Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file Number 0-2525
HUNTINGTON BANCSHARES INCORPORATED
(Exact name of registrant as specified in its charter)
MARYLAND 31-0724920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HUNTINGTON CENTER, 41 S. HIGH STREET, COLUMBUS, OH 43287
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 480-8300
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK - WITHOUT PAR VALUE
--------------------------------
(Title of class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 31, 2000, was $3,623,508,095. As of February 21, 2001,
250,993,499 shares of common stock without par value were outstanding.
Documents Incorporated By Reference
- -----------------------------------
Part III of this Form 10-K incorporates by reference certain information
from the registrant's definitive Proxy Statement for the 2001 Annual
Shareholders' Meeting.
2
HUNTINGTON BANCSHARES INCORPORATED
INDEX
Part I.
Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Report of Management 27
Report of Independent Auditors 27
Consolidated Balance Sheets --
December 31, 2000 and 1999 28
Consolidated Statements of Income --
Twelve Months Ended December 31, 2000, 1999 and 1998 29
Consolidated Statements of Changes in Shareholders' Equity --
Twelve Months Ended December 31, 2000, 1999 and 1998 30
Consolidated Statements of Cash Flows --
Twelve Months Ended December 31, 2000, 1999 and 1998 31
Notes to Consolidated Financial Statements 32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 55
Part III.
Item 10. Directors and Executive Officers of the Registrant 56
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners and Management 56
Item 13. Certain Relationships and Related Transactions 56
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 56
1
3
Huntington Bancshares Incorporated
----------------------------------
Part I
------
ITEM 1: BUSINESS
Huntington Bancshares Incorporated (Huntington), incorporated in Maryland
in 1966, is a multi-state bank holding company that also qualified (in March
2000) as a financial holding company. Huntington is 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. At December 31, 2000, Huntington's subsidiaries had 175
banking offices in Ohio, 139 banking offices in Florida, 127 banking offices in
Michigan, 32 banking offices in West Virginia, 23 banking offices in Indiana, 12
banking offices in Kentucky, and one foreign office in the Cayman Islands and
Hong Kong, respectively. The Huntington Mortgage Company (a wholly owned
subsidiary) has loan origination offices throughout the Midwest and East Coast.
Foreign banking activities, in total or with any individual country, are not
significant to the operations of Huntington. At December 31, 2000, Huntington
and its subsidiaries had 9,693 full-time equivalent employees.
A brief discussion of Huntington's lines of business can be found in its
Management's Discussion and Analysis beginning on page 11 of this report. The
financial statement results of these lines of business can be found in Note 22
of the Notes to Consolidated Financial Statements beginning on page 51.
Competition in the form of price and service from other banks and financial
companies such as savings and loans, credit unions, finance companies, and
brokerage firms is intense in most of the markets served by Huntington and its
subsidiaries. Mergers between and the expansion of financial institutions both
within and outside Ohio have provided significant competitive pressure in major
markets. Since 1995, when federal interstate banking legislation became
effective that made it permissible for bank holding companies in any state to
acquire banks in any other state, and for banks to establish interstate branches
(subject to certain limitations by individual states), actual or potential
competition in each of Huntington's markets has been intensified. Internet
banking, offered both by established traditional institutions and by start-up
Internet-only banks, constitutes another significant form of competitive
pressure on Huntington's business. Finally, financial services reform
legislation enacted in November 1999 (see "Gramm-Leach-Bliley Act of 1999"
below) eliminates the long-standing Glass-Steagall Act restrictions on
securities activities of bank holding companies and banks. The new legislation
permits bank holding companies that elect to become financial holding companies
to engage in a broad range of financial activities, including defined securities
and insurance activities, and to affiliate with securities and insurance firms.
Correspondingly, it permits securities and insurance firms to engage in banking
activities under specified conditions. The same legislation allows banks to have
financial subsidiaries that may engage in certain activities not otherwise
permissible for banks.
In June 2000, Huntington consummated a merger with Empire Banc Corporation,
Traverse City, Michigan. In August 2000, Huntington consummated a merger with J.
Rolfe Davis Insurance Agency, Inc., Maitland, Florida. Additional information
about these acquisitions can be found in Note 23 in the Notes to Consolidated
Financial Statements on page 53.
REGULATORY MATTERS
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to such
statutory or regulatory provisions.
GENERAL
As a financial holding company, Huntington is subject to examination and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). Huntington is required to file with the Federal
Reserve Board reports and other information regarding its business operations
and the business operations of its subsidiaries. It is also required to obtain
Federal Reserve Board approval prior to acquiring, directly or indirectly,
ownership or control of voting shares of any bank, if, after such acquisition,
it would own or control more than 5% of the voting stock of such bank. Pursuant
to the Gramm-Leach-Bliley Act (the "GLB Act"), however, Huntington may engage
in, or own or control companies that engage in, any activities determined by the
Federal Reserve Board to be financial in nature or incidental to activities
financial in nature, or complementary to financial activities, provided that
such complementary activities do not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The GLB
Act designated various lending, advisory, insurance underwriting, securities
underwriting, dealing and market-making, and merchant banking activities (as
well as those
2
4
activities previously approved for bank holding companies by the Federal Reserve
Board) as financial in nature, and authorized the Federal Reserve Board, in
coordination with the Comptroller of the Currency, to determine that additional
activities are financial in nature or incidental to activities that are
financial in nature. Except for the acquisition of a savings association,
Huntington may commence any new financial activity with only subsequent 30-day
notice to the Federal Reserve Board.
Huntington's national bank subsidiary is subject to examination and
supervision by the Office of the Comptroller of the Currency ("OCC"). Its
deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC") although certain deposits were acquired from
savings associations and are insured by the Savings Association Insurance Fund
("SAIF") of the FDIC. Huntington's nonbank subsidiaries are also subject to
examination and supervision by the Federal Reserve Board (or, in the case of
nonbank subsidiaries of the national bank subsidiary, by OCC), and examination
by other federal and state agencies, including, in the case of certain
securities activities, regulation by the Securities and Exchange Commission.
In addition to the impact of federal and state regulation, the bank and
nonbank subsidiaries of Huntington are affected significantly by the actions of
the Federal Reserve Board as it attempts to control the money supply and credit
availability in order to influence the economy.
HOLDING COMPANY STRUCTURE
Huntington's depository institution subsidiary is subject to affiliate
transaction restrictions under federal law which limit the transfer of funds by
the subsidiary bank to the parent and any nonbank subsidiaries of the parent,
whether in the form of loans, extensions of credit, investments, or asset
purchases. Such transfers by a subsidiary bank to its parent corporation or to
any individual nonbank subsidiary of the parent are limited in amount to 10% of
the subsidiary bank's capital and surplus and, with respect to such parent
together with all such nonbank subsidiaries of the parent, to an aggregate of
20% of the subsidiary bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specified amounts. In
addition, all affiliate transactions must be conducted on terms and under
circumstances that are substantially the same as such transactions with
unaffiliated entities. Under applicable regulations, at December 31, 2000,
approximately $285.8 million was available for loans to Huntington from its
subsidiary bank.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. Under the source of strength doctrine, the Federal Reserve
Board may require a bank holding company to make capital injections into a
troubled subsidiary bank, and may charge the bank holding company with engaging
in unsafe and unsound practices for failure to commit resources to such a
subsidiary bank. This capital injection may be required at times when Huntington
may not have the resources to provide it. Any loans by a holding company to its
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. Moreover, in the event of a bank
holding company's bankruptcy, any commitment by such holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to a priority of payment.
Federal law permits the OCC to order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. This statute also provides for the enforcement of any such pro rata
assessment of shareholders of such national bank to cover such impairment of
capital stock by sale, to the extent necessary, of the capital stock of any
assessed shareholder failing to pay the assessment. Huntington, as the sole
shareholder of its subsidiary bank, is subject to such provisions. Moreover, the
claims of a receiver of an insured depository institution for administrative
expenses and the claims of holders of deposit liabilities of such an institution
are accorded priority over the claims of general unsecured creditors of such an
institution, including the holders of the institution's note obligations, in the
event of a liquidation or other resolution of such institution. Claims of a
receiver for administrative expenses and claims of holders of deposit
liabilities of Huntington's depository subsidiary (including the FDIC, as the
subrogee of such holders) would receive priority over the holders of notes and
other senior debt of such subsidiary in the event of a liquidation or other
resolution and over the interests of Huntington as sole shareholder of its
subsidiary.
DIVIDEND RESTRICTIONS
Dividends from its subsidiary bank are a significant source of funds for
payment of dividends to Huntington's shareholders. In the year ended December
31, 2000, Huntington declared cash dividends to its shareholders of
approximately $189.2 million. There are, however, statutory limits on the amount
of dividends that Huntington's depository institution subsidiary can pay to
Huntington without regulatory approval.
Huntington's subsidiary bank may not, without prior regulatory approval,
pay a dividend in an amount greater than such bank's undivided profits. In
addition, the prior approval of the OCC is required for the payment of a
3
5
dividend by a national bank if the total of all dividends declared by the bank
in a calendar year would exceed the total of its net income for the year
combined with its retained net income for the two preceding years. Under these
provisions and in accordance with the above-described formula, Huntington's
subsidiary bank could, without regulatory approval, declare dividends to
Huntington in 2001 of approximately $278.9 million plus an additional amount
equal to its net profits during 2001.
If, in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
and the OCC have issued policy statements that provide that insured banks and
bank holding companies should generally only pay dividends out of current
operating earnings.
FDIC INSURANCE
Under current FDIC practices, Huntington's bank subsidiary will not be
required to pay deposit insurance premiums during 2001.
CAPITAL REQUIREMENTS
The Federal Reserve Board has issued risk-based capital ratio and leverage
ratio guidelines for bank holding companies such as Huntington. The risk-based
capital ratio guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations, takes off-balance sheet exposures into explicit
account in assessing capital adequacy, and minimizes disincentives to holding
liquid, low-risk assets. Under the guidelines and related policies, bank holding
companies must maintain capital sufficient to meet both a risk-based asset ratio
test and a leverage ratio test on a consolidated basis. The risk-based ratio is
determined by allocating assets and specified off-balance sheet commitments into
four weighted categories, with higher weighting being assigned to categories
perceived as representing greater risk. A bank holding company's capital (as
described below) is then divided by total risk weighted assets to yield the
risk-based ratio. The leverage ratio is determined by relating core capital (as
described below) to total assets adjusted as specified in the guidelines.
Huntington's subsidiary bank is subject to substantially similar capital
requirements.
Generally, under the applicable guidelines, a financial institution's
capital is divided into two tiers. Institutions that must incorporate market
risk exposure into their risk-based capital requirements may also have a third
tier of capital in the form of restricted short-term subordinated debt. "Tier
1", or core capital, includes common equity, noncumulative perpetual preferred
stock (excluding auction rate issues), and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and, with certain limited
exceptions, all other intangible assets. Bank holding companies, however, may
include cumulative preferred stock in their Tier 1 capital, up to a limit of 25%
of such Tier 1 capital. "Tier 2", or supplementary capital, includes, among
other things, cumulative and limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan and lease losses, subject to certain limitations. "Total
capital" is the sum of Tier 1 and Tier 2 capital. The Federal Reserve Board and
the other federal banking regulators require that all intangible assets, with
certain limited exceptions, be deducted from Tier 1 capital. Under the Federal
Reserve Board's rules the only types of intangible assets that may be included
in (i.e., not deducted from) a bank holding company's capital are originated or
purchased mortgage servicing rights, non-mortgage servicing assets, and
purchased credit card relationships, provided that, in the aggregate, the total
amount of these items included in capital does not exceed 100% of Tier 1
capital.
Under the risk-based guidelines, financial institutions are required to
maintain a risk-based ratio (total capital to risk-weighted assets) of 8%, of
which 4% must be Tier 1 capital. The appropriate regulatory authority may set
higher capital requirements when an institution's circumstances warrant.
Under the leverage guidelines, financial institutions are required to
maintain a leverage ratio (Tier 1 capital to adjusted total assets, as specified
in the guidelines) of at least 3%. The 3% minimum ratio is applicable only to
financial institutions that meet certain specified criteria, including excellent
asset quality, high liquidity, low interest rate exposure, and the highest
regulatory rating. Financial institutions not meeting these criteria are
required to maintain a leverage ratio that exceeds 3% by a cushion of at least
100 to 200 basis points.
Failure to meet applicable capital guidelines could subject the financial
institution to a variety of enforcement remedies available to the federal
regulatory authorities including limitations on the ability to pay dividends,
the issuance by the regulatory authority of a capital directive to increase
capital, and the termination of deposit insurance by the FDIC, as well as to the
measures described below under "Federal Deposit Insurance Corporation
Improvement Act of 1991" as applicable to undercapitalized institutions.
4
6
As of December 31, 2000, the Tier 1 risk-based capital ratio, total
risk-based capital ratio, and Tier 1 leverage ratio for Huntington were as
follows:
Actual
------------
Tier 1 7.19%
Total Risk-Based 10.46%
Tier 1 Leverage 6.93%
As of December 31, 2000, Huntington's bank subsidiary also had capital in
excess of the minimum requirements.
The risk-based capital standards of the Federal Reserve Board, the OCC, and
the FDIC specify that evaluations by the banking agencies of a bank's capital
adequacy will include an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. These banking
agencies issued a joint policy statement on interest rate risk describing
prudent methods for monitoring such risk that rely principally on internal
measures of exposure and active oversight of risk management activities by
senior management.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking regulatory authorities to take "prompt
corrective action" with respect to depository institutions that do not meet
minimum capital requirements. For these purposes, FDICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject
to a regulatory order, agreement, or directive to meet and maintain a specific
capital level for any capital measure. An institution is deemed to be
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater, and, generally, a
Tier 1 leverage ratio of 4% or greater and the institution does not meet the
definition of a "well capitalized" institution. An institution that does not
meet one or more of the "adequately capitalized" tests is deemed to be
"undercapitalized". If the institution has a total risk-based capital ratio that
is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a
Tier 1 leverage ratio that is less than 3%, it is deemed to be "significantly
undercapitalized". Finally, an institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management fee
to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized institutions are subject to growth
limitations and are required to submit a capital restoration plan. If any
depository institution subsidiary of a holding company is required to submit a
capital restoration plan, the holding company would be required to provide a
limited guarantee regarding compliance with the plan as a condition of approval
of such plan by the appropriate federal banking agency. If an undercapitalized
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. Significantly undercapitalized institutions may
be subject to a number of requirements and restrictions, including orders to
sell sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions may not, beginning 60 days after
becoming critically undercapitalized, make any payment of principal or interest
on their subordinated debt. In addition, critically undercapitalized
institutions are subject to appointment of a receiver or conservator within 90
days of becoming critically undercapitalized.
Under FDICIA, a depository institution that is not well capitalized is
generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market. Huntington
expects that the FDIC's brokered deposit rule will not adversely affect the
ability of its depository institution subsidiary to accept brokered deposits.
Under the regulatory definition of brokered deposits, Huntington's depository
subsidiary had $256.1 million of brokered deposits at December 31, 2000.
5
7
GRAMM-LEACH-BLILEY ACT OF 1999
The United States Congress in 1999 enacted major financial services
modernization legislation, known as the "Gramm-Leach-Bliley Act of 1999"
("GLBA"), which was signed into law on November 12, 1999. Under GLBA, banks are
no longer prohibited by the Glass-Steagall Act from associating with, or having
management interlocks with, a business organization engaged principally in
securities activities. By qualifying as a new entity known as a "financial
holding company", a bank holding company may acquire new powers not otherwise
available to it. In order to qualify, a bank holding company's depository
subsidiaries must all be both well capitalized and well managed, and must be
meeting their Community Reinvestment Act obligations. The bank holding company
must also declare its intention to become a financial holding company to the
Federal Reserve Board and certify that its depository subsidiaries meet the
capitalization and management requirements.
The repeal of the Glass-Steagall Act and the availability of new powers
both became effective on March 11, 2000. Financial holding company powers relate
to "financial activities" that are determined by the Federal Reserve Board, in
coordination with the Secretary of the Treasury, to be financial in nature,
incidental to an activity that is financial in nature, or complementary to a
financial activity (provided that the complementary activity does not pose a
safety and soundness risk). The statute itself defines certain activities as
financial in nature, including but not limited to underwriting insurance or
annuities; providing financial or investment advice; underwriting, dealing in,
or making markets in securities; merchant banking, subject to significant
limitations; insurance company portfolio investing, subject to significant
limitations; and any activities previously found by the Federal Reserve Board to
be closely related to banking.
National and state banks are permitted under GLBA (subject to capital,
management, size, debt rating, and Community Reinvestment Act qualification
factors) to have "financial subsidiaries" that are permitted to engage in
financial activities not otherwise permissible. However, unlike financial
holding companies, financial subsidiaries may not engage in insurance or annuity
underwriting; developing or investing in real estate; merchant banking (for at
least five years); or insurance company portfolio investing. Other provisions of
GLBA establish a system of functional regulation for financial holding companies
and banks involving the Securities and Exchange Commission, the Commodity
Futures Trading Commission, and state securities and insurance regulators; deal
with bank insurance sales and title insurance activities in relation to state
insurance regulation; prescribe consumer protection standards for insurance
sales; and establish minimum federal standards of privacy to protect the
confidentiality of the personal financial information of consumers and regulate
its use by financial institutions. Federal bank regulatory agencies issued a
variety of proposed, interim, and final rules during the year 2000 for the
implementation of GLBA.
GUIDE 3 INFORMATION
Information required by Industry Guide 3 relating to statistical disclosure
by bank holding companies is set forth in Items 7 and 8.
ITEM 2: PROPERTIES
The headquarters of Huntington and its lead subsidiary, The Huntington
National Bank, are located in the Huntington Center, a thirty-seven story office
building located in Columbus, Ohio. Of the building's total office space
available, Huntington leases approximately 39 percent. The lease term expires in
2015, with nine five-year renewal options for up to 45 years but with no
purchase option. The Huntington National Bank has an equity interest in the
entity that owns the building. Huntington's other major properties consist of a
thirteen-story and a twelve-story office building, both of which are located
adjacent to the Huntington Center; a twenty-one story office building, known as
the Huntington Building, located in Cleveland, Ohio; an eighteen-story office
building in Charleston, West Virginia; a three-story office building located in
Holland, Michigan; an office building in Lakeland, Florida; an eleven-story
office building in Sarasota, Florida, a 470,000 square foot Business Service
Center which serves as Huntington's primary operations and data center; The
Huntington Mortgage Company's building, located in the greater Columbus area; an
office complex located in Troy, Michigan; and two data processing and operations
centers located in Ohio. Of these properties, Huntington owns the thirteen-story
and twelve-story office buildings, and the Business Service Center. All of the
other major properties are held under long-term leases.
In 1998, Huntington entered into a sale/leaseback agreement that included
the sale of 59 properties. The transaction included a mix of branch banking
offices, regional offices, and operational facilities, including certain
properties described above, which Huntington will continue to operate under a
long-term lease.
6
8
ITEM 3: LEGAL PROCEEDINGS
Information required by this item is set forth in Item 8 in Note 15 of
Notes to Consolidated Financial Statements on page 44.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Part II
-------
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock of Huntington Bancshares Incorporated is traded on the
NASDAQ Stock National Market System under the symbol "HBAN". The stock is listed
as "HuntgBcshr" or "HuntBanc" in most newspapers. As of January 31, 2001,
Huntington had 32,374 shareholders of record.
Information regarding the high and low sale prices of Huntington Common
Stock and cash dividends declared on such shares, as required by this item, is
set forth in a table entitled "Market Prices, Key Ratios, and Statistics
(Quarterly Data)" on page 25 in Item 7. Information regarding restrictions on
dividends, as required by this item, is set forth in Item 1 "Business-Regulatory
Matters-Dividend Restrictions" above and in Item 8 in Notes 9 and 17 of Notes to
Consolidated Financial Statements on pages 39 and 46, respectively.
ITEM 6: SELECTED FINANCIAL DATA
Information required by this item is set forth in Item 7 in Table 1 on page
9.
7
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Huntington Bancshares Incorporated (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 foreign offices in the
Cayman Islands and Hong Kong.
FORWARD-LOOKING STATEMENTS
This report, including 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; 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 this report is filed with the Securities and
Exchange Commission.
The management of Huntington encourages readers of this report to
understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance. The following discussion and analysis of
the financial performance of Huntington should be read in conjunction with the
financial statements, notes, and other information contained in this document.
ACQUISITIONS
Huntington acquired Empire Banc Corporation (Empire), a $506 million
one-bank holding company headquartered in Traverse City, Michigan, on June 23,
2000. Huntington reissued approximately 6.5 million shares of common stock, all
of which were purchased on the open market during the first quarter of 2000, in
exchange for all of the common stock of Empire. Total loans and deposits
increased $395 million and $435 million, respectively, at the date of the
merger. Additionally, Huntington acquired J. Rolfe Davis Insurance Agency, Inc.
