1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2001
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 251,109,948 shares of Registrant's without par value common stock
outstanding on July 31, 2001.
2
HUNTINGTON BANCSHARES INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and 2000 and December 31, 2000 3
Consolidated Statements of Income -
For the three and six months ended June 30, 2001 and 2000 4
Consolidated Statements of Changes in Shareholders' Equity -
For the six months ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows -
For the six months ended June 30, 2001 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders 32
Item 6. Exhibits and Reports on Form 8-K 33-34
2
3
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, JUNE 30,
(in thousands of dollars) 2001 2000 2000
----------------------------------------------------------- -------------- -------------- ------------
ASSETS
Cash and due from banks .................................... $ 908,686 $ 1,322,700 $ 1,139,025
Interest bearing deposits in banks ......................... 4,893 4,970 4,976
Trading account securities ................................. 4,291 4,723 24,310
Federal funds sold and securities
purchased under resale agreements ..................... 59,725 133,183 137,203
Loans held for sale ........................................ 376,671 155,104 100,900
Securities available for sale - at fair value .............. 3,190,686 4,090,525 4,357,699
Investment securities - fair value $15,159; $16,414;
and $17,254, respectively ............................. 14,978 16,336 17,609
Total Loans (1) ............................................ 21,127,862 20,610,191 20,522,443
Less allowance for loan losses ........................... 352,243 297,880 296,891
------------ ------------ -------------
Net loans .................................................. 20,775,619 20,312,311 20,225,552
------------ ------------- -------------
Bank owned life insurance .................................. 824,062 804,941 784,070
Premises and equipment ..................................... 457,749 454,844 439,007
Customers' acceptance liability ............................ 15,335 17,366 13,532
Accrued income and other assets ............................ 1,315,455 1,282,374 1,340,480
------------ -------------- -------------
TOTAL ASSETS ............................................... $ 27,948,150 $ 28,599,377 $ 28,584,363
============ ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Deposits (1) ......................................... $ 18,996,922 $ 19,777,245 $ 19,758,934
Short-term borrowings ...................................... 2,585,773 1,987,759 1,720,611
Bank acceptances outstanding ............................... 15,335 17,366 13,532
Medium-term notes .......................................... 1,983,603 2,467,150 2,939,150
Subordinated notes and other long-term debt ................ 890,371 870,976 870,756
Company obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Parent Company .... 300,000 300,000 300,000
Accrued expenses and other liabilities ..................... 822,624 812,834 714,726
----------- -------------- -------------
Total Liabilities ..................................... 25,594,628 26,233,330 26,317,709
----------- -------------- -------------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none issued or outstanding ....................... --- --- ---
Common stock - without par value; authorized
500,000,000 shares; issued 257,866,255,
257,866,255, and 233,844,820 shares, respectively;
outstanding 251,056,761, 250,859,470, and
228,502,954 shares, respectively ................. 2,490,682 2,493,645 2,253,224
Less 6,809,494, 7,006,765, and 5,341,866
treasury shares, respectively .................... (125,095) (129,432) (122,245)
Accumulated other comprehensive income ................ (8,388) (24,520) (105,987)
Retained earnings ..................................... (3,677) 26,354 241,662
----------- -------------- -------------
Total Shareholders' Equity ............................ 2,353,522 2,366,047 2,266,654
------------ -------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 27,948,150 $ 28,599,377 $ 28,584,363
============ ============ ============
(1) See page 12 for detail of total loans and total deposits.
See notes to unaudited consolidated financial statements.
3
4
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ ---------------------------------
(in thousands of dollars, except per share amounts) 2001 2000 2001 2000
---------------------------------------------------- ---------------- ----------------- -------------- ----------------
Interest and fee income
Loans ........................................ $ 434,697 $ 448,597 $ 881,482 $ 888,243
Securities ................................... 55,434 66,891 119,268 140,042
Other ........................................ 8,828 4,008 16,184 6,768
------------- ------------- ------------- -------------
TOTAL INTEREST INCOME .............. 498,959 519,496 1,016,934 1,035,053
------------- ------------- ------------- -------------
Interest expense
Deposits ..................................... 170,288 192,213 355,369 374,862
Short-term borrowings ........................ 30,039 25,216 63,202 49,980
Medium-term notes ............................ 32,940 48,839 69,603 99,197
Subordinated notes and other long-term debt .. 17,659 20,422 37,603 37,517
------------- ------------- ------------- -------------
TOTAL INTEREST EXPENSE ............. 250,926 286,690 525,777 561,556
------------- ------------- ------------- -------------
NET INTEREST INCOME ................ 248,033 232,806 491,157 473,497
Provision for loan losses ......................... 117,495 15,834 150,959 31,535
------------- ------------- ------------- -------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 130,538 216,972 340,198 441,962
------------- ------------- ------------- -------------
Total non-interest income (1) ..................... 128,203 115,664 245,927 241,358
Total non-interest expense (1) .................... 267,293 198,076 501,383 398,182
------------- ------------- ------------- -------------
(LOSS) INCOME BEFORE INCOME TAXES .. (8,552) 134,560 84,742 285,138
Provision for income taxes ........................ (10,929) 37,039 14,499 83,444
------------- ------------- ------------- -------------
NET INCOME ......................... $ 2,377 $ 97,521 $ 70,243 $ 201,694
============= ============= ============= =============
PER COMMON SHARE (2)
Net income
Basic ................................... $ 0.01 $ 0.40 $ 0.28 $ 0.82
Diluted ................................. $ 0.01 $ 0.40 $ 0.28 $ 0.82
Cash dividends declared ...................... $ 0.20 $ 0.18 $ 0.40 $ 0.36
AVERAGE COMMON SHARES (2)
Basic ................................... 251,024,374 244,834,775 250,983,996 246,404,512
Diluted ................................. 251,447,651 245,651,908 251,479,136 247,431,449
(1) See page 13 for detail on non-interest income and non-interest expense.
(2) Adjusted for stock splits and stock dividends, as applicable.
See notes to unaudited consolidated financial statements.
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5
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER
------------------------ -------------------- COMPREHENSIVE RETAINED
SHARES AMOUNT SHARES AMOUNT INCOME (LOSS) EARNINGS TOTAL
---------------------------------------------------------- ----------- -------- ---------- -------------- --------- ---------
Six Months Ended June 30, 2000:
Balance, beginning of period 233,845 $2,284,956 (4,957) ($137,268) ($94,093) $128,761 $2,182,356
Comprehensive Income:
Net income 201,694 201,694
Unrealized net holding losses
on securities available for sale
arising during the period (11,894) (11,894)
-----------
Total comprehensive income 189,800
-----------
Stock issued for acquisition (29,399) 6,480 160,060 130,661
Cash dividends declared (88,793) (88,793)
Stock options exercised (2,333) 76 2,483 150
Treasury shares purchased (6,971) (148,219) (148,219)
Treasury shares sold to
employee benefit plans 30 699 699
---------- ----------- -------- ---------- ----------- --------- -----------
Balance, end of period 233,845 $2,253,224 (5,342) ($122,245) ($105,987) $241,662 $2,266,654
========== =========== ======== ========== =========== ========= ===========
SIX MONTHS ENDED JUNE 30, 2001:
BALANCE, BEGINNING OF PERIOD 257,866 $2,493,645 (7,007) ($129,432) ($24,520) $26,354 $2,366,047
COMPREHENSIVE INCOME:
NET INCOME 70,243 70,243
CHANGE IN ACCOUNTING METHOD FOR
DERIVATIVES (9,113) (9,113)
UNREALIZED NET HOLDING GAINS ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD 19,893 19,893
UNREALIZED GAINS ON DERIVATIVES 5,352 5,352
-----------
TOTAL COMPREHENSIVE INCOME 86,375
-----------
CASH DIVIDENDS DECLARED (100,274) (100,274)
STOCK OPTIONS EXERCISED (2,963) 154 3,626 663
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 44 711 711
---------- ----------- -------- ---------- ----------- --------- -----------
BALANCE, END OF PERIOD 257,866 $2,490,682 (6,809) ($125,095) ($8,388) ($3,677) $2,353,522
========== =========== ======== ========== =========== ========= ===========
See notes to unaudited consolidated financial statements.
