UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY PERIOD ENDED MARCH 31, 1998 Commission File Number 0-2525 HUNTINGTON BANCSHARES INCORPORATED MARYLAND 31-0724920 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287 Registrant's telephone number (614) 480-8300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- There were 192,332,918 shares of Registrant's without par value common stock outstanding on April 30, 1998. 1
PART I. FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS (UNAUDITED) - ----------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) March 31, December 31, March 31, 1998 1997 1997 --------------- -------------- -------------- ASSETS Cash and due from banks............................................ $ 1,023,138 $ 1,142,450 $ 976,777 Interest bearing deposits in banks................................. 2,378 39,618 1,761 Trading account securities......................................... 19,489 7,082 2,856 Federal funds sold and securities purchased under resale agreements............................. 8,573 509,119 12,618 Mortgages held for sale............................................ 314,034 192,948 112,364 Securities available for sale - at fair value...................... 6,345,104 5,709,814 5,631,819 Investment securities - fair value $31,912; $33,383; and $60,092, respectively..................................... 31,631 33,010 59,662 Total loans (1).................................................... 17,748,389 17,738,248 17,453,995 Less allowance for loan losses................................ 258,262 258,171 241,647 ----------- ----------- ----------- Net loans.......................................................... 17,490,127 17,480,077 17,212,348 ----------- ----------- ----------- Premises and equipment............................................. 400,331 389,481 389,036 Customers' acceptance liability.................................... 26,518 27,818 59,247 Accrued income and other assets.................................... 1,147,156 1,199,123 709,251 ----------- ----------- ----------- TOTAL ASSETS....................................................... $26,808,479 $26,730,540 $25,167,739 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1)................................................. $17,700,544 $17,983,718 $16,976,046 Short-term borrowings.............................................. 3,241,383 3,141,671 3,474,015 Bank acceptances outstanding....................................... 26,518 27,818 59,247 Medium-term notes.................................................. 2,577,150 2,332,150 1,597,500 Subordinated notes and other long-term debt........................ 483,854 498,889 556,265 Company obligated mandatorily redeemable preferred capital securities of subsidiary trust.................................. 200,000 200,000 200,000 Accrued expenses and other liabilities............................. 504,936 520,903 456,521 ----------- ----------- ----------- Total Liabilities............................................. 24,734,385 24,705,149 23,319,594 ----------- ----------- ----------- Shareholders' equity Preferred stock - authorized 6,617,808 shares; none outstanding Common stock - without par value; authorized 300,000,000 shares; issued and outstanding 193,279,797; 193,279,797; and 182,384,332 shares, respectively......................... 1,528,768 1,528,768 1,291,071 Less 961,290; 1,543,371; and 6,831,006 treasury shares, respectively ........................... (25,218) (36,791) (154,822) Capital surplus............................................... 394,715 404,235 418,866 Retained earnings............................................. 165,419 114,379 353,954 Accumulated other comprehensive income........................ 10,410 14,800 (60,924) ----------- ----------- ----------- Total Shareholders' Equity.................................... 2,074,094 2,025,391 1,848,145 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $26,808,479 $26,730,540 $25,167,739 =========== =========== ===========
(1) See page 9 for detail of total loans and total deposits. See notes to unaudited consolidated financial statements. 2
- --------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars, except per share amounts) THREE MONTHS ENDED MARCH 31, ----------------------------------- Interest and fee income 1998 1997 -------------- -------------- Loans....................................................... $ 400,807 $ 382,968 Securities.................................................. 97,171 90,490 Other....................................................... 4,502 2,416 ------------ ------------ TOTAL INTEREST INCOME............................. 502,480 475,874 ------------ ------------ Interest expense Deposits.................................................... 162,252 148,373 Short-term borrowings....................................... 39,270 46,098 Medium-term notes........................................... 35,992 23,319 Subordinated notes and other long-term debt................. 10,118 10,533 ------------ ------------ TOTAL INTEREST EXPENSE............................ 247,632 228,323 ------------ ------------ NET INTEREST INCOME............................... 254,848 247,551 Provision for loan losses........................................ 22,181 22,380 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.............. 232,667 225,171 ------------ ------------ Total non-interest income (1).................................... 96,767 76,731 Total non-interest expense (1)................................... 197,790 183,861 ------------ ------------ INCOME BEFORE INCOME TAXES........................ 131,644 118,041 Provision for income taxes....................................... 42,158 40,862 ------------ ------------ NET INCOME........................................ $ 89,486 $ 77,179 ============ ============ PER COMMON SHARE (2) Net income Basic................................................... $0.47 $0.41 Diluted................................................. $0.46 $0.40 Cash dividends declared...................................... $0.20 $0.18 AVERAGE COMMON SHARES OUTSTANDING (2)............................. 192,161,096 189,082,054
(1) See page 10 for detail of non-interest income and non-interest expense. (2) Adjusted for stock splits and stock dividends, as applicable. See notes to unaudited consolidated financial statements. 3
- ------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Accumulated Other Common Common Treasury Treasury Capital Comprehensive Retained Shares Stock Shares Stock Surplus Income Earnings Total - ------------------------------------------------------------------------- ---------- ---------- ---------- ------------------------- Three Months Ended March 31, 1997: Balance, beginning of period 182,265 $1,290,968 (9,285) $(204,634) $401,176 $(13,931) $312,079 $1,785,658 Comprehensive Income: Net income 77,179 77,179 Unrealized net holding losses on securities available for sale arising during the period (46,993) (46,993) ----------- Total comprehensive income 30,186 ----------- Cash dividends declared ($0.18 per share) (33,069) (33,069) Stock issued for acquisition 3,468 78,527 15,122 93,649 Stock options exercised 61 978 (686) 292 Treasury shares purchased (1,429) (37,578) (37,578) Treasury shares sold: Shareholder dividend reinvestment plan 285 6,325 1,101 7,426 Employee benefit plans 69 1,560 434 1,994 Pre-merger transactions of pooled subsidiary 119 103 1,719 (2,234) (413) ------- ---------- ----- --------- -------- -------- -------- ---------- Balance, end of period 182,384 $1,291,071 (6,831) $(154,822) $418,866 $(60,924) $353,954 $1,848,145 ======= ========== ===== ========= ======== ======== ======== ========== THREE MONTHS ENDED MARCH 31, 1998: BALANCE, BEGINNING OF PERIOD 193,279 $1,528,768 (1,543) $ (36,791) $404,235 $ 14,800 $114,379 $2,025,391 COMPREHENSIVE INCOME: NET INCOME 89,486 89,486 UNREALIZED NET HOLDING LOSSES ON SECURITIES AVAILABLE FOR SALE ARISING DURING THE PERIOD (4,390) (4,390) ---------- TOTAL COMPREHENSIVE INCOME 85,096 ---------- CASH DIVIDENDS DECLARED ($0.20 PER SHARE) (38,446) (38,446) STOCK ISSUED FOR ACQUISITION 160 3,883 (3,815) 68 STOCK OPTIONS EXERCISED 403 7,218 (5,907) 1,311 TREASURY SHARES SOLD TO EMPLOYEE BENEFIT PLANS 19 472 202 674 ------- ---------- ------ -------- -------- -------- -------- ---------- BALANCE, END OF PERIOD 193,279 $1,528,768 (961) $(25,218) $394,715 $ 10,410 $165,419 $2,074,094 ======= ========== ====== ======== ======== ======== ======== ==========