(JRD), headquartered in Maitland, Florida, on August 31, 2000. Huntington paid
$8.2 million in cash and issued approximately 695,000 shares of common stock for
all of the common stock of JRD. Both transactions were accounted for as
purchases; accordingly, the results of Empire and JRD have been included in
Huntington's consolidated financial statements from the respective dates of
acquisition.
OVERVIEW
Huntington reported net income of $328.4 million, or $1.32 per share, in
2000, compared with $422.1 million, or $1.65 per share, in 1999, and $301.8
million, or $1.17 per share, in 1998. These results included after-tax special
charges of $32.5 million, $62.9 million, and $60.3 million, respectively.
Excluding these items and a $70.6 million after-tax gain in 1999 on the sale of
Huntington's credit card portfolio, operating earnings for 2000 were $360.9
million, or $1.45 per share versus $414.4 million, or $1.62 per share, and
$362.1 million, or $1.40 per share, in 1999 and 1998, respectively. Per share
amounts for all prior periods have been restated to reflect the ten-percent
stock dividend distributed to shareholders in July 2000. On an operating basis,
return on average assets (ROA) was 1.26% in 2000, 1.44% in 1999 and 1.35% in
1998. Return on average equity (ROE) totaled 15.84% for the recent twelve
months, compared with 19.31% and 17.54% in the two preceding years.
8
10
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 1 CONSOLIDATED SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
(in thousands of dollars, except per
share amounts) 2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Total interest income $ 2,108,505 $ 2,026,002 $ 1,999,364 $ 1,981,473 $ 1,775,734 $ 1,709,627
Total interest expense 1,166,073 984,240 978,271 954,243 880,648 856,860
Net interest income 942,432 1,041,762 1,021,093 1,027,230 895,086 852,767
Securities gains 37,101 12,972 29,793 7,978 17,620 9,380
Gains on sale of credit card portfolios -- 108,530 9,530 -- -- --
Provision for loan losses 90,479 88,447 105,242 107,797 76,371 36,712
Net income 328,446 422,074 301,768 292,663 304,269 281,801
Operating net income (1) 360,946 414,444 362,068 338,897 304,269 281,801
PER COMMON SHARE (2)
Net income
Basic 1.32 1.66 1.18 1.15 1.19 1.07
Diluted 1.32 1.65 1.17 1.14 1.18 1.06
Diluted--Operating (1) 1.45 1.62 1.40 1.32 1.18 1.06
Cash dividends declared 0.76 0.68 0.62 0.56 0.51 0.46
Book value at year-end 9.43 8.67 8.43 7.94 7.11 6.90
BALANCE SHEET HIGHLIGHTS
Total assets at year-end 28,599,377 29,036,953 28,296,336 26,730,540 24,371,946 23,495,337
Total long-term debt at year-end 870,976 697,677 707,359 498,889 550,531 517,202
Average long-term debt 823,555 702,974 620,688 526,379 515,664 529,140
Average shareholders' equity 2,279,230 2,146,735 2,064,241 1,893,788 1,776,151 1,742,826
Average total assets $28,720,508 $28,739,450 $26,891,558 $25,150,659 $23,374,490 $22,098,785
- ------------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
MARGIN ANALYSIS--AS A%
OF AVERAGE EARNING ASSETS (3)
Interest Income 8.31% 7.97% 8.33% 8.52% 8.26% 8.43%
Interest Expense 4.58 3.86 4.05 4.08 4.07 4.19
----- ----- ----- ----- ----- -----
NET INTEREST MARGIN 3.73% 4.11% 4.28% 4.44% 4.19% 4.24%
===== ===== ===== ===== ===== =====
RETURN ON
Average total assets 1.14% 1.47% 1.12% 1.16% 1.30% 1.28%
Average total assets--Operating (1) 1.26 1.44 1.35 1.35 1.30 1.28
Average shareholders' equity 14.41 19.66 14.62 15.44 17.13 16.17
Average shareholders' equity--Operating (1) 15.84 19.31 17.54 17.88 17.13 16.17
Dividend payout ratio 57.55 41.53 53.15 49.67 42.22 43.82
Average shareholders' equity to
average total assets 7.94 7.47 7.68 7.53 7.60 7.89
Tier I risk-based capital ratio 7.19 7.52 7.10 8.83 8.11 8.66
Total risk-based capital ratio 10.46 10.72 10.73 11.68 11.29 12.01
Tier I leverage ratio 6.93% 6.72% 6.37% 7.77% 6.80% 6.99%
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA 2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Full-time equivalent employees 9,693 9,516 10,159 9,485 9,467 9,083
Banking offices 510 517 531 454 429 406
(1) Excludes special charges and 1999 gain from the sale of Huntington's credit card portfolio, net of related taxes.
(2) Adjusted for stock splits and stock dividends, as applicable.
(3) Presented on a fully tax equivalent basis assuming a 35% tax rate.
9
11
Cash basis operating earnings (which exclude the effect of amortization of
goodwill and other intangibles) were $1.57 per share for 2000 versus $1.74 per
share and $1.49 per share for 1999 and 1998, respectively. Cash basis ROA and
ROE, which are computed using cash basis operating earnings as a percentage of
average tangible assets and average tangible equity, were 1.40% and 24.97% in
2000. On this same basis, ROA was 1.58% and 1.45%, respectively, in 1999 and
1998 and ROE was 30.30% and 24.35%.
Total assets were $28.6 billion at December 31, 2000, down from $29.0
billion at the end of last year. Assets were lower, as Huntington repositioned
its balance sheet in 2000. These actions included automobile loan
securitizations of $1.4 billion and the sale of approximately $1.7 billion of
lower-yielding fixed-income securities from Huntington's investment portfolio.
Managed total loans, which include securitized loans, increased 9% from
last year, after adjusting for the impact of the Empire acquisition and the
fourth quarter 1999 sale of Huntington's credit card portfolio. Managed consumer
loans grew 13%, driven by automobile financing and home equity lending, which
grew 17% and 21%, respectively. Commercial loans increased 4% from a year ago.
Core deposits totaled $18.6 billion during 2000 and were essentially
unchanged from the levels reported last year. When combined with other core
funding sources, core deposits provide 79% of Huntington's funding needs.
Short and medium-term borrowings declined from a year ago due to the
balance sheet efficiency program referenced above. Long-term debt increased over
last year as Huntington issued $150 million of regulatory capital qualifying
subordinated notes in the first quarter of 2000 through its bank subsidiary.
- --------------------------------------------------------------------------------
TABLE 2 LOAN PORTFOLIO COMPOSITION
DECEMBER 31,
-----------------------------------------------
(in millions of dollars) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------
Commercial $ 6,634 $ 6,300 $ 6,027 $ 5,271 $ 5,130
Real Estate
Construction 1,319 1,237 919 864 699
Commercial 2,253 2,151 2,232 2,237 2,137
Consumer
Loans 6,388 6,793 6,958 6,463 6,123
Lease financing 3,069 2,742 1,911 1,542 1,183
Residential Mortgage 947 1,445 1,408 1,361 1,486
------- ------- ------- ------- -------
TOTAL LOANS $20,610 $20,668 $19,455 $17,738 $16,758
======= ======= ======= ======= =======
Note: There are no loans outstanding which would be considered a concentration
of lending in any particular industry or group of industries.
- --------------------------------------------------------------------------------
TABLE 3 MATURITY SCHEDULE OF SELECTED LOANS
(in millions of dollars) DECEMBER 31, 2000
- --------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------- ---------- ---------- ----------
Commercial $3,783 $1,956 $ 895 $6,634
Real estate - construction 690 426 203 1,319
------ ------ ------ ------
TOTAL $4,473 $2,382 $1,098 $7,953
====== ====== ====== ======
Variable interest rates $1,447 $ 731
Fixed interest rates 935 367
------ ------
TOTAL $2,382 $1,098
====== ======
Note: Loan balances above are net of unearned income and there are no loans
outstanding which would be a concentration of lending in any particular
industry or group of industries.
10
12
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 22 to the Consolidated Financial Statements.
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 totaled $164.6 million in 2000 compared with
$170.8 million in 1999 and $168.9 million in 1998. Excluding the revenue and
expenses related to the credit card portfolio that was sold in last year's
fourth quarter, the 1999 and 1998 earnings were $155.5 million and $153.0
million, respectively. On this basis, Retail's net income increased 6% from
1999. This increase was achieved despite a decline in net interest income due to
higher deposit costs and a $3.3 million increase in the provision for loan
losses. Non-interest income for the year was relatively unchanged versus 1999,
as a 3% increase in service charges and a 17% increase in electronic banking
fees was offset by a significant decline in mortgage banking revenue. Mortgage
loan originations were adversely impacted by higher market interest rates
throughout much of 2000. Non-interest expense improved 2% from last year. The
Retail segment contributed 46% of Huntington's 2000 operating earnings and
comprised 30% of its total loan portfolio and 84% of its total core deposits.
CORPORATE BANKING
This segment represents the middle-market and large corporate banking
customers, which use a variety of products and services including, but not
limited to, commercial loans, asset-based financing, 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 $136.1 million for 2000 versus
$131.6 million and $115.3 million for the previous two years. Net interest
income increased 5% in 2000 driven by loan growth. The 6% increase in
non-interest income was due in large part to increases in service charges.
Non-interest expenses increased 13% in 2000 due to investments in personnel and
technology to support revenue growth initiatives. Corporate Banking contributed
38% of Huntington's 2000 operating earnings, and represented 36% of the total
loan portfolio and 12% of its total 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.
Net income for this segment totaled $50.4 million, $38.6 million, and $53.5
million in each of the last three years. Dealer Sales' results reflect the
impact of after-tax charges of $32.5 million in 2000 and $37.8 million in 1999
to write-down vehicle lease residual values. Excluding these charges, net income
was $82.9 million for 2000, compared with $76.6 million for 1999, and $53.5
million for 1998. Net-interest income was relatively unchanged due to $1.4
billion of loan securitization activity in the recent year. The increase from
1999 in the provision for loan losses of $10.1 million reflects higher net
charge-offs of .72%, versus .59% in 1999 and .82% in 1998. Non-interest income
improved $21.8 million including $17.1 million of revenue from the
securitizations completed in 2000. Dealer Sales comprised 23% of Huntington's
operating earnings in 2000 and 30% of its outstanding loans.
PRIVATE FINANCIAL GROUP
Huntington's Private Financial Group (PFG) provides an array of products
and services including personal trust, asset management, investment advisory,
insurance, and deposit and loan products. The PFG business line is designed to
provide higher wealth customers with "one-stop shopping" for all their financial
needs.
11
13
PFG reported net income of $26.0 million, $25.8 million, and $13.8 million
in 2000, 1999, and 1998, respectively. Non-interest income increased in the
recent twelve months due to higher trust and brokerage and insurance income
aided in part by the acquisition of JRD. Related increases in sales commissions
contributed to higher non-interest expense and reflect the impact of JRD as
well. This segment represented 7% of Huntington's 2000 operating earnings 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 $4.1
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 a significant component of Treasury/Other.
Treasury/Other segment results include special charges of $38.6 million in
1999 and $90.0 million in 1998. The 1999 results also include the gain from the
credit card sale of $108.5 million. On an operating basis, this segment reported
a loss of $48.7 million for 2000, versus net income of $9.6 million in 1999, and
$10.5 million in 1998. The decline relates to lower net interest income
resulting from rising market interest rates and the balance sheet efficiency
program mentioned earlier. As more fully discussed later, the sensitivity of net
interest income to changing interest rates is down from previous years,
consistent with Huntington's goal of a more stable revenue base. Non-interest
income includes securities gains realized in 2000 from the sale of equity
investments, offset by losses recognized from the sale of lower-yielding
investment securities and the first quarter 2000 automobile loan securitization.
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 4 CHANGE IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES (1)
2000 1999
-------------------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
From Previous From Previous
Year Due To: Year Due To:
-------------------------------------------- ---------------------------------
Fully Tax Equivalent Basis (2) Yield/ Yield/
(in millions of dollars) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits in banks $ (0.1) $ --- $ (0.1) $ (0.1) $ (0.5) $ (0.6)
Trading account securities 0.1 0.2 0.3 0.1 0.1 0.2
Federal funds sold and securities purchased
under resale agreements 4.1 0.2 4.3 (11.3) (0.4) (11.7)
Mortgages held for sale (9.6) 2.0 (7.6) (4.0) 0.1 (3.9)
Taxable securities (35.4) 7.9 (27.5) (0.7) (11.1) (11.8)
Tax-exempt securities (1.9) (0.8) (2.7) 4.1 (2.5) 1.6
Total loans 49.8 64.9 114.7 142.7 (90.8) 51.9
------------ --------------- -------------- ---------- ----------- ---------
TOTAL EARNING ASSETS 7.0 74.4 81.4 130.8 (105.1) 25.7
------------ --------------- -------------- ---------- ----------- ---------
Interest bearing demand deposits 5.2 32.3 37.5 13.4 (3.3) 10.1
Savings deposits (6.2) 26.6 20.4 15.7 (3.7) 12.0
Certificates of deposit 5.3 44.8 50.1 (38.0) (31.9) (69.9)
Other domestic time deposits 16.4 2.7 19.1 3.1 (0.8) 2.3
Foreign time deposits 10.4 5.0 15.4 13.4 (0.7) 12.7
Short-term borrowings (29.4) 28.2 (1.2) 21.0 (4.4) 16.6
Medium-term notes (13.1) 32.4 19.3 12.1 (6.7) 5.4
Subordinated notes and other long-term debt,
including capital securities 7.8 13.5 21.3 6.9 9.8 16.7
------------ --------------- -------------- ---------- ----------- ---------
TOTAL INTEREST BEARING LIABILITIES (3.6) 185.5 181.9 47.6 (41.7) 5.9
------------ --------------- -------------- ---------- ----------- ---------
NET INTEREST INCOME $ 10.6 $ (111.1) $ (100.5) $ 83.2 $ (63.4) $ 19.8
============ =============== ============== ========== =========== =========
(1) The change in interest rates due to both rate and volume has been allocated
between the factors in proportion of the relationship of the absolute
dollar amounts of the change in each.
(2) Calculated assuming a 35% tax rate.
12
14
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $942.4 million in 2000, versus $1,041.8 million in
1999, and $1,021.1 million in 1998. The net interest margin, on a fully tax
equivalent basis, was 3.73% during the recent year, compared with 4.11% and
4.28% during each of the last two years. Higher funding costs due to rising
interest rates and changes in the mix of Huntington's core deposit base were the
primary driver of these declines. Funding costs increased 84 basis points from
1999 while the yield on earning assets was up only 34 basis points. Core deposit
costs increased 67 basis points, as the mix shifted to higher-rate accounts
during the year. This migration accelerated in 2000 following the introduction
of new products designed to improve customer retention in the intensely
competitive market for retail deposits. To a lesser degree, the reduction in net
interest income and the margin also reflects the impact of the fourth quarter
1999 credit card sale and the automobile loan securitizations in 2000.
Huntington's interest rate risk position is further discussed in the "Interest
Rate Risk Management" section of this report.
PROVISION AND ALLOWANCE 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. The provision
for loan losses was $90.5 million in 2000 versus $88.4 million and $105.2
million in the past two years.
- ------------------------------------------------------------------------------------------------------------------
TABLE 5 SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
(in thousands of dollars) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR $ 299,309 $ 290,948 $ 258,171 $ 230,778 $ 222,487
LOAN LOSSES
Commercial (18,013) (16,203) (24,512) (23,276) (23,904)
Real estate
Construction (238) (638) (80) (375) --
Commercial (1,522) (2,399) (2,115) (728) (1,476)
Consumer
Loans (65,211) (78,688) (84,961) (74,761) (59,843)
Leases (24,721) (12,959) (13,444) (9,648) (4,492)
Residential Mortgage (1,140) (1,404) (1,243) (1,935) (1,292)
--------- --------- --------- --------- ---------
Total loan losses (110,845) (112,291) (126,355) (110,723) (91,007)
--------- --------- --------- --------- ---------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial 4,201 5,303 4,546 4,373 4,884
Real estate
Construction 165 192 441 111 556
Commercial 268 1,260 1,800 315 1,124
Consumer
Loans 19,486 22,650 23,140 16,382 13,457
Leases 3,503 2,532 1,554 1,057 721
Residential Mortgage 133 268 367 304 278
--------- --------- --------- --------- ---------
Total recoveries 27,756 32,205 31,848 22,542 21,020
--------- --------- --------- --------- ---------
NET LOAN LOSSES (83,089) (80,086) (94,507) (88,181) (69,987)
--------- --------- --------- --------- ---------
ALLOWANCE OF SECURITIZED LOANS (16,719) -- -- -- --
PROVISION FOR LOAN LOSSES 90,479 88,447 105,242 107,797 76,371
ALLOWANCE ACQUIRED/OTHER 7,900 -- 22,042 7,777 1,907
--------- --------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR $ 297,880 $ 299,309 $ 290,948 $ 258,171 $ 230,778
========= ========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses 0.40% 0.40% 0.51% 0.50% 0.44%
Provision for loan losses 0.44% 0.44% 0.57% 0.61% 0.48%
Allowance for loan losses as a %
of total loans (end of period) 1.45% 1.45% 1.50% 1.46% 1.38%
Net loan loss coverage (1) 7.23x 8.63x 6.72x 7.01x 7.62x
(1) Income before income taxes (excluding special charges and gains from sale
of credit card portfolios) and the provision for loan losses to net loan
losses.
13
15
Net charge-offs as a percent of average loans totaled .40% for both 2000
and 1999 and were .51% in 1998. Consistent with broader industry trends,
Huntington's charge-offs increased in the second half of 2000 and were .50% in
the fourth quarter. Net change offs are expected to be above these recent levels
in 2001.
Huntington allocates the ALL to each loan category based on a detailed
credit quality review performed periodically on specific commercial loans based
on size and relative risk and other relevant factors such as portfolio
performance, internal controls, and impacts from mergers and acquisitions. Loss
factors are applied on larger, commercial and industrial and commercial real
estate credits and represent management's estimate of the inherent loss. The
portion of the allowance allocated to homogeneous consumer loans is determined
by applying projected loss ratios to various segments of the loan portfolio
giving consideration to existing economic conditions and trends.
Projected loss ratios incorporate factors such as trends in past due and
non-accrual amounts, recent loan loss experience, current economic conditions,
risk characteristics, and concentrations of various loan categories. Actual loss
ratios experienced in the future, however, could vary from those projected
because a loan's performance depends not only on economic factors but also other
factors unique to each customer. The diversity in size of corporate commercial
loans can be significant as well and even if the projected number of loans
deteriorates, the dollar exposure could significantly vary from estimated
amounts. Additionally, the impact on individual customers from recent economic
events may yet be known. To ensure adequacy to a higher degree of confidence, a
portion of the ALL is considered unallocated. For analytical purposes, the
allocation of the ALL is provided in Table 6. While amounts are allocated to
various portfolio segments, the total ALL, excluding impairment reserves
prescribed under provisions of Statement of Financial Accounting Standard No.
114, is available to absorb losses from any segment of the portfolio.
The ALL was $297.9 million at December 31, 2000, and $299.3 million at
year-end 1999, representing 1.45% of total loans at both dates. Non-performing
loans were covered by the ALL 3.2 times versus 3.6 times at the end of last
year. Additional information regarding the ALL and asset quality appears in the
"Credit Risk" section.
- -----------------------------------------------------------------------------------------------------------------------------------
TABLE 6 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Consumer
Real Estate ------------------------------------
---------------------- Residential
(in thousands of dollars) Comm'l Const. Comm'l Loans Leases Mortgage Unalloc. Total
- ------------------------------------------------------------------------------------------------------------------------------------
2000:
AMOUNT $ 104,968 $ 13,442 $ 33,909 $ 70,639 $ 32,951 $ 3,575 $ 38,396 $ 297,880
% OF LOANS TO TOTAL LOANS 32.2% 6.4% 10.9% 31.0% 14.9% 4.6% -- 100.0%
1999:
Amount $ 94,978 $ 15,452 $ 32,073 $ 78,655 $ 25,378 $ 4,804 $ 47,969 $ 299,309
% of Loans to Total Loans 30.5% 6.0% 10.4% 32.9% 13.3% 6.9% -- 100.0%
1998:
Amount $ 82,129 $ 11,112 $ 35,206 $ 104,198 $ 17,823 $ 4,864 $ 35,616 $ 290,948
% of Loans to Total Loans 31.0% 4.7% 11.5% 35.8% 9.8% 7.2% -- 100.0%
1997:
Amount $ 86,439 $ 8,140 $ 35,051 $ 75,405 $ 6,631 $ 3,547 $ 42,958 $ 258,171
% of Loans to Total Loans 29.7% 4.9% 12.6% 36.4% 8.7% 7.7% -- 100.0%
1996:
Amount $ 113,555 $ 2,033 $ 14,698 $ 54,564 $ 3,457 $ 4,289 $ 38,182 $ 230,778
% of Loans to Total Loans 30.6% 4.2% 12.8% 36.5% 7.1% 8.8% -- 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Non-interest income, excluding gains from investment security and loan
sales, was $456.5 million during the recent twelve months, compared with $452.1
million in 1999 and $398.9 million in 1998. Improvements in several key
non-interest income categories offset the impact of lower mortgage banking
income and the reduced level of credit card fees following the portfolio sale
last year. Brokerage and insurance income grew 19% during 2000 due to strong
mutual fund and annuity sales, primarily during the first half of the year, and
the JRD acquisition. Electronic banking fees grew 18% as a result of higher
customer usage of Huntington's check card product and the expansion of
Huntington's ATM network. The "Other" component of non-interest revenue includes
$6.9 million of income from the automobile loan securitization transactions
completed in 2000.
