Exhibit 13
1996 ANNUAL REPORT TO SHAREHOLDERS
TABLE 1
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per
share amounts) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Total interest income........ $ 1,510,464 $ 1,461,896 $ 1,219,721 $ 1,236,311 $ 1,202,286 $ 1,208,407
Total interest expense....... 751,640 737,333 463,671 440,111 504,846 659,918
Net interest income.......... 758,824 724,563 756,050 796,200 697,440 548,489
Securities gains............. 17,703 9,056 2,594 27,189 36,332 16,951
Provision for loan losses.... 65,050 28,721 15,284 79,294 81,562 62,061
Net income................... 262,101 244,489 242,593 236,912 161,046 133,940
PER COMMON SHARE(1)
Net income................... 1.80 1.62 1.62 1.60 1.10 .92
Cash dividends declared...... .76 .70 .62 .51 .44 .40
Book value at year-end....... 10.60 10.38 9.38 8.84 7.68 7.01
BALANCE SHEET HIGHLIGHTS
Total assets at year-end..... 20,851,513 20,254,598 17,770,640 17,618,707 16,246,526 14,500,477
Total long-term debt at
year-end ................... 1,556,326 2,103,024 1,214,052 762,310 478,872 261,168
Average long-term debt ...... 1,818,935 1,423,537 927,797 640,976 299,905 218,645
Average shareholders' equity. 1,512,750 1,502,911 1,403,314 1,216,470 1,074,159 977,073
Average total assets......... $ 20,048,563 $ 19,047,912 $ 16,749,850 $ 16,850,719 $ 15,165,151 $ 13,612,543
- ----------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 1996 1995 1994 1993 1992 1991
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MARGIN ANALYSIS -- AS A %
OF AVERAGE EARNING ASSETS(2)
Interest income.............. 8.16% 8.34% 7.97% 8.03% 8.75% 9.85%
Interest expense............. 4.05 4.19 3.01 2.83 3.63 5.30
----- ----- ----- ----- ----- -----
NET INTEREST MARGIN ........... 4.11% 4.15% 4.96% 5.20% 5.12% 4.55%
===== ===== ===== ===== ===== =====
RETURN ON
Average total assets......... 1.31% 1.28% 1.45% 1.41% 1.06% .98%
Average earning assets....... 1.41 1.39 1.57 1.53 1.16 1.08
Average shareholders' equity. 17.33 16.27 17.29 19.48 14.99 13.71
Dividend payout ratio.......... 42.22 43.82 38.50 32.47 38.99 42.86
Average shareholders' equity to
average total assets......... 7.55 7.89 8.38 7.22 7.08 7.18
Tier I risk-based capital ratio 7.84 8.39 9.55 9.60 9.39 9.07
Total risk-based capital ratio. 11.31 12.03 13.57 14.02 12.56 11.27
Tier I leverage ratio.......... 6.66% 6.87% 7.99% 7.03% 6.72% 7.00%
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OTHER DATA 1996 1995 1994 1993 1992 1991
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Full-time equivalent employees. 7,936 7,551 8,153 8,395 8,039 7,562
Banking offices................ 339 322 344 352 346 334
(1)Restated for the ten percent stock dividend distributed July 31, 1996.
(2)Presented on a fully tax equivalent basis assuming a 35% tax rate in years 1993 through 1996 and a 34% tax rate in years
1991 and 1992.
OVERVIEW
Huntington reported earnings of $262.1 million in 1996, compared with
$244.5 million and $242.6 million in 1995 and 1994, respectively. On a per share
basis, net income was $1.80 in 1996, versus $1.62 in both 1995 and 1994. Per
share amounts for all prior periods have been restated to reflect the ten
percent stock dividend distributed to shareholders in July 1996.
Huntington's return on average equity (ROE) and return on average assets
(ROA) were 17.33% and 1.31%, respectively, during 1996. In the prior two years,
ROE was 16.27% and 17.29%, and ROA was 1.28% and 1.45%.
Total assets were $20.9 billion at December 31, 1996, an increase of 2.9%
from the end of last year. Total loans increased by just under $1.0 billion, or
7.5%, which was somewhat offset by a reduction in temporary investments. In
terms of the average balance sheet, consumer loans and leases were up a solid
10.9%; commercial growth was also a respectable 4.9%.
Total deposits grew 5.9% from year-end 1995, in large part because of the
January 1996 acquisition of Peoples Bank of Lakeland, Florida (Lakeland). As
more fully discussed in the "Liquidity Management" section, core deposits
represent Huntington's most significant source of funding. When combined with
other core funding sources, they continue to provide approximately 70% of
Huntington's funding needs.
Short-term borrowings increased $429.9 million on a period-end basis. This
was accompanied by a decrease of $546.7 million in long-term debt. Average
short-term borrowings were down 6.7% while average long-term debt rose 27.7%.
These changes reflect the impact of medium-term notes with original maturities
of greater than one year that were outstanding for much of 1996 but were
replaced with shorter term wholesale liabilities upon maturity.
Shareholders' equity was relatively flat versus December 31, 1995.
Excluding the effect of net unrealized gains and losses on securities available
for sale, equity increased approximately 3.3%. 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. (See "Capital and Dividends" section for further
information).
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $758.8 million in 1996,
compared with $724.6 million and $756.1 million, respectively, in 1995 and 1994.
The net interest margin, on a fully tax
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TABLE 2
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CHANGE IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES(1)
- ----------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis(2) 1996 1995
(in millions of dollars) ---------------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
From Previous From Previous
Year Due To: Year Due To:
---------------------------------------- -------------------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
- -----------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits in banks..... $ (.6) $ .0 $ (.6) $ 1.1 $ (.1) $ 1.0
Trading account securities............. (.4) (.4) (.8) .6 .2 .8
Federal funds sold and securities
purchased under resale agreements... (1.2) (.4) (1.6) (3.8) 1.8 (2.0)
Mortgages held for sale................ (1.3) .3 (1.0) (17.8) 1.7 (16.1)
Taxable securities..................... 31.0 (11.4) 19.6 64.2 18.7 82.9
Tax-exempt securities.................. (2.8) (1.1) (3.9) (6.8) (1.0) (7.8)
Total loans............................ 50.3 (15.0) 35.3 136.8 43.8 180.6
------ -------- ------- --------- -------- --------
TOTAL EARNING ASSETS ............... 75.0 (28.0) 47.0 174.3 65.1 239.4
------ -------- ------- --------- -------- --------
Interest bearing demand deposits....... .3 (1.1) (.8) (4.0) 6.3 2.3
Savings deposits....................... 10.9 9.9 20.8 (5.3) 12.7 7.4
Certificates of deposit of $100,000 or
more ................................ 9.6 (2.9) 6.7 10.2 11.3 21.5
Other domestic time deposits........... 2.1 3.7 5.8 41.1 53.7 94.8
Foreign time deposits.................. 2.7 (1.3) 1.4 (1.1) 5.9 4.8
Short-term borrowings.................. (13.6) (19.8) (33.4) 41.9 63.5 105.4
Long-term debt......................... 25.5 (11.7) 13.8 34.8 2.6 37.4
------ -------- ------- --------- -------- --------
TOTAL INTEREST BEARING LIABILITIES . 37.5 (23.2) 14.3 117.6 156.0 273.6
------ -------- ------- --------- -------- --------
NET INTEREST INCOME ................ $ 37.5 $ (4.8) $ 32.7 $ 56.7 $ (90.9) $ (34.2)
====== ======== ======= ========= ======== ========
(1)The change in interest due to both rate and volume has been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
(2)Calculated assuming a 35% tax rate.
1996 ANNUAL REPORT TO SHAREHOLDERS
TABLE 3
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LOAN PORTFOLIO COMPOSITION December 31,
- ----------------------------------------------------------------------------------
(in millions of dollars) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------
Commercial...................... $ 4,463 $4,260 $ 3,743 $ 3,577 $3,268
Real estate
Construction................. 474 368 305 337 379
Mortgage..................... 2,737 2,756 3,002 2,685 2,252
Consumer
Loans........................ 5,404 5,094 4,642 3,944 3,325
Leases....................... 1,183 784 572 411 291
------- ------- ------- ------- ------
Total loans ............... $14,261 $13,262 $12,264 $10,954 $9,515
======= ======= ======= ======= ======
NOTE: There are no loans outstanding which would be considered a concentration of lending
in any particular industry or group of industries.
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TABLE 4
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MATURITY SCHEDULE OF SELECTED LOANS
- --------------------------------------------------------------------------------------
(in thousands of dollars) DECEMBER 31, 1996
- --------------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------- ---------- ---------- ----------
Commercial and tax free ........ $3,014,762 $1,103,669 $344,205 $4,462,636
Real estate-- construction...... 252,409 149,448 72,113 473,970
---------- ---------- -------- ----------
Total ..................... $3,267,171 $1,253,117 $416,318 $4,936,606
========== ========== ======== ==========
Variable interest rates......... $ 953,873 $317,064
========== ========
Fixed interest rates............ $ 299,244 $ 99,254
========== ========
equivalent basis, was 4.11% during the twelve months, a slight decrease from
4.15% in 1995. As illustrated in the table of "Consolidated Average Balances and
Interest Rates" on pages 18 and 19, Huntington's yield on earning assets
declined 18 basis points, principally due to commercial loans repricing at the
lower prime interest rate in 1996 and reinvestment within the securities
portfolio at decreased rates. On the liability side, funding costs were down, as
a drop in wholesale liability rates more than offset a modest increase in the
cost of deposits. The reduction in net interest income and lower margin when
comparing 1995 with 1994 were the result of significantly narrowed spreads, as
competitive factors that influenced the pricing of new loans and actions taken
during 1994 and 1995 to reduce earnings sensitivity to rising rates exerted
downward pressure.
Interest rate swaps and other off-balance sheet financial instruments used
for asset/liability management purposes reduced interest income by $36.1 million
and $32.8 million, and increased interest expense by $16.0 million and $23.0
million in 1996 and 1995, respectively. These products increased interest income
by $29.0 million and decreased interest expense by $5.6 million in 1994.
Included in the preceding amounts is amortization of deferred gains and losses
from terminated contracts that decreased net interest income by $39.3 million in
1996 and $28.6 million in 1995, and increased net interest income by $21.6
million in 1994. At December 31, 1996, deferred net losses remaining to be
amortized were immaterial.
Expressed in terms of the margin, the effect of the off-balance sheet
portfolio was a reduction of 28 basis points and 32 basis points, respectively,
in the two most recent years, substantially as a result of amortization of net
losses from terminated contracts. A swap strategy used to create synthetic
fixed-rate wholesale funding, while lowering costs from what would have resulted
from a comparable cash instrument, caused the majority of the remaining margin
reduction attributable to the off-balance sheet portfolio. In 1994, swaps and
other interest rate contracts contributed 22 basis points to the margin.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $65.1 million in 1996, up from $28.7
million in 1995 and $15.3 million in 1994. Net charge-offs as a percent of
average total loans were .46% in 1996, compared with .32% and .24%,
respectively, in the two preceding years. The ratio in the recent year was
adversely affected by higher losses in the consumer portfolio, indicative of
general market trends, and the charge-off of a large commercial credit.
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. For analytical purposes, the ALL has been allocated to various
portfolio segments. However, the total ALL is available to absorb losses from
any segment of the portfolio. The methods used by Huntington to allocate the ALL
are also subject to change; accordingly, the December 31, 1996, allocation is
not necessarily indicative of the trend of future loan losses in any particular
loan category.
At the most recent year end, the ALL of $199.1 million represented 1.40%
of total loans and covered non-performing loans almost four times. When combined
with the allowance for other real estate, it was 291.69% of total non-performing
assets. Additional information regarding the ALL and asset quality appears in
the section "Credit Risk".
NON-INTEREST INCOME
Non-interest income was $273.0 million in 1996, versus $243.0 million and
$213.9 million, respectively, in 1995 and 1994. Excluding securities
transactions, non-interest income increased 9.1% over last year. All major
categories showed increases, with particularly strong results in
TABLE 5
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SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR $194,456 $200,492 $211,835 $153,654 $134,770 $123,622
LOAN LOSSES
Commercial............................... (22,616) (14,338) (10,419) (20,534) (28,496) (26,693)
Real estate
Construction.......................... -- (391) (5,957) (422) (14,001) (34)
Mortgage.............................. (2,189) (4,490) (5,428) (2,060) (6,665) (6,859)
Consumer
Loans................................. (51,792) (34,360) (23,356) (21,492) (25,621) (28,773)
Leases................................ (4,492) (1,989) (962) (1,084) (872) (1,255)
--------- --------- --------- -------- --------- ---------
Total loan losses........................ (81,089) (55,568) (46,122) (45,592) (75,655) (63,614)
--------- --------- --------- -------- --------- ---------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial............................... 4,307 3,296 7,739 3,582 3,809 2,607
Real estate
Construction.......................... 531 5 1 1 -- 400
Mortgage.............................. 995 653 506 352 120 736
Consumer
Loans................................. 12,180 9,727 9,503 9,058 8,313 6,781
Leases................................ 721 303 353 245 222 212
--------- --------- --------- -------- --------- ---------
Total recoveries of loans previously charged
off 18,734 13,984 18,102 13,238 12,464 10,736
--------- --------- --------- -------- --------- ---------
NET LOAN LOSSES ............................ (62,355) (41,584) (28,020) (32,354) (63,191) (52,878)
--------- --------- --------- -------- --------- ---------
PROVISION FOR LOAN LOSSES .................. 65,050 28,721 15,284 79,294 81,562 62,061
ALLOWANCE ACQUIRED/OTHER .................. 1,907 6,827 1,393 11,241 513 1,965
--------- --------- --------- -------- --------- ---------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR ..... $ 199,058 $ 194,456 $ 200,492 $211,835 $ 153,654 $ 134,770
========= ========= ========= ======== ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses ........................ .46% .32% .24% .32% .69% .61%
Provision for loan losses................ .48% .22% .13% .78% .89% .72%
Allowance for loan losses as a %
of total loans (end of period) ......... 1.40% 1.47% 1.63% 1.93% 1.61% 1.52%
Net loan loss coverage (1) ................ 7.4 x 9.79x 13.62x 13.69x 4.98x 4.77x
(1) Income before income taxes and the provision for loan losses to net loan losses.