See notes to unaudited consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, ---------------------------------------- (in thousands of dollars) 1998 1997 ------------------ --------------- OPERATING ACTIVITIES Net Income............................................................... $ 89,486 $ 77,179 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses............................................. 22,181 22,380 Provision for depreciation and amortization........................... 17,768 15,296 Deferred income tax expense........................................... 5,358 8,780 Increase in trading account securities................................ (12,407) (983) (Increase) decrease in mortgages held for sale........................ (121,086) 9,058 Net gains on sales of securities...................................... (3,089) (2,098) Decrease in accrued income receivable................................. 10,106 2,108 Net decrease (increase) in other assets............................... 17,152 (18,685) Increase in accrued expenses.......................................... 11,907 20,667 Net (decrease) increase in other liabilities.......................... (30,835) 37,654 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 6,541 171,356 ---------- ---------- Investing Activities Decrease in interest bearing deposits in banks........................... 37,240 1,657 Proceeds from: Maturities and calls of investment securities....................... 1,348 28,677 Maturities and calls of securities available for sale............... 191,087 175,283 Sales of securities ................................................ 485,158 596,740 Purchases of: Investment securities............................................... - (1,595) Securities available for sale....................................... (1,300,626) (827,663) Proceeds from sales of loans............................................. 24,548 25,667 Net loan originations, excluding sales................................... (56,882) (433,233) Proceeds from disposal of premises and equipment......................... 117 4,208 Purchases of premises and equipment...................................... (21,905) (12,997) Proceeds from sales of other real estate................................. 4,802 3,333 Net cash received from purchase of subsidiaries.......................... - 9,204 ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES......................... (635,113) (430,719) ---------- ---------- FINANCING ACTIVITIES (Decrease) increase in total deposits.................................... (284,643) 94,197 Increase (decrease) in short-term borrowings............................. 99,712 (129,585) Proceeds from issuance of long-term debt................................. - 22,676 Payment of long-term debt................................................ (15,000) (17,000) Proceeds from issuance of medium-term notes.............................. 325,000 342,500 Payment of medium-term notes............................................. (80,000) (295,000) Proceeds from issuance of capital securities............................. - 200,000 Dividends paid on common stock, including pre-merger dividends of pooled subsidiary................................................ (38,339) (33,299) Repurchase of common stock............................................... - (37,578) Proceeds from issuance of common stock................................... 1,984 9,420 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 8,714 156,331 ---------- ---------- CHANGE IN CASH AND CASH EQUIVALENTS............................ (619,858) (103,032) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 1,651,569 1,092,427 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $1,031,711 $ 989,395 ========== ==========
See notes to unaudited consolidated financial statements. 5 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS A. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. The Notes to the Consolidated Financial Statements appearing in Huntington's 1997 Annual Report to Shareholders should be read in conjunction with these interim financial statements. B. Pursuant to the Financial Accounting Standards Board (FASB) Statement No. 130, "Reporting Comprehensive Income", the Consolidated Statements of Changes in Shareholders' Equity include a new measure called "Comprehensive Income". Comprehensive Income includes net income as well as certain items that are reported directly within a separate component of stockholders' equity that bypass net income. Currently, Huntington's only component of Other Comprehensive Income is the unrealized gains (losses) on securities available for sale. The related before and after tax amounts are as follows:
March 31, -------------------------- 1998 1997 -------- --------- Unrealized holding losses arising during the period: Gross $(3,704) $(74,928) Related tax benefit 1,322 29,299 ------- -------- Net (2,382) (45,629) ------- -------- Reclassification adjustment for net gains realized during the period: Gross (3,089) (2,098) Related tax expense 1,081 734 ------- -------- Net (2,008) (1,364) ------- -------- Total Other Comprehensive Income (Loss) $(4,390) $(46,993) ======= ========
In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information". The provisions of this Statement require disclosure of financial and descriptive information about an enterprise's operating segments. The Statement defines an operating segment as a component of an enterprise that engages in business activities that generate revenue and incur expense. A segment is further defined as a component whose operating results are reviewed by the chief operating decision maker in the determination of resource allocation and performance, and for which discrete financial information is available. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement is effective for fiscal years beginning after December 15, 1997; however, it is not required to be applied for interim reporting in the initial year of application. Accordingly, no segment information is included in the notes to these financial statements. C. On September 30, 1997, Huntington completed the acquisition of First Michigan Bank Corporation (First Michigan), a $3.7 billion bank holding company headquartered in Holland, Michigan. Huntington issued approximately 32.2 million shares of its common stock in exchange for all of the outstanding common stock of First Michigan. First Michigan had total loans and deposits of $2.7 billion and $3.1 billion, respectively, and total equity of $286 million at the date of acquisition. The transaction 6 was accounted for as a pooling of interests; accordingly, all financial information appearing in this report, except dividends per share, has been restated to include the results of First Michigan. The separate results of operations for Huntington and First Michigan were as follows ($ in millions, except per share): March 31, For the Three Months Ended 1997 - -------------------------- -------- Net Interest Income: Huntington $ 211.5 First Michigan 36.1 -------- Combined $ 247.6 ======== Net Income: Huntington $ 66.5 First Michigan 10.7 -------- Combined $ 77.2 ======== Earnings (basic) per common