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, 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 145,232,747 shares of Registrant's without par value common stock outstanding on July 31, 1996. 1 PART I. FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
(in thousands of dollars) JUNE 30, DECEMBER 31, JUNE 30, 1996 1995 1995 ---- ---- ---- ASSETS Cash and due from banks ............................ $ 842,384 $ 860,958 $ 861,240 Interest bearing deposits in banks ................. 2,488 284,393 2,746 Trading account securities ......................... 10,935 12,924 18,003 Federal funds sold and securities purchased under resale agreements ............. 463,295 197,531 6,307 Mortgages held for sale ............................ 112,328 159,705 168,711 Securities available for sale - at fair value ...... 4,368,844 4,721,144 4,098,801 Investment securities - fair value $67,226; $69,196; and $434,696 respectively .................... 66,796 67,604 431,862 Total loans (1) .................................... 13,688,675 13,261,667 13,137,593 Less allowance for loan losses ................ 196,486 194,456 198,264 ------------ ------------ ------------ Net loans .......................................... 13,492,189 13,067,211 12,939,329 ------------ ------------ ------------ Premises and equipment ............................. 312,702 296,465 293,005 Customers' acceptance liability .................... 54,830 56,926 56,680 Accrued income and other assets .................... 594,375 529,737 494,084 ------------ ------------ ------------ TOTAL ASSETS ....................................... $ 20,321,166 $ 20,254,598 $ 19,370,768 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1) ................................. $ 13,112,831 $ 12,636,582 $ 12,518,517 Short-term borrowings .............................. 3,440,075 3,514,773 3,681,085 Bank acceptances outstanding ....................... 54,830 56,926 56,680 Long-term debt ..................................... 1,897,287 2,103,024 1,171,089 Accrued expenses and other liabilities ............. 340,847 424,428 371,354 ------------ ------------ ------------ Total Liabilities ............................. 18,845,870 18,735,733 17,798,725 ------------ ------------ ------------ Shareholders' equity Preferred stock - authorized 6,617,808 shares; none outstanding Common stock - without par value; authorized 300,000,000 shares; issued and outstanding 141,402,769; 141,402,769; and 134,631,285 shares, respectively ..................... 1,056,209 1,056,209 915,764 Less 8,641,865; 8,351,978; and 1,819,475 treasury shares, respectively ............ (199,619) (180,632) (34,359) Capital surplus ............................... 239,396 235,802 235,471 Net unrealized (losses) gains on securities available for sale ....................... (61,603) 40,972 24,052 Retained earnings ............................. 440,913 366,514 431,115 ------------ ------------ ------------ Total Shareholders' Equity .................... 1,475,296 1,518,865 1,572,043 ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $ 20,321,166 $ 20,254,598 $ 19,370,768 ============ ============ ============
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 THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, share amounts) Interest and fee income 1996 1995 1996 1995 ---- ---- ---- ---- Loans ............................. $ 295,639 $ 288,058 $ 585,768 $ 561,167 Securities ........................ 76,575 68,095 157,228 133,465 Other ............................. 2,865 4,050 6,379 7,968 ------------ ------------ ------------ ------------ TOTAL INTEREST INCOME .......... 375,079 360,203 749,375 702,600 ------------ ------------ ------------ ------------ Interest Expense Deposits .......................... 112,959 106,152 226,494 201,658 Short-term borrowings ............. 41,743 52,195 86,280 99,709 Long-term debt .................... 31,084 21,966 62,590 45,134 ------------ ------------ ------------ ------------ TOTAL INTEREST EXPENSE .......... 185,786 180,313 375,364 346,501 ------------ ------------ ------------ ------------ NET INTEREST INCOME ............. 189,293 179,890 374,011 356,099 ------------ ------------ ------------ ------------ Provision for loan losses ........... 11,843 4,787 23,666 9,395 ------------ ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 177,450 175,103 350,345 346,704 ------------ ------------ ------------ ------------ Total non-interest income (1) ....... 67,176 58,524 135,338 116,411 Total non-interest expense (1 ....... 145,466 141,052 288,962 285,693 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES ...... 99,160 92,575 196,721 177,422 ------------ ------------ ------------ ------------ Provision for income taxes .......... 34,072 34,414 68,808 64,399 ------------ ------------ ------------ ------------ NET INCOME ...................... $ 65,088 $ 58,161 $ 127,913 $ 113,023 ============ ============ ============ ============ PER COMMON SHARE (2) Net income ..................... $ 0.45 $ 0.38 $ 0.87 $ 0.73 Cash dividends declared ........ $ 0.18 $ 0.17 $ 0.36 $ 0.34 AVERAGE COMMON SHARES OUTSTANDING ... 146,205,121 153,996,205 147,382,313 154,103,132
See notes to consolidated financial statements. (1) See page 8 for detail of non-interest income and non-interest expense. (2) Adjusted for the ten percent stock dividend issued July 31, 1996. 3 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NET UNREALIZED COMMON COMMON TREASURY TREASURY CAPITAL GAINS (LOSSES) RETAINED (IN THOUSANDS) SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL - -------------- ------ ----- ------ ----- ------- ------------- -------- ----- Six Months Ended June 30, 1995: Balance, beginning of period 131,120 $ 912,318 (905) ($ 16,577) $ 215,084 ($63,289) $364,284 $1,411,820 Stock issued for acquisitions 3,510 3,434 20,061 (985) 8,474 30,984 Net income 113,023 113,023 Cash dividends declared ($.34 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 benefit 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 ======= ========== ====== ========== ========= ======== ======== ========== SIX MONTHS ENDED JUNE 30, 1996: BALANCE, BEGINNING OF PERIOD 141,403 $1,056,209 (8,352) ($ 180,632) $ 235,802 $ 40,972 $366,514 $1,518,865 STOCK ISSUED FOR ACQUISITION 4,733 102,760 5,037 107,797 NET INCOME 127,913 127,913 CASH DIVIDENDS DECLARED ($.36 PER SHARE) (53,514) (53,514) STOCK OPTIONS EXERCISED 81 1,760 (1,463) 297 TREASURY SHARES PURCHASED (5,881) (140,850) (582) (141,432) TREASURY SHARES SOLD: SHAREHOLDER DIVIDEND REINVESTMENT PLAN 665 14,866 408 15,274 EMPLOYEE BENEFIT PLANS 112 2,477 194 2,671 CHANGE IN NET UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE FOR SALE ( 102,575) (102,575) ------- ---------- ------ ---------- --------- --------- -------- ---------- BALANCE, END OF PERIOD 141,403 $1,056,209 (8,642) ($ 199,619) $ 239,396 ($ 61,603) $440,913 $1,475,296 ======= ========== ====== ========== ========= ========= ======== ==========
