<PAGE> 1
As filed with the Securities and Exchange Commission on February 27, 1997
Registration No. 333-18729
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------------
HUNTINGTON BANCSHARES INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Maryland 6711 31-0724920
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------------
Huntington Center
41 South High Street
Columbus, Ohio 43287
(614) 480-8300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
------------------------------------
Ralph K. Frasier, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
Huntington Center
41 South High Street
Columbus, Ohio 43287
(614) 480-4647
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
Copies of Correspondence to:
Jeffrey T. Hayes, Esq. Ralph F. MacDonald, III, Esq.
Porter, Wright, Morris & Arthur Alston & Bird
41 South High Street 1201 W. Peachtree Street
Columbus, Ohio 43215 Atlanta, Georgia 30309-3424
------------------------------------
Approximate date of commencement of proposed sale of the securities
to the public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered Registered Per Share* Price* Fee*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, without par value**... 7,826,000 $28,375 $128,820,769 $39,037
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Estimated solely for the purpose of calculating the registration fee based on
the market value on December 21, 1996, of the 4,539,939 shares of common
stock of Citi-Bancshares, Inc. (which includes 67,525 shares which may be
issued upon exercise of stock options prior to the Merger) to be canceled in
the Merger, in accordance with Rule 457(f)(1).
** Includes the right to purchase Series A Junior Participating Preferred Stock,
without par value. Prior to the occurrence of certain events, these rights
will not be exercisable or evidenced separately from the Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
<PAGE> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Caption
------------- ------------------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus........... Facing Page of Registration Statement; Cross Reference
Sheet; Cover Page of Prospectus.
2. Inside Front and Outside Back Cover
Pages of Prospectus.............................. Available Information; Table of Contents.
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.................... Introduction; Summary Information; Selected Financial
Data.
4. Terms of the Transaction......................... Summary Information; The Merger; Effect of the Merger
on Shareholders' Rights.
5. Pro Forma Financial Information.................. Not Applicable.
6. Material Contracts with the
Company Being Acquired........................... The Merger; Huntington Bancshares Incorporated -
Huntington Florida and HNB-Florida
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to Be Underwriters........................ Not Applicable.
8. Interests of Named Experts and Counsel........... The Merger - Opinion of Financial Advisor; Experts;
Legal Opinions.
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities ................................. Not Applicable.
10. Information with Respect to S-3 Registrants...... Not Applicable.
11. Incorporation of Certain
Information by Reference......................... Not Applicable.
12. Information with Respect to S-2
or S-3 Registrants............................... Not Applicable.
13. Incorporation of Certain
Information by Reference......................... Not Applicable.
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants................ Introduction; Summary Information; Selected Financial
Data; Huntington Bancshares Incorporated; Government
Regulation; Financial Statements.
15. Information with Respect to S-3 Companies........ Not Applicable.
16. Information with Respect to S-2 or S-3
Companies........................................ Not Applicable.
17. Information with Respect to Companies
Other than S-3 or S-2 Companies.................. Introduction; Summary Information; Selected Financial
Data; Citi-Bancshares, Inc.; Government Regulation;
Financial Statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Caption
------------- ------------------
<S> <C>
18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Introduction; Summary Information - The Special
Meeting and Record Date; The Merger; Huntington
Bancshares Incorporated - Huntington Florida and HNB-
Florida; Citi-Bancshares, Inc.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer.......................... Not Applicable.
</TABLE>
<PAGE> 4
CITI-BANCSHARES, INC.
1211 North Boulevard West
Leesburg, Florida 34738-5351
January 6, 1997
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Citi-Bancshares, Inc. ("Citi-Bancshares"), which will
be held on Thursday, January 30, 1997, at 7:00 p.m. local time. The Special
Meeting will be held at the Silver Lake Country Club Clubhouse, which is
located at 9435 Silver Lake Drive, Leesburg, Florida.
At the Special Meeting, shareholders of Citi-Bancshares will be asked
to consider and vote on the Agreement and Plan of Merger, dated as of October
31, 1996 (the "Merger Agreement"), pursuant to which Citi-Bancshares would be
merged (the "Merger") into Huntington Bancshares Florida, Inc., a wholly owned
subsidiary of Huntington Bancshares Incorporated ("Huntington"). The Merger
Agreement provides that Citi-Bancshares shareholders will have the option to
receive either a number of whole shares of Huntington common stock approximately
equivalent in value to $30.00, or cash in the amount of $30.00, or a combination
of a number of whole shares of Huntington common stock approximately equivalent
to $18.00 in value and $12.00 in cash, in exchange for each of their shares of
Citi-Bancshares common stock, subject to certain limitations. Cash will be paid
for any fractional shares. The exact number of shares of Huntington common stock
to be received for each share of Citi-Bancshares common stock to be exchanged
for Huntington common stock, in whole or in part, will depend on, among other
things, the average of the closing sale prices per share of Huntington common
stock for the five trading days ending on the fifth trading day immediately
prior to the effective date of the Merger. The receipt of Huntington Common
Stock in the Merger will not result in a recognition of any gain or loss for
federal income tax purposes.
Huntington, headquartered in Columbus, Ohio, is the fourth largest bank
holding company in Ohio in terms of total assets at September 30, 1996.
Huntington, through its affiliates, conducts a full-service commercial and
consumer banking business, provides a variety of trust and fiduciary services,
and engages in mortgage banking, lease financing, discount brokerage activities,
underwriting credit life and disability insurance, and issuing commercial paper
guaranteed by Huntington. As of September 30, 1996, Huntington affiliates
operated 335 banking offices in Ohio, Florida, Indiana, Kentucky, Michigan, and
West Virginia, including 31 offices in Florida. Huntington common stock is
actively traded in the over-the-counter market under the symbol "HBAN".
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER AS
BEING IN THE BEST INTERESTS OF CITI-BANCSHARES' SHAREHOLDERS AND RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREIN.