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--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-----------------------------
(in thousands of dollars) 2001 2000
----------- -----------
OPERATING ACTIVITIES
Net Income $ 70,243 $ 201,694
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 150,959 31,535
Provision for depreciation and amortization 51,237 56,204
Deferred income tax expense 12,941 39,319
Decrease (increase) in trading account securities 432 (16,335)
(Increase) decrease in mortgages held for sale (221,567) 40,823
Losses (gains) on sales of securities available for sale 425 (24,877)
(Gains) losses on sales/securitizations of loans (4,869) 4,118
Decrease (increase) in accrued income receivable 15,609 (11,529)
Net increase in other assets (71,749) (82,411)
(Decrease) increase in accrued expenses (39,413) 57,492
Net increase (decrease) in other liabilities 5,978 (16,247)
Special Charge 33,997 ---
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,223 279,786
----------- -----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks 77 1,582
Proceeds from :
Maturities and calls of investment securities 990 1,140
Maturities and calls of securities available for sale 633,121 114,696
Sales of securities available for sale 953,722 936,238
Purchases of securities available for sale (634,687) (73,961)
Proceeds from sales/securitizations of loans 303,240 984,041
Net loan originations, excluding sales (962,780) (925,589)
Proceeds from sale of premises and equipment 717 2,014
Purchases of premises and equipment (30,719) (23,062)
Proceeds from sales of other real estate 8,271 6,461
Net cash received in purchase acquisition --- 20,283
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 271,952 1,043,843
----------- -----------
FINANCING ACTIVITIES
Decrease in total deposits (779,650) (462,232)
Increase (decrease) in short-term borrowings 598,014 (411,378)
Proceeds from issuance of long-term debt --- 150,000
Maturity of long-term debt (8,000) ---
Proceeds from issuance of medium-term notes 400,000 275,000
Payment of medium-term notes (875,000) (590,000)
Dividends paid on common stock (100,385) (90,302)
Repurchases of common stock --- (148,219)
Proceeds from issuance of common stock 1,374 849
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (763,647) (1,276,282)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS (487,472) 47,347
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,455,883 1,228,881
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 968,411 $ 1,276,228
=========== ===========
See notes to unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
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 consolidated
financial position, the results of operations, and cash flows for the periods
presented. These unaudited consolidated financial statements have been prepared
according to the rules and regulations of the Securities and Exchange Commission
and, therefore, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The Notes to the Consolidated Financial
Statements appearing in Huntington Bancshares Incorporated's (Huntington) 2000
Annual Report on Form 10-K should be read in conjunction with these interim
financial statements.
B. Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform to the 2001 presentation. These reclassifications had no
effect on net income.
C. Earnings per Share
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. The calculation of basic and
diluted earnings per share for each of the periods ended June 30, is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
(in thousands, except per share amounts) 2001 2000 2001 2000
------------------------------------------------------- ------------ ------------- ------------- -------------
Net Income $2,377 $97,521 $70,243 $201,694
============ ============= ============= =============
Average common shares outstanding 251,024 244,835 250,984 246,405
Dilutive effect of stock options 424 817 495 1,026
------------ ------------- ------------- -------------
Diluted common shares outstanding 251,448 245,652 251,479 247,431
============ ============= ============= =============
Earnings per share
Basic $0.01 $0.40 $0.28 $0.82
Diluted $0.01 $0.40 $0.28 $0.82
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
7
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D. 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 components of Other
Comprehensive Income are the unrealized gains (losses) on securities available
for sale and unrealized gains and losses on certain derivatives. The related
before and after tax amounts are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
(in thousands) 2001 2000 2001 2000
------------------------------------------------------ ------------- ------------- ------------- -------------
Change in accounting method for derivatives:
Unrealized net losses $ --- $ --- $(14,020) $ ---
Related tax benefit --- --- 4,907 ---
------------- ------------- ------------- -------------
Net --- --- (9,113) ---
------------- ------------- ------------- -------------
Unrealized holding (losses) gains on securities arising
during the period:
Unrealized net (losses) gains (12,376) (23,478) 30,405 6,640
Related tax benefit (expense) 4,353 8,123 (10,787) (2,364)
------------- ------------- ------------- -------------
Net (8,023) (15,355) 19,618 4,276
------------- ------------- ------------- -------------
Unrealized holding gains on derivatives arising
during the period:
Unrealized net gains 3,429 --- 8,234 ---
Related tax expense (1,200) --- (2,882) ---
------------- ------------- ------------- -------------
Net 2,229 --- 5,352 ---
------------- ------------- ------------- -------------
Less: Reclassification adjustment for net (losses) gains
realized during the period:
Realized net (losses) gains (2,503) 114 (425) 24,877
Related tax benefit (expense) 876 (41) 150 (8,707)
------------- ------------- ------------- -------------
Net (1,627) 73 (275) 16,170
------------- ------------- ------------- -------------
Total Other Comprehensive Income $(4,167) $(15,428) $16,132 $ (11,894)
============= ============= ============= =============
Accumulated Other Comprehensive Income balances at June 30, 2001 are as follows:
UNREALIZED GAINS (LOSSES) UNREALIZED LOSSES ON
(in thousands) ON SECURITIES DERIVATIVES
------------------------------------------------------ ------------------------------- ---------------------------
Balance, December 31, 2000 $ (24,520) $ ---
Change in accounting method --- (9,113)
Current-period change 19,893 5,352
-------------- -------------
Balance, June 30, 2001 $ (4,627) $ (3,761)
============== =============
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E. Lines of Business
Huntington views its operations as five distinct segments. Retail
Banking, Corporate Banking, Dealer Sales, and the Private Financial Group are
the company's major business lines. The fifth segment includes Huntington's
Treasury function and other unallocated assets, liabilities, revenue, and
expense. 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.
Listed below is certain financial information regarding Huntington's
2001 and 2000 results by line of business. For a detailed description of the
individual segments, refer to Huntington's Management's Discussion and Analysis.
-------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
------------------------------------------------------------------------------------------------------------------------------------
2001
Net Interest Income (FTE) $ 130,368 $ 69,074 $ 58,383 $ 9,777 $(17,953) $ 249,649
Provision for Loan Losses 14,644 21,630 81,092 129 --- 117,495
Non-Interest income 82,110 15,556 5,798 12,898 11,841 128,203
Non-Interest expense 149,374 34,924 48,732 23,535 10,728 267,293
Income Taxes/FTE Adjustment 16,961 9,827 (22,975) (346) (12,780) (9,313)
---------------- ------------ ---------------- ------------- ------------ --------------
Net Income (Loss) $ 31,499 $ 18,249 $ (42,668) $ (643) $ (4,060) $ 2,377
================ ============ ================ ============= ============ ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,247 $ 7,558 $ 7,245 $ 730 $ 5,562 $ 28,342
Average Deposits $ 15,875 $ 2,122 $ 91 $ 640 $ 369 $ 19,097
------------------------------------------------------------------------------------------------------------------------------------
2000
Net Interest Income (FTE) $ 129,365 $ 67,599 $ 48,047 $ 8,686 $(18,817) $ 234,880
Provision for Loan Losses 5,766 2,004 7,490 574 --- 15,834
Non-Interest income 68,321 12,011 10,326 16,766 8,240 115,664
Non-Interest expense 138,571 25,930 13,157 16,376 4,042 198,076
Income Taxes/FTE Adjustment 18,672 18,087 13,204 2,976 (13,826) 39,113
---------------- ------------ ---------------- ------------- ------------ --------------
Net income (Loss) $ 34,677 $ 33,589 $ 24,522 $ 5,526 $ (793) $ 97,521
================ ============ ================ ============= ============ ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,955 $ 7,068 $ 6,870 $ 581 $ 7,100 $ 28,574
Average Deposits $ 16,193 $ 1,601 $ 80 $ 655 $ 1,146 $ 19,675
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Six Months Ended June 30,
-------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
-------------------------------------------------------------------------------------------------------------------------------
2001
Net Interest Income (FTE) $ 261,798 $139,517 $ 112,739 $ 19,669 $(38,948) $ 494,775
Provision for Loan Losses 20,524 33,237 97,069 129 --- 150,959
Non-Interest income 149,864 28,407 9,571 36,418 21,667 245,927
Non-Interest expense 293,976 66,551 62,393 50,200 28,263 501,383
Income Taxes/FTE Adjustment 34,007 23,848 (13,003) 2,015 (28,750) 18,117
------------- ------------- -------------- -------------- ------------- -------------
Net Income (Loss) $ 63,155 $44,288 $ (24,149) $ 3,743 $(16,794) $ 70,243
============= ============= ============== ============== ============= =============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,068 $ 7,495 $ 7,021 $ 716 $ 5,990 $ 28,290
Average Deposits $ 15,887 $ 2,124 $ 86 $ 638 $ 347 $ 19,082
-------------------------------------------------------------------------------------------------------------------------------
2000
Net Interest Income (FTE) $ 259,599 $127,580 $ 97,973 $ 16,505 $(23,929) $ 477,728
Provision for Loan Losses 8,351 6,701 15,452 1,031 --- 31,535
Non-Interest income 135,348 26,561 13,564 33,404 32,481 241,358
Non-Interest expense 278,296 51,962 25,693 29,527 12,704 398,182
Income Taxes/FTE Adjustment 37,905 33,418 24,637 6,773 (15,058) 87,675
------------- ------------- -------------- -------------- ------------- -------------
Net income $ 70,395 $62,060 $ 45,755 $ 12,578 $10,906 $ 201,694
============= ============= ============== ============== ============= =============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,951 $ 6,964 $ 6,995 $ 593 $ 7,262 $ 28,765
Average Deposits $ 16,337 $ 1,417 $ 73 $ 649 $ 1,257 $ 19,733
F. Derivatives
Huntington adopted Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities", on
January 1, 2001. SFAS No. 133 requires that derivatives be recognized as either
assets or liabilities in the balance sheet at their fair value. The accounting
for gains or losses resulting from changes in fair value depends on the intended
use of the derivative. For derivatives designated as hedges of changes in the
fair value of recognized assets or liabilities, or unrecognized firm
commitments, gains or losses on the derivative are recognized in earnings
together with the offsetting losses or gains on the hedged items. This results
in earnings only being impacted to the extent that the hedge is ineffective in
achieving offsetting changes in fair value. For derivatives used to hedge
changes in cash flows associated with forecasted transactions, gains or losses
on the effective portion of the derivatives are deferred, and reported as
accumulated other comprehensive income (AOCI), a component of shareholders'
equity, until the period in which the hedged transactions affect earnings.
