<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2000
Commission File Number 0-2525
HUNTINGTON BANCSHARES INCORPORATED
MARYLAND 31-0724920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287
Registrant's telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
===== -----
There were 251,330,858 shares of Registrant's without par value common stock
outstanding on July 31, 2000.
<PAGE> 2
HUNTINGTON BANCSHARES INCORPORATED
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and 1999 and December 31, 1999 3
Consolidated Statements of Income -
For the six months ended June 30, 2000 and 1999 4
Consolidated Statements of Changes in Shareholders' Equity -
For the six months ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
For the six months ended June 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 30-31
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
(in thousands of dollars) 2000 1999 1999
-------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ................................ $ 1,139,025 $ 1,208,004 $ 996,065
Interest bearing deposits in banks ..................... 4,976 6,558 7,978
Trading account securities ............................. 24,310 7,975 12,058
Federal funds sold and securities
purchased under resale agreements ................. 137,203 20,877 10,233
Mortgages held for sale ................................ 100,900 141,723 236,260
Securities available for sale - at fair value .......... 4,357,699 4,870,203 4,573,160
Investment securities - fair value $17,254; $18,662;
and $21,350, respectively ......................... 17,609 18,765 21,307
Total loans (1) ........................................ 20,522,443 20,668,437 20,152,698
Less allowance for loan losses .................... 296,891 299,309 293,274
------------ ------------ ------------
Net loans .............................................. 20,225,552 20,369,128 19,859,424
------------ ------------ ------------
Bank owned life insurance .............................. 784,070 765,399 746,618
Premises and equipment ................................. 439,007 438,871 443,485
Customers' acceptance liability ........................ 13,532 17,167 14,948
Accrued income and other assets ........................ 1,340,480 1,172,283 1,239,544
------------ ------------ ------------
TOTAL ASSETS ........................................... $ 28,584,363 $ 29,036,953 $ 28,161,080
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ..................................... $ 19,758,934 $ 19,792,603 $ 18,933,161
Short-term borrowings .................................. 1,720,611 2,121,989 2,275,980
Bank acceptances outstanding ........................... 13,532 17,167 14,948
Medium-term notes ...................................... 2,939,150 3,254,150 3,199,900
Subordinated notes and other long-term debt ............ 870,756 697,677 700,518
Company obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Parent Company 300,000 300,000 300,000
Accrued expenses and other liabilities ................. 714,726 671,011 590,371
------------ ------------ ------------
Total Liabilities ................................. 26,317,709 26,854,597 26,014,878
------------ ------------ ------------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding ............................. -- -- --
Common stock - without par value; authorized
500,000,000 shares; issued 233,844,820,
233,844,820, and 212,596,344 shares,
respectively; outstanding 228,502,954,
228,888,221, and 209,710,432 shares,
respectively ................................. 2,253,224 2,284,956 2,134,033
Treasury stock .................................... (122,245) (137,268) (85,202)
Accumulated other comprehensive income ............ (105,987) (94,093) (55,564)
Retained earnings ................................. 241,662 128,761 152,935
------------ ------------ ------------
Total Shareholders' Equity ........................ 2,266,654 2,182,356 2,146,202
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $ 28,584,363 $ 29,036,953 $ 28,161,080
============ ============ ============
</TABLE>
(1) See page 12 for detail on total loans and total deposits.
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
(in thousands of dollars, except per share amounts) 2000 1999 2000 1999
------------------------------------------------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Interest and fee income
Loans ........................................ $448,597 $415,451 $ 888,243 $825,632
Securities ................................... 66,891 77,879 140,042 156,731
Other ........................................ 4,008 5,170 6,768 11,829
-------- -------- ---------- --------
TOTAL INTEREST INCOME .............. 519,496 498,500 1,035,053 994,192
-------- -------- ---------- --------
Interest expense
Deposits ..................................... 192,213 153,168 374,862 309,473
Short-term borrowings ........................ 25,216 30,528 49,980 61,003
Medium-term notes ............................ 48,839 39,353 99,197 74,107
Subordinated notes and other long-term debt .. 20,422 14,303 37,517 28,940
-------- -------- ---------- --------
TOTAL INTEREST EXPENSE ............. 286,690 237,352 561,556 473,523
-------- -------- ---------- --------
NET INTEREST INCOME ................ 232,806 261,148 473,497 520,669
Provision for loan losses ......................... 15,834 21,026 31,535 46,331
-------- -------- ---------- --------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 216,972 240,122 441,962 474,338
-------- -------- ---------- --------
Total non-interest income (1) ..................... 115,664 117,276 241,358 227,148
Total non-interest expense (1) .................... 198,076 202,138 398,182 404,244
-------- -------- ---------- --------
INCOME BEFORE INCOME TAXES ......... 134,560 155,260 285,138 297,242
Provision for income taxes ........................ 37,039 50,285 83,444 95,695
-------- -------- ---------- --------
NET INCOME ......................... $ 97,521 $104,975 $ 201,694 $201,547
======== ======== ========== ========
PER COMMON SHARE (2)
Net income
Basic ................................... $ 0.40 $ 0.41 $ 0.82 $ 0.79
Diluted ................................. $ 0.40 $ 0.41 $ 0.82 $ 0.79
Cash dividends declared ...................... $ 0.18 $ 0.16 $ 0.36 $ 0.32
AVERAGE COMMON SHARES (2)
Basic ................................... 244,834,775 254,073,478 246,404,512 254,339,195
Diluted ................................. 245,651,908 256,469,450 247,431,449 256,606,398
</TABLE>
(1) See page 13 for detail of non-interest income and non-interest expense.
(2) Adjusted for the ten percent stock dividend distributed July 31, 2000.
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
--------------------------------------------------------------------------------
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER
----------------------- --------------------- COMPREHENSIVE RETAINED
SHARES AMOUNT SHARES AMOUNT INCOME (LOSS) EARNINGS TOTAL
------------------------------------ ------- ---------- ------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1999:
Balance, beginning of period 212,596 $2,137,915 (1,850) $ (49,271) $ 24,693 $ 35,458 $2,148,795
Comprehensive Income:
Net income 201,547 201,547
Unrealized net holding losses
on securities available for
sale arising during the period (80,257) (80,257)
----------
Total comprehensive income 121,290
----------
Cash Dividends declared (84,070) (84,070)
Stock options exercised (3,882) 227 6,221 2,339
Treasury shares purchased (1,287) (42,861) (42,861)
Treasury shares sold to
employee benefit plans 24 709 709
------- ---------- ------ --------- --------- -------- ----------
Balance, end of period 212,596 $2,134,033 (2,886) $ (85,202) $ (55,564) $152,935 $2,146,202
======= ========== ====== ========= ========= ======== ==========
SIX MONTHS ENDED JUNE 30, 2000:
BALANCE, BEGINNING OF PERIOD 233,845 $2,284,956 (4,957) $(137,268) $ (94,093) $128,761 $2,182,356
Comprehensive Income:
Net income 201,694 201,694
Unrealized net holding losses
on securities available for
sale arising during the period (11,894) (11,894)
----------
Total comprehensive income 189,800
----------
Stock issued for acquisition (29,399) 6,480 160,060 130,661
Cash dividends declared (88,793) (88,793)
Stock options exercised (2,333) 76 2,483 150
Treasury shares purchased (6,971) (148,219) (148,219)
Treasury shares sold to
employee benefit plans 30 699 699
------- ---------- ------ --------- --------- -------- ----------
Balance, end of period 233,845 $2,253,224 (5,342) $(122,245) $(105,987) $241,662 $2,266,654
======= ========== ====== ========= ========= ======== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
(in thousands of dollars) 2000 1999
----------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 201,694 $ 201,547
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 31,535 46,331
Provision for depreciation and amortization 56,204 59,294
Deferred income tax expense 39,319 20,432
Increase in trading account securities (16,335) (8,219)
Decrease in mortgages held for sale 40,823 230,404
Gains on sales of securities available for sale (24,866) (4,530)
Losses on loan securitizations 4,118 --
Increase in accrued income receivable (11,529) (12,849)
Net increase in other assets (82,422) (81,392)
Increase in accrued expenses 57,492 796
Decrease in other liabilities (16,247) (8,724)
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 279,786 443,090
---------- -----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks 1,582 94,586
Proceeds from
Maturities and calls of investment securities 1,140 3,610
Maturities and calls of securities available for sale 114,696 425,168
Sales of securities available for sale 936,238 1,537,067
Purchases of securities available for sale (73,961) (1,875,651)
Proceeds from securitizations/sales of loans 984,041 2,853
Net loan originations, excluding sales (925,589) (745,835)
Proceeds from sale of premises and equipment 2,014 2,783
Purchases of premises and equipment (23,062) (37,704)
Net cash received in purchase acquisition 20,283 --
Proceeds from sales of other real estate 6,461 5,727
---------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 1,043,843 (587,396)
---------- -----------
FINANCING ACTIVITIES
Decrease in total deposits (462,232) (789,583)
(Decrease) increase in short-term borrowings (411,378) 59,336
Proceeds from issuance of long-term debt 150,000 --
Maturity of long-term debt -- (7,000)
Proceeds from issuance of medium-term notes 275,000 1,675,000
Payment of medium-term notes (590,000) (1,015,000)
Dividends paid on common stock (90,302) (83,914)
Repurchases of common stock (148,219) (42,861)
Proceeds from issuance of common stock 849 3,048
---------- -----------
NET CASH USED FOR FINANCING ACTIVITIES 1,276,282) (200,974)
---------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 47,347 (345,280)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,228,881 1,351,578
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,276,228 $ 1,006,298
========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying unaudited consolidated financial statements reflect
all adjustments consisting of normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of the consolidated
financial position, the results of operations, and cash flows for the periods
presented. These unaudited consolidated financial statements have been prepared
according to the rules and regulations of the Securities and Exchange Commission
and, therefore, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The Notes to the Consolidated Financial
Statements appearing in Huntington Bancshares Incorporated's (Huntington) 1999
Annual Report on Form 10-K should be read in conjunction with these interim
financial statements.
B. Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform to the 2000 presentation. These reclassifications had no
effect on net income.
C. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement (as amended by Statements No. 137 and No. 138) establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows gains and losses from derivatives to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions for which hedge accounting is applied.
Statement No. 133, as amended, is effective for fiscal years beginning
after June 15, 2000. It may be implemented earlier provided adoption occurs as
of the beginning of any fiscal quarter after issuance. The Statement cannot be
applied retroactively. Huntington expects to adopt Statement No. 133, as
amended, in the first quarter of 2001. Based on information available, the
impact of adoption is not expected to be material to the Consolidated Financial
Statements.
D. Acquisition
Huntington acquired Empire Banc Corporation (Empire), a $506 million
one-bank holding company headquartered in Traverse City, Michigan, on June 23,
2000. Huntington reissued approximately 6.5 million shares of common stock, all
of which were purchased on the open market during the first quarter 2000, in
exchange for all of the common stock of Empire. The transaction was accounted
for as a purchase; accordingly, the results of Empire have been included in the
unaudited consolidated financial statements from the date of acquisition.
7
<PAGE> 8
E. Earnings per Share
Basic earnings per share is the amount of earnings for the period
available to each share of common stock outstanding during the reporting period.
Diluted earnings per share is the amount of earnings available to each share of
common stock outstanding during the reporting period adjusted for the potential
issuance of common shares for stock options. The calculation of basic and
diluted earnings per share for each of the periods ended June 30, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
(in thousands, except per share amounts) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 97,521 $104,975 $201,694 $201,547
======== ======== ======== ========
Average common shares outstanding 244,835 254,073 246,405 254,339
Dilutive effect of stock options 817 2,396 1,026 2,267
-------- -------- -------- --------
Diluted common shares outstanding 245,652 256,469 247,431 256,606
======== ======== ======== ========
Earnings per share
Basic $ 0.40 $ 0.41 $ 0.82 $ 0.79
Diluted $ 0.40 $ 0.41 $ 0.82 $ 0.79
</TABLE>
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
F. Comprehensive Income
Comprehensive Income includes net income as well as certain items that
are reported directly within a separate component of stockholders' equity that
bypasses net income. Currently, Huntington's only component of Other
Comprehensive Income is the unrealized gains (losses) on securities available
for sale. The related before and after tax amounts are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
(in thousands) 2000 1999 2000 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Unrealized holding (losses) gains arising during the period:
Unrealized net (losses) gains $(23,489) $(55,749) $ 6,629 $(119,815)
Related tax benefit (expense) 8,127 19,848 (2,360) 42,502
-------- -------- -------- ---------
Net (15,362) (35,901) 4,269 (77,313)
-------- -------- -------- ---------
Less: Reclassification adjustment for net gains realized
during the period:
Realized net gains 103 2,220 24,866 4,530
Related tax expense (37) (777) (8,703) (1,586)
-------- -------- -------- ---------
Net 66 1,443 16,163 2,944
-------- -------- -------- ---------
Total Other Comprehensive Income (Loss) $(15,428) $(37,344) $(11,894) $ (80,257)
======== ======== ======== =========
</TABLE>
8
<PAGE> 9
G. Lines of Business
Listed below is certain financial information regarding Huntington's
2000 and 1999 results by line of business. For a detailed description of the
individual segments, refer to Huntington's Management's Discussion and Analysis.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------------------------------------------------------
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) $134,755 $63,261 $47,242 $ 8,038 $(18,416) $234,880
Provision for Loan Losses 3,936 1,141 10,464 293 -- 15,834
Non-Interest income 71,278 14,570 6,978 11,925 10,913 115,664
Non-Interest expense 138,404 26,653 12,352 11,799 8,868 198,076
Income Taxes/FTE Adjustment 21,357 16,777 8,029 2,640 (9,690) 39,113
-------- ------- ------- ------- -------- --------
Net income $ 42,336 $33,260 $23,375 $ 5,231 $ (6,681) $ 97,521
======== ======= ======= ======= ======== ========
Depreciation and Amortization $ 8,495 $ 637 $ 260 $ 272 $ 19,074 $ 28,738
======== ======= ======= ======= ======== ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,903 $ 7,067 $ 6,785 $ 581 $ 7,238 $ 28,574
Average Deposits $ 16,309 $ 1,481 $ 80 $ 655 $ 1,150 $ 19,675
Capital Expenditures $ 11 $ 2 $ 3 $ -- $ 3 $ 19
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income (FTE) $141,892 $60,485 $45,700 $ 8,287 $ 7,174 $263,538
Provision for Loan Losses 9,594 1,244 9,980 208 -- 21,026
Non-Interest income 76,798 15,508 611 12,959 11,400 117,276
Non-Interest expense 129,053 29,082 11,719 11,259 21,025 202,138
Income Taxes/FTE Adjustment 26,742 15,257 8,223 3,267 (814) 52,675
-------- ------- ------- ------- ------- --------
Net income $ 53,301 $30,410 $16,389 $ 6,512 $(1,637) $104,975
======== ======= ======= ======= ======= ========
Depreciation and Amortization $ 12,174 $ 778 $ 205 $ 277 $16,288 $ 29,722
======== ======= ======= ======= ======= ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,731 $ 6,685 $ 6,048 $ 565 $ 7,702 $ 28,731
Average Deposits $ 16,902 $ 982 $ 66 $ 613 $ 510 $ 19,073
Capital Expenditures $ 4 $ 1 $ -- $ -- $ 15 $ 20
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------------------------------------------------------
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) $264,621 $125,993 $ 94,175 $15,724 $(22,785) $477,728
Provision for Loan Losses 8,148 4,092 18,833 462 -- 31,535
Non-Interest income 138,619 31,120 10,214 25,314 36,091 241,358
Non-Interest expense 274,360 55,800 24,781 24,168 19,073 398,182
Income Taxes/FTE Adjustment 39,371 31,704 17,319 5,351 (6,069) 87,675
-------- -------- -------- ------- -------- --------
Net income $ 81,361 $ 65,517 $ 43,456 $11,057 $ 302 $201,694
======== ======== ======== ======= ======== ========
Depreciation and Amortization $ 18,170 $ 1,265 $ 462 $ 584 $ 35,723 $ 56,204
======== ======== ======== ======= ======== ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,893 $ 6,961 $ 6,907 $ 593 $ 7,411 $ 28,765
Average Deposits $ 16,397 $ 1,353 $ 73 $ 649 $ 1,261 $ 19,733
Capital Expenditures $ 15 $ 2 $ 3 $ -- $ 3 $ 23
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income (FTE) $278,660 $122,314 $90,560 $16,695 $17,334 $525,563
Provision for Loan Losses 21,077 4,204 20,660 390 -- 46,331
Non-Interest income 143,484 29,994 1,036 25,233 27,401 227,148
Non-Interest expense 268,801 57,952 23,968 22,612 30,911 404,244
Income Taxes/FTE Adjustment 44,045 30,021 15,640 6,302 4,581 100,589
-------- -------- ------- ------- ------- --------
Net income $ 88,221 $ 60,131 $31,328 $12,624 $ 9,243 $201,547
======== ======== ======= ======= ======= ========
Depreciation and Amortization $ 25,290 $ 1,310 $ 380 $ 636 $31,678 $ 59,294
======== ======== ======= ======= ======= ========
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,649 $ 6,627 $ 5,950 $ 585 $ 7,766 $ 28,577
Average Deposits $ 17,049 $ 944 $ 64 $ 613 $ 432 $ 19,102
Capital Expenditures $ 9 $ 2 $ -- $ -- $ 27 $ 38
</TABLE>
H. Securities Sales and Loan Securitizations
During the first six months of 2000, Huntington realized securities
gains of $24.9 million compared with $4.5 million in the same period a year ago.