Investment security gains totaled $37.1 million for 2000, compared with
$13.0 million a year ago and $29.8 million in 1998. Sales by Huntington of
certain equity investments generated gross gains of $66.5 million in 2000
14
16
and $31.0 million last year. Substantially offsetting these gains in both years
were losses from the sale of lower yielding, fixed-income investment securities.
NON-INTEREST EXPENSE
Non-interest expense, before special charges, was $835.6 million in 2000,
compared with $815.3 million and $823.9 million in 1999 and 1998, respectively.
Higher facility and equipment costs related to the new operations center, which
opened in the fall of 1999, and other expansion-related activities contributed
to the growth in expenses in the recent year. Additionally, expenses were higher
in the second half of 2000, as Huntington made investments in technology and
personnel and acquired Empire and JRD to improve its competitive position and to
support revenue growth. Because of the above-mentioned factors, management
expects that non-interest expense in 2001 will increase from the 4th quarter
level.
SPECIAL CHARGES
Huntington recorded special charges totaling $50.0 million in the recent
year, $96.8 million in 1999, and $90.0 million in 1998. The $50.0 million charge
in 2000 and $58.2 million of the 1999 charge represent write-downs of residual
values related to Huntington's $3.0 billion vehicle lease portfolio. Of the
$108.2 million total charge, $71.4 million remained available at December 31,
2000, to cover estimated losses inherent in the portfolio. Based on management's
projections, the remaining amount is adequate to absorb the estimated impairment
losses in the portfolio at December 31, 2000. Additionally, Huntington has taken
actions, including no longer capitalizing the value of customer-added options,
that are expected to mitigate residual value exposure on new business.
The 1999 charge also included $38.6 million related to the company's
"Huntington 2000+" program as well as other one-time expenses, which included
amounts paid for management consulting and other professional services as well
as $11 million for a special cash award to employees for achievement of the
program goals for 1999. "Huntington 2000+" was a collaborative effort among all
employees to evaluate processes and procedures and the way Huntington conducts
its business with a mission of maximizing efficiency through all aspects of the
organization. The 1998 charge related to costs for several strategic actions
that enhanced profitability, including the sale or closure of underperforming
banking offices and the termination of certain business activities.
PROVISION FOR INCOME TAXES
The provision for income taxes was $131.4 million, $192.7 million, and
$138.4 million in each of the last three years. Huntington's effective tax rate
was 28.6% in 2000 versus approximately 31% in 1999 and 1998. Based on
information currently available, Huntington expects its 2001 effective tax rate
to remain under 30%.
- ------------------------------------------------------------------------------------------------------
TABLE 7 INVESTMENT SECURITIES
DECEMBER 31,
------------------------------------
(in thousands of dollars) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies $ -- $ -- $ 156
States and political subdivisions 16,336 18,765 24,778
---------- ---------- ----------
TOTAL INVESTMENT SECURITIES $ 16,336 $ 18,765 $ 24,934
========== ========== ==========
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE YIELD
- ------------------------------------------------------------------------------------------------------
States and political subdivisions
Under 1 year $ 3,139 $ 3,115 7.95%
1-5 years 10,536 10,578 7.66%
6-10 years 2,193 2,234 8.34%
Over 10 years 468 487 8.28%
---------- ----------
Total 16,336 16,414
---------- ----------
TOTAL INVESTMENT SECURITIES $ 16,336 $ 16,414
========== ==========
Note: Weighted average yields were calculated on the basis of amortized cost
and have been adjusted to a fully tax equivalent basis, assuming a 35%
tax rate.
15
17
INTEREST RATE RISK AND LIQUIDITY MANAGEMENT
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income and
net income while managing volatility arising from shifts in interest rates. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty, settlement, and market risks.
On
- -----------------------------------------------------------------------------------------
TABLE 8 SECURITIES AVAILABLE FOR SALE
DECEMBER 31,
---------------------------------------------
(in thousands of dollars) 2000 1999 1998
- ----------------------------------------------------------------------------------------
U.S. Treasury and Federal Agencies $3,284,031 $4,165,342 $4,096,134
Other 806,494 704,861 685,281
---------- ---------- ----------
TOTAL SECURITIES AVAILABLE FOR SALE $4,090,525 $4,870,203 $4,781,415
========== ========== ==========
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 2000
- --------------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE YIELD(1)
- --------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year $ 1,455 $ 1,466 6.17%
1-5 years 2,007 2,110 7.00%
6-10 years 6,407 6,706 5.73%
Over 10 years 413 446 6.25%
---------- ----------
Total 10,282 10,728
---------- ----------
Federal Agencies
Mortgage-backed securities
6-10 years 22,757 22,987 6.51%
Over 10 years 1,515,883 1,508,914 6.56%
---------- ----------
Total 1,538,640 1,531,901
---------- ----------
Other agencies
Under 1 year 20,000 19,913 6.62%
1-5 years 1,029,073 1,017,230 5.58%
6-10 years 146,376 144,313 6.53%
Over 10 years 566,760 559,946 6.23%
---------- ----------
Total 1,762,209 1,741,402
---------- ----------
Total U.S. Treasury and Federal Agencies 3,311,131 3,284,031
---------- ----------
Other
Under 1 year 21,098 20,826 8.77%
1-5 years 215,978 217,453 9.57%
6-10 years 88,872 87,415 8.13%
Over 10 years 403,730 388,731 6.55%
Marketable equity securities 87,674 92,069
---------- ----------
Total 817,352 806,494
---------- ----------
TOTAL SECURITIES AVAILABLE FOR SALE $4,128,483 $4,090,525
========== ==========
At December 31, 2000, Huntington had no concentrations of securities by a single
issuer in excess of 10% of shareholders' equity.
(1) Weighted average yields were calculated on the basis of amortized cost.
Marketable equity securities are excluded.
16
18
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-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.
At December 31, 2000, the results of Huntington's sensitivity analysis
indicated that net interest income would be expected to decline by approximately
1.4%, if rates rose 100 basis points and would drop an estimated 3.0%, in the
event of a gradual 200 basis point increase. If rates declined 100 and 200 basis
points, Huntington's net interest income would benefit 1.3% or 2.5%,
respectively. Huntington's recent analysis shows a meaningful reduction in
sensitivity to changing interest rates compared with year-end 1999, in which the
risk to net interest income of a 200 basis point increase was 4.7%. This
reduction is indicative of the balance sheet efficiency efforts described
previously.
Active interest rate risk management necessitates the use of various types
of off-balance sheet financial instruments, primarily interest rate swaps. Risk
that is created by different indices on products, by unequal terms to maturity
of assets and liabilities, and by products that are appealing to customers but
incompatible with current risk limits can be eliminated or decreased in a cost
efficient manner by utilizing interest rate swaps. Often, the swap strategy has
enabled Huntington to lower the overall cost of raising wholesale funds.
Similarly, financial futures, interest rate caps and floors, options, and
forward rate agreements are used to control financial risk effectively.
Off-balance sheet instruments are often preferable to similar cash instruments
because, though performing identically, they require less capital while
preserving access to the marketplace.
Table 9 illustrates the approximate market values, estimated maturities and
weighted average rates of the interest rate swaps used by Huntington in its
interest rate risk management program at December 31, 2000. As is the case with
cash securities, the market value of interest rate swaps is largely a function
of the financial market's expectations regarding the future direction of
interest rates. Accordingly, current market values are not necessarily
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 9 INTEREST RATE SWAP PORTFOLIO AT DECEMBER 31, 2000
ASSET CONVERSION SWAPS LIABILITY CONVERSION SWAPS
------------------------------------ ------------------------------------- BASIS
Receive- Pay- Receive- Pay- PROTECTION
(in millions of dollars) fixed fixed Total fixed fixed Total SWAPS
- ----------------------------------------------------------------------------------------------------------------------------
Notional value $ 1,275 $ 200 $1,475 $1,410 $ 3,410 $ 4,820 $ 200
Average maturity (years) 1.7 0.7 1.6 5.0 0.6 1.9 0.7
Market value $ (2.0) $ (0.3) $ (2.3) $ 22.3 $ (14.5) $ 7.8 $ 0.6
Average rate:
Receive 6.02% 6.65% 6.11% 6.51% 6.71% 6.65% 6.55%
Pay 6.72% 6.31% 6.67% 6.81% 6.71% 6.74% 6.60%
- ----------------------------------------------------------------------------------------------------------------------------
17
19
indicative of the future impact of the swaps on net interest income. This will
depend, in large part, on the shape of the yield curve as well as interest rate
levels. With respect to the variable rate information presented in Table 9,
management made no assumptions regarding future changes in interest rates.
The pay rates on Huntington's receive-fixed swaps vary based on movements
in the applicable London interbank offered rate (LIBOR). Receive-fixed asset
conversion swaps with notional values of $155 million have embedded written
LIBOR-based call options. Basis swaps are contracts that provide for both
parties to receive interest payments according to different rate indices and are
used to protect against changes in spreads between market rates.
The contractual amounts of interest payments to be exchanged are based on
the notional values of the swap portfolio. These notional values do not
represent direct credit exposures. At December 31, 2000, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$41.7 million, which represents the sum of the aggregate fair value of positions
that have become favorable to Huntington, including any accrued interest
receivable due from counterparties. In order to minimize the risk that a swap
counterparty will not satisfy its interest payment obligation under the terms of
the contract, Huntington performs credit reviews on all counterparties,
restricts the number of counterparties used to a select group of high quality
institutions, obtains collateral, and enters into formal netting arrangements.
Huntington has never experienced any past due amounts from a swap counterparty
and does not anticipate nonperformance in the future by any such counterparties.
At December 31, 2000, the total notional amount of off-balance sheet
instruments used by Huntington on behalf of customers (for which the related
interest rate risk is offset by third party contracts) was $1.1 billion. The
credit exposure from these contracts is not material and furthermore, these
separate activities, which are accounted for at fair value, are not a
significant part of Huntington's operations. Accordingly, they have been
excluded from the above discussion of off-balance sheet financial instruments
and the related table.
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The
objective of ALCO in this regard is to maintain an optimum balance of maturities
among Huntington's assets and liabilities such that sufficient cash, or access
to cash, is available at all times to meet the needs of borrowers, depositors,
and creditors, as well as to fund corporate expansion and other activities.
A chief source of Huntington's liquidity is derived from the large retail
deposit base accessible by its network of geographically dispersed banking
offices. This core funding is supplemented by Huntington's demonstrated ability
to raise funds in capital markets and to access funds nationwide. The bank
subsidiary's $6 billion domestic bank note and $2 billion European bank note
programs along with a similar $750 million note program at the parent company
are significant sources of wholesale funding. Under these programs unsecured
senior and subordinated notes are issuable with maturities ranging from one
month to thirty years. The proceeds from the parent's note program are used from
time to time to fund certain non-banking activities, finance acquisitions,
repurchase Huntington's common stock, or for other general corporate purposes.
At December 31, 2000, approximately $3.6 billion of notes were available under
these programs to fund Huntington's future activities. Huntington also has $300
million of capital securities outstanding through its subsidiaries, Huntington
Capital I and II. A $140 million line of credit is also available to the parent
holding company to support commercial paper borrowings and other short-term
working capital needs.
While liability sources are many, significant liquidity is also available
from Huntington's investment and loan portfolios. ALCO regularly monitors the
overall liquidity position of the business and ensures that various alternative
strategies exist to cover unanticipated events. At the end of the recent year,
management believes sufficient liquidity was available to meet estimated
short-term and long-term funding needs.
TABLE 10 MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
- -------------------------------------------------------------------------
(in thousands of dollars) December 31, 2000
- -------------------------------------------------------------------------
Three months or less $ 697,551
Over three through six months 284,293
Over six through twelve months 360,035
Over twelve months 434,774
----------
Total $1,776,653
==========
18
20
- ---------------------------------------------------------------------------------------------------------------------
TABLE 11 SHORT-TERM BORROWINGS
YEAR ENDED DECEMBER 31,
---------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end $ 1,822,480 $ 2,065,192 $ 2,137,374
Weighted average interest rate at year-end 5.91% 4.69% 4.05%
Maximum amount outstanding at month-end during the year $ 2,093,546 $ 3,033,277 $ 2,897,385
Average amount outstanding during the year $ 1,831,228 $ 2,417,032 $ 1,980,648
Weighted average interest rate during the year 5.68% 4.50% 4.72%
- ---------------------------------------------------------------------------------------------------------------------
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 $105.4 million at December 31, 2000, compared with $98.2
million at year-end 1999. As of the same dates, NPAs as a percent of total loans
and other real estate were .51% and .47%. Total NPAs are expected to increase
further in 2001 as deteriorating economic conditions adversely impact corporate
borrowers. Loans past due ninety days or more but continuing to accrue interest
increased to $80.3 million at December 31, 2000, versus $61.3 million last year.
This increase was approximately evenly distributed between commercial and
consumer lending.
CAPITAL AND DIVIDENDS
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. Capital is managed at each subsidiary based upon
the respective risks and growth opportunities, as well as regulatory
requirements.
Average shareholders' equity was $2.3 billion for the year ended December
31, 2000, compared with $2.1 billion last year. Huntington's ratio of average
equity to average assets in the recent year was 7.94% versus 7.47% one year ago.
On a period-end basis, the ratios were 8.27% and 7.52%. Excluding the unrealized
losses on securities available for sale, tangible equity to assets was 5.87% and
5.64% at the two recent year-ends.
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 December 31,
2000, Huntington's Tier 1 risk-based capital ratio was 7.19%, total risk-based
capital ratio was 10.46%, and the leverage ratio was 6.93%. Huntington's bank
subsidiary also had regulatory capital ratios in excess of the levels
established for well-capitalized institutions.
19
21
- -----------------------------------------------------------------------------------------------------
TABLE 12 NON-PERFORMING ASSETS AND PAST DUE LOANS
DECEMBER 31,
--------------------------------------------------------
(in thousands of dollars) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Non-accrual loans
Commercial $ 55,804 $ 42,958 $ 34,586 $ 36,459 $ 25,621
Real Estate
Construction 8,687 10,785 10,181 5,916 1,741
Commercial 18,015 16,131 13,243 10,212 14,843
Residential 10,174 11,866 14,419 13,394 12,835
-------- -------- -------- -------- --------
Total Non-accrual Loans 92,680 81,740 72,429 65,981 55,040
Renegotiated loans 1,304 1,330 4,706 5,822 4,422
-------- -------- -------- -------- --------
TOTAL NON-PERFORMING LOANS 93,984 83,070 77,135 71,803 59,462
-------- -------- -------- -------- --------
Other real estate, net 11,413 15,171 18,964 15,343 17,208
-------- -------- -------- -------- --------
TOTAL NON-PERFORMING ASSETS $105,397 $ 98,241 $ 96,099 $ 87,146 $ 76,670
======== ======== ======== ======== ========
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $ 80,306 $ 61,287 $ 51,037 $ 49,608 $ 39,267
======== ======== ======== ======== ========
NON-PERFORMING LOANS AS A % OF TOTAL LOANS 0.46% 0.40% 0.40% 0.40% 0.35%
NON-PERFORMING ASSETS AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE 0.51% 0.47% 0.49% 0.49% 0.46%
ALLOWANCE FOR LOAN LOSSES AS A % OF NON-
PERFORMING LOANS 316.95% 360.31% 377.19% 359.55% 388.11%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 279.16% 299.85% 301.00% 294.32% 297.12%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE TO
TOTAL LOANS 0.39% 0.30% 0.26% 0.28% 0.23%
Note: For 2000, the amount of interest income which would have been recorded
under the original terms for total loans classified as non-accrual or
renegotiated was $6.5 million. Amounts actually collected and recorded as
interest income for these loans totaled $3.9 million.
- --------------------------------------------------------------------------------
A 10% stock dividend was distributed to shareholders in the year just
ended. Cash dividends declared, as restated for the impact of the stock
dividend, were $.76 a share in 2000, up 12% from 1999.
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. The shares will be repurchased in the open
market and in privately negotiated transactions. 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 December 31, 2000,
approximately 15.3 million shares remained available under the authorization.
Huntington has not repurchased any shares since September 30, 2000, as
management continues to review its capital management strategy, including future
share repurchases.
20
22
RESULTS FOR THE FOURTH QUARTER
Operating earnings for the fourth quarter of 2000 were $76.2 million, or
$.30 per share, compared with $107.3 million, or $.42 per share, for the last
three months of 1999. The 1999 results exclude the impact of the $70.6 million
after-tax gain on the sale of Huntington's credit card portfolio and the $62.9
million after-tax special charge. Related ROE was 12.89% and 20.20% for these
periods and ROA was 1.06% and 1.47%, respectively.
Net interest income was $233.1 million in the recent quarter, an 8% decline
from the comparable period last year. The net interest margin was 3.70% versus
3.94% in the fourth quarter of 1999. These declines reflect the impact of higher
short-term interest rates and, as previously mentioned, the changing mix of
Huntington's core deposit base to more expensive products throughout the year.
After adjusting for the impact of acquisitions, securitization activity,
and asset sales, average total loans grew 9% over the fourth quarter last year.
Growth in the consumer portfolio was particularly strong at 14%, with the
largest increases in home equity lending at 24% and indirect automobile
financing at 14%. Commercial loans and commercial real estate loans grew 3% and
4%, respectively. Core deposits were at the same level as last year's fourth
quarter.
The provision for loan losses increased $12.5 million over last year, $9.2
million of which was due to higher net charge-offs and $3.3 million related to
loan growth. Annualized net charge-offs increased to .50% of average loans
during the last quarter of 2000 versus .32% in the same period a year ago.
Though higher than the comparable period last year, charge-offs were in line
with management's expectations, and reflect broader industry trends as economic
conditions deteriorated in the latter part of 2000.
Excluding securities gains and the gain from the 1999 sale of credit card
receivables, non-interest income for the fourth quarter of 2000 was $129.7
million, up 13% from $114.3 million one year ago. Increases in most major
categories offset the decline in service charges on deposit accounts and the
reduction in credit card fees following the portfolio sale. The largest
increases were in brokerage and insurance income, which grew nearly 28% as a
result of the JRD acquisition, and the "Other" component of non-interest
revenue, which included $10.0 million of income from the automobile loan
securitizations. Electronic banking fees were also up 15% from continued
increases in check card fees.
Non-interest expense, excluding special charges, was $223.9 million in the
recent three months, compared with $204.9 million in the same period a year ago.
Approximately $7 million of expenses related to acquisitions and unusually high
operational losses drove the increase. Several other categories were also up
during the period.
SUBSEQUENT EVENT
On March 7, 2001, Huntington National Bank, Huntington's subsidiary bank,
announced that the Huntington Money Market Fund had sold commercial paper and
realized a $4.2 million loss. The loss will be reimbursed by Huntington and will
not affect the Huntington Fund's shareholders or share price. The $4.2 million
pre-tax loss will be reflected in Huntington's first quarter 2001 financial
results.