share outstanding: Huntington $ .42 First Michigan .39 Combined $ .41 D. In January 1997, Huntington Capital I, a Delaware statutory business trust owned by Huntington, issued $200 million of company obligated mandatorily redeemable capital securities. All of the common securities of Huntington Capital I are owned by Huntington. The proceeds from the issuance of the capital securities ($200 million) and common securities ($6.2 million) were used by Huntington Capital I to purchase from Huntington $206.2 million of Floating Rate Junior Subordinated Debentures. The subordinated debentures are the sole assets of the trust, bear interest at a variable annual rate equal to LIBOR plus .70%, and mature on February 1, 2027. Interest payments made on the capital securities are reported as a component of interest expense on long-term debt. E. Certain amounts in the prior year's financial statements have been reclassified to conform with the 1998 presentation. These reclassifications had no effect on net income. F. Basic earnings per share is the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares for stock options and the conversion impact of convertible equity instruments. 7 The calculation of basic and diluted earnings per share for each of the periods ended March 31 is as follows: (In thousands, except per share amounts) 1998 1997 -------- -------- Net income $ 89,486 $ 77,179 ======== ======== Average common shares outstanding 192,161 189,082 Dilutive effect of stock options 2,211 2,138 -------- -------- Diluted common shares outstanding 194,372 191,220 ======== ======== Earnings per share Basic $ .47 $ .41 Diluted $ .46 $ .40 Average common shares outstanding and the dilutive effect of stock options have been adjusted for subsequent stock dividends and stock splits, as applicable. 8
- --------------------------------------------------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------------------------------------------- LOAN PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, December 31, March 31, 1998 1997 1997 ----------- ----------- ----------- Commercial.................................... $ 5,441,107 $ 5,270,660 $ 5,391,832 Real Estate Construction............................. 846,715 863,635 755,219 Commercial............................... 2,367,823 2,370,652 2,228,117 Residential.............................. 1,083,566 1,228,446 1,600,137 Consumer Loans..................................... 6,423,582 6,462,716 6,153,585 Leases.................................... 1,585,596 1,542,139 1,325,105 ----------- ----------- ----------- TOTAL LOANS.............................. $17,748,389 $17,738,248 $17,453,995 =========== =========== ===========
- --------------------------------------------------------------------------------------------------------------------------- DEPOSIT COMPOSITION - --------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, December 31, March 31, 1998 1997 1997 ----------- ----------- ----------- Demand deposits Non-interest bearing..................... $ 2,516,765 $ 2,549,518 $ 2,786,287 Interest bearing......................... 3,785,550 3,762,862 3,213,361 Savings deposits.............................. 3,229,359 3,133,014 3,204,941 Other domestic time deposits.................. 6,012,135 6,115,534 5,680,917 ----------- ----------- ----------- Total core deposits...................... 15,543,809 15,560,928 14,885,506 ----------- ----------- ----------- Certificates of deposit of $100,000 or more... 2,018,818 1,903,657 1,707,040 Foreign time deposits......................... 137,917 519,133 383,500 ----------- ----------- ----------- TOTAL DEPOSITS........................... $17,700,544 $17,983,718 $16,976,046 =========== =========== ===========
9
- ---------------------------------------------------------------------------------------- FINANCIAL REVIEW - --------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST INCOME - --------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED MARCH 31, ---------------------------------- PERCENT 1998 1997 CHANGE - ------------------------------------------------------------------ -------------------------------------------------- Service charges on deposit accounts .............................. $30,837 $27,594 11.8.% Mortgage banking ................................................. 14,157 8,997 57.4 Trust services ................................................... 12,583 12,145 3.6 Brokerage and insurance income.................................... 8,285 7,084 17.0 Electronic banking fees........................................... 5,731 4,364 31.3 Credit card fees.................................................. 4,859 4,195 15.8 Other............................................................. 17,226 10,254 68.0 -------- ------- Total non-interest income before securities gains................. 93,678 74,633 25.5 -------- ------- Securities gains.................................................. 3,089 2,098 47.2 -------- ------- TOTAL NON-INTEREST INCOME ........................................ $96,767 $76,731 26.1% ======== =======
- --------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST EXPENSE - --------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) THREE MONTHS ENDED MARCH 31, ---------------------------------- PERCENT 1998 1997 CHANGE - ------------------------------------------------------------------ -------------------------------------------------- Personnel and related costs....................................... $104,712 $97,241 7.7 % Outside data processing and other services........................ 16,586 12,567 32.0 Equipment ........................................................ 15,149 13,188 14.9 Net occupancy .................................................... 13,439 13,332 0.8 Marketing......................................................... 6,932 8,965 (22.7) Telecommunications................................................ 6,023 4,967 21.3 Legal and other professional services............................. 5,788 5,429 6.6 Printing and supplies............................................. 5,761 4,927 16.9 Franchise and other taxes......................................... 5,500 5,240 5.0 Amortization of intangible assets................................. 3,393 2,946 15.2 Other............................................................. 14,507 15,059 (3.7) -------- ------- TOTAL NON-INTEREST EXPENSE ....................................... $197,790 183,861 7.6 % ======== =======
10 MANAGEMENT'S DISCUSSION AND ANALYSIS INTRODUCTION FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Report Act of 1995 to encourage corporations to provide investors with information about the company's anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure, or in other words, protection from unwarranted litigation if actual results are not the same as management's expectations. Huntington Bancshares Incorporated (Huntington) desires to provide its shareholders with sound information about past performance and future trends. Consequently, this Quarterly Report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those contained in or implied by Huntington's statements due to a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; successful integration of acquired businesses; the nature and extent of governmental actions and reforms; and extended disruption of vital infrastructure. The management of Huntington encourages readers of this report to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. ACQUISITIONS In December 1997, Huntington signed a definitive agreement with NationsBank Corporation (NationsBank) to acquire sixty banking offices in Florida. The branch acquisition is expected to add approximately $1.6 billion in loans and $2.6 billion in deposits. The deposit premium, which is subject to final determination based upon the deposit