Additional information regarding the proposed Merger and the parties
thereto is set forth in the attached Proxy Statement, which also serves as the
Prospectus regarding the common stock of Huntington to be issued in connection
with the Merger. Please carefully read these materials and consider the
information contained in them.
The affirmative vote of the holders of a majority of the outstanding
shares of Citi-Bancshares common stock is required to approve the Merger
Agreement. Accordingly, your vote is important no matter how large or how small
your holdings may be. Whether or not you plan to attend the Special Meeting, you
are urged to complete, sign, and promptly return the enclosed proxy card to
assure that your shares will be voted at the Special Meeting. If you attend the
Special Meeting, you may vote in person if you wish and your proxy will not be
used.
Very truly yours,
/s/ KEN W. MULLIS
------------------
Ken W. Mullis
President
<PAGE> 5
CITI-BANCSHARES, INC.
1211 North Boulevard West
Leesburg, Florida 34738-5351
------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
January 30, 1997
------------------------------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Citi-Bancshares, Inc. ("Citi-Bancshares") has been called
by the Board of Directors and will be held at the Silver Lake Country Club
Clubhouse, which is located at 9435 Silver Lake Drive, Leesburg, Florida, on
Thursday, January 30, 1997, at 7:00 p.m., local time, for the following
purposes:
1. To consider and vote upon the approval and adoption of the
Agreement and Plan of Merger, dated as of October 31, 1996,
pursuant to which Citi-Bancshares would be merged into Huntington
Bancshares Florida, Inc., a wholly owned subsidiary of Huntington
Bancshares Incorporated ("Huntington"), and the shareholders of
Citi-Bancshares would receive either whole shares of the common
stock of Huntington, cash, or a combination of whole shares of
Huntington Common stock and cash, as more fully described in the
accompanying Proxy Statement; and
2. To transact any other business which may properly come before the
meeting or any adjournments or postponements thereof. (The Board
of Directors is not currently aware of any other business to come
before the Special Meeting.)
Only shareholders of record at the close of business on December 31,
1996, the record date for the Special Meeting, are entitled to notice of and to
vote at the Special Meeting and any adjournments or postponements thereof.
We urge you to execute and return the enclosed proxy as soon as
possible in order to ensure that your shares will be represented at the Special
Meeting. Your proxy may be revoked in the manner described in the accompanying
Proxy Statement at any time before it has been voted at the Special Meeting. If
you attend the Special Meeting, you may vote in person, and your proxy will not
be used.
Dated: January 6, 1997 By Order of the Board of Directors
/S/ KEN W. MULLIS
-----------------
Ken W. Mullis
President
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY
IF MAILED IN THE UNITED STATES. PLEASE DO NOT
SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 6
PROSPECTUS
HUNTINGTON BANCSHARES INCORPORATED
COMMON STOCK
(without par value)
and associated rights
This Proxy Statement/Prospectus relates to up to 7,826,000 shares of
common stock, without par value, of Huntington Bancshares Incorporated
("Huntington"), which may be issued in connection with the merger (the "Merger")
of Citi-Bancshares, Inc. ("Citi-Bancshares") into Huntington Bancshares Florida,
Inc. ("Huntington Florida"), a wholly owned subsidiary of Huntington. (The
Huntington Common Stock includes certain rights to purchase Series A Junior
Participating Preferred Stocks without par value, pursuant to the terms of a
certain Rights Agreement described elsewhere herein. See "HUNTINGTON BANCSHARES
INCORPORATED - Description of Huntington Common Stock."This Proxy
Statement/Prospectus also serves as the Proxy Statement for the Special Meeting
of Shareholders of Citi-Bancshares to be held on January 30, 1997, for the
purpose of approving the Agreement and Plan of Merger, dated as of October 31,
1996, among Huntington, Huntington Florida, and Citi-Bancshares (the "Merger
Agreement"), and the transactions contemplated thereby. A description of the
Merger is included herein and the Merger Agreement is set forth in full at
Exhibit A hereto and incorporated herein.
At such time as the Merger becomes effective (the "Effective Time"),
the issued and outstanding shares of common stock, $.01 par value per share, of
Citi-Bancshares (the "Citi-Bancshares Common Stock") will be converted into the
right to receive whole shares of common stock, without par value, of Huntington
("Huntington Common Stock"), cash, or a combination of shares of Huntington
Common Stock and cash, at the option of the shareholder, subject to certain
limitations as described herein. Cash will be paid for any fractional shares.
The exact number of shares of Huntington Common Stock to be received by a
Citi-Bancshares shareholder for each share of Citi-Bancshares Common Stock to be
exchanged for shares of Huntington Common Stock, in whole or in part, will
depend on, among other things, the average of the closing sale prices for a
share of Huntington Common Stock as reported on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") National Market for the five
trading days ending on the fifth trading day immediately prior to the effective
time of the Merger (the "Average Closing Price"). Huntington and
Citi-Bancshares Common Stock are traded on the Nasdaq National Market under the
symbols "HBAN" and "CNBL," respectively. See "THE MERGER - TERMS OF THE
MERGER."
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
THE SHARES OF HUNTINGTON COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, THE BANK INSURANCE
FUND, OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING AND
SOLICITATION OF PROXIES MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND
ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY HUNTINGTON OR CITI-BANCSHARES. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT WOULD BE
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------------
The Date of this Proxy Statement/Prospectus is January 6, 1997.