21
23
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------ -----------------------------------------
INTEREST INTEREST
Fully Tax Equivalent Basis (1) AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(in millions of dollars) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ----------------------------------------------- ------------------------------------------ -----------------------------------------
ASSETS
Interest bearing deposits in banks $ 6 $ 0.3 5.03 % $ 9 $ 0.4 4.04 %
Trading account securities 15 1.1 7.11 13 0.8 5.89
Federal funds sold and securities purchased
under resale agreements 87 5.5 6.33 22 1.2 5.58
Mortgages held for sale 109 8.7 7.96 232 16.3 7.03
Securities:
Taxable 4,316 269.5 6.24 4,885 297.0 6.08
Tax exempt 273 20.8 7.61 297 23.5 7.90
-------------- ------------ ------------ -------------
Total Securities 4,589 290.3 6.33 5,182 320.5 6.18
-------------- ------------ ------------ -------------
Loans:
Commercial 6,446 553.2 8.58 6,128 483.4 7.89
Real Estate
Construction 1,270 110.7 8.72 1,064 86.1 8.09
Commercial 2,187 185.7 8.49 2,235 181.6 8.13
Consumer
Loans 6,546 562.4 8.59 6,938 575.7 8.30
Leases 2,924 197.9 6.77 2,299 154.5 6.72
Residential Mortgage 1,296 99.6 7.69 1,425 107.0 7.51
-------------- ------------ ------------ -------------
Total Consumer 10,766 859.9 7.97 10,662 837.2 7.85
-------------- ------------ ------------ -------------
Total Loans 20,669 1,709.5 8.27 20,089 1,588.3 7.91
-------------- ------------ ------------ -------------
Allowance for loan losses/loan fees 303 101.4 301 107.9
-------------- ------------ ------------ -------------
Net loans (2) 20,366 1,810.9 8.76 19,788 1,696.2 8.44
-------------- ------------ ------------ -------------
Total earning assets 25,475 2,116.8 8.31 % 25,547 2,035.4 7.97 %
-------------- ------------ ------------ -------------
Cash and due from banks 1,008 1,039
All other assets 2,541 2,454
-------------- ------------
TOTAL ASSETS $ 28,721 $ 28,739
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits $ 3,421 $ 3,497
Interest bearing demand deposits 4,291 144.0 3.36 % 4,097 106.5 2.60 %
Savings deposits 3,563 146.4 4.11 3,740 126.0 3.37
Certificates of deposit 7,374 425.8 5.78 7,272 375.7 5.17
-------------- ------------ ------------ -------------
Total core deposits 18,649 716.2 4.70 18,606 608.2 4.03
-------------- ------------ ------------ -------------
Other domestic time deposits 502 31.9 6.35 238 12.8 5.40
Foreign time deposits 539 34.0 6.31 363 18.6 5.14
-------------- ------------ ------------ -------------
Total deposits 19,690 782.1 4.81 19,207 639.6 4.07
-------------- ------------ ------------ -------------
Short-term borrowings 1,966 113.1 5.75 2,549 114.3 4.48
Medium-term notes 2,894 189.3 6.54 3,122 170.0 5.45
Subordinated notes and other long-term debt,
including capital securities 1,124 81.6 7.26 1,003 60.3 6.01
-------------- ------------ ------------ -------------
Total interest bearing liabilities 22,253 1,166.1 5.24 % 22,384 984.2 4.40 %
-------------- ------------ ------------ -------------
All other liabilities 768 711
Shareholders' equity 2,279 2,147
-------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,721 $ 28,739
============== ============
Net interest rate spread 3.07 % 3.57 %
Impact of non-interest bearing funds on margin 0.66 % 0.54 %
NET INTEREST MARGIN $ 950.7 3.73 % $ 1,051.2 4.11 %
============ =============
(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. Individual components include non-accrual loan
balances and related interest received.
22
24
------------------------------------------------------------------------------------
1998 1997
----------------------------------------- ------------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------------------------------------- ------------------------------------------
$ 10 $ 1.0 5.22 % $ 9 $ 0.5 5.47 %
11 0.6 5.71 10 0.6 5.70
229 12.9 5.64 44 2.4 5.50
289 20.2 6.99 131 10.1 7.75
4,896 308.8 6.31 5,351 339.8 6.35
247 21.9 8.83 264 25.3 9.55
-------------- ------------- ------------- -------------
5,143 330.7 6.43 5,615 365.1 6.50
-------------- ------------- ------------- -------------
5,629 469.0 8.33 5,302 456.6 8.61
829 71.7 8.65 813 73.8 8.85
2,304 199.6 8.66 2,251 200.6 8.91
6,679 593.9 8.89 6,299 574.8 9.12
1,693 120.1 7.09 1,406 106.7 7.59
1,300 104.6 8.04 1,510 126.3 8.28
-------------- ------------- ------------- -------------
9,672 818.6 8.46 9,215 807.8 8.77
-------------- ------------- ------------- -------------
18,434 1,558.9 8.46 17,581 1,538.8 8.75
-------------- ------------- ------------- -------------
280 85.4 252 75.8
-------------- ------------- ------------- -------------
18,154 1,644.3 8.92 17,329 1,614.6 9.18
-------------- ------------- ------------- -------------
24,116 2,009.7 8.33 % 23,390 1,993.3 8.52 %
-------------- ------------- ------------- -------------
975 910
2,081 1,103
-------------- -------------
$ 26,892 $ 25,151
============== =============
$ 3,287 $ 2,774
3,585 96.4 2.69 % 3,204 84.4 2.64 %
3,277 114.0 3.48 3,056 100.4 3.28
7,979 445.6 5.58 7,414 417.3 5.63
-------------- ------------- ------------- -------------
18,128 656.0 4.42 16,448 602.1 4.40
-------------- ------------- ------------- -------------
182 10.5 5.82 365 21.8 5.97
103 5.9 5.66 382 22.2 5.81
-------------- ------------- ------------- -------------
18,413 672.4 4.44 17,195 646.1 4.48
-------------- ------------- ------------- -------------
2,084 97.7 4.69 2,826 146.4 5.18
2,903 164.6 5.67 1,983 116.2 5.86
876 43.6 4.98 739 45.5 6.16
-------------- ------------- ------------- -------------
20,989 978.3 4.66 % 19,969 954.2 4.78 %
-------------- ------------- ------------- -------------
552 514
2,064 1,894
-------------- -------------
$ 26,892 $ 25,151
============== =============
3.67 % 3.74 %
0.61 % 0.70 %
$ 1,031.4 4.28 % $ 1,039.1 4.44 %
============= =============
-------------------------------------------------------------------------------------
1996 1995
----------------------------------------- -------------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------------------------------------- -------------------------------------------
$ 14 $ 0.8 5.85 % $ 26 $ 1.6 5.99 %
16 0.9 5.66 23 1.6 7.29
67 3.8 6.03 93 5.6 6.10
113 8.7 7.74 133 10.0 7.58
5,194 333.7 6.42 4,679 310.7 6.64
291 27.9 9.59 342 33.2 9.73
------------ ------------- ------------- ------------
5,485 361.6 6.59 5,021 343.9 6.85
------------ ------------- ------------- ------------
4,955 396.9 8.01 4,703 403.3 8.58
580 50.7 8.75 473 41.6 8.79
2,129 189.3 8.89 1,646 145.1 8.82
5,880 528.4 8.99 5,508 494.2 8.97
950 74.8 7.87 657 51.0 7.76
1,485 123.0 8.28 2,188 183.0 8.36
------------ ------------- ------------- ------------
8,315 726.2 8.73 8,353 728.2 8.72
------------ ------------- ------------- ------------
15,979 1,363.1 8.53 15,175 1,318.2 8.69
------------ ------------- ------------- ------------
231 49.2 227 43.4
------------ ------------- ------------- ------------
15,748 1,412.3 8.84 14,948 1,361.6 8.97
------------ ------------- ------------- ------------
21,674 1,788.1 8.26 % 20,471 1,724.3 8.43 %
------------ ------------- ------------- ------------
901 883
1,031 972
------------ -------------
$ 23,375 $ 22,099
============ =============
$ 2,664 $ 2,477
3,068 80.2 2.61 % 2,815 68.6 2.44 %
2,836 86.3 3.04 2,666 77.9 2.92
6,959 394.3 5.67 6,635 374.0 5.64
------------ ------------- ------------- ------------
15,527 560.8 4.36 14,593 520.5 4.30
------------ ------------- ------------- ------------
28 1.5 5.36 16 1.1 6.88
305 18.4 6.03 262 17.0 6.50
------------ ------------- ------------- ------------
15,860 580.7 4.40 14,871 538.6 4.34
------------ ------------- ------------- ------------
2,883 149.1 5.17 2,422 138.1 5.70
1,835 120.2 6.55 2,103 146.4 6.96
516 30.7 5.96 529 33.8 6.38
------------ ------------- ------------- ------------
18,430 880.7 4.78 % 17,448 856.9 4.91 %
------------ ------------- ------------- ------------
505 432
1,776 1,742
------------ -------------
$ 23,375 $ 22,099
============ =============
3.48 % 3.52 %
0.71 % 0.72 %
$ 907.4 4.19 % $ 867.4 4.24 %
============= ============
23
25
SELECTED ANNUAL INCOME STATEMENT DATA
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(in thousands of dollars, ---------------------------------------------------------------------------
except per share amounts) 2000 1999 1998 1997 1996 1995
- ------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST INCOME $2,108,505 $2,026,002 $1,999,364 $1,981,473 $1,775,734 $1,709,627
TOTAL INTEREST EXPENSE 1,166,073 984,240 978,271 954,243 880,648 856,860
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME 942,432 1,041,762 1,021,093 1,027,230 895,086 852,767
Provision for loan losses 90,479 88,447 105,242 107,797 76,371 36,712
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 851,953 953,315 915,851 919,433 818,715 816,055
---------- ---------- ---------- ---------- ---------- ----------
Service charges on deposit accounts 160,727 156,315 126,403 117,852 107,669 97,505
Brokerage and insurance income 61,871 52,076 36,710 27,084 20,856 17,979
Trust services 53,613 52,030 50,754 48,102 42,237 37,627
Electronic banking fees 43,883 37,301 29,202 22,705 12,013 6,190
Bank Owned Life Insurance income 39,544 37,560 28,712 -- -- --
Mortgage banking 38,025 56,890 60,006 55,715 43,942 39,309
Credit card fees 6,985 23,314 21,909 20,467 23,086 18,757
Other 51,810 36,587 45,181 42,936 46,640 48,343
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
AND CREDIT CARD PORTFOLIO SALE GAINS 456,458 452,073 398,877 334,861 296,443 265,710
---------- ---------- ---------- ---------- ---------- ----------
Securities gains 37,101 12,972 29,793 7,978 17,620 9,380
Gains on sale of credit card portfolios -- 108,530 9,530 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME 493,559 573,575 438,200 342,839 314,063 275,090
---------- ---------- ---------- ---------- ---------- ----------
Personnel and related costs 421,750 419,901 428,539 392,793 360,865 344,905
Equipment 78,069 66,666 62,040 57,867 50,887 44,646
Net occupancy 75,882 62,169 54,123 49,509 49,676 47,824
Outside data processing and other services 62,011 62,886 74,795 66,683 58,367 53,582
Amortization of intangible assets 39,207 37,297 25,689 13,019 10,220 9,471
Marketing 34,884 32,506 32,260 32,782 20,331 17,598
Telecommunications 26,225 28,519 29,429 21,527 16,567 13,946
Legal and other professional services 20,819 21,169 25,160 24,931 20,313 18,656
Printing and supplies 19,634 20,227 23,673 21,584 19,602 18,103
Franchise and other taxes 11,077 14,674 22,103 19,836 20,359 17,083
Other 46,059 49,314 46,118 51,414 48,323 76,247
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL
CHARGES 835,617 815,328 823,929 751,945 675,510 662,061
---------- ---------- ---------- ---------- ---------- ----------
Special charges 50,000 96,791 90,000 51,163 -- --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 885,617 912,119 913,929 803,108 675,510 662,061
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 459,895 614,771 440,122 459,164 457,268 429,084
Provision for income taxes 131,449 192,697 138,354 166,501 152,999 147,283
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME $ 328,446 $ 422,074 $ 301,768 $ 292,663 $ 304,269 $ 281,801
========== ========== ========== ========== ========== ==========
PER COMMON SHARE (1)
Net income
Basic $ 1.32 $ 1.66 $ 1.18 $ 1.15 $ 1.19 $ 1.07
Diluted $ 1.32 $ 1.65 $ 1.17 $ 1.14 $ 1.18 $ 1.06
Cash dividends declared $ 0.76 $ 0.68 $ 0.62 $ 0.56 $ 0.51 $ 0.46
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income $ 942,432 $1,041,762 $1,021,093 $1,027,230 $ 895,086 $ 852,767
Tax Equivalent Adjustment (2) 8,310 9,423 10,307 11,864 12,363 14,602
---------- ---------- ---------- ---------- ---------- ----------
Tax Equivalent Net Interest Income $ 950,742 $1,051,185 $1,031,400 $1,039,094 $ 907,449 $ 867,369
========== ========== ========== ========== ========== ==========
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate.
24
26
MARKET PRICES, KEY RATIOS, AND STATISTICS (QUARTERLY DATA)
- -----------------------------------------------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
- -----------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- --------------------------------------------
4 Q 3 Q 2 Q 1 Q 4 Q 3 Q 2 Q 1 Q
-------------------------------------------- --------------------------------------------
High $ 16.375 $ 18.813 $ 21.307 $ 21.818 $ 27.955 $ 30.785 $ 30.888 $ 27.686
Low 12.516 14.375 14.091 16.136 19.489 22.443 25.155 24.690
Close 16.188 14.688 14.375 20.341 21.705 24.148 28.926 25.568
Cash dividends declared $ 0.20 $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.16 $ 0.16
Note: Stock price quotations were obtained from NASDAQ.
- -----------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS (1)
- -----------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- --------------------------------------------
4 Q 3 Q 2 Q 1 Q 4 Q 3 Q 2 Q 1 Q
-------------------------------------------- --------------------------------------------
MARGIN ANALYSIS - AS A %
OF AVERAGE EARNING ASSETS (2)
Interest Income 8.47% 8.43% 8.27% 8.08% 7.98% 8.07% 7.87% 7.98%
Interest Expense 4.77% 4.69% 4.55% 4.30% 4.04% 3.85% 3.73% 3.80%
-------- -------- -------- -------- -------- -------- -------- --------
Net Interest Margin 3.70% 3.74% 3.72% 3.78% 3.94% 4.22% 4.14% 4.18%
======== ======== ======== ======== ======== ======== ======== ========
RETURN ON (3)
Average total assets 1.06% 1.15% 1.37% 1.45% 1.47% 1.45% 1.47% 1.38%
Average total
assets - cash basis 1.21% 1.30% 1.51% 1.58% 1.61% 1.59% 1.61% 1.52%
Average shareholders' equity 12.89% 14.04% 17.79% 18.99% 20.20% 19.07% 19.48% 18.47%
Average shareholders'
equity - cash basis 21.14% 22.74% 27.26% 29.01% 31.59% 29.54% 30.61% 29.58%
Efficiency ratio (3) 58.48% 58.38% 53.90% 53.93% 52.97% 51.02% 50.93% 52.16%
- -----------------------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- --------------------------------------------
(in millions of dollars) 4 Q 3 Q 2 Q 1 Q 4 Q 3 Q 2 Q 1 Q
- ----------------------------------------------------------------------------- --------------------------------------------
Total Risk-Adjusted Assets $ 26,880 $ 26,370 $ 25,900 $ 25,251 $ 25,298 $ 25,309 $ 24,829 $ 24,345
Ratios:
Tier 1 Risk-Based Capital 7.19% 7.20% 7.40% 7.23% 7.52% 7.32% 7.29% 7.20%
Total Risk-Based Capital 10.46% 10.64% 10.90% 10.90% 10.72% 10.62% 10.65% 10.70%
Tier 1 Leverage 6.93% 6.80% 6.89% 6.45% 6.72% 6.58% 6.45% 6.32%
- -----------------------------------
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
(3) Presented on an "operating" basis (excludes special charges and gains from
sale of credit card portfolios, net of taxes).
25
27
SELECTED QUARTERLY INCOME STATEMENT DATA
- --------------------------------------------------------------------------------
2000 1999
(in thousands of dollars, ----------------------------------------- -----------------------------------------
except per share amounts) 4 Q 3 Q 2 Q 1 Q 4 Q 3 Q 2 Q 1 Q
- -------------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME $537,661 $535,791 $519,496 $515,557 $515,516 $516,294 $498,500 $495,692
TOTAL INTEREST EXPENSE 304,595 299,922 286,690 274,866 262,854 247,863 237,352 236,171
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME 233,066 235,869 232,806 240,691 252,662 268,431 261,148 259,521
Provision for loan losses 32,548 26,396 15,834 15,701 20,040 22,076 21,026 25,305
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 200,518 209,473 216,972 224,990 232,622 246,355 240,122 234,216
-------- -------- -------- -------- -------- -------- -------- --------
Service charges on deposit accounts 39,248 39,722 40,097 41,660 42,774 41,700 36,065 35,776
Brokerage and insurance income 17,078 15,564 13,945 15,284 13,373 14,620 12,540 11,543
Trust services 14,404 13,181 13,165 12,863 12,828 12,625 13,143 13,434
Mortgage banking 11,976 9,412 8,122 8,515 9,426 14,282 17,224 15,958
Electronic banking fees 11,546 11,238 11,250 9,849 10,082 9,771 9,410 8,038
Bank Owned Life Insurance income 11,086 9,786 9,486 9,186 9,390 9,390 9,390 9,390
Credit card fees 2,108 1,744 1,340 1,793 5,091 6,626 6,255 5,342
Other 22,258 9,626 18,145 1,781 11,374 6,103 11,029 8,081
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES
AND CREDIT CARD PORTFOLIO SALE GAINS 129,704 110,273 115,550 100,931 114,338 115,117 115,056 107,562
-------- -------- -------- -------- -------- -------- -------- --------
Securities gains 845 11,379 114 24,763 7,905 537 2,220 2,310
Gains on sale of credit card portfolio -- -- -- -- 108,530 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME 130,549 121,652 115,664 125,694 230,773 115,654 117,276 109,872
-------- -------- -------- -------- -------- -------- -------- --------
Personnel and related costs 105,810 109,463 104,133 102,344 100,654 104,730 107,263 107,254
Equipment 20,811 18,983 18,863 19,412 18,161 16,059 15,573 16,873
Net occupancy 18,614 19,520 18,613 19,135 17,890 16,799 13,563 13,917
Outside data processing and other services 16,142 15,531 15,336 15,002 15,642 15,929 15,923 15,392
Marketing 10,592 8,557 7,742 7,993 9,642 9,049 7,319 6,496
Amortization of intangible assets 10,494 10,311 9,206 9,196 9,307 9,326 9,336 9,328
Legal and other professional services 6,785 4,719 4,815 4,500 5,868 4,754 5,803 4,744
Telecommunications 6,524 6,480 6,472 6,749 7,108 7,412 6,935 7,064
Printing and supplies 5,212 4,849 4,956 4,617 5,483 5,254 4,734 4,756
Franchise and other taxes 3,163 2,841 2,635 2,438 2,708 3,598 3,981 4,387
Other 19,703 12,331 5,305 8,720 12,432 13,279 11,708 11,895
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE BEFORE
SPECIAL CHARGES 223,850 213,585 198,076 200,106 204,895 206,189 202,138 202,106
-------- -------- -------- -------- -------- -------- -------- --------
Special charges -- 50,000 -- -- 96,791 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 223,850 263,585 198,076 200,106 301,686 206,189 202,138 202,106
-------- -------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 107,217 67,540 134,560 150,578 161,709 155,820 155,260 141,982
Provision for income taxes 30,995 17,010 37,039 46,405 46,769 50,233 50,285 45,410
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME $ 76,222 $ 50,530 $ 97,521 $104,173 $114,940 $105,587 $104,975 $ 96,572
======== ======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income--Diluted $ 0.30 $ 0.20 $ 0.40 $ 0.42 $ 0.45 $ 0.41 $ 0.41 $ 0.38
Cash Dividends Declared $ 0.20 $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.16 $ 0.16
OPERATING RESULTS (2)
Net income $ 76,222 $ 83,030 $ 97,521 $104,173 $107,310 $105,587 $104,975 $ 96,572
Net income per common share
Diluted $ 0.30 $ 0.33 $ 0.40 $ 0.42 $ 0.42 $ 0.41 $ 0.41 $ 0.38
Diluted - Cash Basis (3) $ 0.34 $ 0.36 $ 0.43 $ 0.45 $ 0.45 $ 0.44 $ 0.44 $ 0.41
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Excludes special charges and gains on sale of credit card portfolio, net of
related taxes.
(3) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles.
26
28
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information required by this item is set forth in Item 7 on pages 16
through 18 under the caption "Interest Rate Risk and Liquidity Management."
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of Huntington is responsible for the financial information
and representations contained in the consolidated financial statements and other
sections of this report. The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States. In all material respects, they reflect the substance of
transactions that should be included based on informed judgments, estimates, and
currently available information.
Huntington maintains accounting and other control systems which, in the
opinion of management, provide reasonable assurance that (1) transactions are
properly recorded on the books and records, and (2) that the assets are properly
safeguarded. The systems of internal accounting controls include the careful
selection and training of qualified personnel, appropriate segregation of
responsibilities, communication of written policies and procedures, and a broad
program of internal audits. The costs of the controls are balanced against the
expected benefits. During 2000, the Audit Committee of the Board of Directors
met regularly with management, Huntington's internal auditors, and the
independent auditors, Ernst & Young LLP, to review the scope of the audits and
to discuss the evaluation of internal accounting controls and financial
reporting matters. The independent and internal auditors have free access to and
meet confidentially with the Audit Committee to discuss appropriate matters.
The independent auditors are responsible for expressing an informed
judgment as to whether the consolidated financial statements present fairly, in
accordance with accounting principles generally accepted in the United States,
the financial position, results of operations and cash flows of Huntington. They
obtained an understanding of Huntington's internal accounting controls and
conducted such tests and related procedures as they deemed necessary to provide
reasonable assurance, giving due consideration to materiality, that the
consolidated financial statements contain neither misleading nor erroneous data.
Their report appears below.
