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 MARCH 31, 1996 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 132,891,485 shares of Registrant's without par value common stock outstanding on April 30, 1996. 1
Part I. Financial Information 1. Financial Statements - -------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, DECEMBER 31, MARCH 31, 1996 1995 1995 ------------ ------------- ----------- ASSETS Cash and due from banks.................................. $789,092 $860,958 $896,514 Interest bearing deposits in banks....................... 1,666 284,393 1,366 Trading account securities............................... 13,466 12,924 25,558 Federal funds sold and securities purchased under resale agreements................... 5,833 197,531 21,125 Mortgages held for sale.................................. 155,528 159,705 117,404 Securities available for sale - at fair value............ 4,954,577 4,721,144 3,442,958 Investment securities - fair value $75,392 ; $69,196; and $453,454, respectively......................... 74,213 67,604 452,054 Total loans (1).......................................... 13,369,308 13,261,667 12,817,663 Less allowance for loan losses...................... 197,375 194,456 201,088 ----------- ------------- ----------- Net loans................................................ 13,171,933 13,067,211 12,616,575 ----------- ------------- ----------- Premises and equipment................................... 310,985 296,465 294,512 Customers' acceptance liability.......................... 68,312 56,926 61,300 Accrued income and other assets.......................... 592,377 529,737 491,168 ----------- ------------- ----------- TOTAL ASSETS............................................. $20,137,982 $20,254,598 $18,420,534 =========== ============= =========== LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1)....................................... $13,006,213 $12,636,582 $12,188,579 Short-term borrowings.................................... 3,150,974 3,514,773 3,088,467 Bank acceptances outstanding............................. 68,312 56,926 61,300 Long-term debt........................................... 1,985,806 2,103,024 1,253,032 Accrued expenses and other liabilities................... 424,167 424,428 319,527 ----------- ------------- ----------- Total Liabilities................................... 18,635,472 18,735,733 16,910,905 ----------- ------------- ----------- Shareholders' equity Preferred stock - authorized 6,617,808 shares; none outstanding Common stock - without par value; authorized 200,000,000 shares; issued and outstanding 141,402,769; 141,402,769 ; and 134,400,331 shares, respectively........................... 1,056,209 1,056,209 914,020 Less 8,392,446; 8,351,978; and 1,215,779 treasury shares, respectively.................. (193,213) (180,632) (22,168) Capital surplus..................................... 241,079 235,802 235,184 Net unrealized (losses) gains on securities available for sale............................. (3,954) 40,972 (17,806) Retained earnings................................... 402,389 366,514 400,399 ----------- ------------- ----------- Total Shareholders' Equity.......................... 1,502,510 1,518,865 1,509,629 ----------- ------------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $20,137,982 $20,254,598 $18,420,534 =========== ============= =========== 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 MARCH 31, Interest and fee income 1996 1995 ---------------------------- Loans ........................................ $ 290,129 $ 273,109 Securities ................................... 80,653 65,370 Other ........................................ 3,514 3,918 ------------ ------------ TOTAL INTEREST INCOME .............. 374,296 342,397 ------------ ------------ Interest Expense Deposits ..................................... 113,535 95,506 Short-term borrowings ........................ 44,537 47,514 Long-term debt ............................... 31,506 23,168 ------------ ------------ TOTAL INTEREST EXPENSE ............. 189,578 166,188 ------------ ------------ NET INTEREST INCOME ................ 184,718 176,209 ------------ ------------ Provision for loan losses ......................... 11,823 4,608 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 172,895 171,601 ------------ ------------ Total non-interest income (1) ..................... 68,162 57,887 Total non-interest expense (1) .................... 143,496 144,641 ------------ ------------ INCOME BEFORE INCOME TAXES ......... 97,561 84,847 Provision for income taxes ........................ 34,736 29,985 ------------ ------------ NET INCOME ......................... $ 62,825 $ 54,862 ============ ============ PER COMMON SHARE (2) Net income ................................... $ 0.47 $ 0.39 Cash dividends declared ...................... $ 0.20 $ 0.19 AVERAGE COMMON SHARES OUTSTANDING ................. 135,054,096 140,192,042 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 distributed July 31, 1995.