<PAGE> 7
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION ................................................... 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ....................... 3
CITI-BANCSHARES, INC. PROXY
STATEMENT ............................................................ 4
INTRODUCTION ............................................................ 4
SUMMARY INFORMATION ..................................................... 5
Huntington and Huntington Florida .................................. 5
Citi-Bancshares .................................................... 5
The Special Meeting and Record Date ................................ 5
The Merger ......................................................... 6
Vote Required ...................................................... 7
No Dissenting Shareholders' Rights ................................. 7
Interests of Management ............................................ 8
Federal Income Tax Consequences .................................... 8
Accounting Treatment ............................................... 8
Regulatory Approvals ............................................... 8
Comparative Per Share Information .................................. 9
SELECTED FINANCIAL DATA ................................................. 10
Selected Financial Data of Huntington .............................. 10
Selected Financial Data of Citi-Bancshares ......................... 11
THE MERGER .............................................................. 12
Background of the Merger ........................................... 12
Reasons for the Merger ............................................. 14
Opinion of Financial Advisor ....................................... 15
Effective Date of the Merger ....................................... 20
Terms of the Merger ................................................ 20
Election Procedures; Exchange of Certificates ...................... 22
Terms of the Option ................................................ 24
The Subsidiary Merger .............................................. 25
Covenants of the Parties ........................................... 25
Conditions to Consummation of the Merger . ......................... 27
Amendment; Termination ............................................. 28
No Dissenting Shareholders' Rights ................................. 29
Interests of Management ............................................ 29
Federal Income Tax Consequences .................................... 30
Accounting Treatment ............................................... 32
Regulatory Approvals ............................................... 32
Resales of Huntington Common Stock ................................ 33
EFFECT OF THE MERGER ON
SHAREHOLDERS' RIGHTS ................................................. 33
Capital Stock ...................................................... 33
Nomination, Election, and Removal of
Directors ........................................................ 34
Shareholder Proposals .............................................. 34
Special Voting Requirements for Certain
Transactions ..................................................... 35
Evaluation of Mergers and Consolidations . ......................... 35
Special Meetings ................................................... 36
Directors' and Shareholders' Right to Adopt,
Alter, or Repeal the Bylaws ...................................... 36
Personal Liability of Officers and Directors
to Shareholders .................................................. 36
Rights Plan ........................................................ 37
HUNTINGTON BANCSHARES INCORPORATED ...................................... 37
General ............................................................ 37
Huntington Florida and HNB-Florida ................................. 38
Huntington Directors ............................................... 38
Compensation of Huntington Directors ............................... 40
Executive Officers of Huntington ................................... 41
Compensation of Executive Officers ................................. 43
Transactions With Directors and Officers . ......................... 48
Ownership of Huntington Common Stock ............................... 49
Description of Huntington Common Stock ............................. 50
Dividends and Price Range of Huntington
Common Stock ..................................................... 52
Properties ......................................................... 53
Legal Proceedings .................................................. 53
CITI-BANCSHARES , INC ................................................... 53
General ............................................................ 53
Competition ........................................................ 54
Description of Property ............................................ 54
Legal Proceedings .................................................. 55
Principal and Management Shareholders .............................. 55
Dividends and Price Ranges of Citi-Bancshares
Common Stock ..................................................... 56
GOVERNMENT REGULATION ................................................... 57
General ............................................................ 57
Holding Company Structure .......................................... 58
Dividend Restrictions .............................................. 59
FDIC Insurance ..................................................... 59
Capital Requirements ............................................... 60
Federal Deposit Insurance Corporation
Improvement Act of 1991 .......................................... 61
Interstate Branching and Consolidations .. ......................... 62
Other Applicable Regulations ....................................... 62
EXPERTS ................................................................. 63
LEGAL OPINIONS .......................................................... 63
OTHER MATTERS ........................................................... 63
INDEX TO FINANCIAL INFORMATION .......................................... 64
EXHIBITS
Exhibit A - Agreement and Plan of Merger
Exhibit B - Opinion of The Carson Medlin Company
- 2 -
<PAGE> 8
AVAILABLE INFORMATION
Huntington and Citi-Bancshares are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements, and other information filed by Huntington and
Citi-Bancshares can be inspected and copied at the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
public reference facilities of the regional offices of the Commission at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material also can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the rules and regulations of the
Commission. In addition, the Commission maintains a site on the World Wide Web
at http://www.sec.gov that contains reports, proxy and information statements,
and other information regarding Huntington and Citi-Bancshares and other
registrants that file electronically with the Commission.
This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement and exhibits thereto which Huntington
has filed with the Commission under the Securities Act of 1933, as amended (the
"Registration Statement"), and to which reference is hereby made. Statements
contained in this Proxy Statement/Prospectus concerning the provisions of
certain documents filed as exhibits to the Registration Statement are
necessarily brief descriptions thereof and are not necessarily complete, and
each such statement is qualified in its entirety by reference to the full text
of such document.
All information contained herein with respect to Huntington and
Huntington Florida, was supplied by Huntington and all information contained
herein with respect to Citi-Bancshares and The Carson Medlin Company,
Citi-Bancshares' financial advisor, was supplied by Citi-Bancshares. Although
neither Huntington nor Citi-Bancshares has any knowledge that would indicate
that any statements or information relating to the other party contained herein
is inaccurate or incomplete, neither Huntington nor Citi-Bancshares can warrant
the accuracy or completeness of such statements or information as they relate to
the other party.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained under the captions "The Merger--
Reasons for the Merger," "--Opinions of Financial Advisor," "Citi-Bancshares,
Inc.," "Consolidated Financial Statements of Huntington -- Management's
Discussion and Analysis of Financial Condition and Results of Operations --
December 31, 1995, and other Financial Information," "--Management's Discussion
and Analysis of Financial Condition and Results of Operations-September 30,
1996," "Financial Statements of Citi-Bancshares -- Management's Discussion and
Analysis of Financial Condition and Results of Operations-December 31, 1995,"
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations-September 30, 1996," and elsewhere in this Prospectus that are not
historical facts, including, without limitation, statements of future
expectations, projections of results of operations and financial condition,
statements of future economic performance and other forward-looking statements
within the meaning of Private Securities Litigation Reform Act of 1995, are
subject to known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of Huntington and
Citi-Bancshares to differ materially from those contemplated in such
forward-looking statements. In addition to the specific matters referred to
herein, important factors which may cause actual results to differ from those
contemplated in such forward-looking statements include: (i) the results of
Huntington's and Citi-Bancshare's efforts to implement their respective business
strategy; (ii) the effect of economic conditions and the performance of
borrowers; (iii) actions of the Huntington's and Citi-Bancshare's competitors
and Huntington's and Citi-Bancshare's ability to respond to such actions; (iv)
the cost of Huntington's and Citi-Bancshare's capital, which may depend in part
on Huntington's and Citi-Bancshare's portfolio quality, ratings, prospects and
outlook; (v) changes in governmental regulation, tax rates and similar matters;
and (vi) other risks detailed in Huntington's and Citi-Bancshare's other filings
with the Commission.
