on the balance sheet at fair
value with realized and unrealized changes in that value recognized in earnings.
Similarly, if the hedged item is sold or its outstanding balance otherwise
declines below that of the related hedging instrument, the off-balance sheet
product is marked-to-market and the resulting gain or loss is included in
earnings. Accrual accounting is used when the cash flows attributable to the
hedging instrument satisfy the objectives of the asset/liability management
strategy. Huntington uses the accrual method for substantially all of its
interest rate swaps as well as for interest rate options. Amounts receivable or
payable under these agreements are recognized as an adjustment to the interest
income or expense of the hedged item. There is no recognition on the balance
sheet for changes in the fair value of the hedging instrument, except for
interest rate swaps designated as hedges of securities available for sale, for
which changes in fair values are reported in accumulated other comprehensive
income. Premiums paid for interest rate options are deferred as a component of
other assets and amortized to interest income or expense over the contract term.
Gains and losses on terminated hedging instruments are also deferred and
amortized to interest income or expense generally over the remaining life of the
hedged item.
Huntington employs deferral accounting when the market value of the hedging
instrument meets the objectives of the asset/liability management strategy and
the hedged item is reported at other than fair value. In such cases, gains and
losses associated with futures and forwards are deferred as an adjustment to the
carrying value of the related asset or liability and are recognized in the
corresponding interest income or expense accounts over the remaining life of the
hedged item.
STATEMENT OF CASH FLOWS: Cash and cash equivalents are defined as `Cash and
due from banks' and "Federal funds sold and securities purchased under resale
agreements."
34
<PAGE> 36
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 2 | SECURITIES
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1999 and 1998, were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
UNREALIZED
-----------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1999
<S> <C> <C> <C> <C>
U.S. Treasury $ 528,227 $ -- $ 31,586 $ 496,641
Federal Agencies
Mortgage-backed securities 1,665,411 5 64,084 1,601,332
Other agencies 2,155,922 55 88,608 2,067,369
---------- ---------- ---------- ----------
Total U.S. Treasury and Federal Agencies 4,349,560 60 184,278 4,165,342
Other Securities 666,511 58,463 20,113 704,861
---------- ---------- ---------- ----------
Total securities available for sale $5,016,071 $ 58,523 $ 204,391 $4,870,203
========== ========== ========== ==========
AT DECEMBER 31, 1998
U.S. Treasury $ 234,496 $ 8,820 $ -- $ 243,316
Federal Agencies
Mortgage-backed securities 1,444,075 12,098 3,985 1,452,188
Other agencies 2,387,137 21,892 8,399 2,400,630
---------- ---------- ---------- ----------
Total U.S. Treasury and Federal Agencies 4,065,708 42,810 12,384 4,096,134
Other Securities 677,509 11,689 3,917 685,281
---------- ---------- ---------- ----------
Total securities available for sale $4,743,217 $ 54,499 $ 16,301 $4,781,415
========== ========== ========== ==========
</TABLE>
Contractual maturities of securities available for sale as of December 31, 1999
and 1998, were:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(in thousands of dollars) COST VALUE COST VALUE
- --------------------------------------------------------------------------------
Under 1 year $ 21,606 $ 21,633 $ 8,492 $ 8,485
1 - 5 years 1,093,746 1,061,445 1,220,852 1,231,499
6 - 10 years 1,132,691 1,069,151 1,140,334 1,161,035
Over 10 years 2,757,504 2,651,733 2,365,180 2,373,092
Marketable equity securities 10,524 66,241 8,359 7,304
---------- ---------- ---------- ----------
Total $5,016,071 $4,870,203 $4,743,217 $4,781,415
========== ========== ========== ==========
Gross gains from sales of securities of $37.0 million, $41.5 million, and
$12.3 million were realized in 1999, 1998, and 1997, respectively. Gross losses
totaled $24.0 million in 1999, $11.7 million in 1998, and $4.3 million in 1997.
Huntington securitized and transferred to securities available for sale $108.7
million of residential mortgage loans in 1998.
35
<PAGE> 37
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 2 | SECURITIES (CONTINUED)
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1999 and 1998, were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
UNREALIZED
---------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
U.S. Treasury and Federal Agencies $ -- $ -- $ -- $ --
States and political subdivisions 18,765 78 181 18,662
------- ------- ------- -------
Total investment securities $18,765 $ 78 $ 181 $18,662
======= ======= ======= =======
AT DECEMBER 31, 1998
U.S. Treasury and Federal Agencies $ 156 $ -- $ -- $ 156
States and political subdivisions 24,778 154 44 24,888
------- ------- ------- -------
Total investment securities $24,934 $ 154 $ 44 $25,044
======= ======= ======= =======
</TABLE>
Amortized cost and fair values by contractual maturity at December 31, 1999 and
1998, were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(in thousands of dollars) COST VALUE COST VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 1 year $ 2,410 $ 2,389 $ 4,318 $ 3,937
1 - 5 years 12,911 12,855 13,466 13,686
6 - 10 years 2,872 2,859 5,463 5,674
Over 10 years 572 559 1,687 1,747
------- ------- ------- -------
Total $18,765 $18,662 $24,934 $25,044
======= ======= ======= =======
</TABLE>
NOTE 3 | LOANS
At December 31, 1999 and 1998, loans were comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial (unearned income of $2,550 and $2,841) $ 6,300,414 $ 6,026,736
Real estate
Construction 1,236,776 919,326
Commercial 2,151,673 2,231,786
Residential 1,444,544 1,408,289
Consumer
Loans (unearned income of $5,974 and $8,151) 6,793,295 6,957,259
Leases (unearned income of $410,239 and $262,684) 2,741,735 1,911,155
----------- -----------
TOTAL LOANS $20,668,437 $19,454,551
=========== ===========
</TABLE>
During the fourth quarter of 1999, Huntington sold its credit card
portfolio of approximately $541 million in receivables, resulting in a net gain
of $108.5 million.
36
<PAGE> 38
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 3 | LOANS (CONTINUED)
Huntington's subsidiaries have granted loans to their officers, directors,
and their associates. Such loans were made in the ordinary course of business
under normal credit terms, including interest rate and collateralization, and do
not represent more than the normal risk of collection. These loans to related
parties are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 132,169 $ 206,971
Loans made 166,064 97,887
Repayments (146,116) (161,945)
Changes due to status of executive officers and directors (22,027) (10,744)
--------- ---------
Balance, end of year $ 130,090 $ 132,169
========= =========
</TABLE>
NOTE 4 | ALLOWANCE FOR LOAN LOSSES
A summary of the transactions in the allowance for loan losses and details
regarding impaired loans follows for the three years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 290,948 $ 258,171 $ 230,778
Allowance of assets acquired/other -- 22,042 7,777
Loan losses (112,291) (126,355) (110,723)
Recoveries of loans previously charged off 32,205 31,848 22,542
Provision for loan losses 88,447 105,242 107,797
--------- --------- ---------
BALANCE, END OF YEAR $ 299,309 $ 290,948 $ 258,171
========= ========= =========
RECORDED BALANCE OF IMPAIRED LOANS, AT END OF YEAR:
With related allowance for loan losses $ 8,897 $ 13,277 $ 20,593
With no related allowance for loan losses 30,594 18,340 14,166
--------- --------- ---------
Total $ 39,491 $ 31,617 $ 34,759
========= ========= =========
AVERAGE BALANCE OF IMPAIRED LOANS FOR THE YEAR $ 30,663 $ 32,547 $ 33,968
========= ========= =========
ALLOWANCE FOR LOAN LOSS RELATED TO IMPAIRED LOANS $ 4,523 $ 4,459 $ 6,449
========= ========= =========
</TABLE>
37
<PAGE> 39
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 | PREMISES AND EQUIPMENT
At December 31, 1999 and 1998, premises and equipment stated at cost were
comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 73,989 $ 61,902
Buildings 257,738 257,066
Leasehold improvements 104,631 98,162
Equipment 426,930 439,435
-------- --------
Total premises and equipment 863,288 856,565
Less accumulated depreciation and amortization 424,417 409,527
-------- --------
NET PREMISES AND EQUIPMENT $438,871 $447,038
======== ========
</TABLE>
Depreciation and amortization charged to expense and rental income credited to
occupancy expense were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total depreciation and amortization of premises and equipment $53,779 $40,489 $41,383
======= ======= =======
Rental income credited to occupancy expense $12,896 $13,133 $14,842
======= ======= =======
</TABLE>
In 1998, Huntington entered into a sale/leaseback arrangement that included
the sale of 59 properties with a book value approximating $110 million. This
arrangement included a mix of branch banking offices, regional offices, and
operations facilities, which Huntington will continue to operate under a
long-term lease. The proceeds of $174.1 million received from the transaction
were used to reduce short-term debt. The resulting deferred gain is being
amortized as a reduction of occupancy expense over the lease term.
NOTE 6 | SHORT-TERM BORROWINGS
At December 31, 1999 and 1998, short-term borrowings were comprised of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold under agreements to repurchase $2,065,192 $2,137,374
Commercial paper 10,832 30,133
Other 45,965 49,137
---------- ----------
TOTAL SHORT-TERM BORROWINGS $2,121,989 $2,216,644
========== ==========
</TABLE>
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Average balance during the year $ 1,409,106 $1,304,499
Average interest rate during the year 4.10% 4.48%
Maximum month-end balance during the year $ 1,687,186 $1,647,599
</TABLE>
Commercial paper is issued by Huntington Bancshares Financial Corporation,
a non-bank subsidiary, with principal and interest guaranteed by Huntington
Bancshares Incorporated (Parent Company).
Huntington has the ability to borrow under a line of credit totaling $200
million to support commercial paper borrowings or other short-term working
capital needs. Under the terms of the agreement, a quarterly fee must be paid
and there are no compensating balances required. The line is cancelable by
Huntington upon written notice and terminates August 23, 2000. There were no
borrowings under the line in 1999 or 1998.
Securities pledged to secure public or trust deposits, repurchase
agreements, and for other purposes were $3.3 billion and $2.0 billion at
December 31, 1999 and 1998, respectively.
38
<PAGE> 40
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 7 | DEBT
At December 31, 1999 and 1998, Huntington's debt consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDIUM-TERM
Subsidiary bank (maturing through 2005) $ 3,254,150 $ 2,479,900
Parent company --- 60,000
--------------- --------------
TOTAL MEDIUM-TERM DEBT 3,254,150 2,539,900
--------------- --------------
LONG-TERM
Subordinated notes, 7 5/8 % , maturing in 2003, face value $150,000 at December 31,
1999 and 1998, net of discount 149,792 149,724
Subordinated notes, 7 7/8%, maturing in 2002, face value $150,000 at December 31,
1999 and 1998, net of discount 149,633 149,505
Subordinated notes, 6 3/4%, maturing in 2003, face value $100,000 at December 31,
1999 and 1998, net of discount 99,886 99,852
Subordinated notes, 6 3/5%, maturing in 2018, face value $200,000 at December 31,
1999 and 1998, net of discount 198,366 198,278
Subordinated notes, Floating Rate, maturing in 2008, face value $100,000 at
December 31, 1999 and 1998, net of discount 100,000 100,000
Federal Home Loan Bank notes matured November 1999 --- 10,000
--------------- --------------
TOTAL SUBORDINATED NOTES AND OTHER LONG-TERM DEBT 697,677 707,359
--------------- --------------
TOTAL DEBT $ 3,951,827 $ 3,247,259
=============== ==============
</TABLE>
PARENT COMPANY OBLIGATIONS:
The 7 7/8% Notes are not redeemable prior to maturity in 2002, and do not
provide for any sinking fund. Interest rate swaps were used by Huntington to
convert the Notes to a variable interest rate. At December 31, 1999, the
effective interest rate on the swap-adjusted Notes was 6.47%.