Changes in the fair value of derivative instruments not designated as hedges are
recognized in earnings. The after-tax transition adjustment for the adoption of
SFAS No. 133 was immaterial to net income and reduced AOCI by $9.1 million.
10
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The quantitative and qualitative disclosures related to derivatives
presented in footnote F of Huntington's first quarter 2001 Form 10-Q did not
materially change during the second quarter of 2001.
G. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
Huntington will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. The majority of
Huntington's goodwill and other intangible assets relate to its operations
located in Florida. In July 2001, Huntington announced that it expects to sell
its Florida operations before the end of 2001. The application of the
nonamortization provisions of the Statement to the goodwill not impacted by the
sale is expected to result in an increase in net income of $8.9 million ($.04
per share) per year. During 2002, Huntington will perform the first of the
required impairment tests of the remaining goodwill as of January 1, 2002 and
has not yet determined what the effect of these tests will be on Huntington's
earnings and financial position.
11
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--------------------------------------------------------------------------------
FINANCIAL REVIEW
-----------------------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
-----------------------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
(in thousands of dollars) 2001 2000 2000
---------------------------------------------------------------- ------------------ ------------------- ----------------
Commercial (unearned income $1,196; $1,538; $1,958).......... $ 6,753,809 $ 6,633,985 $ 6,552,186
Real Estate
Construction............................................... 1,335,208 1,318,899 1,277,718
Commercial................................................. 2,304,603 2,253,477 2,186,768
Consumer
Loans (unearned income $3,521; $4,150; $4,933)........... 6,695,233 6,388,036 6,230,548
Leases (unearned income $520,564; $515,445; $470,868).... 3,194,592 3,069,210 2,930,547
Residential Mortgage....................................... 844,417 946,584 1,344,676
------------------ ------------------- ----------------
TOTAL LOANS............................................... $ 21,127,862 $ 20,610,191 $ 20,522,443
================== =================== ================
-----------------------------------------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
-----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, JUNE 30,
(in thousands of dollars) 2001 2000 2000
---------------------------------------------------------------- ------------------ ------------------- ----------------
Demand deposits
Non-interest bearing...................................... $ 3,258,252 $ 3,480,876 $ 3,498,325
Interest bearing.......................................... 4,878,355 4,645,127 4,373,313
Savings deposits............................................... 3,640,318 3,527,796 3,670,456
Certificates of deposit
Less than $100,000........................................ 5,447,117 5,938,486 5,847,359
$100,000 or more.......................................... 1,262,827 1,520,547 1,547,303
------------------ ------------------- ----------------
TOTAL CORE DEPOSITS....................................... 18,486,869 19,112,832 18,936,756
------------------ ------------------- ----------------
Other domestic time deposits................................... 100,233 256,106 416,693
Foreign time deposits.......................................... 409,820 408,307 405,485
------------------ ------------------- ----------------
TOTAL DEPOSITS............................................ $ 18,996,922 $ 19,777,245 $ 19,758,934
================== =================== ================
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------------------------------------------------------------------------------
FINANCIAL REVIEW
ANALYSIS OF NON-INTEREST INCOME
-------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- PERCENT ------------------------- PERCENT
(in thousands of dollars) 2001 2000 CHANGE 2001 2000 CHANGE
---------------------------------------------- ---------- --------- ------ ---------- --------- -------
Service charges on deposit accounts........... $ 40,673 $ 40,097 1.4% $ 79,580 $ 81,757 (2.7)%
Brokerage and insurance income................ 19,388 13,945 39.0 38,156 29,229 30.5
Mortgage banking.............................. 18,733 8,122 130.6 28,764 16,637 72.9
Trust services................................ 15,178 13,165 15.3 29,492 26,028 13.3
Electronic banking fees....................... 12,217 11,250 8.6 23,315 21,099 10.5
Bank Owned Life Insurance income.............. 9,561 9,486 0.8 19,121 18,672 2.4
Other......................................... 14,956 19,485 (23.2) 27,924 23,059 21.1
--------- --------- ----- --------- --------- ----
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
(LOSSES) GAINS.............................. 130,706 115,550 13.1 246,352 216,481 13.8
--------- --------- ----- --------- --------- ----
Securities (losses) gains..................... (2,503) 114 N.M. (425) 24,877 N.M.
--------- --------- ----- --------- --------- ----
TOTAL NON-INTEREST INCOME..................... $ 128,203 $ 115,664 10.8% $ 245,927 $ 241,358 1.9%
========= ========= ==== ========= ========= ====
ANALYSIS OF NON-INTEREST EXPENSE
-------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- PERCENT ------------------------- PERCENT
(in thousands of dollars) 2001 2000 CHANGE 2001 2000 CHANGE
---------------------------------------------- ---------- --------- ------ ---------- --------- -------
Personnel and related costs................... $ 122,068 $ 104,133 17.2% $ 239,730 $ 206,477 16.1%
Equipment..................................... 19,844 18,863 5.2 39,816 38,275 4.0
Net occupancy................................. 18,188 18,613 (2.3) 37,968 37,748 0.6
Outside data processing and other services.... 17,671 15,336 15.2 34,325 30,338 13.1
Amortization of intangible assets............. 10,435 9,206 13.4 21,011 18,402 14.2
Marketing..................................... 7,852 7,742 1.4 17,791 15,735 13.1
Telecommunications............................ 7,207 6,472 11.4 14,332 13,221 8.4
Legal and other professional services......... 6,763 4,815 40.5 11,732 9,315 26.0
Printing and supplies......................... 4,565 4,956 (7.9) 9,624 9,573 0.5
Franchise and other taxes..................... 2,246 2,635 (14.8) 4,366 5,073 (13.9)
Other......................................... 16,457 5,305 210.2 36,691 14,025 161.6
--------- --------- ----- --------- --------- -----
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL
CHARGE..................................... 233,296 198,076 17.8 467,386 398,182 17.4
Special charge................................ 33,997 --- N.M. 33,997 --- N.M.
--------- --------- ----- --------- --------- -----
TOTAL NON-INTEREST EXPENSE.................... $ 267,293 $ 198,076 34.9% $ 501,383 $ 398,182 25.9%
========= ========= ===== ========= ========= =====
N.M. - Not Meaningful
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Huntington is a multi-state financial holding company headquartered in
Columbus, Ohio. Its subsidiaries are engaged in full-service commercial and
consumer banking, mortgage banking, lease financing, trust services, discount
brokerage services, underwriting credit life and disability insurance, issuing
commercial paper guaranteed by Huntington, and selling other insurance and
financial products and services. Huntington's subsidiaries operate domestically
in offices located in Ohio, Michigan, Florida, West Virginia, Indiana, and
Kentucky. Huntington has a foreign office in each of the Cayman Islands and Hong
Kong.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis of financial condition and results
of operations contains forward-looking statements about Huntington, including
descriptions of products or services, plans, or objectives of its management for
future operations, and forecasts of its revenues, earnings, or other measures of
economic performance. Forward-looking statements can be identified by the fact
that they do not relate strictly to historical or current facts.
By their nature, forward-looking statements are subject to numerous
assumptions, risks, and uncertainties. A number of factors, many of which are
beyond Huntington's control, could cause actual conditions, events, or results
to differ significantly from those described in the forward-looking statements.
These factors include, but are not limited to, changes in business and economic
conditions; movements in interest rates; competitive pressures on product
pricing and services; success and timing of business strategies, including the
recently announced comprehensive restructuring and strategic refocusing
initiatives; successful integration of acquired businesses; the nature, extent,
and timing of governmental actions and reforms; and extended disruption of vital
infrastructure.
Forward-looking statements speak only as of the date they are made.
Huntington does not update forward-looking statements to reflect circumstances
or events that occur after the date the forward-looking statements are made or
to reflect the occurrence of unanticipated events, such as further market
deterioration that adversely affects credit quality, vehicle lease residual
values, and/or other asset values.
The management of Huntington encourages readers of this Form 10-Q to
understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance. The following discussion and analysis of
the financial performance of Huntington for the second quarter of 2001 should be
read in conjunction with the financial statements, notes, and other information
contained in this document.
OVERVIEW
Huntington reported net income of $2.4 million, or $.01 per share, for
the second quarter and $70.2 million, or $.28 per share, for the first six
months of 2001. In the same periods last year, net income totaled $97.5 million,
or $.40 per share, and $201.7 million, or $.82 per share.