- 3 -
<PAGE> 9
CITI-BANCSHARES, INC.
---------------
PROXY STATEMENT
---------------
INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to
the shareholders of Citi-Bancshares in connection with the solicitation of
proxies by the Board of Directors of Citi-Bancshares for a Special Meeting of
Shareholders (the "Special Meeting") to be held at 7:00 p.m., local time, on
Thursday, Janurary 30, 1997, at the Silver Lake Country Club Clubhouse, which
is located at 9435 Silver Lake Drive, Leesburg, Florida, and any adjournments or
postponements thereof, to consider and vote upon the approval and adoption of
the Merger Agreement, thereby approving the Merger and the other transactions
contemplated thereby. This Proxy Statement and accompanying proxy will be first
sent or given to the shareholders of Citi-Bancshares on or about January 10,
1997.
The shares represented by the accompanying proxy will be voted as
directed if the proxy is properly signed and received by Citi-Bancshares prior
to the Special Meeting. The proxy will be voted FOR the approval and adoption of
the Merger Agreement if no direction is made to the contrary on a duly executed
and returned proxy. The proxy may also be used to grant discretionary authority
to vote on other matters which may arise at the Special Meeting. While
management is presently unaware of any such matters, the person or persons
designated to vote the shares will cast votes according to their best judgment
if any such matters properly come before the Special Meeting. A person giving
the enclosed proxy has the power to revoke it at any time prior to the Special
Meeting by filing with the Secretary of Citi-Bancshares written notice of
revocation or a subsequent proxy relating to the same shares, or by attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute revocation of a proxy).
A majority of the outstanding shares of Citi-Bancshares Common Stock,
represented in person or by proxy, will constitute a quorum at the meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum at the Special Meeting. The affirmative vote of
the holders of a majority of the outstanding shares of Citi-Bancshares Common
Stock is required to approve and adopt the Merger Agreement. Because the
approval and adoption of the Merger Agreement requires the affirmative vote of a
particular percentage of the outstanding shares of Citi-Bancshares Common Stock,
an abstention or a broker non-vote with respect to such matter will have the
same effect as a vote against the matter. No approval of the Merger Agreement is
required by holders of Huntington Common Stock.
Citi-Bancshares shareholders of record at the close of business on
December 31, 1996 (the "Record Date"), will be entitled to vote a the Special
Meeting. At that date, Citi-Bancshares had 4,476,414 shares of Citi-Bancshares
Common Stock outstanding and entitled to vote on all matters requiring a vote of
the shareholders. These shares were held by approximately 1,096 holders of
record. Each share of Citi-Bancshares Common Stock entitles the holder to one
vote, exercisable in person or by properly executed proxy, on each matter that
comes before the shareholders at the Special Meeting.
Citi-Bancshares will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others, if any, for
forwarding solicitation material to beneficial owners of stock. Representatives
of Citi-Bancshares may solicit proxies by mail, telegram, telephone, or personal
interview.
- 4 -
<PAGE> 10
SUMMARY INFORMATION
The following is a brief summary of certain information with respect to
the Merger. This summary is not intended to be complete and is qualified in its
entirety by reference to, and should be read in conjunction with, the detailed
information and financial statements contained herein and in the exhibits
hereto.
HUNTINGTON AND HUNTINGTON FLORIDA
Huntington, a multi-state bank holding company incorporated under the
laws of the State of Maryland in 1966, is headquartered in Columbus, Ohio. At
September 30, 1996, Huntington had total assets of approximately $20.6 billion
and total deposits of approximately $13.2 billion. Huntington, through its
affiliates, conducts a full service commercial and consumer banking business,
engages in mortgage banking, lease financing, trust services, discount brokerage
services, underwriting credit life and disability insurance, and issuing
commercial paper guaranteed by Huntington, and provides other financial products
and services. At September 30, 1996, Huntington's affiliates had 178 banking
offices in Ohio, 45 banking offices in West Virginia, 42 banking offices in
Michigan, 31 banking offices in Florida, 24 banking offices in Indiana, 15
banking offices in Kentucky, and 1 foreign office in the Cayman Islands. In
addition, Huntington's mortgage company affiliate has loan origination offices
throughout the Midwest and East Coast as well as one office in Houston, Texas.
The principal executive offices of Huntington are located at Huntington Center,
41 South High Street, Columbus, Ohio 43287 (telephone number 614-480-8300).
Huntington Florida, an Ohio corporation, is a wholly owned subsidiary
of Huntington. At September 30, 1996, Huntington Florida had total assets of
$1.1 billion, total deposits of $873.9 million, and operated 31 banking offices
in Florida through its wholly owned subsidiary, The Huntington National Bank of
Florida ("HNB-Florida"). The principal executive offices of Huntington Florida
are located at Huntington Center, 41 South High Street, Columbus, Ohio 43287
(telephone number 614-480-8300). The principal executive offices of HNB-Florida
are located at 253 North Orlando, Maitland, Florida 32751 (telephone number
407-740-6300).
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") permits mergers between insured banks located in
different states effective generally on and after June 1, 1997, subject to the
rights of individual states to "opt out" of interstate branching and
consolidations. Subject to obtaining the necessary regulatory approvals
Huntington presently intends to merge all of its subsidiary banks except The
Huntington State Bank, and HNB-Florida, into its principal bank, The
Huntington National Bank, headquartered in Columbus, Ohio, and to consolidate
all of its subsidiary holding companies, except Huntington Florida, into
Huntington, as soon as practicable after June 1, 1997. Huntington Florida and
HNB Florida will not be merged or liquidated in the foreseeable future into
Huntington and the Huntington National Bank, respectively, without a private
letter ruling from the Internal Revenue Service to the effect that the tax-free
reorganization with Citi-Bancshares will not be adversely impacted by such
transactions.