Sales of a portion of Huntington's investment in S1 Corporation common stock
generated gains of $32.2 million and $20.0 million during the first and second
quarters of 2000, respectively. Substantially offsetting these gains, were first
quarter 2000 losses of $7.4 million and second quarter 2000 losses of $19.9
million related to the strategic sales of $810 million of lower yielding
securities.
10
<PAGE> 11
During the first six months of 2000, Huntington recognized net losses
of $4.1 million on automobile loan securitizations. Huntington securitized $500
million of automobile loans during first quarter 2000 recognizing a loss of
$10.2 million and securitized another $550 million in the second quarter 2000 at
a gain of $6.1 million. These results are included in the "Securitization
income" component of non-interest income in addition to ongoing income for loan
servicing.
Huntington also securitized $280 million of residential mortgage loans
during the second quarter 2000. Huntington retained all of the resulting
securities and accordingly, reclassified the securitized amount from loans to
securities available for sale.
11
<PAGE> 12
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 2000 1999 1999
--------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Commercial (unearned income $1,958; $2,550; $3,378) ..... $ 6,552,186 $ 6,300,414 $ 6,185,228
Real Estate
Construction ........................................ 1,277,718 1,236,776 1,040,861
Commercial .......................................... 2,186,768 2,151,673 2,255,103
Consumer
Loans (unearned income $4,933; $5,974; $6,733) ...... 6,230,548 6,793,295 6,995,724
Leases (unearned income $470,868; $410,239; $318,263) 2,930,547 2,741,735 2,257,692
Residential Mortgage ................................ 1,344,676 1,444,544 1,418,090
----------- ----------- -----------
TOTAL LOANS ........................................ $20,522,443 $20,668,437 $20,152,698
=========== =========== ===========
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 2000 1999 1999
--------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing ............................... $ 3,498,325 $ 3,418,100 $ 3,445,530
Interest bearing ................................... 4,373,313 4,046,472 4,103,066
Savings deposits ........................................ 3,670,456 3,793,423 3,979,230
Certificates of deposit
Less than $100,000 ................................... 5,847,359 5,547,266 5,285,249
$100,000 or more ..................................... 915,614 932,662 950,100
----------- ----------- -----------
TOTAL CORE DEPOSITS ................................ 18,305,067 17,737,923 17,763,175
----------- ----------- -----------
Other domestic time deposits of $100,000 or more 1,048,382 1,188,465 773,541
Foreign time deposits ................................... 405,485 866,215 396,445
----------- ----------- -----------
TOTAL DEPOSITS ..................................... $19,758,934 $19,792,603 $18,933,161
=========== =========== ===========
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- PERCENT ----------------------- PERCENT
(in thousands of dollars) 2000 1999 CHANGE 2000 1999 CHANGE
------------------------------------------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts ....... $ 40,097 $ 36,065 11.2 % $ 81,757 $ 71,841 13.8 %
Brokerage and insurance income ............ 13,945 12,540 11.2 29,229 24,083 21.4
Trust services ............................ 13,165 13,143 0.2 26,028 26,577 (2.1)
Electronic banking fees ................... 11,250 9,410 19.6 21,099 17,448 20.9
Bank Owned Life Insurance income .......... 9,486 9,390 1.0 18,672 18,780 (0.6)
Mortgage banking .......................... 8,122 17,224 (52.8) 16,637 33,182 (49.9)
Securitization income ..................... 6,488 -- N.M. (3,720) -- N.M.
Credit card fees .......................... 1,340 6,255 (78.6) 3,133 11,597 (73.0)
Other ..................................... 11,668 11,029 5.8 23,657 19,110 23.8
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
GAINS .................................. 115,561 115,056 0.4 216,492 222,618 (2.8)
Securities gains .......................... 103 2,220 N.M. 24,866 4,530 N.M.
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME ................. $115,664 $117,276 (1.4)% $241,358 $227,148 6.3 %
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- PERCENT ----------------------- PERCENT
(in thousands of dollars) 2000 1999 CHANGE 2000 1999 CHANGE
------------------------------------------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel and related costs ............... $104,133 $107,263 (2.9)% $206,477 $214,517 (3.8)%
Equipment ................................. 18,863 15,573 21.1 38,275 32,446 18.0
Net occupancy ............................. 18,613 13,563 37.2 37,748 27,480 37.4
Outside data processing and other services 15,336 15,923 (3.7) 30,338 31,315 (3.1)
Amortization of intangible assets ......... 9,206 9,336 (1.4) 18,402 18,664 (1.4)
Marketing ................................. 7,742 7,319 5.8 15,735 13,815 13.9
Telecommunications ........................ 6,472 6,935 (6.7) 13,221 13,999 (5.6)
Printing and supplies ..................... 4,956 4,734 4.7 9,573 9,490 0.9
Legal and other professional services ..... 4,815 5,803 (17.0) 9,315 10,547 (11.7)
Franchise and other taxes ................. 2,635 3,981 (33.8) 5,073 8,368 (39.4)
Other ..................................... 5,305 11,708 (54.7) 14,025 23,603 (40.6)
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ................ $198,076 $202,138 (2.0)% $398,182 $404,244 (1.5)%
======== ======== ======== ========
</TABLE>
N.M. - Not Meaningful.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
INTRODUCTION
Huntington is a multi-state financial holding company headquartered in
Columbus, Ohio. Its subsidiaries are engaged in full-service commercial and
consumer banking, mortgage banking, lease financing, trust services, discount
brokerage services, underwriting credit life and disability insurance, issuing
commercial paper guaranteed by Huntington, and selling other insurance and
financial products and services. Huntington's subsidiaries operate domestically
in offices located in Ohio, Michigan, Florida, West Virginia, Indiana, and
Kentucky. Huntington has foreign offices in the Cayman Islands and Hong Kong.
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 Form 10-Q, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statements including certain plans, expectations, goals, and projections, which
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 business and
economic conditions; movements in interest rates; competitive pressures on
product pricing and services; success and timing of business strategies;
successful integration of acquired businesses; the nature, extent, and timing of
governmental actions and reforms; and extended disruption of vital
infrastructure.
The management of Huntington encourages readers of this Form 10-Q to
understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance. The following discussion and analysis of
the financial performance of Huntington for the second quarter of 2000 should be
read in conjunction with the financial statements, notes, and other information
contained herein.
ACQUISITION
Huntington acquired Empire Banc Corporation (Empire), a $506 million
one-bank holding company headquartered in Traverse City, Michigan, on June 23,
2000. Huntington reissued approximately 6.5 million shares of common stock, all
of which were purchased on the open market during the first quarter 2000, in
exchange for all of the common stock of Empire. The transaction was accounted
for as a purchase; accordingly, the results of Empire have been included in the
unaudited consolidated financial statements from the date of acquisition. Total
loans and deposits increased $395 million and $435 million, respectively, as a
result of the merger.