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars) SIX MONTHS ENDED JUNE 30, 1996 1995 ---- ---- OPERATING ACTIVITIES Net Income ............................................................... $ 127,913 $ 113,023 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses ...................................... 23,666 9,395 Provision for depreciation and amortization .................... 43,922 29,212 Deferred income tax expense .................................... 1,758 6,952 Decrease (increase) in trading account securities .............. 1,989 (8,576) Decrease (increase) in mortgages held for sale ................. 47,377 (29,714) Net gains on sales of securities ............................... (7,290) (6,439) Decrease (increase) in accrued income receivable ............... 7,653 (10,527) Net (increase) decrease in other assets ........................ (34,793) 8,203 (Decrease) increase in accrued expenses ........................ (24,251) 72,097 Net increase in other liabilities .............................. 1,231 16,910 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIEs .............. 189,175 200,536 ----------- ----------- INVESTING ACTIVITIES Decrease in interest bearing deposits in banks ........................... 282,105 313 Proceeds from: Maturities and calls of investment securities ........................ 14,175 43,892 Maturities and calls of securities available for sale ................ 248,897 209,750 Sales of securities available for sale ............................... 1,826,034 1,687,263 Purchases of: Investment securities ................................................ (800) (460) Securities available for sale ........................................ (1,537,580) (2,431,764) Proceeds from sales of loans ............................................. 94,755 -- Net loan originations, excluding sales ................................... (430,266) (769,781) Proceeds from disposal of premises and equipment ......................... 545 1,322 Purchases of premises and equipment ...................................... (21,676) (11,907) Proceeds from sales of other real estate ................................. 6,100 22,430 Net cash received from purchase of subsidiaries .......................... 631 33,433 ----------- ----------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIEs ... 482,920 (1,215,509) ----------- ----------- FINANCING ACTIVITIES Increase in total deposits ............................................... 46,391 328,090 (Decrease) increase in short-term borrowings ............................. (88,740) 778,066 Proceeds from issuance of long-term debt ................................. 300,424 50,000 Payment of long-term debt ................................................ (506,275) (93,066) Dividends paid on common stock ........................................... (53,515) (51,704) Acquisition of treasury stock ............................................ (141,432) (39,582) Proceeds from issuance of treasury stock ................................. 18,242 20,060 ----------- ----------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES ... (424,905) 991,864 ----------- ----------- CHANGE IN CASH AND CASH EQUIVALENTS .................... 247,190 (23,109) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....... 1,058,489 890,656 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 1,305,679 $ 867,547 =========== ===========
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 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 (FASB) 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. In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). The standard provides that, following a transfer of financial assets, an entity is to recognize the financial and servicing assets it controls and the liabilities it has incurred, derecognize financial assets when control has been surrendered, and derecognize liabilities when extinguished. The Statement is effective for transactions occurring after December 31, 1996. The adoption of FAS 125 is not expected to have a material impact 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 ten percent stock dividend issued July 31, 1996. 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) JUNE 30, DECEMBER 31, JUNE 30, 1996 1995 1995 ---- ---- ---- Commercial ................................ $ 4,311,853 $ 4,190,237 $ 4,186,379 Real Estate Construction ......................... 388,851 367,889 324,975 Commercial ........................... 1,683,195 1,578,891 1,456,121 Residential .......................... 1,138,177 1,176,715 1,576,203 Consumer .................................. 5,165,854 5,094,036 4,880,805 Lease financing ........................... 1,000,745 853,899 713,110 ----------- ----------- ----------- TOTAL LOANS .......................... $13,688,675 $13,261,667 $13,137,593 =========== =========== =========== DEPOSIT COMPOSITION (in thousands of dollars) ................. JUNE 30, DECEMBER 31, JUNE 30, 1996 1995 1995 ---- ---- ---- Demand deposits Non-interest bearing ................. $ 1,905,876 $ 2,088,074 $ 2,200,241 Interest bearing ..................... 2,943,215 2,772,845 2,465,139 Savings deposits .......................... 2,542,802 2,207,378 2,101,183 Certificates of deposit of $100,000 or more 973,990 909,403 829,768 Other domestic time deposits .............. 4,396,161 4,384,949 4,480,797 Foreign time deposits ..................... 350,787 273,933 441,389 ----------- ----------- ----------- TOTAL DEPOSITS ......................... $13,112,831 $12,636,582 $12,518,517 =========== =========== ===========
7 FINANCIAL REVIEW