CITI-BANCSHARES
Citi-Bancshares, a bank holding company incorporated under the laws of
the State of Florida in 1982, is headquartered in Leesburg, Florida. At
September 30, 1996, Citi-Bancshares had total assets of $524 million and total
deposits of $459 million. Citi-Bancshares owns all of the outstanding stock of
Citizens National Bank of Leesburg, a national banking association ("Citizens
Bank"), which is also headquartered in Leesburg, Florida. Citi-Bancshares,
through Citizens Bank, is principally engaged in the commercial banking business
which includes lending, investment, deposit, trust, and fiduciary activities.
Citi-Bancshares operates eleven full-service offices in Lake, Sumter, and Marion
Counties, Florida. The principal executive offices of Citi-Bancshares are
located at 1211 North Boulevard West, Leesburg, Florida, 34749 (telephone number
352-787-5111).
THE SPECIAL MEETING AND RECORD DATE
The Special Meeting will be held at 7:00 p.m., local time, on Thursday,
January 30, 1997, at the Silver Lake Country Club Clubhouse, which is located
at 9435 Silver Lake Drive, Leesburg, Florida. The close of business on December
31, 1996, has been set as the record date for determining the shareholders of
record of Citi-Bancshares
- 5 -
<PAGE> 11
entitled to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof (the "Record Date"). The presence, in person or by proxy,
of the holders of a majority of the outstanding shares entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
THE MERGER
At the Special Meeting, Citi-Bancshares shareholders will consider and
vote upon the approval and adoption of the Merger Agreement and the transactions
contemplated therein. Approval of the Merger Agreement will constitute approval
of the Merger. The Merger Agreement sets forth the terms of the Merger, as well
as certain representations, warranties, conditions, and covenants made by
Huntington, Huntington Florida, and Citi-Bancshares as an inducement to the
other parties to execute and deliver the Merger Agreement and to consummate the
Merger. The consummation of the Merger is conditioned on the satisfaction of
certain conditions, including obtaining the approval of the shareholders of
Citi-Bancshares and obtaining various regulatory approvals. Upon the
effectiveness of the Merger, Citi-Bancshares will be merged into Huntington
Florida, Huntington Florida will continue to be a wholly owned subsidiary of
Huntington, and the separate existence of Citi-Bancshares will cease. It is
anticipated that, immediately after the consummation of the Merger, Citizens
Bank will be merged with and into HNB-Florida under the charter of HNB-Florida
(the "Subsidiary Merger").
As an inducement to Huntington to enter into the Merger Agreement,
Citi-Bancshares has granted to Huntington an option (the "Option") to purchase
up to 19.9% of the outstanding shares of Citi-Bancshares Common Stock under
certain specified circumstances at a price of $30.00 per share, pursuant to the
terms of a certain Stock Option Agreement, dated as of October 31, 1996, between
Citi-Bancshares and Huntington (the "Stock Option Agreement"). See "THE MERGER -
TERMS OF THE OPTION."
At the Effective Time, the shares of Citi-Bancshares Common Stock
issued and outstanding immediately prior to the Effective Time (excluding shares
held by Citi-Bancshares, Citizens Bank, Huntington, or any of Huntington's
subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, which will be canceled and retired at the Effective
Time) will be converted into the right to receive, at the option of each
Citi-Bancshares shareholder, either a number of whole shares of Huntington
Common Stock approximately equivalent in value to $30.00 per share, or cash in
the amount of $30.00 per share, or a combination of a number of whole shares of
Huntington Common Stock approximately equivalent in value to $18.00 per share
plus cash in the amount of $12.00 per share, subject to certain limitations.
Cash will be paid in lieu of the issuance of any fractional shares of Huntington
Common Stock. The actual number of shares of Huntington Common Stock to be
received for each share of Citi-Bancshares Common Stock to be exchanged for
shares of Huntington Common Stock, in whole or in part, will depend on, among
other things, the Average Closing Price per share of Huntington Common Stock.
Citi-Bancshares shareholders who fail to timely and properly make an election
will be deemed to have elected to receive only shares of Huntington Common
Stock, except that Citi-Bancshares shareholders who fail to make such an
election and who own fewer than 100 shares of Citi-Bancshares Common Stock will
be deemed to have made an election to receive only cash, in exchange for their
shares of Citi-Bancshares Common Stock. See "THE MERGER - TERMS OF THE MERGER."
The average closing sale prices per share of Huntington Common Stock as
reported on the Nasdaq National Market for the five trading days immediately
preceding the Record Date was $27.2876. If the Average Closing Price were
$27.2876 at the Effective Date, each shareholder of Citi-Bancshares who elects
to receive only shares of Huntington Common Stock in exchange for such
shareholder's shares of Citi-Bancshares Common Stock would be entitled to
receive 1.0994 shares of Huntington Common Stock for each share of
Citi-Bancshares Common Stock held by such shareholder (i.e., $30.00 divided by
such Average Closing Price) (the "Estimated Exchange Ratio"). Based on such
Average Closing Price, each shareholder of Citi-Bancshares who elects to
receive a combination of shares of Huntington Common Stock and cash in exchange
for such shareholder's shares of Citi-Bancshares Common Stock would be entitled
to 0.6596 shares of Huntington Common Stock for each share of Citi-Bancshares
Common Stock held by such shareholder (i.e., 60% of the Estimated Exchange
Ratio) plus $12.00 in cash. The market price of Huntington Common Stock at the
Effective Time, or on the date on which certificates representing such shares
are received, may be higher or lower than the average closing sale prices per
share of Huntington Common Stock for the five trading days immediately
preceding the Record Date (on which the Estimated Exchange Ratio was
determined) or the market price
- 6 -
<PAGE> 12
of Huntington Common Stock as of the Record Date or at the time of the Special
Meeting. Shareholders are advised to obtain current market quotations for
Huntington Common Stock.