OVERVIEW
Huntington reported net income of $97.5 million for the second quarter
of 2000 versus $105.0 million for 1999. Diluted earnings per share decreased
slightly to $.40 in second quarter 2000 compared with $.41 a year ago. For the
first six months of the year, net income was $201.7 million, or $.82 per diluted
share, representing a 4% increase from the first half of 1999. All per
14
<PAGE> 15
share data have been adjusted for the ten-percent stock dividend distributed
July 31, 2000. Huntington's return on average assets (ROA) was 1.37% and 1.41%
in the recent three and six-month periods while its return on average equity
(ROE) totaled 17.79% and 18.39%.
Huntington's "cash basis" diluted earnings per share, which excludes
the effect of amortization of goodwill and other intangibles, was $.43 for the
quarter just ended, compared with $.44 per share in the same period last year.
Cash basis ROA and ROE, which are computed using cash basis earnings as a
percentage of average tangible assets and average tangible equity, for the
second quarter of 2000, were 1.51% and 27.26%, respectively. For the first six
months of the year, cash basis ROA and ROE were 1.55% and 28.14%, respectively.
Total assets at June 30, 2000, were $28.6 billion, down from $29
billion at year-end. The reduction is indicative of a significant balance sheet
repositioning strategy undertaken in 2000 that included automobile loan
securitizations totaling $1.1 billion and the sale of approximately $810 million
of lower-yielding securities from Huntington's investment portfolio. These
transactions reduced Huntington's reliance on wholesale funding sources and
mitigated the impact of future interest rate increases.
Managed total loans (reported amounts normalized for securitization
activities) for the second quarter increased at an annualized rate of 9% versus
the first three months of the year, led by 13% growth in consumer loans.
Automobile financing and home equity lending were particularly strong with
growth rates of 12% and 26%, respectively. Commercial loans grew at an
annualized rate of 6%.
Average core deposits were $17.8 billion during the second quarter of
2000, an annualized growth rate of 3% from the first quarter. This was fueled by
a 10% increase in demand deposit balances, as Huntington's new product offerings
and targeted marketing efforts began to show positive results. Short and
medium-term borrowings decreased $716 million from December 31, 1999, in
connection with the aforementioned balance sheet repositioning. Long-term debt
increased from year-end, as Huntington issued $150 million of regulatory capital
qualifying subordinated notes in the first quarter through its bank subsidiary.
LINES OF BUSINESS
Retail Banking, Corporate Banking, Dealer Sales, and the Private
Financial Group are the company's major business lines. A fifth segment includes
the impact of Huntington's Treasury function and other unallocated assets,
liabilities, revenue, and expense. Line of business results are determined based
upon Huntington's business profitability reporting system which assigns balance
sheet and income statement items to each of the business segments. This process
is designed around Huntington's organizational and management structure and,
accordingly, the results are not necessarily comparable with similar information
published by other financial institutions. Below is a brief description of each
line of business and a discussion of the business segment results, which can be
found in Note G to the unaudited consolidated financial statements.
RETAIL BANKING
--------------
Retail Banking provides products and services to retail and business
banking customers. This business unit's products include home equity loans,
first mortgage loans, installment loans, small business loans, deposit products,
as well as investment and insurance services. These
15
<PAGE> 16
products and services are offered through Huntington's traditional banking
network, in-store branches, Direct Bank, and Web Bank.
Retail Banking net income was $42.3 million and $81.4 million for the
second quarter and the first six months of 2000, respectively. Results compared
to last year reflect the impact of the fourth quarter 1999 sale of Huntington's
credit card portfolio as well as $2.5 million of gains on branch sales in the
second quarter 1999. Adjusting for these items, Retail Banking results decreased
9% on a quarterly basis from 1999. However, earnings have increased 8% from
first quarter 2000. Earnings increased 5% year-to-date compared to 1999. The
results reflect improved net interest income and a reduced loan loss provision.
Non-interest income increased modestly for the quarter and 5% year-to-date as
strong retail investment sales, service charge income, and electronic banking
fees were offset by significantly lower mortgage banking income. Excluding
credit cards, the loan loss provision was down $4.1 million for the first half
of the year reflecting lower charge-off levels. Adjusted non-interest expenses
remained relatively flat year-to-date compared to the prior year as expense
controls continued to be favorable. Retail Banking contributed 43% of
Huntington's net income for the quarter and comprised 32% of the organization's
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 earnings grew 9% compared to the second quarter and
first half of last year. Net interest income improved consistent with loan
growth over the comparable periods. This segment has also benefited from reduced
expense levels during the quarter in line with trends for Huntington as a whole.
This segment contributed 34% of Huntington's net income for the quarter and
comprised 34% of the organization's 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.
The consumer activities comprise the vast majority of the business and involve
the financing of vehicles purchased or leased by individuals through
dealerships.
Net income was $23.4 million for the second quarter of 2000 and $43.5
million for the first six months of the year compared to $16.4 million and $31.3
million in the same periods of 1999. Non-interest income in 2000 includes a gain
on the $550 million loan securitization completed during the second quarter.
Continued strong loan and lease originations drove net interest income higher
despite the impact of loan securitizations. The securitizations also provided
benefit to the provision for loan losses. This business line constituted 24% of
Huntington's net income for the quarter and 31% of its outstanding loans at the
end of the period.
PRIVATE FINANCIAL GROUP
-----------------------
Huntington's Private Financial Group (PFG) provides an array of
products and services designed to meet the needs of Huntington's higher wealth
banking customers. Revenue is derived through the sale of personal trust, asset
management, investment advisory, insurance, and deposit
16
<PAGE> 17
and loan products and services. PFG provides customers with "one-stop shopping"
for all their financial needs.
The Private Financial Group reported net income of $5.2 million for the
quarter just ended, and $11.1 million for the first six months, decreases of
$1.3 million and $1.6 million from the same periods one year ago. This decline
was due to lower levels of net interest income. Expenses have increased slightly
in this segment primarily reflecting increased personnel related costs. This
segment represented 5% of Huntington's total net income and 3% of total loans.
TREASURY / OTHER
----------------
Huntington uses a match-funded transfer pricing system to allocate
interest income and interest expense to its business segments. This approach
consolidates the interest rate risk management of Huntington into its Treasury
Group. As part of its overall interest rate risk and liquidity management
strategy, the Treasury Group administers an investment portfolio of
approximately $4.4 billion. Revenue and expense associated with these activities
remain within the Treasury Group. Additionally, the Treasury/Other segment
absorbs unassigned assets, liabilities, equity, revenue, and expense that cannot
be directly assigned or allocated to one of Huntington's lines of business.
Amortization expense of intangible assets is also a significant component of
Treasury/Other.
This segment's results were a net loss of $6.7 million and break-even
in the recent quarter and six months. The decline from last year is related in
large part to rising rates as well as the balance sheet repositioning strategy
referenced earlier. Huntington also used short-term derivative contracts to
reduce the company's net interest income at risk going forward. Non-interest
income for the six months was driven higher by securities gains of $52.2 million
related to the sale of a portion of Huntington's investment in S1 Corporation
common stock. These gains were offset by the losses realized from the sale of
lower-yielding, available-for-sale investment securities and net losses from the
automobile loan securitizations.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the three and six months ended June 30, 2000,
was $232.8 million and $473.5 million, respectively. Excluding the impact of the
fourth quarter 1999 credit card sale, second quarter net interest income fell
$18.9 million or 7% compared with the same period last year and was down 6% on a
year-to-date basis. As discussed above, rising rates and a substantial
repositioning of the balance sheet contributed to this decline. The net interest
margin was 3.72% during the recent quarter, down from 3.78% in first quarter
2000 and 4.08% (adjusted for the impact of the credit card sale) in second
quarter 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to pre-tax earnings that
management estimates to be necessary to maintain the allowance for loan losses
at a level adequate to absorb inherent losses in the loan and lease portfolios.
The second quarter provision for loan losses of $15.8 million covered net
charge-offs and was down from $21.0 million in the same period of 1999. The
provision for the first six months of the year was $31.5 million, compared with
$46.3 million for the first half of 1999. The declines reflect the lower
charge-off levels experienced in
17
<PAGE> 18
2000, substantially due to the sale of the credit card portfolio. Annualized net
charge-offs were .30% of average total loans, consistent with the .30%
(excluding credit cards) for the second quarter 1999, and to .33% from .37% for
the respective six month periods.