ANALYSIS OF NON-INTEREST INCOME (in thousands of dollars) THREE MONTHS ENDED SIX MONTHS ENDED June 30, PERCENT JUNE 30, PERCENT 1996 1995 CHANGE 1996 1995 CHANGE ---- ---- ------ ---- ---- ------ Service charges on deposit accounts ............. $23,132 $20,487 12.91 % $45,593 $43,001 6.03 % Mortgage banking ................................ 7,976 6,613 20.61 16,853 16,186 4.12 Trust services .................................. 8,324 7,586 9.73 17,117 15,641 9.44 Securities gains................................. 200 6,379 N.M. 7,290 6,439 13.22 Credit card fees ................................ 8,544 4,399 94.23 13,380 8,344 60.35 Investment product sales ........................ 3,286 1,971 66.72 6,525 3,670 77.79 Electronic banking fees ......................... 2,172 1,068 103.37 3,838 2,022 89.81 Other ........................................... 13,542 10,021 35.14 24,742 21,108 17.22 ------- ------- -------- -------- TOTAL NON-INTEREST INCOME ....................... $67,176 $58,524 14.78 % $135,338 $116,411 16.26 % ======= ======= ======== ========
ANALYSIS OF NON-INTEREST EXPENSE (in thousands of dollars) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, PERCENT JUNE 30, PERCENT 1996 1995 CHANGE 1996 1995 CHANGE ---- ---- ------ ---- ---- ------ Salaries ........................................ $56,776 $54,974 3.28 % $112,595 $111,082 1.36 % Commissions ..................................... 3,480 1,932 80.12 7,087 3,620 95.77 Employee benefits ............................... 14,801 15,419 (4.01) 32,017 31,080 3.01 Net occupancy ................................... 10,835 10,079 7.50 21,709 20,765 4.55 Equipment ....................................... 10,267 9,593 7.03 19,881 19,395 2.51 Credit card ..................................... 4,023 3,196 25.88 7,595 6,314 20.29 Printing and supplies ........................... 4,164 3,362 23.85 7,659 6,934 10.46 Advertising ..................................... 4,052 2,912 39.15 6,917 5,943 16.39 Legal and loan collection ....................... 2,498 1,905 31.13 4,392 4,028 9.04 FDIC insurance .................................. 679 6,549 (89.63) 1,198 13,085 (90.84) Other ........................................... 33,891 31,131 8.87 67,912 63,447 7.04 ------- ------- -------- -------- TOTAL NON-INTEREST EXPENSE ...................... $145,466 $141,052 3.13 % $288,962 $285,693 1.14 % ======= ======= ======== ========
N.M. - Not meaningful 8 Management's Discussion and Analysis OVERVIEW Huntington reported net income of $65.1 million, or $.45 per share, for the second quarter of 1996 compared with $58.2 million, or $.38 per share, for the same period last year. For the first half of 1996, net income was $127.9 million, or $.87 per share, versus $113.0 million, or $.73 per share, in the first six months of 1995. All per share amounts have been adjusted for the 10% stock dividend payable July 31, 1996. Huntington's return on average assets (ROA) of 1.32% in the second quarter and 1.29% for the first six months of the year was up from 1.25% and 1.24% in the comparable periods of last year. Return on average equity (ROE) was also stronger at 17.56% in the recent three months of 1996 and 16.77% year-to-date, versus 15.08% in the same periods one year ago. Total assets were $20.3 billion at June 30, 1996, flat with year-end but up 4.9% from one year ago. The growth in total assets over the past twelve months was primarily attributable to higher loan volumes and the acquisition of Peoples Bank of Lakeland, Florida, (Lakeland) in January 1996. Huntington's funding mix also changed somewhat during the first half of the year as total deposits grew 3.8% from year-end 1995, in large part because of the Lakeland acquisition, and short-term and long-term borrowings decreased 5%. Borrowings increased from the end of the second 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. Shareholders' equity was down 2.9% from December 31 and 6.2% from June 30, 1995. The decreases were principally due to changes in net unrealized gains and losses on securities available for sale, that reduced equity by $102.6 million in the recent six months and $85.7 million over the last year. Excluding the effects of these unrealized gains and losses, equity increased 4% from year end and was flat versus one year ago. 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 $189.3 million and $374.0 million, respectively, for the three and six months ended June 30, 1996, approximately 5% higher than the corresponding periods in 1995. The net interest margin was 4.15% during the recent quarter, down modestly from the corresponding three month period a year ago, but up 12 basis points 9 over the immediately preceding quarter. The increase in the margin from the first quarter was the result of improved spreads, driven by a favorable change in asset mix and reduced funding costs. 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 $6.4 million. On a year-to-date basis, the decrease in interest income was $18.2 million and interest expense was up $12.4 million. For the same periods last year, these products lowered interest income by $8.2 million and $12.7 million and increased interest expense by $5.9 million and $13.0 million. Included in the preceding amounts is amortization of deferred gains and losses from terminated contracts, that decreased net interest income by $10.4 million in the recent three months and $20.6 million in the first half of the year, compared with reductions in the year-ago periods of $5.7 million and $9.7 million. Expressed in terms of the margin, the effect of the off-balance sheet portfolio was a reduction of 34 basis points in the second quarter of 1996 and 33 basis points for the first six months versus declines in the respective periods last year of 35 basis points and 30 basis points. A large part of the current year margin reduction (22 basis points) is 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 $67.0 million and $128.0 million in the recent three and six month periods, up 28.4% and 16.4% from the same periods one year ago. Fee income showed broad-based improvement with growth in all major categories. A significant component of the increase in credit card fees relates to an alliance formed in second quarter 1996 that resulted in the sale by Huntington of a portion of its interest in certain payment processing contracts. Mortgage banking income was $8.0 million in the second quarter and $16.9 million in the first half