3 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET UNREALIZED GAINS (LOSSES) COMMON COMMON TREASURY TREASURY CAPITAL ON RETAINED SHARES STOCK SHARES STOCK SURPLUS SECURITIES EARNINGS TOTAL - ----------------------------------------------- ------- ------------ -------- ---------- -------- -------- -------- ----------- Three Months Ended March 31, 1995: Balance, beginning of period 131,120 $ 912,318 (905) ($ 16,577) $215,084 ($63,289) $364,284 $1,411,820 Stock issued for acquisition 3,279 1,690 19,947 (985) 8,474 29,126 Net income 54,862 54,862 Cash dividends declared ($.19 per share) (25,986) (25,986) Stock options exercised 19 337 116 (398) 55 Treasury shares purchased (957) (17,331) (17,331) Treasury shares sold: Shareholder dividend reinvestment plan 425 7,780 6 (792) 6,994 Employee benefit plans 202 3,623 31 (45) 3,609 Conversion of convertible notes 1 12 12 Change in net unrealized gains (losses) on securities available for sale 46,468 46,468 -------- ----------- -------- --------- -------- -------- -------- ---------- Balance, end of period 134,400 $ 914,020 (1,216) ($ 22,168) $235,184 ($17,806) $400,399 $1,509,629 ======== =========== ======== ========= ======== ======== ======== ========== Three Months Ended March 31, 1996: Balance, beginning of period 141,403 $ 1,056,209 (8,352) ($180,632) $235,802 $ 40,972 $366,514 $1,518,865 Stock issued for acquisition 4,733 102,760 5,037 107,797 Net income 62,825 62,825 Cash dividends declared ($.20 per share) (26,950) (26,950) Stock options exercised 19 376 (298) 78 Treasury shares purchased (5,189) (124,313) (124,313) Treasury shares sold: Shareholder dividend reinvestment plan 326 7,050 390 7,440 Employee benefit plans 71 1,546 148 1,694 Change in net unrealized gains (losses) on securities available for sale (44,926) (44,926) -------- ----------- -------- --------- -------- -------- -------- ---------- Balance, end of period 141,403 $ 1,056,209 (8,392) ($193,213) $241,079 ($ 3,954) $402,389 $1,502,510 ======== =========== ======== ========= ======== ======== ======== ==========
See notes to consolidated financial statements. 4
- ---------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED MARCH 31, 1996 1995 ------------ ------------- OPERATING ACTIVITIES Net Income ........................................................... $ 62,825 $ 54,862 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses .................................. 11,823 4,608 Provision for depreciation and amortization ................ 21,178 14,364 Deferred income tax (benefit) expense ...................... (66) 814 Increase in trading account securities ..................... (542) (16,131) Decrease in mortgages held for sale ........................ 4,177 21,593 Net gains on sales of securities ........................... (7,090) (60) Decrease (increase) in accrued income receivable ........... 1,199 (3,590) Net decrease in other assets ............................... 506 14,020 Increase (decrease) in accrued expenses .................... 20,968 (3,703) Net (decrease) increase in other liabilities ............... (374) 71,222 ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 114,604 157,999 ----------- --------- INVESTING ACTIVITIES Decrease in interest bearing deposits in banks ....................... 282,927 1,693 Proceeds from : Maturities and calls of investment securities .................... 6,061 24,091 Maturities and calls of securities available for sale ............ 69,208 109,170 Sales of securities available for sale ........................... 1,032,686 603,745 Purchases of securities available for sale ........................... (1,060,567) (664,461) Proceeds from sales of loans ......................................... 35,657 -- Net loan originations, excluding sales ............................... (37,302) (423,254) Proceeds from disposal of premises and equipment ..................... 522 111 Purchases of premises and equipment .................................. (11,769) (5,498) Proceeds from sales of other real estate ............................. 2,299 18,244 Net cash received from purchase of subsidiaries ...................... 631 33,463 ----------- --------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 320,353 (302,696) ----------- --------- FINANCING ACTIVITIES Decrease in total deposits ........................................... (61,715) (20,322) (Decrease) increase in short-term borrowings ......................... (377,841) 185,448 Proceeds from issuance of long-term debt ............................. 200,000 50,000 Payment of long-term debt ............................................ (317,275) (11,065) Dividends paid on common stock ....................................... (26,589) (25,708) Acquisition of treasury stock ........................................ (124,313) (17,331) Proceeds from issuance of treasury stock ............................. 9,212 10,658 ----------- --------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (698,521) 171,680 ----------- --------- CHANGE IN CASH AND CASH EQUIVALENTS ................ (263,564) 26,983 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 1,058,489 890,656 ----------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 794,925 $ 917,639 =========== =========
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 1995 Annual Report to Shareholders should be read in conjunction with these interim financial statements. B. On January 1, 1996, Huntington adopted Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121). The Statement prescribes the accounting for the impairment of long-lived assets and goodwill related to those assets. The new rules specify when assets should be reviewed for impairment, how to determine whether an asset or group of assets is impaired, how to measure an impairment loss, and what financial statement disclosures are necessary. Also prescribed is the accounting for long-lived assets and identifiable intangibles that a company plans to dispose of, other than those that are part of a discontinued operation. Any impairment of a long-lived asset resulting from management's review is to be recognized as a component of non-interest expense. The adoption of FAS 121 did not have a material effect on Huntington's consolidated financial statements. C. Huntington acquired Peoples Bank of Lakeland (Lakeland), a $551 million commercial bank headquartered in Lakeland, Florida, on January 23, 1996. Huntington paid $46.2 million in cash and issued approximately 4.7 million shares of common stock in exchange for all the common stock of Lakeland. The transaction was accounted for as a purchase; accordingly, the results of Lakeland have been included in the consolidated financial statements from the date of acquisition. 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 1996 presentation. These reclassifications had no effect on net income. 6 - ------------------------------------------------------------ FINANCIAL REVIEW - ------------------------------------------------------------ LOAN PORTFOLIO COMPOSITION - ------------------------------------------------------------