At the Effective Time, each outstanding option to purchase shares of
Citi-Bancshares Common Stock shall be fully vested and shall be converted into
an option to acquire the same number of shares of Huntington Common Stock as the
holder would have been entitled to receive pursuant to the Merger if such holder
had exercised such option in full prior to the Effective Time and elected to
receive only shares of Huntington Common Stock in exchange for such
shareholder's shares of Citi-Bancshares Common Stock. The per share exercise
price for each such option will be adjusted appropriately.
Citi-Bancshares has received an opinion of The Carson Medlin Company
("Carson Medlin"), Citi-Bancshares' financial advisor, that the terms of the
Merger are fair, from a financial point of view, to the shareholders of
Citi-Bancshares. See "THE MERGER - BACKGROUND OF THE MERGER," "- OPINION OF
FINANCIAL ADVISOR," and "CONDITIONS TO CONSUMMATION OF THE MERGER" and the
opinion of Carson Medlin, which is attached hereto as Exhibit B.
It is contemplated that the Merger will be consummated as soon as
practicable after the satisfaction of various conditions, including the receipt
of required regulatory approvals. See "THE MERGER - EFFECTIVE DATE OF THE
MERGER," and "- CONDITIONS TO CONSUMMATION OF THE MERGER."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding
shares of Citi-Bancshares Common Stock is necessary to approve and adopt the
Merger Agreement, thereby approving the Merger. As of the Record Date, the
directors and executive officers of Citi-Bancshares and their affiliates
beneficially owned 611,168 shares of Citi-Bancshares Common Stock (excluding
shares subject to stock options), which represent 13.65% of the total issued and
outstanding shares of such stock entitled to vote at the Special Meeting. As an
inducement for Huntington and Huntington Florida to enter into the Merger
Agreement, ten directors and executive officers of Citi-Bancshares, holding in
the aggregate 586,738 shares of Citi-Bancshares Common Stock as of the Record
Date, or 13.11% of the outstanding shares of such stock entitled to vote at the
Special Meeting, executed certain Shareholder Agreements, each dated as of
October 31, 1996 (the "Shareholder Agreements"), pursuant to which these
shareholders agreed to vote their shares of Citi-Bancshares Common Stock in
favor of the approval of the Merger Agreement and the approval of the Merger and
against the approval of any competing acquisition offer or any other transaction
which is inconsistent with the obligation of Citi-Bancshares to consummate the
Merger.
THE BOARD OF DIRECTORS OF CITI-BANCSHARES UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF CITI-BANCSHARES VOTE IN FAVOR OF THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT. SEE "THE MERGER BACKGROUND OF THE MERGER" AND "-
REASONS FOR THE MERGER."
NO DISSENTING SHAREHOLDERS' RIGHTS
Under Florida law, holders of Citi-Bancshares Common Stock are not
entitled to dissenting shareholders' rights, including rights of appraisal, in
connection with the consummation of the Merger.
INTERESTS OF MANAGEMENT
At the time of entering into the Merger Agreement, Huntington entered
into an employment agreement with Ken W. Mullis, President and Chief Executive
Officer of Citi-Bancshares and Citizens Bank, which will become effective upon
the consummation of the Merger. The agreement replaces a certain Change in
Control Agreement between Mr. Mullis and Citi-Bancshares, dated June 13, 1996,
which will be terminated upon the effectiveness of such employment agreement.
The employment agreement is for a term of two years. Upon consummation of the
Merger,
- 7 -
<PAGE> 13
it is Huntington's intention to elect Mr. Mullis to the Board of Directors of
HNB-Florida and to appoint him Chairman of HNB-Florida. In addition, upon
consummation of the Merger, it is Huntington's intention to elect Messrs.
Clifton L. Bridges, M.D., and Walter S. McLin, III, each of whom is currently a
director of Citi-Bancshares, to the Board of Directors of HNB-Florida. In the
event that Huntington Florida and HNB-Florida are merged into their Ohio-based
affiliates, it is expected that Mr. Mullis will remain as a senior officer of
Huntington's Florida operations.
Upon consummation of the Merger, Huntington has agreed to provide
generally to the officers and employees of Citi-Bancshares certain employee
benefits and severance benefits and to honor all employment, severance, and
other compensation agreements between Citi-Bancshares or Citizens Bank and any
current or former director, officer, or employee of either of such companies. In
addition, Huntington has agreed that it and its affiliates will indemnify the
present and former directors, officers, employees, and agents of Citi-Bancshares
or Citizens Bank against certain liabilities arising at or prior to the
Effective Time to the fullest extent permitted under applicable law, or by such
companies' Articles or Certificate of Incorporation or Bylaws, consistent with
the terms of the Merger Agreement. See "THE MERGER - INTERESTS OF MANAGEMENT."
FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the Merger will be a tax-free reorganization for
federal income tax purposes and that no gain or loss will be recognized for
federal income tax purposes by the shareholders of Citi-Bancshares to the extent
their shares of Citi-Bancshares Common Stock are converted into shares of
Huntington Common Stock in the Merger, except to the extent that cash is
received in lieu of the issuance of fractional shares. Citi-Bancshares
shareholders will recognize gain or loss for federal income tax purposes with
respect to any cash received in the Merger. See "THE MERGER - FEDERAL INCOME TAX
CONSEQUENCES." All shareholders should consult with their own tax advisors as to
the particular tax consequences of the Merger, including the applicability and
effect of state, local, and foreign tax laws and possible changes in the tax
laws.
ACCOUNTING TREATMENT
Huntington intends to treat the Merger as a purchase for accounting
purposes. See "THE MERGER - ACCOUNTING TREATMENT."
REGULATORY APPROVALS
Huntington has filed a request to the Board of Governors of the Federal
Reserve System (together with the Federal Reserve Bank of Cleveland, the
"Federal Reserve Board") for an exemption from the Federal Reserve Board's
general requirement of an application for bank holding company mergers.