- -----------------------------------------------------------------------------------------------------------------------------
TABLE 6
- -----------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- -----------------------------------------------------------------------------------------------------------------------------
Commercial............ $ 97,825 31.3% $ 105,109 32.1% $ 120,922 30.5% $ 138,063 32.7% $ 91,118 34.3%
Real estate
Construction....... 755 3.3 1,342 2.8 908 2.5 1,636 3.1 1,329 4.0
Mortgage........... 15,299 19.2 14,091 20.8 16,677 24.5 18,008 24.5 12,274 23.7
Consumer
Loans.............. 43,540 37.9 34,944 38.4 28,672 37.9 24,901 35.9 23,604 34.9
Leases............. 3,457 8.3 3,651 5.9 2,632 4.6 1,800 3.8 1,536 3.1
Unallocated........... 38,182 -- 35,319 -- 30,681 -- 27,427 -- 23,793 --
---------- ----- --------- ----- ---------- ----- ---------- ----- ---------- -----
Total.............. $ 199,058 100.0% $ 194,456 100.0% $ 200,492 100.0% $ 211,835 100.0% $ 153,654 100.0%
========== ===== ========= ===== ========== ===== ========== ===== ========== =====
1996 ANNUAL REPORT TO SHAREHOLDERS
electronic banking and investment product sales. Included within the "Other"
component of non-interest income for 1995 was an $8.9 million gain on the sale
of Huntington's Pennsylvania bank.
Huntington also achieved broad-based growth in non-interest income from
1994 to 1995, as all categories but mortgage banking income reflected
improvement. The decrease in mortgage banking income resulted from lower
production in the higher interest rate environment that prevailed in 1995, as
well as from both a reduction in the average volume and a change in the mix of
loans serviced by Huntington.
Huntington realized gains from securities transactions of $17.7 million in
1996, $9.1 million in 1995, and $2.6 million in 1994. These gains resulted from
specific programs in each of the years. The 1996 gains resulted principally from
collateralized mortgage obligations and mortgage backed securities that were
sold to reduce price and/or prepayment risk as well as from the sale of U.S.
Treasury securities. The majority of the 1995 gains related to the sale of
callable agency securities, the proceeds from which were reinvested in
securities of moderately longer duration, while the 1994 activity was undertaken
to sell certain fixed-rate securities in anticipation of increased market
interest rates.
NON-INTEREST EXPENSE
Non-interest expense increased 1.3% from one year ago. Two Florida banks
acquired under the purchase method of accounting, one in third quarter 1995 and
the other in first quarter 1996, represented $11.1 million of the overall
increase. Excluding this amount, non-interest expense would have been down
slightly from last year.
Personnel costs (salaries, commissions, and benefits) were up $11.8
million, or 4.1%, which is indicative of more full-time equivalent employees
(FTEs) and normal salary adjustments. The larger organization, driven by higher
business volumes, acquisitions, and new business initiatives, also contributed
to an increase in various other components of non-interest expense. FDIC
insurance was down significantly in 1996, as Huntington benefited from the
reduction in assessment rates on bank deposits that occurred in the latter part
of 1995. The legislation enacted in September 1996 to recapitalize the Savings
Association Insurance Fund did not have a material effect on Huntington's
results of operations.
The drop in expenses when comparing 1995 with 1994 was primarily
attributable to the restructuring of certain business activities. The resulting
decrease in FTEs contributed to a $7.8 million, or 2.6%, decline in personnel
costs. These initiatives also gave rise to substantial reductions in various
components of other non-interest expense, particularly at The Huntington
Mortgage Company. Provision for Income Taxes
The provision for income taxes was $136.7 million in 1996, compared with
$134.0 million in 1995 and $123.9 million in 1994. Huntington's effective tax
rate declined somewhat from 1995, as a $2.1 million charge was recorded last
year in connection with the conversion of a thrift to a bank charter.
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TABLE 7
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INVESTMENT SECURITIES December 31,
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies.................................... $ 156 $ 156 $317,713
States and political subdivisions...................................... 60,288 67,448 153,649
Other.................................................................. -- -- 4,330
------- --------- --------
Total Investment Securities......................................... $60,444 $ 67,604 $475,692
======= ========= ========
- ----------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1996
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
1 - 5 years......................................................... $ 156 $ 156 7.75%
-------- --------
Total............................................................. 156 156
-------- --------
States and political subdivisions
Under 1 year........................................................ 13,875 13,955 8.30
1-5 years........................................................... 22,283 22,706 8.45
6-10 years.......................................................... 20,143 20,304 7.76
Over 10 years....................................................... 3,987 3,986 9.08
-------- --------
Total............................................................. 60,288 60,951
-------- --------
Total Investment Securities ........................................... $ 60,444 $ 61,107
======== ========
(1)Weighted average yields were calculated on the basis of amortized cost and have been adjusted to a fully tax
equivalent basis, assuming a 35% tax rate.
At December 31, 1996, Huntington had no concentrations of securities by a single
issuer in excess of 10% of shareholders' equity.
INTEREST RATE RISK AND
LIQUIDITY 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. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, and market risks. On and off-balance sheet
strategies and tactics are reviewed and monitored regularly by ALCO to ensure
consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing 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 investments and funding sources. To accomplish its
overall balance sheet objectives, Huntington regularly accesses a variety of
markets--money, bond, and futures and options--as well as numerous trading
exchanges. In addition, dealers in over-the-counter financial instruments
provide availability of interest rate swaps as needed.
- ------------------------------------------------------------------------------------------------------------------------------
TABLE 8
- ------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies..................................... $4,294,946 $4,228,170 $3,006,277
Other Securities....................................................... 448,987 492,974 298,216
------------ ------------ ----------
Total Securities Available for Sale................................. $4,743,933 $4,721,144 $3,304,493
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1996
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year........................................................ $ 58,572 $ 58,835 6.54%
1-5 years........................................................... 390,881 384,021 5.51
6-10 years.......................................................... 159,747 153,489 5.46
------------ ------------
Total............................................................. 609,200 596,345
------------ ------------
Federal Agencies
Mortgage-backed securities
1-5 years........................................................... 179,601 182,239 7.33
6-10 years.......................................................... 842,331 830,653 6.28
Over 10 years....................................................... 259,214 259,519 6.82
------------ ------------
Total............................................................. 1,281,146 1,272,411
------------ ------------
Other agencies
Under 1 year........................................................ 63,586 63,823 6.49
1-5 years........................................................... 1,843,924 1,845,256 6.56
6-10 years.......................................................... 176,519 175,143 6.20
Over 10 years....................................................... 343,946 341,968 6.33
------------ ------------
Total............................................................. 2,427,975 2,426,190
------------ ------------
Total U.S. Treasury and Federal Agencies............................... 4,318,321 4,294,946
------------ ------------
Other Securities
Under 1 year........................................................ 7,305 7,497 12.28
1-5 years........................................................... 9,304 9,706 10.97
6-10 years.......................................................... 157,904 158,906 6.56
Over 10 years....................................................... 265,534 265,649 6.78
Marketable equity securities........................................ 8,480 7,229 5.74
------------ ------------
Total............................................................. 448,527 448,987
------------ ------------
Total Securities Available for Sale.................................... $ 4,766,848 $ 4,743,933
============ ============
(1)Weighted average yields were calculated on the basis of amortized cost.
At December 31, 1996, Huntington had no concentrations of securities by a single issuer in excess of 10% of
shareholders' equity.
1996 ANNUAL REPORT TO SHAREHOLDERS
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, 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 loans, principal amortization and maturities
on other financial instruments, and balance sheet growth assumptions. The model
captures embedded options, e.g. interest rate caps/floors or call options, and
accounts for changes in rate relationships, as various rate indices lead or lag
changes in market rates. While these assumptions are inherently uncertain,
management utilizes probabilities and, therefore, believes that the model
provides an accurate estimate of Huntington's interest rate risk exposure.
Management reporting of this information is regularly shared with the Board of
Directors.
At December 31, 1996, the results of Huntington's 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 would be expected to
increase 1.2% if rates were to fall 200 basis points versus a decline in net
interest income of 2.8% if rates rose.
Active interest rate risk management necessitates the use of various types
of off-balance sheet financial instruments, primarily interest rate swaps. Risk
that is created by different indices on products, by unequal terms to maturity
of assets and liabilities, and by products that are appealing to customers but
incompatible with current risk limits can be eliminated or decreased in a cost
efficient manner by utilizing interest rate swaps. In addition, the swap
strategy has enabled Huntington to lower the overall cost of raising wholesale
funds. Similarly, financial futures, interest rate caps and floors, options, and
forward rate agreements are used to control financial risk effectively.
Off-balance sheet instruments are often preferable to similar cash instruments
because, though
- --------------------------------------------------------------------------------
TABLE 9
- --------------------------------------------------------------------------------
INTEREST RATE SWAP PORTFOLIO
- --------------------------------------------------------------------------------
(in millions of dollars) December 31, 1996
- --------------------------------------------------------------------------------
Average
Notional Maturity Market Average Rate
Value (years) Value Receive Pay
----- ------- ----- ------- ---
ASSET CONVERSION SWAPS
Receive fixed $ 800 1.86 $(3.8) 5.65% 5.53%
Receive fixed-amortizing 93 1.49 (.6) 5.27 5.60
------- -----
TOTAL ASSET CONVERSION SWAPS $ 893 1.82 $(4.4) 5.61% 5.54%
======= =====
LIABILITY CONVERSION SWAPS
Receive fixed $ 1,430 2.20 $ 18.5 6.05% 5.50%
Receive fixed-amortizing 195 2.49 (3.0) 5.63 5.67
Pay fixed 50 .68 (.8) 5.53 8.05
------- -----
TOTAL LIABILITY CONVERSION SWAPS $ 1,675 2.19 $ 14.7 5.98% 5.60%
======= =====
BASIS PROTECTION SWAPS $ 250 2.18 $ (.3) 5.54% 5.56%
======= =====
- --------------------------------------------------------------------------------
performing identically, they require less capital while preserving access to the
marketplace.
Table 9 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. Accordingly, current market values are
not necessarily indicative of the future impact of the swaps on net interest
income. This will depend, in large part, on the shape of the yield curve as well
as interest rate levels. With respect to the variable rate information and the
indexed amortizing swap maturities presented in the table, management made no
assumptions regarding future changes in interest rates.
The pay rates on Huntington's receive-fixed swaps vary based on movements
in the applicable London 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 primarily of contracts that are indexed
to the prepayment experience of a specified pool of mortgage loans. As market
interest rates change, the amortization of the notional value of the swap will
also change, generally slowing as rates increase and accelerating when rates
fall. Basis swaps are contracts which provide for both parties to receive
interest payments according to different rate indices and are used to protect
against changes in spreads between market rates. The receive and pay amounts
applicable to Huntington's basis swaps are based predominantly on LIBOR.
The notional values of the swap portfolio represent contractual amounts on
which interest payments to be exchanged are based. These notional values do not
represent direct credit exposures. At December 31, 1996, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$59.8 million, which represents the sum of the
TABLE 10
- --------------------------------------------------------------------------------
MATURITIES OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
AS OF DECEMBER 31, 1996 (in thousands of dollars)
- --------------------------------------------------------------------------------
Three months or less........................ $514,845
Over three through six months............... 206,028
Over six through twelve months.............. 131,708
Over twelve months.......................... 76,346
--------
Total....................................... $928,927
========
NOTE: All foreign time deposits are denominated in amounts greater than $100,000.
- --------------------------------------------------------------------------------
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. In order to
minimize the risk that a swap counterparty will not satisfy its interest payment
obligation under the terms of the contract, Huntington performs credit reviews
on all counterparties, restricts the number of counterparties used to a select
group of high quality institutions, obtains collateral, and enters into formal
netting arrangements. Huntington has never experienced any past due amounts from
a swap counterparty and does not anticipate nonperformance in the future by any
such counterparties.
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $450 million at December 31, 1996. Total
credit exposure from such contracts, represented by those instruments with a
positive fair value, was $4.2 million. These separate activities, which are
accounted for at fair value, are not a significant part of Huntington's
operations. Accordingly, they have been excluded from the above discussion of
off-balance sheet financial instruments and the related table.
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The
objective of ALCO in this regard is to maintain an optimum balance of maturities
among Huntington's assets and liabilities such that sufficient cash, or access
to cash, is available at all times to meet the needs of borrowers, depositors,
and creditors, as well as to fund corporate expansion and other activities.
A chief source of Huntington's liquidity is derived from the large retail
deposit base accessible by its network of geographically dispersed banking
offices. This core funding is supplemented by Huntington's demonstrated ability
to raise funds in capital markets and to access funds nationwide. Huntington's
$4 billion bank note program is a significant source of wholesale funding. Bank
notes may range in maturity from 30 days to 15 years, with interest based on
prevailing market rates. At the end of the most recent twelve months, a total of
$1.1 billion of such notes was outstanding. A similar $750 million note program
is available to the parent company, the proceeds from which are used from time
to time to fund certain non-banking activities, finance acquisitions, repurchase
Huntington's common stock, or for other general corporate purposes. At year end
1996, $320 million was outstanding in connection with the parent company
program. In addition, a $2 billion European note program was initiated in
October 1996, providing additional funding diversification. As of year end, $325
million was outstanding under this arrangement. Huntington also has a fully
available $200 million line of credit that supports commercial paper borrowings
and other short-term working capital needs.