SUBSIDIARY OBLIGATIONS:
The 7 5/8% Notes and the 6 3/4% Notes were both issued by The Huntington
National Bank in 1993. Adjusted for the effects of interest rate swaps, the
effective rates were 5.67% and 6.31% at December 31, 1999, respectively. These
Notes are not redeemable prior to maturity in 2003, and do not provide for any
sinking fund. The 6 3/5% Notes and the Floating Rate Notes were issued by The
Huntington National Bank in 1998. Adjusted for the effects of interest rate
swaps, the interest rates were 6.58% and 6.57% at December 31, 1999,
respectively. The Floating Rate Notes are based on the three-month London
Interbank Offered Rate (LIBOR).
The Medium-term bank notes had weighted average interest rates of 5.83% and
6.31% at December 31, 1999 and 1998, respectively. The stated interest rates on
certain of these notes have also been modified by interest rate swaps. At
December 31, 1999 and 1998, the weighted average effective interest rate on the
swap-adjusted Medium-term bank notes was 5.84% and 5.16%, respectively.
The terms of Huntington's medium and long-term debt obligations contain
various restrictive covenants including limitations on the acquisition of
additional debt in excess of specified levels, dividend payments, and the
disposition of subsidiaries. As of December 31, 1999, Huntington was in
compliance with all such covenants.
The following table summarizes the maturities of Huntington's medium and
long-term debt:
- -----------------------------------------------------
YEAR (in thousands of dollars)
- -----------------------------------------------------
2000 $ 1,507,000
2001 1,205,000
2002 497,150
2003 305,000
2004 125,000
2005 and thereafter 315,000
-------------
3,954,150
Discount (2,323)
-------------
Total $ 3,951,827
=============
39
<PAGE> 41
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 8 | CAPITAL SECURITIES
The Company obligated mandatorily redeemable preferred capital securities
of subsidiary trusts holding solely the junior subordinated debentures of the
parent company ("Capital Securities") were issued by two business trusts,
Huntington Capital I and II ("the Trusts"). Huntington Capital I was formed in
January 1997 while Huntington Capital II was formed in June 1998. The proceeds
from the issuance of the capital and common securities were used to purchase
debentures of the parent company. The Trusts hold solely junior subordinated
debentures of the parent company and are the only assets of the Trusts. Both the
debentures and related income statement effects are eliminated in Huntington's
consolidated financial statements.
The parent company has entered into contractual arrangements that, taken
collectively and in the aggregate, constitute a full and unconditional guarantee
by the parent company of the Trusts' obligations under the capital securities
issued. The contractual arrangements guarantee payment of (a) accrued and unpaid
distributions required to be paid on the Capital Securities; (b) the redemption
price with respect to any capital securities called for redemption by Huntington
Capital I or II; and (c) payments due upon voluntary or involuntary liquidation,
winding-up, or termination of Huntington Capital I or II. The capital and common
securities and related debentures are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------
Interest
Rate of Maturity of
Principal Securities Capital
Capital Common Amount of and Securities and
(in thousands of dollars) Securities Securities Debentures Debentures Debentures
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Huntington Capital I $ 200,000 $6,186 $206,186 LIBOR + .70%(1) 02/01/2027
Huntington Capital II 100,000 3,093 103,093 LIBOR + .625%(2) 06/15/2028
-------------- ------------ ---------------
Total $ 300,000 $9,279 $309,279
============== ============ ===============
</TABLE>
(1) Variable effective rate at December 31, 1999 and 1998, of 6.91% and 5.92%,
respectively.
(2) Variable effective rate at December 31, 1999 and 1998, of 6.75% and 5.85%,
respectively.
NOTE 9 | OPERATING LEASES
At December 31, 1999, Huntington and its subsidiaries were obligated under
noncancelable leases for land, buildings, and equipment. Many of these leases
contain renewal options, and certain leases provide options to purchase the
leased property during or at the expiration of the lease period at specified
prices. Some leases contain escalation clauses calling for rentals to be
adjusted for increased real estate taxes and other operating expenses, or
proportionately adjusted for increases in the consumer or other price indices.
The following summary reflects the future minimum rental payments, by year,
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1999.
- -------------------------------------------------------
YEAR (in thousands of dollars)
- -------------------------------------------------------
2000 $ 47,713
2001 44,000
2002 41,035
2003 38,090
2004 35,032
2005 and thereafter 368,763
-------------
Total $574,633
=============
Total minimum lease payments have not been reduced by minimum sublease
rentals of $52.0 million due in the future under noncancelable subleases. The
rental expense for all operating leases was $39.1 million for 1999 compared with
$31.0 million in 1998 and $29.0 million in 1997.
40
<PAGE> 42
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 10 | BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan
covering substantially all employees. The plan provides benefits based upon
length of service and compensation levels. The funding policy of Huntington is
to contribute an annual amount which is at least equal to the minimum funding
requirements but not more than that deductible under the Internal Revenue Code.
Plan assets, held in trust, primarily consist of mutual funds.
Huntington's unfunded defined benefit post-retirement plan provides certain
health care and life insurance benefits to retired employees who have attained
the age of 55 and have at least 10 years of service. For any employee retiring
on or after January 1, 1993, post-retirement healthcare and life insurance
benefits are based upon the employee's number of months of service and are
limited to the actual cost of coverage.
The following table reconciles the funded status of the pension plan and
the post-retirement benefit plan at the applicable September 30 measurement
dates with the amounts recognized in the consolidated balance sheet at
December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PENSION POST-RETIREMENT
BENEFITS BENEFITS
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Projected benefit obligation at
beginning of measurement year $ 198,541 $ 178,325 $ 46,451 $ 40,477
Changes due to:
Service cost 11,081 11,979 1,494 1,410
Interest cost 13,622 12,897 3,249 3,080
Benefits paid (18,227) (19,217) (3,130) (3,148)
Plan amendments 12,049 --- (549) 846
Actuarial assumptions (6,172) 14,557 899 3,786
------------- ------------ ------------- ------------
Total changes 12,353 20,216 1,963 5,974
------------- ------------ ------------- ------------
Projected benefit obligation at end of measurement year 210,894 198,541 48,414 46,451
------------- ------------ ------------- ------------
Fair value of plan assets at beginning of
measurement year 179,727 194,336 --- ---
Changes due to:
Actual return on plan assets 16,194 4,608 --- ---
Benefits paid (18,227) (19,217) --- ---
------------- ------------ ------------- ------------
Total changes (2,033) (14,609) --- ---
------------- ------------ ------------- ------------
Fair value of plan assets at end of measurement year 177,694 179,727 --- ---
------------- ------------ ------------- ------------
Projected benefit obligation greater
than plan assets (33,200) (18,814) (48,414) (46,451)
Unrecognized net actuarial (gain) loss (1,978) 2,145 (575) (1,119)
Unrecognized prior service cost (204) (13,578) 7,836 9,078
Unrecognized transition (asset)
liability, net of amortization (1,156) (1,545) 16,390 17,649
------------- ------------ ------------- ------------
Accrued liability at measurement date (36,538) (31,792) (24,763) (20,843)
Fourth quarter contribution 40,000 --- --- ---
------------- ------------ ------------- ------------
Prepaid (accrued) liability at end of year $ 3,462 $ (31,792) $(24,763) $ (20,843)
============= ============ ============= ============
Weighted-average assumptions at September 30:
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 9.25% 9.25% N/A N/A
Rate of compensation increase 5.00% 5.00% N/A N/A
</TABLE>
41
<PAGE> 43
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 10 | BENEFIT PLANS (CONTINUED)
The following table shows the components of pension cost recognized in 1999,
1998, and 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PENSION BENEFITS POST-RETIREMENT BENEFITS
---------------------------------------- ------------------------------------
(in thousands of dollars) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 11,081 $ 11,979 $ 10,698 $ 1,494 $ 1,410 $ 959
Interest cost 13,622 12,897 12,502 3,249 3,080 2,386
Expected return on plan assets (16,906) (16,447) (14,197) --- --- ---
Amortization of transition asset (389) (442) (473) 1,261 1,261 1,331
Amortization of prior service cost (1,326) (1,326) 1 694 670 259
Recognized net actuarial gain (1,336) (2,669) (3,624) --- (52) (323)
------------ ------------ ------------ ---------- ----------- ----------
Benefit cost $ 4,746 $ 3,992 $ 4,907 $ 6,698 $ 6,369 $ 4,612
============ ============ ============ ========== =========== ==========
</TABLE>
The 2000 health care cost trend rate was projected to be 7.75% for pre-65
participants and 7.00% for post-65 participants compared with estimates of 8.50%
and 7.50% in 1999. These rates are assumed to decrease gradually until they
reach 4.75% in the year 2006 and remain at that level thereafter.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage point increase would increase service and
interest costs and the post-retirement benefit obligation by $133 thousand and
$1.8 million, respectively. A one-percentage point decrease would reduce service
and interest costs by $138 thousand and the post-retirement benefit obligation
by $1.7 million.
Huntington also sponsors an unfunded Supplemental Executive Retirement
Plan, a nonqualified plan that provides certain key officers of Huntington and
its subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1999 and 1998, the accrued pension liability
for this plan totaled $10.7 million and $9.8 million, respectively. Pension
expense for the plan was $1.1 million in 1999, $1.2 million in 1998, and $1.3
million in 1997.
Huntington has a contributory employee investment and tax savings plan
available to eligible employees. The plan was restated from an employee stock
purchase plan effective April 1, 1998, and renamed the Huntington Investment and
Tax Savings Plan. Matching contributions by Huntington equal 100% on the first
3% and 50% on the next 2% of participant elective deferrals. The cost of
providing this plan was $7.5 million in 1999, $8.3 million in 1998, and $9.7
million in 1997.
NOTE 11 | STOCK OPTIONS
Huntington sponsors non-qualified and incentive stock option plans covering
key employees. Approximately 21.7 million shares have been authorized under the
plans, 5.3 million of which were available at December 31, 1999 for future
grants. All options granted have a maximum term of ten years. Options that were
granted in 1999 and 1998 vest ratably over three years while those granted in
1994 through 1997 vest ratably over four years. All grants preceding 1994 became
fully exercisable after one year.
The fair value of the options granted, as presented below, was estimated at
the date of grant using a Black-Scholes option pricing model. The following
weighted-average assumptions were used for 1999, 1998, and 1997, respectively:
risk-free interest rates of 5.60%, 5.28%, and 6.44%; dividend yields of 2.49%,
2.59%, and 2.86%; volatility factors of the expected market price of
Huntington's common stock of 39.7%, 26.2%, and 26.2%; and a weighted-average
expected option life of 6 years.
42
<PAGE> 44
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 11 | STOCK OPTIONS (CONTINUED)
Huntington's stock option activity and related information for the three
years ended December 31 is summarized below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
OPTIONS EXERCISE Options Exercise Options Exercise
(in 000's) PRICE (in 000's) Price (in 000's) Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 5,677 $ 18.00 5,959 $ 13.89 5,673 $ 11.32
Granted/Acquired 2,142 30.43 1,368 28.10 1,455 22.85
Exercised (556) 10.52 (1,406) 9.93 (980) 12.23
Forfeited/Expired (245) 26.79 (244) 20.75 (189) 14.26
----------- ------------ -----------
Outstanding at end of year 7,018 $ 22.08 5,677 $ 18.00 5,959 $ 13.89
=========== ============ ===========
Exercisable at end of year 3,068 $ 13.98 3,197 $ 13.20 3,566 $ 10.55
=========== ============ ===========
Weighted-average fair value of
options granted during the year $ 11.22 $ 7.81 $ 6.31
</TABLE>
Exercise prices for options outstanding as of December 31, 1999, ranged
from $4.82 to $31.19. The weighted-average remaining contractual life of these
options is 7.1 years.
Huntington has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123 (FAS
123), "Accounting for Stock-Based Compensation", requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of Huntington's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
As permissible under FAS 123, Huntington is presenting the following pro
forma disclosures for net income and earnings per common share as if the fair
value method of accounting had been applied in measuring compensation costs for
stock options. The Black-Scholes option pricing model assumes that the estimated
fair value of the options is amortized over the options' vesting periods and the
compensation costs would be included in personnel expense on the income
statement.
