UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY PERIOD ENDED JUNE 30, 1995 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 137,374,934 shares of Registrant's without par value common stock outstanding on July 31, 1995. 1 PART I. FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------------------------------- (in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30, 1995 1994 1994 ----------- ----------- ----------- ASSETS Cash and due from banks...................................... $ 861,240 $ 885,327 $ 690,878 Interest bearing deposits in banks........................... 2,746 3,059 1,296 Trading account securities................................... 18,003 9,427 20,576 Federal funds sold and securities purchased under resale agreements....................... 6,307 5,329 124,383 Mortgages held for sale...................................... 168,711 138,997 259,909 Securities available for sale - at fair value................ 4,098,801 3,304,493 2,610,807 Investment securities - fair value $434,696; $474,147; and $522,737, respectively............................. 431,862 475,692 520,274 Total loans (1).............................................. 13,137,593 12,264,436 11,634,695 Less allowance for loan losses.......................... 198,264 200,492 212,479 ----------- ----------- ----------- Net loans.................................................... 12,939,329 12,063,944 11,422,216 ----------- ----------- ----------- Premises and equipment....................................... 293,005 288,793 288,690 Customers' acceptance liability.............................. 56,680 53,883 63,082 Accrued income and other assets.............................. 494,084 541,696 442,930 ----------- ----------- ----------- TOTAL ASSETS................................................. $19,370,768 $17,770,640 $16,445,041 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1)........................................... $12,518,517 $11,965,067 $11,569,249 Short-term borrowings........................................ 3,681,085 2,898,201 2,394,417 Bank acceptances outstanding................................. 56,680 53,883 63,082 Long-term debt............................................... 1,171,089 1,214,052 847,486 Accrued expenses and other liabilities....................... 371,354 227,617 181,340 ----------- ----------- ----------- Total Liabilities....................................... 17,798,725 16,358,820 15,055,574 ----------- ----------- ----------- Shareholders' equity Preferred stock - authorized 6,617,808 shares; none outstanding Common stock - without par value; authorized 200,000,000 shares; issued and outstanding 134,631,285; 131,119,504 ; and 104,410,747 shares, respectively .............................. 915,764 912,318 902,107 Less 1,819,475; 904,739 ; and 685,943 treasury shares, respectively ..................... (34,359) (16,577) (17,383) Capital surplus......................................... 235,471 215,084 216,852 Net unrealized gains (losses) on securities available for sale................................. 24,052 (63,289) (23,087) Retained earnings....................................... 431,115 364,284 310,978 ----------- ----------- ----------- Total Shareholders' Equity.............................. 1,572,043 1,411,820 1,389,467 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity................... $19,370,768 $17,770,640 $16,445,041 =========== =========== =========== See notes to consolidated financial statements. (1) See page 7 for detail of total loans and total deposits. 2 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
------------------------------------------------------------------------------------------------------------------------------ (in thousands of dollars, except per share amounts) THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30, 1995 1994 1995 1994 -------------------------- --------------------------- Interest and fee income Loans.................................................... $288,058 $237,213 $561,167 $468,010 Investment securities.................................... 7,401 7,925 15,406 14,790 Securities available for sale............................ 60,694 43,528 118,059 94,973 Mortgages held for sale.................................. 2,049 7,504 4,277 19,461 Trading account.......................................... 410 157 810 289 Other.................................................... 1,591 1,158 2,881 1,599 ----------- ----------- ----------- ----------- TOTAL INTEREST INCOME.......................... 360,203 297,485 702,600 599,122 ----------- ----------- ----------- ----------- Interest Expense Deposits................................................. 106,152 70,011 201,658 137,627 Short-term borrowings.................................... 52,195 22,020 99,709 43,696 Long-term debt........................................... 21,966 13,372 45,134 22,550 ----------- ----------- ----------- ----------- TOTAL INTEREST EXPENSE......................... 180,313 105,403 346,501 203,873 ----------- ----------- ----------- ----------- NET INTEREST INCOME............................ 179,890 192,082 356,099 395,249 ----------- ----------- ----------- ----------- Provision for loan losses..................................... 4,787 3,219 9,395 11,683 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........... 175,103 188,863 346,704 383,566 ----------- ----------- ----------- ----------- Total non-interest income (1)................................. 60,043 58,984 119,143 117,651 Total non-interest expense (1)................................ 142,571 147,195 288,425 298,634 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES..................... 92,575 100,652 177,422 202,583 Provision for income taxes.................................... 34,414 33,199 64,399 68,388 ----------- ----------- ----------- ----------- NET INCOME..................................... $58,161 $67,453 $113,023 $134,195 =========== =========== =========== =========== PER COMMON SHARE (2) Net income............................................... $0.42 $0.49 $0.81 $0.98 Cash dividends declared.................................. $0.19 $0.15 $0.38 $0.30 AVERAGE COMMON SHARES OUTSTANDING............................. 139,996,550 136,439,751 140,093,756 136,386,328
See notes to consolidated financial statements . (1) See page 8 for detail of non-interest income and non-interest expense. (2) Adjusted for the five percent stock dividend issued July 31, 1995. 3 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) NET UNREALIZED COMMON COMMON TREASURY TREASURY CAPITAL GAINS (LOSSES) RETAINED SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL ---------------------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, 1994: BALANCE, BEGINNING OF PERIOD 104,411 $902,107 (608) ($15,290) $216,168 --- $221,652 $1,324,637 Change in accounting method for securities $65,548 1,624 67,172 Net income 134,195 134,195 Cash dividends declared ($.30 per share) (41,558) (41,558) Stock options exercised 177 4,295 543 (3,567) 1,271 Treasury shares purchased (1,028) (25,339) (25,339) Treasury shares sold: Shareholder dividend reinvestment plan 477 11,701 44 (1,090) 10,655 Employee stock purchase and other plans 296 7,250 97 (278) 7,069 Change in net unrealized gains (losses) on securities available for sale (88,635) (88,635) -------- -------- ------ -------- -------- -------- -------- ---------- BALANCE, END OF PERIOD 104,411 $902,107 (686) ($17,383) $216,852 ($23,087) $310,978 $1,389,467 ======== ======== ====== ======== ======== ======== ======== ========== Six Months Ended June 30, 1995: BALANCE, BEGINNING OF PERIOD 131,120 $912,318 (905) ($16,577) $215,084 ($63,289) $364,284 $1,411,820 Stock issued for acquisitions 3,510 3,434 20,061 (985) 8,474 30,984 Net income 113,023 113,023 Cash dividends declared ($.38 per share) (52,600) (52,600) Stock options exercised 57 1,030 239 (905) 364 Treasury shares purchased (2,111) (39,582) (39,582) Treasury shares sold: Shareholder dividend reinvestment plan 802 14,660 21 (1,114) 13,567 Employee stock purchase and other plans 338 6,110 66 (47) 6,129 Conversion of convertible notes 1 12 12 Change in net unrealized gains (losses) on securities available for sale 88,326 88,326 -------- -------- ------ -------- -------- -------- -------- ---------- BALANCE, END OF PERIOD 134,631 $915,764 (1,819) ($34,359) $235,471 $24,052 $431,115 $1,572,043 ======== ======== ====== ======== ======== ======== ======== ==========