While liability sources are many, significant liquidity is available from
Huntington's investment and loan portfolios. ALCO regularly monitors the overall
liquidity position of the business and ensures that various alternative
strategies exist to cover unanticipated events. At December 31, 1996, sufficient
liquidity was available to meet estimated short-term and
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 11
- ---------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end........................................ $3,230,902 $2,854,142 $1,442,138
Weighted average interest rate at year-end................. 5.24% 5.12% 4.82%
Maximum amount outstanding at month-end during the year.... $3,230,902 $2,854,142 $1,798,524
Average amount outstanding during the year................. $2,668,182 $2,154,114 $1,374,741
Weighted average interest rate during the year............. 5.21% 5.77% 3.58%
BANK NOTES WITH ORIGINAL MATURITIES OF LESS THAN ONE YEAR
Balance at year-end........................................ $505,300 $494,000 $1,264,000
Weighted average interest rate at year-end................. 5.67% 6.17% 5.55%
Maximum amount outstanding at month-end during the year.... $575,300 $1,401,000 $1,364,000
Average amount outstanding during the year................. $357,923 $1,127,228 $1,138,280
Weighted average interest rate during the year............. 7.47% 6.67% 4.48%
1996 ANNUAL REPORT TO SHAREHOLDERS
TABLE 12
- ----------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Non-accrual loans ............................ $ 47,155 $ 50,669 $ 41,929 $ 75,933 $ 87,541 $ 139,024
Renegotiated loans............................ 3,326 4,299 2,550 1,254 2,508 5,491
--------- --------- ---------- ---------- --------- ---------
TOTAL NON-PERFORMING LOANS ................... 50,481 54,968 44,479 77,187 90,049 144,515
--------- --------- ---------- ---------- --------- ---------
Other real estate, net........................ 16,772 22,026 51,909 62,446 73,130 99,646
--------- --------- ---------- ---------- --------- ---------
TOTAL NON-PERFORMING ASSETS .................. $ 67,253 $ 76,994 $ 96,388 $ 139,633 $ 163,179 $ 244,161
========= ========= ========== ========== ========= =========
NON-PERFORMING LOANS AS A % OF
TOTAL LOANS ............................... .35% .41% .36% .70% .95% 1.63%
NON-PERFORMING ASSETS AS A % OF
TOTAL LOANS AND OTHER REAL ESTATE ......... .47% .58% .78% 1.27% 1.70% 2.72%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS ...................... 394.32% 353.76% 450.76% 274.44% 170.63% 93.26%
ALLOWANCE FOR LOAN LOSSES AND
OTHER REAL ESTATE AS A % OF
NON-PERFORMING ASSETS ..................... 291.69% 238.65% 193.13% 143.41% 95.22% 56.53%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE ...... $34,056 $27,018 $20,877 $ 25,550 $24,298 $36,270
========= ========= ========== ========== ========= =========
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
TO TOTAL LOANS ............................ .24% .20% .17% .23% .26% .41%
NOTE: For 1996, the amount of interest income which would have been recorded under the original terms for total loans
classified as non-accrual or renegotiated was $6.6 million. Amounts actually collected and recorded as interest income
for these loans totaled $0.7 million.
- ----------------------------------------------------------------------------------------------------------------------------
long-term funding needs.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent 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 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 assets, consisting of
loans that are no longer accruing interest, loans that have been renegotiated
based upon financial difficulties of the borrower, and real estate acquired
through foreclosure, totaled $67.3 million at the most recent year end, down
12.7% from one year ago. As of December 31, 1996, non-performing loans
represented .35% of total loans and non-performing assets as a percent of total
loans and other real estate were only .47%. Loans past due ninety days or more
but continuing to accrue interest (primarily consumer and residential real
estate) were $34.1 million at year end 1996.
There were also loans outstanding of $50.7 million and $49.0 million,
respectively, at December 31, 1996 and 1995, that were current as to principal
and interest that Huntington considered to be potential problem credits. These
loans are closely monitored for any further deterioration in borrower
performance.
CAPITAL AND DIVIDENDS
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing 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.
Huntington's ratio of average equity to average assets over the last
twelve months was 7.55%, compared with 7.89% and 8.38%, respectively, in the two
preceding years. At December 31, 1996, Huntington met all regulatory capital
requirements. In addition, each bank subsidiary had regulatory capital ratios in
excess of the levels established for "well-capitalized" institutions.
Cash dividends declared were $.76 a share in 1996, up 8.6% from the
corresponding amount in 1995 of $.70 per share. A 10% stock dividend was also
distributed to shareholders in 1996.
On February 21, 1996, the Board of Directors authorized Huntington to
repurchase up to 11.0 million additional shares of its common stock (adjusted
for the July 1996 stock dividend) 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.
Huntington purchased 10.4 million shares in 1996 at an aggregate cost of $249.2
million, leaving 4.2 million shares available for repurchase. Huntington's
management believes the remaining authorized shares will be repurchased by the
end of 1997.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1996 was $67.7 million, or $.47 per
share, compared with $65.5 million, or $.45 per share, in the same period last
year. ROE and ROA for the most recent quarter were 17.87% and 1.32%,
respectively, versus 17.50% and 1.31% in the final three months of 1995.
Net interest income was $193.1 million in the recent quarter versus $181.9
million in the corresponding period of the prior year, as the net interest
margin and average earning assets each increased more than 3%.
The provision for loan losses was $21.1 million in the last quarter of the
year, compared with $12.1 million in the same period of 1995. Net charge-offs
were .62% of average loans in the recent three months, up from .53% in the final
quarter one year ago. As previously discussed, increased consumer charge-offs
contributed to the higher loss ratio in 1996.
Non-interest income was $66.6 million for the three months ended December
31, 1996. Similar to the full year results, improvements occurred across most of
the major categories. The fourth quarter 1995 total was impacted significantly
by the above-mentioned gain on sale of a bank subsidiary as well as a gain of
$2.8 million on the sale of residential mortgage loans (a component of mortgage
banking income). Securities gains were up $3.9 million when comparing the recent
quarter with the same three months a year ago.
Non-interest expense totaled $137.4 million in the most recent three
months, flat with the final quarter of last year. Higher personnel and equipment
costs were offset by a reduction in other non-interest expense. FDIC insurance
expense was also lower, as the entire amount paid by Huntington for the fourth
quarter of 1996 was refunded. Total non-interest expense for the quarter just
ended included approximately $2.5 million related to the Lakeland acquisition.
HUNTINGTON BANCSHARES INCORPORATED
- ---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis(1) 1996 1995
(in millions of dollars) -------------------------------- -------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- ------------------------------------------------- -------------------------------- -------------------------------
ASSETS
Interest bearing deposits in banks............... $ 11 $ .7 5.98% $ 21 $ 1.3 5.99%
Trading account securities....................... 16 .9 5.66 23 1.7 7.29
Federal funds sold and securities purchased
under resale agreements....................... 25 1.4 5.95 46 3.0 6.45
Mortgages held for sale.......................... 113 8.8 7.72 130 9.8 7.58
Securities:
Taxable....................................... 4,667 301.2 6.45 4,191 281.6 6.72
Tax Exempt.................................... 94 8.7 9.27 124 12.6 10.30
------- -------- -------- --------
Total Securities............................ 4,761 309.9 6.51 4,315 294.2 6.82
------- -------- -------- --------
Loans
Commercial.................................... 4,323 338.0 7.82 4,123 347.2 8.43
Real Estate
Construction................................ 405 34.3 8.48 339 29.1 8.58
Mortgage.................................... 2,774 235.8 8.50 3,070 256.6 8.36
Consumer
Loans....................................... 5,203 464.0 8.92 4,892 434.3 8.88
Leases...................................... 950 74.8 7.87 657 51.0 7.76
------- -------- -------- --------
Total loans................................. 13,655 1,146.9 8.40 13,081 1,118.2 8.55
Allowance for loan losses/loan fees......... 201 47.0 200 40.4
------- -------- -------- --------
Net loans................................... 13,454 1,193.9 8.74 12,881 1,158.6 8.86
------- -------- -------- --------
Total earning assets........................ 18,581 $1,515.6 8.16% 17,616 $1,468.6 8.34%
------- -------- -------- --------
Cash and due from banks.......................... 757 780
All other assets................................. 912 852
------- --------
TOTAL ASSETS .................................... $20,049 $ 19,048
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing.......................... $ 2,340 $ 2,179
Interest bearing.............................. 2,551 $ 61.4 2.41% 2,539 $ 62.2 2.45%
Savings deposits................................. 2,420 77.2 3.19 2,053 56.4 2.75
Certificates of deposit of $100,000 or more...... 986 53.8 5.45 812 47.1 5.80
Other domestic time deposits..................... 4,421 248.7 5.63 4,383 242.9 5.54
Foreign time deposits............................ 305 18.4 6.03 261 17.0 6.50
------- -------- -------- --------
Total deposits................................ 13,023 459.5 4.30 12,227 425.6 4.24
------- -------- -------- --------
Short-term borrowings............................ 3,258 178.7 5.49 3,491 212.1 6.08
Long-term debt................................... 1,819 113.4 6.23 1,424 99.6 7.00
------- -------- -------- --------
Interest bearing liabilities.................. 15,760 $ 751.6 4.77% 14,963 $ 737.3 4.93%
------- -------- -------- --------
All other liabilities............................ 436 403
Shareholders' equity............................. 1,513 1,503
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $20,049 $ 19,048
======= ========
Net interest rate spread......................... 3.39% 3.41%
Impact of non-interest bearing funds on margin... .72% .74%
NET INTEREST INCOME/MARGIN ...................... $ 764.0 4.11% $ 731.3 4.15%
======== ========
(1)Fully tax equivalent yields are calculated assuming a 35% tax rate in 1993
through 1996 and a 34% tax rate in years 1991 and 1992.
Average loan balances include non-accruing loans. Loan income includes
cash received on non-accruing loans.
HUNTINGTON BANCSHARES INCORPORATED
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991
- ----------------------------- ------------------------------ ------------------------------ --------------------------
Interest Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ----------------------------- ------------------------------ ------------------------------ --------------------------
$ 4 $ .3 7.57% $ 26 $ 1.1 4.16% $ 81 $ 4.0 4.88% $ 52 $ 3.8 7.32%
14 .9 6.16 10 .5 5.04 22 1.2 5.43 27 1.8 6.83
115 5.0 4.32 78 2.6 3.36 126 4.9 3.90 152 8.8 5.76
367 25.9 7.06 827 60.2 7.28 681 55.1 8.09 386 34.0 8.80
3,217 198.6 6.17 4,199 254.9 6.07 3,510 244.9 6.98 2,761 235.5 8.53
190 20.5 10.80 260 29.1 11.22 336 31.7 9.43 396 41.6 10.51
- --------- -------- -------- --------- ------- -------- -------- --------
3,407 219.1 6.43 4,459 284.0 6.37 3,846 276.6 7.19 3,157 277.1 8.78
- --------- -------- -------- --------- ------- -------- -------- --------
3,636 308.3 8.48 3,368 287.9 8.55 3,155 265.1 8.40 3,050 282.0 9.25
298 23.1 7.75 368 26.1 7.09 393 26.4 6.71 457 38.2 8.37
2,786 220.3 7.91 2,473 203.6 8.24 2,145 191.2 8.92 2,036 202.9 9.96
4,316 354.2 8.21 3,575 323.8 9.06 3,190 340.7 10.68 2,904 336.6 11.59
485 34.7 7.15 349 27.8 7.97 263 23.3 8.86 231 22.3 9.65
- --------- -------- -------- --------- ------- -------- -------- --------
11,521 940.6 8.16 10,133 869.2 8.58 9,146 846.7 9.26 8,678 882.0 10.16
212 37.4 194 30.4 144 28.6 131 19.2
- --------- -------- -------- --------- ------- -------- -------- --------
11,309 978.0 8.49 9,939 899.6 8.88 9,002 875.3 9.57 8,547 901.2 10.38
- --------- -------- -------- --------- ------- -------- -------- --------
15,428 $1,229.2 7.97% 15,533 $ 1,248.0 8.03% 13,902 $1,217.1 8.75% 12,452 $ 1,226.7 9.85%
- --------- -------- -------- --------- ------- -------- -------- --------
741 693 636 567
793 819 771 725
- --------- -------- ------- --------
$ 16,750 $ 16,851 $15,165 $13,613
========= ======== ======= ========
$ 2,116 $ 2,141 $ 1,749 $ 1,401
2,713 $ 59.9 2.21% 2,662 $ 63.7 2.39% 2,513 $ 76.5 3.05% 2,210 $ 103.3 4.68%
2,281 49.0 2.15 2,229 57.5 2.58 1,770 64.1 3.62 1,326 64.9 4.89
607 25.6 4.22 831 31.1 3.74 1,251 56.7 4.53 1,523 100.1 6.57
3,523 148.1 4.20 3,572 150.3 4.21 4,066 206.8 5.09 4,223 288.5 6.83
286 12.2 4.25 455 15.0 3.30 153 5.7 3.73 69 3.8 5.56
- --------- -------- -------- --------- ------- -------- -------- --------
11,526 294.8 3.13 11,890 317.6 3.26 11,502 409.8 4.20 10,752 560.6 5.99
- --------- -------- -------- --------- ------- -------- -------- --------
2,629 106.7 4.06 2,825 89.4 3.17 2,062 72.9 3.54 1,406 81.2 5.77
928 62.2 6.71 640 33.1 5.18 300 22.1 7.36 219 18.4 8.41
- --------- -------- -------- --------- ------- -------- -------- --------
12,967 $ 463.7 3.58% 13,214 $ 440.1 3.33% 12,115 $ 504.8 4.17% 10,976 $ 660.2 6.01%
- --------- -------- -------- --------- ------- -------- -------- --------
264 280 227 259
1,403 1,216 1,074 977
- --------- -------- ------- --------
$ 16,750 $ 16,851 $15,165 $13,613
========= ======== ======= ========
4.39% 4.70% 4.58% 3.84%
.57% .50% .54% .71%
$ 765.5 4.96% $ 807.9 5.20% $ 712.3 5.12% $ 566.5 4.55%
======== ========= ======== ========
HUNTINGTON BANCSHARES INCORPORATED
- ---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) Year Ended December 31,
1996 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME ............. $ 1,510,464 $ 1,461,896 $ 1,219,721 $ 1,236,311 $ 1,202,286 $1,208,407
TOTAL INTEREST EXPENSE ............ 751,640 737,333 463,671 440,111 504,846 659,918
----------- ----------- ----------- ----------- ----------- ----------
NET INTEREST INCOME ............... 758,824 724,563 756,050 796,200 697,440 548,489
Provision for loan losses.......... 65,050 28,721 15,284 79,294 81,562 62,061
----------- ----------- ----------- ----------- ----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 693,774 695,842 740,766 716,906 615,878 486,428
----------- ----------- ----------- ----------- ----------- ----------
Service charges on deposit accounts 92,353 85,118 76,836 73,172 64,471 57,024
Mortgage banking................... 35,025 34,212 41,918 52,874 43,480 34,291
Trust services..................... 34,010 30,377 28,448 27,948 25,129 24,435
Credit card fees................... 22,506 18,463 18,410 17,954 16,467 15,261
Securities gains................... 17,703 9,056 2,594 27,189 36,332 16,951
Investment product sales........... 12,219 8,121 6,624 9,016 5,193 2,548
Electronic banking fees............ 10,358 5,032 2,589 1,427 1,083 1,324
Other.............................. 48,819 52,630 36,446 37,474 28,680 28,545
----------- ----------- ----------- ----------- ----------- ----------
TOTAL NON-INTEREST INCOME ......... 272,993 243,009 213,865 247,054 220,835 180,379
----------- ----------- ----------- ----------- ----------- ----------
Salaries........................... 229,153 220,168 226,668 226,405 206,429 175,749
Commissions........................ 13,645 9,843 10,775 20,992 18,310 9,307
Employee benefits.................. 56,827 57,790 58,158 55,259 46,596 42,435
Net occupancy...................... 42,543 41,263 40,291 39,955 36,272 33,542
Equipment.......................... 42,129 38,271 38,792 37,230 34,184 31,735
Credit card and electronic banking. 15,509 13,407 13,493 11,835 10,987 9,710
Printing and supplies.............. 15,338 14,147 14,821 14,721 13,588 12,599
Advertising........................ 12,447 11,271 15,320 13,259 13,308 10,526
Legal and loan collection.......... 10,050 8,643 8,298 11,361 13,109 10,807
FDIC insurance..................... 1,232 15,056 25,271 25,322 25,500 22,126
Other.............................. 129,073 130,544 136,270 143,830 184,995 118,153
----------- ----------- ----------- ----------- ----------- ----------
TOTAL NON-INTEREST EXPENSE ........ 567,946 560,403 588,157 600,169 603,278 476,689
----------- ----------- ----------- ----------- ----------- ----------
INCOME BEFORE INCOME TAXES ........ 398,821 378,448 366,474 363,791 233,435 190,118
Provision for income taxes......... 136,720 133,959 123,881 126,879 72,389 56,178
----------- ----------- ----------- ----------- ----------- ----------
NET INCOME ........................ $ 262,101 $ 244,489 $ 242,593 $ 236,912 $ 161,046 $ 133,940
=========== =========== =========== =========== =========== ===========
PER COMMON SHARE(1)
Net income...................... $1.80 $1.62 $1.62 $1.60 $1.10 $.92
Cash dividends declared......... $.76 $.70 $.62 $.51 $.44 $.40
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income................ $ 758,824 $ 724,563 $ 756,050 $ 796,200 $ 697,440 $ 548,489
Tax Equivalent Adjustment(2) ...... 5,101 6,766 9,505 11,670 14,897 18,007
----------- ----------- ----------- ----------- ----------- ----------
Tax Equivalent Net Interest Income. $ 763,925 $ 731,329 $ 765,555 $ 807,870 $ 712,337 $ 566,496
=========== =========== =========== =========== =========== =========
(1)Adjusted for the ten percent stock dividend distributed July 31, 1996.