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
(in millions, except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------
PRO FORMA
Net income $ 414.7 $ 297.8 $290.6
Earnings per common share--diluted $ 1.78 $ 1.27 $ 1.24
43
<PAGE> 45
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 12 | INCOME TAXES
The following is a summary of the provision for income taxes:
- ------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ------------------------------------------------------------------------------
Currently payable
Federal $106,932 $ 133,012 $ 115,197
State 1,017 2,573 3,617
------------ ------------ ------------
Total current 107,949 135,585 118,814
------------ ------------ ------------
Deferred tax expense
Federal 83,555 1,972 46,088
State 1,193 797 1,599
------------ ------------ ------------
Total deferred 84,748 2,769 47,687
------------ ------------ ------------
PROVISION FOR INCOME TAXES $192,697 $ 138,354 $ 166,501
============ ============ ============
Tax expense associated with securities transactions included in the above
amounts were $5.7 million in 1999, $10.8 million in 1998, and $2.9 million in
1997.
The following is a reconcilement of income tax expense to the amount computed at
the statutory rate of 35%:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income computed at the statutory rate $ 215,170 $ 154,043 $160,708
Increases (decreases):
Tax-exempt interest income (18,677) (16,107) (7,101)
State income taxes 1,438 2,191 3,391
Other-net (5,234) (1,773) 9,503
---------------- -------------- -------------
PROVISION FOR INCOME TAXES $ 192,697 $ 138,354 $166,501
================ ============== =============
</TABLE>
The significant components of deferred tax assets and liabilities at December
31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 106,831 $ 94,056
Pension and other employee benefits 16,265 29,689
Other 58,338 43,405
---------------- --------------
Total deferred tax assets 181,434 167,150
---------------- --------------
Deferred tax liabilities:
Lease financing 338,636 235,532
Mortgage servicing rights 18,024 19,126
Other 45,981 50,144
---------------- --------------
Total deferred tax liabilities 402,641 304,802
---------------- --------------
Net deferred tax liability excluding unrealized
gains (losses) on securities 221,207 137,652
Deferred tax (asset) liability on unrealized gains
(losses) on securities (50,666) 13,369
---------------- --------------
Net deferred tax liability $ 170,541 $ 151,021
================ ==============
</TABLE>
44
<PAGE> 46
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 13 | OFF-BALANCE SHEET TRANSACTIONS
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1999 and 1998, is presented below:
- -----------------------------------------------------------------------
(in millions of dollars) 1999 1998
- -----------------------------------------------------------------------
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial $ 3,926 $ 3,833
Consumer 2,320 3,820
Other --- 227
Standby letters of credit 803 758
Commercial letters of credit 169 138
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps 5,525 4,673
Purchased interest rate options 1,289 965
Interest rate forwards and futures 212 620
Trading activities
Interest rate swaps 619 496
Interest rate options 392 68
Commitments to extend credit generally have short-term, fixed expiration
dates, are variable rate, and contain clauses that permit Huntington to
terminate or otherwise renegotiate the contracts in the event of a significant
deterioration in the customer's credit quality. These arrangements normally
require the payment of a fee by the customer, the pricing of which is based on
prevailing market conditions, credit quality, probability of funding, and other
relevant factors. Since many of these commitments are expected to expire without
being drawn upon, the contract amounts are not necessarily indicative of future
cash requirements. The interest rate risk arising from these financial
instruments is insignificant as a result of their predominantly short-term,
variable rate nature.
Standby letters of credit are conditional commitments issued by Huntington
to guarantee the performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most of
these arrangements mature within two years. Approximately 70% of standby letters
of credit are collateralized, and nearly 85% are expected to expire without
being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments that facilitate customer trade transactions and have maturities of
no longer than ninety days. The merchandise or cargo being traded normally
secures these instruments.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount. Huntington
enters into swaps to synthetically alter the repricing characteristics of
designated earning assets and interest bearing liabilities and, on a much more
limited basis, as an intermediary for customers. Because only interest payments
are exchanged, cash requirements of swaps are significantly less than the
notional amounts.
Interest rate futures are commitments to either purchase or sell a
financial instrument at a future date for a specified price or yield and may be
settled in cash or through delivery of the underlying financial instrument.
Forward contracts, used primarily by Huntington in connection with its mortgage
banking activities, settle in cash at a specified future date based on the
differential between agreed interest rates applied to a notional amount.
Huntington also purchases interest rate options (e.g. caps and floors) to manage
fluctuating interest rates. Premiums paid for interest rate options grant
Huntington the right to receive at specified future dates the amount, if any, by
which a specified market interest rate exceeds the fixed cap rate or falls below
the fixed floor rate, applied to a notional amount. Exposure to loss from
interest rate contracts changes as interest rates fluctuate.
45
<PAGE> 47
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 13 | OFF-BALANCE SHEET TRANSACTIONS (CONTINUED)
In the normal course of business, Huntington is party to financial
instruments with varying degrees of credit and market risk in excess of the
amounts reflected as assets and liabilities in the consolidated balance sheet.
Loan commitments and letters of credit are commonly used to meet the financing
needs of customers, while interest rate swaps, purchased options, futures, and
forwards are an integral part of Huntington's asset/liability management
activities. To a much lesser extent, various financial instrument agreements are
entered into to assist customers in managing their exposure to interest rate
fluctuations. These customer agreements, for which Huntington counters interest
rate risk through offsetting third party contracts, are considered trading
activities.
The credit risk arising from loan commitments and letters of credit,
represented by their contract amounts, is essentially the same as that involved
in extending loans to customers, and both arrangements are subject to
Huntington's standard credit policies and procedures. Collateral is obtained
based on management's credit assessment of the customer and, for commercial
transactions, may consist of accounts receivable, inventory, income-producing
properties, and other assets. Residential properties are the principal form of
collateral for consumer commitments.
Notional values of interest rate swaps and other off-balance sheet
financial instruments significantly exceed the credit risk associated with these
instruments and represent contractual balances on which calculations of amounts
to be exchanged are based. Credit exposure is limited to the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. Potential
credit losses are minimized through careful evaluation of counterparty credit
standing, selection of counterparties from a limited group of high quality
institutions, collateral agreements, and other contract provisions. At December
31, 1999, Huntington's credit risk from these off-balance sheet arrangements,
including trading activities, was approximately $75.3 million.
NOTE 14 | COMPREHENSIVE INCOME
The components of Other Comprehensive Income were as follows in each of the
three years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the period:
Unrealized net (losses) gains $ (171,093) $ 45,095 $ 52,806
Related tax benefit (expense) 60,738 (15,837) (18,889)
-------------- ------------ ------------
Net (110,355) 29,258 33,917
-------------- ------------ ------------
Less: Reclassification adjustment for net
gains realized during the period:
Realized net gains 12,972 29,793 7,978
Related tax expense (4,541) (10,428) (2,792)
-------------- ------------ ------------
Net 8,431 19,365 5,186
-------------- ------------ ------------
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME $ (118,786) $ 9,893 $ 28,731
============== ============ ============
</TABLE>
NOTE 15 | LEGAL CONTINGENCIES
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. In the opinion of management,
the aggregate liabilities, if any, arising from such proceedings are not
expected to have a material adverse effect on Huntington's consolidated
financial position.
46
<PAGE> 48
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 16 | 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 three years ended December 31 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 422,074 $301,768 $292,663
============= ============= ============
Average common shares outstanding 230,509 232,569 230,872
Dilutive effect of stock options 1,897 2,231 2,820
------------- ------------- ------------
Diluted common shares outstanding 232,406 234,800 233,692
============= ============= ============
Earnings per share
Basic $1.83 $1.30 $1.27
Diluted $1.82 $1.29 $1.25
</TABLE>
Average common shares outstanding and the dilutive effect of stock options
have been adjusted for subsequent stock dividends and stock splits, as
applicable.
NOTE 17 | 1998 SPECIAL CHARGES
Huntington incurred special charges of $90 million in the fourth quarter
of 1998 to coincide with the announcement of several initiatives to strengthen
financial performance. The special charges included accruals for severance
payments to terminated employees ($26 million), consolidation costs (including
the termination of associated long-term lease contracts) related to 39 banking
offices identified for sale or closure ($20 million), the costs related to the
exit of underperforming product lines and delivery channels ($32 million), and
costs related to the write-off of abandoned information systems equipment and
software ($12 million).
At December 31, 1999, Huntington had substantially completed all of its
strategic initiatives, including the sale or closure of identified banking
offices, discontinuation of various business activities and the targeted
reductions in the workforce that spanned the entire organization to improve
efficiency in back-room operations such as loan and deposit administration.
All significant components of the charges were utilized as of December 31,
1999.
NOTE 18 | MERGERS AND ACQUISITIONS
In June 1998, Huntington completed the acquisition of sixty former Barnett
Banks banking offices in Florida from Bank of America (formerly NationsBank
Corporation). The transaction was accounted for as a purchase, and accordingly,
the assets acquired and liabilities assumed were recorded at estimated fair
value. The purchase added approximately $1.3 billion in loans and $2.3 billion
in deposits. Intangible assets arising from the deal totaled approximately
$459.3 million. The acquired branches' results of operations have been included
in Huntington's consolidated totals from the date of the acquisition only.
47
<PAGE> 49
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 19 | REGULATORY MATTERS
One of the major sources of funds for Huntington (parent company) are
dividends from its bank subsidiary, The Huntington National Bank (HNB). These
funds aid Huntington in the payment of dividends to shareholders, expenses and
other obligations. Payment of dividends to Huntington is subject to various
regulatory restrictions. Regulatory approval is required prior to the
declaration of any dividends in excess of available retained earnings. The
amount of dividends that may be declared without regulatory approval is further
limited to the sum of net income for the current year and retained net income
for the preceding two years, less any required transfers to surplus or common
stock. HNB could, without regulatory approval, declare dividends in 2000 of
approximately $317.0 million plus an additional amount equal to its net income
through the date of declaration in 2000.
HNB is also restricted as to the amount and type of loans it may make to
Huntington. At December 31, 1999, HNB could lend to Huntington $217.5 million,
subject to the qualifying collateral requirements defined in the regulations.
HNB must maintain non interest-bearing cash balances with the Federal Reserve
Bank. During 1999 and 1998, the average balance of these deposits were $393.8
million and $192.5 million respectively.
Huntington and HNB are subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain actions by regulators that, if
undertaken, could have a material effect on Huntington's and HNB's financial
statements. Capital adequacy guidelines require minimum ratios of 4.00% for Tier
1 Risk-based Capital, 8.00% for Total Risk-based Capital, and 3.00% for Tier 1
Leverage. To be considered well capitalized under the regulatory framework for
prompt corrective action, the ratios must be at least 6.00%, 10.00% and 5.00%
respectively.
Capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings of assets and
certain off-balance sheet items, and other factors. As of December 31, 1999 and
1998, Huntington has met all capital adequacy requirements. In addition, HNB had
regulatory capital ratios in excess of the levels established for
well-capitalized institutions.
