UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY PERIOD ENDED September 30, 2000 Commission File Number 0-2525 HUNTINGTON BANCSHARES INCORPORATED MARYLAND 31-0724920 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287 REGISTRANT'S TELEPHONE NUMBER (614) 480-8300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- There were 250,849,355 shares of Registrant's without par value common stock outstanding on October 31, 2000. HUNTINGTON BANCSHARES INCORPORATED INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2000 and 1999 and December 31, 1999 3 Consolidated Statements of Income - For the three and nine months ended September 30, 2000 and 1999 4 Consolidated Statements of Changes in Shareholders' Equity - For the nine months ended September 30, 2000 and 1999 5 Consolidated Statements of Cash Flows - For the nine months ended September 30, 2000 and 1999 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 23 PART II. OTHER INFORMATION Item 2. Changes in securities and use of proceeds 31 Item 6. Exhibits and Reports on Form 8-K 31-32 2 PART I. FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31, September 30, (in thousands of dollars) 2000 1999 1999 - ------------------------------------------------------------ ------------ ------------ ------------ ASSETS Cash and due from banks .................................... $ 980,199 $ 1,208,004 $ 972,164 Interest bearing deposits in banks ......................... 4,922 6,558 7,325 Trading account securities ................................. 17,770 7,975 3,964 Federal funds sold and securities purchased under resale agreements ..................... 127,141 20,877 10,310 Loans held for sale ........................................ 115,541 141,723 681,505 Securities available for sale - at fair value .............. 4,696,241 4,870,203 5,086,596 Investment securities - fair value $17,000; $18,662; and $20,129, respectively ............................. 17,053 18,765 20,110 Total loans (1) ............................................ 20,328,152 20,668,437 20,009,020 Less allowance for loan losses ........................ 294,686 299,309 295,612 ------------ ------------ ------------ Net loans .................................................. 20,033,466 20,369,128 19,713,408 ------------ ------------ ------------ Bank owned life insurance .................................. 793,856 765,399 756,008 Premises and equipment ..................................... 442,676 438,871 434,584 Customers' acceptance liability ............................ 14,065 17,167 24,684 Accrued income and other assets ............................ 1,334,263 1,172,283 1,263,964 ------------ ------------ ------------ TOTAL ASSETS ............................................... $ 28,577,193 $ 29,036,953 $ 28,974,622 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1) ......................................... $ 19,533,166 $ 19,792,603 $ 19,241,808 Short-term borrowings ...................................... 2,133,311 2,121,989 2,501,862 Bank acceptances outstanding ............................... 14,065 17,167 24,684 Medium-term notes .......................................... 2,702,150 3,254,150 3,424,150 Subordinated notes and other long-term debt ................ 870,889 697,677 700,597 Company obligated mandatorily redeemable preferred capital securities of subsidiary trusts holding solely junior subordinated debentures of the Parent Company .... 300,000 300,000 300,000 Accrued expenses and other liabilities ..................... 740,047 671,011 622,356 ------------ ------------ ------------ Total Liabilities ..................................... 26,293,628 26,854,597 26,815,457 ------------ ------------ ------------ Shareholders' equity Preferred stock - authorized 6,617,808 shares; none outstanding ................................. --- --- --- Common stock - without par value; authorized 500,000,000 shares; issued 257,866,256, 233,844,820, and 233,844,900 shares, respectively; outstanding 250,849,574, 228,888,221, and 229,807,644 shares, respectively ................. 2,493,912 2,284,956 2,285,494 Treasury stock ........................................ (128,995) (137,268) (112,229) Accumulated other comprehensive income ................ (81,647) (94,093) (73,746) Retained earnings ..................................... 295 128,761 59,646 ------------ ------------ ------------ Total Shareholders' Equity ............................ 2,283,565 2,182,356 2,159,165 ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 28,577,193 $ 29,036,953 $ 28,974,622 ============ ============ ============
(1) See page 12 for detail on total loans and total deposits. See notes to unaudited consolidated financial statements. 3 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- ------------------------------- (in thousands of dollars, except per share amounts) 2000 1999 2000 1999 - --------------------------------------------------- ------------- ------------- ------------- ------------- Interest and fee income Loans ........................................ $ 459,860 $ 434,159 $ 1,348,103 $ 1,259,791 Securities ................................... 71,385 78,632 211,427 235,363 Other ........................................ 4,546 3,503 11,314 15,332 ------------- ------------- ------------- ------------- TOTAL INTEREST INCOME .............. 535,791 516,294 1,570,844 1,510,486 ------------- ------------- ------------- ------------- Interest expense Deposits ..................................... 202,659 159,509 577,521 468,982 Short-term borrowings ........................ 30,998 26,700 80,978 87,703 Medium-term notes ............................ 44,292 46,575 143,489 120,682 Subordinated notes and other long-term debt .. 21,973 15,079 59,490 44,019 ------------- ------------- ------------- ------------- TOTAL INTEREST EXPENSE ............. 299,922 247,863 861,478 721,386 ------------- ------------- ------------- ------------- NET INTEREST INCOME ................ 235,869 268,431 709,366 789,100 Provision for loan losses ......................... 26,396 22,076 57,931 68,407 ------------- ------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 209,473 246,355 651,435 720,693 ------------- ------------- ------------- ------------- Total non-interest income(1)....................... 121,652 115,654 363,010 342,802 Total non-interest expense(1) ..................... 263,585 206,189 661,767 610,433 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES ......... 67,540 155,820 352,678 453,062 Provision for income taxes ........................ 17,010 50,233 100,454 145,928 ------------- ------------- ------------- ------------- NET INCOME ......................... $ 50,530 $ 105,587 $ 252,224 $ 307,134 ============= ============= ============= ============= PER COMMON SHARE(2) Net income Basic ................................... $0.20 $ 0.42 $ 1.02 $1.21 Diluted ................................. $0.20 $ 0.41 $ 1.01 $1.20 Cash dividends declared ........................... $0.20 $ 0.18 $ 0.56 $0.50 AVERAGE COMMON SHARES(2) .......................... Basic ................................... 251,113,540 253,145,949 247,983,936 253,936,102 Diluted ................................. 252,032,874 255,216,297 248,908,848 256,138,420
(1) See page 13 for detail of non-interest income and non-interest expense. (2) Adjusted for the ten percent stock dividend distributed July 2000. See notes to unaudited consolidated financial statements. 4 - ------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
ACCUMULATED COMMON STOCK TREASURY STOCK OTHER -------------------- ------------------- COMPREHENSIVE RETAINED In thousands SHARES AMOUNT SHARES AMOUNT INCOME (LOSS) EARNINGS TOTAL ------ ------ ------ ------ ------------- -------- ----- Nine Months Ended September 30, 1999: Balance, beginning of period 212,596 $ 2,137,915 (1,850) $ (49,271) $ 24,693 $ 35,458 $ 2,148,795 Comprehensive Income: Net income 307,134 307,134 Unrealized net holding losses on securities available for sale arising during the period (98,439) (98,439) ----------- Total comprehensive income 208,695 ----------- Cash Dividends declared (130,011) (130,011) Stock options exercised (5,005) 294 8,193 3,188 10% stock dividend 21,249 152,584 (304) (152,935) (351) Treasury shares purchased (2,201) (71,860) (71,860) Treasury shares sold to employee benefit plans 24 709 709 ------- ----------- ------ --------- --------- -------- ----------- Balance, end of period 233,845 $ 2,285,494 (4,037) $ (112,229) $ (73,746) $ 59,646 $ 2,159,165 ======= =========== ====== ========= ========= ======== =========== NINE MONTHS ENDED SEPTEMBER 30, 2000: BALANCE, BEGINNING OF PERIOD 233,845 $ 2,284,956 (4,957) $ (137,268) $ (94,093) $128,761 $ 2,182,356 Comprehensive Income: Net income 252,224 252,224 Unrealized net holding losses on securities available for sale arising during the period 12,446 12,446 ----------- Total comprehensive income 264,670 ----------- Stock issued for acquisition (29,399) 7,175 171,781 142,382 Cash dividends declared (139,028) (139,028) Stock options exercised (3,128) 105 3,405 277 10% stock dividend 24,021 241,483 (1,182) (241,662) (179) Treasury shares purchased (8,188) (167,612) (167,612) Treasury shares sold to employee benefit plans 30 699 699 ------- ----------- ------ --------- --------- -------- ----------- Balance, end of period 257,866 $ 2,493,912 (7,017) $ (128,995) $ (81,647) $ 295 $ 2,283,565 ======= =========== ====== ========= ========= ======== ===========