(2)Calculated assuming a 35% tax rate in years 1993 through 1996 and a 34% tax
rate in years 1991 and 1992.
HUNTINGTON BANCSHARES INCORPORATED
- ------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Quarterly Common Stock Summary(1) 1996 1995
IV Q III Q II Q I Q IV Q III Q II Q I Q
--------------------------------------- --------------------------------------
High..................................... $28 7/8 $23 1/2 $23 $ 22 1/8 $ 23 1/8 $21 1/2 $18 1/4 $16 1/2
Low...................................... 22 7/8 21 1/4 21 1/2 20 1/2 20 3/8 18 3/8 15 5/8 14 5/8
Close.................................... 26 3/8 23 21 3/4 21 3/4 21 3/4 20 1/2 18 15 3/4
Cash dividends declared.................. .20 .20 .18 .18 .18 .18 .17 .17
(1) Restated for the ten percent stock dividend distributed July 31, 1996.
Note: Stock price quotations were obtained from NASDAQ.
- --------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 1996 1995
MARGIN ANALYSIS-- AS A %
OF AVERAGE EARNING ASSETS(1) IV Q III Q II Q I Q IV Q III Q II Q I Q
- ------------------------------ ------------------------------------------ ------------------------------------------
Interest income............... 8.04% 8.15% 8.19% 8.14% 8.26% 8.37% 8.38% 8.26%
Interest expense.............. 3.94 3.99 4.04 4.11 4.28 4.19 4.17 4.00
---- ---- ---- ---- ---- ---- ---- ----
Net Interest Margin........ 4.10% 4.16% 4.15% 4.03% 3.98% 4.18% 4.21% 4.26%
RETURN ON
Average total assets.......... 1.32% 1.33% 1.32% 1.26% 1.31% 1.34% 1.25% 1.23%
Average earning assets........ 1.42% 1.43% 1.42% 1.37% 1.41% 1.45% 1.35% 1.33%
Average shareholders' equity.. 17.87% 17.92% 17.56% 16.02% 17.50% 17.03% 15.08% 15.08%
(1) Presented on a fully tax equivalent basis assuming a 35% tax rate.
- --------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS 1996 1995
(QUARTER-END)
(in thousands of dollars) IV Q III Q II Q I Q IV Q III Q II Q I Q
- ------------------------------ -------------------------------------------- ---------------------------------------------
Non-accrual loans............ $ 47,155 $ 49,800 $ 51,470 $ 57,530 $ 50,669 $ 41,997 $ 41,554 $ 41,576
Renegotiated loans........... 3,326 5,174 5,558 5,578 4,299 4,313 13,424 11,568
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL NON-PERFORMING LOANS .. 50,481 54,974 57,028 63,108 54,968 46,310 54,978 53,144
--------- --------- --------- --------- --------- --------- --------- ---------
Other real estate, net....... 16,772 15,610 21,720 20,386 22,026 23,668 24,029 26,558
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL NON-PERFORMING ASSETS . $ 67,253 $ 70,584 $ 78,748 $ 83,494 $ 76,994 $ 69,978 $ 79,007 $ 79,702
========= ========= ========= ========= ========= ========= ========= =========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ......... .35% .39% .42% .47% .41% .34% .42% .41%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND
OTHER REAL ESTATE ....... .47% .51% .57% .62% .58% .52% .60% .62%
ALLOWANCE FOR LOAN LOSSES
AS A % OF NON-PERFORMING
LOANS .................... 394.32% 364.20% 344.54% 312.76% 353.76% 428.79% 360.62% 378.38%
ALLOWANCE FOR LOAN LOSSES
AND OTHER REAL ESTATE AS
A % OF NON-PERFORMING
ASSETS ................... 291.69% 274.54% 238.03% 225.01% 238.65% 263.26% 234.30% 235.10%
ACCRUING LOANS PAST DUE
90 DAYS OR MORE .......... $ 34,056 $ 32,382 $ 29,859 $ 25,824 $ 27,018 $ 24,001 $ 20,685 $ 19,771
========= ========= ========= ========= ========= ========= ========= =========
HUNTINGTON BANCSHARES INCORPORATED
- ------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
(in thousands of dollars,
except per share amounts) IVQ III Q II Q I Q IV Q III Q II Q I Q
- ------------------------------ ---------------------------------------------- -----------------------------------------------
TOTAL INTEREST INCOME ........ $ 382,667 $ 378,422 $ 375,079 $ 374,296 $ 381,437 $ 377,859 $ 360,203 $ 342,397
TOTAL INTEREST EXPENSE ....... 189,555 186,721 185,786 189,578 199,551 191,281 180,313 166,188
---------- --------- --------- ---------- --------- --------- --------- ---------
NET INTEREST INCOME .......... 193,112 191,701 189,293 184,718 181,886 186,578 179,890 176,209
Provision for loan losses..... 21,134 20,250 11,843 11,823 12,139 7,187 4,787 4,608
---------- --------- --------- ---------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . 171,978 171,451 177,450 172,895 169,747 179,391 175,103 171,601
---------- --------- --------- ---------- --------- --------- --------- ---------
Service charges on
deposit accounts........... 23,418 23,342 23,132 22,461 21,008 21,109 20,487 22,514
Mortgage banking.............. 8,492 9,680 7,976 8,877 9,752 8,274 6,613 9,573
Trust services................ 8,461 8,432 8,324 8,793 7,424 7,312 7,586 8,055
Credit card fees.............. 5,034 4,092 8,544 4,836 5,450 4,669 4,399 3,945
Securities gains.............. 4,240 6,173 200 7,090 302 2,315 6,379 60
Investment product sales...... 3,000 2,694 3,286 3,239 2,292 2,159 1,971 1,699
Electronic banking fees....... 3,532 2,988 2,172 1,666 1,740 1,270 1,068 954
Other......................... 10,450 13,627 13,542 11,200 18,830 12,692 10,021 11,087
---------- --------- --------- ---------- --------- --------- --------- ---------
TOTAL NON-INTEREST INCOME .... 66,627 71,028 67,176 68,162 66,798 59,800 58,524 57,887
---------- --------- --------- ---------- --------- --------- --------- ---------
Salaries...................... 58,083 58,475 56,776 55,819 54,695 54,391 54,974 56,108
Commissions................... 3,441 3,117 3,480 3,607 3,149 3,074 1,932 1,688
Employee benefits............. 10,952 13,858 14,801 17,216 12,752 13,958 15,419 15,661
Net occupancy................. 10,232 10,602 10,835 10,874 10,459 10,039 10,079 10,686
Equipment..................... 11,578 10,670 10,267 9,614 9,406 9,470 9,593 9,802
Credit card and electronic
banking..................... 3,659 4,255 4,023 3,572 3,695 3,398 3,196 3,118
Printing and supplies......... 3,967 3,712 4,164 3,495 3,705 3,508 3,362 3,572
Advertising................... 2,685 2,845 4,052 2,865 2,179 3,149 2,912 3,031
Legal and loan collection..... 3,658 2,000 2,498 1,894 2,758 1,857 1,905 2,123
FDIC insurance................ (298) 332 679 519 1,820 151 6,549 6,536
Other......................... 29,449 31,712 33,891 34,021 32,646 34,451 31,131 32,316
---------- --------- --------- ---------- --------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE ... 137,406 141,578 145,466 143,496 137,264 137,446 141,052 144,641
---------- --------- --------- ---------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ... 101,199 100,901 99,160 97,561 99,281 101,745 92,575 84,847
Provision for income taxes.... 33,474 34,438 34,072 34,736 33,752 35,808 34,414 29,985
---------- --------- --------- ---------- --------- --------- --------- ---------
NET INCOME ................... $ 67,725 $ 66,463 $ 65,088 $ 62,825 $ 65,529 $ 65,937 $ 58,161 $ 54,862
========== ========= ========= ========== ========= ========= ========= =========
PER COMMON SHARE(1)
Net income................. $.47 $.46 $.45 $.42 $.45 $.44 $.38 $.35
Cash dividends declared.... $.20 $.20 $.18 $.18 $.18 $.18 $.17 $.17
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income........... $ 193,112 $ 191,701 $ 189,293 $ 184,718 $ 181,886 $ 186,578 $ 179,890 $ 176,209
Tax Equivalent Adjustment(2) . 1,210 1,204 1,319 1,368 1,523 1,635 1,723 1,885
---------- --------- --------- ---------- --------- --------- --------- ---------
Tax Equivalent Net Interest
Income $ 194,322 $ 192,905 $ 190,612 $ 186,086 $ 183,409 $ 188,213 $ 181,613 $ 178,094
========== ========= ========= ========== ========= ========= ========= =========
(1) Adjusted for the ten percent stock dividend distributed July 31, 1996.
(2) Calculated assuming a 35% tax rate.
To The Board Of Directors And Shareholders
Huntington Bancshares Incorporated
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntington
Bancshares Incorporated and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Columbus, Ohio
January 15, 1997
/s/ Ernst & Young LLP
HUNTINGTON BANCSHARES INCORPORATED
- -----------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) DECEMBER 31, 1996 1995
------------ ------------
ASSETS
Cash and due from banks......................................................... $ 915,636 $ 860,958
Interest bearing deposits in banks.............................................. 1,704 284,393
Trading account securities...................................................... 1,873 12,924
Federal funds sold and securities purchased under resale agreements............. 8,116 197,531
Mortgages held for sale......................................................... 119,202 159,705
Securities available for sale-- at fair value ................................. 4,743,933 4,721,144
Investment securities-- fair value $61,107 and $69,196, respectively............ 60,444 67,604
Total loans..................................................................... 14,260,747 13,261,667
Less allowance for loan losses............................................... 199,058 194,456
------------ ------------
Net loans....................................................................... 14,061,689 13,067,211
------------ ------------
Premises and equipment.......................................................... 311,793 296,465
Customers' acceptance liability................................................. 56,248 56,926
Accrued income and other assets................................................. 570,875 529,737
------------ ------------
TOTAL ASSETS ................................................................... $ 20,851,513 $ 20,254,598
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing......................................................... $ 2,463,442 $ 2,088,074
Interest bearing............................................................. 2,586,695 2,772,845
Savings deposits................................................................ 2,624,383 2,207,378
Certificates of deposit of $100,000 or more..................................... 928,927 909,403
Other domestic time deposits.................................................... 4,371,994 4,384,949
Foreign time deposits........................................................... 410,450 273,933
------------ ------------
Total deposits............................................................... 13,385,891 12,636,582
------------ ------------
Short-term borrowings........................................................... 3,944,703 3,514,773
Bank acceptances outstanding.................................................... 56,248 56,926
Long-term debt.................................................................. 1,556,326 2,103,024
Accrued expenses and other liabilities.......................................... 396,831 424,428
------------ ------------
Total Liabilities............................................................ 19,339,999 18,735,733
========== ==========
Shareholders' equity
Preferred stock -- authorized 6,617,808 shares; none outstanding
Common stock -- without par value; authorized 300,000,000 shares;
issued and outstanding-- 151,884,156 and 141,402,769 shares, respectively. 1,264,664 1,056,209
Less 9,284,844 and 8,351,978 treasury shares, respectively................... (204,634) (180,632)
Capital surplus.............................................................. 237,348 235,802
Net unrealized (losses) gains on securities available for sale............... (14,569) 40,972
Retained earnings............................................................ 228,705 366,514
------------ ------------
Total Shareholders' Equity................................................... 1,511,514 1,518,865
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 20,851,513 $ 20,254,598
============ ============
See notes to consolidated financial statements.