NON-INTEREST INCOME
Non-interest income, excluding securities gains, was $115.6 million for
the recent three months and $216.5 million for the first half of the year.
Included in these amounts are the results from Huntington's auto securitization
program, a $6.1 million gain in the recent quarter versus a $10.2 million loss
in the first quarter. The loss from the initial transaction was due to the
company's decision to securitize older, lower coupon loans to more aggressively
limit exposure to future interest rate increases. Adjusted for asset sales and
securitizations, non-interest income was flat during the second quarter compared
with the same period a year ago and increased 4% on a year-to-date basis.
Categories showing quarterly growth were led by a 20% increase in electronic
banking income as a result of deposit account growth and expansion of
Huntington's ATM network. Deposit service charges and brokerage and insurance
income each increased 11%. Decreased refinancing activity and a planned
reduction in the servicing portfolio drove mortgage banking income lower during
2000 offsetting the growth in other areas.
During the first six months of 2000, Huntington realized securities
gains of $24.9 million compared with $4.5 million in the same period a year ago.
Sales of a portion of Huntington's investment in S1 Corporation common stock
generated gains of $32.2 million and $20.0 million during the first and second
quarters of 2000, respectively. Substantially offsetting these gains, were first
quarter losses of $7.4 million and second quarter losses of $19.9 million
related to the strategic sale of $810 million of lower yielding securities.
NON-INTEREST EXPENSE
Non-interest expense totaled $198.1 million in the second quarter, a
decrease of 2% from a year ago and the lowest level of quarterly expenses in two
years. For the first six months of 2000, non-interest expense totaled $398.2
million, down from $404.2 million in the same period last year. These declines
are the result of the ongoing focus on cost containment and efficiencies created
by Huntington's Operational Excellence Program. Corporate-wide purchasing and
related efficiency initiatives, such as vendor consolidations and reductions in
usage-related costs, coupled with the declining costs associated with the Year
2000 project, resulted in reduced costs related to salaries and benefits,
outside services, telecommunications, and legal and other professional services.
Increased occupancy and equipment expenses reflect the impact of the new
operations center in Columbus, Ohio, banking office improvements and expansion,
particularly in Florida, and other technology improvements.
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.
18
<PAGE> 19
Interest rate risk management is a dynamic process, encompassing
business flows onto the balance sheet, wholesale investment and funding, and the
changing market and business environment. Effective management of interest rate
risk begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses a
variety of global markets--money, bond, futures, and options--as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process.
A key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
gradual and directional shift in interest rates. The income simulation model
used by Huntington captures all assets, liabilities, and off-balance sheet
financial instruments, accounting for significant variables that are believed to
be affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, cash flows of loans and deposits, principal
amortization on revolving credit instruments, and balance sheet growth
assumptions. The model also captures embedded options, e.g. interest rate
caps/floors or call options, and accounts for changes in rate relationships, as
various rate indices 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 June 30, 2000, the results of Huntington's sensitivity analysis
indicated that net interest income would be expected to decrease by
approximately 0.8% if rates rose 100 basis points and would drop an estimated
1.7% in the event of a gradual 200 basis point increase. If rates declined 100
and 200 basis points, Huntington would benefit 0.9% and 1.4%, respectively.
Huntington's recent analysis continues to show a significant reduction in
sensitivity to rising interest rates compared with year-end 1999. This reflects
the balance sheet repositioning efforts as well as the impact of $2.7 billion
(notional value) of derivative contacts entered into in the first quarter of
this year. These consisted of pay-fixed interest rate swap contracts and
purchased interest rate caps.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk that is created by different indices on products, by unequal terms to
maturity of assets and liabilities, and by products that are appealing to
customers but incompatible with current risk limits can be eliminated or
decreased in a cost efficient manner by utilizing interest rate swaps. Often,
the swap strategy has enabled Huntington to lower the overall cost of raising
wholesale funds. Similarly, financial futures, interest rate caps and floors,
options, and forward rate agreements are used to control financial risk
effectively. Off-balance sheet instruments are often preferable to similar cash
instruments because, though performing identically, they require less capital
while preserving access to the marketplace.
The following table illustrates the approximate market values,
estimated maturities, and weighted average rates of the interest rate swaps used
by Huntington in its interest rate risk management program at June 30, 2000.
19
<PAGE> 20
<TABLE>
<CAPTION>
Average Average Rate
Notional Maturity Market ---------------------
(Dollars in millions) Value (years) Value Receive Pay
-------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
ASSET CONVERSION SWAPS
Receive fixed $1,500 2.3 $(30.4) 6.07% 6.63%
Pay fixed 200 1.2 1.7 6.71% 6.31%
------ ------
Total Asset Conversion Swaps $1,700 2.2 $(28.7) 6.15% 6.59%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,590 5.0 $(35.1) 6.58% 6.67%
Pay fixed 2,950 1.0 9.6 6.73% 6.64%
------ ------
Total Liability Conversion Swaps $4,540 2.4 $(25.5) 6.68% 6.65%
====== ======
BASIS PROTECTION SWAPS $ 650 0.4 $ 0.5 6.73% 6.64%
====== ======
</TABLE>
As is the case with cash securities, the market value of interest rate
swaps is largely a function of the financial market's expectations regarding the
future direction of interest rates. Accordingly, current market values are not
necessarily indicative of the future impact of the swaps on net interest income.
This will depend, in large part, on the shape of the yield curve as well as
interest rate levels. With respect to the variable rate information presented in
the table above, management made no assumptions regarding future changes in
interest rates.
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London interbank offered rate (LIBOR). Receive-fixed
asset conversion swaps with notional values of $495 million have embedded
written LIBOR-based call options. Basis swaps are contracts that provide for
both parties to receive interest payments according to different rate indices
and are used to protect against changes in spreads between market rates.
The contractual amount of interest payments to be exchanged is based on
the notional values of the swap portfolio. These notional values do not
represent direct credit exposures. At June 30, 2000, Huntington's credit risk
from interest rate swaps used for asset/liability management purposes was $63.5
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 $985 million at June 30, 2000. The credit
exposure from these contracts is not material. Furthermore, these separate
activities, which are accounted for at fair value, are not a significant part of
20
<PAGE> 21
Huntington's operations. Accordingly, they have been excluded from the above
discussion of off-balance sheet financial instruments and the related table.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending. Highly
leveraged transactions as well as excessive industry and other concentrations
are avoided. The credit administration function employs extensive risk
management techniques, including forecasting, to ensure that loans adhere to
corporate policy and problem loans are promptly identified. These procedures
provide executive management with the information necessary to implement policy
adjustments where necessary, and take corrective actions on a proactive basis.
Non-performing assets consist of loans that are no longer accruing
interest, loans that have been renegotiated based upon financial difficulties of
the borrower, and real estate acquired through foreclosure. Generally,
commercial and real estate loans are placed on non-accrual status and stop
accruing interest when collection of principal or interest is in doubt or
generally when the loan is 90 days past due. When interest accruals are
suspended, accrued interest income is reversed with current year accruals
charged to earnings and prior year amounts generally charged off as a credit
loss. Consumer loans are not placed on non-accrual status; rather they are
charged off in accordance with regulatory statutes, which is generally no more
than 120 days. A charge off may be delayed in circumstances when collateral is
repossessed and anticipated to be sold at a future date.
Total non-performing assets were $95.1 million at June 30, 2000, up
slightly from $93.6 million last year. As of the same dates, non-performing
loans represented .39% and .38% of total loans, while non-performing assets as a
percent of total loans and other real estate remained stable at .46%. Loans past
due ninety days or more but continuing to accrue interest were $62.8 million at
June 30, 2000, up from $54.3 million one year ago.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of possible losses inherent in
the loan portfolio. The procedures employed by Huntington to evaluate the
adequacy of the ALL include an analysis of specific credits and the application
of relevant reserve factors that represent relative risk (based on portfolio
trends, current and historic loss experience, and prevailing economic
conditions) to specific portfolio segments. Specific reserves are established on
larger, impaired commercial and industrial and commercial real estate credits
and are based on discounted cash flow models using the loan's initial effective
rate or the fair value of the collateral for collateral-dependent loans.