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The current quarter results include special charges related to
Huntington's comprehensive restructuring and strategic refocus on its core
Midwest markets announced July 12, 2001. This restructuring includes the
intended sale of Huntington's Florida operations, the planned consolidation of
forty-three branches in other states, and actions taken to strengthen
Huntington's balance sheet described subsequently in this report. In conjunction
with the restructuring, Huntington expects to record pre-tax restructuring and
other charges of approximately $215 million ($140 million after-tax) to be taken
in the second, third, and fourth quarters of 2001. The portion of the total
pre-tax charge recorded in the second quarter of 2001 was $111.0 million ($72.1
million after tax).
The following table reconciles Huntington's reported results to its
operating results for the three and six month periods ending June 30, 2001:
(in thousands of dollars, except per share amonuts)
Three months ended June 30,
----------------------------------------------------------------------
2001 2000
---------------------------------------------------- ---------------
Restructuring
Reported and Other Operating Reported
Earnings Charges Earnings Earnings
---------------- ---------------- --------------- ---------------
Net interest income $ 248,033 $ --- $ 248,033 $ 232,806
Provision for loan losses 117,495 71,718 45,777 15,834
Non-interest income 128,203 (5,250) 133,453 115,664
Non-interest expense 267,293 33,997 233,296 198,076
---------------- ---------------- --------------- ---------------
Pre-tax income (8,552) (110,965) 102,413 134,560
Income taxes (10,929) (38,838) 27,909 37,039
---------------- ---------------- --------------- ---------------
Net income $ 2,377 $ (72,127) $ 74,504 $ 97,521
================ ================ =============== ===============
Net income per share $ 0.01 $ (0.29) $ 0.30 $ 0.40
Six months ended June 30,
----------------------------------------------------------------------
2001 2000
---------------------------------------------------- ---------------
Restructuring
Reported and Other Operating Reported
Earnings Charges Earnings Earnings
---------------- ---------------- --------------- ---------------
Net interest income $ 491,157 $ --- $ 491,157 $ 473,497
Provision for loan losses 150,959 71,718 79,241 31,535
Non-interest income 245,927 (5,250) 251,177 241,358
Non-interest expense 501,383 33,997 467,386 398,182
---------------- ---------------- --------------- ---------------
Pre-tax income 84,742 (110,965) 195,707 285,138
Income taxes 14,499 (38,838) 53,337 83,444
---------------- ---------------- --------------- ---------------
Net income $ 70,243 $ (72,127) $ 142,370 $ 201,694
================ ================ =============== ===============
Net income per share $ 0.28 $ (0.29) $ 0.57 $ 0.82
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The second quarter charges consisted of the following (pre-tax):
Provision for Loan Losses:
- $25.8 million to recognize the estimated increased
losses resulting from Huntington's decision to exit
certain lending businesses. These businesses consist
of sub-prime automobile lending and truck and
equipment leasing.
- $23.3 million to charge-off delinquent consumer and
small business loans more than 120 days past due
reflecting a more conservative interpretation of
regulatory guidelines for charge-offs.
- $17.6 million to increase reserves for consumer
bankruptcies.
- $5.0 million to increase commercial loan reserves.
Non-interest Income:
- $5.3 million loss included in securities gains and
losses related to the sale of the $15 million in
Pacific Gas & Electric (PG&E) commercial paper
acquired from the Huntington National Bank's Money
Market Mutual Fund.
Non-interest Expense (Special charge component):
- $20.0 million charge to increase the reserve for auto
lease residual values.
- $12.0 million charge to write-down the value of
assets representing Huntington's retained interest in
automobile loans securitized in 2000. Credit losses
on these loans have increased beyond the levels
anticipated when the retained interest assets were
recorded.
- $2.0 million in other charges.
Excluding the restructuring and other charges, earnings per share for
the second quarter and first six months of 2001 were $.30 and $.57,
respectively. On this same basis, Huntington's return on average assets (ROA)
was 1.05% and 1.01% in the recent three and six-month periods and its return on
average equity (ROE) was 12.43% and 11.98%.
Huntington's "cash basis" earnings per share (which excludes the effect
of amortization of goodwill as well as restructuring and other charges) was $.33
for the quarter just ended, compared with $.42 per share in the same period last
year. Cash basis ROA and ROE, which are computed using cash basis earnings as a
percentage of average tangible assets and average tangible equity, were 1.19%
and 13.72% for the second quarter of 2001, respectively. For the first six
months of the year, cash basis ROA and ROE were 1.15% and 13.29%, respectively.
Total assets at June 30, 2001, were $27.9 billion, down 2% from the end
of 2000. This trend reflects the sale of $107 million in residential mortgages
during the second quarter, and the sale of $900 million in investment securities
during the first half of 2000 as Huntington continued to sell low margin
investment securities as part of its balance sheet repositioning efforts.
Managed total loans, which include securitized loans, increased at an
annualized rate of 5% versus the first quarter of this year and 7% versus the
second quarter of 2000. The growth rate in the current quarter is down from
increases of 8-9% during the second half of 2000. The recent slowdown in the
United States economy continues to have a significant adverse impact on consumer
loan growth. Indirect automobile loan and leases increased 6% from a quarter ago
compared with a 12% growth rate in the second quarter of last year. Although
down from the 26% growth rate in the second quarter of 2000, home equity loan
growth remained strong at 16%. Commercial loan growth slowed to 4% versus 9% in
the first quarter of this year.
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Core deposits totaled $18.6 billion during the second quarter,
relatively unchanged from the prior quarter and the same period last year. When
combined with other core funding sources, core deposits provide 80% of
Huntington's funding needs.
RESULTS OF OPERATIONS
This discussion addresses earnings on an operating basis.
NET INTEREST INCOME
Net interest income for the three and six months ended June 30, 2001
was $248.0 million and $491.2 million, respectively. Compared with the
immediately preceding quarter, net interest income increased $4.9 million, as
the net interest margin expanded four basis points to 3.97%. Almost all of the
increase related to increased loan fees primarily from automobile loans and
leases as volume picked up from the first quarter level. Compared with the same
periods of 2000, net interest income increased $15.2 million in the second
quarter and was up $17.7 million on a year-to-date basis. The net interest
margin also increased 25 basis points compared to last year's second quarter.
Huntington was slightly liability sensitive at the end of 2000 and accordingly
benefited from the decline in short-term rates during the first half of this
year. Additionally, the aforementioned sale of low margin investment securities
contributed to the increase in the net interest margin versus a year ago.
Huntington's interest rate risk position is further discussed in the "Interest
Rate Risk Management" section of this report.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to pre-tax
earnings necessary to maintain the allowance for loan losses (ALL) at a level
adequate to absorb management's estimate of inherent losses in the loan
portfolio. On an operating basis, the provision for loan losses was $45.8
million for the second quarter and $79.2 million for the first six months of
2001, representing significant increases versus to same periods of 2000 due to
increased charge-offs. On the same basis, annualized net charge-offs for the
current quarter increased to .73% from .55% for the first quarter 2001 and .30%
for the second quarter one year ago. Charge-offs increased in both the
commercial and consumer loan portfolios and reflects the negative impacts of
weakening economic conditions over the past year on Huntington's loan customers.
Commercial charge-offs increased to .67% in the recent quarter versus .41% in
the immediately preceding quarter and .15% in the same period last year.
Consumer charge-offs also increased significantly to .95% in the second quarter,
up 17 basis points from the first quarter and twice the level in the second
quarter of 2000. The increases were primarily due to higher indirect automobile
loan and lease losses. A lower quality origination mix in the fourth quarter of
1999 through the second quarter of 2000, the economic slowdown, and an increase
in the average loss per vehicle due to lower used car prices all contributed to
the unfavorable trend.
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NON-INTEREST INCOME
Non-interest income, excluding securities gains, totaled $130.7 million
for the recent three months and $246.4 million for the first half of 2001
representing increases of 13% and 14%, respectively, compared with the same
periods a year ago. All categories except the "other" component of non-interest
income were up during the recent quarter versus the second quarter of 2000.
Categories showing improvement were led by mortgage banking income, up 131% due
to strong mortgage origination volume in the prevailing lower interest rate
environment. Mortgage banking results for the quarter just ended also included a
$2.0 million gain on the sale of $107 million of portfolio loans. Additionally,
brokerage and insurance income increased 39% on strong fixed annuity sales and
reflecting the acquisition of J. Rolfe Davis Insurance Agency, Inc. (JRD). Trust
income also improved 15% indicative of increased revenue from Huntington's
proprietary mutual funds as five new funds were added in addition to price
increases. The reduction in the "other" component of non-interest income
reflects lower securitization activity.
NON-INTEREST EXPENSE
Non-interest expense, excluding restructuring and other charges,
totaled $233.3 million in the second quarter versus $198.1 million in the second
three months of 2000. For the first six months, non-interest expense increased
17%. The increase in second quarter expenses from a year ago was due to several
factors, including accrual adjustments made in 2000 totaling $9.8 million that
resulted in an unusually low expense base in the second quarter of last year.