See notes to unaudited consolidated financial statements. 5 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- (in thousands of dollars) 2000 1999 - ------------------------------------------------------------------------------- ------------ ------------ Operating Activities Net Income $ 252,224 $ 307,134 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 57,931 68,407 Provision for depreciation and amortization 85,053 85,691 Deferred income tax expense 59,114 42,854 Increase in trading account securities (9,795) (125) Decrease in loans held for sale 26,182 328,262 Net gains on sales of securities available for sale (36,245) (5,067) Losses on loan securitizations 4,118 --- Increase in accrued income receivable (31,769) (30,331) Net increase in other assets (43,571) (110,193) Increase in accrued expenses 33,343 17,082 Decrease in other liabilities (10,807) (9,854) Write-down of lease residual values 50,000 --- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 435,778 693,860 ----------- ----------- INVESTING ACTIVITIES Decrease in interest bearing deposits in banks 1,636 95,239 Proceeds from Maturities and calls of investment securities 1,692 4,796 Maturities and calls of securities available for sale 226,039 570,841 Sales of securities available for sale 1,096,042 1,660,969 Purchases of securities available for sale (168,418) (2,686,470) Proceeds from securitizations/sales of loans 1,264,241 --- Net loan originations, excluding sales (1,576,285) (1,168,814) Proceeds from sale of premises and equipment 2,351 14,410 Purchases of premises and equipment (38,444) (52,801) Net cash received in purchase acquisitions 12,004 --- Proceeds from sales of other real estate 12,023 11,180 ----------- ----------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 832,881 (1,550,650) ----------- ----------- FINANCING ACTIVITIES Decrease in total deposits (688,000) (480,924) Increase in short-term borrowings 1,322 285,218 Proceeds from issuance of long-term debt 150,000 --- Maturity of long-term debt --- (7,000) Proceeds from issuance of medium-term notes 530,000 2,082,000 Payment of medium-term notes (1,082,000) (1,197,750) Dividends paid on common stock (134,707) (125,895) Repurchases of common stock (167,612) (71,860) Proceeds from issuance of common stock 797 3,897 ----------- ----------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (1,390,200) 487,686 ----------- ----------- CHANGE IN CASH AND CASH EQUIVALENTS (121,541) (369,104) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,228,881 1,351,578 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,107,340 $ 982,474 =========== ===========
See notes to unaudited consolidated financial statements. 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS A. Basis of Presentation The accompanying unaudited consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The Notes to the Consolidated Financial Statements appearing in Huntington Bancshares Incorporated's (Huntington) 1999 Annual Report on Form 10-K should be read in conjunction with these interim financial statements. B. Reclassifications Certain amounts in the prior year's financial statements have been reclassified to conform to the 2000 presentation. These reclassifications had no effect on net income. C. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement (as amended by Statements No. 137 and No. 138) establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses from derivatives to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions for which hedge accounting is applied. Statement No. 133, as amended, is effective for fiscal years beginning after June 15, 2000. It may be implemented earlier provided adoption occurs as of the beginning of any fiscal quarter after issuance. The Statement cannot be applied retroactively. Huntington expects to adopt Statement No. 133, as amended, in the first quarter of 2001. Based on information available, the impact of adoption is not expected to be material to the Consolidated Financial Statements. D. Acquisitions Huntington acquired Empire Banc Corporation (Empire), a $506 million one-bank holding company headquartered in Traverse City, Michigan, on June 23, 2000. Huntington reissued approximately 6.5 million shares of common stock in the second quarter, all of which were purchased on the open market during the first quarter 2000, in exchange for all of the common stock of Empire. In addition, Huntington acquired J. Rolfe Davis Insurance Agency, Inc. (JRD), headquartered in Maitland, Florida, on August 31, 2000. Huntington paid $8.2 million in cash and issued approximately 695,000 shares of common stock for all of the common stock of JRD. Both transactions were accounted for as purchases; accordingly, the results of Empire and JRD have been included in the unaudited consolidated financial statements from the respective dates of acquisition. 7 E. Earnings per Share Basic earnings per share is the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares for stock options. The calculation of basic and diluted earnings per share for each of the periods ended September 30, is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- -------------------- (in thousands, except per share amounts) 2000 1999 2000 1999 ------- ------- ------- ------- Net Income $50,530 $105,587 $252,224 $307,134 ======= ======== ======== ======== Average common shares outstanding 251,114 253,146 247,984 253,936 Dilutive effect of stock options 919 2,070 925 2,202 ------- ------- ------- ------- Diluted common shares outstanding 252,033 255,216 248,909 256,138 ======= ======= ======= ======= Earnings per share Basic $0.20 $0.42 $1.02 $1.21 Diluted $0.20 $0.41 $1.01 $1.20
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:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- (in thousands) 2000 1999 2000 1999 ------- -------- ------- -------- Unrealized holding (losses) gains arising during the period: Unrealized net gains (losses) $49,143 $(27,576) $55,772 $(147,391) Related tax (expense) benefit (17,407) 9,744 (19,767) 52,245 ------- -------- ------- -------- Net 31,736 (17,832) 36,005 (95,146) ------- -------- ------- -------- Less: Reclassification adjustment for net gains realized during the period: Realized net gains 11,379 537 36,245 5,067 Related tax expense (3,983) (188) (12,686) (1,774) ------- -------- ------- -------- Net 7,396 349 23,559 3,293 ------- -------- ------- -------- Total Other Comprehensive Income (Loss) $24,340 $(18,181) $12,446 $(98,439) ======= ======== ======= ========
8 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.
- ------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 2000 - ------------------------------------------------------------------------------------------------------------------------ Private INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington (in thousands of dollars) Banking Banking Sales(1) Group Other Consolidated - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income (FTE) $134,771 $ 67,999 $ 50,200 $ 7,641 $(22,720) $237,891 Provision for Loan Losses 7,820 3,016 15,477 83 --- 26,396 Non-Interest income 66,222 14,559 3,234 15,401 22,236 121,652 Non-Interest expense 136,093 30,320 64,126 14,606 18,440 263,585 Income Taxes/FTE Adjustment 17,668 15,236 (10,600) 2,586 (5,858) 19,032 -------- -------- -------- -------- -------- -------- Net income $ 39,412 $ 33,986 $(15,569) $ 5,767 $(13,066) $ 50,530 ======== ======== ======== ======== ======== ======== Depreciation and Amortization $ 7,330 $ 566 $ 254 $ 380 $ 20,319 $ 28,849 ======== ======== ======== ======== ======== ======== BALANCE SHEET (in millions of dollars) Average Identifiable Assets $ 7,158 $ 7,168 $ 6,489 $ 620 $ 7,263 $ 28,698 Average Deposits $ 16,526 $ 1,627 $ 80 $ 612 $ 937 $ 19,782 Capital Expenditures $ 5 $ --- $ --- $ --- $ 10 $ 15
(1) Includes a $32.5 million, net of tax, special charge to write-down lease residual values. Excluding the charge, net income was $16.9 million.
- ------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 1999 - ------------------------------------------------------------------------------------------------------------------------ Private INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington (in thousands of dollars) Banking Banking Sales Group Other Consolidated - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income (FTE) $145,486 $ 62,932 $ 52,035 $ 8,053 $ 2,205 $270,711 Provision for Loan Losses 9,323 1,844 10,234 675 --- 22,076 Non-Interest income 73,987 14,681 1,147 12,697 13,142 115,654 Non-Interest expense 134,753 30,954 12,560 12,546 15,376 206,189 Income Taxes/FTE Adjustment 25,043 14,885 10,093 2,501 (9) 52,513 -------- -------- -------- -------- -------- -------- Net income $ 50,354 $ 29,930 $ 20,295 $ 5,028 $ (20) $105,587 ======== ======== ======== ======== ======== ======== Depreciation and Amortization $ 9,906 $ 692 $ 189 $ 333 $ 15,277 $ 26,397 ======== ======== ======== ======== ======== ======== BALANCE SHEET (in millions of dollars) Average Identifiable Assets $ 7,642 $ 6,810 $ 6,344 $ 593 $ 7,412 $ 28,801 Average Deposits $ 16,785 $ 977 $ 66 $ 618 $ 753 $ 19,199 Capital Expenditures $ 5 $ 1 $ --- $ --- $ 9 $ 15
9
- ------------------------------------------------------------------------------------------------------------------------ NINE MONTHS ENDED SEPTEMBER 30, 2000 - ------------------------------------------------------------------------------------------------------------------------ Private INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington (in thousands of dollars) Banking Banking Sales(2) Group Other Consolidated - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income (FTE) $399,392 $193,992 $144,375 $ 23,365 $(45,505) $715,619 Provision for Loan Losses 15,968 7,108 34,310 545 --- 57,931 Non-Interest income 204,841 45,679 13,448 40,715 58,327 363,010 Non-Interest expense 410,453 86,120 88,907 38,774 37,513 661,767 Income Taxes/FTE Adjustment 57,039 46,940 6,719 7,937 (11,928) 106,707 -------- -------- -------- -------- -------- -------- Net income $120,773 $ 99,503 $ 27,887 $ 16,824 $(12,763) $252,224 ======== ======== ======== ======== ======== ======== Depreciation and Amortization $ 25,500 $ 1,831 $ 716 $ 964 $ 56,042 $ 85,053 ======== ======== ======== ======== ======== ======== BALANCE SHEET (in millions of dollars) Average Identifiable Assets $ 6,982 $ 7,031 $ 6,767 $ 602 $ 7,360 $ 28,742 Average Deposits $ 16,440 $ 1,445 $ 75 $ 637 $ 1,152 $ 19,749 Capital Expenditures $ 20 $ 2 $ 3 $ --- 13 $ 38
(2) Includes a $32.5 million, net of tax, special charge to write-down lease residual values. Excluding the charge, net income was $60.4 million.