- ------------------------------------------------------------ (in thousands of dollars) MARCH 31, DECEMBER 31, MARCH 31, 1996 1995 1995 ----------- ----------- ----------- Commercial................................. $ 4,243,363 $ 4,190,237 $ 3,962,921 Real Estate................................ Construction.......................... 374,178 367,889 325,736 Commercial............................ 1,614,090 1,578,891 1,457,381 Residential........................... 1,148,113 1,176,715 1,668,562 Consumer................................... 5,078,645 5,094,036 4,726,277 Lease financing............................ 910,919 853,899 676,786 ----------- ----------- ----------- TOTAL LOANS .......................... $13,369,308 $13,261,667 $12,817,663 =========== =========== ===========
- ------------------------------------------------------------ DEPOSIT COMPOSITION - ------------------------------------------------------------
(in thousands of dollars) MARCH 31, DECEMBER 31, MARCH 31, 1996 1995 1995 ----------- ----------- ----------- Demand deposits Non-interest bearing ................. $ 2,010,396 $ 2,088,074 $ 2,147,204 Interest bearing ..................... 2,873,281 2,772,845 2,553,270 Savings deposits .......................... 2,486,925 2,207,378 2,134,725 Certificates of deposit of $100,000 or more 990,825 909,403 725,822 Other domestic time deposits .............. 4,447,207 4,384,949 4,356,152 Foreign time deposits ..................... 197,579 273,933 271,406 ----------- ----------- ----------- TOTAL DEPOSITS ....................... $13,006,213 $12,636,582 $12,188,579 =========== =========== ===========
7 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST INCOME - --------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED MARCH 31, PERCENT 1996 1995 CHANGE - -------------------------------------------------------------------------------- Service charges on deposit accounts $22,461 $22,514 (0.24)% Mortgage banking .................. 8,877 9,573 (7.27) Trust services .................... 8,793 8,055 9.16 Securities gains .................. 7,090 60 N.M. Credit card fees .................. 4,836 3,945 22.59 Investment product sales .......... 3,239 1,699 90.64 Electronic banking fees ........... 1,666 954 74.63 Other ............................. 11,200 11,087 1.02 ------- ------- TOTAL NON-INTEREST INCOME ......... $68,162 $57,887 17.75% ======= =======
- -------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST EXPENSE - --------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED MARCH 31, PERCENT 1996 1995 CHANGE - -------------------------------------------------------------------------------- Salaries .......................... $ 55,819 $ 56,108 (0.52)% Commissions ....................... 3,607 1,688 113.68 Employee benefits ................. 17,216 15,661 9.93 Net occupancy ..................... 10,874 10,686 1.76 Equipment ......................... 9,614 9,802 (1.92) Credit card ....................... 3,572 3,118 14.56 Printing and supplies ............. 3,495 3,572 (2.16) Advertising ....................... 2,865 3,031 (5.48) Legal and loan collection.......... 1,894 2,123 (10.79) FDIC insurance .................... 519 6,536 (92.06) Other ............................. 34,021 32,316 5.28 -------- -------- TOTAL NON-INTEREST EXPENSE......... $143,496 $144,641 (0.79)% ======== ======== N.M. - Not meaningful
8 Management's Discussion and Analysis - ------------------------------------ OVERVIEW Huntington reported net income of $62.8 million, or $.47 per share, for the first quarter of 1996 compared with $54.9 million, or $.39 per share, for the same period last year. Though Huntington anticipates earnings per share for all of 1996 to exceed the previous year, the 20.5% increase in the first quarter is higher than what is expected for the entire year due to net income in the second half of 1995 being much stronger than last year's first six months. Returns on average assets and average equity were 1.26% and 16.02%, respectively, in the most recent quarter versus 1.23% and 15.08% in the first three months of 1995. Total assets were $20.1 billion at March 31, 1996, relatively flat with year end but up 9.3% from one year ago. In terms of asset composition, the recent quarter end balance sheet reflects a large decrease in temporary investments from December 31, 1995, that was substantially offset by increases in securities and loans arising from the acquisition of Peoples Bank of Lakeland, Florida (Lakeland) in January 1996. The growth in investments from the first quarter of 1995 was the result of programs directed by Huntington's Asset/Liability Management Committee (ALCO) in the second half of last year to neutralize the interest rate risk exposure arising from customer-driven business sectors. Huntington also experienced solid loan growth over the past twelve months. Excluding the effects of $340 million of principally fixed-rate residential mortgage loans that were sold in the recent two quarters, average total loans increased 8.2%. Total deposits grew 2.9% from year-end 1995, in large part because of the Lakeland acquisition, and 6.7% from the same time one year ago. Huntington's short-term and long-term borrowings decreased during the quarter just ended as a result of the reduced temporary 9 investments referred to above. Borrowings have increased from the end of the first quarter of last year because of bank notes issued by Huntington and other funds obtained in the wholesale market to support the higher asset base. Huntington issued 4.7 million common shares and paid cash of $46.2 million in exchange for all of Lakeland's common shares outstanding. As the business combination was recorded under the purchase method of accounting, the results of Lakeland have been included in the consolidated financial statements from the date of acquisition. The $551 million of assets arising from the Lakeland transaction brings Huntington's total assets in Central and West Coast Florida to $1.2 billion. Shareholders' equity was flat with both December 31 and March 31, 1995. Huntington continues to maintain an appropriate balance between capital adequacy and returns to shareholders. A primary tool used by management in this regard has been the common stock repurchase program. At the most recent quarter-end, Huntington's regulatory capital ratios, including those of its bank subsidiaries, exceeded the levels established for well-capitalized institutions. (See "Capital" section for further information). RESULTS OF OPERATIONS NET INTEREST INCOME Huntington reported net interest income of $184.7 million for the three months ended March 31, 1996, up from $176.2 million in the same period of 1995. The increase was principally attributable to growth in earning assets of 10.2%. The net interest margin was 4.03% during the recent quarter, 5 basis points higher than the immediately preceding quarter but 23 basis points less than the first three months of 1995. The lower margin from one year ago was 10 the result of increased deposit rates (partially offset by reduced wholesale funding rates), a reduced yield on the investment securities portfolio, and a change in the mix of earning assets. For the quarter just ended, interest rate swaps and other off-balance sheet financial instruments used for asset/liability management purposes reduced interest income by $9.1 million and increased interest expense by $6.0 million. These products decreased interest income by $4.5 million and increased interest expense by $7.0 million in the same period one year ago. Included in the preceding amounts is amortization of deferred gains and losses from terminated contracts, that decreased net interest income by $10.2 million in 1996 and $3.9 million in 1995. Expressed in terms of the margin, the effect of the off-balance sheet portfolio was a reduction of 33 basis points and 28 basis points for the respective quarters ended March 31, of which 21 basis points and 10 basis points related to amortization of net losses from closed positions. A swap strategy used by Huntington to create synthetic fixed rate wholesale liabilities, while lowering funding costs from what would have resulted from a comparable cash instrument, resulted in the majority of the remaining margin reduction attributable to the off-balance sheet portfolio. NON-INTEREST INCOME Non-interest income, excluding securities transactions, was $61.1 million for the first three months of 1996 compared with $57.8 million during the same period one year ago. The 5.7% increase was driven by higher fee income from retail investment sales, credit cards, trust, and electronic banking services. Mortgage banking income was $8.9 million in the first quarter of 1996 versus $9.6 million for the quarter ended March 31, 1995. Net servicing fees were down $1.2 million due to a reduction in the average volume of loans serviced for others by Huntington as a result of large servicing sales that occurred in 1995. The decrease in servicing income was partially offset by 11 more origination fees, as mortgage loan production increased from $163 million in the first three months of 1995 to $355 million in the quarter just ended. Gains from servicing sales were $4.2 million lower quarter-to-quarter, as Huntington sold no servicing rights in 1996, compared with $350 million sold in the same period last year. Substantially mitigating the effect of the reduced gains from servicing sales were gains from the sale of certain portfolio loans and the positive impact of a new accounting standard adopted by Huntington in third quarter 1995 related to the capitalization of mortgage servicing rights. At the recent quarter end, the mortgage loan servicing portfolio (including loans serviced by Huntington on its own behalf) totaled $5.7 billion. Huntington realized income from securities transactions of $7.1 million in the recent quarter. These gains resulted principally from collateralized mortgage obligations and mortgage backed securities that were sold to reduce price and/or prepayment risk. NON-INTEREST EXPENSE Non-interest expense in the first three months of 1996 was $143.5 million, a slight decline from $144.6 million one year ago. Most major categories of non-interest expense were flat to down with FDIC insurance showing the biggest decrease, as Huntington benefited from the reduction in assessment rates on bank deposits that occurred in the latter part of 1995. This was largely offset by higher commissions and increased personnel costs related to corporate-sponsored retirement and benefit programs, as well as certain other costs following the Lakeland acquisition. Fringe benefit costs are typically higher early in the year and trend downward in subsequent quarters. 12 INTEREST RATE RISK MANAGEMENT INTEREST RATE RISK MANAGEMENT Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. ALCO oversees risk management, establishing broad policies and specific operating limits that govern a variety of risks inherent in Huntington's operations including interest rate, liquidity, price, and market risks. On and off-balance sheet strategies and tactical programs are reviewed and monitored regularly by ALCO to ensure consistency with approved risk tolerances. Interest rate risk management is a dynamic process, encompassing both the business flows onto the balance sheet and the changing market and business environment. Effective management of interest rate risk begins with appropriately diversified financial instruments and funding sources. To accomplish its overall balance sheet objectives, Huntington regularly uses a multiple of markets: money market, bond market, and futures and options market. In addition, dealers in over-the-counter financial instruments provide availability of interest rate swaps as needed. Measurement and monitoring of interest rate risk is an ongoing process. A key element in this process is Huntington's estimation of the amount that net interest income will change over a twelve to twenty-four month period given a directional shift in interest rates. The income simulation model used by Huntington captures all assets and liabilities and off-balance sheet financial instruments, accounting for significant variables which are believed to be affected by interest rates. These include prepayment speeds on real estate mortgages and consumer installment credits, cash flow assumptions on other financial instruments, and changing balance 13 sheet volume assumptions. The model captures embedded options, e.g. interest rate caps and floors or call options, and accounts for changes in rate relationships as various rate indices lead and lag changes in short-term market rates. While these assumptions are inherently uncertain, management believes that the model provides an accurate indication of the company's interest rate risk exposure and is a more relevant depiction of interest rate risks than less sophisticated measures. Management reporting of this information is regularly shared with the Board of Directors. At March 31, 1996, the results of Huntington's internal interest sensitivity analysis indicated that net interest income would be relatively unchanged by a 100 basis points increase or decrease in the federal funds rate (assuming the change occurs evenly over the next year and that corresponding changes in other market rates occur as forecasted). Net interest income is expected to increase 1.5% if rates were to fall 200 basis points. A 200 basis points rise in rates could result in a decline in net interest income of 2.7%. Active interest rate risk management includes the use of various types of off-balance sheet financial instruments, primarily interest rate swaps. For example, risk created by different indices on assets and liabilities, by unequal terms to maturity of assets and liabilities, and by products that are appealing to customers but incompatible with current risk limits are but a few risks that can be eliminated or decreased in a cost efficient manner. The swap strategy has also enabled Huntington to lower the costs of raising wholesale funds. Other off-balance sheet financial instruments used to control risk effectively include financial futures, interest rate caps and floors, options, and forward rate agreements. These instruments are used regularly in mortgage banking, securities investing, and wholesale funding. The use of these products versus similar cash instruments is often preferable because, though 14 they perform financially quite similarly, they may require less capital and preserve access to the marketplace for future needs. 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. At March 31, 1996, forward rates were somewhat higher than those prevailing at the recent year end. Consequently, the interest rate swap portfolio ended the first quarter with an unrealized loss of $9.5 million versus a $10.9 million unrealized gain at December 31. 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. For purposes of the variable rate information and the indexed amortizing swap maturities presented in the table below, management made no assumptions with respect to future changes in interest rates.