HUNTINGTON BANCSHARES INCORPORATED
-----------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts)
YEAR ENDED DECEMBER 31, 1996 1995 1994
------------ ----------- -----------
Interest and fee income
Loans......................................................... $ 1,193,896 $ 1,156,446 $ 975,604
Securities.................................................... 304,794 289,732 212,257
Other......................................................... 11,774 15,718 31,860
------------ ----------- -----------
TOTAL INTEREST INCOME ..................................... 1,510,464 1,461,896 1,219,721
------------ ----------- -----------
Interest expense
Deposits...................................................... 459,514 425,631 294,780
Short-term borrowings......................................... 178,721 212,110 106,646
Long-term debt................................................ 113,405 99,592 62,245
------------ ----------- -----------
TOTAL INTEREST EXPENSE .................................... 751,640 737,333 463,671
------------ ----------- -----------
NET INTEREST INCOME ....................................... 758,824 724,563 756,050
------------ ----------- -----------
Provision for loan losses........................................ 65,050 28,721 15,284
------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ....... 693,774 695,842 740,766
------------ ----------- -----------
Total non-interest income ....................................... 272,993 243,009 213,865
Total non-interest expense ...................................... 567,946 560,403 588,157
------------ ----------- -----------
INCOME BEFORE INCOME TAXES ................................ 398,821 378,448 366,474
Provision for income taxes....................................... 136,720 133,959 123,881
------------ ----------- -----------
NET INCOME ................................................ $ 262,101 $ 244,489 $ 242,593
============ =========== ===========
PER COMMON SHARE(1)
Net income.................................................... $1.80 $1.62 $1.62
Cash dividends declared....................................... $.76 $.70 $.62
AVERAGE COMMON SHARES OUTSTANDING(1) ............................ 145,957,137 151,385,467 149,830,736
See notes to consolidated financial statements.
(1) Restated for the ten percent stock dividend distributed July 31, 1996.
HUNTINGTON BANCSHARES INCORPORATED
- -----------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) Net Unrealized
Common Common Treasury Treasury Capital Gains (Losses) Retained
Shares Stock Shares Stock Surplus on Securities Earnings Total
------------------------------------------------------------------------------------------------
BALANCE-- JANUARY 1, 1994...... 104,411 $ 902,107 (608) $ (15,290) $ 216,168 $ 221,652 $ 1,324,637
Change in accounting method
for securities.............. $65,548 1,624 67,172
Stock issued for acquisition... 573 9,842 1,318 24,984 (2,026) 32,800
Net income..................... 242,593 242,593
Cash dividends declared
($.62 per share)............ (93,176) (93,176)
Stock options exercised........ 290 6,625 775 (5,669) 1,731
Five-for-four stock split...... 26,088 (160)
Treasury shares purchased...... (3,537) (73,634) (73,634)
Treasury shares sold:
Shareholder dividend
reinvestment plan......... 1,159 26,635 30 (2,151) 24,514
Employee benefit plans...... 633 14,103 137 (589) 13,651
Conversion of convertible notes 48 369 369
Change in net unrealized gains
(losses) on securities
available for sale (128,837) (128,837)
------- ---------- ---- --------- --------- ------- ----------- -----------
BALANCE-- DECEMBER 31, 1994 ... 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..................... 244,489 244,489
Cash dividends declared
($.70 per share)............ (106,493) (106,493)
Stock options exercised........ 231 4,155 7 (2,809) 1,353
5% stock dividend.............. 6,732 140,146 (45) (140,272) (126)
Treasury shares purchased...... (9,625) (204,645) (204,645)
Treasury shares sold:
Shareholder dividend
reinvestment plan......... 1,553 28,609 437 (1,114) 27,932
Employee benefit plans...... 439 7,826 213 (45) 7,994
Conversion of convertible notes 41 311 311
Change in net unrealized gains
(losses) on securities
available for sale 105,246 105,246
------- ---------- ---- --------- --------- -------- ----------- -----------
BALANCE-- DECEMBER 31, 1995 ... 141,403 1,056,209 (8,352) (180,632) 235,802 40,972 366,514 1,518,865
------- ---------- ---- --------- --------- -------- ----------- -----------
Stock issued for acquisition... 4,733 102,760 5,037 107,797
Net income..................... 262,101 262,101
Cash dividends declared
($.76 per share)............ (111,120) (111,120)
Stock options exercised........ 284 5,385 (4,318) 1,067
10% stock dividend............. 10,431 208,110 2,837 78,030 2,444 (288,790) (206)
Treasury shares purchased...... (10,419) (246,341) (2,819) (249,160)
Treasury shares sold:
Shareholder dividend
reinvestment plan......... 1,405 31,189 805 31,994
Employee benefit plans...... 227 4,975 397 5,372
Conversion of convertible notes 50 345 345
Change in net unrealized gains
(losses) on securities
available for sale (55,541) (55,541)
------- ---------- ---- --------- --------- -------- -------- -----------
BALANCE-- DECEMBER 31, 1996 ... 151,884 $1,264,664 (9,285) $(204,634) $ 237,348 ($14,569) $228,705 $ 1,511,514
======= ========== ====== ========= ========= ======== ======== ===========
See notes to consolidated financial statements.
HUNTINGTON BANCSHARES INCORPORATED
-----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) Year Ended December 31, 1996 1995 1994
------------- ----------- ------------
OPERATING ACTIVITIES
Net Income...................................................... $ 262,101 $ 244,489 $ 242,593
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses................................... 65,050 28,721 15,284
Provision for depreciation and amortization................. 85,639 68,763 84,215
Deferred income tax expense ................................ 30,577 26,694 57,329
Decrease (increase) in trading account securities........... 11,051 (3,497) 12,537
Decrease (increase) in mortgages held for sale.............. 40,503 (20,708) 893,341
Gain on sale of subsidiary.................................. -- (8,939) --
Net gains on sales of securities............................ (17,703) (9,056) (2,594)
Decrease (increase) in accrued income receivable............ 7,036 (23,331) (247)
Net increase in other assets................................ (48,541) (37,053) (59,397)
(Decrease) increase in accrued expenses..................... (19,863) 112,963 (22,033)
Net increase (decrease) in other liabilities................ 1,506 879 (46,649)
------------- ----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............. 417,356 379,925 1,174,379
------------- ----------- ------------
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits in banks....... 282,889 (281,334) 9,551
Proceeds from:
Maturities and calls of investment securities................. 23,763 82,082 86,027
Maturities and calls of securities available for sale......... 381,208 216,878 317,031
Sales of securities available for sale........................ 2,715,130 2,653,545 2,316,843
Purchases of:
Investment securities......................................... (4,000) (2,660) (230,676)
Securities available for sale................................. (2,850,892) (3,719,144) (2,146,362)
Proceeds from sales of loans.................................... 110,737 306,105 --
Net loan originations, excluding sales ......................... (1,060,446) (1,267,185) (1,187,428)
Proceeds from disposal of premises and equipment................ 1,664 2,902 1,200
Purchases of premises and equipment............................. (39,654) (33,429) (25,938
Proceeds from sales of other real estate........................ 18,627 30,133 44,484
Net cash received from purchase/sale of subsidiaries............ 631 165,803 2,670
------------- ----------- ------------
NET CASH USED FOR INVESTING ACTIVITIES ................. (420,343) (1,846,304 (812,598)
------------- ----------- ------------
FINANCING ACTIVITIES
Increase (decrease) in total deposits........................... 318,978 397,675 (240,219)
Increase (decrease) in short-term borrowings.................. 415,888 620,369 (303,287)
Proceeds from issuance of long-term debt........................ 870,698 1,095,220 475,000
Payment of long-term debt....................................... (1,417,280) (206,166) (26,415)
Dividends paid on common stock.................................. (109,307) (105,520) (87,545)
Acquisition of treasury stock................................... (249,160) (204,645) (73,634)
Proceeds from issuance of treasury stock........................ 38,433 37,279 39,896
------------- ----------- ------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES ... (131,750) 1,634,212 (216,204)
------------- ----------- ------------
CHANGE IN CASH AND CASH EQUIVALENTS .................... (134,737) 167,833 145,577
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......... 1,058,489 890,656 745,079
------------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............... $ 923,752 $ 1,058,489 $ 890,656
============= =========== ===========
NOTE: Huntington made interest payments of $756,763, $667,712 and $451,694 in
1996, 1995, and 1994, respectively. Federal income tax payments were
$102,809 in 1996, $100,039 in 1995, and $97,775 in 1994.
See notes to consolidated financial statements.
1996 ANNUAL REPORT TO SHAREHOLDERS
1. ACCOUNTING POLICIES
NATURE OF OPERATIONS: Huntington Bancshares Incorporated (Huntington) is a
multi-state bank holding company organized under Maryland law in 1966 and
headquartered in Columbus, Ohio. Through its subsidiaries, Huntington conducts a
full-service commercial and consumer banking business and provides other
financial products and services, principally to domestic customers.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Huntington and its subsidiaries and are presented on the basis of
generally accepted accounting principles (GAAP). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been reclassified to conform with the current year's
presentation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in the
financial statements. Actual results could differ from those estimates.
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 a 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 FASB also
subsequently issued FAS No. 127 that delayed until January 1, 1998, the
effective date of certain provisions of FAS 125. Transactions subject to the
later effective date include securities lending, repurchase agreements, dollar
rolls, and similar secured financing arrangements. Application of the new rules
is not expected to have a material impact on Huntington's consolidated financial
statements.
SECURITIES: Debt securities that Huntington has both the positive intent and
ability to hold to maturity are classified as investments and are carried at
amortized cost. Securities purchased with the intention of recognizing
short-term profits are placed in the trading account and carried at fair value.
Securities not classified as investments or trading are designated
available-for-sale and carried at fair value. Unrealized gains and losses on
securities classified as available-for-sale are carried as a separate component
of shareholders' equity. Unrealized gains and losses on securities classified as
trading are reported in earnings. The amortized cost of specific securities sold
is used to compute realized gains and losses.
LOANS: Loans are stated at the principal amount outstanding, net of unearned
discount. Interest income on loans is primarily accrued based on principal
amounts outstanding. Income from lease financing is recognized on a basis to
achieve a constant periodic rate of return on the outstanding investment. The
accrual of interest income is discontinued when the collection of principal,
interest, or both is doubtful. When interest accruals are suspended, interest
income accrued in the current period is generally reversed. Huntington uses the
cost recovery method in accounting for cash received on non-accrual loans. Under
this method, cash receipts are applied entirely against principal until the loan
has been collected in full, after which time any additional cash receipts are
recognized as interest income.
Significant nonrefundable loan fees and certain direct loan origination costs
are deferred and amortized over the term of the loan as a yield adjustment.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses reflects
management's judgment as to the level considered appropriate to absorb potential
losses inherent in the loan portfolio. This judgment is based on a review of
individual loans, historical loss experience, economic conditions, portfolio
trends, and other factors. The allowance is increased by provisions charged to
earnings and reduced by charge-offs, net of recoveries.
The portion of the allowance for loan losses related to impaired loans
(non-accruing and restructured credits, exclusive of smaller, homogeneous loans)
is based on discounted cash flows using the loans initial effective interest
rate or the fair value of the collateral for collateral-dependent loans.
OTHER REAL ESTATE: Other real estate, acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower of
cost or fair value less estimated costs of disposition. At the date of
acquisition, any losses are charged to the allowance for loan losses. Subsequent
write-downs are included in non-interest expense. Realized losses from
disposition of the property and declines in fair value that are considered
permanent are charged to the reserve for other real estate.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for premises and 3 to 10
years for equipment.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are reported at the
lower of cost or aggregate market value primarily as determined by outstanding
commitments from investors.
Capitalized mortgage servicing rights are evaluated for impairment based on
the fair value of those rights, using a disaggregated approach. Mortgage
servicing rights are amortized on an accelerated basis over the estimated period
of net servicing revenue.
PURCHASE BUSINESS COMBINATIONS: Net assets of entities acquired in
transactions accounted for under the purchase method of accounting are recorded
at estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
generally up to 25 years. Core deposits and other identifiable acquired
intangible assets are amortized on an accelerated basis over their estimated
useful lives.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Huntington uses certain off-balance
sheet financial instruments, principally interest rate swaps, in connection with
its asset/liability management activities. Purchased interest rate options
(including caps and floors), futures, and forwards are also used to manage
interest rate risk. Provided these instruments meet specific criteria, they are
considered hedges and accounted for under the accrual or deferral methods, as
more fully discussed below. Off-balance sheet financial instruments that do not
meet the required criteria are carried on the balance sheet at fair value with
realized and unrealized changes in that value recognized in earnings. Similarly,
if the hedged item is sold or its outstanding balance otherwise declines below
that of the related hedging instrument, the off-balance sheet product (or
applicable excess portion thereof) is marked-to-market and the resulting gain or
loss is included in earnings.
Accrual accounting is used when the cash flows attributable to the hedging
instrument satisfy the objectives of the asset/liability management strategy.
Huntington uses the accrual method for substantially all of its interest rate
swaps as well as for interest rate options. Amounts receivable or payable under
these agreements are recognized as an adjustment to the interest income or
expense of the hedged item. There is no recognition on the balance sheet for
changes in the fair value of the hedging instrument, except for interest rate
swaps designated as hedges of securities available for sale, for which changes
in fair values are reported in shareholders' equity. Premiums paid for interest
rate options are deferred as a component of other assets and amortized to
interest income or expense over the contract term. Gains and losses on
terminated hedging instruments are also deferred and amortized to interest
income or expense over the remaining life of the hedged item.
Huntington employs deferral accounting when the market value of the hedging
instrument meets the objectives of the asset/liability management strategy and
the hedged item is reported at other than fair value. In such cases, gains and
losses associated with futures and forwards are deferred as an adjustment to the
carrying value of the related asset or liability and are recognized in the
corresponding interest income or expense accounts over the remaining life of the
hedged item.
STATEMENT OF CASH FLOWS: Cash and cash equivalents are defined as "Cash and
due from banks" and "Federal funds sold and securities purchased under resale
agreements."