of 1996, up from $6.6 million and $16.2 million in the three and six months ended June 30, 1995. Fueled by lower interest rates in the early part of the year, mortgage loan originations totaled $689 million in the first half of 1996, an increase of 38.9% from the same period last year. In addition to the increased fee income from higher production, Huntington benefited from a new accounting standard adopted in third quarter 1995 related to the capitalization of mortgage servicing rights and the sale of certain portfolio loans in first quarter 1996. These favorable effects were somewhat offset by reduced gains from servicing sales, as Huntington sold no servicing rights through June 30, 1996, versus $432 million sold in the first half of last year that generated gains of $5.3 million. Net servicing fees were also down approximately 5% when comparing the quarters and 16.7% on a year-to-date basis. The decrease through six months is principally due to a change in the mix of loans serviced by Huntington, following the sale in early 1995 of the governmental servicing portfolio. At the recent quarter end, the mortgage loan servicing portfolio (including loans serviced by Huntington on its own behalf) totaled $5.9 billion. 10 Net gains from sales of securities were immaterial in the quarter just ended and totaled $7.3 million in the first half of 1996. 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 was $145.5 million in the three months just ended and $289.0 million in the first half of the year, up from $141.1 million and $285.7 million in the year-ago periods. The growth in expenses was due, in part, to the acquisition of two Florida banks subsequent to June 30, 1995, which added $3.3 million and $6.4 million, respectively, to the second quarter and year-to-date totals. Excluding these amounts, non-interest expense would have been flat with the same periods one year ago. FDIC insurance was down significantly, as Huntington benefited from the reduction in assessment rates on bank deposits that occurred in the latter part of 1995. PROVISION FOR INCOME TAXES The provision for income taxes was $34.1 million and $68.8 million for the recent quarter and six months, a slight decrease versus the corresponding three months of 1995, but up 6.8% for the year-to-date period. Huntington's effective tax rate was higher in the first half of last year as a result of a $2.1 million charge recorded in connection with the conversion of a thrift to a bank charter and various nondeductible expenses associated with bank acquisitions. INTEREST RATE RISK MANAGEMENT Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. The Asset/Liability Management Committee (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, 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 11 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 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 June 30, 1996, the results of Huntington's internal interest sensitivity analysis indicated that net interest income would increase approximately .5% in the event of a 100 basis points 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) versus a drop of .5% should rates rise 100 basis points. 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 2.5%. Active interest rate risk management includes the use of various types of off-balance sheet financial instruments, primarily interest rate swaps. 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. In addition, the swap strategy has enabled Huntington to lower the costs of raising wholesale funds. Financial futures, interest rate caps and floors, options, and forward rate agreements are also used to control risk effectively. Off-balance sheet products are often preferable to similar cash instruments because, though 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 June 30, 1996, forward rates were higher than those prevailing at the recent year end. Consequently, the interest rate swap portfolio ended the second quarter with an unrealized loss of $28.5 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. 12
Average Average Rate Notional Maturity Market ------------ (dollars in millions) Value (years) Value Receive Pay - --------------------- ------------------------------------------------------------ June 30, 1996: ASSET CONVERSION SWAPS Receive fixed $1,000 2.27 ($11.5) 5.80% 5.50% Receive fixed-amortizing 99 1.90 ( 1.8) 5.27 5.78 ------ ----- TOTAL ASSET CONVERSION SWAPS $1,099 2.24 ($13.3) 5.75% 5.53% ====== ===== LIABILITY CONVERSION SWAPS Receive fixed $1,485 2.41 ($ 3.5) 5.88% 5.49% Receive fixed-amortizing 197 3.00 ( 6.2) 5.63 5.46 Pay fixed 1,525 .26 ( 5.3) 5.51 7.07 ----- ----- ---- TOTAL LIABILITY CONVERSION SWAPS $3,207 1.42 ( 15.0) 5.69% 6.24% ====== ===== BASIS PROTECTION SWAPS $ 250 2.70 ($ .2) 5.56% 5.54% ====== =====
The pay rates on Huntington's receive fixed swaps vary based on movements in the applicable London inter-bank offered rate (LIBOR). Receive fixed asset conversion swaps with a notional value of $200 million have embedded written LIBOR-based call options. Also, receive fixed liability conversion swaps with a notional value of $150 million have embedded written LIBOR-based caps. 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 June 30, 1996, Huntington's credit risk from interest rate swaps used for asset/liability management purposes was $34.5 million, which represents the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. In order to minimize the risk that a swap counterparty will not satisfy its interest payment obligation under the terms of the contract, Huntington performs credit reviews on all counterparties, restricts the number of counterparties used to a select group of high quality institutions, obtains collateral, and enters into formal netting arrangements. Huntington has never experienced any past due amounts from a swap counterparty and does not anticipate non-performance in the future by any such counterparties. Certain interest rate swaps have been closed by Huntington prior to contractual maturity in response to 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 June 30, 1996, Huntington had deferred approximately $18.8 13 million of net realized losses from closed positions, which are to be amortized as yield adjustments over the remaining term of the original contracts, as presented below.