Average Average Rate Notional Maturity Market -------------- (dollars in millions) Value (years) Value Receive Pay - --------------------- ----- ------- ----- ------- --- March 31, 1996: ASSET CONVERSION SWAPS Receive fixed $ 875 2.32 $ (3.5) 5.70% 5.39% Receive fixed-amortizing 99 2.25 (1.1) 5.27 5.50 ------ ------- TOTAL ASSET CONVERSION SWAPS $ 974 2.31 $ (4.6) 5.65% 5.40% ====== ======= LIABILITY CONVERSION SWAPS Receive fixed $1,401 2.71 $ 12.7 5.90% 5.40% Receive fixed-amortizing 197 3.25 (4.6) 5.63 5.40 Pay fixed 1,801 .46 (12.7) 5.48 7.15 ------ ------- TOTAL LIABILITY CONVERSION SWAPS $3,399 1.55 $ (4.6) 5.67% 6.33% ====== ======= BASIS PROTECTION SWAPS $ 250 2.95 $ (.3) 5.38% 5.58% ====== =======
15 The pay rates on Huntington's receive fixed swaps vary based on movements in the applicable London inter-bank offered rate (LIBOR). Receive fixed liability conversion swaps with a notional value of $150 million have embedded written LIBOR-based caps. Also, receive fixed asset conversion swaps with a notional value of $200 million have embedded written LIBOR-based call options. The portfolio of amortizing swaps consists of contracts with notional values that are indexed to the prepayment experience of a specified pool of mortgage loans or Constant Maturity U.S. Treasury yields (CMT). 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 and are used to protect against changes in spreads. The receive and pay amounts applicable to Huntington's basis swaps are determined by LIBOR or other indices common to the banking industry. 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 March 31, 1996, Huntington's credit risk from interest rate swaps used for asset/liability management purposes was $42.2 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 16 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 three months of 1996 and 1995:
Asset Liability Basis Conversion Conversion Protection --------------------------------- (in millions) Balance at December 31, 1995 $ 1,115 $ 3,142 $ 250 Additions 175 500 -- Maturities/Amortization (13) (243) -- Terminations (303) -- -- ------- ------- ------- Balance at March 31, 1996 $ 974 $ 3,399 $ 250 ======= ======= ======= 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 ======= ======= =======
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. At March 31, 1996, Huntington had deferred approximately $27.8 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. 17
Amortizing In -------------------------------------- 1996 1997 1998 1999 Total ---- ---- ---- ---- ----- (in millions) MARCH 31, 1996: Deferred gains $ 10.6 $ 8.3 $ 7.0 $ 5.7 $ 31.6 Deferred losses (38.3) (19.4) (1.3) (.4) (59.4) ------- ------- ------ ------ ------- Net (losses) gains $ (27.7) $ (11.1) $ 5.7 $ 5.3 $ (27.8) ======= ======= ====== ====== =======
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 $452 million at March 31, 1996. Total credit exposure from such contracts, represented by those instruments with a positive fair value, was $1.3 million at the 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 above discussion of off-balance sheet financial instruments and the related tables. ASSET QUALITY Huntington's exposure to credit risk is managed through the use of underwriting standards which emphasize "in-market" lending to established borrowers. Highly leveraged transactions and excessive industry or other concentrations are avoided. The credit administration function also employs extensive monitoring procedures to ensure that problem loans are promptly identified and that loans adhere to corporate policy. These procedures provide executive management with the information necessary to implement appropriate change and take corrective action as needed. Asset quality continues to be strong. Non-performing loans, which include loans that are no longer accruing interest and loans that have been renegotiated based upon financial difficulties of the borrower, totaled $63.1 million at the most recent quarter end and represented .47% of 18 total loans. Huntington also has certain loans which are past due ninety days or more but have not been placed on nonaccrual status. These loans, which total $25.8 million at March 31, 1996, are primarily consumer and residential real estate loans that are considered well-secured and in the process of collection or are being extended. Other real estate owned (ORE) totaled $20.3 million at the end of the first three months of 1996, down from $26.6 million at the same time last year. Huntington's management continues to aggressively pursue the sale of its ORE to further reduce these non-performing assets. 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 in evaluating the adequacy of the ALL include an analysis of specific credits that are generally selected for review on the basis of size and relative risk, portfolio trends, current and historical loss experience, prevailing economic conditions, and other relevant factors. The provision for loan losses was $11.8 million in the first three months of 1996 versus $4.6 million in the same period one year ago. Annualized net charge-offs as a percent of average total loans were .34% for the quarter just ended, roughly flat with full year 1995. At the recent quarter end, the ALL represented 1.48% of total loans and covered 312.8% of non-performing loans; when combined with the allowance for other real estate, it was 225% of total non-performing 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 the ability to capitalize on business growth and acquisition opportunities. The company also recognizes the importance of managing excess capital and continually strives to maintain an 19 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. Average equity to average assets was 7.89% in the first quarter of 1996, compared with 8.15% in the same period last year. Presented below are Huntington's regulatory capital ratios and the related levels established for "well-capitalized" institutions:
March 31, 1996 "Well Capitalized" -------------- ------------------ Tier 1 risk-based capital 7.94% 6.00% Total risk-based capital 11.53 10.00 Leverage 6.62 5.00
On February 21, 1996, the Board of Directors authorized Huntington to repurchase up to 10 million additional shares of its common stock through open market purchases and privately negotiated transactions. The authorization represents a continuation of the common stock repurchase program begun in August 1987 and provides that the shares will be reserved for reissue in connection with Huntington's benefit plans as well as for other corporate purposes. The company acquired 5.2 million shares in the quarter just ended at an aggregate cost of $124.3 million, leaving 8.7 million shares available for repurchase. Huntington's management believes the remaining authorized shares will be repurchased by the end of 1997. 20
_____________________________________________________________________________________ CONSOLIDATED FINANCIAL HIGHLIGHTS - ----------------------------------------------------------------------------------------------- (in thousands of dollars, except per share amounts) - -------------------------------------------- ----------- ----------- --------- THREE MONTHS ENDED MARCH 31, 1996 1995 % CHANGE ----------- ----------- --------- NET INCOME.................................. $62,825 $54,862 14.5 % PER COMMON SHARE AMOUNTS (1)............... Net income............................. $0.47 $0.39 20.5 Cash dividends declared................ $0.20 $0.19 5.3 AVERAGE SHARES OUTSTANDING (1)............. 135,054,096 140,192,042 (3.7) KEY RATIOS Return on: Average total assets................... 1.26% 1.23% 2.4 Average shareholders' equity........... 16.02% 15.08% 6.2 Efficiency ratio............................ 58.24% 61.90% (5.9) Average equity/average assets............... 7.89% 8.15% (3.2) Net Interest Margin......................... 4.03% 4.26% (5.4) - -------------------------------------------- ----------- ----------- --------- AT MARCH 31, 1996 1995 % CHANGE ----------- ----------- --------- Total Loans................................. $13,369,308 $12,817,663 4.3 % Total Deposits.............................. $13,006,213 $12,188,579 6.7 Total Assets................................ $20,137,982 $18,420,534 9.3 Shareholders' Equity........................ $1,502,510 $1,509,629 (0.5) Period-End Shares Outstanding (1)........... 133,010,323 139,843,779 (4.9) Shareholders' Equity Per Common Share (1)... $11.30 $10.80 4.6 Total Risk-Adjusted Assets.................. $16,618,923 $14,895,301 11.6 Tier 1 Risk-Based Capital Ratio............. 7.94% 9.58% (17.1) Total Risk-Based Capital Ratio.............. 11.53% 13.51% (14.7) Tier 1 Leverage Ratio....................... 6.62% 7.81% (15.2) (1) Adjusted for the five percent stock dividend distributed July 31, 1995.