/s/ Frank Wobst /s/ Michael J. McMennamin
- -------------------------------- -------------------------------------------
Frank Wobst Michael J. McMennamin
Chairman Vice Chairman, Chief Financial Officer, and
Treasurer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Huntington Bancshares Incorporated
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntington
Bancshares Incorporated and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Columbus, Ohio
January 18, 2001
27
29
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
----------------------------
(in thousands of dollars) 2000 1999
- -------------------------------------------------------------------- ------------ ------------
ASSETS
Cash and due from banks $ 1,322,700 $ 1,208,004
Interest bearing deposits in banks 4,970 6,558
Trading account securities 4,723 7,975
Federal funds sold and securities purchased under resale agreements 133,183 20,877
Mortgages held for sale 155,104 141,723
Securities available for sale - at fair value 4,090,525 4,870,203
Investment securities - fair value $16,414 and $18,662, respectively 16,336 18,765
Total loans, net of unearned income 20,610,191 20,668,437
Less allowance for loan losses 297,880 299,309
------------ ------------
Net loans 20,312,311 20,369,128
------------ ------------
Bank owned life insurance 804,941 765,399
Premises and equipment 454,844 438,871
Customers' acceptance liability 17,366 17,167
Accrued income and other assets 1,282,374 1,172,283
------------ ------------
TOTAL ASSETS $ 28,599,377 $ 29,036,953
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Interest bearing $ 16,272,279 $ 16,266,283
Non-interest bearing 3,504,966 3,526,320
------------ ------------
Total Deposits 19,777,245 19,792,603
------------ ------------
Short-term borrowings 1,987,759 2,121,989
Bank acceptances outstanding 17,366 17,167
Medium-term notes 2,467,150 3,254,150
Subordinated notes and other long-term debt 870,976 697,677
Company obligated mandatorily redeemable preferred capital
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company 300,000 300,000
Accrued expenses and other liabilities 812,834 671,011
------------ ------------
Total Liabilities 26,233,330 26,854,597
------------ ------------
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 and 233,844,820
shares, respectively; outstanding 250,859,470 and
228,888,221 shares, respectively 2,493,645 2,284,956
Less 7,006,765 and 4,956,599 treasury shares, respectively (129,432) (137,268)
Accumulated other comprehensive loss (24,520) (94,093)
Retained earnings 26,354 128,761
------------ ------------
Total Shareholders' Equity 2,366,047 2,182,356
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,599,377 $ 29,036,953
============ ============
See notes to consolidated financial statements.
28
30
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
TWELVE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------
(in thousands of dollars, except per share amounts) 2000 1999 1998
- ------------------------------------------------------- ----------------- ----------------- -----------------
Interest and fee income
Loans $ 1,808,254 $ 1,693,379 $ 1,641,081
Securities 284,719 314,061 323,595
Other 15,532 18,562 34,688
----------------- ----------------- -----------------
TOTAL INTEREST INCOME 2,108,505 2,026,002 1,999,364
----------------- ----------------- -----------------
Interest expense
Deposits 782,076 639,605 672,433
Short-term borrowings 113,134 114,289 97,656
Medium-term notes 189,311 170,061 164,590
Subordinated notes and other long-term debt 81,552 60,285 43,592
----------------- ----------------- -----------------
TOTAL INTEREST EXPENSE 1,166,073 984,240 978,271
----------------- ----------------- -----------------
NET INTEREST INCOME 942,432 1,041,762 1,021,093
Provision for loan losses 90,479 88,447 105,242
----------------- ----------------- -----------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 851,953 953,315 915,851
----------------- ----------------- -----------------
Total non-interest income 493,559 573,575 438,200
Total non-interest expense 885,617 912,119 913,929
----------------- ----------------- -----------------
INCOME BEFORE INCOME TAXES 459,895 614,771 440,122
Provision for income taxes 131,449 192,697 138,354
----------------- ----------------- -----------------
NET INCOME $ 328,446 $ 422,074 $ 301,768
================= ================= =================
PER COMMON SHARE
Net income
Basic $1.32 $1.66 $1.18
Diluted $1.32 $1.65 $1.17
Cash dividends declared $0.76 $0.68 $0.62
AVERAGE COMMON SHARES
Basic 248,708,965 253,559,501 255,825,970
Diluted 249,570,098 255,646,520 258,279,601
See notes to consolidated financial statements.
29
31
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
COMMON TREASURY
--------------------------- ---------------------------
(in thousands, except per share amounts) SHARES STOCK SHARES STOCK
- ---------------------------------------------------------- ----------- ------------ ----------- -----------
BALANCE -- JANUARY 1, 1998 193,279 $ 1,933,003 (1,543) $ (36,791)
Comprehensive Income:
Net income
Unrealized net holding gains on securities
available for sale arising during the period
Total comprehensive income
Stock issued for acquisition (3,815) 160 3,883
Cash dividends declared ($0.62 per share)
Stock options exercised (10,348) 736 14,350
10% stock dividend 19,317 218,871 (83)
Treasury shares purchased (1,139) (31,192)
Treasury shares sold to employee benefit plans 204 19 479
-------- ------------ ----------- -----------
BALANCE -- DECEMBER 31, 1998 212,596 2,137,915 (1,850) (49,271)
-------- ------------ ----------- -----------
Comprehensive Income:
Net income
Unrealized net holding losses on securities
available for sale arising during the period
Total comprehensive income
Cash dividends declared ($0.68 per share)
Stock options exercised (5,543) 329 9,251
10% stock dividend 21,249 152,584 (304)
Treasury shares purchased (3,156) (97,957)
Treasury shares sold to employee benefit plans 24 709
-------- ------------ ----------- -----------
BALANCE -- DECEMBER 31, 1999 233,845 2,284,956 (4,957) (137,268)
-------- ------------ ----------- -----------
COMPREHENSIVE INCOME:
NET INCOME
UNREALIZED NET HOLDING GAINS ON SECURITIES
AVAILABLE FOR SALE ARISING DURING THE PERIOD
TOTAL COMPREHENSIVE INCOME
STOCK ISSUED FOR ACQUISITIONS (29,399) 7,175 171,781
CASH DIVIDENDS DECLARED ($0.76 PER SHARE)
STOCK OPTIONS EXERCISED (3,395) 115 3,751
10% STOCK DIVIDEND 24,021 241,483 (1,182)
TREASURY SHARES PURCHASED (8,188) (168,395)
TREASURY SHARES SOLD TO EMPLOYEE BENEFIT PLANS 30 699
-------- ------------ ----------- -----------
BALANCE -- DECEMBER 31, 2000 257,866 $ 2,493,645 (7,007) $ (129,432)
======== ============ =========== ===========
ACCUMULATED
OTHER
COMPREHENSIVE RETAINED
(in thousands, except per share amounts) INCOME EARNINGS TOTAL
- ---------------------------------------------------------- -------------- ---------- -----------
BALANCE -- JANUARY 1, 1998 $ 14,800 114,379 $ 2,025,391
Comprehensive Income:
Net income 301,768 301,768
Unrealized net holding gains on securities
available for sale arising during the period 9,893 9,893
------------
Total comprehensive income 311,661
------------
Stock issued for acquisition 68
Cash dividends declared ($0.62 per share) (161,447) (161,447)
Stock options exercised 4,002
10% stock dividend (219,242) (371)
Treasury shares purchased (31,192)
Treasury shares sold to employee benefit plans 683
---------- --------- ------------
BALANCE -- DECEMBER 31, 1998 24,693 35,458 2,148,795
---------- --------- ------------
Comprehensive Income:
Net income 422,074 422,074
Unrealized net holding losses on securities
available for sale arising during the period (118,786) (118,786)
------------
Total comprehensive income 303,288
------------
Cash dividends declared ($0.68 per share) (175,836) (175,836)
Stock options exercised 3,708
10% stock dividend (152,935) (351)
Treasury shares purchased (97,957)
Treasury shares sold to employee benefit plans 709
---------- --------- ------------
BALANCE -- DECEMBER 31, 1999 (94,093) 128,761 2,182,356
---------- --------- ------------
COMPREHENSIVE INCOME:
NET INCOME 328,446 328,446
UNREALIZED NET HOLDING GAINS ON SECURITIES
AVAILABLE FOR SALE ARISING DURING THE PERIOD 69,573 69,573
------------
TOTAL COMPREHENSIVE INCOME 398,019
------------
STOCK ISSUED FOR ACQUISITIONS 142,382
CASH DIVIDENDS DECLARED ($0.76 PER SHARE) (189,191) (189,191)
STOCK OPTIONS EXERCISED 356
10% STOCK DIVIDEND (241,662) (179)
TREASURY SHARES PURCHASED (168,395)
TREASURY SHARES SOLD TO EMPLOYEE BENEFIT PLANS 699
---------- --------- ------------
BALANCE -- DECEMBER 31, 2000 $ (24,520) $ 26,354 $ 2,366,047
========== ========= ============
See notes to consolidated financial statements.
30
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------
(in thousands of dollars) 2000 1999 1998
- ------------------------------------------------------------------------ ------------ ------------ -------------
OPERATING ACTIVITIES
Net Income $ 328,446 $ 422,074 $ 301,768
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 90,479 88,447 105,242
Provision for depreciation and amortization 110,908 112,491 80,956
Deferred income tax expense 237,336 84,748 2,769
Decrease (increase) in trading account securities 3,252 (4,136) 3,243
(Increase) decrease in mortgage loans held for sale (13,381) 324,941 (273,716)
Net gains on sales of securities available for sale (37,101) (12,972) (29,793)
Gains on sales of loans and loan securitizations (4,853) (108,623) (9,903)
(Increase) decrease in accrued income receivable (24,811) (27,590) 31,663
Increase in other assets (50,050) (44,927) (79,588)
(Decrease) increase in accrued expenses (68,150) (46,610) 65,938
Decrease in other liabilities (46,153) (48,171) (121,150)
Special charges 50,000 96,791 90,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 575,922 836,463 167,429
------------ ------------ ------------
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits in banks 1,588 96,006 (62,946)
Proceeds from:
Maturities and calls of investment securities 2,408 6,132 8,348
Maturities and calls of securities available for sale 415,571 651,716 1,356,659
Sales of securities available for sale 1,758,473 1,771,589 3,782,540
Purchases of:
Investment securities --- --- (355)
Securities available for sale (239,084) (2,685,503) (4,043,068)
Proceeds from sales of loans held for sale and loan securitizations 1,556,093 686,548 142,801
Net loan originations, excluding sales (2,230,489) (1,853,343) (724,662)
Proceeds from sale of premises and equipment 3,504 17,111 176,513
Purchases of premises and equipment (65,160) (76,063) (147,045)
Purchases of Bank Owned Life Insurance --- --- (300,000)
Net cash received in purchase acquisitions 12,004 --- 417,031
Proceeds from sales of other real estate 13,766 12,570 13,856
------------ ------------ ------------
NET CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES 1,228,674 (1,373,237) 619,672
------------ ------------ ------------
FINANCING ACTIVITIES
(Decrease) increase in total deposits (443,921) 69,880 (495,638)
Decrease in short-term borrowings (144,230) (94,655) (925,027)
Proceeds from issuance of long-term debt 150,000 --- 300,000
Maturity of long-term debt --- (10,000) (90,038)
Proceeds from issuance of medium-term notes 580,000 2,332,000 1,395,000
Payment of medium-term notes (1,367,000) (1,617,750) (1,187,250)
Proceeds from issuance of capital securities --- --- 100,000
Dividends paid on common stock (185,103) (171,858) (157,632)
Repurchases of common stock (168,395) (97,957) (31,192)
Proceeds from issuance of common stock 1,055 4,417 4,685
------------ ------------ ------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (1,577,594) 414,077 (1,087,092)
------------ ------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS 227,002 (122,697) (299,991)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,228,881 1,351,578 1,651,569
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,455,883 $ 1,228,881 $ 1,351,578
============ ============ ============
See notes to consolidated financial statements.
31
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Huntington Bancshares Incorporated (Huntington) is a
multi-state bank holding company organized under Maryland law in 1966 and
headquartered in Columbus, Ohio. Through its subsidiaries, Huntington is 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 Florida, Georgia,
Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, South
Carolina, and West Virginia. Huntington also has foreign offices in the Cayman
Islands and Hong Kong.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Huntington and its subsidiaries and are presented in conformity with
accounting principles generally accepted in the United States (GAAP). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform to
the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in the
financial statements. Actual results could differ from those estimates.
SEGMENT RESULTS: Accounting policies for the lines of business are the same
as those used in the preparation of the consolidated financial statements with
respect to activities specifically attributable to each business line. However,
the preparation of business line results requires management to establish
methodologies to allocate funding costs and benefits, expenses, and other
financial elements to each line of business.
SECURITIES: Securities purchased with the intention of recognizing
short-term profits are classified as trading account securities and reported at
fair value. Unrealized gains or losses on trading securities are reported in
earnings. Debt securities that Huntington has both the positive intent and
ability to hold to maturity are classified as investment securities and are
reported at amortized cost. Securities not classified as trading or investments
are designated available for sale and reported at fair value. Unrealized gains
or losses on securities available for sale are reported as a separate component
of accumulated other comprehensive income in shareholders' equity. The amortized
cost of specific securities sold is used to compute realized gains and losses.
LOANS: Loans are reported net of unearned income at the principal amount
outstanding. Interest income is primarily accrued based on unpaid principal
balances as earned. Net direct loan origination costs/fees, when material, are
deferred and amortized over the term of the loan as a yield adjustment.
LEASES: Leases are stated at the sum of all minimum lease payments and
estimated residual values less unearned income. Unearned income is recognized in
interest income on a basis to achieve a constant periodic rate of return on the
outstanding investment.
NONACCRUAL LOANS: Commercial and real estate loans are placed on
non-accrual status and stop accruing interest when collection of principal or
interest is in doubt. 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. Huntington uses the cost recovery method in accounting for cash
received on non-accrual loans. Under this method, cash receipts are applied
entirely against principal until the loan has been collected in full, after
which time any additional cash receipts are recognized as interest income.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses reflects
management's judgment as to the level considered appropriate to absorb inherent
losses in the loan portfolio. This judgment is based on a review of individual
loans, historical loss experience, economic conditions, portfolio trends, and
other factors. The allowance is increased by provisions charged to earnings and
reduced by charge-offs, net of recoveries.
The portion of the allowance for loan losses related to impaired loans
(non-accruing and restructured credits, exclusive of smaller, homogeneous loans)
is based on discounted cash flows using the loans initial effective interest
rate or the fair value of the collateral for collateral-dependent loans.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are primarily composed
of 1-to-4-family residential mortgage loans and are carried at the lower of cost
or market as determined on an aggregate basis by type of loan. Market value is
determined primarily by outstanding commitments from investors.
Capitalized mortgage servicing rights (MSRs) are evaluated for impairment
based on the fair value of those rights, using a disaggregated approach. MSRs
are amortized on an accelerated basis over the estimated period of net servicing
revenue.
32
34
Note 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE: Other real estate acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower of
cost or fair value less estimated costs of disposition. At the date of
acquisition, any losses are charged to the allowance for loan losses. Subsequent
write-downs are included in non-interest expense. Realized losses from
disposition of the property and declines in fair value that are considered
permanent are charged to the reserve for other real estate, as applicable.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for buildings, 10 to 20
years for building improvements, 10 years for land improvements, 3 to 7 years
for equipment, and 10 years for furniture and fixtures.
BUSINESS COMBINATIONS: Net assets of entities acquired, for which the
purchase method of accounting was used by Huntington, were recorded at their
estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
generally up to 25 years. Core deposits and other identifiable acquired
intangible assets are amortized over their estimated useful lives. Management
reviews goodwill and other intangible assets arising from business combinations
for impairment whenever a significant event occurs that adversely affects
operations or when changes in circumstances indicate that the carrying value may
not be recoverable. Such reviews for impairment are measured using estimates of
the discounted future earnings potential of the entity or assets acquired.
STATEMENT OF CASH FLOWS: Cash and cash equivalents are defined as "Cash and
due from banks" and "Federal funds sold and securities purchased under resale
agreements." Interest payments made by Huntington were $1,176 million, $988
million, and $996 million in 2000, 1999, and 1998, respectively. Federal income
tax payments were $1.2 million in 2000, $80.8 million in 1999, and $77.4 million
in 1998.
- --------------------------------------------------------------------------------
NOTE 2 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Huntington uses certain off-balance sheet financial instruments,
principally interest rate swaps, in connection with its asset/liability
management activities. Interest rate options (including caps and floors),
futures, and forwards are also used to manage interest rate risk. Provided these
instruments meet specific criteria, they are considered hedges and accounted for
under the accrual or deferral methods, as more fully discussed below.
Off-balance sheet financial instruments that do not meet the required criteria
are carried on the balance sheet at fair value with realized and unrealized
changes in that value recognized in earnings. Similarly, if the hedged item is
sold or its outstanding balance otherwise declines below that of the related
hedging instrument, the off-balance sheet product is marked-to-market and the
resulting gain or loss is included in earnings. Accrual accounting is used when
the cash flows attributable to the hedging instrument satisfy the objectives of
the asset/liability management strategy. Huntington uses the accrual method for
substantially all of its interest rate swaps as well as for interest rate
options. Amounts receivable or payable under these agreements are recognized as
an adjustment to the interest income or expense of the hedged item. There is no
recognition on the balance sheet for changes in the fair value of the hedging
instrument, except for interest rate swaps designated as hedges of securities
available for sale, for which changes in fair values are reported in accumulated
other comprehensive income. Premiums paid for interest rate options are deferred
as a component of other assets and amortized to interest income or expense over
the contract term. Gains and losses on terminated hedging instruments are also
deferred and amortized to interest income or expense generally over the
remaining life of the hedged item.
Huntington employs deferral accounting when the market value of the hedging
instrument meets the objectives of the asset/liability management strategy and
the hedged item is reported at other than fair value. In such cases, gains and
losses associated with futures and forwards are deferred as an adjustment to the
carrying value of the related asset or liability and are recognized in the
corresponding interest income or expense accounts over the remaining life of the
hedged item.
Financial Accounting Standards Board Statement (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended, established
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. This Statement requires that a company formally document, designate,
and assess the effectiveness of transactions for which hedge accounting is
applied. Depending on the nature of the hedge and the extent to which it is
effective, the changes in fair value of the derivative recorded through earnings
will either be offset against the change in the fair value of the
33
35
NOTE 2 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
hedged item in earnings or recorded in comprehensive income and subsequently
recognized in earnings in the period the hedged item affects earnings. The
portion of a hedge that is ineffective and all changes in the fair value of
derivatives not designated as hedges will be recognized immediately in earnings.
Huntington adopted Statement No. 133, as amended, on January 1, 2001. At
that time, Huntington designated its portfolio of derivative financial
instruments used for risk management purposes into hedging relationships as
required by the standard. Derivatives used to hedge changes in fair value of
assets and liabilities due to changes in interest rates or other factors were
designated as fair value hedges and those used to hedge changes in forecasted
cash flows, due generally to interest rate risk, were designated as cash flow
hedges. The impact of implementing the new standard requires transition
adjustments to be recorded and reflected as cumulative effect adjustments, as
promulgated by Accounting Principles Board Opinion No. 20, "Accounting Changes",
in the 2001 Consolidated Financial Statements. The after-tax transition
adjustment was immaterial to net income and reduced other comprehensive income
$9.1 million.
- --------------------------------------------------------------------------------
NOTE 3 SECURITIES
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 2000 and 1999, were:
- ------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
----------------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000
U.S. Treasury $ 10,282 $ 446 $ - $ 10,728
Federal Agencies
Mortgage-backed securities 1,538,640 7,072 13,811 1,531,901
Other agencies 1,762,209 1,167 21,974 1,741,402
------------------ --------------- -------------- --------------------
Total U.S. Treasury and Federal Agencies 3,311,131 8,685 35,785 3,284,031
Other Securities 817,352 9,892 20,750 806,494
------------------ --------------- -------------- --------------------
Total securities available for sale $4,128,483 $ 18,577 $ 56,535 $4,090,525
================== =============== ============== ====================
AT DECEMBER 31, 1999
U.S. Treasury $ 528,227 $ --- $ 31,586 $ 496,641
Federal Agencies
Mortgage-backed securities 1,665,411 5 64,084 1,601,332
Other agencies 2,155,922 55 88,608 2,067,369
------------------ --------------- -------------- --------------------
Total U.S. Treasury and Federal Agencies 4,349,560 60 184,278 4,165,342
Other Securities 666,511 58,463 20,113 704,861
------------------ --------------- -------------- --------------------
Total securities available for sale $ 5,016,071 $ 58,523 $ 204,391 $ 4,870,203
================== =============== ============== ====================
Contractual maturities of securities available for sale as of December 31, 2000
and 1999, were:
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(in thousands of dollars) COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Under 1 year $ 42,553 $ 42,205 $ 25,726 $ 25,653
1 - 5 years 1,247,058 1,236,793 1,094,096 1,061,795
6 - 10 years 264,412 261,421 1,132,691 1,069,151
Over 10 years 2,486,786 2,458,037 2,722,915 2,616,426
Marketable equity securities 87,674 92,069 40,643 97,178
----------------- ----------------- -------------- --------------
Total $ 4,128,483 $ 4,090,525 $ 5,016,071 $ 4,870,203
================= ================= ============== ==============
34
36
NOTE 3 SECURITIES (CONTINUED)
Gross gains from sales of securities of $66.5 million, $37.0 million, and
$41.5 million were realized in 2000, 1999, and 1998, respectively. Gross losses
totaled $29.4 million in 2000, $24.0 million in 1999, and $11.7 million in 1998.