levels at the closing of the transaction, is projected to be approximately $523 million. The transaction is expected to close late in the second quarter of 1998. Although Huntington continually monitors and investigates suitable acquisition opportunities, Huntington has no material written or oral acquisition agreements or understandings with specific entities except as described above. OVERVIEW Huntington reported earnings of $89.5 million for the first quarter of 1998 compared with $77.2 million for the same period last year. Basic earnings per share were $.47, an increase of 14.6% from $.41 per share for the first three months of 1997. On a diluted basis, the per share results were $.46 and $.40, respectively. Huntington's return on average assets (ROA) was 1.38% for the quarter just ended versus 1.27% one year ago. Return on average equity (ROE) was 17.73%, up from 17.42% in the first quarter of 1997. Total assets were $26.8 billion at March 31, 1998, an increase of 6.5% from one year ago but flat with the recent year-end. The increase over the last twelve months is the result of a larger investment securities portfolio as well as loan growth in the last nine months of 1997, and higher volumes of mortgages held for sale. Average total loans outstanding for the recent quarter grew 6.5% over the same period last year, after adjusting for the impact of single-family residential mortgage loans sold in 11 the past several months. During the first quarter of 1998, Huntington experienced only a modest increase in its loans outstanding. The slower rate of growth is attributable to competitive pressures combined with large prepayments in the commercial lending portfolio. Huntington believes it is critical to maintain its pricing discipline in the lending process. Accordingly, should current trends in the marketplace continue, future loan growth may also be suppressed. Core deposits were flat with year end but were up $658.3 million from March 31, 1997. Average core deposits increased $1.1 billion, or 7.2%, versus the first quarter of last year, fueled by 7.9% growth in transaction accounts. Huntington's wholesale liability position also expanded in the past year as new asset volumes outpaced deposit growth. Most of the incremental wholesale funding was in the form of unsecured medium-term bank notes. LINES OF BUSINESS Huntington segments its operations into five distinct lines of business: Retail Banking, Corporate Banking, Dealer Sales, Private Financial Group, and Treasury/Other. Line of business results are determined based upon Huntington's business profitability reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around Huntington's organizational and management structure, and accordingly, the results are not necessarily comparable with similar information published by other financial institutions. A detailed description of the lines of business is contained in Huntington's Annual Report on Form 10-K for the year ended December 31, 1997. The following summary contains selected financial information by business segment for the three months ended March 31, 1998:
(In thousands of dollars) Average Average Revenues Net Income Total Assets Total Deposits -------- ---------- ------------ -------------- Retail Banking $186,009 $40,044 $7,486,890 $15,153,177 Corporate Banking 72,942 23,985 5,880,611 919,816 Dealer Sales 42,042 12,118 5,116,160 56,551 Private Financial Group 20,806 5,454 629,878 503,309 Treasury / Other 29,816 7,885 7,216,761 849,359 -------- ------- ----------- ----------- Total $351,615 $89,486 $26,330,300 $17,482,212 ======== ======= =========== ===========
12 RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income for the quarter was $254.8 million, up $7.3 million, or 2.9%, from the same period a year ago. The increase was largely the result of growth in investment securities and other earning assets, as the highly competitive marketplace continues to erode loan margins across much of the banking industry. Huntington's margin dropped from 4.39% in the first three months of 1997 to 4.30% in the quarter just ended. Management expects margin compression to be a continuing challenge in the ensuing quarters which may continue to depress growth in net interest income. PROVISION FOR LOAN LOSSES The provision for loan losses was $22.2 million in the first quarter of 1998, down slightly from $22.4 million in the same period last year. Annualized net charge-offs as a percentage of average total loans was .51% for the recent three months, compared with .42% in the same period last year and .50% for full year 1997. NON-INTEREST INCOME Non-interest income, excluding net gains from the sale of investment securities, was $93.7 million for the first quarter of 1998, compared with $74.6 million for the first three months of 1997. The 25.5% increase is attributable to higher mortgage banking income associated with strong origination activity, growth in service charges on deposit accounts, and income generated from the $400 million Bank Owned Life Insurance policy purchased by Huntington in December 1997. Electronic banking fees and brokerage revenues also showed considerable improvement. NON-INTEREST EXPENSE Non-interest expense increased 7.6%, or $13.9 million, from one year ago. The primary drivers were higher sales commissions (a component of "Personnel and related costs"); increases in outside services, in part due to Year 2000 expenses; and an increase in the number of ATMs deployed by Huntington that fueled an increase in telecommunications costs. In addition, 1997 purchase acquisitions impacted last year's first quarter expenses only partially but affected results for all of the recent quarter. "Year 2000" expenses relate to professional fees for outside services (primarily programming) as well as internal staff costs that have been, and will continue to be, incurred to alter programs that have time-sensitive software which may recognize a "00" date as the year 1900 versus 2000. Huntington anticipates substantially all reprogramming will be completed by December 31, 1998, allowing the opportunity in 1999 to fully test the systems and make any further refinements that are needed. The failure of certain third parties to adequately address Year 2000 could also adversely impact Huntington. Consequently, Huntington is communicating with customers, suppliers, and others to identify any potential problems. Huntington's management estimates an additional $8.2 million of Year 2000 costs will be incurred in the future to get Huntington's systems fully compliant. These costs, however, are not expected to materially impact Huntington's results of operations in any one period. During the recent quarter, the operations of Huntington's Western Michigan region, formerly First Michigan Bank Corporation, were successfully converted to Huntington's primary 13 operating platform. This is expected to create efficiencies as well as the opportunity to enhance the products and services provided customers in the Western Michigan market. INTEREST RATE RISK MANAGEMENT Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. The Asset and Liability Management Committee (ALCO) oversees financial risk management, establishing broad policies and specific operating limits that govern a variety of financial risks inherent in Huntington's operations, including interest rate, liquidity, counterparty settlement, and market risks. On and off-balance sheet strategies and tactics are reviewed and monitored regularly by ALCO to ensure consistency with approved risk tolerances. Interest rate risk management is a dynamic process, encompassing the business flows onto the balance sheet, wholesale investment and funding, and the changing market and business environment. Effective management of interest rate risk begins with appropriately diversified investments and funding sources. To accomplish its overall balance sheet objectives, Huntington regularly accesses a variety of global markets--money, bond, 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. 