21
__________________________________________________________________________________ FINANCIAL REVIEW - ------------------------------------------------------------------------------------------------------------ INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1996 AND DECEMBER 31, 1995 - ---------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, 1996 December 31, 1995 - ------------------------------------------------------------------------------------------------------------ AMORTIZED COST FAIR VALUE Amortized Cost Fair Value U.S. Treasury 1-5 years...................... $156 $156 $156 $156 ------- ------- ------- ------- Total....................... 156 156 156 156 ------- ------- ------- ------- States and political subdivisions Under 1 year................... 29,488 29,805 27,340 27,592 1-5 years...................... 21,924 22,552 23,637 24,496 6-10 years..................... 18,619 18,789 12,638 13,040 Over 10 years.................. 4,026 4,090 3,833 3,912 ------- ------- ------- ------- Total....................... 74,057 75,236 67,448 69,040 ------- ------- ------- ------- Total Investment Securities......... $74,213 $75,392 $67,604 $69,196 ======= ======= ======= =======
22
_______________________________________________________________________________ FINANCIAL REVIEW - ----------------------------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1996 AND DECEMBER 31, 1995 - ----------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, 1996 December 31, 1995 - ----------------------------------------------------------------------------------------------------------------------- AMORTIZED COST FAIR VALUE Amortized Cost Fair Value _______________________________________________________________________________________________________________________ U.S. Treasury Under 1 year......................... $178,980 $180,191 $176,502 $178,264 1-5 years............................ 525,996 517,515 228,234 231,018 6-10 years........................... 162,265 153,987 162,352 160,596 ---------- ---------- ---------- ---------- Total............................. 867,241 851,693 567,088 569,878 ---------- ---------- ---------- ---------- Federal agencies Mortgage-backed securities Under 1 year......................... 1,156 1,167 1,097 1,124 1-5 years............................ 81,432 84,440 110,192 114,723 6-10 years........................... 819,997 821,075 712,804 724,317 Over 10 years........................ 7,822 8,187 58,762 60,695 ---------- ---------- ---------- ---------- Total............................. 910,407 914,869 882,855 900,859 ---------- ---------- ---------- ---------- Other agencies Under 1 year......................... 123,365 124,413 53,912 54,499 1-5 years............................ 1,819,936 1,821,039 1,928,431 1,953,446 6-10 years........................... 199,152 197,355 234,393 234,920 Over 10 years........................ 472,981 472,046 509,735 514,568 ---------- ---------- ---------- ---------- Total............................. 2,615,434 2,614,853 2,726,471 2,757,433 ---------- ---------- ---------- ---------- Total U.S. Treasury and Federal agencies.. 4,393,082 4,381,415 4,176,414 4,228,170 ---------- ---------- ---------- ---------- Other Under 1 year......................... 951 983 6,818 6,826 1-5 years............................ 20,471 21,450 22,352 23,578 6-10 years........................... 261,260 267,799 230,651 240,965 Over 10 years........................ 276,951 275,972 212,950 214,605 Marketable equity securities......... 8,359 6,958 8,359 7,000 ---------- ---------- ---------- ---------- Total............................. 567,992 573,162 481,130 492,974 ---------- ---------- ---------- ---------- Total Securities Available for Sale....... $4,961,074 $4,954,577 $4,657,544 $4,721,144 ========== ========== ========== ==========
23
________________________________________________________________________________ FINANCIAL REVIEW ____________________________________________________________________________________________________________________________ LOAN LOSS EXPERIENCE ____________________________________________________________________________________________________________________________ (in thousands of dollars) 1996 1995 ------------------------------------------------------------------- IQ IVQ IIIQ IIQ IQ -------- ---------------------------------------------------- ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ..... $194,456 $198,573 $198,264 $201,088 $200,492 Loan losses ........................................ (15,707) (21,500) (13,557) (10,718) (9,793) Recoveries of loans previously charged off ......... 4,603 3,494 3,222 3,312 3,956 Provision for loan losses .......................... 11,823 12,139 7,187 4,787 4,608 Allowance of assets acquired (sold)/other .......... 2,200 1,750 3,457 (205) 1,825 -------- -------- ---------- -------- --------- ALLOWANCE FOR LOAN LOSSES, END OF PERIOD ........... $197,375 $194,456 $198,573 $198,264 $201,088 ======== ======== ========== ======== ========= AS A % OF AVERAGE TOTAL LOANS Net loan losses -- annualized .................... 0.34% 0.53% 0.31% 0.23% 0.19% Provision for loan losses -- annualized .......... 0.36% 0.36% 0.22% 0.15% 0.15% Allowance for loan losses as a % of total loans .... 1.48% 1.47% 1.48% 1.51% 1.57% Net loan loss coverage (1) ......................... 9.85x 6.19x 10.54x 13.15x 15.33x (1) Income before taxes and the provision for loan losses to net loan losses. ____________________________________________________________________________________________________________________________ NON-PERFORMING ASSETS AND PAST DUE LOANS (Quarter-End) 1996 1995 (in thousands of dollars) ------------------------------------------------------------------- IQ IVQ IIIQ IIQ IQ -------- ---------------------------------------------------- Non-accrual loans .................................. $57,530 $50,669 $41,997 $41,554 $41,576 Renegotiated loans ................................. 5,578 4,299 4,313 13,424 11,568 -------- -------- ---------- -------- --------- TOTAL NON-PERFORMING LOANS ......................... 63,108 54,968 46,310 54,978 53,144 -------- -------- ---------- -------- --------- Other real estate, net ............................. 20,386 22,026 23,668 24,029 26,558 -------- -------- ---------- -------- --------- TOTAL NON-PERFORMING ASSETS ........................ $83,494 $76,994 $69,978 $79,007 $79,702 ======== ======== ========== ========= ========= NON-PERFORMING LOANS AS A % OF TOTAL LOANS ................................. 0.47% 0.41% 0.34% 0.42% 0.41% NON-PERFORMING ASSETS AS A % OF TOTAL LOANS AND OTHER REAL ESTATE ........... 0.62% 0.58% 0.52% 0.60% 0.62% ALLOWANCE FOR LOAN LOSSES AS A % OF NON-PERFORMING LOANS ............................. 312.76% 353.76% 428.79% 360.62% 378.38% ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE AS A % OF NON-PERFORMING ASSETS ........... 225.01% 238.65% 263.26% 234.30% 235.10% ACCRUING LOANS PAST DUE 90 DAYS OR MORE ............ $25,824 $27,018 $24,001 $20,685 $19,771 ======== ======== ========= ======== ========
24 _____________________________________________________________________________ CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- -------------------------------------------------------------------------------------------------------------------------- Fully Tax Equivalent Basis (1) 1ST QUARTER 1996 4TH QUARTER 1995 (in millions of dollars) ------------------ ------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE ------------------ ------------------- ASSETS Interest bearing deposits in banks................................. $39 5.70 % $74 6.10 % Trading account securities......................................... 19 5.64 20 6.88 Federal funds sold and securities purchased ....................... 27 6.19 48 5.52 under resale agreements Mortgages held for sale............................................ 127 7.18 129 6.78 Securities: Taxable....................................................... 4,835 6.55 4,550 6.74 Tax exempt.................................................... 106 9.09 110 10.04 -------- -------- Total Securities......................................... 4,941 6.60 4,660 6.82 -------- -------- Loans Commercial.................................................... 4,212 7.76 4,178 7.91 Real Estate Construction............................................. 364 8.52 369 8.54 Mortgage................................................. 2,760 8.48 3,011 8.56 Consumer...................................................... 5,079 8.99 5,099 8.97 Lease Financing.............................................. 880 7.90 826 7.93 -------- -------- Total Loans.............................................. 13,295 8.41 13,483 8.53 Allowance for loan losses................................ 198 198 -------- -------- Net loans................................................ 13,097 8.87 13,285 8.93 -------- -------- Total earning assets..................................... 18,448 8.14 % 18,414 8.26 % -------- -------- Cash and due from banks............................................ 746 766 All other assets................................................... 988 895 -------- -------- TOTAL ASSETS....................................................... $19,984 $19,877 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits Non-interest bearing.......................................... $2,391 $2,241 Interest bearing.............................................. 2,506 2.53 % 2,514 2.48 % Savings deposits................................................... 2,249 3.03 2,084 2.93 Certificates of deposit of $100,000 or more........................ 977 5.52 926 5.68 Other domestic time deposits....................................... 4,458 5.69 4,458 5.76 Foreign time deposits.............................................. 268 6.15 189 6.50 -------- ------- Total deposits................................................ 12,849 4.36 12,412 4.38 -------- -------- Short-term borrowings.............................................. 3,078 5.72 3,682 5.91 Long-term debt..................................................... 2,016 6.20 1,850 6.76 -------- -------- Interest bearing liabilities.................................. 15,552 4.87 % 15,703 5.02 % -------- -------- All other liabilities.............................................. 464 447 Shareholders' equity............................................... 1,577 1,486 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,984 $19,877 ======== ======== Net interest rate spread........................................... 3.27 % 3.24 % Impact of non-interest bearing funds on margin..................... 0.76 % 0.74 % NET INTEREST MARGIN................................................ 4.03 % 3.98 % (1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
25 CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
__________________________________________________________________________________________________________________________________ Fully Tax Equivalent Basis (1) 3RD QUARTER 1995 2ND QUARTER 1995 1ST QUARTER 1995 (in millions of dollars) ----------------- ----------------- ------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE BALANCE RATE ----------------- ----------------- ------------------- Assets Interest bearing deposits in banks............................ $2 5.73 % $3 5.03 % $3 4.50 % Trading account securities.................................... 24 7.54 23 8.07 27 6.68 Federal funds sold and securities purchased under resale agreement........................................... 22 7.49 70 6.70 45 6.56 Mortgages held for sale....................................... 174 7.73 109 7.52 106 8.42 Securities: Taxable.................................................. 4,473 6.76 3,913 6.75 3,819 6.63 Tax exempt............................................... 118 10.55 127 10.29 140 10.28 ------- ------- ------- Total Securities.................................... 4,591 6.86 4,040 6.86 3,959 6.75 ------- ------- ------- Loans Commercial............................................... 4,099 8.13 4,082 8.58 3,832 8.68 Real Estate Construction........................................ 349 8.68 324 8.38 315 8.57 Mortgage............................................ 3,058 8.59 3,100 8.20 3,111 8.09 Consumer................................................. 4,979 9.05 4,805 8.90 4,678 8.58 Lease Financing......................................... 747 7.53 690 7.43 660 7.24 ------- ------- ------- Total Loans......................................... 13,232 8.56 13,001 8.54 12,596 8.42 Allowance for loan losses........................... 198 201 203 ------- ------- ------- Net loans........................................... 13,034 9.04 12,800 9.00 12,393 8.87 ------- ------- ------- Total earning assets................................ 