The remaining increase was primarily due to higher sales commissions consistent
with the growth in fee income and other personnel related costs. Additionally,
premiums paid for insurance on Huntington's auto lease residual values and the
impact of purchase acquisitions also drove expenses higher in the recent
quarter. While some progress has been made in reducing costs, as evidenced by
the efficiency ratio dropping from 62% in the first quarter to 58.6% in the
recent period, Huntington recognizes the need for further improvements in its
cost structure. Management expects the benefits associated with its previously
announced non-interest expense program to positively impact the second half of
this year results.
LINES OF BUSINESS
Retail Banking, Corporate Banking, Dealer Sales, and the Private
Financial Group are the company's major business lines. A fifth segment includes
the impact of Huntington's Treasury function and other unallocated assets,
liabilities, revenue, and expense. 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. This 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. Below is a brief description of each
line of business and a discussion of the business segment results, which can be
found in Note E to the unaudited consolidated financial statements.
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RETAIL BANKING
Retail Banking provides products and services to retail and business
banking customers. This business unit's products include home equity loans,
first mortgage loans, installment loans, business loans, personal and business
deposit products, as well as investment and insurance services. These products
and services are offered through Huntington's traditional banking network,
in-store branches, Direct Bank, and Web Bank.
Retail Banking net income was $31.5 million and $63.2 million for the
second quarter and the first six months of 2001, respectively. These results
include special charge related provision for loan losses of $5.7 million
pre-tax. Excluding special charges, net income was $35.4 million during the
second quarter of 2001, up slightly from the same period last year. The 21%
increase in non-interest income from the year ago second quarter reflects a $9.9
million increase in mortgage banking income, which benefited from the lower
interest rate environment. Non-interest expense increased $10.4 million due to
higher commissions consistent with the increased mortgage fee income and
increases in other personnel related costs. The retail segment contributed 48%
of Huntington's net operating income (net income excluding the restructuring and
other charges) for the quarter and comprised 30% of its total loan portfolio and
11% of its core deposits.
CORPORATE BANKING
Customers in this segment represent the middle-market and large
corporate banking relationships which use a variety of banking products and
services including, but not limited to, commercial loans, international trade,
and cash management. Huntington's capital markets division also provides
alternative financing solutions for larger business clients, including privately
placed debt, syndicated commercial lending, and the sale of interest rate
protection products.
Corporate Banking reported net income of $18.2 million and $44.3
million for the second quarter and the first six months of 2001, respectively.
These results include special charge related provision for loan losses of $5.0
million. Excluding special charges, net income was $21.5 million during the
second quarter of 2001, down $12.1 million from the same period last year. On
this same basis, revenues increased 6% as loan growth drove higher net interest
income. Offsetting the revenue growth was a $14.6 million increase (excluding
the $5.0 million special charge) in the provision for loan losses due to higher
charge-offs. Non-interest expense also increased $9.0 million. Corporate Banking
contributed 29% of Huntington's net operating income for the quarter and
comprised 36% of its total loan portfolio and 11% of its core deposits.
DEALER SALES
Dealer Sales product offerings pertain to the automobile lending sector
and include floor plan financing, as well as indirect consumer loans and leases.
The consumer activities comprise the vast majority of the business and involve
the financing of vehicles purchased or leased by individuals through
dealerships.
Dealer Sales reported net losses of $42.7 million for the recent
quarter and $24.1 million for the first six months of the year. Special pre-tax
charges totaling $93.0 million ($60.5 million after-tax) are included in these
results. The pre-tax charges include $61.0 million in the
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20
provision for loan losses related to exiting the sub-prime automobile and truck
and equipment lending businesses ($25.8 million), the charge-off of 120 day
delinquent loans ($19.6 million), and reserves for increased bankruptcies ($15.6
million). Pre-tax charges totaling $32.0 million are also included in
non-interest expense. The charges include $20.0 million to increase reserves for
lease residual values and $12.0 million to write-down securitization related
assets. The special charges are described in more detail in the "Overview"
section of this report. On an operating basis, Dealer Sales earnings were $17.8
million for the second quarter, down $6.7 million from the second quarter of
2001. The $10.3 million increase in net interest income reflects loan growth and
wider loan and lease spreads as funding costs have fallen faster than loan and
lease rates in the recent declining rate environment. Excluding the special
charge items, the provision for loan losses increased $12.6 million from the
year ago second quarter as net charge-offs increased to 1.43% of average loans
versus .66% in the second quarter of 2000. The lower non-interest income
reflects a reduction in securitization activity. The increase in expenses
primarily reflects premiums paid for insurance on Huntington's auto lease
residual values. Dealer Sales contributed 24% of Huntington's net operating
income for the quarter and comprised 31% of its outstanding loans.
PRIVATE FINANCIAL GROUP
Huntington's Private Financial Group (PFG) provides an array of
products and services designed to meet the needs of Huntington's higher wealth
banking customers. Revenue is derived through the sale of personal trust, asset
management, investment advisory, insurance, and deposit and loan products and
services. PFG provides customers with "one-stop shopping" for all their
financial needs.
PFG reported a net loss of $.6 million for the quarter just ended, and
net income of $3.7 million for the first six months of 2001. These results
include the $5.3 million loss on the sale of PG&E commercial paper included in
the restructuring and other charges recorded in the second quarter. On an
operating basis, earnings were $2.8 million for the recent quarter. Increases in
fee income (excluding the $5.3 million charge) and expenses primarily reflect
the impact of the acquisition of JRD, in August of 2000. This segment
represented 4% of Huntington's quarterly net operating income and 3% of total
loans.
TREASURY / OTHER
Huntington uses a match-funded transfer pricing system to allocate
interest income and interest expense to its business segments. This approach
consolidates the interest rate risk management of Huntington into its Treasury
Group. As part of its overall interest rate risk and liquidity management
strategy, the Treasury Group administers an investment portfolio of
approximately $3.2 billion. Revenue and expense associated with these activities
remain within the Treasury Group. Additionally, the Treasury/Other segment
absorbs unassigned assets, liabilities, equity, revenue, and expense that cannot
be directly assigned or allocated to one of Huntington's lines of business.
Amortization expense of intangible assets is also a significant component of
Treasury/Other.
This segment's results were a net loss of $4.1 million and $16.8
million in the recent three and six month periods. Lower net interest income
reflects the balance sheet repositioning mentioned earlier. As more fully
discussed later, the sensitivity of net interest income to
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changing interest rates is down from previous periods, consistent with
Huntington's goal of a more stable revenue base. Non-interest income for six
months includes securities gains of $4.8 million versus $24.9 million in last
year's second quarter. The 2000 gains included gains of $32.2 million related to
the sale of a portion of Huntington's investment in S1 Corporation common stock,
offset by losses from the sale of lower yielding investment securities. The
first six months of 2000 results also included a $10.2 million loss on
automobile securitizations.
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
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, 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
gradual and 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, 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 assigns probabilities and,
therefore, believes at any point in time that the model provides a reasonably
accurate estimate of Huntington's interest rate risk exposure. Management
reporting of this information is regularly shared with the Board of Directors.
The results of Huntington's recent sensitivity analysis indicated that
net interest income would increase .3% if rates gradually declined 100 basis
points from June 30, 2001 levels and would drop .5% if rates rose 100 basis
points. If rates declined 200 basis points, Huntington would benefit .8%. If
rates increased 200 basis points, net interest income would be expected to
decline 1.1%, versus the year-end 2000 sensitivity of 3.0% to a 200 basis point
increase. The decline in sensitivity over the past year was primarily due to the
previously mentioned sales of low margin fixed rate investment securities. These
sales were part of management's effort to restructure the balance sheet and
reduce sensitivity to interest rate changes stabilizing Huntington's revenue
base.
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CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending while
avoiding highly leveraged transactions as well as excessive industry and other
concentrations. The credit administration function employs extensive risk
management techniques, including forecasting, to ensure that loans adhere to
corporate policy and problem loans are promptly identified. These procedures
provide executive management with the information necessary to implement policy
adjustments where necessary, and take corrective actions on a proactive basis.
Non-performing assets (NPAs) consist 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.
Commercial and real estate loans are placed on non-accrual status and stop
accruing interest when collection of principal or interest is in doubt or
generally when the loan is 90 days past due. When interest accruals are
suspended, accrued interest income is reversed with current year accruals
charged to earnings and prior year amounts generally charged off as a credit
loss. Consumer loans are not placed on non-accrual status; rather they are
charged off in accordance with regulatory statutes, which is generally no more
than 120 days. A charge-off may be delayed in circumstances when collateral is
repossessed and anticipated to be sold at a future date.
Total NPAs were $166.0 million at June 30, 2001, compared with $124.9
million at March 31, 2001, and $95.1 million a year ago. As of the same dates,
NPAs as a percent of total loans and other real estate were .79%, .60%, and
.46%. The increase in the recent quarter was due in large part to two credits,
$16 million related to an assisted living/healthcare operation and $14 million
to a retailer of farm and agricultural equipment.
Loans past due ninety days or more but continuing to accrue interest
declined to $67.1 million at June 30, 2001, from $102.7 million at March 31,
2001. This represented .32% and .49% of total loans, respectively. Approximately
ten basis points of this decline were attributable to the acceleration of
charge-offs in the consumer portfolio taken as part of the special charge as
mentioned previously.