Allocated reserves include management's assessment of portfolio performance,
internal controls, impacts from mergers and acquisitions, and other pertinent
risk factors. For analytical purposes, the ALL has been allocated to various
portfolio segments. However, the total ALL, less the portion attributable to
reserves as prescribed under provisions of SFAS No. 114, is available to absorb
losses from any segment of the portfolio. Unallocated reserves are based on
levels of criticized/classified assets, delinquencies in the accruing loan
portfolios, and the level of nonperforming loans. Total unallocated reserves
were 17% at June 30, 2000, versus 12% one year ago. This increase is due
primarily to the fourth quarter 1999 sale of Huntington's credit card portfolio.
The ALL reserve ratio was 1.45% at the recent quarter end compared with
1.46% at the end of last year's second quarter. As of June 30, 2000, the ALL
covered non-performing loans
21
<PAGE> 22
approximately 3.8 times and when combined with the allowance for other real
estate owned, was 307% of total nonperforming assets.
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. Capital is managed at each subsidiary based upon
the respective risks and growth opportunities, as well as regulatory
requirements. Huntington's ratio of average equity to average assets was 7.72%
in the recent quarter, up from 7.52% in the same three months of last year.
Risk-based capital guidelines established by the Federal Reserve Board
set minimum capital requirements and require institutions to calculate
risk-based capital ratios by assigning risk weightings to assets and off-balance
sheet items, such as interest rate swaps, loan commitments, and securitizations.
These guidelines further define "well-capitalized" levels for Tier 1, Total
Capital, and Leverage ratio purposes at 6%, 10%, and 5%, respectively. At the
recent quarter-end, Huntington's Tier 1 risk-based capital ratio was 7.40%,
total risk-based capital ratio was 10.90%, and the leverage ratio was 6.89%,
each of which improved from the same period a year ago. Huntington's bank
subsidiary also had regulatory capital ratios in excess of the levels
established for well-capitalized institutions.
During the second quarter, Huntington's Board of Directors authorized
the purchase of an additional 11 million shares (as adjusted for the July stock
dividend) under Huntington's common stock repurchase program. The shares will be
purchased in the open market and in privately negotiated transactions. During
the first half of 2000, Huntington repurchased approximately 6.9 million shares
of its common stock through open market and privately negotiated transactions.
In June, Huntington reissued approximately 6.5 million shares in connection with
the purchase acquisition of Empire. As of June 30, 2000, approximately 16.5
million shares remained under the authorization. Huntington anticipates
repurchasing these shares within the next two years. Repurchased shares are
being reserved for reissue in connection with Huntington's dividend reinvestment
and director and employee benefit plans as well as for stock dividends,
acquisitions, and other corporate purposes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures for the current period as well
as changes in market risk exposures from disclosures presented in Huntington's
Annual Report on Form 10-K for the year ended December 31, 1999 are found on
pages 18 through 21.
22
<PAGE> 23
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE
30, 2000 AND DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------
AMORTIZED Amortized
COST FAIR VALUE Cost Fair Value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year ................. $ -- $ -- $ 801 $ 801
1-5 years .................... 2,008 2,048 51,371 49,328
6-10 years ................... 86,914 81,347 476,055 446,512
Over 10 years ................ 413 420 -- --
---------- ---------- ---------- ----------
Total ..................... 89,335 83,815 528,227 496,641
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ................. 273 270 -- --
1-5 years .................... -- -- 4 4
6-10 years ................... 25,034 24,443 27,360 26,992
Over 10 years ................ 1,857,867 1,785,383 1,638,047 1,574,336
---------- ---------- ---------- ----------
Total ..................... 1,883,174 1,810,096 1,665,411 1,601,332
---------- ---------- ---------- ----------
Other agencies
Under 1 year ................. 1,000 997 -- --
1-5 years .................... 984,094 935,018 789,008 760,251
6-10 years ................... 302,233 285,720 498,790 469,696
Over 10 years ................ 833,055 801,040 868,124 837,422
---------- ---------- ---------- ----------
Total ..................... 2,120,382 2,022,775 2,155,922 2,067,369
---------- ---------- ---------- ----------
Other
Under 1 year ................. 25,827 25,558 20,805 20,832
1-5 years .................... 80,766 80,105 253,363 251,862
6-10 years ................... 75,041 72,248 130,486 125,951
Over 10 years ................ 230,424 219,636 251,333 239,975
Marketable equity securities . 16,853 43,466 10,524 66,241
---------- ---------- ---------- ----------
Total ..................... 428,911 441,013 666,511 704,861
---------- ---------- ---------- ----------
Total Securities Available for Sale $4,521,802 $4,357,699 $5,016,071 $4,870,203
========== ========== ========== ==========
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
--------------------------------------------- -------- -------- --------
FOR THE THREE MONTHS ENDED JUNE 30, 2000 1999 % Change
--------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME .................................. $ 97,521 $104,975 (7.1)%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ............................. $ 0.40 $ 0.41 (2.4)
Diluted ........................... $ 0.40 $ 0.41 (2.4)
Cash dividends declared ................ $ 0.18 $ 0.16 12.5
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) 245,652 256,469 (4.2)
KEY RATIOS
Return on:
Average total assets ................... 1.37% 1.47% (6.8)
Average shareholders' equity ........... 17.79% 19.48% (8.7)
Efficiency ratio ............................ 53.89% 50.93% 5.8
Average equity/average assets ............... 7.72% 7.52% 2.7
Net interest margin ......................... 3.72% 4.14% (10.1)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) .. $ 0.43 $ 0.44 (2.3)
Return on:
Average total assets ................... 1.51% 1.61% (6.2)
Average shareholders' equity ........... 27.26% 30.61% (10.9)
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------- -------- -------- --------
FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999 % Change
--------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME .................................. $201,694 $201,547 0.1 %
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ............................. $ 0.82 $ 0.79 3.8
Diluted ........................... $ 0.82 $ 0.79 3.8
Cash dividends declared ................ $ 0.36 $ 0.32 12.5
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) 247,431 256,606 (3.6)
KEY RATIOS
Return on:
Average total assets ................... 1.41% 1.42% (0.7)
Average shareholders' equity ........... 18.39% 18.98% (3.1)
Efficiency ratio ............................ 53.91% 51.54% 4.6
Average equity/average assets ............... 7.67% 7.49% 2.3
Net interest margin ......................... 3.75% 4.16% (9.9)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) .. $ 0.87 $ 0.84 3.6
Return on:
Average total assets ................... 1.55% 1.57% (1.3)
Average shareholders' equity ........... 28.14% 30.12% (6.6)
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 31, 2000.
(2) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles. Related asset amounts excluded from total assets and
shareholders' equity.