- ---------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1999 - ---------------------------------------------------------------------------------------------------------------------- Private INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington (in thousands of dollars) Banking Banking Sales Group Other Consolidated - ---------------------------------------------------------------------------------------------------------------------- Net Interest Income (FTE) $424,146 $185,246 $142,595 $ 24,748 $ 19,539 $796,274 Provision for Loan Losses 30,400 6,048 30,894 1,065 --- 68,407 Non-Interest income 217,471 44,675 2,183 37,930 40,543 342,802 Non-Interest expense 403,554 88,906 36,528 35,158 46,287 610,433 Income Taxes/FTE Adjustment 69,088 44,906 25,733 8,803 4,572 153,102 -------- -------- -------- -------- -------- -------- Net income $138,575 $ 90,061 $ 51,623 $ 17,652 $ 9,223 $307,134 ======== ======== ======== ======== ======== ======== Depreciation and Amortization $ 34,445 $ 1,980 $ 557 $ 1,061 $ 47,648 $ 85,691 ======== ======== ======== ======== ======== ======== BALANCE SHEET (in millions of dollars) Average Identifiable Assets $ 7,647 $ 6,689 $ 6,083 $ 588 $ 7,646 $ 28,653 Average Deposits $ 16,960 $ 955 $ 65 $ 615 $ 540 $ 19,135 Capital Expenditures $ 14 $ 3 $ --- $ --- $ 36 $ 53
10 H. Security Sales and Loan Securitizations During the first nine months of 2000, Huntington realized net security and securitization gains of $32.1 million, compared with $5.1 million in the same period a year ago. Security sales netted gains of $36.2 million and included sales of portions of Huntington's investment in S1 Corporation common stock and other investments for gains of $63.5 million. Substantially offsetting these gains, were losses of $27.3 million related to the strategic sales of $810 million of lower yielding securities. During the third quarter and first nine months of 2000, Huntington securitized and sold $326 million and $1.4 billion of automobile loans, respectively. No securitization gains or losses were realized during the third quarter; however, $4.1 million of losses were recorded during the first half of the year. Huntington also securitized $450 million and $730 million of residential mortgage loans during the third quarter and first nine months of 2000, respectively. Huntington initially retained all of the resulting securities and accordingly, reclassified the securitized amount from loans to securities available for sale. 11 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- LOAN PORTFOLIO COMPOSITION - --------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30, (in thousands of dollars) 2000 1999 1999 - --------------------------------------------------------- ----------- ----------- ----------- Commercial (unearned income $1,728; $2,550; $2,919)(1) .. $ 6,494,013 $ 6,300,414 $ 6,103,070 Real Estate Construction ........................................ 1,288,897 1,236,776 1,140,187 Commercial .......................................... 2,218,825 2,151,673 2,178,699 Consumer Loans (unearned income $4,523; $5,974; $6,577)(1) ... 6,403,858 6,793,295 6,646,202 Leases (unearned income $503,369; $410,239; $364,406) 3,007,446 2,741,735 2,506,509 Residential Mortgage ................................ 915,113 1,444,544 1,434,353 ----------- ----------- ----------- TOTAL LOANS ........................................ $20,328,152 $20,668,437 $20,009,020 =========== =========== ===========
- -------------------------------------------------------------------------------- DEPOSIT COMPOSITION - --------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30, (in thousands of dollars) 2000 1999 1999 - ---------------------------------------------------------------------------------------------------------- Demand deposits Non-interest bearing ............................... $ 3,169,099 $ 3,418,100 $ 3,446,335 Interest bearing ................................... 4,359,430 4,046,472 3,992,281 Savings deposits ........................................ 3,541,828 3,793,423 3,913,900 Certificates of deposit Less than $100,000 ................................... 5,927,733 5,547,266 5,614,179 $100,000 or more ..................................... 917,412 932,662 933,765 ----------- ----------- ----------- TOTAL CORE DEPOSITS ................................ 17,915,502 17,737,923 17,900,460 ----------- ----------- ----------- Other domestic time deposits of $100,000 or more ........ 1,296,810 1,188,465 855,505 Foreign time deposits ................................... 320,854 866,215 485,843 ----------- ----------- ----------- TOTAL DEPOSITS ..................................... $19,533,166 $19,792,603 $19,241,808 =========== =========== ===========
(1) Balance at September 1999, excludes $25 million of business credit card and $518 million of consumer credit card receivables, respectively, classified as "held for sale". 12 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST INCOME - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- PERCENT --------------------- PERCENT (in thousands of dollars) 2000 1999 CHANGE 2000 1999 CHANGE - ------------------------------------------- -------- -------- ------ -------- -------- ------- Service charges on deposit accounts ....... $ 39,722 $ 41,700 (4.7)% $121,479 $113,541 7.0% Brokerage and insurance income ............ 15,564 14,620 6.5 44,793 38,703 15.7 Trust services ............................ 13,181 12,625 4.4 39,209 39,202 0.0 Electronic banking fees ................... 11,238 9,771 15.0 32,337 27,219 18.8 Bank Owned Life Insurance income .......... 9,786 9,390 4.2 28,458 28,170 1.0 Mortgage banking .......................... 9,412 14,282 (34.1) 26,049 47,464 (45.1) Credit card fees .......................... 1,744 6,626 (73.7) 4,877 18,223 (73.2) Other ..................................... 9,626 6,103 57.7 33,681 25,213 33.6 -------- -------- -------- -------- TOTAL NON-INTEREST INCOME BEFORE SECURITIES AND SECURITIZATION GAINS ............... 110,273 115,117 (4.2) 330,883 337,735 (2.0) Securities and securitization gains ....... 11,379 537 N.M. 32,127 5,067 N.M. -------- -------- -------- -------- TOTAL NON-INTEREST INCOME ................. $121,652 $115,654 5.2% $363,010 $342,802 5.9% ======== ======== ======== ========
- -------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST EXPENSE - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- PERCENT --------------------- PERCENT (in thousands of dollars) 2000 1999 CHANGE 2000 1999 CHANGE - ------------------------------------------- -------- -------- ------ -------- -------- ------- Personnel and related costs .............. $109,463 $104,730 4.5% $315,940 $319,247 (1.0)% Net occupancy ............................ 19,520 16,799 16.2 57,268 44,279 29.3 Equipment ................................ 18,983 16,059 18.2 57,258 48,505 18.1 Outside data processing and other services 15,531 15,929 (2.5) 45,869 47,244 (2.9) Amortization of intangible assets ........ 10,311 9,326 10.6 28,713 27,990 2.6 Marketing ................................ 8,557 9,049 (5.4) 24,292 22,864 6.3 Telecommunications ....................... 6,480 7,412 (12.6) 19,701 21,411 (8.0) Printing and supplies .................... 4,849 5,254 (7.7) 14,422 14,744 (2.2) Legal and other professional services .... 4,719 4,754 (0.7) 14,034 15,301 (8.3) Franchise and other taxes ................ 2,841 3,598 (21.0) 7,914 11,966 (33.9) Other .................................... 12,331 13,279 (7.1) 26,356 36,882 (28.5) TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGE ................................. 213,585 206,189 3.6 611,767 610,433 0.2 Special charge ............................ 50,000 --- N.M. 50,000 --- N.M. -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE ............... $263,585 $206,189 27.8% $661,767 $610,433 8.4% ======== ======== ======== ========
N.M. -- Not Meaningful. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- INTRODUCTION Huntington is a multi-state financial holding company headquartered in Columbus, Ohio. Its subsidiaries are engaged in full-service commercial and consumer banking, mortgage banking, lease financing, trust services, discount brokerage services, underwriting credit life and disability insurance, issuing commercial paper guaranteed by Huntington, and selling other insurance and financial products and services. Huntington's subsidiaries operate domestically in offices located in Ohio, Michigan, Florida, West Virginia, Indiana, and Kentucky. Huntington has foreign offices in the Cayman Islands and Hong Kong. FORWARD-LOOKING STATEMENTS Management's discussion and analysis of financial condition and results of operations contains forward-looking statements about Huntington, including descriptions of products or services, plans or objectives of its management for future operations, and forecasts of its revenues, earnings, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. By their nature, forward-looking statements are subject to risks and uncertainties. A number of factors--many of which are beyond Huntington's control--could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, changes in business and economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; successful integration of acquired businesses; the nature, extent, and timing of governmental actions and reforms; and extended disruption of vital infrastructure. Forward-looking statements speak only as of the date they are made. Huntington does not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events, such as further market deterioration that adversely affects credit quality, vehicle lease residual values, and/or other asset values. The management of Huntington encourages readers of this Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. The following discussion and analysis of the financial performance of Huntington for the third quarter of 2000 should be read in conjunction with the financial statements, notes, and other information contained in this document. ACQUISITIONS Huntington acquired Empire Banc Corporation (Empire), a $506 million one-bank holding company headquartered in Traverse City, Michigan, on June 23, 2000. Huntington reissued approximately 6.5 million shares of common stock, all of which were purchased on the open market during the first quarter 2000, in exchange for all of the common stock of Empire. Total loans and deposits increased $395 million and $435 million, respectively, at the date of the merger. Additionally, Huntington acquired J. Rolfe Davis Insurance Agency, Inc. (JRD), headquartered in Maitland, Florida, on August 31, 2000. Huntington paid $8.2 million in cash and issued approximately 695,000 shares of common stock for all of the common stock of JRD. Both transactions were accounted for as purchases; accordingly, the results of Empire and JRD 14 have been included in the unaudited consolidated financial statements from the respective dates of acquisition. OVERVIEW Huntington reported net