The 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 and the application of relevant reserve factors that
represent relative risk (based on portfolio trends, current and historic loss
experience, and prevailing economic conditions) to specific portfolio segments.
Specific reserves are established on larger, impaired commercial and industrial
and commercial real estate credits and are based on discounted cash flow models
using the loan's initial effective rate or the fair value of the collateral for
collateral-dependent loans. Allocated reserves include management's assessment
of portfolio performance, internal controls, impacts from mergers and
acquisitions, and other pertinent risk factors. For analytical purposes, the ALL
has been allocated to various portfolio segments. However, the total ALL, less
the portion attributable to reserves as prescribed under provisions of SFAS No.
114, is available to absorb losses from any segment of the portfolio.
Unallocated reserves are based on levels of criticized/classified assets,
delinquencies in the accruing loan portfolios, and the level of nonperforming
loans. Total unallocated reserves were 11% at June 30, 2001, versus 17% one year
ago.
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The ALL reserve ratio was 1.67% at the recent quarter end versus 1.45%
at the most recent year-end and second quarter of last year. As of June 30,
2001, the ALL covered non-performing loans approximately 2.3 times and when
combined with the allowance for other real estate owned, was 211% of total
nonperforming assets.
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing 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 average equity to average assets increased to 8.48%
in the recent quarter from 7.72% in the same three months of last year.
Excluding unrealized losses on securities available for sale and derivatives,
tangible equity to assets was 5.97% at quarter end versus 5.78% a year ago.
Risk-based capital guidelines established by the Federal Reserve Board
set minimum capital requirements and require institutions to calculate
risk-based capital ratios by assigning risk weightings to assets and off-balance
sheet items, such as interest rate swaps, loan commitments, and securitizations.
These guidelines further define "well-capitalized" levels for Tier 1, total
capital, and leverage ratio purposes at 6%, 10%, and 5%, respectively. At the
recent quarter-end, Huntington's Tier 1 risk-based capital ratio was 7.01%,
total risk-based capital ratio was 10.20%, and the leverage ratio was 6.96%.
Huntington's bank subsidiary also had regulatory capital ratios in excess of the
levels established for well-capitalized institutions.
During the second quarter of 2000, Huntington's Board of Directors
authorized the purchase of an additional 11 million shares under Huntington's
common stock repurchase program. Repurchased shares are being reserved for
reissue in connection with Huntington's dividend reinvestment and employee
benefit plans as well as for stock dividends, acquisitions, and other corporate
purposes. During 2000, Huntington repurchased approximately 8.8 million shares
of its common stock through open market and privately negotiated transactions.
Approximately 7.2 million of these shares were reissued in connection with the
acquisitions of Empire and JRD. As of June 30, 2001, approximately 15.3 million
shares remained available under the authorization. Huntington has not
repurchased any shares since September 30, 2000.
Huntington's comprehensive restructuring announced July 12, 2001
included several actions to strengthen Huntington's capital position. The sale
of the Florida operations is expected to free up significant capital, which
Huntington expects to use to increase its capital position to a minimum tangible
equity to asset ratio of 6.5%, to repurchase shares, and for other corporate
purposes. Huntington also will reduce the cash dividend by 20% to bring its
payout ratio more in line with industry peers. In addition to these
announcements, Huntington will not declare a stock dividend in 2001 as it has
done historically.
23
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures for the current period are
found on pages 21 and 22 of this report, which includes changes in market risk
exposures from disclosures presented in Huntington's Annual Report on Form 10-K
for the year ended December 31, 2000.
24
25
------------------------------------------------------------------------------
FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNE 30, 2001 DECEMBER 31, 2000
--------------------------------------------------------------------------------------------------------------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
--------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY
Under 1 year......................... $ 2,553 $ 2,580 $ 1,455 $ 1,466
1-5 years ........................... 1,504 1,611 2,007 2,110
6-10 years........................... 6,414 6,656 6,407 6,706
Over 10 years........................ 413 424 413 446
---------------- --------------- --------------- ---------------
Total............................. 10,884 11,271 10,282 10,728
---------------- --------------- --------------- ---------------
Federal agencies
Mortgage-backed securities
1-5 years........................... 39,217 38,997 --- ---
6-10 years.......................... 33,994 34,486 22,757 22,987
Over 10 years....................... 934,600 936,381 1,515,883 1,508,914
---------------- --------------- --------------- ---------------
Total 1,007,811 1,009,864 1,538,640 1,531,901
---------------- --------------- --------------- ---------------
Other agencies
Under 1 year........................ --- --- 20,000 19,913
1-5 years........................... 951,043 952,111 1,029,073 1,017,230
6-10 years.......................... 76,209 75,870 146,376 144,313
Over 10 years....................... 498,949 500,701 566,760 559,946
---------------- --------------- --------------- ---------------
Total............................ 1,526,201 1,528,682 1,762,209 1,741,402
---------------- --------------- --------------- ---------------
Total U.S. Treasury and Federal
Agencies 2,544,896 2,549,817 3,311,131 3,284,031
---------------- --------------- --------------- ---------------
Other
Under 1 year........................ 12,795 12,840 21,098 20,826
1-5 years........................... 182,976 184,156 215,978 217,453
6-10 years.......................... 46,043 45,008 88,872 87,415
Over 10 years....................... 355,245 348,830 403,730 388,731
Marketable equity securities........ 55,858 50,035 87,674 92,069
---------------- --------------- --------------- ---------------
Total 652,917 640,869 817,352 806,494
---------------- --------------- --------------- ---------------
Total Securities Available for Sale...... $ 3,197,813 $ 3,190,686 $ 4,128,483 $ 4,090,525
================ =============== =============== ===============
25
26
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
---------------------------------------- -------------- ------------- --------------
FOR THE THREE MONTHS ENDED JUNE 30, 2001 2000 % Change
---------------------------------------- -------------- ------------- --------------
NET INCOME(1) .......................... $ 74,504 $ 97,521 (23.6)%
PER COMMON SHARE AMOUNTS(2)
Net income
Basic .......................... $ 0.30 $ 0.40 (25.0)
Diluted ........................ $ 0.30 $ 0.40 (25.0)
Cash dividends declared ............. $ 0.20 $ 0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING-DILUTED(2) 251,448 245,652 2.4
KEY RATIOS
Return on:
Average total assets ................ 1.12% 1.37% (18.2)
Average shareholders' equity ........ 13.15% 17.79% (26.1)
Efficiency ratio ......................... 58.59% 53.90% 8.7
Average equity/average assets ............ 8.48% 7.72% 9.8
Net interest margin ...................... 3.97% 3.72% 6.7
TANGIBLE OR "CASH BASIS" RATIOS(3)
Net Income Per Common Share -- Diluted(2) $ 0.33 $ 0.42 (21.4)
Return on:
Average total assets ................ 1.19% 1.49% (20.1)
Average shareholders' equity ........ 13.72% 18.97% (27.7)
---------------------------------------- -------------- ------------- --------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001 2000 % Change
---------------------------------------- -------------- ------------- --------------
NET INCOME(1) ........................... $ 142,370 $ 201,694 (29.4)%
PER COMMON SHARE AMOUNTS(2)
Net income
Basic .......................... $ 0.57 $ 0.82 (30.5)
Diluted ........................ $ 0.57 $ 0.82 (30.5)
Cash dividends declared ............. $ 0.40 $ 0.36 11.1
AVERAGE COMMON SHARES OUTSTANDING-DILUTED(2) 251,479 247,431 1.6
KEY RATIOS
Return on:
Average total assets ................ 1.01% 1.41% (28.4)
Average shareholders' equity ........ 11.98% 18.39% (34.9)
Efficiency ratio ......................... 60.23% 53.91% 11.7
Average equity/average assets ............ 8.47% 7.67% 10.4
Net interest margin ...................... 3.96% 3.75% 5.6
TANGIBLE OR "CASH BASIS" RATIOS(3)
Net Income Per Common Share -- Diluted(2) $ 0.63 $ 0.87 (27.6)
Return on:
Average total assets ................ 1.15% 1.53% (24.8)
Average shareholders' equity ........ 13.29% 19.57% (32.1)
(1) Income component excludes the after-tax impact of $72,127 of
Restructuring and Other Charges.
(2) Adjusted for stock splits and stock dividends, as applicable.
(3) Tangible or "Cash Basis" net income excludes amortization of goodwill.
Related asset amount excluded from total assets and shareholders'
equity.
26
27
Financial Review
------------------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
(in thousands of dollars) JUNE 30, JUNE 30,
------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(1) (1)
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ........ $ 301,777 $ 296,743 $ 297,880 $ 299,309
Allowance of assets acquired/other .................. --- 7,900 --- 7,900
Loan losses ......................................... (75,472) (22,810) (111,121) (48,417)
Recoveries of loans previously charged off .......... 10,007 7,280 17,563 14,620
Allowance of securitized loans ...................... (1,564) (8,056) (3,038) (8,056)
Provision for loan losses ........................... 117,495 15,834 150,959 31,535
--------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES, END OF PERIOD .............. $ 352,243 $ 296,891 $ 352,243 $ 296,891
========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ......................... 1.25% 0.30% 0.90% 0.33%
Net loan losses--annualized excluding special charges 0.73% 0.30% 0.64% 0.33%
Provision for loan losses--annualized ............... 2.24% 0.31% 1.46% 0.31%
Allowance for loan losses as a % of total sales ..... 1.67% 1.45% 1.67% 1.45%
Net loan loss coverage (2) .......................... 2.26x 9.68x 2.94x 9.37x
(1) Including Restructuring and Other Charges unless otherwise indicated.