24
<PAGE> 25
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
-------------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
(in thousands of dollars) 2000 1999 2000 1999
----------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $296,743 $291,066 $299,309 $290,948
Allowance acquired ............................ 7,900 -- 7,900 --
Loan losses ................................... (22,810) (27,123) (48,417) (59,654)
Recoveries of loans previously charged off .... 7,280 8,305 14,620 15,649
Allowance of securitized loans ................ (8,056) -- (8,056) --
Provision for loan losses ..................... 15,834 21,026 31,535 46,331
-------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD ....... $296,891 $293,274 $296,891 $293,274
======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ................. 0.30% 0.38% 0.33% 0.45%
Provision for loan losses--annualized ....... 0.31% 0.42% 0.31% 0.47%
Allowance for loan losses as a % of total loans 1.45% 1.46% 1.45% 1.46%
Net loan loss coverage (1) .................... 9.68X 9.37x 9.37X 7.81x
</TABLE>
(1) Income before taxes and the provision for loan losses to net loan losses.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
-------------------------------------------------------------------------------------------------------------------
------------------------ ----------------------------------------
2000 1999
------------------------ ----------------------------------------
(in thousands of dollars) II Q I Q IV Q III Q II Q
----------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial............................ $ 45,138 $ 44,404 $ 42,958 $ 41,374 $ 37,840
Real Estate
Construction....................... 8,736 7,696 10,785 6,154 7,877
Commercial......................... 12,714 13,991 16,131 15,751 13,028
Residential Mortgage.................. 11,548 10,892 11,866 13,094 15,192
---------- ---------- ---------- ---------- ----------
Total Nonaccrual Loans.......... 78,136 76,983 81,740 76,373 73,937
Renegotiated loans....................... 1,317 1,324 1,330 1,877 2,827
---------- ---------- ---------- ---------- ----------
TOTAL NON-PERFORMING LOANS............... 79,453 78,307 83,070 78,250 76,764
Other real estate, net................... 15,670 13,904 15,171 15,072 16,839
---------- ---------- ---------- ---------- ----------
TOTAL NON-PERFORMING ASSETS.............. $ 95,123 $ 92,211 $ 98,241 $ 93,322 $ 93,603
========== ========== ========== ========== ==========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS....................... 0.39% 0.38% 0.40% 0.39% 0.38%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL
ESTATE................................. 0.46% 0.45% 0.47% 0.47% 0.46%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS................... 373.67% 378.95% 360.31% 377.78% 382.05%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING
ASSETS................................. 306.89% 316.30% 299.85% 315.82% 311.32%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE.. $ 62,775 $ 60,156 $ 61,287 $ 64,788 $ 54,305
========== ========== ========== ========== ==========
</TABLE>
25
<PAGE> 26
--------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
Fully Tax Equivalent Basis (1) 2ND QUARTER 2000 1ST QUARTER 2000
------------------------ -----------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
------------------------------------------------------------ BALANCE RATE BALANCE RATE
------- ------ ------- ------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks ................................ $ 6 5.13 % $ 6 3.69 %
Trading account securities ........................................ 18 8.67 14 6.26
Federal funds sold and securities purchased
under resale agreements ..................................... 105 6.10 23 6.11
Mortgages held for sale ........................................... 99 8.11 109 7.59
Securities:
Taxable ..................................................... 4,067 6.20 4,515 6.14
Tax exempt .................................................. 276 7.63 282 7.68
------- -------
Total Securities ....................................... 4,343 6.29 4,797 6.23
------- -------
Loans:
Commercial ................................................... 6,439 8.65 6,345 8.31
Real Estate
Construction ............................................ 1,254 8.72 1,238 8.38
Commercial .............................................. 2,172 8.51 2,156 8.35
Consumer
Loans .................................................. 6,530 8.38 6,837 8.29
Leases ................................................. 2,895 6.71 2,773 6.65
Residential Mortgage ................................... 1,473 7.62 1,449 7.54
------- -------
Total Consumer ......................................... 10,898 7.83 11,059 7.78
------- -------
Total Loans ....................................................... 20,763 8.21 20,798 8.04
------- -------
Allowance for loan losses ......................................... 302 306
------- -------
Net loans (2) ..................................................... 20,461 8.69 20,492 8.52
------- -------
Total earning assets .............................................. 25,334 8.27 % 25,747 8.08 %
------- -------
Cash and due from banks ........................................... 1,046 1,058
All other assets .................................................. 2,496 2,454
------- -------
TOTAL ASSETS ...................................................... $28,574 $28,953
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits ................................ $ 3,485 $ 3,466
Interest bearing demand deposits ............................. 4,228 3.32 % 4,053 2.97 %
Savings deposits ............................................. 3,583 4.21 3,645 3.80
Certificates of deposit ...................................... 6,520 5.57 6,533 5.38
------- -------
Total core deposits ..................................... 17,816 4.57 17,697 4.29
------- -------
Other domestic time deposits of $100,000 or more .................. 1,233 6.24 1,445 6.03
Foreign time deposits ............................................. 626 6.66 649 5.65
------- -------
Total deposits ............................................... 19,675 4.78 19,791 4.50
------- -------
Short-term borrowings ............................................. 1,761 5.77 1,954 5.10
Medium-term notes ................................................. 3,042 6.46 3,283 6.18
Subordinated notes and other long-term debt,
including preferred capital securities ......................... 1,148 7.08 1,004 6.82
------- -------
Interest bearing liabilities ................................. 22,141 5.21 % 22,566 4.90 %
------- -------
All other liabilities ............................................. 743 715
Shareholders' equity .............................................. 2,205 2,206
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $28,574 $28,953
======= =======
Net interest rate spread .......................................... 3.06 % 3.18 %
Impact of non-interest bearing funds on margin .................... 0.66 % 0.60 %
Net Interest Margin ............................................... 3.72 % 3.78 %
</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.
26
<PAGE> 27
--------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
4TH QUARTER 1999 3RD QUARTER 1999 2ND QUARTER 1999
---------------------- --------------------- ---------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE BALANCE RATE
---------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 13 3.94 % $ 8 3.64 % $ 8 3.75 %
14 6.35 7 5.64 15 5.41
31 6.10 20 5.39 19 4.86
135 7.45 169 7.27 269 6.96
4,854 6.15 4,846 6.14 4,914 5.99
288 7.73 295 7.76 303 7.90
--------- -------- --------
5,142 6.23 5,141 6.24 5,217 6.10
--------- -------- --------
6,194 8.06 6,066 7.90 6,182 7.73
1,182 8.19 1,103 8.13 1,012 7.92
2,185 8.18 2,215 8.14 2,306 8.15
6,876 8.27 7,093 8.29 6,907 8.25
2,633 6.55 2,365 6.75 2,175 6.72
1,443 7.45 1,421 7.47 1,420 7.54
--------- -------- --------
10,952 7.75 10,879 7.85 10,502 7.84
--------- -------- --------
20,513 7.91 20,263 7.91 20,002 7.84
--------- -------- --------
309 301 297
--------- -------- --------
20,204 8.43 19,962 8.54 19,705 8.35
--------- -------- --------
25,848 7.98 % 25,608 8.07 % 25,530 7.87 %
--------- -------- --------
1,024 1,026 1,044
2,434 2,468 2,454
--------- -------- --------
$ 28,997 $ 28,801 $ 28,731
========= ======== ========
$ 3,460 $ 3,509 $ 3,511
4,077 2.76 % 4,139 2.66 % 4,109 2.50 %
3,768 3.61 3,792 3.43 3,769 3.25
6,572 5.18 6,496 5.05 6,582 5.08
--------- -------- --------
17,877 4.09 17,936 3.94 17,971 3.87
--------- -------- --------
1,029 5.85 798 5.08 795 5.02
517 5.40 465 5.17 307 4.82
--------- -------- --------
19,423 4.24 19,199 4.03 19,073 3.95
--------- -------- --------
2,226 4.74 2,331 4.54 2,793 4.38
3,347 5.88 3,415 5.44 3,047 5.19
1,000 6.51 1,001 6.03 1,004 5.70
--------- -------- --------
22,536 4.64 % 22,437 4.39 % 22,406 4.25 %
--------- -------- --------
893 658 653
2,108 2,197 2,161
--------- -------- --------
$ 28,997 $ 28,801 $ 28,731
========= ======== ========
3.34 % 3.68 % 3.62 %
0.60 % 0.54 % 0.52 %
3.94 % 4.22 % 4.14 %
</TABLE>
27
<PAGE> 28
--------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
2000 1999
------------------------- -----------------------------------------
(in thousands of dollars, except per share amounts) II Q I Q IV Q III Q II Q
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ............................. $ 519,496 $ 515,557 $ 515,516 $ 516,294 $ 498,500
TOTAL INTEREST EXPENSE ............................ 286,690 274,866 262,854 247,863 237,352
--------- --------- --------- --------- ---------
NET INTEREST INCOME ............................... 232,806 240,691 252,662 268,431 261,148
Provision for loan losses ......................... 15,834 15,701 20,040 22,076 21,026
--------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ....................... 216,972 224,990 232,622 246,355 240,122