Amortizing In ------------------------------------------------------------- 1996 1997 1998 1999 Total ---- ---- ---- ---- ----- (in millions) JUNE 30, 1996: Deferred gains $ 6.5 $ 8.3 $ 7.0 $5.7 $ 27.5 Deferred losses (25.2) (19.4) (1.3) (.4) (46.3) ----- ----- ---- --- ----- Net (losses) gains $(18.7) $(11.1) $ 5.7 $5.3 $(18.8) ====== ====== ===== ==== ======
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 $450 million at June 30, 1996. Total credit exposure from such contracts, represented by those instruments with a positive fair value, was $1.7 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 that 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 $57.0 million at the most recent quarter end and represented .42% of total loans. Huntington also has certain loans that are past due ninety days or more but have not been placed on nonaccrual status. These loans, which total $29.9 million at June 30, 1996, are primarily consumer and residential real estate loans that are considered well-secured and in the process of collection or are being renewed. Other real estate owned (ORE) totaled $21.7 million at the end of the first half of 1996, down from $24.0 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 14 factors. Annualized net charge-offs as a percent of average total loans were .38% for the quarter just ended and .36% for the first six months of the year, versus .32% for all of 1995. At the recent quarter end, the ALL represented 1.44% of total loans and 345% of non-performing loans. The combined ALL and allowance for other real estate was 238% 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 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 7.51% in the second quarter of 1996 and 7.70% for the first six months of the year, compared with 8.28% and 8.22% in the same periods one year ago. Presented below are Huntington's regulatory capital ratios and the related levels established for "well-capitalized" institutions:
June 30, 1996 "Well Capitalized" Tier 1 risk-based capital 8.05% 6.00% Total risk-based capital 11.59 10.00 Leverage 6.81 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 5.9 million shares in the first half of 1996 at an aggregate cost of $141.4 million, leaving 8.0 million shares available for repurchase. Huntington's management believes the remaining authorized shares will be repurchased by the end of 1997. 15 CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands of dollars, except per share amounts) THREE MONTHS ENDED JUNE 30, 1996 1995 % CHANGE ---- ---- -------- NET INCOME .............................. $ 65,088 $ 58,161 11.9 % PER COMMON SHARE AMOUNTS (1) Net income ......................... $ 0.45 $ 0.38 18.4 Cash dividends declared ............ $ 0.18 $ 0.17 5.9 AVERAGE SHARES OUTSTANDING (1) .......... 146,205,121 153,996,205 (5.1) KEY RATIOS Return on: Average total assets ............... 1.32% 1.25% 5.6 Average shareholders' equity ....... 17.56% 15.08% 16.4 Efficiency ratio ........................ 56.86% 59.97% (5.2) Average equity/average assets ........... 7.51% 8.28% (9.3) Net Interest Margin ..................... 4.15% 4.21% (1.4) SIX MONTHS ENDED JUNE 30, ............... 1996 1995 % CHANGE ---- ---- -------- NET INCOME .............................. $ 127,913 $ 113,023 13.2 % PER COMMON SHARE AMOUNTS (1) Net income ......................... $ 0.87 $ 0.73 19.2 Cash dividends declared ............ $ 0.36 $ 0.34 5.9 AVERAGE SHARES OUTSTANDING (1) .......... 147,382,313 154,103,132 (4.4) KEY RATIOS Return on: Average total assets ............... 1.29% 1.24% 4.0 Average shareholders' equity ....... 16.77% 15.08% 11.2 Efficiency ratio ........................ 57.53% 60.94% (5.6) Average equity/average assets ........... 7.70% 8.22% (6.3) Net Interest Margin ..................... 4.09% 4.24% (3.5) AT JUNE 30, ............................. 1996 1995 % CHANGE ---- ---- -------- Total Loans ............................. $ 13,688,675 $ 13,137,593 4.2 % Total Deposits .......................... $ 13,112,831 $ 12,518,517 4.7 Total Assets ............................ $ 20,321,166 $ 19,370,768 4.9 Shareholders' Equity .................... $ 1,475,296 $ 1,572,043 (6.2) Period-End Shares Outstanding (1) ....... 146,036,994 153,397,641 (4.8) Shareholders' Equity Per Common Share (1) $ 10.10 $ 10.25 (1.5) Total Risk-Adjusted Assets .............. $ 16,834,872 $ 15,588,590 8.0 Tier 1 Risk-Based Capital Ratio ......... 8.05% 9.30% (13.4) Total Risk-Based Capital Ratio .......... 11.59% 13.11% (11.6) Tier 1 Leverage Ratio ................... 6.81% 7.72% (11.8)
(1) Adjusted for the ten percent stock dividend issued July 31, 1996. 16 FINANCIAL REVIEW
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30, 1996 AND DECEMBER 31, 1995 (in thousands of dollars) JUNE 30, 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........................ 16,284 16,380 27,340 27,592 1-5 years........................... 23,883 24,416 23,637 24,496 6-10 years.......................... 21,688 21,588 12,638 13,040 Over 10 years....................... 4,785 4,686 3,833 3,912 ------- ------- ------- ------- Total............................ 66,640 67,070 67,448 69,040 ------- ------- ------- ------- Total Investment Securities.............. $66,796 $67,226 $67,604 $69,196 ======= ======= ======= =======