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 2000 and 1999, were:
- ---------------------------------------------------------------------------------------------------------------
UNREALIZED
-------------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000
U.S. Treasury and Federal Agencies $ --- $ --- $ --- $ ---
States and political subdivisions 16,336 140 62 16,414
------------- ---------- ---------- ----------------
Total investment securities $ 16,336 $ 140 $ 62 $ 16,414
============= ========== ========== ================
AT DECEMBER 31, 1999
U.S. Treasury and Federal Agencies $ --- $ --- $ --- $ ---
States and political subdivisions 18,765 78 181 18,662
------------- ---------- ---------- ----------------
Total investment securities $ 18,765 $ 78 $ 181 $ 18,662
============= ========== ========== ================
Amortized cost and fair values by contractual maturity at December 31, 2000 and
1999, were:
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(in thousands of dollars) COST VALUE COST VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
Under 1 year $ 3,139 $ 3,115 $ 2,410 $ 2,389
1 - 5 years 10,536 10,578 12,911 12,855
6 - 10 years 2,193 2,234 2,872 2,859
Over 10 years 468 487 572 559
------------ ------------- ----------- -----------
Total $16,336 $16,414 $18,765 $18,662
============ ============= =========== ===========
- --------------------------------------------------------------------------------
NOTE 4 LOANS
At December 31, 2000 and 1999, loans were comprised of the following:
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- -------------------------------------------------------------------------------------------------------
Commercial (unearned income of $1,538 and $2,550) $ 6,633,985 $ 6,300,414
Real estate
Construction 1,318,899 1,236,776
Commercial 2,253,477 2,151,673
Consumer
Loans (unearned income of $4,150 and $5,974) 6,388,036 6,793,295
Leases (unearned income of $515,445 and $410,239) 3,069,210 2,741,735
Residential Mortgage 946,584 1,444,544
----------------- -----------------
Total loans $ 20,610,191 $ 20,668,437
================= =================
35
37
NOTE 4 LOANS (CONTINUED)
During 2000, Huntington securitized $780 million of residential mortgage
loans during the year. Huntington initially retained all of the resulting
securities and accordingly, reclassified the securitized amount from loans to
securities available for sale.
During 1999, Huntington sold its credit card portfolio of approximately
$541 million in receivables, resulting in a net gain of $108.5 million. In 1998,
Huntington exited its out-of-market credit card operations through the sale of
approximately $90 million of credit card receivables, resulting in a $9.5
million net gain.
RELATED PARTY TRANSACTIONS
Huntington's subsidiaries have granted loans to their officers, directors,
and their associates. Such loans were made in the ordinary course of business
under normal credit terms, including interest rate and collateralization, and to
not represent more than the normal risk of collection. These loans to related
parties are summarized as follows:
- ---------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- ---------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 130,090 $ 132,169
Loans made 418,088 166,064
Repayments (412,809) (146,116)
Changes due to status of executive officers and directors 10,392 (22,027)
---------------- ----------------
Balance, end of year $ 145,761 $ 130,090
================ ================
- --------------------------------------------------------------------------------
NOTE 5 LOAN SECURITIZATIONS
During 2000, Huntington sold $1.7 billion of automobile loans in
securitization transactions and recognized net gains of $4.9 million, which were
included in the "other" component of non-interest income. As required by SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", gains and losses on loan securitizations are
determined at the time of sale based on a present value calculation of expected
future cash flows from the underlying loans net of interest payments to security
holders. The calculation includes assumptions for market interest rates, loan
losses, and prepayment rates. These net cash flows are recorded as a retained
interest in securitized assets (retained interest) and included in securities
available for sale. An asset is also established at the time of sale equal to
the fair value of the servicing rights and recorded in other assets.
At December 31, 2000, the fair values of the retained interest and the
servicing asset related to automobile loan securitizations were $134.1 million
and $22.7 million, respectively. Management periodically reviews the assumptions
underlying these values. If these assumptions change, the related asset and
income would be affected.
The key assumptions used to measure the fair value of the retained interest
at the time of securitization included: a monthly prepayment rate of 1.54%, a
weighted average loan life of 24 months, expected annual credit losses of 0.92%,
a discount rate of 10%, and a coupon rate on variable rate securities of 6.83%
At December 31, 2000, the assumptions and the sensitivity of the current
fair value of the retained interest to immediate 10% and 20% adverse changes in
those assumptions were as follows:
- -------------------------------------------------------------------------------
Decline in fair value
due to
-----------------------
10% 20%
adverse adverse
(in millions of dollars) Actual change change
- -------------------------------------- ----------- ---------- ----------
Monthly prepayment rate 1.54% $ 2.1 $ 4.2
Expected annual credit losses 0.92% 2.3 4.6
Discount rate 10.00% 2.7 5.4
Interest rate on variable securities 5.78% 9.0 18.2
36
38
NOTE 5 LOAN SECURITIZATIONS (CONTINUED)
Caution should be used when reading these sensitivities as a change in an
individual assumption and its impact on fair value is shown independent of
changes in other assumptions. Economic factors are dynamic and may counteract or
magnify sensitivities.
Quantitative information about delinquencies, net loan losses, and
components of managed automobile loans follows:
- --------------------------------------------------------------------------
(in millions of dollars) 2000
- --------------------------------------------------------------------------
Loans at December 31, 2000:
Loans held in portfolio $ 2,508
Loans securitized 1,371
-----------
Total managed loans $ 3,878
===========
Net loan losses as a % of average managed loans 0.97%
Delinquencies (30 days or more) as a percent of
year-end managed loans 3.64%
- --------------------------------------------------------------------------------
NOTE 6 ALLOWANCE FOR LOAN LOSSES
A summary of the transactions in the allowance for loan losses and details
regarding impaired loans follows for the three years ended December 31:
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, BEGINNING OF YEAR $ 299,309 $ 290,948 $ 258,171
Allowance of assets acquired 7,900 --- 22,042
Loan losses (110,845) (112,291) (126,355)
Recoveries of loans previously charged off 27,756 32,205 31,848
Allowance of securitized loans (16,719) --- ---
Provision for loan losses 90,479 88,447 105,242
---------------- --------------- --------------
BALANCE, END OF YEAR $ 297,880 $ 299,309 $ 290,948
================ =============== ==============
RECORDED BALANCE OF IMPAIRED LOANS, AT END OF YEAR (1):
With related allowance for loan losses $ 51,693 $ 8,897 $ 13,277
With no related allowance for loan losses 5,261 30,594 18,340
---------------- --------------- --------------
Total $ 56,954 $ 39,491 $ 31,617
================ =============== ==============
AVERAGE BALANCE OF IMPAIRED LOANS FOR THE YEAR (1) $ 33,705 $ 30,663 $ 32,547
================ =============== ==============
ALLOWANCE FOR LOAN LOSS RELATED TO IMPAIRED LOANS (1) $ 12,944 $ 4,523 $ 4,459
================ =============== ==============
(1) Includes impaired loans with outstanding balances of greater than $500,000.
37
39
NOTE 7 PREMISES AND EQUIPMENT
At December 31, 2000 and 1999, premises and equipment stated at cost were
comprised of the following:
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Land and land improvements $ 77,710 $ 73,989
Buildings 273,974 257,738
Leasehold improvements 114,416 104,631
Equipment 463,227 426,930
-------------- ---------------
Total premises and equipment 929,327 863,288
Less accumulated depreciation and amortization 474,483 424,417
-------------- ---------------
NET PREMISES AND EQUIPMENT $ 454,844 $ 438,871
============== ===============
Depreciation and amortization charged to expense and rental income credited to occupancy expense were:
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization of premises and equipment $ 49,117 $ 42,733 $ 41,608
============ ============== ===============
Rental income credited to occupancy expense $ 16,030 $ 12,896 $ 13,133
============ ============== ===============
In 1998, Huntington entered into a sale/leaseback arrangement that included
the sale of 59 properties with a book value approximating $110 million. This
arrangement included a mix of branch bank regional offices, and operations
facilities, each of which is being leased back to The Huntington National Bank.
The proceeds of $174.1 million received from the transaction were used to reduce
short-term debt. The resulting deferred gain is being amortized as a reduction
of occupancy expense over the lease term.
- --------------------------------------------------------------------------------
NOTE 8 SHORT-TERM BORROWINGS
At December 31, 2000 and 1999, short-term borrowings were comprised of the
following:
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase $ 1,822,480 $2,065,192
Commercial paper 98,186 10,832
Other 67,093 45,965
----------------- ------------------
TOTAL SHORT-TERM BORROWINGS $ 1,987,759 $2,121,989
================= ==================
Information concerning securities sold under agreements to repurchase is summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Average balance during the year $ 1,203,281 $1,409,106
Average interest rate during the year 5.34% 4.10%
Maximum month-end balance during the year $ 1,328,677 $1,687,186
Commercial paper is issued by Huntington Bancshares Financial Corporation,
a non-bank subsidiary, with principal and interest guaranteed by Huntington
Bancshares Incorporated (Parent Company).
Huntington has the ability to borrow under a line of credit totaling $140
million from a group of unaffiliated banks to support commercial paper
borrowings or other short-term working capital needs. Under the terms of the
agreement, a quarterly facility fee must be paid and there are no compensating
balances required. The line is cancelable by Huntington upon written notice and
terminates November 29, 2001. There were no borrowings in 2000.
Securities pledged to secure public or trust deposits, repurchase
agreements, and for other purposes were $3.0 billion and $3.3 billion at
December 31, 2000 and 1999, respectively.
38
40
NOTE 9 MEDIUM- AND LONG-TERM DEBT
At December 31, 2000 and 1999, Huntington's debt, net of unamortized
discount, consisted of the following:
- ----------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- ----------------------------------------------------------------------------------------
MEDIUM-TERM
Subsidiary bank (maturing through 2005) $2,442,150 $ 3,254,150
Parent company 25,000 ---
----------------- -----------------
TOTAL MEDIUM-TERM DEBT 2,467,150 3,254,150
----------------- -----------------
LONG-TERM
Parent company:
7 7/8% subordinated notes due 2002 149,760 149,633
Subsidiary bank:
7 5/8 % subordinated notes due 2003 149,860 149,792
6 3/4% subordinated notes due 2003 99,919 99,886
6 3/5% subordinated notes due 2018 198,455 198,366
Floating rate subordinated notes due 2008 100,000 100,000
8% subordinated notes due 2010 147,982 ---
----------------- -----------------
Total subordinated notes 845,976 697,677
----------------- -----------------
Federal Home Loan Bank notes 25,000 ---
----------------- -----------------
TOTAL LONG-TERM DEBT 870,976 697,677
----------------- -----------------
TOTAL DEBT $3,338,126 $ 3,951,827
================= =================
The parent company medium-term notes were issued in 2000 and mature in
2001. Interest is paid quarterly at a variable rate based on the three-month
London Interbank Offered Rate (LIBOR). At December 31, 2000, the effective
interest rate was 6.75%. The parent company 7 7/8% subordinated notes carry a
fixed rate of interest which is payable semi-annually. They are not redeemable
prior to maturity in 2002, and do not provide for any sinking fund.
The subsidiary bank's floating rate subordinated notes were issued in 1998
and are based on three-month LIBOR. At December 31, 2000, these notes carried an
interest rate of 7.17%.
Long-term advances from the Federal Home Loan Bank are at fixed interest
rates ranging from 5.76% to 6.71% and have maturities ranging from 2001 to 2004.
The weighted average interest rate of these advances at December 31, 2000, was
6.22%. Advances from the Federal Home Loan Bank are collateralized by qualifying
securities.
The majority of Huntington's fixed-rate debt has been effectively converted
to variable-rate debt with the use of off-balance sheet derivatives, principally
through interest rate swaps. As a result, the weighted average interest-rate
swap adjusted rate for Medium-term notes at December 31, 2000, and 1999, was
6.68% and 5.84%, respectively. Based on face value, the weighted average
interest rate swap adjusted rate for subordinated notes was 7.15% at December
31, 2000, and 6.32% at the end of 1999.
The terms of Huntington's medium and long-term debt obligations contain
various restrictive covenants including limitations on the acquisition of
additional debt in excess of specified levels, dividend payments, and the
disposition of subsidiaries. As of December 31, 2000, Huntington was in
compliance with all such covenants.
Medium- and long-term debt maturities for the next five years are as
follows: $1,288.0 million in 2001; $686.2 million in 2002; $500.0 million in
2003; $133.0 million in 2004; $285.0 million in 2005; and, $450.0 million
thereafter.
39
41
NOTE 10 CAPITAL SECURITIES
The Company obligated mandatorily redeemable preferred capital securities
of subsidiary trusts holding solely the junior subordinated debentures of the
parent company ("Capital Securities") were issued by two business trusts,
Huntington Capital I and II ("the Trusts"). Huntington Capital I was formed in
January 1997 while Huntington Capital II was formed in June 1998. The proceeds
from the issuance of the capital and common securities were used to purchase
debentures of the parent company. The Trusts hold solely junior subordinated
debentures of the parent company and are the only assets of the Trusts. Both the
debentures and related income statement effects are eliminated in Huntington's
consolidated financial statements.
The parent company has entered into contractual arrangements that, taken
collectively and in the aggregate, constitute a full and unconditional guarantee
by the parent company of the Trusts' obligations under the capital securities
issued. The contractual arrangements guarantee payment of (a) accrued and unpaid
distributions required to be paid on the Capital Securities; (b) the redemption
price with respect to any capital securities called for redemption by Huntington
Capital I or II; and (c) payments due upon voluntary or involuntary liquidation,
winding-up, or termination of Huntington Capital I or II. The capital and common
securities, and related debentures are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Interest Rate of Maturity of
Capital Common Amount of Securities and Capital Securities
(in thousands of dollars) Securities Securities Debentures Debentures and Debentures
- ------------------------------------------------------------------------------------------------------------------------------------
Huntington Capital I $ 200,000 $6,186 $ 206,186 LIBOR + .70%(1) 02/01/2027
Huntington Capital II 100,000 3,093 103,093 LIBOR + .625%(2) 06/15/2028
------------ ----------- ------------
Total $ 300,000 $9,279 $ 309,279
============ =========== ============
(1) Variable effective rate at December 31, 2000 and 1999, of 7.46% and 6.91%, respectively.
(2) Variable effective rate at December 31, 2000 and 1999, of 7.21% and 6.75%, respectively.
- --------------------------------------------------------------------------------
NOTE 11 STOCK-BASED COMPENSATION
Huntington sponsors nonqualified and incentive stock option plans covering
key employees. Approximately 23.9 million shares have been authorized under the
plans, 3.7 million of which were available at December 31, 2000 for future
grants. All options granted have a maximum term of ten years. Options that were
granted in the most recent three years vest ratably over three years while those
granted in 1994 through 1997 vest ratably over four years. All grants preceding
1994 became fully exercisable after one year.
The fair value of the options granted, as presented below, was estimated at
the date of grant using a Black-Scholes option-pricing model. The weighted
average expected option life of six years was used in all periods presented. The
other weighted-average assumptions used were:
2000 1999 1998
---- ---- ----
Risk-free rate 6.14% 5.60% 5.28%
Dividend Yield 4.37% 2.63% 2.59%
Volatility factors of the expected market
price of Huntington's common stock 45.1% 39.7% 26.2%
40
42
NOTE 11 STOCK-BASED COMPENSATION (CONTINUED)
Huntington's stock option activity and related information for the three
years ended December 31 is summarized below:
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
OPTIONS EXERCISE Options Exercise Options Exercise
(IN 000'S) PRICE (in 000's) Price (in 000's) Price
- --------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 7,719 $20.07 6,245 $16.36 6,555 $ 12.63
Granted /Acquired 2,526 16.10 2,356 27.66 1,505 25.55
Exercised (298) 8.15 (612) 9.56 (1,547) 9.03
Forfeited/Expired (465) 22.69 (270) 24.35 (268) 18.86
---------- ----------- -----------
Outstanding at end of year 9,482 $19.26 7,719 $20.07 6,245 $ 16.36
========== =========== ===========
Exercisable at end of year 5,399 $18.18 4,331 $15.35 3,848 $ 12.89
========== =========== ===========
Weighted-average fair value of
options granted during the year $ 5.58 $10.20 $ 7.10
Additional information regarding options outstanding as of December 31, 2000, is
as follows:
- --------------------------------------------------------------------------------------------------------------------
Options Outstanding Exercisable Options
-------------------------------------- --------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Price (in 000s) Life (Years) Price (in 000s) Price
- --------------------------------------------------------------------------------------------------------------------
$4.17 to $10.50 749 1.4 $ 7.71 749 $ 7.71
$10.51 to $16.50 3,082 6.4 14.09 1,915 13.26
$16.51 to $22.50 2,073 8.2 18.13 758 19.35
$22.51 to $28.35 3,578 8.0 26.78 1,977 26.47
----------- -----------
Total 9,482 7.0 $ 19.26 5,399 $ 18.18
=========== ===========
Huntington has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123 (FAS
123), "Accounting for Stock-Based Compensation", requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of Huntington's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
As permissible under FAS 123, Huntington is presenting the following pro
forma disclosures for net income and earnings per diluted common share as if the
fair value method of accounting had been applied in measuring compensation costs
for stock options. The Black-Scholes option pricing model assumes that the
estimated fair value of the options is amortized over the options' vesting
periods and the compensation costs would be included in personnel expense on the
income statement. Pro forma net income was $318.1 million, or $1.27 per share,
for 2000; $414.7 million, or $1.62 per share, for 1999; and $297.8 million, or
$1.15 per share for 1998.
41
43
NOTE 12 BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan
covering substantially all employees. The plan provides benefits based upon
length of service and compensation levels. The funding policy of Huntington is
to contribute an annual amount which is at least equal to the minimum funding
requirements but not more than that deductible under the Internal Revenue Code.
Plan assets, held in trust, primarily consist of mutual funds.
Huntington's unfunded defined benefit post-retirement plan provides certain
health care and life insurance benefits to retired employees who have attained
the age of 55 and have at least 10 years of service. For any employee retiring
on or after January 1, 1993, post-retirement healthcare and life insurance
benefits are based upon the employee's number of months of service and are
limited to the actual cost of coverage.
The following table reconciles the funded status of the pension plan and
the post-retirement benefit plan at the applicable September 30 measurement
dates with the amounts recognized in the consolidated balance sheet at December
31:
- ----------------------------------------------------------------------------------------------------------------------------
PENSION POST-RETIREMENT
BENEFITS BENEFITS
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at
beginning of measurement year $ 210,894 $ 198,541 $ 48,414 $ 46,451
Changes due to:
Service cost 10,241 11,081 1,544 1,494
Interest cost 15,509 13,622 3,506 3,249
Benefits paid (15,959) (18,227) (2,904) (3,130)
Plan amendments --- 12,049 --- (549)
Actuarial assumptions (10,731) (6,172) (5,654) 899
-------------- -------------- ------------- -------------
Total changes (940) 12,353 (3,508) 1,963
-------------- -------------- ------------- -------------
Projected benefit obligation at end of measurement year 209,954 210,894 44,906 48,414
-------------- -------------- ------------- -------------
Fair value of plan assets at beginning
of measurement year 177,694 179,727 --- ---
Changes due to:
Actual return on plan assets 5,201 16,194 --- ---
Employer contribution 40,000 --- --- ---
Benefits paid (15,959) (18,227) --- ---
-------------- -------------- ------------- -------------
Total changes 29,242 (2,033) --- ---
-------------- -------------- ------------- -------------
Fair value of plan assets at end of measurement year 206,936 177,694 --- ---
-------------- -------------- ------------- -------------
Projected benefit obligation greater
than plan assets (3,018) (33,200) (44,906) (48,414)
Unrecognized net actuarial (gain) loss 879 (1,978) (6,168) (575)
Unrecognized prior service cost 114 (204) 7,143 7,836
Unrecognized transition (asset) liability,
net of amortization (831) (1,156) 15,129 16,390
-------------- -------------- ------------- -------------
Accrued liability at measurement date (2,856) (36,538) (28,802) (24,763)
Fourth quarter contribution --- 40,000 --- ---
-------------- -------------- ------------- -------------
Prepaid (accrued) liability at end of year $ (2,856) $ 3,462 $ (28,802) $ (24,763)
============== ============== ============= =============
Weighted-average assumptions at September 30:
Discount rate 7.75% 7.50% 7.75% 7.50%
Expected return on plan assets 9.25% 9.25% N/A N/A
Rate of compensation increase 5.00% 5.00% N/A N/A
42
44
NOTE 12 BENEFIT PLANS (CONTINUED)
The following table shows the components of pension cost recognized in the most
recent three years:
- ----------------------------------------------------------------------------------------------------------------------------------
PENSION BENEFITS POST-RETIREMENT BENEFITS
------------------------------------------- ---------------------------------------
(in thousands of dollars) 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Service cost $10,241 $ 11,081 $ 11,979 $1,544 $ 1,494 $ 1,410
Interest cost 15,509 13,622 12,897 3,506 3,249 3,080
Expected return on plan assets (18,947) (16,906) (16,447) --- --- ---
Amortization of transition asset (325) (389) (442) 1,261 1,261 1,261
Amortization of prior service cost (318) (1,326) (1,326) 693 694 670
Recognized net actuarial gain 158 (1,336) (2,669) --- --- (52)
--------------- ------------- ------------- ------------- ----------- -----------
Benefit cost $ 6,318 $ 4,746 $ 3,992 $7,004 $ 6,698 $ 6,369
=============== ============= ============= ============= =========== ===========
The 2001 health care cost trend rate was projected to be 7.00% for pre-65
participants and 6.50% for post-65 participants compared with estimates of 7.75%
and 7.00% in 2000. These rates are assumed to decrease gradually until they
reach 4.75% in the year 2006 and remain at that level thereafter.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage point increase would increase service and
interest costs and the post-retirement benefit obligation by $142,000 and $1.5
million, respectively. A one-percentage point decrease would reduce service and
interest costs by $146,000 and the post-retirement benefit obligation by $1.4
million.