See notes to consolidated financial statements. 4 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) SIX MONTHS ENDED JUNE 30, 1995 1994 -------------- ------------ OPERATING ACTIVITIES Net Income.......................................................................... $ 113,023 $ 134,195 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses................................................. 9,395 11,683 Provision for other real estate........................................... (1,208) (3,317) Provision for depreciation and amortization............................... 29,212 32,077 Deferred income tax expense............................................... 6,952 8,535 (Increase) decrease in trading account securities......................... (8,576) 1,388 (Increase) decrease in mortgages held for sale............................ (29,714) 772,429 Net gains on sales of securities available for sale....................... (5,864) (1,810) Net gains on calls of investment securities............................... (575) (191) (Increase) decrease in accrued income receivable.......................... (10,527) 2,295 Net decrease in other assets.............................................. 9,411 68,360 Increase (decrease) in accrued expenses................................... 72,097 (25,695) Net increase (decrease) in other liabilities.............................. 17,806 (32,647) -------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 201,432 967,302 -------------- ------------ INVESTING ACTIVITIES Decrease in interest bearing deposits in banks...................................... 313 11,314 Proceeds from : Maturities of investment securities............................................. 17,564 10,417 Maturities of securities available for sale..................................... 209,750 195,697 Calls of investment securities.................................................. 26,328 20,212 Sales and calls of securities available for sale................................ 1,687,263 1,495,032 Purchases of : Investment securities........................................................... (460) (219,094) Securities available for sale................................................... (2,431,764) (471,672) Net loan originations............................................................... (769,781) (701,052) Proceeds from disposal of premises and equipment.................................... 1,322 602 Purchases of premises and equipment................................................. (11,907) (13,084) Proceeds from sales of other real estate............................................ 22,430 14,289 Net cash received from purchase/sale of subsidiaries................................ 33,433 --- -------------- ------------ NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES.............. (1,215,509) 342,661 -------------- ------------ FINANCING ACTIVITIES Increase (decrease) in total deposits............................................... 328,090 (474,419) Increase (decrease) in short-term borrowings........................................ 778,066 (801,046) Proceeds from issuance of long-term debt............................................ 50,000 115,000 Payment of long-term debt........................................................... (93,066) (31,414) Dividends on common stock........................................................... (39,033) (30,903) Acquisition of treasury stock....................................................... (39,582) (25,339) Sales of treasury stock............................................................. 6,129 7,069 Proceeds from exercise of stock options............................................. 364 1,271 -------------- ------------ NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.............. 990,968 (1,239,781) -------------- ------------ CHANGE IN CASH AND CASH EQUIVALENTS............................... (23,109) 70,182 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 890,656 745,079 -------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 867,547 $ 815,261 ============== ============
See notes to consolidated financial statements. 5 -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- A. 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 results for the interim periods. The Notes to the Consolidated Financial Statements appearing in Huntington's 1994 Annual Report to Shareholders should be read in conjunction with these interim financial statements. B. On January 1, 1995, Huntington adopted Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" (FAS 114), as amended by FAS 118. Under the new rules, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with FAS 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for collateral-dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral-dependent loans. Huntington uses the cost recovery method in accounting for cash received on non-accrual loans. Under this method, cash receipts are generally applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts are recognized as interest income. Under FAS 114, $28.7 million of non-performing loans presented in the table on page 21 of this report are considered impaired. Included in this amount is $13.6 million of impaired loans for which the related allowance for loan losses is $7.7 million and $15.1 million of impaired loans that as a result of write-downs do not have an allowance for loan losses. C. Huntington acquired Security National Corporation (Security), a $189 million one-bank holding company headquartered in Maitland, Florida on May 1, 1995, and Reliance Bank of Florida (Reliance), a $98 million bank headquartered in Melbourne, Florida on May 16, 1995. Huntington issued approximately 3.5 million shares of common stock in exchange for all the common stock of Security and Reliance. Prior year financial statements were not restated for these immaterial pooling-of-interests transactions. Subsequent to quarter-end, Huntington also consummated the acquisition of First Seminole Bank (First Seminole), a $51 million bank headquartered in Lake Mary, Florida. Huntington paid cash of $8.4 million for all of the stock of First Seminole in a transaction accounted for as a purchase. D. Per common share amounts have been calculated based on the weighted average number of common shares outstanding in each period, adjusted for the five percent stock dividend issued July 31, 1995. The dilutive effects of unexercised stock options and convertible debentures were not significant for any period presented. E. Certain amounts in the prior year's financial statements have been reclassified to conform with the 1995 presentation. These reclassifications had no effect on net income. 6 -------------------------------------------------------------------------------- FINANCIAL REVIEW
------------------------------------------------------------------------------------------- LOAN PORTFOLIO COMPOSITION ------------------------------------------------------------------------------------------- (in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30, 1995 1994 1994 ----------- ------------ ----------- Commercial.................................... $ 4,132,989 $ 3,610,892 $ 3,570,016 Tax-free...................................... 53,390 58,006 63,465 Real Estate Construction............................. 324,975 304,769 277,648 Commercial............................... 1,456,121 1,378,398 1,340,598 Residential.............................. 1,576,203 1,624,367 1,469,231 Consumer...................................... 4,880,805 4,641,946 4,359,598 Lease financing............................... 713,110 646,058 554,139 ----------- ----------- ----------- TOTAL LOANS.............................. $13,137,593 $12,264,436 $11,634,695 =========== =========== =========== ------------------------------------------------------------------------------------------- DEPOSIT COMPOSITION ------------------------------------------------------------------------------------------- (in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30, 1995 1994 1994 ----------- ----------- ----------- Demand deposits Non-interest bearing..................... $ 2,200,241 $ 2,169,095 $ 1,969,594 Interest bearing......................... 2,465,139 2,646,785 2,686,834 Savings deposits.............................. 2,101,183 2,227,406 2,421,884 Certificates of deposit of $100,000 or more... 829,768 605,763 585,645 Other domestic time deposits.................. 4,480,797 3,909,061 3,504,690 Foreign time deposits......................... 441,389 406,957 400,602 ----------- ----------- ----------- TOTAL DEPOSITS........................... $12,518,517 $11,965,067 $11,569,249 =========== =========== ===========
7 ------------------------------------------------------------------------------- FINANCIAL REVIEW