(2) Income or loss before taxes (excluding significant items) and the
provision for loan losses to net loan losses.
-----------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
-----------------------------------------------------------------------------------------------------------------------------------
2001 2000
------------------------------- -------------------------------------------
(in thousands of dollars) II Q I Q IV Q III Q II Q
--------------------------------------------------- --------------- ------------- ------------- ----------- -----------
Non-accrual loans:
Commercial ..................................... $ 116,044 $ 62,716 $ 55,804 $ 44,918 $ 45,138
Real Estate
Construction ................................ 4,572 6,735 8,687 7,973 8,736
Commercial .................................. 22,298 28,158 18,015 13,722 12,714
Residential ................................. 11,868 11,949 10,174 8,588 11,548
--------- --------- --------- --------- ---------
Total Nonaccrual Loans ............................ 154,782 109,558 92,680 75,201 78,136
Renegotiated loans ................................ 1,290 1,297 1,304 1,311 1,317
--------- --------- --------- --------- ---------
TOTAL NON-PERFORMING LOANS ........................ 156,072 110,855 93,984 76,512 79,453
Other real estate, net ............................ 9,913 14,031 11,413 11,982 15,670
--------- --------- --------- --------- ---------
TOTAL NON-PERFORMING ASSETS ....................... $ 165,985 $ 124,886 $ 105,397 $ 88,494 $ 95,123
========= ========= ========= ========= =========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ................................ 0.74% 0.53% 0.46% 0.38% 0.39%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE .......... 0.79% 0.60% 0.51% 0.44% 0.46%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS ............................ 225.69% 272.23% 316.95% 385.15% 373.67%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS .......... 211.20% 239.42% 279.16% 326.77% 306.89%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE ........... $ 67,077 $ 102,658 $ 80,306 $ 80,290 $ 62,775
========= ========= ========= ========= =========
27
28
------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 2ND QUARTER 2001 1ST QUARTER 2001
---------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
(in millions of dollars) BALANCE RATE BALANCE RATE
--------------------------------------------------------- ------------- ----------- ------------- -----------
ASSETS
Interest bearing deposits in banks.................... $ 5 5.09 % $ 5 5.24 %
Trading account securities............................ 39 5.15 48 5.52
Federal funds sold and securities purchased under
resale agreements.................................. 93 4.21 164 5.78
Loans held for sale................................... 420 6.96 240 7.19
Securities: (3)
Taxable......................................... 3,368 6.26 3,606 6.72
Tax exempt...................................... 201 7.26 248 7.55
------------- -------------
Total Securities........................... 3,569 6.32 3,854 6.77
------------- -------------
Loans:
Commercial....................................... 6,741 7.44 6,678 8.19
Real Estate
Construction................................ 1,303 7.43 1,263 8.31
Commercial.................................. 2,294 7.92 2,324 8.40
Consumer
Loans...................................... 6,553 8.57 6,397 8.95
Leases..................................... 3,189 6.71 3,082 6.90
Residential Mortgage....................... 942 7.72 960 7.91
------------- -------------
Total Consumer............................. 10,684 7.94 10,439 8.25
------------- -------------
Total Loans........................................... 21,022 7.75 20,704 8.25
------------- -------------
Allowance for loan losses............................. 316 307
------------- -------------
Net loans (2)......................................... 20,706 8.31 20,397 8.74
------------- -------------
Total earning assets.................................. 25,148 7.98 % 25,015 8.39 %
------------- -------------
Cash and due from banks............................... 903 950
All other assets...................................... 2,607 2,579
------------- -------------
Total Assets.......................................... $ 28,342 $ 28,237
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits.................... $3,245 $ 3,211
Interest bearing demand deposits................. 4,799 2.87 % 4,597 3.29 %
Savings deposits................................. 3,547 3.42 3,505 3.85
Certificates of deposit.......................... 7,011 5.74 7,318 6.01
------------- -------------
Total core deposits......................... 18,602 3.55 18,631 3.89
------------- -------------
Other domestic time deposits.......................... 118 5.57 167 6.37
Foreign time deposits................................. 377 4.11 267 5.45
------------- -------------
Total deposits................................... 19,097 3.58 19,065 3.94
------------- -------------
Short-term borrowings................................. 2,759 4.37 2,504 5.37
Medium-term notes..................................... 2,005 6.59 2,240 6.64
Subordinated notes and other long-term debt,
including preferred capital securities............. 1,180 5.96 1,171 6.81
------------- -------------
Total interest bearing liabilities............... 21,796 4.62% 21,769 5.12 %
------------- -------------
All other liabilities................................. 898 869
Shareholders' equity.................................. 2,403 2,388
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $ 28,342 $ 28,237
============= =============
Net interest rate spread.............................. 3.36 % 3.27 %
Impact of non-interest bearing funds on margin........ 0.61 % 0.66 %
NET INTEREST MARGIN................................... 3.97 % 3.93 %
--------------------
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
(2) Net loan rate includes loan fees, whereas individual loan components
above are shown exclusive of fees.
(3) Yields are based on amortized cost.
28
29
-----------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
4th Quarter 2000 3rd Quarter 2000 2nd Quarter 2000
----------------------------- --------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate
------------ ------------ ----------- ----------- ------------ -----------
$ 5 5.50 % $ 5 6.13 % $ 6 5.13 %
17 6.56 11 6.54 18 8.67
85 6.53
129 7.74 136 6.43 105 6.10
99 8.51 99 8.11
4,410 6.31
264 7.53 4,273 6.33 4,067 6.20
------------ 270 7.57 276 7.63
4,674 6.38 ----------- ------------
------------ 4,543 6.40 4,343 6.29
----------- ------------
6,543 8.65
6,454 8.74 6,439 8.65
1,306 8.87
2,227 8.64 1,283 8.88 1,254 8.72
2,193 8.60 2,172 8.51
6,425 8.90
3,049 6.92 6,392 8.82 6,530 8.38
940 7.94 2,976 6.79 2,895 6.71
------------ 1,325 7.64 1,473 7.62
10,414 8.24 ----------- ------------
------------ 10,693 8.11 10,898 7.83
20,490 8.45 ----------- ------------
------------ 20,623 8.41 20,763 8.21
302 ----------- ------------
------------ 302 302
20,188 8.96 ----------- ------------
------------ 20,321 8.90 20,461 8.69
25,400 8.47 % ----------- ------------
------------ 25,417 8.43 % 25,334 8.27 %
960 ----------- ------------
2,597 968 1,046
------------ 2,615 2,496
$ 28,655 ----------- ------------
============ $ 28,698 $ 28,574
=========== ============
$ 3,308
4,496 3.62 % $ 3,425 $ 3,485
3,498 4.28 4,385 3.47 % 4,228 3.32 %
7,522 6.07 3,528 4.14 3,583 4.21
------------ 7,450 5.94 7,247 5.64
18,824 4.96 ----------- ------------
------------ 18,788 4.82 18,543 4.65
365 6.68 ----------- ------------
322 6.37 433 6.55 506 6.28
------------ 561 6.63 626 6.66
19,511 5.02 ----------- ------------
------------ 19,782 4.93 19,675 4.78
2,133 6.00 ----------- ------------
2,665 6.85 2,014 6.12 1,761 5.77
2,592 6.81 3,042 6.46
1,171 7.42
------------ 1,171 7.39 1,148 7.08
22,172 5.46 % ----------- ------------
------------ 22,134 5.39 % 22,141 5.21 %
822 ----------- ------------
2,353 787 743
------------ 2,352 2,205
$ 28,655 ----------- ------------
============ $ 28,698 $ 28,574
=========== ============
3.01 % 3.04 % 3.06 %
0.69 % 0.70 % 0.66 %
3.70 % 3.74 % 3.72 %
29
30
--------------------------------------------------------------------------------
Selected Quarterly Income Statement Data
2001 2000
---------------------- ------------------------------------
(in thousands of dollars, except per share amounts) (1) II Q I Q IV Q III Q II Q
------------------------------------------------------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME ................................. $498,959 $517,975 $537,661 $535,791 $519,496
TOTAL INTEREST EXPENSE ................................ 250,926 274,851 304,595 299,922 286,690
-------- -------- -------- -------- --------
NET INTEREST INCOME ................................... 248,033 243,124 233,066 235,869 232,806
Provision for loan losses ............................. 45,777 33,464 32,548 26,396 15,834
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ........................... 202,256 209,660 200,518 209,473 216,972
-------- -------- -------- -------- --------
Service charges on deposit accounts ................... 40,673 38,907 39,248 39,722 40,097
Brokerage and insurance income ........................ 19,388 18,768 17,078 15,564 13,945
Mortgage banking ...................................... 18,733 10,031 11,976 9,412 8,122
Trust services ........................................ 15,178 14,314 14,404 13,181 13,165