Presented in the table below are the capital ratios of Huntington and HNB
as well as a comparison of the period-end capital balances with the related
amounts established by the regulatory agencies:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Capital Amounts
----------------------------------------
Well
(in millions of dollars) Ratios Actual Capitalized Minimum
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Tier 1 Risk-Based Capital
Huntington Bancshares Incorporated 7.52% $ 1,903 $ 1,518 $ 1,012
The Huntington National Bank 6.56 1,654 1,514 1,009
Total Risk-Based Capital
Huntington Bancshares Incorporated 10.72 2,712 2,530 2,024
The Huntington National Bank 10.83 2,733 2,523 2,018
Tier 1 Leverage
Huntington Bancshares Incorporated 6.72 1,903 1,416 850
The Huntington National Bank 5.87 1,654 1,409 845
AS OF DECEMBER 31, 1998:
Tier 1 Risk-Based Capital
Huntington Bancshares Incorporated 7.10% $ 1,720 $ 1,454 $ 970
The Huntington National Bank 6.28 1,507 1,440 960
Total Risk-Based Capital
Huntington Bancshares Incorporated 10.73 2,601 2,424 1,939
The Huntington National Bank 10.48 2,515 2,400 1,920
Tier 1 Leverage
Huntington Bancshares Incorporated 6.37 1,720 1,350 810
The Huntington National Bank 5.61 1,507 1,343 806
</TABLE>
48
<PAGE> 50
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 20 | QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data) I Q II Q III Q IV Q
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Interest income $ 495,692 $ 498,500 $ 516,294 $ 515,516
Interest expense 236,171 237,352 247,863 262,854
------------- -------------- ------------- -------------
Net interest income 259,521 261,148 268,431 252,662
------------- -------------- ------------- -------------
Provision for loan losses 25,305 21,026 22,076 20,040
Securities gains 2,310 2,220 537 7,905
Gains on sale of credit card portfolios --- --- --- 108,530
Non-interest income 107,562 115,056 115,117 114,338
Non-interest expense 202,106 202,138 206,189 204,895
Special charges, including merger costs --- --- --- 96,791
------------- -------------- ------------- -------------
Income before income taxes 141,982 155,260 155,820 161,709
Provision for income taxes 45,410 50,285 50,233 46,769
------------- -------------- ------------- -------------
Net income $ 96,572 $ 104,975 $ 105,587 $ 114,940
============= ============== ============= =============
Net income per common share (1)
Basic $0.42 $0.45 $0.46 $0.50
Diluted $0.41 $0.45 $0.46 $0.50
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data) I Q II Q III Q IV Q
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Interest income $ 502,480 $ 491,268 $ 505,221 $ 500,395
Interest expense 247,632 243,839 253,706 233,094
------------- -------------- ------------- -------------
Net interest income 254,848 247,429 251,515 267,301
------------- -------------- ------------- -------------
Provision for loan losses 22,181 24,595 24,160 34,306
Securities gains 3,089 14,316 10,615 1,773
Gains on sale of credit card portfolios --- 9,530 --- ---
Non-interest income 92,330 95,810 104,026 106,711
Non-interest expense 196,442 206,678 211,877 208,932
Special charges, including merger costs --- --- --- 90,000
------------- -------------- ------------- -------------
Income before income taxes 131,644 135,812 130,119 42,547
Provision for income taxes 42,158 43,503 41,364 11,329
------------- -------------- ------------- -------------
Net income $ 89,486 $ 92,309 $ 88,755 $ 31,218
============= ============== ============= =============
Net income per common share (1)
Basic $0.38 $0.40 $0.38 $0.13
Diluted $0.38 $0.39 $0.38 $0.13
</TABLE>
(1) Adjusted for stock dividends and stock splits, as applicable.
49
<PAGE> 51
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 21 | NON-INTEREST INCOME AND EXPENSE
A summary of the components in non-interest income follows for the three
years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts $ 156,315 $126,403 $117,852
Mortgage banking 56,890 60,006 55,715
Brokerage and insurance income 52,076 36,710 27,084
Trust services 52,030 50,754 48,102
Bank Owned Life Insurance income 37,560 28,712 ---
Electronic banking fees 37,301 29,202 22,705
Credit card fees 23,314 21,909 20,467
Other 36,587 45,181 42,936
---------- --------- ---------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS AND
AND CREDIT CARD PORTFOLIO SALE GAINS 452,073 398,877 334,861
Securities gains 12,972 29,793 7,978
Gains on sale of credit card portfolios 108,530 9,530 ---
---------- --------- ---------
TOTAL NON-INTEREST INCOME $ 573,575 $438,200 $342,839
========== ========= =========
</TABLE>
A summary of the components in non-interest expense follows for the three
years ended December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Personnel and related costs $ 419,901 $ 428,539 $ 392,793
Equipment 66,666 62,040 57,867
Outside data processing and other services 62,886 74,795 66,683
Net occupancy 62,169 54,123 49,509
Amortization of intangible assets 37,297 25,689 13,019
Marketing 31,076 32,260 32,782
Telecommunications 28,519 29,429 21,527
Legal and other professional services 21,169 25,160 24,931
Printing and supplies 20,227 23,673 21,584
Franchise and other taxes 14,674 22,103 19,836
Other 50,744 46,118 51,414
---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGES 815,328 823,929 751,945
Special charges, including merger costs 96,791 90,000 51,163
---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE $ 912,119 $ 913,929 $ 803,108
========== ========== ==========
</TABLE>
In the fourth quarter of 1999, Huntington recorded a $58.2 million
valuation adjustment related to vehicles underlying certain financing leases,
resulting from recent changes in both business dynamics and economic factors.
This amount was determined based on assumptions as to used car prices at lease
termination and as to the number of vehicles to be returned to Huntington. In
addition, Huntington incurred $38.6 million of additional costs, which included
$21 million associated with its "Huntington 2000+" program. These program costs
included amounts paid for management consulting and other professional services
as well as a special cash award to employees upon Huntington achieving certain
financial goals during 1999.
50
<PAGE> 52
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 22 | SEGMENT REPORTING
Huntington views its operations as five distinct segments. Retail Banking,
Corporate Banking, Dealer Sales, and the Private Financial Group are the
company's major business lines. The fifth segment includes 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. The process is designed around
Huntington's organizational and management structure and accordingly, the
results are not necessarily comparable with similar information published by
other financial institutions. Listed below is certain financial information
regarding Huntington's 1999 and 1998 results by line of business. For a detailed
description of the individual segments, refer to Huntington's Management's
Discussion and Analysis.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 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) $ 564,033 $ 262,280 $ 195,829 $ 28,948 $ 95 $ 1,051,185
Provision for Loan Losses 31,510 14,457 41,561 919 --- 88,447
Non-Interest income 275,977 66,847 (1,130) 46,586 185,295 573,575
Non-Interest expense 545,292 128,050 106,078 39,823 92,876 912,119
Income Taxes/FTE Adjustment 85,371 60,630 13,841 11,268 31,010 202,120
------------ ------------ ------------ ------------ ------------ --------------
Net income $ 177,837 $ 125,990 $ 33,219(1) $ 23,524 $ 61,504 $ 422,074
============ ============ ============ ============ ============ ==============
Depreciation and Amortization $ 60,242 $ 8,625 $ 1,130 $ 1,412 $ 41,082 $ 112,491
============ ============ ============ ============ ============ ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,928 $ 7,287 $ 6,206 $ 588 $ 7,730 $ 28,739
Average Deposits $ 16,885 $ 1,036 $ 63 $ 534 $ 689 $ 19,207
Capital Expenditures $ 17 $ 3 $ 1 $ --- $ 55 $ 76
</TABLE>
(1) Includes $37,830 million, net of tax, from lease residual valuation
adjustment. Excluding this adjustment, net income was $71,049.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
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) $ 541,560 $ 256,963 $ 164,777 $ 31,476 $ 36,624 $ 1,031,400
Provision for Loan Losses 40,408 21,147 42,000 1,687 --- 105,242
Non-Interest income 232,805 72,188 7,993 41,990 83,224 438,200
Non-Interest expense 542,317 140,492 49,078 38,890 143,152 913,929
Income Taxes/FTE Adjustment 62,138 54,632 26,610 10,725 (5,444) 148,661
------------ ------------ ------------ ------------ ------------ --------------
Net income $ 129,502 $ 112,880 $ 55,082 $ 22,164 $ (17,860) $ 301,768
============ ============ ============ ============ ============ ==============
Depreciation and Amortization $ 48,464 $ 5,024 $ 431 $ 974 $ 26,063 $ 80,956
============ ============ ============ ============ ============ ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,034 $ 6,699 $ 5,287 $ 621 $ 7,251 $ 26,892
Average Deposits $ 16,375 $ 1,007 $ 62 $ 475 $ 494 $ 18,413
Capital Expenditures $ 48 $ 6 $ --- $ --- $ 93 $ 147
</TABLE>
51
<PAGE> 53
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 23 | FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington's financial
instruments at December 31 are presented in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(in thousands of dollars) AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term assets $ 1,235,439 $ 1,235,439 $ 1,454,142 $ 1,454,142
Trading account securities 7,975 7,975 3,839 3,839
Mortgages held for sale 141,723 141,723 466,664 466,664
Securities 4,888,968 4,888,865 4,806,349 4,806,459
Loans 20,369,128 20,380,713 19,163,603 19,338,129
Customers' acceptance liability 17,167 17,167 22,591 22,591
Interest rate contracts:
Asset/liability management 21,491 19,147 19,610 67,507
Customer accommodation 12,950 12,950 9,638 9,638
FINANCIAL LIABILITIES:
Deposits 19,792,603 19,803,657 19,722,772 19,788,328
Short-term borrowings 2,121,989 2,121,989 2,216,644 2,216,644
Bank acceptances outstanding 17,167 17,167 22,591 22,591
Medium-term notes 3,254,150 3,272,348 2,539,900 2,560,426
Subordinated notes and other long-term debt 697,677 727,789 707,359 733,083
Capital Securities 300,000 300,652 300,000 299,609
Interest rate contracts:
Asset/liability management --- 72,991 --- 11,126
Customer accommodation 10,765 10,765 7,388 7,388
</TABLE>
Certain assets, the most significant being Bank Owned Life Insurance and
premises and equipment, do not meet the definition of a financial instrument and
are excluded from this disclosure. Similarly, mortgage servicing rights and
deposit base and other customer relationship intangibles are not considered
financial instruments and are not discussed below. Accordingly, this fair value
information is not intended to, and does not, represent Huntington's underlying
value. Many of the assets and liabilities subject to the disclosure requirements
are not actively traded, requiring fair values to be estimated by management.
These estimations necessarily involve the use of judgment about a wide variety
of factors, including but not limited to, relevancy of market prices of
comparable instruments, expected future cash flows, and appropriate discount
rates.
The terms and short-term nature of certain assets and liabilities result in
their carrying value approximating fair value. These include cash and due from
banks, interest bearing deposits in banks, trading account securities, federal
funds sold and securities purchased under resale agreements, customers'
acceptance liabilities, short-term borrowings, and bank acceptances outstanding.
Loan commitments and letters of credit generally have short-term, variable rate
features and contain clauses that limit Huntington's exposure to changes in
customer credit quality. Accordingly, their carrying values, which are
immaterial at the respective balance sheet dates, are reasonable estimates of
fair value.
The following methods and assumptions were used by Huntington to estimate
the fair value of the remaining classes of financial instruments:
Mortgages held for sale - valued at the lower of aggregate cost or market
value primarily as determined using outstanding commitments from investors.
Securities available for sale and investment securities - based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. The carrying
amount and fair value of securities exclude the fair value of asset/liability
management interest rate contracts designated as hedges of securities available
for sale.
52
<PAGE> 54
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 23 | FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans and leases - variable rate loans that reprice frequently are based on
carrying amounts, as adjusted for estimated credit losses. The fair values for
other loans are estimated using discounted cash flow analyses and employ
interest rates currently being offered for loans with similar terms. The rates
take into account the position of the yield curve, as well as an adjustment for
prepayment risk, operating costs, and profit. This value is also reduced by an
estimate of probable losses in the loan portfolio. Although not considered
financial instruments, lease financing receivables have been included in the
loan totals at their carrying amounts.
Deposits - demand deposits, savings accounts, and money market deposits
are, by definition, equal to the amount payable on demand. The fair values of
fixed rate time deposits are estimated by discounting cash flows using interest
rates currently being offered on certificates with similar maturities.
Debt - fixed rate long-term debt, as well as medium-term notes and Capital
Securities, are based upon quoted market prices or, in the absence of quoted
market prices, discounted cash flows using rates for similar debt with the same
maturities. The carrying amount of variable rate obligations approximates fair
value.
Off-balance sheet derivatives - interest rate swap agreements and other
off-balance sheet interest rate contracts are based upon quoted market prices or
prices of similar instruments, when available, or calculated with pricing models
using current rate assumptions.