------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST INCOME ------------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, PERCENT JUNE 30, PERCENT 1995 1994 CHANGE 1995 1994 CHANGE ------------------------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts ......... $20,487 $19,225 6.56 % $43,001 $37,791 13.79 % Mortgage banking ............................ 7,959 15,418 (48.38) 18,600 32,491 (42.75) Trust services .............................. 7,586 6,902 9.91 15,641 15,030 4.07 Credit card fees ............................ 5,640 4,933 14.33 10,684 9,280 15.13 Securities gains............................. 6,379 203 N.M. 6,439 2,001 N.M. Investment product sales .................... 1,971 1,750 12.63 3,670 3,623 1.30 Other ....................................... 10,021 10,553 (5.04) 21,108 17,435 21.07 -------- -------- -------- -------- TOTAL NON-INTEREST INCOME ................... $60,043 $58,984 1.80 % $119,143 $117,651 1.27 % ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST EXPENSE ------------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, PERCENT JUNE 30, PERCENT 1995 1994 CHANGE 1995 1994 CHANGE ------------------------------------------------------------------------------------------------------------------------------- Salaries .................................... $54,974 $57,535 (4.45)% $111,082 $114,614 (3.08)% Commissions ................................. 1,932 2,624 (26.37) 3,620 5,705 (36.55) Employee benefits ........................... 15,419 15,244 1.15 31,080 31,679 (1.89) Net occupancy ............................... 10,079 9,621 4.76 20,765 19,736 5.21 Equipment ................................... 9,593 9,491 1.07 19,395 18,990 2.13 FDIC insurance .............................. 6,549 6,530 0.29 13,085 13,061 0.18 Printing and supplies ....................... 3,362 3,710 (9.38) 6,934 7,176 (3.37) Credit card ................................. 3,369 3,219 4.66 6,632 6,290 5.44 Advertising ................................. 2,912 4,296 (32.22) 5,943 8,484 (29.95) Legal and loan collection ................... 1,905 1,808 5.37 4,028 3,209 25.52 Other ....................................... 32,477 33,117 (1.93) 65,861 69,690 (5.49) -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE .................. $142,571 $147,195 (3.14)% $288,425 $298,634 (3.42)% ======== ======== ======== ========
N.M. - Not meaningful 8 2. Management's Discussion and Analysis OVERVIEW Huntington reported net income of $58.2 million, or $.42 per share, for the second quarter of 1995 compared with $67.5 million, or $.49 per share, for the same period last year. For the first half of 1995, net income was $113.0 million, or $.81 per share, versus $134.2 million, or $.98 per share, in the first six months of 1994. All per share amounts have been adjusted for the five percent stock dividend issued July 31, 1995. Results for the current year also include the effects of the May 1995 acquisitions of Security National Corporation and Reliance Bank of Florida. Prior year amounts have not been restated for these transactions. Huntington achieved returns on average assets (ROA) of 1.25% and 1.24% in the second quarter and first half, respectively, of 1995 and a return on average equity (ROE) of 15.08% in both periods. ROA was 1.64% and 1.62% and ROE was 19.43% and 19.35% for the comparable periods in 1994. As was anticipated by management, the interest rate environment prevailing over the past year, coupled with competitive pressures on loan pricing and deposit mix, has produced significantly reduced spreads--adversely impacting both net interest income and the margin. Huntington's strong loan growth, exceptional asset quality, and effective management of non-interest expenses have resulted in solid earnings and performance ratios despite these difficult market conditions. Total assets were $19.4 billion at June 30, 1995, up 9.0% from December 31, 1994, and 17.8% from one year ago. Loan volumes continue to be solid, as average total loans increased to $13.0 billion for the second quarter of the year, compared with $12.0 billion for the final quarter of 1994 and $11.4 billion for the same period last year. The portfolio of securities available for sale also increased substantially in connection with programs directed by Huntington's Asset/Liability Management Committee (ALCO) to neutralize the interest rate risk exposure arising from customer-driven business sectors. Total deposits at the most recent quarter end were higher than both December 31 and June 30, 1994, principally because of the acquired banks and an increase in time deposits of $100,000 or more. The mix of deposits has also changed, as retail customers have shifted their investment preferences, opting for the higher yields available through certificates of deposit. Huntington's short-term and long-term borrowings increased from a year ago, largely as a result of issuing short and medium term notes through its lead subsidiary, The Huntington National Bank. Shareholders' equity was $1.6 billion at June 30, 1995. Huntington's regulatory capital ratios, including those of its bank subsidiaries, show continued strength and exceed the levels established for well-capitalized institutions. 9 NET INTEREST INCOME For the quarter ended June 30, 1995, Huntington reported net interest income of $179.9 million, compared with $192.1 million for the same period last year. Net interest income was $356.1 million in the first half of the year versus $395.2 million in the corresponding period of 1994. The net interest margin, on a fully tax equivalent basis, was 4.21% and 4.24%, respectively, for the three and six months ended June 30, 1995. For the same periods one year ago, the margin was 5.13% and 5.22%, respectively. The decreased net interest income and lower margin were the result of significantly reduced spreads. In the near term, management anticipates that the margin will continue to decline modestly, primarily due to the purchase of additional investment securities. Moreover, competitive pressure on loan pricing and deposit mix is expected to remain strong. INTEREST RATE RISK MANAGEMENT The principal objective of asset/liability management is to maximize shareholder value in a manner consistent with prudent balance sheet management. Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. This is accomplished with the oversight of ALCO, which is comprised of key members of executive management. ALCO establishes policies and operating limits that govern the management of market risk as well as ensure maintenance of adequate liquidity. Both on- and off-balance sheet strategies and programs are regularly reviewed and monitored by ALCO to confirm their consistency with Huntington's operating objectives as well as to evaluate their appropriateness in light of changing market and business conditions. Actively and effectively managing interest rate risk requires the use of a variety of financial instruments and funding sources. On-balance sheet investment and funding vehicles, along with off-balance sheet financial instruments such as interest rate swaps, interest rate caps/floors, and financial futures represent the primary means by which Huntington responds to the balance sheet mismatches created by customer loan and deposit preferences and to changing market conditions. These activities are closely monitored by ALCO. Huntington monitors its interest rate risk exposure by measuring the amount that net interest income will change over a twelve to twenty-four month period given a directional shift in interest rates. The net interest income-at-risk estimation is determined using multiple interest rate and balance sheet scenarios to provide management a framework for evaluating its risk tolerance under various market conditions. At June 30, 1995, the results of Huntington's internal interest sensitivity analysis indicated that declines in the federal funds rate of 100 and 200 basis points (assuming the decreases occur evenly over the year) and corresponding changes in other market rates reflected in Huntington's interest rate forecast would be expected to reduce net interest income by approximately .7% and 2.2%, respectively. Underlying these estimates is the presumption that certain core deposits, whose rates have not repriced upward over the past 300 basis point increase in short-term rates, will not reprice downward in a falling rate environment. Assuming a gradual 10 increase in rates of 100 basis points, the sensitivity analysis indicates a change in net interest income ranging between an increase of .3% and a decrease of .6%. A 200 basis points increase in rates is expected to result in a change in net interest income ranging between an increase of .6% and a decrease of .9%. Huntington uses a range in measuring its "at-risk" position because of varying assumptions regarding the