income of $50.5 million, or $.20 per share, for the third quarter and $252.2 million, or $1.01 per share, for the first nine months of 2000. In the same periods last year, net income totaled $105.6 million, or $.41 per share, and $307.1 million, or $1.20 per share. The current quarter results include a special charge of $32.5 million after-tax, or $.13 per share, to write-down residual values associated with Huntington's $3.0 billion vehicle lease portfolio. Excluding the special charge, earnings per share for the third quarter and first nine months of 2000 were $.33 and $1.14, respectively. On this same basis, Huntington's return on average assets (ROA) was 1.15% and 1.32% in the recent three and nine-month periods and its return on average equity (ROE) was 14.04% and 16.87%. Huntington's "cash basis" earnings per share (which excludes the effect of amortization of goodwill and other intangibles as well as the special lease charge) was $.36 for the quarter just ended, compared with $.44 per share in the same period last year. Cash basis ROA and ROE, which are computed using cash basis earnings as a percentage of average tangible assets and average tangible equity, were 1.30% and 22.74% for the third quarter of 2000, respectively. For the first nine months of the year, cash basis ROA and ROE were 1.46% and 26.28%, respectively. Total assets at September 30, 2000, were $28.6 billion, down from $29.0 billion at year-end. The reduction is indicative of a balance sheet repositioning program undertaken in 2000 that included automobile loan securitizations totaling $1.3 billion and the sale of approximately $810 million of lower-yielding securities from Huntington's investment portfolio. These transactions reduced Huntington's reliance on wholesale funding sources and mitigated the impact of future interest rate increases on its earnings. Managed total loans, which include securitized loans, increased at an annualized rate of 9% versus the second quarter of this year and 10% over the third quarter 1999, after adjusting for the impact of the Empire acquisition and the fourth quarter 1999 sale of Huntington's credit card portfolio. Managed consumer loans grew 22% on a linked-quarter annualized basis driven by automobile financing and home equity lending, each of which grew 22%. Commercial loans declined from the previous quarter, but were up 4% from a year ago. Core deposits totaled $18.2 billion during the third quarter of 2000. Adjusting for Empire, average core deposits were relatively unchanged compared with both the immediately preceding quarter and the third quarter of last year. Customer demand for the new Premier deposit accounts, which are variable rate accounts designed to attract larger deposit relationships, has been strong, with $2.0 billion in balances at the end of the recent quarter. In addition, Huntington further refined its deposit product offerings in the third quarter by adding free checking and introducing money manager relationship products, which reward customers with tailored deposit pricing, product options, and fee waivers based on the customer's total banking and investment relationship with Huntington. Short and medium-term borrowings were below the December 31, 1999 levels, due to the aforementioned balance sheet repositioning. Long-term debt increased over the same period as Huntington issued $150 million of regulatory capital qualifying subordinated notes in the first quarter through its bank subsidiary. 15 LINES OF BUSINESS Retail Banking, Corporate Banking, Dealer Sales, and the Private Financial Group are the company's major business lines. A fifth segment includes the impact of Huntington's Treasury function and other unallocated assets, liabilities, revenue, and expense. Line of business results are determined based upon Huntington's business profitability reporting system which assigns balance sheet and income statement items to each of the business segments. This process is designed around Huntington's organizational and management structure and, accordingly, the results are not necessarily comparable with similar information published by other financial institutions. Below is a brief description of each line of business and a discussion of the business segment results, which can be found in Note G to the unaudited consolidated financial statements. RETAIL BANKING -------------- Retail Banking provides products and services to retail and business banking customers. This business unit's products include home equity loans, first mortgage loans, installment loans, small business loans, deposit products, as well as investment and insurance services. These products and services are offered through Huntington's traditional banking network, in-store branches, Direct Bank, and Web Bank. Retail Banking net income was $39.4 million and $120.8 million for the third quarter and the first nine months of 2000, respectively. Results for last year include the impact of the fourth quarter 1999 sale of Huntington's credit card portfolio as well as $2.5 million of gains on branch sales in the second quarter of 1999. Net interest income for the recent quarter, on a fully tax equivalent basis, remained relatively unchanged compared with the second quarter of this year and the same period a year ago. The provision for loan losses increased $3.9 million from the immediately preceding quarter principally due to significant loan growth. Non-interest income, as adjusted for the special items in 1999, was relatively unchanged from a year ago as significantly lower mortgage banking income offset growth in retail investment sales, service charge income, and electronic banking fees. Non-interest expenses increased 3% compared with both the quarterly and year-to-date periods last year reflecting investments in personnel and technology to support Huntington's revenue growth initiatives. Retail Banking contributed 47% of Huntington's net income for the quarter and comprised 32% of the organization's loan and lease portfolio. The net income contribution figure is based on Huntington's performance before the special charge discussed later in the section (hereafter defined as "adjusted net income"). CORPORATE BANKING ----------------- Customers in this segment represent the middle-market and large corporate banking relationships which use a variety of banking products and services including, but not limited to, commercial loans, asset based financing, international trade, and cash management. Huntington's capital markets division also provides alternative financing solutions for larger business clients, including privately placed debt, syndicated commercial lending, and the sale of interest rate protection products. Corporate Banking's net interest income was up in the quarter driven by loan growth. Non-interest expense was slightly below last year's levels on both a quarterly and year-to-date basis as cost containment continues to be strong. 16 This segment contributed 41% of Huntington's adjusted net income for the quarter and comprised 34% of the organization's loan and lease portfolio. DEALER SALES ------------ Dealer Sales product offerings pertain to the automobile lending sector and include floor plan financing, as well as indirect consumer loans and leases. The consumer activities comprise the vast majority of the business and involve the financing of vehicles purchased or leased by individuals through dealerships. Dealer Sales' results reflect the impact of the $32.5 million after-tax charge recorded during the third quarter to write-down vehicle lease residual values. Excluding the charge, net income was $16.9 million for the recent quarter and $60.4 million for the first nine months of the year versus $20.3 million and $51.6 million in the same periods of 1999. Non-interest income for the first nine months of 2000 includes gains of $6.1 million on loan securitizations completed during the first half of the year; no securitization gains were recorded during the third quarter. Higher net charge-offs resulted in increases in the provision for loan losses for the three and nine month periods compared with the prior year. This business line constituted 20% of Huntington's adjusted net income for the quarter and 31% of its outstanding loans and leases at the end of the period. PRIVATE FINANCIAL GROUP ----------------------- Huntington's Private Financial Group (PFG) provides an array of products and services designed to meet the needs of Huntington's higher wealth banking customers. Revenue is derived through the sale of personal trust, asset management, investment advisory, insurance, and deposit and loan products and services. PFG provides customers with "one-stop shopping" for all their financial needs. The Private Financial Group reported net income of $5.8 million for the quarter just ended, and $16.8 million for the first nine months. The increase in the quarterly results is due to a 21% increase in non-interest income from higher trust and insurance revenue. The increase in expenses for the same period is primarily due to an increase in sales commissions related to the revenue growth. This segment represented 7% of Huntington's adjusted net income and 3% of total loans and leases. TREASURY / OTHER ---------------- Huntington uses a match-funded transfer pricing system to allocate interest income and interest expense to its business segments. This approach consolidates the interest rate risk management of Huntington into its Treasury Group. As part of its overall interest rate risk and liquidity management strategy, the Treasury Group administers an investment portfolio of approximately $4.7 billion. Revenue and expense associated with these activities remain within the Treasury Group. Additionally, the Treasury/Other segment absorbs unassigned assets, liabilities, equity, revenue, and expense that cannot be directly assigned or allocated to one of Huntington's lines of business. Amortization expense of intangible assets is also a significant component of Treasury/Other. This segment's results were a net loss of $13.7 million and $13.4 million in the recent quarter and nine months. The declines from last year were attributable to higher interest rates and the balance sheet repositioning strategy noted earlier. As more fully discussed later, net interest income at risk is now being managed to a lower level, consistent with Huntington's goal of a more stable revenue base. 17 RESULTS OF OPERATIONS For comparative purposes versus prior periods, all growth amounts and rates in this section exclude the current period's special lease charge and are adjusted for the impact of acquisitions, securitization activities, and the fourth quarter 1999 credit card sale. NET INTEREST INCOME - ------------------- Net interest income for the three and nine months ended September 30, 2000, was $235.9 million and $709.4 million, respectively, down $20.9 million, or 8% compared with the same quarter last year and 7% on a year-to-date