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 that are believed to be affected by interest rates. These include prepayment speeds on mortgages and consumer installment loans, cash flows of loans and deposits, principal amortization on revolving credit instruments, and balance sheet growth assumptions. The model also captures embedded options, for example, 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 assigns probabilities and, therefore, believes that, at any point in time, the model provides a reasonably accurate estimate of Huntington's interest rate risk exposure. This information is regularly shared with the Board of Directors. At March 31, 1998, the results of Huntington's interest sensitivity analysis indicated that net interest income would be relatively unchanged by a 100-200 basis point 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). If interest rates rose 100 basis points, net interest income would be expected to decrease by 1.2%. An increase of 200 basis points would result in a 2.4% reduction. Active interest rate risk management necessitates the use of various types of off-balance sheet financial instruments, primarily interest rate swaps. Risk created by different indices on products, by unequal terms to maturity of assets and liabilities, and by products that are appealing to customers but incompatible with current risk limits can be eliminated or decreased in a cost efficient manner by utilizing interest rate swaps. Often, the swap strategy has enabled Huntington to lower the overall cost of raising wholesale funds. Similarly, financial futures, interest rate caps and floors, options, and forward rate agreements are used to control financial 14 risk effectively. Off-balance sheet instruments perform identically to similar cash instruments but are often preferable because they require less capital while preserving access to the marketplace. The following table illustrates the approximate market values, estimated maturities and weighted average rates of the interest rate swaps used by Huntington in its interest rate risk management program at March 31, 1998:
Average Average Rate Notional Maturity Market ------------- (Dollars in millions) Value (years) Value Receive Pay ----- ------- ----- ------- --- ASSET CONVERSION SWAPS Received fixed $ 575 1.85 $ .1 6.15% 5.66% ====== ====== LIABILITY CONVERSION SWAPS Receive fixed $1,980 1.55 $ 26.0 6.28% 5.68% Receive fixed-amortizing 185 1.25 ( .2) 5.63% 5.69% Pay fixed 400 0.62 .2 5.73% 5.49% ------ ------ TOTAL LIABILITY CONVERSION SWAPS $2,565 1.38 $ 26.0 6.15% 5.65% ====== ====== BASIS PROTECTION SWAPS $ 785 1.05 $( .5) 5.68% 5.72% ====== ======
As is the case with cash securities, the market value of interest rate swaps is largely a function of the financial market's expectations regarding the future direction of interest rates. 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. Management made no assumptions regarding future changes in interest rates with respect to the variable rate information and the indexed amortizing swap maturities presented in the table above. The pay rates on Huntington's receive-fixed swaps vary based on movements in the applicable London interbank offered rate (LIBOR). Asset conversion swaps and liability conversion swaps with notional values of $300 million and $500 million, respectively, have embedded written LIBOR-based call options. 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 that provide for both parties to receive interest payments according to different rate indices and are used to protect against changes in spreads between market rates. The receive and pay amounts applicable to Huntington's basis swaps are based predominantly on LIBOR. The contractual interest payments are based on the notional values of the swap portfolio. These notional values do not represent direct credit exposures. At March 31, 1998, Huntington's credit risk from interest rate swaps used for asset/liability management purposes was $72.1 million, which represents the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. In order to minimize the risk that a swap counterparty will not satisfy its interest payment obligation 15 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. 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 $195 million at March 31, 1998. Total credit exposure from such contracts is not material. These separate activities, which are accounted for at fair value, are not a significant part of Huntington's operations. Accordingly, they have been excluded from the above discussion of off-balance sheet financial instruments and the related table. CREDIT RISK Huntington's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize "in-market" lending to established borrowers. Highly leveraged transactions as well as excessive industry and 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. Huntington continues to compare favorably with its peers in terms of asset quality. 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 $95.1 million at March 31, 1998. Non-performing loans represented .47% of total loans and non-performing assets as a percentage of total loans and other real estate were only .54%, as of this same date. Loans past due ninety days or more but continuing to accrue interest, including consumer and residential real estate credits, were $65.0 million. The allowance for loan losses (ALL) is maintained at a level considered appropriate by management, based on its estimate of losses inherent in the loan portfolio. The procedures employed by Huntington to evaluate the adequacy of the ALL include an analysis of specific credits that are generally selected for review on the basis of size and relative risk, portfolio trends, current and historic loss experience, prevailing economic conditions, and other relevant factors. The reserve ratio increased to 1.46% at the recent quarter end versus 1.38% one year ago. At March 31, 1998, the ALL covered non-performing loans 3.1 times. When the ALL is combined with the allowance for other real estate owned, the reserves were 270% of total nonperforming assets. CAPITAL Huntington recognizes the importance of managing capital and continually strives to maintain an appropriate balance between capital adequacy and returns to shareholders. 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 16 business growth and acquisition opportunities. 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 in the first three months of 1998 was 7.77%, compared with 7.31% in the same period last year. At March 31, 1998, Tier 1 and Total Risk-based Capital Ratios were 8.91% and 11.57%, respectively. Huntington's two bank subsidiaries also had regulatory capital ratios in excess of the levels established for "well-capitalized" institutions. In March 1998, Huntington filed a registration statement with the Securities and Exchange Commission for the purpose of registering for sale up to 8.5 million shares of its common stock. Management continues to evaluate various capital management alternatives in connection with the pending branch acquisition, and is uncertain as to the ultimate size and timing of the common stock offering. Huntington is, however, committed to maintaining its long history of strong capital and expects, subject to market conditions and other developments, to issue a combination of trust preferred securities and subordinated notes on or before the closing of the acquisition. The Board of Directors authorized Huntington, on February 21, 1996, to repurchase up to 12.1 million additional shares of its common stock (as adjusted for subsequent stock dividends) through open market purchases and privately negotiated transactions. The authorization represents a continuation of the common stock repurchase program begun in August 1987 and provides that the shares will be reserved for reissue in connection with Huntington's benefit plans as well as for other corporate purposes. The repurchase program is currently suspended but Huntington has approximately 2.6 million shares remaining under the authorization. 17