volume and rate behaviors of certain loans and core deposits under the rising rate scenarios. Interest rate swaps are the principal off-balance sheet vehicles used by Huntington for asset/liability management. In addition to the transactional efficiencies afforded by a swap structure, which is less costly to execute than a comparable cash instrument, the overall swap strategy has enabled Huntington to lower the costs of raising wholesale liabilities and has allowed management to synthetically alter, or customize, the repricing characteristics of selected on-balance sheet financial instruments. "Asset conversion swaps" are used by Huntington to convert variable rate loans and other floating rate assets to fixed rate assets in order to achieve a desired level of interest rate sensitivity. Similarly, "liability conversion swaps" have been used to change the repricing characteristics of various on-balance sheet liabilities, primarily in connection with ALCO programs to lower the cost of raising wholesale liabilities. "Basis swaps" represent contracts in which both parties receive floating rates of interest according to different indices and are used to protect against changes in spreads. Financial futures and interest rate caps/floors, as well as forward delivery contracts purchased in connection with mortgage banking activities, are also integral to asset/liability management. These off-balance sheet financial instruments are often more attractive than the use of cash securities or other on-balance sheet alternatives because, though they provide similar protection against interest rate movements, they require less capital and may not impede liquidity. The notional amount of off-balance sheet positions used by Huntington for purposes other than interest rate risk management, consisting principally of transactions entered into on behalf of customers for which the related interest rate risk is countered by offsetting third party contracts, was $780 million at June 30, 1995. Total credit exposure from such contracts, represented by those instruments with a positive fair value, was $2.4 million at the most recent quarter end. 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 discussion of off-balance sheet financial instruments and the related tables which follow. In the second quarter of 1995, interest rate swaps and other off-balance sheet financial instruments used for asset/liability management purposes reduced interest income by $8.2 million and increased interest expense by $5.9 million. On a year-to-date basis, the decrease in interest income was $12.7 million and interest expense increased $13.0 million. For the same periods last year, these products increased interest income by $7.2 million and $22.2 million and decreased interest expense by $4.5 million and $13.7 million. Included in the preceding amounts is amortization of deferred gains and losses from terminated contracts, which decreased net interest income by $5.7 million for the most recent quarter and $9.7 million for the first half of 1995, and increased net interest income by $9.7 million and $16.5 million, respectively, in the three and six months ended June 30, 1994. Expressed in terms of the net interest margin, the effect of the off-balance sheet portfolio was a reduction of 35 basis points and 30 basis points, 11 respectively, for the second quarter and first six months of 1995 versus an addition of 31 basis points and 47 basis points in the corresponding periods one year ago. 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. The valuation of interest rate swap contracts is largely a function of the financial market's expectations regarding the future direction of interest rates. Since year end, expectations regarding the future direction of interest rates have shifted, with the marketplace now anticipating flat to slightly lower short-term rates over the next several months versus the expectations which prevailed at the end of 1994 for significantly higher rates. Consequently, the net unrealized loss decreased considerably from $268.9 million at December 31, 1994, to $30.5 million at the end of June 1995. The market values at the most recent quarter end are not necessarily indicative of the future impact of the swaps on net interest income. This will depend, in large part, on the shape of the yield curve as well as interest rate levels. Management has made no assumptions with respect to future changes in interest rates for purposes of the variable rate information and the indexed amortizing swap maturities presented below.
Average Average Rate Notional Maturity Market ------------ (dollars in millions) Value (years) Value Receive Pay -------------------- ----- ------- ----- ------- --- June 30, 1995: ASSET CONVERSION SWAPS Receive fixed-generic $ 634 2.13 $ .3 5.62% 6.13% Receive fixed-amortizing 673 2.19 (13.0) 5.41 6.08 ------ ---- ------ ---- ---- TOTAL ASSET CONVERSION SWAPS $1,307 2.16 ($12.7) 5.51% 6.10% ====== ==== ====== ==== ==== LIABILITY CONVERSION SWAPS Receive fixed-generic $ 600 5.61 $22.2 6.43% 6.03% Receive fixed-amortizing 349 2.55 ( 6.5) 5.29 6.01 Pay fixed-generic 2,408 .96 ( 27.5) 6.14 6.84 ------ ---- ------ ---- ---- TOTAL LIABILITY CONVERSION SWAPS $3,357 1.96 ($11.8) 6.10% 6.61% ====== ==== ====== ==== ==== BASIS PROTECTION SWAPS $ 700 1.57 ($ 6.0) 6.17% 6.09% ====== ==== ====== ==== ====
The portfolio of amortizing swaps consists of contracts with notional values that are indexed to certain market interest rates, primarily the London inter-bank offered rate (LIBOR) or Constant Maturity U.S. Treasury yields (CMT). To a much lesser degree, other contracts are amortized based upon the prepayment experience of a specified pool of mortgage loans. As market interest rates change, the amortization of the notional values will also change, generally slowing as rates increase and accelerating when rates fall. Basis swaps are contracts which provide for both parties to receive floating rates of interest according to different indices. All receive and pay amounts applicable to Huntington's basis swaps are determined by LIBOR, the prime rate, or other indices common to the banking industry. The basis swaps have embedded 12 written periodic caps and, in some cases, purchased periodic floors. Also, embedded in the receive fixed-generic liability conversion swaps is $150 million of written caps. The notional values of the swap portfolio represent contractually determined amounts on which calculations of interest payments to be exchanged are based. These notional values do not represent direct credit exposures. At June 30, 1995, Huntington's credit risk from interest rate swaps used for asset/liability management purposes was $46.3 million, which is significantly less than the notional value of the contracts, and 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 non-performance in the future by any such counterparties. The following table summarizes activity in the interest rate swap portfolio used for asset/liability management purposes during the first six months of 1995 and 1994:
Asset Liability Basis Conversion Conversion Protection ------------------------------------------------ (in millions) Balance at December 31, 1994 $2,508 $3,332 $1,000 Additions --- 525 --- Maturities/Amortization (31) (100) (300) Terminations --- (34) --- ------ ------ ------ Balance at March 31, 1995 2,477 3,723 700 ------ ------ ------ Additions --- 50 --- Maturities/Amortization --- (116) --- Terminations (1,170) (300) --- ------ ------ ------ Balance at June 30, 1995 $1,307 $3,357 $ 700 ====== ====== ======== Balance at December 31, 1993 $2,281 $1,821 $2,800 Additions 75 100 200 Maturities/Amortization (219) --- --- Terminations (300) --- (250) ------ ------ ------ Balance at March 31, 1994 1,837 1,921 2,750 ------ ------ ------ Additions 138 115 150 Maturities/Amortization (12) (185) --- Terminations (100) --- --- ------ ------ ------ Balance at June 30, 1994 $1,863 $1,851 $2,900 ====== ====== ======
13 Terminations reflect the decisions made by ALCO to modify, refine, or change balance sheet management strategies, as a result of either a change in overall interest rate risk tolerances or changes in balance sheet composition. The terminations that occurred in the most recent quarter were associated with ALCO directed programs to realign Huntington's interest rate sensitivity posture in light of prevailing economic and market conditions and trends in the customer-driven balance sheet. At June 30, 1995, Huntington had deferred approximately $53.7 million of net realized losses from terminated interest rate swaps, which are to be amortized as yield adjustments over the remaining term of the original contracts, as presented below.