basis. As discussed previously, rising interest rates and a substantial repositioning of the balance sheet contributed to this decline. Compared with the immediately preceding quarter, net interest income increased $4.1 million, or 7% annualized, indicative of solid loan growth and improved core funding. The net interest margin increased two basis points to 3.74% during the third quarter following three consecutive quarters of decline. PROVISION FOR LOAN LOSSES - ------------------------- The provision for loan losses is the charge to pre-tax earnings that management estimates to be necessary to maintain the allowance for loan losses at a level adequate to absorb inherent losses in the loan and lease portfolios. The provision for loan losses was $26.4 million for the third quarter, up from $22.1 million in the same period of 1999 primarily due to increased net charge-offs. On a managed basis, annualized net charge-offs for the current quarter increased to .45% from .39% for the third quarter of 1999. On a year-to-date basis, the provision for loan losses was $57.9 million, down $10.5 million from last year. This decline reflects the lower level of charge-offs in 2000, as losses were .37% in the first nine months of the year versus .43% in the same period last year. NON-INTEREST INCOME - ------------------- Non-interest income, excluding securities and securitization gains, was $110.3 million for the recent three months and $330.9 million for the first nine months of the year. The quarterly total represents a 4% decline from last year primarily due to a reduction in mortgage banking revenues in the prevailing higher interest rate environment. Excluding mortgage banking, quarterly non-interest income increased 3% from last year. Categories showing quarterly growth were led by electronic banking income, which was up 15% as a result of higher customer usage of Huntington's check card product, deposit account growth, and expansion of Huntington's ATM network. Insurance income, another area of particular focus for growth, was up 13%. During the first nine months of 2000, Huntington realized security and securitization gains of $32.1 million, compared with $5.1 million in the same period a year ago. Sales of a portion of Huntington's investment in S1 Corporation common stock and other investment sales generated gains of $63.5 million in the current year. Substantially offsetting these gains, were losses of $27.3 million related to the previously mentioned strategic sale of lower-yielding investment securities. Huntington's auto securitization program netted a $4.1 million loss for the first nine months of 2000. A $10.2 million loss was recorded on the first-quarter transaction as Huntington securitized lower-coupon loans as part of the previously discussed balance sheet 18 repositioning. Gains totaling $6.1 million were realized on subsequent securitization transactions. NON-INTEREST EXPENSE - -------------------- Non-interest expense totaled $213.6 million in the third quarter, an adjusted increase of 2% compared with the same period last year. For the first nine months of 2000, non-interest expense remained relatively unchanged from last year. Higher facility and equipment costs related to the new operations center opened in the fall of 1999 and other expansion-related activities were the primary drivers of quarterly expense growth. Additionally, Huntington has made and will continue to make, investments in personnel and technology to support its commitment to growing revenue, resulting in some increase in expenses. However, during this process Huntington expects to maintain the improved cost discipline that has developed within the organization in the past year. VEHICLE LEASE WRITE-DOWN - ------------------------ During the third quarter, Huntington recorded a special charge of $50.0 million ($32.5 million after-tax) to write-down residual values related to its $3.0 billion vehicle lease portfolio. Including this charge, the lease portfolio has been written-down $108 million. Of this total, $79 million remained available at September 30, 2000, to cover estimated losses inherent in the portfolio. Based on management's projections, this $79 million will cover 100% of the impairment losses in the portfolio given current market conditions. Additionally, Huntington has taken actions, including no longer capitalizing the value of customer-added options, that are expected to mitigate residual value exposure on new business. INTEREST RATE RISK MANAGEMENT Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. The Asset and Liability Management Committee (ALCO) oversees financial risk management, establishing broad policies and specific operating limits that govern a variety of financial risks inherent in Huntington's operations, including interest rate, liquidity, counterparty, settlement, and market risks. On and off-balance sheet strategies and tactics are reviewed and monitored regularly by ALCO to ensure consistency with approved risk tolerances. Interest rate risk management is a dynamic process, encompassing business flows onto the balance sheet, wholesale investment and funding, and the changing market and business environment. Effective management of interest rate risk begins with appropriately diversified investments and funding sources. To accomplish its overall balance sheet objectives, Huntington regularly accesses a variety of global markets--money, bond, futures, and options--as well as numerous trading exchanges. In addition, dealers in over-the-counter financial instruments provide availability of interest rate swaps as needed. Measurement and monitoring of interest rate risk is an ongoing process. A key element in this process is Huntington's estimation of the amount that net interest income will change over a twelve to twenty-four month period given a gradual and directional shift in interest rates. The income simulation model used by Huntington captures all assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates. These include prepayment speeds on mortgages and consumer installment loans, cash flows of loans and deposits, principal amortization on revolving credit instruments, and balance sheet growth assumptions. The model also captures embedded options, e.g. interest rate caps/floors or call options, and accounts for changes in rate relationships, as various rate indices 19 lead or lag changes in market rates. While these assumptions are inherently uncertain, management assigns probabilities and, therefore, believes at any point in time that the model provides a reasonably accurate estimate of Huntington's interest rate risk exposure. Management reporting of this information is regularly shared with the Board of Directors. At September 30, 2000, the results of Huntington's sensitivity analysis indicated that net interest income would be expected to decline by approximately 1.4% if rates rose 100 basis points and would drop an estimated 2.9% in the event of a gradual 200 basis point increase. If rates declined 100 and 200 basis points, Huntington would benefit 1.4% and 2.6%, respectively. The sensitivity of net interest income to changes in interest rates increased versus the second quarter due to a change in the treatment of retained interests in securitized loans dictated by a new accounting standard. The new rules require the impact of changing rates on the retained interest to be included in net interest income versus the prior treatment, which included the impact in non-interest income. The change in reported sensitivity is not an incremental exposure to changing interest rates. Huntington's recent analysis continues to show a meaningful reduction in sensitivity to rising interest rates compared with year-end 1999, in which the risk to a 200 basis point increase was 4.7%. This reflects the balance sheet repositioning efforts as well as the impact of $2.7 billion (notional value) of derivative contacts entered into in the first quarter of this year. These consisted of pay-fixed interest rate swap contracts and purchased interest rate caps. Active interest rate risk management necessitates the use of various types of off-balance sheet financial instruments, primarily interest rate swaps. Risk that is created by different indices on products, by unequal terms to maturity of assets and liabilities, and by products that are appealing to customers but incompatible with current risk limits can be eliminated or decreased in a cost efficient manner by utilizing interest rate swaps. Often, the swap strategy has enabled Huntington to lower the overall cost of raising wholesale funds. Similarly, financial futures, interest rate caps and floors, options, and forward rate agreements are used to control financial risk effectively. Off-balance sheet instruments are often preferable to similar cash instruments because, though performing identically, they require less capital while preserving access to the marketplace. The following table illustrates the approximate market values, estimated maturities, and weighted average rates of the interest rate swaps used by Huntington in its interest rate risk management program at September 30, 2000.
Average Average Rate Notional Maturity Market ------------------ (Dollars in millions) Value (years) Value Receive Pay ------ -------- ------- ------- --- ASSET CONVERSION SWAPS Receive fixed $1,500 2.1 $ (14.1) 6.07% 6.70% Pay fixed 200 0.9 0.6 6.69% 6.31% ------ ------- Total Asset Conversion Swaps 1,700 1.9 (13.5) 6.14% 6.65% ------ ------- LIABILITY CONVERSION SWAPS Receive fixed 1,550 4.9 (14.5) 6.59% 6.82% Pay fixed 3,285 0.8 (2.2) 6.75% 6.72% ------ ------- Total Liability Conversion Swaps 4,835 2.1 (16.7) 6.70% 6.75% ------ ------- BASIS PROTECTION SWAPS 600 0.2 (0.1) 6.69% 6.64% ------ ------- TOTAL SWAP PORTFOLIO $7,135 1.9 $ (30.3) 6.57% 6.72% ====== =======