--------- --------- --------- --------- ---------
Service charges on deposit accounts ............... 40,097 41,660 42,774 41,700 36,065
Brokerage and insurance income .................... 13,945 15,284 13,373 14,620 12,540
Trust services .................................... 13,165 12,863 12,828 12,625 13,143
Electronic banking fees ........................... 11,250 9,849 10,082 9,771 9,410
Bank Owned Life Insurance income .................. 9,486 9,186 9,390 9,390 9,390
Mortgage banking .................................. 8,122 8,515 9,426 14,282 17,224
Securitization income ............................. 6,488 (10,208) -- -- --
Credit card fees .................................. 1,340 1,793 5,091 6,626 6,255
Other ............................................. 11,668 11,989 11,374 6,103 11,029
--------- --------- --------- --------- ---------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
GAINS ........................................ 115,561 100,931 114,338 115,117 115,056
--------- --------- --------- --------- ---------
Securities gains .................................. 103 24,763 7,905 537 2,220
Gain on sale of credit card portfolio ............. -- -- 108,530 -- --
--------- --------- --------- --------- ---------
TOTAL NON-INTEREST INCOME ......................... 115,664 125,694 230,773 115,654 117,276
--------- --------- --------- --------- ---------
Personnel and related costs ....................... 104,133 102,344 100,654 104,730 107,263
Equipment ......................................... 18,863 19,412 18,161 16,059 15,573
Net occupancy ..................................... 18,613 19,135 17,890 16,799 13,563
Outside data processing and other services......... 15,336 15,002 15,642 15,929 15,923
Amortization of intangible assets ................. 9,206 9,196 9,307 9,326 9,336
Marketing ......................................... 7,742 7,993 9,642 9,049 7,319
Telecommunications ................................ 6,472 6,749 7,108 7,412 6,935
Printing and supplies ............................. 4,956 4,617 5,483 5,254 4,734
Legal and other professional services ............. 4,815 4,500 5,868 4,754 5,803
Franchise and other taxes ......................... 2,635 2,438 2,708 3,598 3,981
Other ............................................. 5,305 8,720 12,432 13,279 11,708
--------- --------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE BEFORE OTHER
NON-RECURRING EXPENSES .......................... 198,076 200,106 204,895 206,189 202,138
--------- --------- --------- --------- ---------
Other non-recurring expenses ...................... -- -- 96,791 -- --
--------- --------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE ........................ 198,076 200,106 301,686 206,189 202,138
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ........................ 134,560 150,578 161,709 155,820 155,260
Provision for income taxes ........................ 37,039 46,405 46,769 50,233 50,285
--------- --------- --------- --------- ---------
NET INCOME ........................................ $ 97,521 $ 104,173 $ 114,940 $ 105,587 $ 104,975
========= ========= ========= ========= =========
PER COMMON SHARE (1)
Net income
Diluted ...................................... $ 0.40 $ 0.42 $ 0.45 $ 0.41 $ 0.41
Diluted - Cash Basis ......................... $ 0.43 $ 0.45 $ 0.48 $ 0.44 $ 0.44
Cash Dividends Declared .......................... $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.16
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ............................... $ 232,806 $ 240,691 $ 252,662 $ 268,431 $ 261,148
Tax Equivalent Adjustment (2) ..................... 2,074 2,157 2,249 2,280 2,390
--------- --------- --------- --------- ---------
Tax Equivalent Net Interest Income ................ $ 234,880 $ 242,848 $ 254,911 $ 270,711 $ 263,538
========= ========= ========= ========= =========
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 31, 2000.
(2) Calculated assuming a 35% tax rate.
28
<PAGE> 29
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
STOCK SUMMARY, KEY RATIOS AND STATISTICS, AND REGULATORY CAPITAL DATA
-------------------------------------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
-------------------------------------------------------------------------------------------------------------------
------------------------- ------------------------------------
2000 1999
------------------------- ------------------------------------
II Q I Q IV Q III Q II Q
----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
High................................... $20 13/16 $21 13/16 $27 15/16 $30 13/16 $30 15/16
Low.................................... 14 3/8 16 1/8 19 1/2 22 7/16 25 3/16
Close.................................. 14 3/8 20 5/16 21 11/16 24 1/8 28 15/16
Cash dividends declared................ $0.18 $0.18 $0.18 $0.18 $0.16
</TABLE>
Note: Stock price quotations were obtained from NASDAQ.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
-------------------------------------------------------------------------------------------------------------------
------------------------- ------------------------------------
2000 1999
MARGIN ANALYSIS - AS A % ------------------------- ------------------------------------
OF AVERAGE EARNING ASSETS (2) II Q I Q IV Q III Q II Q
---------------------------------------------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Interest Income............................... 8.27% 8.08% 7.98% 8.07% 7.87%
Interest Expense.............................. 4.55% 4.30% 4.04% 3.85% 3.73%
----------- ----------- --------- ---------- ---------
Net Interest Margin 3.72% 3.78% 3.94% 4.22% 4.14%
=========== =========== ========= ========== =========
RETURN ON
----------------------------------------------
Average total assets.......................... 1.37% 1.45% 1.57% 1.45% 1.47%
Average total assets - cash basis............. 1.51% 1.58% 1.71% 1.59% 1.61%
Average shareholders' equity.................. 17.79% 18.99% 21.64% 19.07% 19.48%
Average shareholders' equity - cash basis..... 27.26% 29.01% 33.69% 29.54% 30.61%
Efficiency Ratio.............................. 53.89% 53.93% 52.97% 51.02% 50.93%
</TABLE>
<TABLE>
<CAPTION>
------------------------- ------------------------------------
2000 1999
REGULATORY CAPITAL DATA ------------------------- ------------------------------------
(in millions of dollars) II Q I Q IV Q III Q II Q
---------------------------------------------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total Risk-Adjusted Assets.................... $25,900 $25,251 $ 25,298 $25,309 $ 24,829
Tier 1 Risk-Based Capital Ratio............... 7.40% 7.23% 7.52% 7.32% 7.29%
Total Risk-Based Capital Ratio................ 10.90% 10.90% 10.72% 10.62% 10.65%
Tier 1 Leverage Ratio......................... 6.89% 6.45% 6.72% 6.58% 6.45%
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 31, 2000.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
29
<PAGE> 30
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 4. Submission of Matters to a Vote of Security Holders
Huntington Bancshares Incorporated held its annual meeting of
shareholders on April 20, 2000. At that meeting, shareholders approved
the following management proposals:
<TABLE>
<CAPTION>
ABSTAIN/ BROKER
FOR AGAINST WITHHELD NONVOTES
--- ------- -------- --------
<S> <C> <C> <C> <C>
1. Election of directors
to serve as Class I
Directors until the year 2003
Annual Meeting of Shareholders
as follows:
Peter Geier 186,612,547 5,697,548
John B. Gerlach, Jr. 187,267,855 5,042,239
Robert H. Schottenstein 186,913,468 5,693,627
William J. Williams 186,905,954 5,404,141
2. Ratification of Ernst &
Young LLP to serve as
independent auditors for
the Corporation for the
year 2000 189,546,301 1,484,395 1,279,399 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. (i)(a) Articles of Restatement of Charter,
Articles of Amendment to Articles of
Restatement of Charter, and Articles
Supplementary - previously filed as Exhibit
3(i) to Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated
herein by reference.
(i)(b) Articles of Amendment to Articles of
Restatement of Charter -- previously filed as
Exhibit 3(i)(b) to Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, and
incorporated herein by reference.
30
<PAGE> 31
(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. Instruments defining the Rights of Security
Holders:
Reference is made to Articles Fifth, Eighth and
Tenth of Articles of Restatement of Charter, as
amended and supplemented. Also, reference is
made to Rights Plan, dated February 22, 1990,
previously filed as Exhibit 1 to Registration
Statement on Form 8-A, and incorporated herein
by reference and to Amendment No. 1 to the
Rights Agreement, dated as of August 16, 1995,
previously filed as Exhibit 4(b) to Form 8-K
filed with the Securities and Exchange
Commission on August 28, 1995, and incorporated
herein by reference. Instruments defining the
rights of holders of long-term debt will be
furnished to the Securities and Exchange
Commission upon request.
10. Material contracts
(a) First Amendment -- Huntington Bancshares
Incorporated Amended and Restated 1994 Stock
Option Plan
(b) Third Amendment - Huntington Bancshares
Incorporated 1990 Stock Option Plan
(c) Sixth Amendment - Huntington Bancshares
Incorporated 1983 Stock Option Plan
27. Financial Data Schedule
99. Earnings to Fixed Charges
(b) Reports on Form 8-K
1. A report on Form 8-K, dated April 13, 2000, was
filed under report item numbers 5 and 7,
concerning Huntington's results of operations
for the first quarter 2000.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Huntington
Bancshares Incorporated has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: August 11, 2000 /s/ Richard A. Cheap
-------------------------------------
Richard A. Cheap
General Counsel and Secretary
Date: August 11, 2000 /s/ Anne Creek
-------------------------------------
Anne Creek
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