NOTE 24 | PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 100,804 $ 179,981
Securities available for sale 81,241 22,659
Due from subsidiaries
Bank subsidiary 330,487 220,842
Non-bank subsidiaries 33,646 18,859
Investment in subsidiaries on the equity method
Bank subsidiary 2,182,420 2,235,414
Non-bank subsidiaries 26,761 24,110
Excess of cost of investment in subsidiaries over net assets acquired 11,016 11,586
Other assets 88,221 86,227
----------- -----------
TOTAL ASSETS $2,854,596 $2,799,678
=========== ===========
LIABILITIES AND EQUITY
Short-term borrowings $ 11,327 $ 30,644
Medium-term notes --- 60,000
Subordinated notes
Subsidiary trusts 309,279 309,279
Unaffiliated companies 149,633 149,505
Dividends payable 45,826 42,406
Accrued expenses and other liabilities 156,175 59,049
----------- -----------
TOTAL LIABILITIES 672,240 650,883
----------- -----------
SHAREHOLDERS' EQUITY 2,182,356 2,148,795
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,854,596 $2,799,678
=========== ===========
</TABLE>
53
<PAGE> 55
HUNTINGTON BANCSHARES INCORPORATED
Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 24 | PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from
Bank subsidiary $190,255 $ 186,381 $ 228,892
Non-bank subsidiaries 4,000 4,000 2,961
Interest from
Bank subsidiary 19,748 41,507 18,227
Non-bank subsidiaries 1,194 329 19,032
Other 31,918 3,094 1,537
------------- ------------ ------------
TOTAL INCOME 247,115 235,311 270,649
------------- ------------ ------------
EXPENSE
Interest on debt 31,109 27,340 36,128
Other --- 13,722 30,020
------------- ------------ ------------
TOTAL EXPENSE 31,109 41,062 66,148
------------- ------------ ------------
Income before income taxes and equity in
undistributed net income of subsidiaries 216,006 194,249 204,501
Income tax expense (benefit) 9,271 2,089 (8,630)
------------- ------------ ------------
Income before equity in undistributed
net income of subsidiaries 206,735 192,160 213,131
------------- ------------ ------------
Equity in undistributed net income (loss) of
Bank subsidiary 212,613 106,967 80,523
Non-bank subsidiaries 2,726 2,641 (991)
------------- ------------ ------------
NET INCOME $422,074 $ 301,768 $ 292,663
============= ============ ============
</TABLE>
54
<PAGE> 56
NOTE 24 | PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $422,074 $ 301,768 $ 292,663
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiaries (215,339) (109,608) (79,532)
Provision for amortization and depreciation 2,987 3,244 3,460
Gains on sales of securities available for sale (30,546) --- ---
Increase in other assets (6,538) (14,413) (4,961)
Increase (decrease) in other liabilities 104,800 (15,978) (13,942)
------------ ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 277,438 165,013 197,688
------------ ------------ -------------
INVESTING ACTIVITIES
(Increase) decrease in investments in subsidiaries (5) (386,500) 197,263
(Advances to) repayments from subsidiaries (42,885) 374,140 (71,485)
Proceeds from sales of securities available for sale 30,990 --- ---
Other --- (41) (15,000)
------------ ------------ -------------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (11,900) (12,401) 110,778
------------ ------------ -------------
FINANCING ACTIVITIES
Decrease in short-term borrowings (19,317) (9,881) ---
Proceeds from issuance of subordinated notes to subsidiary trusts --- 100,000 200,000
Payment of long-term debt --- (4,537) (25,000)
Proceeds from issuance of medium-term notes --- --- 40,000
Payment of medium-term notes (60,000) (160,000) (140,000)
Dividends paid on common stock (171,858) (157,632) (132,760)
Acquisition of treasury stock (97,957) (31,192) (56,175)
Proceeds from issuance of treasury stock 4,417 4,685 27,266
------------ ------------ -------------
NET CASH USED FOR FINANCING ACTIVITIES (344,715) (258,557) (86,669)
------------ ------------ -------------
CHANGE IN CASH AND CASH EQUIVALENTS (79,177) (105,945) 221,797
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 179,981 285,926 64,129
------------ ------------ -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $100,804 $ 179,981 $ 285,926
============ ============ =============
</TABLE>
Supplemental data required for this item is set forth in Item 7 on page 27
under the caption "Selected Quarterly Income Statement Data."
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
55
<PAGE> 57
Part III
--------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth under the captions "Class I
Directors," "Class II Directors," and "Class III Directors" on pages 2 through 5
under the caption "Executive Officers of the Corporation" on pages 20 and 21,
and under the caption "Section 16(a) Beneficial Ownership Reporting Compliance"
on page 21, of Huntington's 2000 Proxy Statement, and is incorporated herein by
reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this item is set forth under the caption "Executive
Compensation" on pages 8 through 19, and under the caption "Compensation of
Directors" on page 5, of Huntington's 2000 Proxy Statement, and is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth under the caption "Ownership
of Voting Stock" on pages 6 and 7, of Huntington's 2000 Proxy Statement, and is
incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under the caption
"Transactions With Directors and Executive Officers" on pages 7 and 8, and under
the caption "Compensation Committee Interlocks and Insider Participation" on
page 15 of Huntington's 2000 Proxy Statement, and is incorporated herein by
reference.
Part IV
-------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The report of independent auditors and consolidated financial
statements appearing in Item 8.
(2) Huntington is not filing separately financial statement schedules
because of the absence of conditions under which they are required
or because the required information is included in the
consolidated financial statements or the notes thereto.
(3) The exhibits required by this item are listed in the Exhibit
Index on pages 58 through 60 of this Form 10-K. The management
contracts and compensation plans or arrangements required to be
filed as exhibits to this Form 10-K are listed as Exhibits 10(a)
through 10(o) in the Exhibit Index.
(b) During the quarter ended December 31, 1999, Huntington filed two
Current Reports on Form 8-K. The first report, dated October 13,
1999, was filed under Items 5 and 7, and concerned Huntington's
results of operations for the quarter ended September 30, 1999.
The second report, dated November 17, 1999, was filed under Item 5
and concerned certain management changes at Huntington.
(c) The exhibits to this Form 10-K begin on page 58.
(d) See Item 14(a)(2) above.
56
<PAGE> 58
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 22nd day of
February, 2000.
HUNTINGTON BANCSHARES INCORPORATED
(Registrant)
<TABLE>
<S> <C>
By: /s/ Frank Wobst By: /s/ Anne Creek
------------------------------- ---------------------------------------
Frank Wobst Anne Creek
Director, Chairman, and Executive Vice President,
Chief Executive Officer Chief Financial Officer and Treasurer
(Principal Executive Officer) (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 22nd day of February, 2000.
/s/ Don M. Casto, III /s/ Robert H. Schottenstein
- ------------------------------------ ---------------------------
Don M. Casto, III Robert H. Schottenstein
Director Director
/s/ George A Skestos
- ------------------------------------ ---------------------------
Don Conrad George A. Skestos
Director Director
/s/ Peter Geier /s/ Lewis R. Smoot, Sr.
- ------------------------------------ ---------------------------
Peter Geier Lewis R. Smoot, Sr.
Director Director
/s/ John B. Gerlach, Jr. /s/ Timothy P. Smucker
- ------------------------------------ ---------------------------
John B. Gerlach, Jr. Timothy P. Smucker
Director Director
/s/ Patricia T. Hayot /s/ William J. Williams
- ------------------------------------ ---------------------------
Patricia T. Hayot William J. Williams
Director Director
/s/ Wm. J. Lhota
- ------------------------------------
Wm. J. Lhota
Director
57
<PAGE> 59
EXHIBIT INDEX
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.
4(a). 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. Instruments defining the rights of holders of
long-term debt will be furnished to the Securities and
Exchange Commission upon request.
(b). Rights Plan, dated February 22, 1990, between Huntington
Bancshares Incorporated and The Huntington National Bank (as
successor to The Huntington Trust Company, National
Association) -- previously filed as Exhibit 1 to Registration
Statement on Form 8-A, filed with the Securities and Exchange
Commission on February 22, 1990, and incorporated herein by
reference.
(c). Amendment No. 1 to the Rights Agreement, dated August 16,
1995-- previously filed as Exhibit 4(b) to Form 8-K, dated
August 16, 1995, and incorporated herein by reference.
10. Material contracts:
(a). * Employment Agreement, dated April 25, 1996, between
Huntington Bancshares Incorporated and Frank Wobst --
previously filed as Exhibit 10(a) to Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996, and
incorporated herein by reference.
(b). * Form of Tier I Executive Agreement for certain executive
officers -- previously filed as Exhibit 10(b) to Annual Report
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
(c). * Form of Tier II Executive Agreement for certain executive
officers -- previously filed as Exhibit 10(c) to Annual Report
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
(d). * Schedule identifying material details of Executive Agreements,
substantially similar to Exhibits 10(b) and 10(c).
(e). * Huntington Bancshares Incorporated Amended and Restated
Incentive Compensation Plan, effective for performance cycles
beginning on or after January 1, 1999 -- previously filed as
Exhibit 10(e) to Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
(f). * Amended and Restated Long-Term Incentive Compensation Plan,
effective for performance cycles beginning on or after January
1, 1999 -- previously filed as Exhibit 10(f) to Annual Report
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
(g)(1). * Supplemental Executive Retirement Plan with First and Second
Amendments -- previously filed as Exhibit 10(g) to Annual
Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference.
58
<PAGE> 60
(g)(2). * Third Amendment to Supplemental Executive Retirement Plan --
previously filed as Exhibit 10(k)(2) to Annual Report on Form
10-K for the year ended December 31, 1997, and incorporated
herein by reference.
(g)(3). * Fourth Amendment to Supplemental Executive Retirement Plan.
(h). * Deferred Compensation Plan and Trust for Directors --
reference is made to Exhibit 4(a) of Post-Effective Amendment
No. 2 to Registration Statement on Form S-8, Registration No.
33-10546, filed with the Securities and Exchange Commission on
January 28, 1991, and incorporated herein by reference.
(i)(1). * 1983 Stock Option Plan -- reference is made to Exhibit 4A of
Registration Statement on Form S-8, Registration No. 2-89672,
filed with the Securities and Exchange Commission on February
27, 1984, and incorporated herein by reference.
(i)(2). * 1983 Stock Option Plan -- Second Amendment -- previously
filed as Exhibit 10(j)(2) to Annual Report on Form 10-K for
the year ended December 31, 1987, and incorporated herein by
reference.
(i)(3). * 1983 Stock Option Plan -- Third Amendment -- previously
filed as Exhibit 10(j)(3) to Annual Report on Form 10-K for
the year ended December 31, 1987, and incorporated herein by
reference.
(i)(4). * 1983 Stock Option Plan -- Fourth Amendment -- previously
filed as Exhibit (m)(4) to Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by
reference.
(i)(5). * 1983 Stock Option Plan -- Fifth Amendment -- previously
filed as Exhibit (m)(5) to Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by
reference.
(j)(1). * 1990 Stock Option Plan -- reference is made to Exhibit 4(a)
of Registration Statement on Form S-8, Registration No.
33-37373, filed with the Securities and Exchange Commission on
October 18, 1990, and incorporated herein by reference.
(j)(2). * First Amendment to Huntington Bancshares Incorporated 1990
Stock Option Plan -- previously filed as Exhibit 10(q)(2) to
Annual Report on Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
(j)(3). * Second Amendment to Huntington Bancshares Incorporated 1990
Stock Option Plan -- previously filed as Exhibit 10(n)(3) to
Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
(k)(1). * The Huntington Supplemental Stock Purchase and Tax Savings
Plan and Trust (as amended and restated as of February 9,
1990) -- previously filed as Exhibit 4(a) to Registration
Statement on Form S-8, Registration No. 33-44208, filed with
the Securities and Exchange Commission on November 26, 1991,
and incorporated herein by reference.
(k)(2). * First Amendment to The Huntington Supplemental Stock
Purchase and Tax Savings Plan and Trust Plan -- previously
filed as Exhibit 10(o)(2) to Annual Report on Form 10-K for
the year ended December 31, 1997, and incorporated herein by
reference.
(l). * Deferred Compensation Plan and Trust for Huntington
Bancshares Incorporated Directors -- reference is made to
Exhibit 4(a) of Registration Statement on Form S-8,
Registration No. 33-41774, filed with the Securities and
Exchange Commission on July 19, 1991, and incorporated herein
by reference.