As is the case with cash securities, the market value of interest rate swaps is largely a function of the financial market's expectations regarding the future direction of interest rates. 20 Accordingly, current market values are not necessarily indicative of the future impact of the swaps on net interest income. This will depend, in large part, on the shape of the yield curve as well as interest rate levels. With respect to the variable rate information presented in the table above, management made no assumptions regarding future changes in interest rates. The pay rates on Huntington's receive-fixed swaps vary based on movements in the applicable London interbank offered rate (LIBOR). Receive-fixed asset conversion swaps with notional values of $495 million have embedded written LIBOR-based call options. Basis swaps are contracts that provide for both parties to receive interest payments according to different rate indices and are used to protect against changes in spreads between market rates. The contractual amount of interest payments to be exchanged is based on the notional values of the swap portfolio. These notional values do not represent direct credit exposures. At September 30, 2000, Huntington's credit risk from interest rate swaps used for asset/liability management purposes was $64.4 million, which represents the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. In order to minimize the risk that a swap counterparty will not satisfy its interest payment obligation under the terms of the contract, Huntington performs credit reviews on all counterparties, restricts the number of counterparties used to a select group of high quality institutions, obtains collateral, and enters into formal netting arrangements. Huntington has never experienced any past due amounts from a swap counterparty and does not anticipate nonperformance in the future by any such counterparties. The total notional amount of off-balance sheet instruments used by Huntington on behalf of customers (for which the related interest rate risk is offset by third party contracts) was $1.1 billion at September 30, 2000. The credit exposure from these contracts is not material. Furthermore, these separate activities, which are accounted for at fair value, are not a significant part of Huntington's operations. Accordingly, they have been excluded from the above discussion of off-balance sheet financial instruments and the related table. CREDIT RISK Huntington's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize "in-market" lending. Highly leveraged transactions as well as excessive industry and other concentrations are avoided. The credit administration function employs extensive risk management techniques, including forecasting, to ensure that loans adhere to corporate policy and problem loans are promptly identified. These procedures provide executive management with the information necessary to implement policy adjustments where necessary, and take corrective actions on a proactive basis. Non-performing assets consist of loans that are no longer accruing interest, loans that have been renegotiated based upon financial difficulties of the borrower, and real estate acquired through foreclosure. Generally, commercial and real estate loans are placed on non-accrual status and stop accruing interest when collection of principal or interest is in doubt or generally when the loan is 90 days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior year amounts generally charged off as a credit loss. Consumer loans are not placed on non-accrual status; rather they are charged off in accordance with regulatory statutes, which is generally no more than 120 days. A charge-off may be delayed in circumstances when collateral is repossessed and anticipated to be sold at a future date. Total non-performing assets were $88.5 million at September 30, 2000, down $4.8 million from September 30, 1999. As of the same dates, non-performing loans represented .38% and .39% of total loans, while non-performing assets as a percent of total loans and other real estate 21 improved to .44% from .47% one year ago. Loans past due ninety days or more but continuing to accrue interest increased to $80.3 million at September 30, 2000 versus $64.8 million last year. The allowance for loan losses (ALL) is maintained at a level considered appropriate by management, based on its estimate of losses inherent in the loan portfolio. The procedures employed by Huntington to evaluate the adequacy of the ALL include an analysis of specific credits and the application of relevant reserve factors that represent relative risk (based on portfolio trends, current and historic loss experience, and prevailing economic conditions) to specific portfolio segments. Specific reserves are established on larger, impaired commercial and industrial and commercial real estate credits and are based on discounted cash flow models using the loan's initial effective rate or the fair value of the collateral for collateral-dependent loans. Allocated reserves include management's assessment of portfolio performance, internal controls, impacts from mergers and acquisitions, and other pertinent risk factors. For analytical purposes, the ALL has been allocated to various portfolio segments. However, the total ALL, less the portion attributable to reserves as prescribed under provisions of SFAS No. 114, is available to absorb losses from any segment of the portfolio. Unallocated reserves are based on levels of criticized/classified assets, delinquencies in the accruing loan portfolios, and the level of nonperforming loans. Total unallocated reserves were 15% at September 30, 2000, versus 10% one year ago. The ALL reserve ratio was 1.45% at the recent quarter end compared with 1.48% at the end of the third quarter last year. As of September 30, 2000, the ALL covered non-performing loans approximately 3.8 times and when combined with the allowance for other real estate owned, was 327% of total nonperforming assets. CAPITAL Huntington places significant emphasis on the maintenance of strong capital, which promotes investor confidence, provides access to the national markets under favorable terms, and enhances business growth and acquisition opportunities. Huntington also recognizes the importance of managing capital and continually strives to maintain an appropriate balance between capital adequacy and returns to shareholders. Capital is managed at each subsidiary based upon the respective risks and growth opportunities, as well as regulatory requirements. Huntington's average equity to average assets increased to 8.20% in the recent quarter from 7.63% in the same three months of last year. Risk-based capital guidelines established by the Federal Reserve Board set minimum capital requirements and require institutions to calculate risk-based capital ratios by assigning risk weightings to assets and off-balance sheet items, such as interest rate swaps, loan commitments, and securitizations. These guidelines further define "well-capitalized" levels for Tier 1, Total Capital, and Leverage ratio purposes at 6%, 10%, and 5%, respectively. At the recent quarter-end, Huntington's Tier 1 risk-based capital ratio was 7.20%, total risk-based capital ratio was 10.64%, and the leverage ratio was 6.80%. Huntington's bank subsidiary also had regulatory capital ratios in excess of the levels established for well-capitalized institutions. During the second quarter, Huntington's Board of Directors authorized the purchase of an additional 11 million shares under Huntington's common stock repurchase program. The shares will be repurchased in the open market and in privately negotiated transactions. Repurchased shares are being reserved for reissue in connection with Huntington's dividend reinvestment and employee benefit plans as well as for stock dividends, acquisitions, and other corporate purposes. During the first nine months of 2000, Huntington repurchased approximately 8.8 million shares of its common stock through open market and privately negotiated transactions. Approximately 7.2 million of these shares were reissued in connection with the acquisitions of Empire and JRD. As of September 30, 2000, approximately 15.3 million shares remained available under the authorization. Huntington has not repurchased any shares since September 30, 2000 as management 22 is currently reviewing its capital management strategy, including future share repurchases. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures for the current period are found on pages 19 through 21 of this report, which includes changes in market risk exposures from disclosures presented in Huntington's Annual Report on Form 10-K for the year ended December 31, 1999. 23 - -------------------------------------------------------------------------------- FINANCIAL REVIEW SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------- (in thousands of dollars) SEPTEMBER 30, 2000 December 31, 1999 - ----------------------------------------------------------------------------------------------- AMORTIZED Amortized COST FAIR VALUE Cost Fair Value - ----------------------------------------------------------------------------------------------- U.S. Treasury Under 1 year ................. $ --- $ --- $ 801 $ 801 1-5 years .................... 2,008 2,070 51,371 49,328 6-10 years ................... 86,719 82,744 476,055 446,512 Over 10 years ................ 413 422 --- --- ---------- ---------- ---------- ---------- Total ..................... 89,140 85,236 528,227 496,641 ---------- ---------- ---------- ---------- Federal agencies Mortgage-backed securities Under 1 year ................. 136 135 --- --- 1-5 years .................... --- --- 4 4 6-10 years ................... 23,921 23,754 27,360 26,992 Over 10 years ................ 1,749,205 1,708,638 1,638,047 1,574,336 ---------- ---------- ---------- ---------- Total ..................... 1,773,262 1,732,527 1,665,411 1,601,332 ---------- ---------- ---------- ---------- Other agencies 1-5 years .................... 1,116,185 1,082,941 789,008 760,251 6-10 years ................... 236,131 227,925 498,790 469,696 Over 10 years ................ 789,110 767,636 868,124 837,422 ---------- ---------- ---------- ---------- Total ..................... 2,141,426 2,078,502 2,155,922 2,067,369 ---------- ---------- ---------- ---------- Other Under 1 year ................. 22,015 21,965 20,805 20,832 1-5 years .................... 79,659 80,141 253,363 251,862 6-10 years ................... 75,793 74,057 130,486 125,951 Over 10 years ................ 584,390 560,536 251,333 239,975 Marketable equity securities . 56,897 63,277 10,524 66,241 ---------- ---------- ---------- ---------- Total ..................... 818,754 799,976 666,511 704,861 ---------- ---------- ---------- ---------- Total Securities Available for Sale $4,822,582 $4,696,241 $5,016,071 $4,870,203 ========== ========== ========== ==========
24 - -------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL HIGHLIGHTS (in thousands, except per share amounts)