17 FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS OF DOLLARS) JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- AMORTIZED COST FAIR VALUE Amortized Cost Fair Value -------------- ---------- -------------- ---------- U.S. Treasury Under 1 year........................ $83,389 $83,817 $176,502 $178,264 1-5 years........................... 385,040 369,219 228,234 231,018 6-10 years.......................... 158,981 150,668 162,352 160,596 --------- -------- --------- --------- Total............................ 627,410 603,704 567,088 569,878 --------- -------- --------- --------- Federal agencies Mortgage-backed securities Under 1 year........................ 979 984 1,097 1,124 1-5 years........................... 183,007 178,917 110,192 114,723 6-10 years.......................... 871,854 847,756 712,804 724,317 Over 10 years....................... 33,952 33,994 58,762 60,695 --------- -------- --------- --------- Total............................ 1,089,792 1,061,651 882,855 900,859 --------- -------- --------- --------- Other agencies Under 1 year........................ 94,937 95,380 53,912 54,499 1-5 years........................... 1,633,768 1,609,864 1,928,431 1,953,446 6-10 years.......................... 196,101 191,175 234,393 234,920 Over 10 years....................... 362,375 354,092 509,735 514,568 --------- -------- --------- --------- Total............................ 2,287,181 2,250,511 2,726,471 2,757,433 --------- -------- --------- --------- Total U.S. Treasury and Federal agencies. 4,004,383 3,915,866 4,176,414 4,228,170 --------- -------- --------- --------- Other Under 1 year........................ 5,854 6,007 6,818 6,826 1-5 years........................... 13,929 14,694 22,352 23,578 6-10 years.......................... 157,365 154,751 230,651 240,965 Over 10 years....................... 275,391 270,505 212,950 214,605 Marketable equity securities........ 8,477 7,021 8,359 7,000 --------- -------- --------- --------- Total............................ 461,016 452,978 481,130 492,974 --------- -------- --------- --------- Total Securities Available for Sale...... $4,465,399 $4,368,844 $4,657,544 $4,721,144 ========== ========== ========== ==========
18 FINANCIAL REVIEW
- ---------------------------------------------------------------------------------------------------------------------- LOAN LOSS EXPERIENCE - ---------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1996 1995 1996 1995 ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ......... $197,375 $201,088 $194,456 $200,492 Loan losses ............................................ (17,417) (10,718) (33,124) (20,511) Recoveries of loans previously charged off ............. 4,685 3,312 9,288 7,268 Provision for loan losses .............................. 11,843 4,787 23,666 9,395 Allowance of assets acquired (sold) .................... 0 (205) 2,200 1,620 -------- -------- -------- -------- Allowance for loan losses, end of period ............... $196,486 $198,264 $196,486 $198,264 ======= ======== ======== ======== AS A % OF AVERAGE TOTAL LOANS Net loan losses -- annualized ........................ 0.38 % 0.23 % 0.36 % 0.21 % Provision for loan losses -- annualized .............. 0.35 % 0.15 % 0.36 % 0.15 % Allowance for loan losses as a % of total loans ........ 1.44 % 1.51 % 1.44 % 1.51 % Net loan loss coverage (1) ............................. 8.72 x 13.15 x 9.25 x 14.11 x
(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) II Q I Q IV Q III Q II Q ------------------------------------------------------------------ Non-accrual loans ...................................... $51,470 $57,530 $50,669 $41,997 $41,554 Renegotiated loans ..................................... 5,558 5,578 4,299 4,313 13,424 ------- ------- ------- ------- ------ TOTAL NON-PERFORMING LOANS ............................. 57,028 63,108 54,968 46,310 54,978 ------- ------- ------- ------- ------ Other real estate, net ................................. 21,720 20,386 22,026 23,668 24,029 ------- ------- ------- ------- ------ TOTAL NON-PERFORMING ASSETS ............................ $78,748 $83,494 $76,994 $69,978 $79,007 ======= ======= ======= ======= ======= NON-PERFORMING LOANS AS A % OF TOTAL LOANS ..................................... 0.42% 0.47% 0.41% 0.34% 0.42% NON-PERFORMING ASSETS AS A % OF TOTAL LOANS AND OTHER REAL ESTATE ............... 0.57% 0.62% 0.58% 0.52% 0.60% ALLOWANCE FOR LOAN LOSSES AS A % OF NON-PERFORMING LOANS ................................. 344.54% 312.76% 353.76% 428.79% 360.62% ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE AS A % OF NON-PERFORMING ASSETS ............... 238.03% 225.01% 238.65% 263.26% 234.30% ACCRUING LOANS PAST DUE 90 DAYS OR MORE ................ $29,859 $25,824 $27,018 $24,001 $20,685 ======= ======= ======= ======= =======
19 CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