18,045 8.37 % 17,246 8.38 % 16,736 8.26 % ------- ------- ------- Cash and due from banks....................................... 783 796 774 All other assets.............................................. 876 838 798 ------- ------- ------- Total Assets.................................................. $19,506 $18,679 $18,105 ======= ======= ======= Liabilities and Shareholders' Equity Demand deposits Non-interest bearing..................................... $2,194 $2,159 $2,119 Interest bearing......................................... 2,488 2.45 % 2,533 2.45 % 2,622 2.42 % Savings deposits.............................................. 2,020 2.76 2,013 2.68 2,097 2.62 Certificates of deposit of $100,000 or more................... 878 5.78 770 5.84 671 5.59 Other domestic time deposits.................................. 4,467 5.69 4,447 5.54 4,156 5.14 Foreign time deposits......................................... 318 6.32 264 6.57 274 6.31 ------- ------- ------- Total deposits........................................... 12,365 4.34 12,186 4.24 11,939 3.94 ------- ------- ------- Short-term borrowings......................................... 3,786 5.96 3,348 6.13 3,137 5.99 Long-term debt................................................ 1,403 6.36 1,208 7.23 1,246 7.44 ------- ------- ------- Interest bearing liabilities............................. 15,360 4.92 % 14,583 4.93 % 14,203 4.71 % ------- ------- ------- All other liabilities......................................... 416 390 308 Shareholders' equity.......................................... 1,536 1,547 1,475 ------- ------- ------- Total Liabilities and Shareholders' Equity $19,506 $18,679 $18,105 ======= ======= ======= Net interest rate spread...................................... 3.45 % 3.45 % 3.55 % Impact of non-interest bearing funds on margin................ 0.73 % 0.76 % 0.71 % Net Interest Margin........................................... 4.18 % 4.21 % 4.26 % (1) Fully tax equivalent yields are calculated assuming a 35% tax
26 _______________________________________________ SELECTED QUARTERLY INCOME STATEMENT DATA
_________________________________________________________________________________________________________ 1996 1995 ---- ------------------------------------------ (in thousands of dollars, except per share amounts) IQ IVQ IIIQ IIQ IQ - --------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME.................... $374,296 $381,437 $377,859 $360,203 $342,397 TOTAL INTEREST EXPENSE................... 189,578 199,551 191,281 180,313 166,188 -------- -------- -------- -------- -------- NET INTEREST INCOME...................... 184,718 181,886 186,578 179,890 176,209 Provision for loan losses................ 11,823 12,139 7,187 4,787 4,608 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.............. 172,895 169,747 179,391 175,103 171,601 -------- -------- -------- -------- -------- Service charges on deposit accounts...... 22,461 21,008 21,109 20,487 22,514 Mortgage banking ........................ 8,877 9,752 8,274 6,613 9,573 Trust services .......................... 8,793 7,424 7,312 7,586 8,055 Securities gains ........................ 7,090 302 2,315 6,379 60 Credit card fees ........................ 4,836 5,450 4,669 4,399 3,945 Investment product sales ................ 3,239 2,292 2,159 1,971 1,699 Electronic banking fees ................. 1,666 1,740 1,270 1,068 954 Other ................................... 11,200 18,830 12,692 10,021 11,087 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME ............... 68,162 66,798 59,800 58,524 57,887 -------- -------- -------- -------- -------- Salaries ................................ 55,819 54,695 54,391 54,974 56,108 Commissions ............................. 3,607 3,149 3,074 1,932 1,688 Employee benefits ....................... 17,216 12,752 13,958 15,419 15,661 Net occupancy ........................... 10,874 10,459 10,039 10,079 10,686 Equipment ............................... 9,614 9,406 9,470 9,593 9,802 Credit card ............................. 3,572 3,695 3,398 3,196 3,118 Printing and supplies ................... 3,495 3,705 3,508 3,362 3,572 Advertising ............................. 2,865 2,179 3,149 2,912 3,031 Legal and loan collection ............... 1,894 2,758 1,857 1,905 2,123 FDIC insurance .......................... 519 1,820 151 6,549 6,536 Other ................................... 34,021 32,646 34,451 31,131 32,316 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE .............. 143,496 137,264 137,446 141,052 144,641 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES .............. 97,561 99,281 101,745 92,575 84,847 Provision for income taxes .............. 34,736 33,752 35,808 34,414 29,985 -------- -------- -------- -------- -------- NET INCOME .............................. $62,825 $65,529 $65,937 $58,161 $54,862 ======== ======== ======== ======== ======== PER COMMON SHARE (1) Net income ............................ $0.47 $0.49 $0.48 $0.42 $0.39 Cash dividends declared ............... $0.20 $0.20 $0.20 $0.19 $0.19 FULLY TAX EQUIVALENT MARGIN: Net Interest Income ..................... $184,718 $181,886 $186,578 $179,890 $176,209 Tax Equivalent Adjustment (2) ........... 1,368 1,523 1,635 1,723 1,885 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income $186,086 $183,409 $188,213 $181,613 $178,094 ======== ======== ======== ======== ======== (1) Adjusted for the five percent stock dividend distributed July 31, 1995. (2) Calculated assuming a 35% tax rate.
27 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 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, filed with the State Department of Assessments and Taxation of the State of Maryland on May 3, 1996. ( ii ) Bylaws -- 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) to 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 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. 11. Computation of Earnings Per Share 27. Financial Data Schedule (b) Reports on Form 8-K 1. A report on Form 8-K, dated January 10, 1996, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the fourth quarter and year ended December 31, 1995. 28 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: May 15, 1996 /s/ Ralph K. Frasier -------------------- Ralph K. Frasier General Counsel and Secretary Date: May 15, 1996 /s/ John D. Van Fleet --------------------- John D. Van Fleet Senior Vice President, Corporate Controller, and Principal Accounting Officer (Chief Accounting Officer) 29