- -------------------------------------------------- -------- --------- -------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change - -------------------------------------------------- -------- --------- --------- NET INCOME(1) .................................... $ 83,030 $ 105,587 (21.4)% PER COMMON SHARE AMOUNTS(2) Net income Basic .................................. $ 0.33 $ 0.42 (21.4) Diluted ................................ $ 0.33 $ 0.41 (19.5) Cash dividends declared ..................... $ 0.20 $ 0.18 11.1 AVERAGE COMMON SHARES OUTSTANDING-DILUTED(2) ..... 252,033 255,216 (1.2) KEY RATIOS Return on: Average total assets ........................ 1.15% 1.45% (20.7) Average shareholders' equity ................ 14.04% 19.07% (26.4) Efficiency ratio ................................. 58.38% 51.02% 14.4 Average equity/average assets .................... 8.20% 7.63% 7.5 Net interest margin .............................. 3.74% 4.22% (11.4) TANGIBLE OR "CASH BASIS" RATIOS(3) Net Income Per Common Share -- Diluted(2) ........ $ 0.36 $ 0.44 (18.2) Return on: Average total assets ........................ 1.30% 1.59% (18.2) Average shareholders' equity ................ 22.74% 29.54% (23.0) - -------------------------------------------------- -------- --------- -------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 % Change - -------------------------------------------------- -------- --------- -------- NET INCOME(1) .................................... $ 284,724 $ 307,134 (7.3)% PER COMMON SHARE AMOUNTS(2) Net income Basic .................................. $ 1.15 $ 1.21 (5.0) Diluted ................................ $ 1.14 $ 1.20 (5.0) Cash dividends declared ..................... $ 0.56 $ 0.50 12.0 AVERAGE COMMON SHARES OUTSTANDING-DILUTED(2) ..... 248,909 256,138 (2.8) KEY RATIOS Return on: Average total assets ........................ 1.32% 1.43% (7.7) Average shareholders' equity ................ 16.87% 19.01% (11.3) Efficiency ratio ................................. 55.71% 51.36% 8.5 Average equity/average assets .................... 7.84% 7.54% 4.1 Net interest margin .............................. 3.74% 4.18% (10.5) TANGIBLE OR "CASH BASIS" RATIOS(3) Net Income Per Common Share -- Diluted(2) ........ $ 1.24 $ 1.29 (3.9) Return on: Average total assets ........................ 1.46% 1.57% (7.0) Average shareholders' equity ................ 26.28% 29.90% (12.1)
(1) Presented on an "operating basis" (excludes 3Q 2000 special charge, net of related taxes). (2) Adjusted for the ten percent stock dividend distributed July 2000. (3) Tangible or "Cash Basis" net income excludes amortization of goodwill and other intangibles and the special lease charge. Related asset amounts are excluded from total assets and shareholders' equity. 25 FINANCIAL REVIEW - -------------------------------------------------------------------------------- LOAN LOSS EXPERIENCE - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- (in thousands of dollars) 2000 1999 2000 1999 - ----------------------------------------------- --------- --------- --------- --------- ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 296,891 $ 293,274 $ 299,309 $ 290,948 Allowance acquired ............................ --- --- 7,900 --- Loan losses ................................... (29,499) (27,782) (77,916) (87,436) Recoveries of loans previously charged off .... 5,705 8,044 20,325 23,693 Allowance of securitized loans ................ (4,807) --- (12,863) --- Provision for loan losses ..................... 26,396 22,076 57,931 68,407 --------- --------- --------- --------- ALLOWANCE FOR LOAN LOSSES END OF PERIOD ....... $ 294,686 $ 295,612 $ 294,686 $ 295,612 ========= ========= ========= ========= AS A % OF AVERAGE TOTAL LOANS Net loan losses--annualized ................. 0.46% 0.39% 0.37% 0.43% Provision for loan losses--annualized ....... 0.51% 0.43% 0.37% 0.46% Allowance for loan losses as a % of total loans 1.45% 1.48% 1.45% 1.48% Net loan loss coverage(1) ..................... 6.05X 9.01x 8.00X 8.18x
(1) Income before taxes (excluding 3Q 2000 special charge) and the provision for loan losses to net loan losses. - -------------------------------------------------------------------------------- NON-PERFORMING ASSETS AND PAST DUE LOANS - --------------------------------------------------------------------------------
------------------------------------------- ------------------------- 2000 1999 ------------------------------------------- ------------------------- (in thousands of dollars) III Q II Q I Q IV Q III Q - ------------------------------------------- ------- ------- ------- ------- ------- Non-accrual loans: Commercial ............................. $44,918 $45,138 $44,404 $42,958 $41,374 Real Estate Construction ........................ 7,973 8,736 7,696 10,785 6,154 Commercial .......................... 13,722 12,714 13,991 16,131 15,751 Residential Mortgage ................... 8,588 11,548 10,892 11,866 13,094 ------- ------- ------- ------- ------- Total Nonaccrual Loans ........... 75,201 78,136 76,983 81,740 76,373 Renegotiated loans ........................ 1,311 1,317 1,324 1,330 1,877 ------- ------- ------- ------- ------- TOTAL NON-PERFORMING LOANS ................ 76,512 79,453 78,307 83,070 78,250 Other real estate, net .................... 11,982 15,670 13,904 15,171 15,072 ------- ------- ------- ------- ------- TOTAL NON-PERFORMING ASSETS ............... $88,494 $95,123 $92,211 $98,241 $93,322 ======= ======= ======= ======= ======= NON-PERFORMING LOANS AS A % OF TOTAL LOANS ........................ 0.38% 0.39% 0.38% 0.40% 0.39% NON-PERFORMING ASSETS AS A % OF TOTAL LOANS AND OTHER REAL ESTATE... 0.44% 0.46% 0.45% 0.47% 0.47% ALLOWANCE FOR LOAN LOSES AS A % OF NON-PERFORMING LOANS .................... 385.15% 373.67% 378.95% 360.31% 377.78% ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE AS A % OF NON-PERFORMING ASSETS... 326.77% 306.89% 316.30% 299.85% 315.82% ACCRUING LOANS PAST DUE 90 DAYS OR MORE.... $80,290 $62,775 $60,156 $61,287 $64,788 ======= ======= ======= ======= =======
26 - -------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
---------------------- -------------------- Fully Tax Equivalent Basis(1) 3RD QUARTER 2000 2ND QUARTER 2000 ---------------------- -------------------- (in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/ - ------------------------------------------------------------------------- BALANCE RATE BALANCE RATE --------- ---------- --------- -------- ASSETS Interest bearing deposits in banks ...................................... $ 5 6.13% $ 6 5.13% Trading account securities .............................................. 11 6.54 18 8.67 Federal funds sold and securities purchased under resale agreements ..... 136 6.43 105 6.10 Mortgages held for sale ................................................. 99 8.51 99 8.11 Securities: Taxable ........................................................... 4,273 6.33 4,067 6.20 Tax exempt ........................................................ 270 7.57 276 7.63 ------- ------- Total Securities ............................................. 4,543 6.40 4,343 6.29 ------- ------- Loans: Commercial ......................................................... 6,454 8.74 6,439 8.65 Real Estate Construction .................................................. 1,283 8.88 1,254 8.72 Commercial .................................................... 2,193 8.60 2,172 8.51 Consumer Loans ........................................................ 6,392 8.82 6,530 8.38 Leases ....................................................... 2,976 6.79 2,895 6.71 Residential Mortgage ......................................... 1,325 7.64 1,473 7.62 ------- ------- Total Consumer.................. ............................. 10,693 8.11 10,898 7.83 ------- ------- Total Loans ............................................................. 20,623 8.41 20,763 8.21 ------- ------- Allowance for loan losses ............................................... 302 302 ------- ------- Net loans(2) ............................................................ 20,321 8.90 20,461 8.69 ------- ------- Total earning assets .................................................... 25,417 8.43% 25,334 8.27% ------- ------- Cash and due from banks ................................................. 968 1,046 All other assets ........................................................ 2,615 2,496 ------- ------- Total Assets ............................................................ $28,698 $28,574 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Core deposits Non-interest bearing deposits ...................................... $ 3,425 $ 3,485 Interest bearing demand deposits ................................... 4,385 3.47% 4,228 3.32% Savings deposits ................................................... 3,528 4.14 3,583 4.21 Certificates of deposit ............................................ 6,826 5.87 6,520 5.57 ------- ------- Total core deposits ........................................... 18,164 4.74 17,816 4.57 ------- ------- Other domestic time deposits of $100,000 or more ........................ 1,057 6.63 1,233 6.24 Foreign time deposits ................................................... 561 6.63 626 6.66 ------- ------- Total deposits ..................................................... 19,782 4.93 19,675 4.78 ------- ------- Short-term borrowings ................................................... 2,014 6.12 1,761 5.77 Medium-term notes........................... ............................ 2,592 6.81 3,042 6.46 Subordinated notes and other long-term debt, including preferred capital securities ............................... 1,171 7.39 1,148 7.08 ------- ------- Interest bearing liabilities ....................................... 22,134 5.39% 22,141 5.21% ------- ------- All other liabilities ................................................... 787 743 Shareholders' equity .................................................... 2,352 2,205 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $28,698 $28,574 ======= ======= Net interest rate spread ................................................ 3.04% 3.06% Impact of non-interest bearing funds on margin .......................... 0.70% 0.66% NET INTEREST MARGIN ..................................................... 3.74% 3.72% - -------------------------------------------------------------------------
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate. (2) Net loan rate includes loan fees, whereas individual loan components above are shown exclusive of fees. 27 - ----------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
------------------ ------------------- --------------------- 1ST QUARTER 2000 4th Quarter 1999 3rd Quarter 1999 ------------------ ------------------- --------------------- AVERAGE YIELD/ Average Yield/ Average Yield/ BALANCE RATE Balance Rate Balance Rate ------- ------ ------- ------ ------- ------ $ 6 3.69% $ 13 3.94% $ 8 3.64% 14 6.26 14 6.35 7 5.64 23 6.11 31 6.10 20 5.39 109 7.59 135 7.45 169 7.27 4,515 6.14 4,854 6.15 4,846 6.14 282 7.68 288 7.73 295 7.76 -------- -------- -------- 4,797 6.23 5,142 6.23 5,141 6.24 -------- -------- -------- 6,345 8.31 6,194 8.06 6,066 7.90 1,238 8.38 1,182 8.19 1,103 8.13 2,156 8.35 2,185 8.18 2,215 8.14 6,837 8.29 6,876 8.27 7,093 8.29 2,773 6.65 2,633 6.55 2,365 6.75 1,449 7.54 1,443 7.45 1,421 7.47 -------- -------- -------- 11,059 7.78 10,952 7.75 10,879 7.85 -------- -------- -------- 20,798 8.04 20,513 7.91 20,263 7.91 -------- -------- -------- 306 309 301 -------- -------- -------- 20,492 8.52 20,204 8.43 19,962 8.54 -------- -------- -------- 25,747 8.08% 25,848 7.98% 25,608 8.07% -------- -------- -------- 1,058 1,024 1,026 2,454 2,434 2,468 -------- -------- -------- $28,953 $ 28,997 $ 28,801 ======== ======== ======== $ 3,466 $ 3,460 $ 3,509 4,053 2.97% 4,077 2.76% 4,139 2.66% 3,645 3.80 3,768 3.61 3,792 3.43 6,533 5.38 6,572 5.18 6,496 5.05 -------- -------- -------- 17,697 4.29 17,877 4.09 17,936 3.94 -------- -------- -------- 1,445 6.03 1,029 5.85 798 5.08 649 5.65 517 5.40 465 5.17 -------- -------- -------- 19,791 4.50 19,423 4.24 19,199 4.03 -------- -------- -------- 1,954 5.10 2,226 4.74 2,331 4.54 3,283 6.18 3,347 5.88 3,415 5.44 1,004 6.82 1,000 6.51 1,001 6.03 -------- -------- -------- 22,566 4.90% 22,536 4.64% 22,437 4.39% -------- -------- -------- 715 893 658 2,206 2,108 2,197 -------- -------- -------- $28,953 $ 28,997 $ 28,801 ======== ======== ======== 3.18% 3.34% 3.68% 0.60% 0.60% 0.54% 3.78% 3.94% 4.22%