EARNINGS PER SHARE: Per common share amounts have been calculated based upon
the weighted average number of common shares outstanding in each period, as
adjusted for the ten percent stock dividend distributed July 31, 1996. The
dilutive effects of unexercised stock options are not significant.
2. SECURITIES AVAILABLE FOR SALE
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1996, and 1995 were:
- ----------------------------------------------------------------------
Unrealized
--------------
Amortized Gross Gross Fair
(in thousands of dollars) Cost Gains Losses Value
- ----------------------------------------------------------------------
AT DECEMBER 31, 1996
U.S. Treasury...........$ 609,200 $ 1,052 $ 13,907 $ 596,345
Federal Agencies
Mortgage-backed
securities........... 1,281,146 4,008 12,743 1,272,411
Other agencies........ 2,427,975 10,354 12,139 2,426,190
---------- ------- -------- ----------
Total U.S. Treasury
and Federal
Agencies.......... 4,318,321 15,414 38,789 4,294,946
Other securities........ 448,527 3,101 2,641 448,987
---------- ------- -------- ----------
Total securities
available for
sale............. $4,766,848 $18,515 $ 41,430 $4,743,933
========== ======= ======== ==========
AT DECEMBER 31, 1995
U.S. Treasury...........$ 567,088 $ 5,453 $ 2,663 $ 569,878
Federal Agencies
Mortgage-backed
securities........... 882,855 18,115 111 900,859
Other agencies........ 2,726,471 33,814 2,852 2,757,433
---------- ------- -------- ----------
Total U.S. Treasury
and Federal
Agencies.......... 4,176,414 57,382 5,626 4,228,170
Other securities........ 481,130 13,327 1,483 492,974
---------- ------- -------- ----------
Total securities
available for sale.$4,657,544 $70,709 $ 7,109 $4,721,144
========== ======= ======== ==========
Amortized cost and fair values by contractual maturity at December 31, 1996
and 1995 were:
- ----------------------------------------------------------------------
Amortized Fair
(in thousands of dollars) Cost Value
- ----------------------------------------------------------------------
AT DECEMBER 31, 1996
Under 1 year...................... $ 129,463 $ 130,155
1-5 years......................... 2,423,710 2,421,222
6-10 years........................ 1,336,501 1,318,191
Over 10 years..................... 868,694 867,136
Marketable equity securities...... 8,480 7,229
---------- ----------
Total.......................... $4,766,848 $4,743,933
========== ==========
AT DECEMBER 31, 1995
Under 1 year...................... $ 238,329 $ 240,713
1-5 years......................... 2,289,209 2,322,765
6-10 years........................ 1,340,200 1,360,798
Over 10 years..................... 781,447 789,868
Marketable equity securities...... 8,359 7,000
---------- ----------
Total.......................... $4,657,544 $4,721,144
========== ==========
Proceeds from sales of securities available for sale were $2.7 billion in both
1996 and 1995, and $2.3 billion in 1994. Gross gains of $24.7 million, $12.5
million, and $15.2 million were realized in 1996, 1995, and 1994, respectively.
Gross losses totaled $7.0 million in 1996, $3.5 million in 1995, and $12.7
million in 1994.
1996 ANNUAL REPORT TO SHAREHOLDERS
3. INVESTMENT SECURITIES
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1996 and 1995 were:
- -------------------------------------------------------------------------
Unrealized
----------
Amortized Gross Gross Fair
(in thousands of dollars) Cost Gains Losses Value
- -------------------------------------------------------------------------
AT DECEMBER 31, 1996
U.S. Treasury............ $ 156 -- -- $ 156
States and political
subdivisions........... 60,288 $ 996 $ 333 60,951
------- ------ ------ -------
Total investment
securities.......... $60,444 $ 996 $ 333 $61,107
======= ====== ====== =======
AT DECEMBER 31, 1995
U.S. Treasury............ $ 156 -- -- $ 156
States and political
subdivisions........... 67,448 $1,704 $ 112 69,040
------- ------ ------ -------
Total investment
securities........... $67,604 $1,704 $ 112 $69,196
======= ====== ====== =======
Amortized cost and fair values by contractual maturity at
December 31, 1996 and 1995 were:
- -------------------------------------------------------------------------
Amortized Fair
(in thousands of dollars) Cost Value
- -------------------------------------------------------------------------
AT DECEMBER 31, 1996
Under 1 year...................... $ 13,875 $ 13,955
1-5 years......................... 22,439 22,862
6-10 years........................ 20,143 20,304
Over 10 years..................... 3,987 3,986
-------- --------
Total.......................... $ 60,444 $ 61,107
======== ========
AT DECEMBER 31, 1995
Under 1 year...................... $ 27,340 $ 27,592
1-5 years......................... 23,793 24,652
6-10 years........................ 12,638 13,040
Over 10 years..................... 3,833 3,912
-------- --------
Total.......................... $ 67,604 $ 69,196
======== ========
- -------------------------------------------------------------------------
4. LOANS
At December 31, 1996, and 1995, loans were comprised of the following:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Commercial........................ $ 4,462,636 $ 4,260,561
Real estate
Construction................... 473,970 367,889
Commercial 1,617,078 1,578,891
Residential 1,120,800 1,176,715
Consumer
Loans.......................... 5,403,616 5,094,036
Leases......................... 1,182,647 783,575
----------- -----------
Total loans................. $14,260,747 $13,261,667
=========== ===========
Huntington's subsidiaries have granted loans to its officers, directors,
and their associates. Such loans were made in the ordinary course of business at
the banking subsidiaries' normal credit terms, including interest rate and
collateralization, and do not represent more than the normal risk of collection.
These loans to related parties are summarized below:
5. ALLOWANCE FOR LOAN LOSSES
A summary of the transactions in the allowance for loan losses for the three
years ended December 31 follows:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------
Balance, beginning of year.. $194,456 $200,492 $211,835
Allowance acquired/other... 1,907 6,827 1,393
Loan losses................. (81,089) (55,568) (46,122)
Recoveries of loans previously
charged off............. 18,734 13,984 18,102
Provision for loan losses... 65,050 28,721 15,284
-------- -------- --------
Balance, end of year........ $199,058 $194,456 $200,492
======== ======== ========
Approximately $20.7 million and $27.1 million of non-performing loans
presented in of Management's Discussion and Analysis are considered
impaired (as defined in FASB Statement No. 114) at December 31, 1996 and 1995,
respectively. Included in these amounts are $11.1 million and $20.0 million of
impaired loans for which the related allowance for loan losses is $4.5 million
and $7.3 million at December 31, 1996 and 1995. Principally as a result of
write-downs, $9.6 million and $7.1 million of impaired loans do not have an
allowance for loan losses. The average recorded investment in impaired loans
during the years ended December 31, 1996 and 1995, was approximately $23.4
million and $26.0 million, respectively.
- -------------------------------------------------------------------------
6. PREMISES AND EQUIPMENT
At December 31, 1996 and 1995, premises and equipment stated at cost were
comprised of the following:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Land.............................. $ 45,508 $ 47,353
Buildings......................... 239,528 222,942
Leasehold improvements............ 85,137 80,987
Equipment......................... 282,119 265,607
-------- --------
Total premises and equipment... 652,292 616,889
Less accumulated depreciation
and amortization............... 340,499 320,424
-------- --------
Net premises and equipment........ $311,793 $296,465
======== ========
Depreciation and amortization charged to expense and rental income credited
to occupancy expense were as follows:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------
Occupancy expense............... $12,751 $11,795 $11,382
Equipment expense............... 20,153 17,555 16,588
------- ------- -------
Total depreciation and
amortization $32,904 $29,350 $27,970
======= ======= =======
Rental income credited to
occupancy expense............ $11,916 $11,447 $11,798
======= ======= =======
- -------------------------------------------------------------------------
7. SHORT-TERM BORROWINGS
At December 31, 1996 and 1995, short-term borrowings were comprised of the
following:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Federal funds purchased and
securities sold under agreements
to repurchase................... $3,230,902 $2,854,142
Medium-term notes with original
maturities of less than one year
Parent company.................. 140,000 80,000
Subsidiary bank................. 505,300 494,000
Commercial paper................... 37,418 69,096
Other.............................. 31,083 17,535
---------- ----------
Total short-term borrowings........ $3,944,703 $3,514,773
========== ==========
Information concerning securities sold under agreements to repurchase is
summarized as follows:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Average balance during the year..... $1,102,063 $843,598
Average interest rate during
the year........................... 4.46% 4.51%
Maximum month-end balance during
the year........................... $1,302,007 $945,241
Commercial paper is issued by Huntington Bancshares Financial Corporation, a
non-bank subsidiary, with principal and interest guaranteed by Huntington
Bancshares Incorporated (Parent Company).
Huntington has the ability to borrow under a line of credit totaling $200
million to support commercial paper borrowings or other short-term working
capital needs. Under the terms of agreement, a quarterly fee must be paid and
there are no compensating balances required. The line is cancelable, by
Huntington, upon written notice and terminates August 23, 2000. There were no
borrowings under the line in 1996 or 1995.
Securities pledged to secure public or trust deposits, repurchase agreements,
and for other purposes were $1.9 billion and $1.5 billion at December 31, 1996
and 1995, respectively.
8. LONG-TERM DEBT
At December 31, 1996 and 1995, long-term debt was comprised of the following:
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Subordinated notes, 7 5/8%, maturing in
2003, face value $150,000 at
December 31, 1996 and 1995, net of
discount............................$ 149,587 $ 149,518
Subordinated notes, 7 7/8%, maturing in
2002, face value $150,000 at
December 31, 1996 and 1995, net of
discount............................ 149,249 149,121
Subordinated notes, 6 3/4%, maturing in
2003, face value $100,000 at
December 31, 1996 and 1995, net of
discount............................ 99,786 99,753
Medium-term notes with original
maturities greater than one year
Parent company (maturing through
1999)............................... 180,000 95,000
Subsidiary bank (maturing through
2001)............................... 935,000 1,510,000
Federal Home Loan Bank notes
maturing through 1997............... 42,000 99,000
Other.................................. 704 632
---------- ----------
Total long-term debt...................$1,556,326 $2,103,024
========== ==========
PARENT COMPANY OBLIGATIONS:
The 7 7/8% Notes are not redeemable prior to maturity in 2002,
and do not provide for any sinking fund. Interest rate swaps were used by
Huntington to convert the Notes to a variable interest rate. At December 31,
1996, the effective interest rate on the synthetically altered Notes was 6.13%.
The Medium-term notes had weighted average interest rates of 5.92% and 5.85%
at December 31, 1996 and 1995, respectively.
SUBSIDIARY OBLIGATIONS:
The 7 5/8% Notes and the 6 3/4% Notes were both issued by The Huntington
National Bank in 1993. Adjusted for the effects of interest rate swaps, the
rates were 5.67% and 5.82% at December 31, 1996. These Notes are not redeemable
prior to maturity in 2003, and do not provide for any sinking fund.
The Medium-term bank notes had weighted average interest rates of 5.57% and
5.89% at December 31, 1996 and 1995, respectively. The stated interest rates on
certain of these notes have also been modified by interest rate swaps. At
December 31, 1996, the weighted average effective interest rate on the
synthetically altered Medium-term bank notes was 5.70%.
The Federal Home Loan Bank notes mature serially from February 1997 through
November 1997, and had a weighted average interest rate of 6.78% and 6.41% at
December 31, 1996 and 1995, respectively. These advances cannot be prepaid
without penalty.
The terms of Huntington's long-term debt obligations contain various
restrictive covenants including limitations on the acquisition of additional
debt in excess of specified levels, dividend payments, and the disposition of
subsidiaries. As of December 31, 1996, Huntington was in compliance with all
such covenants.
The following table summarizes the maturities of Huntington's long-term debt.
- -------------------------------------------------------------------------
Year (in thousands of dollars)
- -------------------------------------------------------------------------
1997.................................. $ 617,307
1998.................................. 230,019
1999.................................. 35,021
2000.................................. 25,022
2001.................................. 250,023
2002 and thereafter................... 400,312
----------
1,557,704
Discount.............................. (1,378)
----------
Total $1,556,326
==========
1996 ANNUAL REPORT TO SHAREHOLDERS
9. OPERATING LEASES
At December 31, 1996, Huntington and its subsidiaries were obligated under
noncancelable leases for land, buildings, and equipment. Many of these leases
contain renewal options, and certain leases provide options to purchase the
leased property during or at the expiration of the lease period at specified
prices. Some leases contain escalation clauses calling for rentals to be
adjusted for increased real estate taxes and other operating expenses, or
proportionately adjusted for increases in the consumer or other price indices.
The following summary reflects the future minimum rental payments, by year,
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1996.
- -------------------------------------------------------------------------
Year (in thousands of dollars)
- -------------------------------------------------------------------------
1997............................................ $ 19,619
1998............................................ 16,689
1999............................................ 15,291
2000............................................ 16,242
2001............................................ 16,041
2002 and thereafter............................. 96,388
--------
Total Minimum Payments.......................... $180,270
========
Total minimum lease payments have not been reduced by minimum sublease
rentals of $60.5 million due in the future under noncancelable subleases. The
rental expense for all operating leases, except those with terms of a month or
less, was $23.0 million for 1996, compared with $23.6 million in 1995 and $23.8
million in 1994.
- -------------------------------------------------------------------------
10. Off-Balance Sheet Transactions
In the normal course of business, Huntington is party to financial
instruments with varying degrees of credit and market risk in excess of the
amounts reflected as assets and liabilities in the consolidated balance sheet.
Loan commitments and letters of credit are commonly used to meet the financing
needs of customers, while interest rate swaps, purchased options, futures, and
forwards are an integral part of Huntington's asset/liability management
activities. To a much lesser extent, various financial instrument agreements are
entered into to assist customers in managing their exposure to interest rate
fluctuations. These customer agreements, for which Huntington counters interest
rate risk through offsetting third party contracts, are considered trading
activities.
The credit risk arising from loan commitments and letters of credit,
represented by their contract amounts, is essentially the same as that involved
in extending loans to customers, and both arrangements are subject to
Huntington's standard credit policies and procedures. Collateral is obtained
based on management's credit assessment of the customer and, for commercial
transactions, may consist of accounts receivable, inventory, income-producing
properties, and other assets. Residential properties are the principal form of
collateral for consumer commitments.