Huntington also sponsors an unfunded Supplemental Executive Retirement
Plan, a nonqualified plan that provides certain key officers of Huntington and
its subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 2000 and 1999, the accrued pension liability
for this plan totaled $12.9 million and $10.7 million, respectively. Pension
expense for the plan was $2.5 million in 2000, $1.1 million in 1999, and $1.2
million in 1998.
Huntington has a defined contribution plan that is available to eligible
employees. Matching contributions by Huntington equal 100% on the first 3% and
50% on the next 2% of participant elective deferrals. The cost of providing this
plan was $7.9 million in 2000, $7.5 million in 1999, and $8.3 million in 1998.
- --------------------------------------------------------------------------------
NOTE 13 COMPREHENSIVE INCOME
The components of Other Comprehensive Income were as follows in each of the
three years ended December 31:
- -------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Unrealized holding gains (losses) arising during the period:
Unrealized net gains (losses) $ 145,011 $(171,093) $ 45,095
Related tax (expense) benefit (51,323) 60,738 (15,837)
------------- --------------- ------------
Net 93,688 (110,355) 29,258
------------- --------------- ------------
Less: Reclassification adjustment for net gains realized
during the period:
Realized net gains 37,101 12,972 29,793
Related tax expense (12,986) (4,541) (10,428)
------------- --------------- ------------
Net 24,115 8,431 19,365
------------- --------------- ------------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) $ 69,573 $(118,786) $ 9,893
============= =============== ============
43
45
NOTE 14 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 three years ended December 31 is as
follows:
- -----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Net income $328,446 $422,074 $301,768
============= ============= =============
Average common shares outstanding 248,709 253,560 255,826
Dilutive effect of stock options 861 2,087 2,454
------------- ------------- -------------
Diluted common shares outstanding 249,570 255,647 258,280
============= ============= =============
Earnings per share
Basic $1.32 $1.66 $1.18
Diluted $1.32 $1.65 $1.17
Average common shares outstanding and the dilutive effect of stock options
have been adjusted for subsequent stock dividends and stock splits, as
applicable.
- --------------------------------------------------------------------------------
NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. In the opinion of management,
the aggregate liabilities, if any, arising from such proceedings are not
expected to have a material adverse effect on Huntington's consolidated
financial position.
Operating Leases
At December 31, 2000, Huntington and its subsidiaries were obligated under
noncancelable leases for land, buildings, and equipment. Many of these leases
contain renewal options, and certain leases provide options to purchase the
leased property during or at the expiration of the lease period at specified
prices. Some leases contain escalation clauses calling for rentals to be
adjusted for increased real estate taxes and other operating expenses, or
proportionately adjusted for increases in the consumer or other price indices.
The following summary reflects the future minimum rental payments, by year,
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 2000.
- ------------------------------------------------------------
Year (in thousands of dollars)
- ------------------------------------------------------------
2001 $ 46,856
2002 44,897
2003 41,126
2004 38,480
2005 35,083
2006 and thereafter 339,568
-------------
Total $ 546,010
=============
Total minimum lease payments have not been reduced by minimum sublease rentals
of $84.0 million due in the future under noncancelable subleases. The rental
expense for all operating leases was $49.6 million for 2000 compared with $39.1
million for 1999 and $31.0 million in 1998.
44
46
NOTE 16 INCOME TAXES
The following is a summary of the provision for income taxes:
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Currently (receivable) payable
Federal $ (106,354) $106,932 $ 133,012
State 467 1,017 2,573
-------------- -------------- -------------
Total current (105,887) 107,949 135,585
-------------- -------------- -------------
Deferred tax expense
Federal 237,336 83,555 1,972
State --- 1,193 797
-------------- -------------- -------------
Total deferred 237,336 84,748 2,769
-------------- -------------- -------------
PROVISION FOR INCOME TAXES $ 131,449 $192,697 $ 138,354
============== ============== =============
Tax expense associated with securities transactions included in the above
amounts were $15.9 million in 2000, $5.7 million in 1999, and $10.8 million in
1998.
The following is a reconcilement of income tax expense to the amount computed at the statutory rate of 35%:
- -----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Pre-tax income computed at the statutory rate $ 160,962 $215,170 $154,043
Increases (decreases):
Tax-exempt interest income (18,619) (18,677) (16,107)
State income taxes 302 1,438 2,191
Charitable contributions (4,446) (4,200) ---
Other-net (6,750) (1,034) (1,773)
------------- -------------- --------------
PROVISION FOR INCOME TAXES $ 131,449 $192,697 $138,354
============= ============== ==============
The significant components of deferred tax assets and liabilities at December 31, 2000 and 1999, are as follows:
- -----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 101,346 $ 97,306
Unrealized losses on securities available for sale 13,203 50,666
Pension and other employee benefits 9,787 13,995
Other 41,317 39,928
------------- --------------
Total deferred tax assets 165,653 201,895
------------- --------------
Deferred tax liabilities:
Lease financing 512,548 336,617
Undistributed income of subsidiary 70,766 ---
Mortgage servicing rights 10,526 18,437
Other 32,584 32,813
------------- --------------
Total deferred tax liabilities 626,424 387,867
------------- --------------
Net deferred tax liability $ 460,771 $185,972
============= ==============
45
47
NOTE 17 REGULATORY MATTERS
Huntington and its subsidiaries are subject to various regulatory
requirements that impose restrictions on cash, debt, and dividends. Huntington's
bank subsidiary, The Huntington National Bank (HNB), is required to maintain
non-interest bearing cash balances with the Federal Reserve Bank. During 2000
and 1999, the average balance of these deposits were $412.0 million and $393.8
million, respectively.
Under current Federal Reserve regulations, HNB is limited as to the amount
and type of loans it may make to the parent company and non-bank subsidiaries.
At December 31, 2000, HNB could lend $285.8 million to a single affiliate,
subject to the qualifying collateral requirements defined in the regulations.
Dividends from HNB are one of the major sources of funds for Huntington's
parent company. These funds aid the parent company in the payment of dividends
to shareholders, expenses, and other obligations. Payment of dividends to the
parent company is subject to various legal and regulatory limitations.
Regulatory approval is required prior to the declaration of any dividends in
excess of available retained earnings. The amount of dividends that may be
declared without regulatory approval is further limited to the sum of net income
for the current year and retained net income for the preceding two years, less
any required transfers to surplus or common stock. HNB could, without regulatory
approval, declare dividends in 2001 of approximately $278.9 million plus an
additional amount equal to its net income through the date of declaration in
2001.
Huntington and HNB are also subject to various regulatory capital
requirements administered by federal and state banking agencies. These
requirements involve qualitative judgments and quantitative measures of assets,
liabilities, capital amounts, and certain off-balance sheet items as calculated
under regulatory accounting practices. Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a material effect on Huntington's and HNB's financial statements.
Applicable capital adequacy guidelines require minimum ratios of 4.00% for Tier
1 Risk-based Capital, 8.00% for Total Risk-based Capital, and 4.00% for Tier 1
Leverage. To be considered well capitalized under the regulatory framework for
prompt corrective action, the ratios must be at least 6.00%, 10.00% and 5.00%
respectively.
As of December 31, 2000 and 1999, Huntington and HNB have met all capital
adequacy requirements. In addition, Huntington and HNB had regulatory capital
ratios in excess of the levels established for well-capitalized institutions.
The capital ratios of Huntington and HNB as well as a comparison of the
period-end capital balances with the related amounts established by the
regulatory agencies are presented in the table below.
- -------------------------------------------------------------------------------------------------------------------
For Capital
Actual Well Capitalized Adequacy Purposes
------------------------- ------------------------- -------------------------
(in millions of dollars) 2000 1999 2000 1999 2000 1999
----------- ----------- ------------ ----------- ------------ -----------
HUNTINGTON BANCSHARES INCORPORATED
Capital Amount:
Tier 1 $ 1,933 $ 1,903 $ 1,613 $ 1,518 $ 1,075 $ 1,012
Total Risk-Based 2,811 2,712 2,688 2,530 2,150 2,024
Tier 1 Leverage 1,933 1,903 1,395 1,416 1,116 1,133
Ratios:
Tier 1 7.19% 7.52% 6.00% 6.00% 4.00% 4.00%
Total Risk-Based 10.46% 10.72% 10.00% 10.00% 8.00% 8.00%
Tier 1 Leverage 6.93% 6.72% 5.00% 5.00% 4.00% 4.00%
THE HUNTINGTON NATIONAL BANK
Capital Amount:
Tier 1 $ 1,781 $ 1,654 $ 1,618 $ 1,514 $ 1,079 $ 1,009
Total Risk-Based 2,858 2,733 2,697 2,523 2,158 2,018
Tier 1 Leverage 1,781 1,654 1,385 1,409 1,108 1,127
Ratios:
Tier 1 6.60% 6.56% 6.00% 6.00% 4.00% 4.00%
Total Risk-Based 10.60% 10.83% 10.00% 10.00% 8.00% 8.00%
Tier 1 Leverage 6.43% 5.87% 5.00% 5.00% 4.00% 4.00%
46
48
NOTE 18 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 2000 and 1999:
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data) 1 Q 2 Q 3 Q 4 Q
- ----------------------------------------------------------------------------------------------------------------------------
2000
Interest income $ 515,557 $ 519,496 $ 535,791 $ 537,661
Interest expense 274,866 286,690 299,922 304,595
-------------- ------------- ------------- -------------
Net interest income 240,691 232,806 235,869 233,066
-------------- ------------- ------------- -------------
Provision for loan losses 15,701 15,834 26,396 32,548
Securities gains 24,763 114 11,379 845
Non-interest income 100,931 115,550 110,273 129,704
Non-interest expense 200,106 198,076 213,585 223,850
Special charges (1) --- --- 50,000 ---
-------------- ------------- ------------- -------------
Income before income taxes 150,578 134,560 67,540 107,217
Provision for income taxes 46,405 37,039 17,010 30,995
-------------- ------------- ------------- -------------
Net income $ 104,173 $ 97,521 $ 50,530 $ 76,222
============== ============= ============= =============
Net income per common share (2)
Basic $0.42 $0.40 $0.20 $0.30
Diluted $0.42 $0.40 $0.20 $0.30
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data) 1 Q 2 Q 3 Q 4 Q
- ----------------------------------------------------------------------------------------------------------------------------
1999
Interest income $ 495,692 $ 498,500 $ 516,294 $ 515,516
Interest expense 236,171 237,352 247,863 262,854
-------------- ------------- ------------- -------------
Net interest income 259,521 261,148 268,431 252,662
-------------- ------------- ------------- -------------
Provision for loan losses 25,305 21,026 22,076 20,040
Securities gains 2,310 2,220 537 7,905
Gains on sale of credit card portfolio --- --- --- 108,530
Non-interest income 107,562 115,056 115,117 114,338
Non-interest expense 202,106 202,138 206,189 204,895
Special charges (1) --- --- --- 96,791
-------------- ------------- ------------- -------------
Income before income taxes 141,982 155,260 155,820 161,709
Provision for income taxes 45,410 50,285 50,233 46,769
-------------- ------------- ------------- -------------
Net income $ 96,572 $ 104,975 $ 105,587 $ 114,940
============== ============= ============= =============
Net income per common share (2)
Basic $0.38 $0.41 $0.42 $0.46
Diluted $0.38 $0.41 $0.41 $0.45
(1) See discussion of special charges in Note 19.
(2) Adjusted for stock dividends and stock splits, as applicable.
47
49
NOTE 19 NON-INTEREST INCOME AND EXPENSE
A summary of the components in non-interest income follows for the three
years ended December 31:
- -------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 160,727 $156,315 $126,403
Brokerage and insurance income 61,871 52,076 36,710
Trust services 53,613 52,030 50,754
Electronic banking fees 43,883 37,301 29,202
Bank Owned Life Insurance income 39,544 37,560 28,712
Mortgage banking 38,025 56,890 60,006
Credit card fees 6,985 23,314 21,909
Other 51,810 36,587 45,181
-------------- ------------- -------------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS AND
AND CREDIT CARD PORTFOLIO SALE GAINS 456,458 452,073 398,877
Securities gains 37,101 12,972 29,793
Gains on sale of credit card portfolios --- 108,530 9,530
-------------- ------------- -------------
TOTAL NON-INTEREST INCOME $ 493,559 $573,575 $438,200
============== ============= =============
A summary of the components in non-interest expense for the three years
ended December 31 follows:
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Personnel and related costs $ 421,750 $419,901 $428,539
Equipment 78,069 66,666 62,040
Net occupancy 75,882 62,169 54,123
Outside data processing and other services 62,011 62,886 74,795
Amortization of intangible assets 39,207 37,297 25,689
Marketing 34,884 32,506 32,260
Telecommunications 26,225 28,519 29,429
Legal and other professional services 20,819 21,169 25,160
Printing and supplies 19,634 20,227 23,673
Franchise and other taxes 11,077 14,674 22,103
Other 46,059 49,314 46,118
-------------- -------------- --------------
TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGES 835,617 815,328 823,929
Special charges 50,000 96,791 90,000
-------------- -------------- --------------
TOTAL NON-INTEREST EXPENSE $ 885,617 $912,119 $913,929
============== ============== ==============
SPECIAL CHARGES
During the fourth quarter of 1999 and in the third quarter 2000, Huntington
recorded special charges of $58.2 million and $50.0 million, respectively, to
write-down residual values related to its $3.0 billion vehicle lease portfolio.
Of this total, $71.4 million remained available at December 31, 2000, to cover
estimated losses inherent in the portfolio.
In addition to the lease charge in 1999, Huntington recorded $38.6 million
of additional costs, which included $21 million related to the company's
"Huntington 2000+" program and other one-time expenses, including amounts paid
for management consulting and other professional services as well as $11 million
for a special cash award to employees for achievement of the program goals for
1999. "Huntington 2000+" was a collaborative effort among all employees to
evaluate processes and procedures and the way Huntington conducts its business
with a mission of maximizing efficiency through all aspects of the organization.
48
50
NOTE 20 FINANCIAL INSTRUMENTS
The contract or notional amount of financial instruments with off-balance
sheet risk and credit concentrations at December 31, 2000 and 1999, is presented
below:
- ------------------------------------------------------------------------------
(in millions of dollars) 2000 1999
- ------------------------------------------------------------------------------
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial $ 4,279 $3,610
Consumer 3,069 2,320
Commercial Real Estate 500 316
Standby letters of credit 859 803
Commercial letters of credit 197 169
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps 6,495 5,525
Interest rate options 3,104 1,289
Interest rate forwards and futures 284 212
Trading activities
Interest rate swaps 776 619
Interest rate options 369 392
Commitments to extend credit generally have short-term,
fixed expiration dates, are variable rate, and contain clauses that permit
Huntington to terminate or otherwise renegotiate the contracts in the event of a
significant deterioration in the customer's credit quality. These arrangements
normally require the payment of a fee by the customer, the pricing of which is
based on prevailing market conditions, credit quality, probability of funding,
and other relevant factors. Since many of these commitments are expected to
expire without being drawn upon, the contract amounts are not necessarily
indicative of future cash requirements. The interest rate risk arising from
these financial instruments is insignificant as a result of their predominantly
short-term, variable rate nature.
Standby letters of credit are conditional commitments issued by Huntington
to guarantee the performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most of
these arrangements mature within two years. Approximately 58% of standby letters
of credit are collateralized, and nearly 80% are expected to expire without
being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments that facilitate customer trade transactions and have maturities of
no longer than ninety days. The merchandise or cargo being traded normally
secures these instruments.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount. Huntington
enters into swaps to synthetically alter the repricing characteristics of
designated earning assets and interest bearing liabilities and, on a much more
limited basis, as an intermediary for customers. Because only interest payments
are exchanged, cash requirements of swaps are significantly less than the
notional amounts.
Interest rate options grant the option holder the right to buy or sell an
underlying financial instrument for a predetermined price before the contract
expires. Interest rate caps and floors are option-based contracts which entitle
the buyer to receive cash payments based on the difference between a designated
reference rate and a strike price, applied to a notional amount. Written
options, primarily caps, expose Huntington to market risk but not credit risk.
Purchased options contain both credit and market risk. They are used to manage
fluctuating interest rates as exposure to loss from interest rate contracts
changes.
Interest rate forwards and futures are commitments to either purchase or
sell a financial instrument at a future date for a specified price or yield and
may be settled in cash or through delivery of the underlying financial
instrument. Forward contracts, used primarily by Huntington in connection with
its mortgage banking activities, settle in cash at a specified future date based
on the differential between agreed interest rates applied to a notional amount.
49
51
NOTE 20 FINANCIAL INSTRUMENTS (CONTINUED)
In the normal course of business, Huntington is party to financial
instruments with varying degrees of credit and market risk in excess of the
amounts reflected as assets and liabilities in the consolidated balance sheet.
Loan commitments and letters of credit are commonly used to meet the financing
needs of customers, while interest rate swaps, options, futures, and forwards
are an integral part of Huntington's asset/liability management activities. To a
much lesser extent, various financial instrument agreements are entered into to
assist customers in managing their exposure to interest rate fluctuations. These
customer agreements, for which Huntington counters interest rate risk through
offsetting third party contracts, are considered trading activities.
The credit risk arising from loan commitments and letters of credit,
represented by their contract amounts, is essentially the same as that involved
in extending loans to customers, and both arrangements are subject to
Huntington's standard credit policies and procedures. Collateral is obtained
based on management's credit assessment of the customer and, for commercial
transactions, may consist of accounts receivable, inventory, income-producing
properties, and other assets. Residential properties are the principal form of
collateral for consumer commitments.
Notional values of interest rate swaps and other off-balance sheet
financial instruments significantly exceed the credit risk associated with these
instruments and represent contractual balances on which calculations of amounts
to be exchanged are based. Credit exposure is limited to the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. Potential
credit losses are minimized through careful evaluation of counterparty credit
standing, selection of counterparties from a limited group of high quality
institutions, collateral agreements, and other contract provisions. At December
31, 2000, Huntington's credit risk from these off-balance sheet arrangements,
including trading activities, was approximately $84.3 million.
- --------------------------------------------------------------------------------
NOTE 21 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington's financial
instruments at December 31 are presented in the following table:
- ---------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000 AT DECEMBER 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(in thousands of dollars) AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term assets $ 1,460,853 $ 1,460,853 $1,235,439 $1,235,439
Trading account securities 4,723 4,723 7,975 7,975
Mortgages held for sale 155,104 155,104 141,723 141,723
Securities 4,106,861 4,107,319 4,888,968 4,888,865
Loans 20,312,311 20,487,837 20,369,128 20,380,713
Customers' acceptance liability 17,366 17,366 17,167 17,167
Interest rate contracts:
Asset/liability management 7,278 37,934 21,491 19,147
Customer accommodation 6,171 6,171 12,950 12,950
FINANCIAL LIABILITIES:
Deposits 19,777,245 19,811,808 19,792,603 19,803,657
Short-term borrowings 1,987,759 1,987,759 2,121,989 2,121,989
Bank acceptances outstanding 17,366 17,366 17,167 17,167
Medium-term notes 2,467,150 2,489,406 3,254,150 3,272,348
Subordinated notes and other long-term debt 870,976 877,127 697,677 727,789
Capital Securities 300,000 300,359 300,000 300,652
Interest rate contracts:
Asset/liability management --- 23,315 --- 72,991
Customer accommodation 4,360 4,360 10,765 10,765
50
52
NOTE 21 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Certain assets, the most significant being Bank Owned Life Insurance and
premises and equipment, do not meet the definition of a financial instrument and
are excluded from this disclosure. Similarly, mortgage and non-mortgage
servicing rights, deposit base, and other customer relationship intangibles are
not considered financial instruments and are not discussed below. Accordingly,
this fair value information is not intended to, and does not, represent
Huntington's underlying value. Many of the assets and liabilities subject to the
disclosure requirements are not actively traded, requiring fair values to be
estimated by management. These estimations necessarily involve the use of
judgment about a wide variety of factors, including but not limited to,
relevancy of market prices of comparable instruments, expected future cash
flows, and appropriate discount rates.