59
<PAGE> 61
(m). * Huntington Bancshares Incorporated Retirement Plan For
Outside Directors -- previously filed as Exhibit 10(t) to
Annual Report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
(n). * Restated Huntington Supplemental Retirement Income Plan.
(o) * Amended and Restated 1994 Stock Option Plan -- previously
filed as Exhibit 10(r) to Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by
reference.
21. Subsidiaries of the Registrant.
23. Consent of Ernst & Young, LLP, Independent Auditors.
27. Financial Data Schedule.
99. Ratio of Earnings to Fixed Charges
- -------------
*Denotes management contract or compensatory plan or arrangement.
60
<PAGE> 1
Exhibit 10(d)
SCHEDULE IDENTIFYING MATERIAL DETAILS OF
EXECUTIVE AGREEMENTS SUBSTANTIALLY
SIMILAR TO EXHIBIT 10(b)
EFFECTIVE
NAME DATE
---- ---------
Peter E. Geier April 1, 1998
Ronald J. Seiffert April 1, 1998
Frank Wobst April 1, 1998
SCHEDULE IDENTIFYING MATERIAL DETAILS OF
EXECUTIVE AGREEMENTS SUBSTANTIALLY
SIMILAR TO EXHIBIT 10(c)
EFFECTIVE
NAME DATE
---- ---------
Richard A. Cheap May 4, 1998
Anne Creek February 16, 2000
Judith D. Fisher April 1, 1998
<PAGE> 1
Exhibit 10 g(3)
FOURTH AMENDMENT TO THE
HUNTINGTON BANCSHARES SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 2000, Section 2.04 is amended to read as set forth
below:
SECTION 2.04 AVERAGE MONTHLY EARNINGS The term "Average Monthly
Earnings" shall mean the Member's highest twelve (12) consecutive months of base
compensation out of the previous sixty (60) months at the time of retirement or
the incidence of Disability, if earlier, divided by 12. Effective for
compensation paid after December 31, 1999, base compensation includes 50% (fifty
percent) of bonuses and incentive or commission compensation paid or deferred
pursuant to incentive plans with one year or less measurement periods.
Effective January 1, 1999, Section 4.01 is amended to read as set forth
below:
SECTION 4.01 When a Member retires on or after his Normal Retirement
Date, he shall be entitled to receive a Monthly Retirement Income under this
Plan as calculated by the Administrative Committee. The amount of a Member's
Monthly Retirement Income shall be sixty-five percent (65%) of his Average
Monthly Earnings reduced by the amounts set forth in Sections 4.01(a), 4.01(b)
and 4.01(c).
Sections 4.01(a) through 4.01(c) are unchanged.
<PAGE> 1
Exhibit 10(n)
HUNTINGTON SUPPLEMENTAL RETIREMENT INCOME PLAN
(Restated Effective January 1, 2000)
The Huntington Bancshares Supplemental Retirement Income Plan was
adopted effective January 1, 1994 solely for the purpose of providing
supplemental benefits to certain highly compensated employees whose benefits
under the Huntington Bancshares Retirement Plan are limited by Internal Revenue
Code Section 415 or 401(a)(17). This Supplemental Retirement Income Plan is an
unfunded "top hat plan" subject only to certain reporting and disclosure rules
of the Employee Retirement Income Security Act of 1974 (ERISA).
Huntington Bancshares Incorporated does hereby continue the Plan for
the benefit of Eligible Employees of Huntington Bancshares Incorporated and its
Related Companies in a restated form on the terms and conditions set forth
below:
ARTICLE I
Definitions
-----------
Section 1.01. Code means the Internal Revenue Code of 1986, as amended
from time to time, and any regulations relating thereto.
Section 1.02. Company means Huntington Bancshares Incorporated. Related
Company shall have the meaning given it by Article I of the Qualified Plan.
Section 1.03. Committee means the Retirement Committee appointed
pursuant to Article IX of the Qualified Plan.
Section 1.04. Compensation
(a) Compensation (effective for compensation earned prior to January 1,
2000) means the monthly equivalent of the total cash remuneration paid for
services rendered to an Employer during the calendar Year excluding overtime
pay, bonuses, incentive compensation, stock options, disability payments,
contributions to any public or private benefit plan and other forms of irregular
payments, pensions or other deferred compensation. Where payments not for
services such as payments for travel or expenses, are not separately stated, the
Committee may determine and make appropriate reduction for such payments.
Compensation shall include any salary reduction or salary deferral amounts
pursuant to plans sponsors by the Employer under Sections 125 and 401(k) of the
Code.
In respect to an Employee who transferred directly into the employ of
an Employer from a Related Company, applicable earnings for services rendered to
the Related Company shall be treated as Compensation from his Employer for
purposes of this Plan.
(b) Compensation (effective for Compensation earned after December 31,
1999) means the monthly equivalent of all wages, salaries, fees for professional
service and other amounts (whether or not paid in cash) for personal services
actually rendered in the course of employment with an Employer (as adjusted by
this Section), but only to the extent includible in gross income. This
definition of Compensation is modified by the following additions and
exclusions. The definition includes 50% (fifty percent) of overtime pay,
bonuses, and incentive or commission compensation paid pursuant to incentive
plans with one year or less measurement periods. Compensation includes payments
pursuant to the Huntington Transition Pay Plan, amounts deferred pursuant to
plans sponsored by the Employer under Sections 125 and 401(k) of the Code and
compensation deferred pursuant to the Huntington Supplemental Stock Purchase and
Tax Savings Plan. Compensation includes 50% (fifty percent) of amounts deferred
under plans providing for the deferral of bonuses paid pursuant to a plan with a
one year or less measurement period. This definition of Compensation does not
include severance pay, incentive or commission compensation paid pursuant to
incentive plans with longer than one year measurement periods, deferred
compensation except compensation deferred pursuant to the Huntington Investment
and Tax Savings Plan, the
1
<PAGE> 2
Huntington Supplemental Stock Purchase and Tax Savings Plan, a cafeteria plan
pursuant to Code Section 125 and 50% (fifty percent) of amounts deferred by
plans providing for the deferral of bonuses paid pursuant to a plan with a one
year or less measurement period, payments pursuant to welfare benefit plans,
noncash compensation income imputed for tax purposes only, reimbursements or
other expense allowances, signing bonuses and similar payments, compensation
attributable to the grant or exercise of stock options of any kind,
contributions to any public or private benefit plan and other forms of irregular
payments, pensions or other forms of deferred compensation. This definition of
Compensation only applies to Compensation earned after December 31, 1999.
In respect to an Employee who transferred directly into the employ of
an Employer from a Related Company, applicable earnings for services rendered to
the Related Company shall be treated as Compensation from his Employer for
purposes of this Plan.
Section 1.05. Covered Compensation means the average of Social Security
taxable wage bases for the 35-year period ending with the year of the
individual's Social Security retirement age (as defined in section 414(b)(8) of
the Code). For purposes of this Section, Covered Compensation amounts shall be
determined and fixed on the date of a Participant's separation from service so
that the Social Security wage base in the year of a Participant's separation
from service will be projected until the Participant's Social Security normal
retirement age.
Section 1.06. Credited Service shall be determined as provided in the
Qualified Plan; provided, however, the Pension Review Committee of the Company's
Board of Directors, may in its sole and absolute discretion, grant Participants
additional Service and/or Credited Service solely to determine benefits pursuant
to this Plan.
Section 1.07. Deferred Vested Pension shall have the meaning given to
it by Article I of the Qualified Plan; provided however, with respect to a
Participant, who was a participant in a Predecessor Plan and whose Credited
Service does not include service accrued under the Predecessor Plan, the term
Deferred Vested Pension does not include the portion, if any, of such
Participant's Deferred Vested Pension attributable to such Predecessor Plan.
Section 1.08. Disability Retirement Pension means the disability
benefit payable to a Participant pursuant to the Qualified Plan; provided
however, with respect to a Participant, who was a participant in a Predecessor
Plan and whose Credited Service does not include service accrued under the
Predecessor Plan, the term Disability Retirement Pension does not include the
portion, if any, of such Participant's Disability Retirement Pension
attributable to such Predecessor Plan.
Section 1.09. Definitions. If a term is treated as a defined term in
this Plan and is not specifically defined in this Article, the term shall have
the meaning given it by Article I of the Qualified Plan.
Section 1.10 Eligible Employee means any Employee who satisfies all of
the conditions enumerated below:
(a) The Employee must be a participant in the Huntington Bancshares
Retirement Plan;
(b) The Employee must have completed two years of Continuous Employment
with the Company or a Related Company. Solely for the purpose of determining who
is an Eligible Employee, Service with a Related Company prior to the time such
corporation became a Related Company shall be ignored;
(c) The Employee's Huntington Bancshares Retirement Plan benefit
exceeds the limitation of Internal Revenue Code section 415(b) or the Employee's
annual compensation as defined by the Qualified Plan exceeds the limits of Code
Section 401(a)(17); and
(d) The Employee has been nominated by the Compensation and Stock
Option Committee of the Company's Board of Directors as an Eligible Employee if
conditions (a) through (c) of this Section are satisfied.
An Eligible Employee will continue to participate until his
participation terminates in accordance with the provisions of this Plan or by
Action of the Compensation and Stock Option Committee of the Company's Board of
Directors. This Plan does not provide a minimum benefit and no payment may be
due pursuant to Section 1.18.
2
<PAGE> 3
The benefit (if any) of any Eligible Employee who was an Eligible
Employee prior to January 1, 2000, who is not an Eligible Employee thereafter
shall be "frozen" effective December 31, 1999, and administered in accordance
with principles applicable to Qualified Plan frozen benefits. The term "frozen"
means an employee's accrued benefit is determined as if the employee actually
terminated employment with the Company or a Related Company on December 31,
1999, (or the date the employee actually terminated employment with the Company
or a Related Company, if earlier).
Section 1.11. Final Average Compensation means a Participant's average
monthly Compensation during the highest five (5) consecutive calendar years
preceding (but not including) the year of Late, Normal or Early Retirement or
other termination of employment, as applicable.
If the Participant shall not have completed five (5) calendar Years of
Service, such average shall be based on his Compensation averaged over such
lesser period of Service. For a Participant who incurs an Approved Absence or
who is rehired after a Break in Service with his prebreak Service restored, the
Plan Years and his Approved Absence or Break in Service shall be considered
consecutive Plan Years even though they were not contiguous.
Section 1.12. Participant means any Eligible Employee entitled to a
benefit under the Qualified Plan.
Section 1.13. Plan means the Huntington Bancshares Supplemental
Retirement Income Plan, as set forth herein or as hereafter amended.
Section 1.14. A Predecessor Plan means a plan which has merged into the
Qualified Plan.
Section 1.15. Preretirement Survivor's Benefit shall have the meaning
given it by Article I of the Qualified Plan; provided however, with respect to a
Participant, who was a participant in a Predecessor Plan and whose Credited
Service does not include service accrued under the Predecessor Plan, the term
Preretirement Survivor's Benefit does not include the portion, if any, of such
Participant's Preretirement Survivor's Benefit attributable to such Predecessor
Plan.
Section 1.16. Qualified Plan means the Huntington Bancshares Retirement
Plan as restated effective January 1, 1989, as it may be amended from time to
time.
Section 1.17. Qualified Plan Retirement Benefit means the Accrued
Retirement Pension payable to a Participant pursuant to the Qualified Plan by
reason of his termination of employment with the Company and all Related
Companies for any reason; provided however, with respect to a Participant, who
was a participant in a Predecessor Plan, and whose Credited Service does not
include service accrued under the Predecessor Plan, the term Qualified Plan
Retirement Benefit does not include the portion, if any, of such Participant's
Qualified Plan Retirement Benefit attributable to such Predecessor Plan.