- ------------------------------------------------------------------------ CONSOLIDATED FINANCIAL HIGHLIGHTS - ---------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) -------------- -------------- ------------ THREE MONTHS ENDED MARCH 31, 1998 1997 % Change -------------- -------------- ------------ NET INCOME......................................... $89,486 $77,179 15.9% PER COMMON SHARE AMOUNTS (1) Net income Basic.................................... $0.47 $0.41 14.6 Diluted.................................. $0.46 $0.40 15.0 Cash dividends declared....................... $0.20 $0.18 11.1 AVERAGE COMMON SHARES OUTSTANDING (1).............. 192,161 189,082 1.6 KEY RATIOS Return on: Average total assets.......................... 1.38% 1.27% 8.7 Average shareholders' equity.................. 17.73% 17.42% 1.8 Efficiency ratio................................... 56.32% 56.64% (0.6) Average equity/average assets...................... 7.77% 7.31% 6.3 Net interest margin................................ 4.30% 4.39% (2.1) - --------------------------------------------------- -------------- -------------- ------------ AT MARCH 31, 1998 1997 % Change -------------- -------------- ------------ Total Loans........................................ $17,748,389 $17,453,995 1.7% Total Deposits..................................... $17,700,544 $16,976,046 4.3 Total Assets....................................... $26,808,479 $25,167,739 6.5 Shareholders' Equity............................... $ 2,074,094 $ 1,848,145 12.2 Period-End Shares Outstanding (1).................. 192,319 191,584 0.4 Shareholders' Equity Per Common Share (1).......... $10.78 $9.65 11.7 Regulatory Capital Data: Total Risk-Adjusted Assets...................... $22,553,563 $20,547,936 9.8 Tier 1 Risk-Based Capital Ratio................. 8.91% 9.04% (1.4) Total Risk-Based Capital Ratio.................. 11.57% 12.18% (5.0) Tier 1 Leverage Ratio........................... 7.72% 7.62% 1.3
(1) Adjusted for stock splits and stock dividends, as applicable. 18
- --------------------------------------------------------------------------------------------------------- FINANCIAL REVIEW - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1998 AND DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, 1998 December 31, 1997 - --------------------------------------------------------------------------------------------------------------------------- AMORTIZED COST FAIR VALUE Amortized Cost Fair Value - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury and Federal Agencies 1-5 years......................... $ 656 $ 656 $ 656 $ 656 ------- ------- ------- ------- Total.......................... 656 656 656 656 ------- ------- ------- ------- States and political subdivisions Under 1 year...................... 6,818 6,795 6,311 6,310 1-5 years......................... 12,561 12,655 13,592 13,719 6-10 years........................ 8,880 9,040 9,605 9,788 Over 10 years..................... 2,716 2,766 2,846 2,910 ------- ------- ------- ------- Total.......................... 30,975 31,256 32,354 32,727 ------- ------- ------- ------- Total Investment Securities............ $31,631 $31,912 $33,010 $33,383 ======= ======= ======= =======
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- ---------------------------------------------------------------------------------------------------- FINANCIAL REVIEW - ----------------------------------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1998 AND DECEMBER 31, 1997 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) MARCH 31, 1998 December 31, 1997 - ----------------------------------------------------------------------------------------------------------------------------- AMORTIZED COST FAIR VALUE Amortized Cost Fair Value - ----------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Under 1 year................................ $ 701 $ 706 $ 1,001 $ 1,012 1-5 years................................... 305,370 306,419 409,364 407,936 6-10 years.................................. 749,542 746,054 320,497 320,726 ---------- ---------- ---------- ---------- Total.................................... 1,055,613 1,053,179 730,862 729,674 ---------- ---------- ---------- ---------- Federal agencies Mortgage-backed securities Under 1 year................................ 903 902 2,223 2,216 1-5 years................................... 273,230 272,911 169,877 170,177 6-10 years.................................. 218,440 218,173 497,496 494,016 Over 10 years............................... 794,371 798,102 698,906 705,031 ---------- ---------- ---------- ---------- Total.................................... 1,286,944 1,290,088 1,368,502 1,371,440 ---------- ---------- ---------- ---------- Other agencies Under 1 year................................ 991 994 984 992 1-5 years................................... 1,827,588 1,830,565 1,590,592 1,594,409 6-10 years.................................. 833,746 837,532 787,682 792,359 Over 10 years............................... 630,666 629,983 509,713 512,160 ---------- ---------- ---------- ---------- Total.................................... 3,292,991 3,299,074 2,888,971 2,899,920 ---------- ---------- ---------- ---------- Other Under 1 year................................ 11,125 11,074 13,940 13,925 1-5 years................................... 215,838 218,876 211,943 214,772 6-10 years.................................. 194,527 199,339 199,849 205,771 Over 10 years............................... 263,294 265,698 210,688 213,183 Marketable equity securities................ 8,670 7,776 62,164 61,129 ---------- ---------- ---------- ---------- Total.................................... 693,454 702,763 698,584 708,780 ---------- ---------- ---------- ---------- Total Securities Available for Sale.............. $6,329,002 $6,345,104 $5,686,919 $5,709,814 ========== ========== ========== ==========
20
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL REVIEW - ------------------------------------------------------------------------------------------------------------------------------------ LOAN LOSS EXPERIENCE - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands of dollars) 1998 1997 -------- ----------------------------------------------- I Q IV Q III Q II Q I Q -------- -------- -------- -------- -------- ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD............... $258,171 $257,883 $247,867 $241,647 $230,778 Allowance of assets acquired/other........................... -- 1,600 -- 149 6,028 Loan losses.................................................. (27,566) (33,344) (24,354) (30,301) (22,724) Recoveries of loans previously charged off................... 5,476 5,797 6,019 5,541 5,185 Provision for loan losses.................................... 22,181 26,235 28,351 30,831 22,380 -------- -------- -------- -------- -------- ALLOWANCE FOR LOAN LOSSES END OF PERIOD...................... $258,262 $258,171 $257,883 $247,867 $241,647 ======== ======== ======== ======== ======== AS A % OF AVERAGE TOTAL LOANS Net loan losses--annualized................................ 0.51% 0.61% 0.41% 0.56% 0.42% Provision for loan losses--annualized...................... 0.51% 0.59% 0.63% 0.70% 0.53% Allowance for loan losses as a % of total loans.............. 1.46% 1.46% 1.46% 1.39% 1.38% Net loan loss coverage (1)................................... 6.96x 5.79x 5.91x 6.41x 8.01x
(1) Income before taxes and the provision for loan losses to net loan losses.