Amortizing In ------------------------------------------------------------------------- 1995 1996 1997 1998 1999 Total ---- ---- ---- ---- ---- ----- (in millions) JUNE 30, 1995: Deferred gains $ 9.4 $ 15.0 $ 8.3 $ 7.0 $5.7 $45.4 Deferred losses (26.6) (51.4) (19.4) (1.3) (.4) (99.1) ------ ------ ------ ----- ---- ------ Net (losses) gains $(17.2) $(36.4) $(11.1) $ 5.7 $5.3 $(53.7) ====== ====== ====== ===== ==== ======
NON-INTEREST INCOME Non-interest income, exclusive of securities transactions, for the second quarter and first half of 1995 was $53.7 million and $112.7 million, compared with $58.8 million and $115.7 million for the corresponding periods one year ago. Increased service charges on deposits, credit card fees, and trust revenues were more than offset by declines in mortgage banking income of $7.5 million for the quarter and $13.9 million for the six months of 1995. Other non-interest income was down slightly when comparing the most recent quarter to the same three months of last year, but up 21.1% over 1994 on a year-to-date basis as a result of increased trading account profits and higher income from certain fee based initiatives. In addition, results for the initial six months of 1994 were adversely impacted by a $1.1 million lower of cost or market adjustment on an interest rate floor linked to purchased mortgage servicing rights. The major components of mortgage banking income were as follows:
Second Quarter Six Months -------------------------- --------------------------- 1995 1994 1995 1994 ------ ------- ------- ------- (in thousands) Net servicing fees $3,824 $ 5,972 $ 8,386 $11,337 Fee income 1,410 3,862 2,248 9,456 Gain on sale of servicing rights 1,105 3,366 5,295 7,764 Other income 1,620 2,218 2,671 3,934 ------ ------- ------- ------- $7,959 $15,418 $18,600 $32,491 ====== ======= ======= =======
14 The decrease in fee income which is apparent from the above table is the result of a significant drop in mortgage loan production, as the decline in origination volumes that began in 1994 (and was much more pronounced in the second half of the year) continued into 1995. Net servicing fees in the first half of 1995 were also considerably less than the amount reported in the corresponding period of last year, principally because of sales of servicing rights. A summary of the servicing portfolio follows:
As of June 30, 1995 1994 ---- ---- (in thousands of dollars) Loan principal, including temporary subservicing of $103,452 and $679,118, respectively $5,120,841 $6,893,893 Weighted average: Coupon rate 8.14% 8.06% Contractual maturity 21yrs. 22 yrs.
During the most recent quarter, Huntington realized net gains from securities transactions of $6.4 million. The majority of these gains resulted from the sale of callable agency securities, the proceeds from which were reinvested into securities of moderately longer duration. NON-INTEREST EXPENSE Non-interest expense in the second quarter of 1995 was $142.6 million, down 3.1% from the same three months in 1994. This represents the third consecutive quarter that non-interest expense has been reduced. A similar decline of 3.4% occurred from the first half of 1994 to the corresponding period this year. These decreases were achieved despite the completion of two bank acquisitions during 1995 and were primarily attributable to reduced personnel costs, much of which related to Huntington's recent restructuring of its mortgage banking operation. Certain components of other non-interest expense also dropped significantly on a year-to-date basis, as a result of the slower mortgage market that prevailed in the first six months of 1995 versus the same period one year ago. PROVISION FOR INCOME TAXES The provision for income taxes was $34.4 million in the most recent quarter, an increase of 3.7% from the same period one year ago. For the first six months of the year, the provision for income taxes was $64.4 million versus $68.4 million in the corresponding period of 1994. The higher provision when comparing the quarters is largely the result of a one-time charge of $2.1 million related to the May 1995 conversion of an existing thrift to a bank charter as well as various non-deductible expenses incurred in connection with the bank acquistions that accompanied the conversion. 15 ASSET QUALITY Huntington's exposure to credit risk is actively managed through the use of underwriting standards which emphasize "in-market" lending to established borrowers. Highly leveraged transactions and industry or other concentrations are avoided. Huntington's management also employs extensive monitoring procedures to ensure the adequacy of the allowance for loan losses (ALL), including timely reviews of specific credits, monthly analysis of delinquencies, assessment of current economic conditions and other relevant factors. Huntington's asset quality remains among the best of the largest banking companies in the country. Non-performing loans, which represent only .42% of total loans at the most recent quarter end, were as follows:
June 30, December 31, June 30, 1995 1994 1994 ----- ----- ----- (in millions) Commercial $20.0 $21.0 $33.7 Construction 4.1 4.6 19.3 Commercial real estate 21.7 10.1 7.1 Residential mortgage 8.9 8.7 6.3 Consumer .3 .1 .4 ----- ----- ----- Total $55.0 $44.5 $66.8 ===== ===== =====
Net charge-offs (annualized) as a percentage of average total loans were .23% and .21%, respectively, in the second quarter and first half of 1995, indicative of Huntington's continued high credit quality. For the same periods one year ago, these ratios were .17% and .20%. The ALL as a percentage of total loans was 1.51% as of June 30, 1995, compared with ratios of 1.63% at year-end 1994 and 1.83% one year ago. Huntington believes this decrease is appropriate, as the ratio of the ALL to non-performing loans remains strong at 361%. In addition to the improvements in credit quality referred to above, net other real estate (ORE) declined significantly during the past twelve months from $59.2 million to $24.0 million at June 30, 1995. Huntington's management continues to aggressively pursue the sale of its ORE to further reduce non-performing assets. CAPITAL Huntington's capital position remains strong. Shareholders' equity at the most recent quarter end was approximately $1.6 billion, an increase of 13.1% from one year ago. Average equity to average assets was 8.28% in the second quarter of 1995 and 8.22% for the first half of the year, down slightly from the same periods in 1994. At June 30, 1995, the Tier 1 and total risk-based capital ratios were 9.30% and 13.11%, respectively, and exceeded the corresponding 16 minimum levels to be considered "well capitalized" of 6% and 10%, respectively. Huntington's Tier 1 leverage ratio of 7.72% also exceeded the minimum regulatory requirement of 5%. On April 27, 1995, the Board of Directors authorized Huntington to repurchase up to 10.5 million additional shares of its common stock (as adjusted for the 5% stock dividend issued in July 1995). The authorization represents a continuation of the August 1987 Common Stock Repurchase Program and provides that the shares will be reserved for reissue in connection with Huntington's benefit plans as well as for other corporate purposes. As of June 30, 1995, approximately 11.4 million shares were available for repurchase. It is expected that the majority of the remaining authorized shares will be repurchased by the end of the current year, with the balance to be repurchased as needed in 1996. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board has issued Statement 122, "Accounting for Mortgage Servicing Rights", which amends Statement 65 and requires the recognition of rights to service loans for others as separate assets, however those servicing rights are acquired. Statement 122 also requires that a mortgage banking enterprise assess its capitalized servicing rights for impairment based on the fair value of those rights, using a disaggregated approach for mortgage servicing rights that are capitalized after adoption of the new standard. Its provisions must be adopted no later than fiscal years beginning after December 15, 1995, and are to be applied prospectively to transactions in which a mortgage banking enterprise sells or securitizes mortgage loans with servicing rights retained and to impairment evaluations of all amounts capitalized as mortgage serving rights. Huntington plans to adopt Statement 122 in the second half of 1995, but does not expect the effects of initial application to be material to the consolidated financial statements. 17 -------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------ (in thousands of dollars, except per share amounts) ----------- ----------- ----------- THREE MONTHS ENDED JUNE 30, 1995 1994 % CHANGE ----------- ----------- ----------- NET INCOME.................................. $58,161 $67,453 (13.8)% PER COMMON SHARE AMOUNTS (1)............... Net income............................. $0.42 $0.49 (14.3) Cash dividends declared................ $0.19 $0.15 26.7 AVERAGE SHARES OUTSTANDING (1)............. 139,996,550 136,439,751 2.6 KEY RATIOS Return on: Average total assets................... 1.25% 1.64% (23.8) Average shareholders' equity........... 15.08% 19.43% (22.4) Efficiency ratio............................ 60.23% 59.05% 2.0 Average equity/average assets............... 8.28% 8.43% (1.8) NET INTEREST MARGIN......................... 4.21% 5.13% (17.9) -------------------------------------------- ----------- ----------- ----------- SIX MONTHS ENDED JUNE 30, 1995 1994 % CHANGE ----------- ----------- ----------- NET INCOME.................................. $113,023 $134,195 (15.8)% PER COMMON SHARE AMOUNTS (1)............... Net income............................. $0.81 $0.98 (17.3) Cash dividends declared................ $0.38 $0.30 26.7 AVERAGE SHARES OUTSTANDING (1)............. 140,093,756 136,386,328 2.7 KEY RATIOS Return on: Average total assets................... 1.24% 1.62% (23.5) Average shareholders' equity........... 15.08% 19.35% (22.1) Efficiency ratio............................ 61.17% 58.67% 4.3 Average equity/average assets............... 8.22% 8.36% (1.7) NET INTEREST MARGIN......................... 4.24% 5.22% (18.8) -------------------------------------------- ----------- ----------- ----------- AT JUNE 30, 1995 1994 % CHANGE ----------- ----------- ----------- Total Loans................................. $13,137,593 $11,634,695 12.9 % Total Deposits.............................. $12,518,517 $11,569,249 8.2 Total Assets................................ $19,370,768 $16,445,041 17.8 Shareholders' Equity........................ $1,572,043 $1,389,467 13.1 Period-End Shares Outstanding (1)........... 139,452,401 136,138,805 2.4 Shareholders' Equity Per Common Share (1)... $11.27 $10.21 10.4 Total Risk-Adjusted Assets.................. $15,588,590 $13,368,708 16.6 Tier 1 Risk-Based Capital Ratio............. 9.30% 9.95% (6.5) Total Risk-Based Capital Ratio.............. 13.11% 14.17% (7.5) Tier 1 Leverage Ratio....................... 7.72% 7.98% (3.3)
(1) Adjusted for the five percent stock dividend issued July 31, 1995. 18 -------------------------------------------------------------------------------- FINANCIAL REVIEW
------------------------------------------------------------------------------------------------------------ INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30, 1995 AND DECEMBER 31, 1994 ------------------------------------------------------------------------------------------------------------ (in thousands of dollars) JUNE 30, 1995 DECEMBER 31, 1994 ------------------------------------------------------------------------------------------------------------ AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE ------------------------------------------------------------------------------------------------------------ U.S. Treasury 1-5 years.............................. $150 $150 $150 $150 -------- -------- -------- -------- Total............................... 150 150 150 150 -------- -------- -------- -------- Federal agencies Mortgage-backed securities 1-5 years.............................. - - 371 344 6-10 years............................. 4,132 4,240 4,812 4,806 Over 10 years.......................... 2,815 2,905 3,130 3,133 -------- -------- -------- -------- Total............................... 6,947 7,145 8,313 8,283 -------- -------- -------- -------- Other agencies 1-5 years.............................. 133,771 133,702 101,774 99,446 6-10 years............................. 165,958 165,475 207,043 205,358 Over 10 years.......................... - - 433 350 -------- -------- -------- -------- Total............................... 299,729 299,177 309,250 305,154 -------- -------- -------- -------- Total U.S. Treasury and Federal agencies.... 306,826 306,472 317,713 313,587 -------- -------- -------- -------- States and political subdivisions Under 1 year........................... 44,717 45,403 56,361 57,080 1-5 years.............................. 52,984 54,574 72,812 74,975 6-10 years............................. 17,084 17,612 18,433 18,059 Over 10 years.......................... 5,724 6,168 6,043 6,196 -------- -------- -------- -------- Total............................... 120,509 123,757 153,649 156,310 -------- -------- -------- -------- Other Under 1 year........................... 1,500 1,500 1,508 1,508 1-5 years.............................. 505 505 5 5 6-10 years............................. 879 819 1,504 1,424 Over 10 years.......................... 1,643 1,643 1,313 1,313 -------- -------- -------- -------- Total............................... 4,527 4,467 4,330 4,250 -------- -------- -------- -------- Total Investment Securities................. $431,862 $434,696 $475,692 $474,147 ======== ======== ======== ========
19 -------------------------------------------------------------------------------- FINANCIAL REVIEW
------------------------------------------------------------------------------------------------------------------ SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30, 1995 AND DECEMBER 31, 1994 ------------------------------------------------------------------------------------------------------------------ (in thousands of dollars) JUNE 30, 1995 DECEMBER 31, 1994 ------------------------------------------------------------------------------------------------------------------ AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE ------------------------------------------------------------------------------------------------------------------ U.S. Treasury Under 1 year........................... $22,706 $22,692 $25,399 $25,320 1-5 years.............................. 700,535 707,264 662,106 643,100 6-10 years............................. 171,085 163,800 166,909 147,671 ---------- ---------- ---------- ---------- Total............................... 894,326 893,756 854,414 816,091 ---------- ---------- ---------- ---------- Federal agencies Mortgage-backed securities Under 1 year........................... 7 7 - - 1-5 years.............................. 27,125 27,260 17,727 16,922 6-10 years............................. 488,465 498,353 369,061 362,716 Over 10 years.......................... 119,246 121,561 114,742 110,119 ---------- ---------- ---------- ---------- Total............................... 634,843 647,181 501,530 489,757 ---------- ---------- ---------- ---------- Other agencies Under 1 year........................... 14,347 15,183 531,082 526,617 1-5 years.............................. 1,498,620 1,519,998 506,740 499,748 6-10 years............................. 266,641 264,948 382,849 369,404 Over 10 years.......................... 459,835 458,096 323,451 304,660 ---------- ---------- ---------- ---------- Total............................... 2,239,443 2,258,225 1,744,122 1,700,429 ---------- ---------- ---------- ---------- Total U.S. Treasury and Federal agencies.... 3,768,612 3,799,162 3,100,066 3,006,277 ---------- ---------- ---------- ---------- Other Under 1 year........................... 1,712 1,723 - - 1-5 years.............................. 147,151 147,364 95,410 94,887 6-10 years............................. 107,069 114,899 165,422 164,087 Over 10 years.......................... 28,487 28,736 32,854 32,818 Marketable equity securities........... 8,359 6,917 8,359 6,424 ---------- ---------- ---------- ---------- Total............................... 292,778 299,639 302,045 298,216 ---------- ---------- ---------- ---------- Total Securities Available for Sale......... $4,061,390 $4,098,801 $3,402,111 $3,304,493 ========== ========== ========== ==========
20 -------------------------------------------------------------------------------- FINANCIAL REVIEW
----------------------------------------------------------------------------------------------------------------------------------- LOAN LOSS EXPERIENCE ----------------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1995 1994 1995 1994 --------------------------- ------------------------- ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ......... $201,088 $214,111 $200,492 $211,835 Loan losses ............................................ (10,718) (8,932) (20,511) (18,907) Recoveries of loans previously charged off ............. 3,312 4,081 7,268 7,868 Provision for loan losses .............................. 4,787 3,219 9,395 11,683 Allowance of assets acquired (sold)..................... (205) 1,620 - -------- -------- -------- -------- ALLOWANCE FOR LOAN LOSSES, END OF PERIOD ............... $198,264 $212,479 $198,264 $212,479 ======== ======== ======== ======== AS A % OF AVERAGE TOTAL LOANS Net loan losses -- annualized ........................ 0.23% 0.17% 0.21% 0.20% Provision for loan losses -- annualized .............. 0.15% 0.11% 0.15% 0.21% Allowance for loan losses as a % of total loans ........ 1.51% 1.83% 1.51% 1.83% Net loan loss coverage (1) ............................. 13.15x 21.41x 14.11x 19.41x
(1) Income before taxes and the provision for loan losses to net loan losses.