Section 1.18. Supplemental Retirement Benefit and Supplemental
Surviving Spouse Benefit. Supplemental Retirement Benefit means the benefit
payable to a Participant pursuant to Sections 3.01, 3.02, 3.03, 3.04 and 3.05 of
this Plan by reason of the Participant's termination of employment with the
Company or a Related Company for any reason. Supplemental Surviving Spouse
Benefit means the benefit payable pursuant to Section 4.01 to a Participant's
Surviving Spouse.
For the purpose of determining the Supplemental Retirement Benefit and
the Supplemental Surviving Spouse Benefit the following rule of construction
shall apply: Benefits provided by the Huntington Supplemental Executive
Retirement Plan executed February 18, 1986 will be subtracted from the
Supplemental Retirement Benefit and the Supplemental Surviving Spouse Benefit;
benefits provided by the Huntington Supplemental Stock Purchase and Tax Savings
Plan will not be subtracted from the Supplemental Retirement Benefit or the
Supplemental Surviving Spouse Benefit.
3
<PAGE> 4
ARTICLE II
Participation
-------------
Section 2.01. Eligibility. An Eligible Employee whose Qualified Plan
Retirement Benefit is limited by reason of the application of the limitations on
benefits imposed by the application of Section 415 or 401(a)(17) of the Code, as
in effect on the date for commencement of the Qualified Plan Retirement Benefit
shall be eligible to receive a Supplemental Retirement Benefit. If an Eligible
Employee described in the preceding sentence dies prior to commencement of his
Qualified Plan Retirement Benefit, survived by an Eligible Spouse entitled to a
Preretirement Survivor's Benefit under the Qualified Plan, then such Spouse
shall be eligible to receive a Supplemental Surviving Spouse Benefit.
ARTICLE III
Supplemental Retirement Benefit
-------------------------------
Section 3.01. Normal Retirement. The Supplemental Retirement Benefit
payable to a Participant retiring on his Normal Retirement Date shall be a
monthly amount equal to the sum of Parts I and II reduced by the amount(s)
described at Part III:
PART I
Part I only applies to Credited Service earned before July 1, 1999.
(a)(i) For Participants born in or before 1937, one and one quarter
percent (1.25%) of Final Average Compensation for each of the
first twenty five (25) years of Credited Service plus one
percent (1.0%) of Final Average Compensation for each year of
Credited Service in excess of twenty five (25), if any, up to
a maximum of fifteen (15) additional years
PLUS
(ii) three quarters of one percent (.75%) of Final Average
Compensation in excess of Covered Compensation for each of the
first twenty five (25) years of Credited Service.
One and one quarter percent (1.25%) is increased to one and
three tenths percent (1.30%) for Participants born in
1938-1954 and to one and thirty five hundredths percent
(1.35%) for Participants born after 1954.
Three quarters of one percent (.75%) is decreased to seven
tenths of one percent (.70%) for Participants born in
1938-1954 and to sixty five hundredths of one percent (.65%)
for Participants born after 1954.
PART II
Part II only applies to Credited Service earned on or after
July 1, 1999.
(a)(i) For all Participants one percent (1.0%) of Final Average
Compensation for each year of Credited Service up to a maximum
of forty (40) years. When applying the forty year limitation
on Credited Service, years of Credited Service earned after
June 30, 1999 shall be aggregated with years of Credited
Service earned before July 1, 1999.
4
<PAGE> 5
PLUS
(ii) sixty five hundredths of one percent (.65%) of Final Average
Compensation in excess of Covered Compensation for years of
Credited Service earned after June 30, 1999; which when
aggregated with years of Credited Service earned before July
1, 1999 does not in the aggregate exceed twenty five (25)
years of Credited Service.
PART III (LESS)
The monthly amount of the Qualified Plan Retirement Benefit
actually payable to the Participant under the Qualified Plan
or any supplemental executive retirement plan or agreement,
sponsored or entered by the Company or any Related Company;
other than a supplemental executive retirement plan whose
primary purpose is to provide benefits in excess of amounts
permitted by Code Section 401(a)(17) or 415 with respect to a
Predecessor Plan.
PART IV
The amounts described in Parts I, II and III shall be computed
as of the date of termination of employment of the Participant
with the Company or a Related Company in the form of a
straight life annuity payable over the lifetime of the
Participant only.
Section 3.02. Early Retirement.
A Participant who has attained age 55 and has completed ten (10) years
of Service who retires early shall be entitled to a benefit (as of the date of
income commencement) equal to the sum of (a) and (b) below, reduced by amounts
described at (c) below.
(a) The sum of the Participant's Accrued Retirement Pension determined
pursuant to Section 3.01 Part I (a)(i) and Part II (a)(i) reduced
by the factors in the table below:
Age at which Benefits Factors for Parts I and II (a)(i)
Commence of the Benefit
64 .97
63 .94
62 .91
61 .88
60 .85
59 .82
58 .79
57 .76
56 .73
55 .70
If benefits commence other than at the above specified ages, linear
interpolation should be used to arrive at the appropriate factors.
(b) The sum of the Participants Accrued Retirement Pension determined
pursuant to Section 3.01 Part I (a)(ii) and Part II (a)(ii)
reduced by the factors in the table below:
Age at which Benefits Factors for Parts I and II (a)(i)
Commence of the Benefit
64 .92
63 .84
62 .76
61 .71
60 .66
59 .63
58 .60
57 .56
56 .52
55 .48
5
<PAGE> 6
If benefits commence other than at the above specified ages, linear
interpolation should be used to arrived at the appropriate factors.
(c) Amounts payable under any other plans described in Part III of
Section 3.01 shall also be used to reduce the Supplemental
Retirement Benefit payable on Early Retirement.
Section 3.03. Late Retirement. If a Participant does not retire at his
Normal Retirement Date, he shall be entitled to a Supplemental Retirement
Benefit commencing as of his Late Retirement Date computed as provided in
Section 3.01 of this Plan.
Section 3.04. Disability. If a Participant becomes eligible for a
Disability Retirement Pension under the Qualified Plan, he shall be entitled to
a monthly amount equal to the difference between (a) and (b) below:
(a) the monthly amount of the Disability Retirement Pension
under the Qualified Plan to which the Participant would have been
entitled under the Qualified Plan if such Disability Retirement Pension
were computed without giving effect to the limitations on benefits
imposed by the application of Section 415 or Section 401(a)(17) of the
Code;
LESS
(b) the monthly amount of the Normal or Disability Retirement
Pension actually payable to the Participant under the Qualified Plan or
any supplemental executive retirement plan or agreement, sponsored or
entered by the Company or any Related Company; other than a
supplemental executive retirement plan whose primary purpose is to
provide benefits in excess of amounts permitted by Code Section
401(a)(17) or 415 with respect to a Predecessor Plan.
Section 3.05. Deferred Vested Pension. If Participant becomes eligible
for a Deferred Vested Pension under the Qualified Plan, he shall be entitled to
a monthly amount equal to the difference between (a) and (b) below:
(a) the monthly amount of the Deferred Vested Pension to which
the Participant would have been entitled under the Qualified Plan if
such benefit were computed without giving effect to the limitations on
benefits imposed by application of Section 415 or Section 401(a)(17) of
the Code;
LESS
(b) the monthly amount of the Deferred Vested Pension actually
payable to the Participant under the Qualified Plan or any supplemental
executive retirement plan or agreement, sponsored or entered by the
Company or any Related Company; other than a supplemental executive
retirement plan whose primary purpose is to provide benefits in excess
of amounts permitted by Code Section 401(a)(17) or 415 with respect to
a Predecessor Plan.
Section 3.06. Form of Benefit. The Supplemental Retirement Benefit
payable to a Participant shall be paid in the form of a straight life annuity
over the lifetime of the Participant only. The Company may, at its discretion,
permit a Participant who is married on the date benefit payments commence to
elect payment in the form of a Qualified Joint and Survivor Pension provided
such request is made at least 60 days prior to commencement of the benefit. Such
election shall be made in a manner provided by the Committee. Except as provided
at Section
6
<PAGE> 7
7.09 of the Plan, the form of benefit described in this Section 3.06
is the only form in which the Supplemental Retirement Benefit is paid.
Section 3.07. Commencement of Benefit. Payment of the Supplemental
Retirement Benefit to a Participant shall commence on the same date as payment
of the Qualified Plan Retirement Benefit to the Participant commences.
ARTICLE IV
Supplemental Surviving Spouse Benefit
-------------------------------------
Section 4.01. Amount. If a Participant dies prior to commencement of
payment of his Qualified Plan Retirement Benefit under circumstances in which a
Preretirement Survivor's Benefit is payable to his Surviving Spouse, then a
Supplemental Surviving Spouse Benefit is payable to his Surviving Spouse as
hereinafter provided. The monthly amount of the Supplemental Surviving Spouse
Benefit payable to a Surviving Spouse shall be equal to the difference between
(a) and (b) below:
(a) the monthly amount of the Preretirement Survivor's Benefit
to which the Surviving Spouse would have been entitled under the
Qualified Plan if such Benefit were computed without giving effect to
the limitations on benefits imposed by application of Section 415 or
401(a)(17) of the Code to plans to which that section applies;
LESS
(b) the monthly amount of the Preretirement Survivor's Benefit
actually payable to the Surviving Spouse under the Qualified Plan or
any supplemental executive retirement plan or agreement, sponsored or
entered by the Company or any Related Company; other than a
supplemental executive retirement plan whose primary purpose is to
provide benefits in excess of amounts permitted by Code Section
401(a)(17) or 415 with respect to a Predecessor Plan.
Section 4.02. Form and Commencement of Benefit. A Supplemental
Surviving Spouse Benefit shall be payable over the lifetime of the Surviving
Spouse only in monthly installments commencing on the date for commencement of
payment of the Preretirement Survivor's Benefit to the Surviving Spouse under
the Qualified Plan and terminating on the date of the last payment of the
Preretirement Survivor's Benefit made before the Surviving Spouse's death.
ARTICLE V
Vesting
-------
Section 5.01. Participant Vesting. A Participant credited with five
years of Service under the Qualified Plan shall be fully vested in the Plan.
ARTICLE VI
Administration of the Plan
--------------------------
Section 6.01. Administration by the Committee. The Committee shall be
responsible for the general operation and administration of the Plan and for
carrying out the provisions thereof.
Section 6.02. General Powers of Administration. All provisions set
forth in the Qualified Plan with respect to the administrative powers and duties
of the Company or the Committee, when relevant, shall apply to this Plan. The
Company shall be entitled to rely conclusively upon all tables, valuations,
certificates, opinions and reports
7
<PAGE> 8
furnished by any actuary, accountant, controller, counsel or other person
employed or engaged by the Company with respect to the Plan. The Committee may
delegate its powers and duties to one or more members in the same manner as
permitted by the Qualified Plan.
ARTICLE VII
Miscellaneous
-------------
Section 7.01. Amendment or Termination. The Company reserves the right
at any time to amend or terminate this Plan.
Section 7.02. No Contract of Employment. Nothing in the Plan shall be
deemed or construed to impair or affect in any manner whatsoever, the right of
the Employers, in their discretion, to hire Employees and, with or without
cause, to discharge or terminate the service of Employees or Participants.
Section 7.03. Payment in Event of Incapacity. If any person entitled to
any payment under the Plan shall be physically, mentally or legally incapable of
receiving or acknowledging receipt of such payment, the Committee, upon receipt
of satisfactory evidence of his incapacity and satisfactory evidence that
another person or institution is maintaining him and that no guardian or
committee has been appointed for him, may cause any payment otherwise payable to
him to be made to such person or institution so maintaining him.
Section 7.04. Funding. The Plan at all times shall be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of the Company for payment of any benefits hereunder. No Participant,
Surviving Spouse or any other person shall have any interest in any particular
assets of the Company by reason of the right to receive a benefit under the Plan
and any such Participant, Surviving Spouse or other person shall have only the
rights of a general unsecured creditor of the Company with respect to any rights
under the Plan.