Electronic banking fees ............................... 12,217 11,098 11,546 11,238 11,250
Bank Owned Life Insurance income ...................... 9,561 9,560 11,086 9,786 9,486
Other ................................................. 14,956 12,968 24,366 11,370 19,485
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
GAINS .............................................. 130,706 115,646 129,704 110,273 115,550
Securities gains ...................................... 2,747 2,078 845 11,379 114
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............................. 133,453 117,724 130,549 121,652 115,664
-------- -------- -------- -------- --------
Personnel and related costs ........................... 122,068 117,662 105,810 109,463 104,133
Equipment ............................................. 19,844 19,972 20,811 18,983 18,863
Net occupancy ......................................... 18,188 19,780 18,614 19,520 18,613
Outside data processing and other services ............ 17,671 16,654 16,142 15,531 15,336
Amortization of intangible assets ..................... 10,435 10,576 10,494 10,311 9,206
Marketing ............................................. 7,852 9,939 10,592 8,557 7,742
Telecommunications .................................... 7,207 7,125 6,524 6,480 6,472
Legal and other professional services ................. 6,763 4,969 6,785 4,719 4,815
Printing and supplies ................................. 4,565 5,059 5,212 4,849 4,956
Franchise and other taxes ............................. 2,246 2,120 3,163 2,841 2,635
Other ................................................. 16,457 20,234 19,703 12,331 5,305
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ............................ 233,296 234,090 223,850 213,585 198,076
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ............................ 102,413 93,294 107,217 117,540 134,560
Provision for income taxes ............................ 27,909 25,428 30,995 34,510 37,039
-------- -------- -------- -------- --------
NET INCOME ............................................ $ 74,504 $ 67,866 $ 76,222 $ 83,030 $ 97,521
======== ======== ======== ======== ========
PER COMMON SHARE (2)
Net income
Diluted .......................................... $ 0.30 $ 0.27 $ 0.30 $ 0.33 $ 0.40
Diluted - Cash Basis ............................. $ 0.33 $ 0.30 $ 0.33 $ 0.36 $ 0.42
Cash Dividends Declared .............................. $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ................................... $248,033 $243,124 $233,066 $235,869 $232,806
Tax Equivalent Adjustment (3) ......................... 1,616 2,002 2,057 2,022 2,074
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income .................... $249,649 $245,126 $235,123 $237,891 $234,880
======== ======== ======== ======== ========
(1) Excludes the after-tax impact of Restructuring and Other Charges ($72,127 in
2Q 2001 and $32,500 in 3Q 2000)
(2) Adjusted for stock splits and stock dividends, as applicable.
(3) Calculated assuming a 35% tax rate.
30
31
--------------------------------------------------------------------------------
Stock Summary, Key Ratios and Statistics, and Regulatory Capital Data
--------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
--------------------------------------------------------------------------------
-------------------- ---------------------------------
2001 2000
-------------------- ---------------------------------
II Q I Q IV Q III Q II Q
------- ------- ------- ------- -------
High ................... $17.000 $18.000 $16.375 $18.813 $21.307
Low .................... 13.875 12.625 12.516 14.375 14.091
Close .................. 16.375 14.250 16.188 14.688 14.375
Cash dividends declared $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.18
Note: Stock price quotations were obtained from NASDAQ.
--------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
--------------------------------------------------------------------------------
----------------- ------------------------------
MARGIN ANALYSIS - AS A % 2001 2000
----------------- ------------------------------
OF AVERAGE EARNING ASSETS (2) II Q I Q IV Q III Q II Q
----------------------------------------- ------ ----- ------ ------- ------
Interest Income ......................... 7.98% 8.39% 8.47% 8.43% 8.27%
Interest Expense ........................ 4.01% 4.46% 4.77% 4.69% 4.55%
----- ----- ----- ----- -----
Net Interest Margin ................ 3.97% 3.93% 3.70% 3.74% 3.72%
===== ===== ===== ===== =====
RETURN ON (3)
-----------------------------------------
Average total assets .................... 1.05% 0.97% 1.06% 1.15% 1.37%
Average total assets - cash basis ....... 1.19% 1.11% 1.19% 1.29% 1.49%
Average shareholders' equity ............ 12.43% 11.53% 12.89% 14.04% 17.79%
Average shareholders' equity - cash basis 13.72% 12.86% 14.20% 15.33% 18.97%
Efficiency Ratio (3) .................... 58.59% 61.95% 58.48% 58.38% 53.90%
Effective tax rate (3) .................. 27.25% 27.26% 28.91% 25.19% 27.53%
--------------------------------------------------------------------------------
REGULATORY CAPITAL DATA
--------------------------------------------------------------------------------
---------------------- -------------------------------------
2001 2000
---------------------- -------------------------------------
(in millions of dollars) II Q I Q IV Q III Q II Q
----------------------------------- -------- -------- -------- -------- --------
Total Risk-Adjusted Assets ........ $27,375 $27,230 $26,880 $26,370 $25,900
Tier 1 Risk-Based Capital Ratio.... 7.01% 7.19% 7.19% 7.20% 7.40%
Total Risk-Based Capital Ratio..... 10.20% 10.31% 10.46% 10.64% 10.90%
Tier 1 Leverage Ratio ............. 6.96% 7.12% 6.93% 6.80% 6.89%
Tangible Equity/Asset Ratio ....... 5.97% 6.01% 5.87% 5.73% 5.78%
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
(3) Income component excludes the impact of Restructuring and Other Charges.
31
32
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 4. Submission of Matters to a Vote of Security Holders
Huntington Bancshares Incorporated held its annual meeting of
shareholders on April 19, 2001. At that meeting, shareholders approved
the following management proposals:
ABSTAIN/ BROKER
FOR AGAINST WITHHELD NONVOTES
--- ------- -------- --------
1. Election of directors
to serve as Class II
Directors until the year 2004
Annual Meeting of
Shareholders as follows:
Don Conrad 201,442,233 14,671,879
George A. Sketos 201,774,563 14,339,548
Lewis R. Smoot, Sr. 202,252,044 13,862,067
Frank Wobst 185,160,133 30,953,979
2. Election of director
to serve as Class I
Director until the year 2003
Annual Meeting of
Shareholders as follows:
Thomas E. Hoaglin 205,458,893 10,655,218
3. Ratification of Ernst &
Young LLP to serve as
independent auditors for
the Corporation for the
year 2001 208,710,017 5,661,254 1,742,841
4. Proposal to approve
the 2001 Stock and Long-
Term Incentive Plan 179,492,780 31,921,220 4,700,111
32
33
5. Shareholder Proposal
to engage an Investment
Banking firm to evaluate
alternatives to enhance
shareholder value 33,048,401 131,180,958 7,855,672 44,029,081
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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,
previously filed as exhibit 3(i) to annual
report on form 10-K for the year ended
December 31, 1993 and exhibit 3(i)(c) to
quarterly report on form 10-Q for the
quarter ended March 31, 1998, and
incorporated herein by reference. Also,
reference is made to Rights Plan, dated
February 22, 1990, previously filed as
Exhibit 1 to Registration Statement on Form
8-A, and incorporated herein by reference
and to Amendment No. 1 to the Rights
Agreement, dated as of August 16, 1995,
previously filed as Exhibit 4(b) to Form 8-K
filed with the Securities and Exchange
Commission on August 28, 1995, and
incorporated herein by reference.
Instruments defining the rights of holders
of long-term debt will be furnished to the
Securities and Exchange Commission upon
request.
10. Material contracts:
(s) * Severance Agreement and Release and Waiver
of All Claims made by and between Huntington
Bancshares Incorporated and Peter E. Geier.
(t) * Retirement Agreement between Frank Wobst and
Huntington Bancshares Incorporated.
99. Earnings to Fixed Charges
(b) Reports on Form 8-K
1. A report on Form 8-K, dated April 17, 2001,
was filed under report item numbers 5 and 7,
concerning Huntington's results of
operations for the first quarter and year
ended March 31, 2001.
2. A report on Form 8-K, dated April 19, 2001,
was filed under report item number 5,
announcing that Frank Wobst will be retiring
as an employee of Huntington Bancshares
Incorporated, but will continue as chairman
of
33
34
the Boards of both Huntington Bancshares
Incorporated and Huntington National Bank in
a non-employee capacity.
3. A report on Form 8-K, dated May 22, 2001,
was filed under report item number 5,
announcing the resignation of Martin Mahan
as Executive Vice President for Huntington
National Bank in charge of Retail Banking.
---------------
* Denotes management contracts or compensatory plan or arrangement.
34
35
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: August 14, 2001 /s/ Richard A. Cheap
---------------------
Richard A. Cheap
General Counsel and Secretary
Date: August 14, 2001 /s/ Michael J. McMennamin
---------------------------
Michael J. McMennamin
Vice Chairman, Chief Financial Officer and
Treasurer (Principal Financial Officer)