28 - -------------------------------------------------------------------------------- SELECTED QUARTERLY INCOME STATEMENT DATA
---------------------------------- --------------------- 2000 1999 ---------------------------------- --------------------- (in thousands of dollars, except per share amounts) III Q II Q I Q IV Q III Q - -------------------------------------------------- -------- -------- -------- -------- -------- TOTAL INTEREST INCOME ...................... $535,791 $519,496 $515,557 $515,516 $516,294 TOTAL INTEREST EXPENSE ..................... 299,922 286,690 274,866 262,854 247,863 -------- -------- -------- -------- -------- NET INTEREST INCOME ........................ 235,869 232,806 240,691 252,662 268,431 Provision for loan losses .................. 26,396 15,834 15,701 20,040 22,076 NET INTEREST INCOME AFTER -------- -------- -------- -------- -------- PROVISION FOR LOAN LOSSES ................ 209,473 216,972 224,990 232,622 246,355 -------- -------- -------- -------- -------- Service charges on deposit accounts ........ 39,722 40,097 41,660 42,774 41,700 Brokerage and insurance income ............. 15,564 13,945 15,284 13,373 14,620 Trust services ............................. 13,181 13,165 12,863 12,828 12,625 Electronic banking fees .................... 11,238 11,250 9,849 10,082 9,771 Bank Owned Life Insurance income ........... 9,786 9,486 9,186 9,390 9,390 Mortgage banking ........................... 9,412 8,122 8,515 9,426 14,282 Credit card fees ........................... 1,744 1,340 1,793 5,091 6,626 Other ...................................... 9,626 12,066 11,989 11,374 6,103 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME BEFORE SECURITIES AND SECURITIZATION GAINS .............. 110,273 109,471 111,139 114,338 115,117 -------- -------- -------- -------- -------- Securities and securitization gains ........ 11,379 6,193 14,555 7,905 537 Gains on sale of credit card portfolios .... -- -- -- 108,530 -- -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME .................. 121,652 115,664 125,694 230,773 115,654 -------- -------- -------- -------- -------- Personnel and related costs ................ 109,463 104,133 102,344 100,654 104,730 Net occupancy .............................. 19,520 18,613 19,135 17,890 16,799 Equipment .................................. 18,983 18,863 19,412 18,161 16,059 Outside data processing and other services . 15,531 15,336 15,002 15,642 15,929 Amortization of intangible assets .......... 10,311 9,206 9,196 9,307 9,326 Marketing .................................. 8,557 7,742 7,993 9,642 9,049 Telecommunications ......................... 6,480 6,472 6,749 7,108 7,412 Printing and supplies ...................... 4,849 4,956 4,617 5,483 5,254 Legal and other professional services ...... 4,719 4,815 4,500 5,868 4,754 Franchise and other taxes .................. 2,841 2,635 2,438 2,708 3,598 Other ...................................... 12,331 5,305 8,720 12,432 13,279 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGES ................................. 213,585 198,076 200,106 204,895 206,189 -------- -------- -------- -------- -------- Special charges ............................ 50,000 -- -- 96,791 -- -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE ................. 263,585 198,076 200,106 301,686 206,189 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES ................. 67,540 134,560 150,578 161,709 155,820 Provision for income taxes ................. 17,010 37,039 46,405 46,769 50,233 -------- -------- -------- -------- -------- NET INCOME ................................. $ 50,530 $ 97,521 $104,173 $114,940 $105,587 ======== ======== ======== ======== ======== PER COMMON SHARE (1) Net income Diluted ............................... $ 0.20 $ 0.40 $ 0.42 $ 0.45 $ 0.41 Diluted - Cash Basis .................. $ 0.23 $ 0.43 $ 0.45 $ 0.48 $ 0.44 Cash Dividends Declared ................... $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18 FULLY TAX EQUIVALENT MARGIN: Net Interest Income ........................ $235,869 $232,806 $240,691 $252,662 $268,431 Tax Equivalent Adjustment (2) .............. 2,022 2,074 2,157 2,249 2,280 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income ......... $237,891 $234,880 $242,848 $254,911 $270,711 ======== ======== ======== ======== ========
(1) Adjusted for the ten percent stock dividend distributed July 2000. (2) Calculated assuming a 35% tax rate. 29 - -------------------------------------------------------------------------------- STOCK SUMMARY, KEY RATIOS AND STATISTICS, AND REGULATORY CAPITAL DATA - -------------------------------------------------------------------------------- QUARTERLY COMMON STOCK SUMMARY(1) - --------------------------------------------------------------------------------
-------------------------------------- --------------------------- 2000 1999 -------------------------------------- --------------------------- III Q II Q I Q IV Q III Q ------- --------- --------- --------- --------- High ................................................. $18 3/4 $20 13/16 $21 13/16 $27 15/16 $30 13/16 Low .................................................. 14 11/16 14 3/8 16 1/8 19 1/2 22 7/16 Close ................................................ 14 11/16 14 3/8 20 5/16 21 11/16 24 1/8 Cash dividends declared .............................. $0.20 $0.18 $0.18 $ 0.18 $ 0.18
Note: Stock price quotations were obtained from NASDAQ. - -------------------------------------------------------------------------------- KEY RATIOS AND STATISTICS - --------------------------------------------------------------------------------
----------------------------------- --------------------------- 2000 1999 ----------------------------------- --------------------------- MARGIN ANALYSIS - AS A % OF AVERAGE EARNING ASSETS(2) III Q II Q I Q IV Q III Q - ------------------------------------------------------ -------- ------- -------- -------- -------- Interest Income ...................................... 8.43% 8.27% 8.08% 7.98% 8.07% Interest Expense ..................................... 4.69% 4.55% 4.30% 4.04% 3.85% -------- ------- -------- -------- -------- Net Interest Margin ............................. 3.74% 3.72% 3.78% 3.94% 4.22% ======== ======= ======== ======== ======== RETURN ON (3) - ------------------------------------------------------ Average total assets ................................. 1.15% 1.37% 1.45% 1.57% 1.45% Average total assets - cash basis .................... 1.30% 1.51% 1.58% 1.71% 1.59% Average shareholders' equity ......................... 14.04% 17.79% 18.99% 21.64% 19.07% Average shareholders' equity - cash basis ............ 22.74% 27.26% 29.01% 33.69% 29.54% Efficiency Ratio(3)................................... 58.38% 54.85% 53.93% 52.97% 51.02% ----------------------------------- --------------------------- 2000 1999 REGULATORY CAPITAL DATA ----------------------------------- --------------------------- (in millions of dollars) III Q II Q I Q IV Q III Q - ------------------------------------------------------ -------- ------- -------- -------- -------- Total Risk-Adjusted Assets ........................... $ 26,370 $25,900 $25,251 $ 25,298 $25,309 Tier 1 Risk-Based Capital Ratio ...................... 7.20% 7.40% 7.23% 7.52% 7.32% Total Risk-Based Capital Ratio ....................... 10.64% 10.90% 10.90% 10.72% 10.62% Tier 1 Leverage Ratio ................................ 6.80% 6.89% 6.45% 6.72% 6.58%
(1) Adjusted for the ten percent stock dividend distributed July 2000. (2) Presented on a fully tax equivalent basis assuming a 35% tax rate. (3) Excludes special charges. 30 PART II. OTHER INFORMATION In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported. Item 2. Changes in securities and use of proceeds (c) Unregistered shares In conjunction with the August 23, 2000, acquisition by Huntington of J. Rolfe Davis Insurance Agency, Inc., an insurance agency headquartered in Orlando, Florida ("JRD"), Huntington issued 695,210 unregistered shares of Huntington common stock, without par value, to twenty-three shareholders of JRD on August 31, 2000. The issuance of shares in this transaction was deemed to be exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) since this was a transaction by an issuer not involving a public offering. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3. ( i )( a ) Articles of Restatement of Charter, Articles of Amendment to Articles of Restatement of Charter, and Articles Supplementary - previously filed as Exhibit 3(i) to Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. ( i )( b ) Articles of Amendment to Articles of Restatement of Charter -- previously filed as Exhibit 3(i)(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference. ( i )( c ) Articles of Amendment to Articles of Restatement of Charter --previously filed as Exhibit 3(i)(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference. ( ii ) Amended and Restated Bylaws -- previously filed as Exhibit 3(ii) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference. 31 4. Instruments defining the Rights of Security Holders: Reference is made to Articles Fifth, Eighth and Tenth of Articles of Restatement of Charter, as amended and supplemented. Also, reference is made to Rights Plan, dated February 22, 1990, previously filed as Exhibit 1 to Registration Statement on Form 8-A, and incorporated herein by reference and to Amendment No. 1 to the Rights Agreement, dated as of August 16, 1995, previously filed as Exhibit 4(b) to Form 8-K filed with the Securities and Exchange Commission on August 28, 1995, and incorporated herein by reference. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. 27. Financial Data Schedule 99. Earnings to Fixed Charges (b) Reports on Form 8-K 1. A report on Form 8-K, dated July 18, 2000, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the second quarter 2000. 2. A report on Form 8-K, dated September 29, 2000, was filed under item numbers 5 and 7, concerning Huntington's earnings expectations for the third and fourth quarters of 2000 and for the year 2001. 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: November 14, 2000 /s/ Richard A. Cheap -------------------- Richard A. Cheap General Counsel and Secretary Date: November 14, 2000 /s/ Michael J. McMennamin ------------------------------- Michael J. McMennamin Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)