Section 7.05. General Conditions. Except as otherwise expressly
provided herein, all terms and conditions of the Qualified Plan applicable to a
Qualified Plan Retirement Benefit or a Preretirement Survivor's Benefit shall
also be applicable to a Supplemental Retirement Benefit or a Supplemental
Surviving Spouse Benefit payable hereunder. Any Qualified Plan Retirement
Benefit or Preretirement Survivor's Benefit, or any other benefit payable under
the Qualified Plan, shall be paid solely in accordance with the terms and
conditions of the Qualified Plan and nothing in this Plan shall operate or be
construed in any way to modify, amend or affect the terms and provisions of the
Qualified Plan. However, nothing in this Section shall modify the requirement,
except as provided in Section 7.09, that all Supplemental Retirement Benefits
provided by this Plan be paid in the form of a straight life annuity.
Section 7.06. No Guaranty of Benefits. Nothing contained in the Plan
shall constitute a guaranty by the Company or any other entity or person that
the assets of the Company will be sufficient to pay any benefit hereunder.
Section 7.07. Spendthrift Provision. No interest of any person or
entity in, or right to receive a benefit under, the Plan shall be subject in any
manner to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to receive
a benefit be taken, either voluntarily or involuntarily, for the satisfaction of
the debts of, or other obligations or claims against, such person or entity,
including claims for alimony, support, separate maintenance and claims in
bankruptcy proceedings.
Section 7.08. Applicable Law. The Plan shall be construed and
administered under the laws of the State of Ohio.
Section 7.09. Small Benefits. If the Actuarial Equivalent of any
Supplemental Retirement Benefit or Supplemental Surviving Spouse Benefit is less
than $10,000, the Company may pay the actuarial value of such Benefit to the
Participant or Surviving Spouse in a single lump sum in lieu of any further
benefit payments hereunder.
8
<PAGE> 9
Section 7.10. Limitations on Liability. Notwithstanding any of the
preceding provisions of the Plan, neither the Company nor any individual acting
as an employee or agent of the Company shall be liable to any Participant,
former Participant, Surviving Spouse or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
Section 7.11. Actuarial Equivalent. If any benefit required by this
Plan to be subtracted from the Supplemental Retirement Benefit provided by this
Plan is not payable in the form of a straight life annuity, such benefit's
Actuarial Equivalent in the form of a straight life annuity shall be calculated
using the same methods as used by the Qualified Plan.
In determining whether a Supplemental Retirement Benefit is less than
$10,000, the Committee shall employ the same actuarial method as used by the
Qualified Plan.
Section 7.12. Taxes. All benefits payable pursuant to this Plan shall
be reduced by any and all federal, state and local taxes imposed upon the
Participant or the Beneficiary which are required to be paid or withheld by the
Company or a Related Company.
Section 7.13. Claims Procedure. The Committee shall have complete
authority and discretion regarding benefit determinations. Unless waived by the
Committee, any person entitled to benefits hereunder must file a claim with the
Committee upon forms furnished by the Committee. Notwithstanding any other
provision of this Plan, payment of benefits need not be made until receipt of
the claim and the expiration of the time periods specified in this Section 7.13
for rendering a decision on the claim. In the event a claim is denied, benefits
need not be made or commence until a final decision is reached by the Committee.
The Committee shall notify the claimant of its decision within ninety (90) days
after receipt of the claim. However, if special circumstances require, the
Committee may defer action on a claim for benefits for an additional period not
to exceed ninety (90) days, and in that case it shall notify the claimant of the
special circumstances involved and the time by which it expects to render a
decision.
If the Committee determines that any benefits claimed should be denied, it shall
give notice to the claimant setting forth the specific reason or reasons for the
denial and provide a specific reference to the Plan provisions on which the
denial is based. The Committee shall also describe any additional information
necessary for the Participant to perfect the claim and explain why the
information is necessary. Such claimant shall be entitled to full and fair
review by the Committee of the denial. The claimant shall have sixty (60) days
after receipt of the denial in which to file a notice of appeal with the
Committee. A final determination by the Committee shall be rendered within sixty
(60) days after receipt of the claimant's notice of appeal. Under special
circumstances such determination may be delayed for an additional period not to
exceed sixty (60) days, in which case the claimant shall be notified of the
delay prior to the close of the initial sixty (60) day period. The Committee's
final decision shall set forth the reasons and the references to the Plan
provisions on which it is based. The Committee shall have discretion in
interpreting the terms of the Plan and in making claim determinations. Final
determinations shall be made by the Committee and such determinations shall be
conclusive and binding on all persons. The Committee shall be deemed to have
properly exercised its authority unless it has abused its discretion hereunder
by acting arbitrarily and capriciously.
Section 7.14. Gender and Number. The masculine gender shall be deemed
to include the feminine, the feminine gender shall be deemed to include the
masculine, and the singular shall include the plural unless otherwise clearly
required by the context.
Section 7.15. Headings. The headings and subheadings in this Plan have
been inserted for convenience and reference only and are to be ignored in any
construction of the provisions hereof.
9
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HUNTINGTON BANCSHARES INCORPORATED
--------------------------------------------------
The subsidiaries of Huntington Bancshares Incorporated are listed below. The
state or jurisdiction of incorporation or organization of each subsidiary
(unless otherwise noted) is Ohio.
The Huntington National Bank (United States) and its direct and indirect
subsidiaries, 41 South High Ltd.**, The Huntington Leasing Company, The
Huntington Mortgage Company, Huntington Residential Mortgage Securities, Inc.,
HMC Reinsurance Company (Vermont), The Huntington Investment Company, Forty-One
Corporation, First Sunset Development, Inc., SFA Holding, Inc., East Sound
Realty, Inc., Lodestone Realty Management, Inc., WS Realty, Inc., Fourteen
Corporation, Airbase Realty Holding Company (Indiana), Airbase Realty Company,
HNB Clearing, Inc., The Check Exchange System Co. **, Thirty-Seven Corporation,
Vehicle Reliance Company, Huntington Trade Services, Inc., Huntington Trade
Services, Asia, Limited (Hong Kong), CyberMark Holding, Inc. (Delaware) **,
CyberMark L.L.C. (Delaware) **, FMB Insurance Agency, Inc. (Michigan),
Huntington Insurance Agency Services, Inc., Huntington Property and Casualty
Insurance Agency, Inc., Huntington Life Insurance Agency, Inc., Huntington
Insurance Agency, Inc. (Michigan), Huntington Insurance Agency, Inc. (Kentucky),
Huntington Title Services, LLC **, Huntington Title Services, Inc. (Michigan),
Huntington Title Services, Inc. (West Virginia), Huntington Title Services, Inc.
(Florida), Huntington West, Inc. (Delaware), Huntington Kentucky, LLC
(Kentucky), and Huntington Merchant Services, L.L.C. (Delaware) **.
CB&T Capital Investment Company (West Virginia)
Huntington Capital Corp.
Huntington Bancshares Financial Corporation
The Huntington National Life Insurance Company (Arizona) **
The Huntington Community Development Corporation
Money Station, Inc. **
Huntington Capital I (Delaware)
Huntington Capital II (Delaware)
Huntington Capital III (Delaware)
Huntington Capital IV (Delaware)
Huntington Capital V (Delaware)
Huntington Capital VI (Delaware)
First Michigan Life Insurance Company (Arizona)
The Huntington Capital Investment Company
The Huntington Real Estate Investment Company
** - Less than 100% owned.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 33-44208 dated April 1, 1998, Post-Effective
Amendment No. 1 to Registration Statement No. 33-46327 dated April 1, 1998,
Registration Statement No. 33-52553 dated March 8, 1994, Registration Statement
No. 33-59068 dated March 12, 1993, Registration Statement No. 33-41774 dated
July 19, 1991, Post-Effective Amendment No. 2 to Registration Statement No.
33-10546 dated January 28, 1991, Registration Statement No. 33-38784 dated
January 28, 1991, Registration Statement No. 33-37373 dated October 18, 1990,
and Registration Statement No. 2-89672 dated February 27, 1984, all on Form S-8,
and Post-Effective Amendment No. 2 to Registration Statement No. 33-52569 dated
September 25, 1998, Registration Statement No. 33-63175 dated October 3, 1995,
both on Form S-3, and Registration Statement Nos. 333-53579, 333-53579-01,
333-53579-02, 333-53579-03, 333-53579-04, and 333-53579-05 all on Form S-3 dated
May 26, 1998 and amended June 5, 1998 of our report dated January 13, 2000, with
respect to the consolidated financial statements of Huntington Bancshares
Incorporated included in this Annual Report on Form 10-K for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
February 22, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUNTINGTON
BANCSHARES INCORPORATED'S FORM 10 K, ITEM 8, FOR THE YEAR ENDED DECEMBER 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,208,004
<INT-BEARING-DEPOSITS> 6,558
<FED-FUNDS-SOLD> 20,877
<TRADING-ASSETS> 7,975
<INVESTMENTS-HELD-FOR-SALE> 4,870,203
<INVESTMENTS-CARRYING> 18,765
<INVESTMENTS-MARKET> 18,662
<LOANS> 20,810,160
<ALLOWANCE> 299,309
<TOTAL-ASSETS> 29,036,953
<DEPOSITS> 19,792,603
<SHORT-TERM> 2,121,989
<LIABILITIES-OTHER> 688,178
<LONG-TERM> 697,677
0
0
<COMMON> 2,284,956
<OTHER-SE> (102,600)
<TOTAL-LIABILITIES-AND-EQUITY> 29,036,953
<INTEREST-LOAN> 1,693,379
<INTEREST-INVEST> 314,061
<INTEREST-OTHER> 18,562
<INTEREST-TOTAL> 2,026,002
<INTEREST-DEPOSIT> 639,605
<INTEREST-EXPENSE> 984,240
<INTEREST-INCOME-NET> 1,041,762
<LOAN-LOSSES> 88,447
<SECURITIES-GAINS> 12,972
<EXPENSE-OTHER> 912,119
<INCOME-PRETAX> 614,771
<INCOME-PRE-EXTRAORDINARY> 614,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,074
<EPS-BASIC> 1.83
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 4.11
<LOANS-NON> 81,740
<LOANS-PAST> 61,287
<LOANS-TROUBLED> 1,330
<LOANS-PROBLEM> 63,218
<ALLOWANCE-OPEN> 290,948
<CHARGE-OFFS> 112,291
<RECOVERIES> 32,205
<ALLOWANCE-CLOSE> 299,309
<ALLOWANCE-DOMESTIC> 251,340
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 47,969
</TABLE>
<PAGE> 1
Exhibit 99
HUNTINGTON BANCSHARES INCORPORATED
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
------------------------------------- ------------------------------------------
1999 1998 1999 1998
--------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before taxes $ 161,709 $132,547 (1) $ 614,771 $ 530,122 (1)
Fixed charges:
Interest expense 92,231 62,887 344,635 305,838
Interest factor of rent expense 3,929 2,790 11,928 10,237
--------------- ---------------- ------------------ ------------------
Total fixed charges 96,160 65,677 356,563 316,075
--------------- ---------------- ------------------ ------------------
Earnings $ 257,869 $198,224 $ 971,334 $ 846,197
=============== ================ ================== ==================
Fixed charges $ 96,160 $ 65,677 $ 356,563 $ 316,075
=============== ================ ================== ==================
RATIO OF EARNINGS TO FIXED CHARGES 2.68 X 3.02 X 2.72 X 2.68 X
INCLUDING INTEREST ON DEPOSITS
Income before taxes $ 161,709 $132,547 (1) $ 614,771 $ 530,122 (1)
Fixed charges:
Interest expense 262,854 233,094 984,240 978,271
Interest factor of rent expense 3,929 2,790 11,928 10,237
--------------- ---------------- ------------------ ------------------
Total fixed charges 266,783 235,884 996,168 988,508
--------------- ---------------- ------------------ ------------------
Earnings $ 428,492 $368,431 $1,610,939 $1,518,630
=============== ================ ================== ==================
Fixed charges $ 266,783 $235,884 $ 996,168 $ 988,508
=============== ================ ================== ==================
RATIO OF EARNINGS TO FIXED CHARGES 1.61 X 1.56 X 1.62 X 1.54 X
</TABLE>
(1) Excludes 1998 special charges, including merger costs.