The terms and short-term nature of certain assets and liabilities result in
their carrying value approximating fair value. These include cash and due from
banks, interest bearing deposits in banks, trading account securities, federal
funds sold and securities purchased under resale agreements, customers'
acceptance liabilities, short-term borrowings, and bank acceptances outstanding.
Loan commitments and letters of credit generally have short-term, variable rate
features and contain clauses that limit Huntington's exposure to changes in
customer credit quality. Accordingly, their carrying values, which are
immaterial at the respective balance sheet dates, are reasonable estimates of
fair value.
The following methods and assumptions were used by Huntington to estimate
the fair value of the remaining classes of financial instruments:
Mortgages held for sale - valued at the lower of aggregate cost or market
value primarily as determined using outstanding commitments from investors.
Securities available for sale and investment securities - based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. Retained
interests in securitized assets are valued using a discounted cash flow
analysis. The carrying amount and fair value of securities exclude the fair
value of asset/liability management interest rate contracts designated as hedges
of securities available for sale.
Loans and leases - variable rate loans that reprice frequently are based on
carrying amounts, as adjusted for estimated credit losses. The fair values for
other loans are estimated using discounted cash flow analyses and employ
interest rates currently being offered for loans with similar terms. The rates
take into account the position of the yield curve, as well as an adjustment for
prepayment risk, operating costs, and profit. This value is also reduced by an
estimate of probable losses in the loan portfolio. Although not considered
financial instruments, lease financing receivables have been included in the
loan totals at their carrying amounts.
Deposits - demand deposits, savings accounts, and money market deposits
are, by definition, equal to the amount payable on demand. The fair values of
fixed rate time deposits are estimated by discounting cash flows using interest
rates currently being offered on certificates with similar maturities.
Debt - fixed rate long-term debt, as well as medium-term notes and Capital
Securities, are based upon quoted market prices or, in the absence of quoted
market prices, discounted cash flows using rates for similar debt with the same
maturities. The carrying amount of variable rate obligations approximates fair
value.
Off-balance sheet derivatives - interest rate swap agreements and other
off-balance sheet interest rate contracts are based upon quoted market prices or
prices of similar instruments, when available, or calculated with pricing models
using current rate assumptions.
- --------------------------------------------------------------------------------
NOTE 22 SEGMENT REPORTING
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 2000, 1999, and 1998 results by line of business. For a
detailed description of the individual segments, refer to Huntington's
Management's Discussion and Analysis.
51
53
NOTE 22 SEGMENT REPORTING (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
Private
INCOME STATEMENT Retail Corporate Dealer Financial Treasury/ Huntington
(in thousands of dollars) Banking Banking Sales Group Other Consolidated
- -----------------------------------------------------------------------------------------------------------------------------
2000
Net Interest Income (FTE) $ 537,386 $ 263,898 $ 193,466 $ 31,842 $ (75,850) $ 950,742
Provision for Loan Losses 26,006 14,332 49,078 1,063 --- 90,479
Non-Interest income 269,831 62,348 29,034 62,154 70,192 493,559
Non-Interest expense 546,575 117,869 105,194 55,843 60,136 885,617
Income Taxes/FTE Adjustment 70,039 57,922 17,791 11,071 (17,064) 139,759
------------- ------------- ------------- ------------ ------------- --------------
Net income $ 164,597 $ 136,123 $ 50,437 $ 26,019 $ (48,730) $ 328,446
============= ============= ============= ============ ============= ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 6,951 $ 7,145 $ 6,714 $ 611 $ 7,300 $ 28,721
Average Deposits $ 16,458 $ 1,518 $ 76 $ 636 $ 1,002 $ 19,690
- -----------------------------------------------------------------------------------------------------------------------------
1999
Net Interest Income (FTE) $ 572,516 $ 250,717 $ 193,118 $ 33,452 $ 1,382 $ 1,051,185
Provision for Loan Losses 37,766 10,388 38,995 1,298 --- 88,447
Non-Interest income 284,047 58,824 7,273 53,324 170,107 573,575
Non-Interest expense 566,232 104,518 106,317 47,255 87,797 912,119
Income Taxes/FTE Adjustment 81,783 63,025 16,526 12,377 28,409 202,120
------------- ------------- ------------- ------------ ------------- --------------
Net income $ 170,782 $ 131,610 $ 38,553 $ 25,846 $ 55,283 $ 422,074
============= ============= ============= ============ ============= ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 7,484 $ 6,858 $ 6,251 $ 584 $ 7,562 $ 28,739
Average Deposits $ 16,885 $ 1,002 $ 65 $ 610 $ 645 $ 19,207
- -----------------------------------------------------------------------------------------------------------------------------
1998
Net Interest Income (FTE) $ 574,446 $ 238,078 $ 162,326 $ 35,328 $21,222 $ 1,031,400
Provision for Loan Losses 46,978 16,854 40,168 1,242 --- 105,242
Non-Interest income 268,931 63,756 5,722 37,066 62,725 438,200
Non-Interest expense 544,287 112,821 48,021 50,561 158,239 913,929
Income Taxes/FTE Adjustment 83,208 56,820 26,316 6,796 (24,479) 148,661
------------- ------------- ------------- ------------ ------------- --------------
Net income $ 168,904 $ 115,339 $ 53,543 $ 13,795 $ (49,813) $ 301,768
============= ============= ============= ============ ============= ==============
BALANCE SHEET (in millions of dollars)
Average Identifiable Assets $ 9,153 $ 5,932 $ 5,325 $ 614 $ 5,868 $ 26,892
Average Deposits $ 16,501 $ 947 $ 63 $ 561 $ 341 $ 18,413
Note: Fully tax equivalent basis (FTE) income assumes a 35% tax rate.
52
54
NOTE 23 MERGERS AND ACQUISITIONS
Huntington acquired Empire Banc Corporation (Empire), a $506 million
one-bank holding company headquartered in Traverse City, Michigan, on June 23,
2000. Huntington reissued approximately 6.5 million shares of common stock, all
of which were purchased on the open market during the first quarter 2000, in
exchange for all of the common stock of Empire. Total loans and deposits
increased $395 million and $435 million, respectively, at the date of the
merger. Additionally, Huntington acquired J. Rolfe Davis Insurance Agency, Inc.
(JRD), headquartered in Maitland, Florida, on August 23, 2000. Huntington paid
$8.2 million in cash and issued approximately 695,000 shares of common stock for
all of the common stock of JRD. Both transactions were accounted for as
purchases; accordingly, the results of Empire and JRD have been included in the
consolidated financial statements from the respective dates of acquisition.
Goodwill, which represents the excess of the cost of an acquisition over the
fair value of the assets acquired, was $105 million for Empire and $20 million
for JRD.
- --------------------------------------------------------------------------------
NOTE 24 PARENT COMPANY FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 227,964 $ 100,804
Securities available for sale 60,952 81,241
Due from subsidiaries
Bank subsidiary 232,517 330,487
Non-bank subsidiaries 53,095 33,646
Investment in subsidiaries on the equity method
Bank subsidiary 2,080,701 2,182,420
Non-bank subsidiaries 449,598 26,761
Excess of cost of investment in subsidiaries over net assets acquired 10,452 11,016
Other assets 60,492 88,221
----------------- -----------------
TOTAL ASSETS $ 3,175,771 $ 2,854,596
================= =================
LIABILITIES AND EQUITY
Short-term borrowings $ 98,669 $ 11,327
Medium-term notes 25,000 ---
Subordinated notes
Subsidiary trusts 309,279 309,279
Unaffiliated companies 149,760 149,633
Dividends payable 50,173 45,826
Accrued expenses and other liabilities 176,843 156,175
----------------- -----------------
TOTAL LIABILITIES 809,724 672,240
----------------- -----------------
SHAREHOLDERS' EQUITY 2,366,047 2,182,356
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,175,771 $ 2,854,596
================= =================
53
55
NOTE 24 PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from
Bank subsidiary $ 222,330 $190,255 $186,381
Non-bank subsidiaries 3,000 4,000 4,000
Interest from
Bank subsidiary 20,749 19,748 41,507
Non-bank subsidiaries 2,741 1,194 329
Other 66,134 31,918 3,094
------------- -------------- --------------
TOTAL INCOME 314,954 247,115 235,311
------------- -------------- --------------
EXPENSE
Interest on debt 36,687 31,109 27,340
Other 6,756 --- 13,722
------------- -------------- --------------
TOTAL EXPENSE 43,443 31,109 41,062
------------- -------------- --------------
Income before income taxes and equity in
undistributed net income of subsidiaries 271,511 216,006 194,249
Income tax expense 12,592 9,271 2,089
------------- -------------- --------------
Income before equity in undistributed
net income of subsidiaries 258,919 206,735 192,160
------------- -------------- --------------
Equity in undistributed net income of
Bank subsidiary 66,387 212,613 106,967
Non-bank subsidiaries 3,140 2,726 2,641
------------- -------------- --------------
NET INCOME $ 328,446 $422,074 $301,768
============= ============== ==============
54
56
NOTE 24 PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 328,446 $ 422,074 $ 301,768
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiaries (69,527) (215,339) (109,608)
Provision for amortization and depreciation 2,987 2,987 3,244
Gains on sales of securities available for sale & other assets (62,140) (30,546) ---
Decrease (increase) in other assets 38,290 (6,538) (14,413)
Increase (decrease) in other liabilities 34,937 65,965 (13,377)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 272,993 238,603 167,614
------------- ------------- -------------
INVESTING ACTIVITIES
Increase in investments in subsidiaries (5,397) (5) (386,500)
Repayments from (advances to) subsidiaries 67,154 (4,050) 371,539
Purchases of securities available for sale (47,000) --- ---
Proceeds from sales of securities available for sale 68,106 30,990 ---
Proceeds from sales of other assets 11,405 --- ---
Other --- --- (41)
------------- ------------- -------------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 94,268 26,935 (15,002)
------------- ------------- -------------
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 87,342 (19,317) (9,881)
Proceeds from issuance of subordinated notes to subsidiary trusts --- --- 100,000
Payment of long-term debt --- --- (4,537)
Proceeds from issuance of medium-term notes 25,000 --- ---
Payment of medium-term notes --- (60,000) (160,000)
Dividends paid on common stock (185,103) (171,858) (157,632)
Acquisition of treasury stock (168,395) (97,957) (31,192)
Proceeds from issuance of treasury stock 1,055 4,417 4,685
------------- ------------- -------------
NET CASH USED FOR FINANCING ACTIVITIES (240,101) (344,715) (258,557)
------------- ------------- -------------
CHANGE IN CASH AND CASH EQUIVALENTS 127,160 (79,177) (105,945)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 100,804 179,981 285,926
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 227,964 $ 100,804 $ 179,981
============= ============= =============
Supplemental disclosure:
Interest paid $ 36,262 $ 31,662 $ 28,856
============= ============= =============
Supplemental data required for this item is set forth in Item 7 on page 26 under
the caption "Selected Quarterly Income Statement Data."
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
55
57
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth under the captions "Class I
Directors," "Class II Directors," and "Class III Directors" on pages 1 through 4
under the caption "Executive Officers of the Corporation" on pages 18 and 19,
and under the caption "Section 16(a) Beneficial Ownership Reporting Compliance"
on page 27, of Huntington's 2001 Proxy Statement, and is incorporated herein by
reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this item is set forth under the caption "Executive
Compensation" on pages 8 through 17, and under the caption "Compensation of
Directors" on page 5, of Huntington's 2001 Proxy Statement, and is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth under the caption "Ownership
of Voting Stock" on pages 6 and 7, of Huntington's 2001 Proxy Statement, and is
incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under the caption
"Transactions With Directors and Executive Officers" on pages 5 and 6, and under
the caption "Compensation Committee Interlocks and Insider Participation" on
page 14 of Huntington's 2001 Proxy Statement, and is incorporated herein by
reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The report of independent auditors and consolidated financial
statements appearing in Item 8.
(2) Huntington is not filing separately financial statement schedules
because of the absence of conditions under which they are
required or because the required information is included in the
consolidated financial statements or the notes thereto.
(3) The exhibits required by this item are listed in the Exhibit
Index on pages 58 through 60 of this Form 10-K. The management
contracts and compensation plans or arrangements required to be
filed as exhibits to this Form 10-K are listed as Exhibits 10(a)
through 10(p) in the Exhibit Index.
(b) During the quarter ended December 31, 2000, Huntington filed two
Current Report on Form 8-K. The first report, dated October 11, 2000,
was filed under Items 5 and 7, announcing the appointment of Michael
J. McMennamin as Chief Financial Officer and Treasurer. The second
report, dated October 19, 2000, was filed under Items 5 and 7, and
concerned Huntington's results of operations for the quarter ended
September 30, 2000.
(c) The exhibits to this Form 10-K begin on page 58.
(d) See Item 14(a)(2) above.
56
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 8th day of
March, 2001.
HUNTINGTON BANCSHARES INCORPORATED
(Registrant)
By: /s/ Frank Wobst By: /s/ Michael J. McMennamin
----------------------------- -------------------------
Frank Wobst Michael J. McMennamin
Director and Chairman Vice Chairman, Chief Financial
(Principal Executive Officer) Officer, and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 28th day of February, 2001.
/s/ Don M. Casto, III /s/ Robert H. Schottenstein
- ---------------------------------- ---------------------------
Don M. Casto, III Robert H. Schottenstein
Director Director
/s/ Don Conrad /s/ George A. Skestos
- ---------------------------------- ---------------------
Don Conrad George A. Skestos
Director Director
/s/ John B. Gerlach, Jr. /s/ Lewis R. Smoot, Sr.
- ---------------------------------- -----------------------
John B. Gerlach, Jr. Lewis R. Smoot, Sr.
Director Director
/s/ Patricia T. Hayot /s/ Timothy P. Smucker
- ---------------------------------- ----------------------
Patricia T. Hayot Timothy P. Smucker
Director Director
/s/ Thomas E. Hoaglin
- ----------------------------------
Thomas E. Hoaglin
President, Chief Executive Officer, and Director
/s/ Wm. J. Lhota
- ----------------------------------
Wm. J. Lhota
Director
57
59
EXHIBIT INDEX
3(i)(a). Articles of Restatement of Charter, Articles of Amendment to
Articles of Restatement of Charter, and Articles Supplementary
-- previously filed as Exhibit 3(i) to Annual Report on Form
10-K for the year ended December 31, 1993, and incorporated
herein by reference.
(i)(b). Articles of Amendment to Articles of Restatement of Charter --
previously filed as Exhibit 3(i)(c) to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, and
incorporated herein by reference.
(ii). Amended and Restated Bylaws.
4(a). 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. Instruments defining the rights of holders of
long-term debt will be furnished to the Securities and
Exchange Commission upon request.
(b). Rights Plan, dated February 22, 1990, between Huntington
Bancshares Incorporated and The Huntington National Bank (as
successor to The Huntington Trust Company, National
Association) -- previously filed as Exhibit 1 to Registration
Statement on Form 8-A, filed with the Securities and Exchange
Commission on February 22, 1990, and incorporated herein by
reference.
(c). Amendment No. 1 to the Rights Agreement, dated August 16, 1995
-- previously filed as Exhibit 4(b) to Form 8-K, dated August
16, 1995, and incorporated herein by reference.
10. Material contracts:
(a). * Employment Agreement, dated February 15, 2001, between
Huntington Bancshares Incorporated and Frank Wobst
(b). * Form of Tier I Executive Agreement for certain executive
officers -- previously filed as Exhibit 10(b) to Annual Report
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
(c). * Form of Tier II Executive Agreement for certain executive
officers -- previously filed as Exhibit 10(c) to Annual Report
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
(d). * Schedule identifying material details of Executive Agreements,
substantially similar to Exhibits 10(b) and 10(c).
(e). * Huntington Bancshares Incorporated Amended and Restated
Incentive Compensation Plan, effective for performance cycles
beginning on or after January 1, 1999 -- previously filed as
Exhibit 10(e) to Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
(f)(1). * Amended and Restated Long-Term Incentive Compensation Plan,
effective for performance cycles beginning on or after January
1, 1999 -- previously filed as Exhibit 10(f) to Annual Report
on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
(f)(2). * Amended and Restated Long-Term Incentive Compensation Plan,
effective for performance cycles beginning on or after January
1, 1999 - reference is made to Form S-8, Registration No.
33-52394, filed with the Securities and Exchange Commission on
December 21, 2000, and incorporated herein by reference.
(g)(1). * Supplemental Executive Retirement Plan with First and Second
Amendments -- previously filed as Exhibit 10(g) to Annual
Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference.
58
60
(g)(2). * Third Amendment to Supplemental Executive Retirement Plan --
previously filed as Exhibit 10(k)(2) to Annual Report on Form
10-K for the year ended December 31, 1997, and incorporated
herein by reference.
(g)(3). * Fourth Amendment to Supplemental Executive Retirement Plan
-- previously filed as Exhibit 10(g)(3) to Annual Report on
Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.
(h). * Deferred Compensation Plan and Trust for Directors --
reference is made to Exhibit 4(a) of Post-Effective
Amendment No. 2 to Registration Statement on Form S-8,
Registration No. 33-10546, filed with the Securities and
Exchange Commission on January 28, 1991, and incorporated
herein by reference.
(i)(1). * 1983 Stock Option Plan -- reference is made to Exhibit 4A of
Registration Statement on Form S-8, Registration No.
2-89672, filed with the Securities and Exchange Commission
on February 27, 1984, and incorporated herein by reference.
(i)(2). * 1983 Stock Option Plan -- Second Amendment -- previously
filed as Exhibit 10(j)(2) to Annual Report on Form 10-K for
the year ended December 31, 1987, and incorporated herein by
reference.
(i)(3). * 1983 Stock Option Plan -- Third Amendment -- previously
filed as Exhibit 10(j)(3) to Annual Report on Form 10-K for
the year ended December 31, 1987, and incorporated herein by
reference.
(i)(4). * 1983 Stock Option Plan -- Fourth Amendment -- previously
filed as Exhibit (m)(4) to Annual Report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by
reference.
(i)(5). * 1983 Stock Option Plan -- Fifth Amendment -- previously
filed as Exhibit (m)(5) to Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by
reference.
(i)(6). * 1983 Stock Option Plan -- Sixth Amendment -- previously
filed as Exhibit 10(c) to Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000, and incorporated herein by
reference.
(j)(1). * 1990 Stock Option Plan -- reference is made to Exhibit 4(a) of
Registration Statement on Form S-8, Registration No.
33-37373, filed with the Securities and Exchange Commission
on October 18, 1990, and incorporated herein by reference.
(j)(2). * First Amendment to Huntington Bancshares Incorporated 1990
Stock Option Plan -- previously filed as Exhibit 10(q)(2) to
Annual Report on Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
(j)(3). * Second Amendment to Huntington Bancshares Incorporated 1990
Stock Option Plan -- previously filed as Exhibit 10(n)(3) to
Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
(j)(4). * Third Amendment to Huntington Bancshares Incorporated 1990
Stock Option Plan -- previously filed as Exhibit 10(b) to
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, and incorporated herein by reference.
(k)(1). * The Huntington Supplemental Stock Purchase and Tax Savings
Plan and Trust (as amended and restated as of February 9,
1990) -- previously filed as Exhibit 4(a) to Registration
Statement on Form S-8, Registration No. 33-44208, filed with
the Securities and Exchange Commission on November 26, 1991,
and incorporated herein by reference.
59
61
(k)(2). * First Amendment to The Huntington Supplemental Stock
Purchase and Tax Savings Plan and Trust Plan -- previously
filed as Exhibit 10(o)(2) to Annual Report on Form 10-K for
the year ended December 31, 1997, and incorporated herein by
reference.
(l). * Deferred Compensation Plan and Trust for Huntington
Bancshares Incorporated Directors -- reference is made to
Exhibit 4(a) of Registration Statement on Form S-8,
Registration No. 33-41774, filed with the Securities and
Exchange Commission on July 19, 1991, and incorporated herein
by reference.
(m). * Huntington Bancshares Incorporated Retirement Plan For
Outside Directors -- previously filed as Exhibit 10(t) to
Annual Report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
(n). * Restated Huntington Supplemental Retirement Income Plan --
previously filed as Exhibit 10(n) to Annual Report on Form
10-K for the year ended December 31, 1999, and incorporated
herein by reference.
(o)(1). * Amended and Restated 1994 Stock Option Plan -- previously
filed as Exhibit 10(r) to Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by
reference.
(o)(2). * Third Amendment to Huntington Bancshares Incorporated 1994
Stock Option Plan -- previously filed as Exhibit 10(a) to
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, and incorporated herein by reference.
(p) * Employment Agreement, dated February 15, 2001, between
Huntington Bancshares Incorporated and Thomas E. Hoaglin.
21. Subsidiaries of the Registrant.
23. Consent of Ernst & Young LLP, Independent Auditors.
99. Ratio of Earnings to Fixed Charges
- -------------
*Denotes management contract or compensatory plan or arrangement.
60