----------------------------------------------------------------------------------------------------------------------------------- NON-PERFORMING ASSETS AND PAST DUE LOANS (Quarter-End) 1995 1994 ---------------------------------------------------------------------- (in thousands of dollars) II Q I Q IV Q III Q II Q ---------------------------------------------------------------------- Non-accrual loans ...................................... $41,554 $41,576 $41,929 $40,313 $61,015 Renegotiated loans ..................................... 13,424 11,568 2,550 13,547 5,737 -------- -------- -------- -------- -------- TOTAL NON-PERFORMING LOANS ............................. 54,978 53,144 44,479 53,860 66,752 -------- -------- -------- -------- -------- Other real estate, net ................................. 24,029 26,558 51,909 51,558 59,157 -------- -------- -------- -------- -------- TOTAL NON-PERFORMING ASSETS ............................ $79,007 $79,702 $96,388 $105,418 $125,909 ======== ======== ======== ======== ======== NON-PERFORMING LOANS AS A % OF TOTAL LOANS ..................................... 0.42% 0.41% 0.36% 0.45% 0.57% NON-PERFORMING ASSETS AS A % OF TOTAL LOANS AND OTHER REAL ESTATE ............... 0.60% 0.62% 0.78% 0.88% 1.08% ALLOWANCE FOR LOAN LOSSES AS A % OF NON-PERFORMING LOANS ................................. 360.62% 378.38% 450.76% 382.41% 318.31% ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE AS A % OF NON-PERFORMING ASSETS ............... 234.30% 235.10% 193.13% 181.70% 160.22% ACCRUING LOANS PAST DUE 90 DAYS OR MORE ................ $20,685 $19,771 $20,877 $24,182 $23,464 ======== ======== ======== ======== ========
21 -------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
------------------------------------------------------------------------------------------------------------------------ Fully Tax Equivalent Basis (1) 2ND QUARTER 1995 1ST QUARTER 1995 (in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE ------------------- ------------------ ASSETS Interest bearing deposits in banks.................................... $3 5.03 % $3 4.50 % Trading account securities............................................ 23 8.07 27 6.68 Federal funds sold and securities purchased under resale agreements... 70 6.70 45 6.56 Mortgages held for sale............................................... 109 7.52 106 8.42 Securities available for sale......................................... 3,601 6.76 3,501 6.58 Investment securities................................................. 439 7.74 458 8.09 Loans Commercial....................................................... 4,027 8.55 3,776 8.65 Tax-free......................................................... 55 10.75 56 10.77 Real Estate Construction................................................ 324 8.38 315 8.57 Mortgage.................................................... 3,100 8.20 3,111 8.09 Consumer......................................................... 4,805 8.90 4,678 8.58 Lease Financing................................................. 690 7.43 660 7.24 ------- ------- Total Loans................................................. 13,001 8.54 12,596 8.42 Allowance for loan losses................................... 201 203 ------- ------- Net loans................................................... 12,800 9.00 12,393 8.87 ------- ------- Total earning assets........................................ 17,246 8.38 % 16,736 8.26 % ------- ------- Cash and due from banks............................................... 796 774 All other assets...................................................... 838 798 ------- ------- TOTAL ASSETS.......................................................... $18,679 $18,105 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits Non-interest bearing............................................. $2,159 $2,119 Interest bearing................................................. 2,533 2.45 % 2,622 2.42 % Savings deposits...................................................... 2,013 2.68 2,097 2.62 Certificates of deposit of $100,000 or more........................... 770 5.84 671 5.59 Other domestic time deposits.......................................... 4,447 5.54 4,156 5.14 Foreign time deposits................................................. 264 6.57 274 6.31 ------- ------- Total deposits................................................... 12,186 3.49 11,939 3.24 ------- ------- Short-term borrowings................................................. 3,348 6.13 3,137 5.99 Long-term debt........................................................ 1,208 7.23 1,246 7.44 ------- ------- Interest bearing liabilities..................................... 14,583 4.93 % 14,203 4.71 % ------- ------- All other liabilities................................................. 390 308 Shareholders' equity.................................................. 1,547 1,475 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,679 $18,105 ======= ======= Net interest rate spread.............................................. 3.45% 3.55% Impact of non-interest bearing funds on margin........................ 0.76% 0.71% NET INTEREST MARGIN................................................... 4.21% 4.26%
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate 22
----------------------------------------------------------------------- 4TH QUARTER 1994 3RD QUARTER 1994 2ND QUARTER 1994 AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE BALANCE RATE ----------------- ----------------- ------------------ $2 8.80 % $3 7.46 % $3 8.58 % 15 6.21 17 6.61 12 6.64 115 4.91 188 4.48 117 3.76 135 6.75 214 7.74 417 7.19 2,977 6.33 2,553 5.98 2,788 6.26 475 8.09 498 8.09 480 8.15 3,562 8.75 3,511 8.47 3,519 8.18 59 10.28 62 9.87 67 10.09 302 7.82 275 8.02 289 7.63 2,905 8.06 2,822 8.04 2,736 7.75 4,578 8.24 4,440 8.12 4,243 8.15 620 7.24 574 7.26 534 7.38 ------- ------- ------- 12,026 8.29 11,684 8.17 11,388 8.02 205 212 216 ------- ------- ------- 11,821 8.60 11,472 8.48 11,172 8.37 ------- ------- ------- 15,745 8.11 % 15,158 7.98 % 15,205 7.91 % ------- ------- ------- 770 737 735 759 781 792 ------- ------- ------- $17,069 $16,465 $16,516 ======= ======= ======= $2,127 $2,061 $2,096 2,652 2.30 % 2,695 2.21 % 2,744 2.16 % 2,171 2.43 2,264 2.23 2,336 2.02 581 4.88 589 4.38 599 3.86 3,678 4.62 3,553 4.23 3,474 4.02 296 5.41 199 4.66 306 3.82 ------- ------- ------- 11,505 3.50 11,359 3.18 11,555 2.97 ------- ------- ------- 2,797 5.06 2,519 4.30 2,468 3.58 1,138 8.19 938 6.99 831 6.44 ------- ------- ------- 13,313 4.23 % 12,756 3.68 % 12,758 3.31 % ------- ------- ------- 220 242 270 1,409 1,406 1,392 ------- ------- ------- $17,069 $16,465 $16,516 ======= ======= ======= 3.88% 4.30% 4.60% 0.66% 0.59% 0.53% 4.54% 4.89% 5.13%