Notional values of interest rate swaps and other off-balance sheet financial
instruments significantly exceed the credit risk associated with these
instruments and represent contractual balances on which calculations of amounts
to be exchanged are based. Credit exposure is limited to the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. Potential
credit losses are minimized through careful evaluation of counterparty credit
standing, selection of counterparties from a limited group of high quality
institutions, collateral agreements, and other contract provisions. At December
31, 1996, Huntington's credit risk from these off-balance sheet arrangements,
including trading activities, was approximately $70.9 million.
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1996 and 1995, is presented in the following table:
- -------------------------------------------------------------------------
(in millions of dollars) 1996 1995
- -------------------------------------------------------------------------
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial.......................... $2,908 $2,857
Consumer............................ 2,826 2,561
Other............................... 334 360
Standby letters of credit ............ 557 424
Commercial letters of credit.......... 91 143
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps................. 2,818 4,507
Purchased interest rate options..... 635 600
Interest rate forwards and futures.. 163 231
Trading activities
Interest rate swaps................. 298 284
Interest rate options............... 153 169
Interest rate futures............... 50 --
Commitments to extend credit generally have short-term, fixed expiration
dates, are variable rate, and contain clauses that permit Huntington to
terminate or otherwise renegotiate the contracts in the event of a significant
deterioration in the customer's credit quality. These arrangements normally
require the payment of a fee by the customer, the pricing of which is based on
prevailing market conditions, credit quality, probability of funding, and other
relevant factors. Since many of these commitments are expected to expire without
being drawn upon, the contract amounts are not necessarily indicative of future
cash requirements. The interest rate risk arising from these financial
instruments is insignificant as a result of their predominantly short-term,
variable rate nature.
Standby letters of credit are conditional commitments issued by Huntington to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. Most of these
arrangements mature within two years. Approximately 38% of standby letters of
credit are collateralized, and approximately 87% are expected to expire without
being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments which facilitate customer trade transactions and have maturities of
no longer than ninety days. These instruments are normally secured by the
merchandise or cargo being traded.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount. Huntington
enters into swaps to synthetically alter the repricing characteristics of
designated earning assets and
interest bearing liabilities and, on a much more limited basis, as an
intermediary for customers. Because only interest payments are exchanged, cash
requirements of swaps are significantly less than the notional amounts.
Interest rate futures are commitments to either purchase or sell a financial
instrument at a future date for a specified price or yield and may be settled in
cash or through delivery of the underlying financial instrument. Forward
contracts, used primarily by Huntington in connection with its mortgage banking
activities, settle in cash at a specified future date based on the differential
between agreed interest rates applied to a notional amount. Huntington also
purchases interest rate options (e.g. caps and floors) to manage fluctuating
interest rates. Premiums paid for interest rate options grant Huntington the
right to receive at specified future dates the amount, if any, by which a
specified market interest rate exceeds the fixed cap rate or falls below the
fixed floor rate, applied to a notional amount. Exposure to loss from interest
rate contracts changes as interest rates fluctuate.
For more detailed information concerning off-balance sheet transactions,
refer to the "Interest Rate Risk Management" section of Management's Discussion
and Analysis.
- -------------------------------------------------------------------------
11. STOCK OPTIONS
Huntington sponsors non-qualified and incentive stock option plans
covering key employees. Approximately 16.3 million shares have been authorized
under the plans, 8.1 million of which were available at December 31, 1996 for
future grants. All options granted have a maximum term of 10 years. Options
granted on or after May 18, 1994, vest ratably over four years; all grants
preceding this date became fully exercisable after one year.
Huntington has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation", requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of Huntington's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Huntington's stock option activity and related information for the periods
ended December 31, 1996, and December 31, 1995, is summarized below:
December 31, 1996 December 31, 1995
----------------- -----------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
(in 000's) Price (in 000's) Price
---------- ----- ---------- -----
Outstanding at
beginning of period 3,395 $14.05 3,046 $12.58
Granted................ 763 22.04 766 17.22
Exercised.............. (761) 12.32 (388) 8.48
Forfeited/Expired...... (46) 17.83 (29) 17.86
----- -----
Outstanding at end
of period........... 3,351 $16.21 3,395 $14.05
===== =====
Exercisable at end of
period 1,749 $13.12 2,101 $11.95
===== =====
Weighted average fair
value of options
granted during
the year............ $ 6.07 $ 4.33
Exercise prices for options outstanding as of December 31, 1996, ranged from
$5.62 to $22.38. The weighted average remaining contractual life of these
options is 7.2 years.
The fair value of the options presented above was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1996 and 1995, respectively: risk-free interest rates of
6.78% and 6.24%; dividend yields of 3.41% and 4.11%; volatility factors of the
expected market price of Huntington's common stock of .280 and .294; and a
weighted average expected option life of 6 years. Because the effect of applying
the fair value method to Huntington's stock options results in net income and
earnings per share that are not materially different from amounts reported in
the consolidated statements of income, pro forma information has not been
provided.
- -------------------------------------------------------------------------
12. LEGAL CONTINGENCIES
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. The aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
Huntington's consolidated financial position.
- -------------------------------------------------------------------------
13. EMPLOYEE BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan
covering substantially all employees. The plan provides benefits based upon
length of service and compensation levels. The funding policy of Huntington is
to contribute an annual amount which is at least equal to the minimum funding
requirements but not more than that deductible under the Internal Revenue Code.
Plan assets, held in trust, primarily consist of mutual funds.
In 1996, Huntington changed from a December 31 to a September 30
measurement date for the valuation of its pension and other post-retirement
benefit obligations. The change in measurement date had no effect on 1996
operating results.
The following table reconciles the funded status of the pension plan at
the applicable measurement dates with the amounts recognized in the consolidated
balance sheet at December 31, 1996 and 1995.
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation........ $ 81,561 $ 76,711
========= ========
Accumulated benefit obligation... $ 86,859 $ 82,958
========= ========
Projected benefit obligation $ 129,551 $128,642
Plan assets, at fair value.......... 122,097 113,029
--------- --------
Projected benefit obligation in
excess of plan assets............ 7,454 15,613
Unrecognized transition asset,
net of amortization ............. 2,485 2,940
Unrecognized net gain .............. 26,027 14,223
Unrecognized prior service cost..... (1,496) (1,636)
--------- --------
Accrued pension cost................ $ 34,470 $ 31,140
========= ========
1996 ANNUAL REPORT TO SHAREHOLDERS
- ------------------------------------------
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table shows the components of pension cost recognized in 1996,
1995, and 1994, and the assumptions used in determining the benefit liabilities
and costs.
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------
NET PENSION COST INCLUDED THE
FOLLOWING COMPONENTS
Service cost--benefits earned
during the period...........$ 9,493 $ 9,39 $10,604
Interest cost on projected
benefit obligation.......... 9,196 8,242 7,923
Net amortization and deferral. (3,717) 15,574 (12,111)
Actual (return) loss on plan
assets...................... (6,271) (24,247) 1,899
-------- -------- -------
Net pension expense...........$ 8,701 $ 8,968 $ 8,315
======== ======== =======
ACTUARIAL ASSUMPTIONS
Discount rate used for
benefit obligations......... 7.75% 7.50% 8.00%
Rate of salary increases...... 5.00% 5.00% 5.00%
Long-term rate of return
on assets................... 8.75% 8.75% 8.75%
Huntington also sponsors an unfunded Supplemental Executive Retirement Plan,
a non-qualified plan that provides certain key officers of Huntington and its
subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1996 and 1995, the accrued pension cost for
this plan totaled $9.4 million and $8.2 million, respectively. Pension expense
for this plan was $1.3 million in both 1996 and 1995, and $1.2 million in 1994.
Huntington's unfunded defined benefit post-retirement plan provides certain
health care and life insurance benefits to retired employees who have attained
the age of 55 and have at least 10 years of service. For any employee retiring
on or after January 1, 1993, Huntington's contribution is based upon the
employee's number of months of service and is limited to the actual cost of
coverage. The expected cost of providing these post-retirement benefits is
recognized in the financial statements during the employees' active service
period.
Net periodic post-retirement benefit cost included the following components
for the years ended December 31:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------
Service cost.....................$ 1,072 $ 970 $ 1,458
Interest cost.................... 2,708 2,534 2,853
Amortization of transition
obligation...................... 1,261 1,261 1,261
Net amortization and deferral.... 500 397 722
-------- -------- -------
Net periodic post-retirement
benefit cost....................$ 5,541 $ 5,162 $ 6,294
======== ======== =======
The following table sets forth the status of the post-retirement benefit
obligation at December 31:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Accumulated post-retirement benefit
obligation:
Retirees........................ $18,800 $19,381
Fully eligible active plan participants 5,008 6,309
Other active plan participants.. 7,691 10,109
------- -------
Total accumulated post-retirement
benefit obligation........ 31,499 35,799
Unrecognized net gain .......... 9,267 2,566
Unrecognized prior service cost. (5,003) (5,503)
Unrecognized transition obligation (20,171) (21,432)
Benefits paid in fourth quarter. (491) --
------- -------
Accrued post-retirement benefit cost $15,101 $11,430
======= =======
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.75% and 7.5%, at September 30, 1996 and
December 31, 1995, respectively. The 1997 health care cost trend rate was
projected to be 10.00% for pre-65 participants and 8.50% for post-65
participants compared with estimates of 10.75% and 9.00% in 1996. These rates
are assumed to decrease gradually until they reach 5.5% in the year 2004 and
remain at that level thereafter. Increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 1996, by $1.5 million and
the aggregate of the service and interest components of net periodic
post-retirement benefit cost for 1996 by $187,000.
Huntington has a contributory employee stock purchase plan available to
eligible employees. Employee contributions of up to 6% of eligible compensation
are matched 75% by Huntington. Huntington may also make additional matching
contributions up to an additional 25% of employee contributions, at the
discretion of the Board of Directors. Eligible employees may contribute in
excess of 6% up to an additional 10% on an after tax basis. These additional
contributions are not matched by Huntington. The cost of providing this plan was
$8.0 million in 1996, $6.6 million in 1995, and $8.2 million in 1994.
- -------------------------------------------------------------------------
14. ACQUISITIONS
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.
In October 1996, Huntington entered into a merger agreement with
Citi-Bancshares, Inc. (Citi-Bancshares), a $538 million one-bank holding company
headquartered in Leesburg, Florida. Huntington is to exchange a combination of
its common stock and cash for the outstanding common stock of Citi-Bancshares in
a purchase transaction. The acquisition is expected to be completed in the first
quarter of 1997.
15. INCOME TAXES
The following is a summary of the provision for income taxes:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------
Currently payable
Federal.................... $103,067 $102,709 $ 62,648
State...................... 3,076 4,556 3,904
-------- -------- --------
Total current............ 106,143 107,265 66,552
Deferred tax expense (benefit)
Federal.................... 29,215 26,866 56,624
State...................... 1,362 (172) 705
-------- -------- --------
Total deferred........... 30,577 26,694 57,329
-------- -------- --------
Total provision for income
taxes.................... $136,720 $133,959 $123,881
======== ======== ========
Tax expense associated with securities transactions included in the above
amounts was $6.2 million in 1996, $3.2 million in 1995, and $908,000 in 1994.
The following is a reconcilement of income tax expense to the amount
computed at the statutory federal rate of 35%.
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------
Pre-tax income computed
at the statutory rate...... $ 139,587 $132,456 $128,266
Increases (decreases):
Tax-exempt interest income. (3,146) (4,180) (6,077)
State income taxes......... 2,885 2,849 2,996
Other-net.................. (2,606) 2,834 (1,304)
--------- -------- --------
Provision for income taxes. $ 136,720 $133,959 $123,881
========= ======== ========
The significant components of Huntington's deferred tax assets and
liabilities at December 31, 1996 and 1995 are as follows:
- -------------------------------------------------------------------------
(in thousands of dollars) 1996 1995
- -------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses...... $61,531 $59,472
Allowance for other real estate
losses........................ 2,740 8,122
Securities..................... 7,843 --
Pension and other employee
benefits...................... 24,803 23,722
Other.......................... 7,799 11,471
-------- --------
Total deferred tax assets.... 104,716 102,787
Deferred tax liabilities:
Financial instruments.......... 5,359 20,465
Lease financing ............... 120,708 88,938
Mortgage servicing rights...... 7,977 4,099
Premises and equipment......... 11,393 8,795
Revalued liabilities-net....... 5,061 4,678
Securities..................... -- 22,061
Other.......................... 11,581 7,756
-------- --------
Total deferred tax liabilities 162,079 156,792
-------- --------
Net deferred tax liability... $(57,363) $(54,005)
======== ========
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 1996 and 1995.
- -------------------------------------------------------------------------
(in thousands of dollars,
except per share data) I Q II Q III Q IV Q
- -------------------------------------------------------------------------
1996
Interest income....... $ 374,296 $ 375,079 $ 378,422 $ 382,667
Interest expense....... 189,578 185,786 186,721 189,555
--------- --------- --------- ---------
Net interest income.... 184,718 189,293 191,701 193,112
--------- --------- --------- ---------
Provision for loan losses 11,823 11,843 20,250 21,134
Securities gains ...... 7,090 200 6,173 4,240
Non-interest income.... 61,072 66,976 64,855 62,387
Non-interest expense... 143,496 145,466 141,578 137,406
--------- --------- --------- ---------
Income before income taxes 97,561 99,160 100,901 101,199
Provision for income taxes 34,736 34,072 34,438 33,474
--------- --------- --------- ---------
Net income............. $ 62,825 $ 65,088 $ 66,463 $ 67,725
========= ========= ======== =========
Net income per common share(1) $.42 $.45 $.46 $.47
- -------------------------------------------------------------------------
(in thousands of dollars,
except per share data) I Q II Q III Q IV Q
- -------------------------------------------------------------------------
1995
Interest income....... $ 342,397 $ 360,203 $ 377,859 $ 381,437
Interest expense....... 166,188 180,313 191,281 199,551
--------- --------- --------- ---------
Net interest income.... 176,209 179,890 186,578 181,886
--------- --------- --------- ---------
Provision for loan losses 4,608 4,787 7,187 12,139
Securities gains ...... 60 6,379 2,315 302
Non-interest income.... 57,827 52,145 57,485 66,496
Non-interest expense... 144,641 141,052 137,446 137,264
--------- --------- --------- ---------
Income before income taxes 84,847 92,575 101,745 99,281
Provision for income taxes 29,985 34,414 35,808 33,752
--------- --------- --------- ---------
Net income............. $ 54,862 $ 58,161 $ 65,937 $ 65,529
========= ========= ========= =========
Net income per common share(1) $.35 $.38 $.44 $.45
(1)Restated for the ten percent stock dividend distributed July 31, 1996.