- ----------------------------------------------------------------------------------------------------------------------------------- NON-PERFORMING ASSETS AND PAST DUE LOANS (Quarter-End) 1998 1997 ------- ---------------------------------------------- (in thousands of dollars) I Q IV Q III Q II Q I Q ------- ------- ------- ------- ------- Non-accrual loans............................................ $79,888 $65,981 $72,385 $61,105 $64,764 Renegotiated loans........................................... 3,173 5,822 6,069 4,449 4,490 ------- ------- ------- ------- ------- TOTAL NON-PERFORMING LOANS................................... 83,061 71,803 78,454 65,554 69,254 ------- ------- ------- ------- ------- Other real estate, net....................................... 12,005 15,343 13,762 14,434 20,300 ------- ------- ------- ------- ------- TOTAL NON-PERFORMING ASSETS.................................. $95,066 $87,146 $92,216 $79,988 $89,554 ======= ======= ======= ======= ======= NON-PERFORMING LOANS AS A % OF TOTAL LOANS........................................... 0.47% 0.40% 0.44% 0.37% 0.40% NON-PERFORMING ASSETS AS A % OF TOTAL LOANS AND OTHER REAL ESTATE..................... 0.54% 0.49% 0.52% 0.45% 0.51% ALLOWANCE FOR LOAN LOSES AS A % OF NON-PERFORMING LOANS....................................... 310.93% 359.55% 328.71% 378.11% 348.93% ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE AS A % OF NON-PERFORMING ASSETS..................... 270.07% 294.32% 277.31% 306.51% 266.89% ACCRUING LOANS PAST DUE 90 DAYS OR MORE...................... $64,959 $49,608 $43,120 $40,967 $42,023 ======= ======= ======= ======= =======
21
- -------------------------------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA) - ------------------------------------------------------------------------------------------------------------------------------------ Fully Tax Equivalent Basis (1) 1ST QUARTER 1998 4th Quarter 1997 -------------------------- ---------------------- (in millions of dollars) AVERAGE YIELD/ Average Yield/ BALANCE RATE Balance Rate ----------- ---------- -------- ---------- ASSETS Interest bearing deposits in banks.................................... $ 9 5.35% $ 5 5.37% Trading account securities............................................ 8 5.48 12 5.89 Federal funds sold and securities purchased under resale agreements... 21 6.57 20 5.48 Mortgages held for sale............................................... 219 7.24 177 8.27 Securities: Taxable......................................................... 5,906 6.35 5,308 6.37 Tax exempt...................................................... 237 9.23 246 9.39 ------- ------ Total Securities........................................... 6,143 6.46 5,554 6.51 ------- ------ Loans: Commercial....................................................... 5,306 8.58 5,312 8.55 Real Estate Construction................................................ 823 8.85 875 8.93 Mortgage.................................................... 3,520 8.65 3,639 8.65 Consumer Loans...................................................... 6,428 9.40 6,441 9.22 Leases..................................................... 1,564 7.13 1,521 7.43 ------- ------ Total Consumer loans....................................... 7,992 8.96 7,962 8.88 ------- ------ Total Loans........................................................... 17,641 8.78 17,788 8.74 Allowance for loan losses/loan fees................................... 265 268 ------- ------- Net loans............................................................. 17,376 9.20 17,520 9.14 ------- ------- Total earning assets.................................................. 24,041 8.48% 23,556 8.51% ------- ------- Cash and due from banks............................................... 917 951 All other assets...................................................... 1,637 1,190 ------- ------- TOTAL ASSETS.......................................................... $26,330 $25,429 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Core deposits Non-interest bearing deposits.................................... $ 2,979 $ 2,954 Interest bearing demand deposits................................. 3,250 2.68% 3,257 2.61% Savings deposits................................................. 3,028 3.44 3,017 3.40 Other domestic time deposits..................................... 6,093 5.64 6,089 5.66 ------- ------- Total core deposits......................................... 15,350 4.32 15,317 4.31 ------- ------- Certificates of deposit of $100,000 or more........................... 1,935 5.78 2,004 5.79 Foreign time deposits................................................. 198 5.85 248 5.91 ------- ------- Total deposits................................................... 17,483 4.54 17,569 4.54 ------- ------- Short-term borrowings................................................. 3,050 5.22 2,442 5.11 Medium-term notes..................................................... 2,520 5.79 2,171 5.83 Subordinated notes and other long-term debt, including capital securities....................................... 691 5.85 704 6.23 ------- ------- Interest bearing liabilities..................................... 20,765 4.83% 19,932 4.81% ------- ------- All other liabilities................................................. 539 570 Shareholders' equity.................................................. 2,047 1,973 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $26,330 $25,429 ======= ======= Net interest rate spread.............................................. 3.65% 3.70% Impact of non-interest bearing funds on margin........................ 0.65% 0.74% NET INTEREST MARGIN................................................... 4.30% 4.44%
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate. 22
- ---------------------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA) - --------------------------------------------------------------------------------------------------------- 3rd Quarter 1997 2nd Quarter 1997 1st Quarter 1997 ------------------------- ------------------------ -------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Rate Balance Rate Balance Rate --------- ----------- --------- ---------- --------- ------------ $ 17 5.51% $ 2 5.68% $ 1 6.74% 8 5.90 11 5.67 8 5.29 75 5.50 39 5.71 41 5.52 146 7.30 115 7.63 87 7.71 5,241 6.36 5,422 6.36 5,433 6.35 255 9.10 275 9.05 283 9.18 --------- --------- --------- 5,496 6.49 5,697 6.50 5,716 6.49 --------- --------- --------- 5,264 8.65 5,405 8.65 5,221 8.60 862 9.10 788 9.17 728 9.05 3,865 8.72 3,845 8.74 3,695 8.66 6,366 9.15 6,242 9.24 6,144 8.88 1,465 7.53 1,382 7.63 1,252 7.84 --------- --------- --------- 7,831 8.85 7,624 8.95 7,396 8.70 --------- --------- --------- 17,822 8.77 17,662 8.82 17,040 8.68 254 250 240 --------- --------- --------- 17,568 9.18 17,412 9.32 16,800 9.10 --------- --------- --------- 23,564 8.52% 23,526 8.62% 22,893 8.43% --------- --------- --------- 905 920 884 1,132 1,042 1,046 --------- --------- --------- $25,347 $25,238 $24,583 ========= ========= ========= $ 2,775 $ 2,739 $ 2,623 3,193 2.78% 3,239 2.55% 3,161 2.60% 3,048 3.19 3,121 3.34 3,006 3.21 5,995 5.65 5,809 5.61 5,525 5.60 --------- --------- --------- 15,011 4.29 14,908 4.21 14,315 4.17 --------- --------- --------- 2,085 5.76 1,940 5.68 1,652 5.52 379 5.83 501 5.79 401 5.73 --------- --------- --------- 17,475 4.54 17,349 4.46 16,368 4.38 --------- --------- --------- 2,822 5.25 3,154 5.19 3,639 5.10 1,785 5.91 1,621 5.96 1,612 5.87 793 6.23 777 6.42 684 6.16 --------- --------- --------- 20,100 4.83% 20,162 4.77% 19,680 4.70% --------- --------- --------- 528 481 483 1,944 1,856 1,797 --------- --------- --------- $25,347 $25,238 $24,583 ========= ========= ========= 3.69% 3.85% 3.73% 0.72% 0.69% 0.66% 4.41% 4.54% 4.39%