Fully Tax Equivalent Basis (1) 2ND QUARTER 1996 1ST QUARTER 1996 ---------------- ---------------- (in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE ------- ---- ------- ---- ASSETS Interest bearing deposits in banks...................................... $2 9.43 % $39 5.70 % Trading account securities.............................................. 14 5.47 19 5.64 Federal funds sold and securities purchased under resale agreements..... 29 5.33 27 6.19 Mortgages held for sale................................................. 117 7.62 127 7.18 Securities: Taxable............................................................ 4,609 6.52 4,835 6.55 Tax exempt......................................................... 96 9.75 106 9.09 ------- ------- Total Securities.............................................. 4,705 6.58 4,941 6.60 ------- ------- Loans Commercial......................................................... 4,251 7.67 4,212 7.76 Real Estate Construction.................................................. 386 8.50 364 8.52 Mortgage...................................................... 2,783 8.49 2,760 8.48 Consumer........................................................... 5,142 9.04 5,079 8.99 Lease Financing................................................... 953 7.87 880 7.90 ------- ------- Total Loans................................................... 13,515 8.40 13,295 8.41 Allowance for loan losses..................................... 199 198 ------- ------- Net loans..................................................... 13,316 8.89 13,097 8.87 ------- ------- Total earning assets.......................................... 18,382 8.19 % 18,448 8.14 % ------- ------- Cash and due from banks................................................. 755 746 All other assets........................................................ 906 988 ------- ------- TOTAL ASSETS............................................................ $19,844 $19,984 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits Non-interest bearing............................................... $2,307 $2,391 Interest bearing................................................... 2,595 2.40 % 2,506 2.53 % Savings deposits........................................................ 2,437 3.19 2,249 3.03 Certificates of deposit of $100,000 or more............................. 971 5.37 977 5.52 Other domestic time deposits............................................ 4,406 5.61 4,458 5.69 Foreign time deposits................................................... 219 6.17 268 6.15 ------- ------- Total deposits..................................................... 12,935 4.26 12,849 4.36 ------- ------- Short-term borrowings................................................... 3,061 5.39 3,078 5.58 Long-term debt.......................................................... 1,927 6.40 2,016 6.41 ------- ------- Interest bearing liabilities....................................... 15,616 4.75 % 15,552 4.87 % ------- ------- All other liabilities................................................... 430 464 Shareholders' equity.................................................... 1,491 1,577 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,844 $19,984 ======= ======= Net interest rate spread................................................ 3.44 % 3.27 % Impact of non-interest bearing funds on margin.......................... 0.71 % 0.76 % NET INTEREST MARGIN..................................................... 4.15 % 4.03 %
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate. 20
- -------------------------------------------------------------------------------- 4TH QUARTER 1995 3RD QUARTER 1995 2ND QUARTER 1995 -------------------- -------------------- -------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE BALANCE RATE - --------------------- -------------------- -------------------- $ 74 6.10 % $ 2 5.73 % $ 3 5.03 % 20 6.88 24 7.54 23 8.07 48 5.52 22 7.49 70 6.70 129 6.78 174 7.73 109 7.52 4,550 6.74 4,473 6.76 3,913 6.75 110 10.04 118 10.55 127 10.29 ------- ------- ------- 4,660 6.82 4,591 6.86 4,040 6.86 ------- ------- ------- 4,178 7.91 4,099 8.13 4,082 8.58 369 8.54 349 8.68 324 8.38 3,011 8.56 3,058 8.59 3,100 8.20 5,099 8.97 4,979 9.05 4,805 8.90 826 7.93 747 7.53 690 7.43 ------- ------- ------- 13,483 8.53 13,232 8.56 13,001 8.54 198 198 201 ------- ------- ------- 13,285 8.93 13,034 9.04 12,800 9.00 ------- ------- ------- 18,414 8.26 % 18,045 8.37 % 17,246 8.38 % ------- ------- ------- 766 783 796 895 876 838 ------- ------- ------- $19,877 $19,506 $18,679 ======= ======= ======= $2,241 $2,194 $2,159 2,514 2.48 % 2,488 2.45 % 2,533 2.45 % 2,084 2.93 2,020 2.76 2,013 2.68 926 5.68 878 5.78 770 5.84 4,458 5.76 4,467 5.69 4,447 5.54 189 6.50 318 6.32 264 6.57 ------- ------- ------- 12,412 4.38 12,365 4.34 12,186 4.24 ------- ------- ------- 3,682 5.91 3,786 5.96 3,348 6.13 1,850 6.76 1,403 6.36 1,208 7.23 ------- ------- ------- 15,703 5.02 % 15,360 4.92 % 14,583 4.93 % ------- ------- ------- 447 416 390 1,486 1,536 1,547 ------- ------- ------- $19,877 $19,506 $18,679 ======= ======= ======= 3.24 % 3.45 % 3.45 % 0.74 % 0.73 % 0.76 % 3.98 % 4.18 % 4.21 %
21