- -------------------------------------------------------------------------
17. REGULATORY MATTERS
The bank subsidiaries of Huntington are required to maintain reserve
balances with the Federal Reserve Bank. During 1996, the average balances were
$96.6 million.
Payment of dividends to Huntington by its subsidiary banks is subject to
various regulatory restrictions. Regulatory approval is required prior to the
declaration of any dividends in excess of available retained earnings. For
national banks, the amount of dividends that may be declared without regulatory
approval is further limited to the sum of net income for that year and retained
net income for the preceding two years, less any required transfers to surplus.
Huntington's subsidiary banks could, without regulatory approval, declare
dividends in 1997 of approximately $87.8 million plus an additional amount equal
to their net income through the date of declaration.
The subsidiary banks are also restricted as to the amount and type of loans
they may make to Huntington. At December 31, 1996, the subsidiary banks could
lend to Huntington $185.5 million, subject to the qualifying collateral
requirements defined in the regulations.
1996 ANNUAL REPORT TO SHAREHOLDERS
- -------------------------------------
17. REGULATORY MATTERS (CONTINUED)
Huntington and its bank subsidiaries are subject to various regulatory
capital requirements administered by federal and state banking agencies. Failure
to meet minimum capital requirements can initiate certain actions by regulators
that, if undertaken, could have a material effect on Huntington's and its bank
subsidiaries' financial statements. Capital adequacy guidelines require minimum
ratios of 4.00% for Tier I risk-based capital, 8.00% for total risk-based
capital, and 3.00% for Tier I leverage. To be considered well capitalized under
the regulatory framework for prompt corrective action, the ratios are 6.00%,
10.00%, and 5.00%, respectively. Capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk-weightings of assets and certain off-balance sheet items, and other
factors. Management believes, as of December 31, 1996, that Huntington met all
capital adequacy requirements. In addition, each bank subsidiary had regulatory
capital ratios in excess of the levels established for well capitalized
institutions.
Presented in the table below are the capital ratios of Huntington and its
lead subsidiary, The Huntington National Bank as well as a comparison of the
period-end capital balances with the related amounts established by the
regulators.
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Amounts
------------------------------------------
(in millions of dollars) Ratios Actual Minimum Well Capitalized
- ----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996:
Tier I Risk-Based Capital
Huntington Bancshares Incorporated............ 7.84% $1,351 $689 N/A
The Huntington National Bank.................. 6.30 787 500 $750
Total Risk-Based Capital
Huntington Bancshares Incorporated............ 11.31 1,948 1,378 N/A
The Huntington National Bank.................. 10.60 1,324 1,000 1,250
Tier I Leverage
Huntington Bancshares Incorporated............ 6.66 1,351 609 N/A
The Huntington National Bank.................. 5.62 787 420 700
AS OF DECEMBER 31, 1995:
Tier I Risk-Based Capital
Huntington Bancshares Incorporated............ 8.39% $1,370 $653 N/A
The Huntington National Bank.................. 8.08 986 488 $732
Total Risk-Based Capital
Huntington Bancshares Incorporated............ 12.03 1,963 1,306 N/A
The Huntington National Bank.................. 11.30 1,378 976 1,220
Tier I Leverage
Huntington Bancshares Incorporated............ 6.87 1,370 595 N/A
The Huntington National Bank.................. 7.06 986 419 698
N/A = Not Applicable
- -------------------------------------------------------------------------------
18. NON-INTEREST INCOME
A summary of the components in non-interest income for the three years ended
December 31 follows:
- -------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
---------- --------- ---------
Service charges on deposit accounts............................... $ 92,353 $ 85,118 $ 76,836
Mortgage banking.................................................. 35,025 34,212 41,918
Trust services.................................................... 34,010 30,377 28,448
Credit card fees.................................................. 22,506 18,463 18,410
Securities gains.................................................. 17,703 9,056 2,594
Investment product sales.......................................... 12,219 8,121 6,624
Electronic banking fees........................................... 10,358 5,032 2,589
Other ............................................................ 48,819 52,630 36,446
---------- --------- ---------
TOTAL NON-INTEREST INCOME ..................................... $ 272,993 $ 243,009 $ 213,865
========== ========= =========
- --------------------------------------------------------------------------------
19. NON-INTEREST EXPENSE
A summary of the components in non-interest expense for the three years ended
December 31 follows:
- --------------------------------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
---------- --------- ---------
Salaries.......................................................... $ 229,153 $ 220,168 $ 226,668
Commissions....................................................... 13,645 9,843 10,775
Employee benefits................................................. 56,827 57,790 58,158
Net occupancy..................................................... 42,543 41,263 40,291
Equipment......................................................... 42,129 38,271 38,792
Credit card and electronic banking................................ 15,509 13,407 13,493
Printing and supplies............................................. 15,338 14,147 14,821
Advertising....................................................... 12,447 11,271 15,320
Legal and loan collection......................................... 10,050 8,643 8,298
FDIC insurance.................................................... 1,232 15,056 25,271
Other ............................................................ 129,073 130,544 136,270
---------- --------- ---------
TOTAL NON-INTEREST EXPENSE .................................... $ 567,946 $ 560,403 $ 588,157
========== ========= =========
1996 ANNUAL REPORT TO SHAREHOLDERS
- ----------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington's financial
instruments are presented below. Certain assets, the most significant being
premises and equipment, do not meet the definition of a financial instrument and
are excluded from this disclosure. Similarly, mortgage servicing rights and
deposit base and other customer relationship intangibles are not considered
financial instruments and are not discussed below. Accordingly, this fair value
information is not intended to, and does not, represent Huntington's underlying
value. Many of the assets and liabilities subject to the disclosure requirements
are not actively traded, requiring fair values to be estimated by management.
These estimations necessarily involve the use of judgment about a wide variety
of factors, including but not limited to, relevancy of market prices of
comparable instruments, expected future cash flows, and appropriate discount
rates.
At December 31, 1996
- ---------------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- ---------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets.... $ 925,456 $ 925,456
Trading account securities.... 1,873 1,873
Mortgages held for sale....... 119,202 119,202
Securities.................... 4,804,377 4,805,040
Loans......................... 14,061,689 14,196,703
Customers' acceptance liability 56,248 56,248
Interest rate contracts:
Asset/liability management.. 4,893 27,758
Customer accommodation...... 4,239 4,239
FINANCIAL LIABILITIES:
Deposits...................... (13,385,891) (13,206,266)
Short-term borrowings......... (3,944,703) (3,944,703)
Bank acceptances outstanding.. (56,248) (56,248)
Long-term debt................ (1,556,326) (1,569,051)
Interest rate contracts:
Asset/liability management.. -- (11,424)
Customer accommodation...... (3,493) (3,493)
- ---------------------------------------------------------------------------
At December 31, 1995
- ---------------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- ---------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets.... $ 1,342,882 $ 1,342,882
Trading account securities.... 12,924 12,924
Mortgages held for sale....... 159,705 159,705
Securities.................... 4,780,281 4,781,873
Loans......................... 13,067,211 13,096,826
Customers' acceptance liability 56,926 56,926
Interest rate contracts:
Asset/liability management.. 11,261 44,465
Customer accommodation...... 1,188 1,188
FINANCIAL LIABILITIES:
Deposits...................... (12,636,582) (12,672,505)
Short-term borrowings......... (3,514,773) (3,514,773)
Bank acceptances outstanding.. (56,926) (56,926)
Long-term debt................ (2,103,024) (2,132,567)
Interest rate contracts:
Asset/liability management.. -- (33,571)
Customer accommodation...... (970) (970)
The terms and short-term nature of certain assets and liabilities result
in their carrying value approximating fair value. These include cash and due
from banks, interest bearing deposits in banks, trading account securities,
federal funds sold and securities purchased under resale agreements, customers'
acceptance liabilities, short-term borrowings, and bank acceptances outstanding.
Loan commitments and letters of credit generally have short-term, variable rate
features and contain clauses which limit Huntington's exposure to changes in
customer credit quality. Accordingly, their carrying values, which are
immaterial at the respective balance sheet dates, are reasonable estimates of
fair value. The following methods and assumptions were used by Huntington to
estimate the fair value of the remaining classes of financial instruments:
Mortgages held for sale are valued at the lower of aggregate cost or market
value primarily as determined using outstanding commitments from investors.
Fair values of securities available for sale and investment securities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments. The carrying amount and fair value of securities exclude the
fair value of asset/liability management interest rate contracts designated
as hedges of securities available for sale.
For variable rate loans that reprice frequently, fair values are based on
carrying amounts, as adjusted for estimated credit losses. The fair values
for other loans are estimated using discounted cash flow analyses and
employ interest rates currently being offered for loans with similar terms.
The rates take into account the position of the yield curve, as well as an
adjustment for prepayment risk, operating costs, and profit. This value is
also reduced by an estimate of losses inherent in the loan portfolio.
Although not considered financial instruments, lease financing receivables
have been included in the loan totals at their carrying amounts.
The fair values of demand deposits, savings accounts, and money market
deposits are, by definition, equal to the amount payable on demand. The
fair values of fixed rate time deposits are estimated by discounting cash
flows using interest rates currently being offered on certificates with
similar maturities.
The fair values of Huntington's fixed rate long-term debt are based upon
quoted market prices or, in the absence of quoted market prices, discounted
cash flows using rates for similar debt with the same maturities. The
carrying amount of variable rate notes approximates fair value.
The fair values of interest rate swap agreements and other off-balance
sheet interest rate contracts are based upon quoted market prices or prices
of similar instruments, when available, or calculated with pricing models
using current rate assumptions.
21. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (in thousands of dollars) DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents............................................................ $ 45,053 $ 98,020
Securities available for sale........................................................ 7,229 6,999
Due from subsidiaries
Bank subsidiaries................................................................. 200,000 --
Non-bank subsidiaries............................................................. 286,936 143,467
Investment in subsidiaries on the equity method
Bank subsidiaries................................................................. 1,433,522 1,629,910
Non-bank subsidiaries............................................................. 35,097 27,377
Excess of cost of investment in subsidiaries over net assets acquired................ 22,694 23,926
Other assets......................................................................... 50,166 22,994
------------ ------------
TOTAL ASSETS ..................................................................... $ 2,080,697 $ 1,952,693
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings................................................................ $ 140,000 $ 80,000
Long-term debt....................................................................... 329,249 244,121
Dividends payable.................................................................... 28,899 26,881
Accrued expenses and other liabilities............................................... 71,035 82,826
------------ ------------
Total Liabilities................................................................. 569,183 433,828
Shareholders' Equity................................................................. 1,511,514 1,518,865
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................... $ 2,080,697 $ 1,952,693
============ ============
- ------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (in thousands of dollars) YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from
Bank subsidiaries............................................................ $ 328,029 $209,201 $ 167,729
Non-bank subsidiaries........................................................ 4,585 5,730 5,245
Interest from
Bank subsidiaries............................................................ 2,978 2,753 2,876
Non-bank subsidiaries........................................................ 11,430 7,252 2,601
Other ......................................................................... 821 811 407
--------- -------- ---------
TOTAL INCOME ............................................................ 347,843 225,747 178,858
--------- -------- ---------
EXPENSE
Interest on borrowed funds..................................................... 22,723 15,298 15,056
Other ......................................................................... 8,683 12,182 12,075
--------- -------- ---------
TOTAL EXPENSE ........................................................... 31,406 27,480 27,131
--------- -------- ---------
Income before income taxes and equity in undistributed net income of subsidiaries. 316,437 198,267 151,727
Income tax benefit................................................................ (10,776) (7,936) (8,007)
--------- -------- ---------
Income before equity in undistributed net income of subsidiaries.................. 327,213 206,203 159,734
--------- -------- ---------
Equity in undistributed net income of
Bank subsidiaries.............................................................. (72,930) 35,638 80,004
Non-bank subsidiaries.......................................................... 7,818 2,648 2,855
--------- -------- ---------
NET INCOME .............................................................. $ 262,101 $244,489 $ 242,593
========= ======== =========
1996 ANNUAL REPORT TO SHAREHOLDERS
- ------------------------------------------
21. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (in thousands of dollars) YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income..................................................................... $ 262,101 $ 244,489 $ 242,593
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries........................... 65,112 (38,286) (82,859)
Amortization................................................................. 2,107 1,707 4,974
(Gains) losses on sales of securities........................................ -- (20) 25
Increase in other assets..................................................... (28,041) (7,990) (4,951)
(Decrease) increase in other liabilities..................................... (17,990) (10,284) 295
----------- ---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... 283,289 189,616 160,077
----------- ---------- ---------
INVESTING ACTIVITIES
Proceeds from sales of securities.............................................. -- 431 173
(Advances to) repayments from subsidiaries..................................... (159,789) 20,789 (94,968)
Acquisitions and additional capitalization of subsidiaries..................... (1,433) (9,697) (10)
----------- ---------- ---------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES ........................ (161,222) 11,523 (94,805)
----------- ---------- ---------
FINANCING ACTIVITIES
Increase in short-term borrowings.............................................. 60,000 55,000 25,000
Proceeds from issuance of long-term debt....................................... 85,000 95,000 50,000
Payment of long-term debt...................................................... -- (50,000) (23,184)
Dividends paid on common stock................................................. (109,307) (105,520) (87,545)
Acquisition of treasury stock.................................................. (249,160) (204,645) (73,634)
Proceeds from issuance of treasury stock....................................... 38,433 37,279 39,896
----------- ---------- ---------
NET CASH USED FOR FINANCING ACTIVITIES ...................................... (175,034) (172,886) (69,467)
----------- ---------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS ......................................... (52,967) 28,253 (4,195)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................... 98,020 69,767 73,962
----------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................................... $ 45,053 $ 98,020 $ 69,767
=========== ========== =========