23
- ---------------------------------------------------------------------------------- SELECTED QUARTERLY INCOME STATEMENT DATA - ------------------------------------------------------------------------------------------------------------------------------- 1998 1997 --------- ---------------------------------------------------- (in thousands of dollars, except per share amounts) I Q IV Q III Q II Q I Q - ---------------------------------------------------- ---------- -------- -------- -------- -------- TOTAL INTEREST INCOME................................ $502,480 $499,760 $502,821 $503,018 $475,874 TOTAL INTEREST EXPENSE............................... 247,632 240,197 245,663 240,060 228,323 -------- -------- -------- -------- -------- NET INTEREST INCOME.................................. 254,848 259,563 257,158 262,958 247,551 Provision for loan losses............................ 22,181 26,235 28,351 30,831 22,380 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.......................... 232,667 233,328 228,807 232,127 225,171 -------- -------- -------- -------- -------- Service charges on deposit accounts ................. 30,837 31,035 30,382 28,841 27,594 Mortgage banking .................................... 14,157 15,889 20,672 10,157 8,997 Trust services ...................................... 12,583 12,019 12,124 11,815 12,145 Brokerage and insurance income....................... 8,285 6,131 7,615 6,254 7,084 Electronic banking fees.............................. 5,731 6,153 5,947 6,192 4,364 Credit card fees..................................... 4,859 6,583 5,073 4,522 4,195 Securities gains..................................... 3,089 1,034 1,243 3,604 2,098 Other................................................ 17,226 9,666 13,041 10,116 10,254 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME ........................... 96,767 88,510 96,097 81,501 76,731 -------- -------- -------- -------- -------- Personnel and related costs.......................... 104,712 97,224 101,323 97,000 97,241 Outside data processing and other services........... 16,586 16,745 14,450 14,351 12,567 Equipment ........................................... 15,149 16,004 14,504 14,172 13,188 Net occupancy ....................................... 13,439 11,756 12,772 11,650 13,332 Marketing............................................ 6,932 8,187 7,845 7,785 8,965 Telecommunications................................... 6,023 5,636 5,642 5,283 4,967 Legal and other professional services................ 5,788 8,318 6,095 5,089 5,429 Printing and supplies................................ 5,761 6,240 5,383 5,034 4,927 Franchise and other taxes............................ 5,500 4,576 4,685 5,335 5,240 Amortization of intangible assets.................... 3,393 3,285 3,382 3,406 2,946 Special charges...................................... -- -- 47,163 -- -- Other................................................ 14,507 10,561 21,666 16,700 15,059 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE .......................... 197,790 188,532 244,910 185,805 183,861 -------- -------- -------- -------- -------- Income Before Income Taxes .......................... 131,644 133,306 79,994 127,823 118,041 Provision for income taxes .......................... 42,158 42,657 38,762 44,220 40,862 -------- -------- -------- -------- -------- NET INCOME .......................................... $ 89,486 $ 90,649 $ 41,232 $83,603 $ 77,179 ======== ======== ======== ======== ======== PER COMMON SHARE (1) Net income Basic........................................... $0.47 $0.47 $0.22 $0.44 $0.41 Diluted......................................... $0.46 $0.47 $0.21 $0.43 $0.40 Cash Dividends Declared............................. $0.20 $0.20 $0.20 $0.18 $0.18 FULLY TAX EQUIVALENT MARGIN: Net Interest Income ................................. $254,848 $259,563 $257,158 $262,958 $247,551 Tax Equivalent Adjustment (2) ....................... 2,655 2,754 3,115 2,948 3,047 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income .................. $257,503 $262,317 $260,273 $265,906 $250,598 ======== ======== ======== ======== ========
(1) Adjusted for stock splits and stock dividends, as applicable. (2) Calculated assuming a 35% tax rate. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Huntington Bancshares Incorporated ------------------------------------ (Registrant) Date: May 15, 1998 /s/ RALPH K. FRASIER ------------------------------------ Ralph K. Frasier General Counsel and Secretary Date: May 15, 1998 /s/ GERALD R. WILLIAMS ------------------------------------ Gerald R. Williams Executive Vice President and Chief Financial Officer (principal accounting officer) PART II. OTHER INFORMATION In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3. ( i )( a ) Articles of Restatement of Charter, Articles of Amendment to Articles of Restatement of Charter, and Articles Supplementary -- previously filed as Exhibit 3(i) to Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. ( i )( b ) Articles of Amendment to Articles of Restatement of Charter -- previously filed as Exhibit 3(i)(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated herein by reference. ( i )( c ) Articles of Amendment to Articles of Restatement of Charter. ( ii ) Bylaws -- previously filed as Exhibit 2(ii) to Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference. 4. Instruments defining the Rights of Security Holders: Reference is made to Articles Fifth, Eighth and Tenth of Articles of Restatement of Charter, as amended and supplemented. Also, reference is made to Rights Plan, dated February 22, 1990, previously filed as Exhibit 1 to Registration Statement on Form 8-A, and incorporated herein by reference and to Amendment No. 1 to the Rights Agreement, dated as of August 16, 1995, previously filed as Exhibit 4(b) to Form 8-K filed with the Securities and Exchange Commission on August 28, 1995, and incorporated herein by reference. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. 27. Financial Data Schedule (b) Reports on Form 8-K 1. A report on Form 8-K, dated January 14, 1998, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the fourth quarter and year ended December 31, 1997. 2. A report on Form 8-K, dated March 11, 1998, was filed under report item number 5 concerning the retirement of Zuheir Sofia, President, Chief Operating Officer, and Treasurer, and certain post-retirement matters.