23 -------------------------------------------------------------------------------- SELECTED QUARTERLY INCOME STATEMENT DATA
---------------------------------------------------------------------------------------------------------------- 1995 1994 ----------------------- ------------------------------------- (in thousands of dollars, except per share amounts) II Q I Q IV Q III Q II Q ---------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME................... $360,203 $342,397 $318,875 $301,724 $297,485 TOTAL INTEREST EXPENSE.................. 180,313 166,188 141,625 118,173 105,403 -------- -------- -------- -------- -------- NET INTEREST INCOME..................... 179,890 176,209 177,250 183,551 192,082 Provision for loan losses............... 4,787 4,608 2,488 1,113 3,219 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............. 175,103 171,601 174,762 182,438 188,863 -------- -------- -------- -------- -------- Service charges on deposit accounts .... 20,487 22,514 19,417 19,628 19,225 Mortgage banking ....................... 7,959 10,641 8,630 9,246 15,418 Trust services ......................... 7,586 8,055 6,686 6,732 6,902 Securities gains (losses)............... 6,379 60 (55) 648 203 Credit card fees ....................... 5,640 5,044 5,873 5,846 4,933 Investment product sales ............... 1,971 1,699 1,307 1,694 1,750 Other .................................. 10,021 11,087 9,012 9,999 10,553 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME .............. 60,043 59,100 50,870 53,793 58,984 -------- -------- -------- -------- -------- Salaries ............................... 54,974 56,108 54,314 57,740 57,535 Commissions ............................ 1,932 1,688 1,523 3,547 2,624 Employee benefits ...................... 15,419 15,661 13,091 13,388 15,244 Net occupancy .......................... 10,079 10,686 9,962 10,593 9,621 Equipment .............................. 9,593 9,802 10,151 9,651 9,491 FDIC insurance ......................... 6,549 6,536 6,218 5,992 6,530 Printing and supplies .................. 3,362 3,572 3,911 3,734 3,710 Credit card ............................ 3,369 3,263 3,426 3,777 3,219 Advertising ............................ 2,912 3,031 4,152 2,684 4,296 Legal and loan collection .............. 1,905 2,123 3,370 1,719 1,808 Other .................................. 32,477 33,384 36,498 38,531 33,117 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE ............. 142,571 145,854 146,616 151,356 147,195 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES ............. 92,575 84,847 79,016 84,875 100,652 Provision for income taxes ............. 34,414 29,985 26,520 28,973 33,199 -------- -------- -------- -------- -------- NET INCOME ............................. $58,161 $54,862 $52,496 $55,902 $67,453 ======== ======== ======== ======== ======== PER COMMON SHARE (1) Net income ........................... $0.42 $0.39 $0.39 $0.41 $0.49 Cash dividends declared .............. $0.19 $0.19 $0.19 $0.19 $0.15 FULLY TAX EQUIVALENT MARGIN: Net Interest Income .................... $179,890 $176,209 $177,250 $183,551 $192,082 Tax Equivalent Adjustment (2) .......... 1,723 1,885 2,042 2,211 2,545 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income ..... $181,613 $178,094 $179,292 $185,762 $194,627 ======== ======== ======== ======== ========
(1) Adjusted for the five percent stock dividend issued July 31, 1995. (2) Calculated assuming a 35% tax rate. 24 PART II. OTHER INFORMATION In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported. Item 4. Submission of Matters to a Vote of Security Holders Huntington Bancshares Incorporated held its annual meeting of shareholders on April 27, 1995. At that meeting, shareholders approved the following management proposals (1,2 and 3) and rejected a shareholder proposal (4):
ABSTAIN/ BROKER FOR AGAINST WITHHELD NON-VOTES --- ------- -------- --------- 1. Election of directors to serve as Class II Directors until the 1998 Meeting of Shareholders as follows: Don Conrad 106,289,836 1,175,253 George Skestos 106,234,711 1,230,377 Lewis Smoot, Jr. 106,369,689 1,095,399 Frank Wobst 106,378,588 1,086,500 2. Proposal to approve the Huntington Bancshares Inc. Incentive Compensation Plan 96,257,687 9,225,207 1,981,370 853 3. Ratification of Ernst & Young LLP to serve as independent auditors for the Corporation for the year 1995 106,069,434 668,804 748,494 8,355 4. Consideration/action upon a shareholder proposal 15,370,820 78,067,446 3,985,907 10,041,014
25 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3. (i) 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. (ii) By Laws -- previously filed as Exhibit 3(b) to Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated herein by reference. 4. Instruments defining the Rights of Security Holders: Reference is made to Articles Fifth, Eighth and Tenth of Articles of Restatement of Charter, previously filed as Exhibit 3(i) of Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. Also, reference is made to Rights Plan, dated February 22, 1990, previously filed as Exhibit 1 to Registration Statement on Form 8-A, and incorporated herein by reference. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. 11. Computation of Earnings Per Share 27. (a) Financial Data Schedule (b) Restated Financial Data Schedule (b) Reports on Form 8-K 1. A report on Form 8-K, dated April 11, 1995, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the quarter ended March 31, 1995. A second report on Form 8-K , dated April 28, 1995, was filed under report item numbers 5 and 7, announcing Huntington's continuation of its common stock repurchase program. 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Huntington Bancshares Incorporated ---------------------------------- (Registrant) Date: August 14, 1995 /s/ Ralph K. Frasier --------------------- Ralph K. Frasier General Counsel and Secretary Date: August 14, 1995 /s/ John D. Van Fleet --------------------- John D. Van Fleet Senior Vice President, Corporate Controller, and Principal Accounting Officer (Chief Accounting Officer) 27