- ------------------------------------------------------------------- SELECTED QUARTERLY INCOME STATEMENT DATA - --------------------------------------------------------------------------------------------------------- 1996 1995 ---------------------- --------------------------------- (in thousands of dollars, except per share amounts) IIQ IQ IVQ IIIQ IIQ - --------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME................... $375,079 $374,296 $381,437 $377,859 $360,203 TOTAL INTEREST EXPENSE.................. 185,786 189,578 199,551 191,281 180,313 -------- -------- -------- -------- -------- NET INTEREST INCOME..................... 189,293 184,718 181,886 186,578 179,890 Provision for loan losses............... 11,843 11,823 12,139 7,187 4,787 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............. 177,450 172,895 169,747 179,391 175,103 Service charges on deposit accounts .... 23,132 22,461 21,008 21,109 20,487 Mortgage banking ....................... 7,976 8,877 9,752 8,274 6,613 Trust services ......................... 8,324 8,793 7,424 7,312 7,586 Securities gains ....................... 200 7,090 302 2,315 6,379 Credit card fees ....................... 8,544 4,836 5,450 4,669 4,399 Investment product sales ............... 3,286 3,239 2,292 2,159 1,971 Electronic banking fees ................ 2,172 1,666 1,740 1,270 1,068 Other .................................. 13,542 11,200 18,830 12,692 10,021 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME .............. 67,176 68,162 66,798 59,800 58,524 -------- -------- -------- -------- -------- Salaries ............................... 56,776 55,819 54,695 54,391 54,974 Commissions ............................ 3,480 3,607 3,149 3,074 1,932 Employee benefits ...................... 14,801 17,216 12,752 13,958 15,419 Net occupancy .......................... 10,835 10,874 10,459 10,039 10,079 Equipment .............................. 10,267 9,614 9,406 9,470 9,593 Credit card ............................ 4,023 3,572 3,695 3,398 3,196 Printing and supplies .................. 4,164 3,495 3,705 3,508 3,362 Advertising ............................ 4,052 2,865 2,179 3,149 2,912 Legal and loan collection .............. 2,498 1,894 2,758 1,857 1,905 FDIC insurance ......................... 679 519 1,820 151 6,549 Other .................................. 33,891 34,021 32,646 34,451 31,131 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE ............. 145,466 143,496 137,264 137,446 141,052 -------- -------- -------- -------- -------- Income Before Income Taxes ............. 99,160 97,561 99,281 101,745 92,575 Provision for income taxes ............. 34,072 34,736 33,752 35,808 34,414 -------- -------- -------- -------- -------- NET INCOME ............................. $ 65,088 $ 62,825 $ 65,529 $ 65,937 $ 58,161 ======== ======== ======== ======== ======== PER COMMON SHARE (1) Net income ........................... $0.45 $0.42 $0.45 $0.44 $0.38 Cash dividends declared .............. $0.18 $0.18 $0.18 $0.18 $0.17 FULLY TAX EQUIVALENT MARGIN: Net Interest Income .................... $189,293 $184,718 $181,886 $186,578 $179,890 Tax Equivalent Adjustment (2) .......... 1,319 1,368 1,523 1,635 1,723 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income ..... $190,612 $186,086 $183,409 $188,213 $181,613 ======== ======== ======== ======== ========
(1) Adjusted for the ten percent stock dividend issued July 31, 1996. (2) Calculated assuming a 35% tax rate. 22 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 25, 1996. At that meeting, shareholders approved the following management proposals:
ABSTAIN/ BROKER FOR AGAINST WITHHELD NON-VOTES --- ------- -------- --------- 1. Election of directors to serve as Class III Directors until the 1999 Meeting of Shareholders as follows: Don M. Casto, III 111,821,023 935,551 Patricia T. Hayot 111,808,623 947,951 William J. Lhota 111,988,789 767,785 Timothy P. Smucker 112,012,654 743,920 2. Proposal to amend the Corporation's Charter 99,688,503 12,277,210 783,955 6,906 3. Proposal to approve the Amended Long-Term Incentive Compensation Plan 100,124,189 10,524,498 2,100,981 6,906 4. Ratification of Ernst & Young LLP to serve as independent auditors for the Corporation for the year 1996 111,898,865 387,848 462,955 6,906
23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3. ( i )( a ) Articles of Restatement of Charter, Articles of Amendment to Articles of Restatement of Charter, and Articles Supplementary -- previously filed as Exhibit 3(i) to Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. ( i )( b ) Articles of Amendment to Articles of Restatement of Charter -- previously filed as Exhibit 3(i)(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference. ( 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. 10. Material contracts: (a) Employment Agreement, dated April 25, 1996, between Huntington Bancshares Incorporated and Frank Wobst. 11. Computation of Earnings Per Share 27. Financial Data Schedule (b) Reports on Form 8-K 1. A report on Form 8-K, dated April 10, 1996, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the first quarter ended March 31, 1996. 24 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, 1996 /s/ Ralph K. Frasier --------------------------------------- Ralph K. Frasier General Counsel and Secretary Date: August 14, 1996 /s/ John D. Van Fleet -------------------------------------- John D. Van Fleet Senior Vice President, Corporate Controller, and Principal Accounting Officer (Chief Accounting Officer) 25