Huntington expects that this waiver will be granted and that only a 30-day prior
notice to the Federal Reserve Board will be required. The Subsidiary Merger must
be approved by the Office of the Comptroller of the Currency (the "OCC"). The
notices and applications required to be filed with these agencies were submitted
or filed on December 26, 1996. See "THE MERGER - REGULATORY APPROVALS."
COMPARATIVE PER SHARE INFORMATION
The following summary presents unaudited selected comparative per share
information for Huntington on a historical basis; for Citi-Bancshares on a
historical basis; for Huntington and Citi-Bancshares on a pro forma combined
basis; and for Citi-Bancshares on an equivalent pro forma basis.
During 1995, Huntington completed the acquisitions of Security National
Corporation, a bank holding company headquartered in Maitland, Florida and
Reliance Bank of Florida, a Florida state-chartered bank headquartered in
Melbourne, Florida, both of which were accounted for as poolings of interests.
Prior year financial statements of Huntington were not restated for these
transactions because they were immaterial to Huntington as a whole. Also during
1995, Huntington completed the acquisition of First Seminole Bank, a Florida
state-chartered bank headquartered in Lake Mary, Florida ("First Seminole"), and
in January 1996, Huntington acquired Peoples Bank
- 8 -
<PAGE> 14
of Lakeland, a Florida state-chartered bank headquartered in Lakeland, Florida
("Lakeland"), both of which transactions were accounted for as purchases and,
accordingly, prior year financial statements of Huntington were not restated for
these acquisitions.
During 1996, Citi-Bancshares consummated the acquisition of Citizens
First Bancshares, Inc., a bank holding company headquartered in Ocala, Florida,
which was accounted for as a pooling of interests. Prior year financial
statements of Citi-Bancshares have been restated for this transaction.
Citi-Bancshares equivalent pro forma amounts were computed by
multiplying Huntington's pro forma amounts by the Estimated Exchange Ratio of
1.0994 shares of Huntington Common Stock for each share of Citi-Bancshares
Common Stock to be exchanged solely for shares of Huntington Common Stock. See
"THE MERGER - TERMS OF THE MERGER." The data presented below is based upon and
should be read in conjunction with the historical financial statements and
related notes thereto, included herein, of Huntington and Citi-Bancshares
(adjusted for stock splits and stock dividends, as appropriate). The Huntington
pro-forma data set forth below is based upon unaudited pro forma combined
financial statements giving effect to the Merger. Results for the nine months
ended September 30, 1996, are not necessarily indicative of results expected
for the entire year, nor are pro forma amounts necessarily indicative of
results that would have been or will be obtained on a combined basis. The data
presented below assumes that all shares of Citi-Bancshares Common Stock will be
converted into shares of Huntington Common Stock; however, the results would
not be materially different (no numbers would change by more than 2%) if up to
40% of the shares of Citi-Bancshares Common Stock were exchanged for cash.
<TABLE>
<CAPTION>
HUNTINGTON CITI-BANCSHARES
----------------------- --------------------------
EQUIVALENT
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Book Value Per Common Share:
As of September 30, 1996 ....... $10.40 $10.97 $11.64 $12.06
As of December 31, 1995 ........ 10.38 10.94 11.36 12.03
Cash Dividends Declared
Per Common Share:
For the nine months ended
September 30, 1996 ........... $ 0.56 $ 0.56 $ 0.36 $ 0.62
For the year ended
December 31, 1995 ............ 0.70 0.70 0.40 0.77
Net Income Per Common Share:
For the nine months ended
September 30, 1996 ........... 1.33 1.31 1.33 $ 1.44
For the year ended
December 31, 1995 ............ 1.62 1.59 1.61 1.75
</TABLE>
Both Huntington Common Stock and Citi-Bancshares Common Stock are
traded on the Nasdaq National Market. The following table sets forth the last
sale prices per share of Huntington Common Stock and Citi-Bancshares Common
Stock, respectively, on the Nasdaq National Market, on an historical basis, and
the equivalent per share price per share of Citi-Bancshares Common Stock
(computed by multiplying the price of Huntington Common Stock by the Estimated
Exchange Ratio of 1.0994 shares of Huntington Common Stock for each share of
Citi-Bancshares Common Stock to be exchanged exclusively for shares of
Huntington Common Stock, see "THE MERGER - TERMS OF THE MERGER") as of October
30, 1996, the last trading day prior to the public announcement of the proposed
Merger (see "THE MERGER - BACKGROUND OF THE MERGER"), and as of December 31,
1996.
<TABLE>
<CAPTION>
Citi-Bancshares
------------------------
Huntington Equivalent
Historical Historical Pro Forma
---------- ---------- ----------
<S> <C> <C> <C>
October 30, 1996................... $ 24.00 $24.625 $26.39
December 31, 1997.................. 26.375 28.25 29.00
</TABLE>
The actual number of shares of Huntington Common Stock to be received
for each share of Citi-Bancshares Common Stock to be exchanged for shares of
Huntington Common Stock in the Merger, in whole or in part, will depend on,
among other things, the Average Closing Price per share of Huntington Common
Stock, which will be determined as of a period immediately prior to the
Effective Time.
- 9 -
<PAGE> 15
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA OF HUNTINGTON
The following selected financial data of Huntington for the five years
ended December 31, 1995, have been derived from Huntington's audited
consolidated financial statements. The selected financial data of Huntington for
the nine months ended September 30, 1996 and 1995, have been derived from
unaudited consolidated financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, that, in the opinion of
management, are necessary for a fair and consistent presentation of such data.
Operating results for the nine months ended September 30, 1996, are not
necessarily indicative of results expected for the entire year 1995. This data
should be read in conjunction with the consolidated financial statements,
related notes, and other financial information of Huntington contained
elsewhere herein. See "INDEX TO FINANCIAL INFORMATION."
CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income ........ $1,127,797 $1,080,459 $1,461,896 $1,219,721 $1,236,311 $1,202,286 $1,208,407
Total interest expense ....... 562,085 537,782 737,333 463,671 440,111 504,846 659,918
Net interest income .......... 565,712 542,677 724,563 756,050 796,200 697,440 548,489
Securities gains ............. 13,463 8,754 9,056 2,594 27,189 36,332 16,951
Provision for loan losses .... 43,916 16,582 28,721 15,284 79,294 81,562 62,061
Net income ................... 194,376 178,960 244,489 242,593 236,912 161,046 133,940
Per common share(1):
Net income ................ $ 1.33 $ 1.17 $ 1.62 $ 1.62 $ 1.60 $ 1.10 $ 0.92
Cash dividends declared ... $ 0.56 $ 0.52 $ 0.70 $ 0.62 $ 0.51 $ 0.44 $ 0.40
Ratio of dividends to net
income .................... 42.1% 44.4% 43.8% 38.5% 32.5% 39% 42.9%
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Actual balances at period end:
Total assets ...................... $20,566 $20,173 $20,255 $17,771 $17,619 $16,247 $14,500
Long-term debt .................... 1,691 1,622 2,103 1,214 762 479 261
Shareholders' equity .............. 1,501 1,483 1,519 1,412 1,325 1,130 1,018
Shareholders' equity
per common share(1) ............ 10.40 10.02 10.38 9.39 8.84 7.68 7.01
Average balances during the period:
Total assets ...................... $19,918 $18,768 $19,048 $16,750 $16,851 $15,165 $13,613
Long-term debt .................... 1,917 1,286 1,424 928 641 300 219
Shareholders' equity .............. 1,514 1,519 1,503 1,403 1,216 1,074 977
Performance Ratios:
Return on average assets .......... 1.30% 1.27% 1.28% 1.45% 1.41% 1.06% 0.98%
Return on average equity .......... 17.15% 15.75% 16.27% 17.29% 19.48% 14.99% 13.71%
</TABLE>
- -------------------------
(1) Restated for stock dividends and stock splits, as appropriate.
- 10 -
<PAGE> 16
SELECTED FINANCIAL DATA OF CITI-BANCSHARES
The following selected financial data of Citi-Bancshares for the five
years ended December 31, 1995, have been derived from Citi-Bancshares' audited
consolidated financial statements. The selected financial data of
Citi-Bancshares for the nine months ended September 30, 1996 and 1995, have been
derived from unaudited consolidated financial statements and reflect all
adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary for a fair and consistent presentation of
such data. Operating results for the nine months ended September 30, 1996, are
not necessarily indicative of results expected for the entire year. This data
should be read in conjunction with the consolidated financial statements,
related notes, and other financial information of Citi-Bancshares contained
elsewhere herein. See "INDEX TO FINANCIAL INFORMATION."
CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income ....... $ 28,631 $ 27,461 $ 37,160 $ 31,660 $ 27,255 $ 27,728 $ 30,304
Total interest expense ...... 13,528 13,042 17,705 12,918 12,170 14,177 17,701
Net interest income ......... 15,103 14,419 19,455 18,741 17,085 15,551 12,603
Securities gains (losses) ... 24 29 (74) (168) 445 1,117 792
Provision for loan losses ... 200 255 255 600 1,096 1,450 1,005
Net income .................. 5,946 5,179 7,214 6,289 6,301 5,019 3,315
Per common share:
Net income ............... $ 1.33 $ 1.16 $ 1.61 $ 1.41 $ 1.41 $ 1.12 $ 0.74
Cash dividends declared .. $ 0.36 -0-(1) $ 0.40 $ 0.32 $ 0.28 $ 0.28 $ 0.17
Ratio of Dividends to net
income ................... 27% -0-(1) 24.7% 22.5% 19.9% 25.0% 23.0%
</TABLE>
(1) Citi-Bancshares paid annual dividends through 1995, when it began paying
quarterly dividends.
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Actual balances at period end:
Total assets ...................... $524,365 $499,429 $519,475 $469,338 $435,803 $403,546 $372,292
Long-term debt .................... -0- -0- -0- -0- -0- -0- -0-
Shareholders' equity .............. 52,044 47,334 50,884 36,920 39,535 30,951 27,340
Shareholders' equity
per common share ............... 11.64 10.57 11.36 8.26 8.83 6.93 6.08
Average balances during the period:
Total assets ...................... $519,875 $486,590 $495,160 $450,638 $413,784 $389,130 $348,458
Long-term debt .................... -0- -0- -0- -0- -0- -0- -0-
Shareholders' equity .............. 48,986 43,743 46,865 37,959 33,382 28,553 24,653
Performance Ratios:
Return on average assets .......... 1.53% 1.42% 1.46% 1.40% 1.52% 1.29% 0.95%
Return on average equity .......... 16.18% 15.79% 15.39% 16.57% 18.87% 17.58% 13.45%
</TABLE>
- 11 -
<PAGE> 17
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement, is qualified in its entirety by
reference to the Merger Agreement, which is attached hereto as Exhibit A.
BACKGROUND OF THE MERGER
Citi-Bancshares has pursued a strategy for increasing the long-term
value of Citi-Bancshares Common Stock primarily by expanding the range of
financial service offered by Citizens Bank and by expanding geographically
beyond the Lake County market. The Board of Directors of Citi-Bancshares
believed that such a strategy would lead to a diversification of risk and
enhancement of income and enable Citi-Bancshares to better serve customer needs
through a broader range of products and services. The goal was to enable
Citi-Bancshares to compete more effectively in the central Florida market and
to enhance the long-term value of Citi-Bancshares Common Stock.
Citi-Bancshares' Board of Directors appointed a Strategic Planning Committee in
1994 to analyze geographic and product expansion and other issues relating to
the long-term value of Citi-Bancshares Common Stock, including any inquiries
regarding the possibility of the acquisition of Citi-Bancshares. From time to
time during the two years prior to receiving Huntington's offer,
Citi-Bancshares received preliminary indications of interest regarding possible
acquisitions of Citi-Bancshares, but the Citi-Bancshares Board concluded that
its long-term strategy of remaining independent was in the best interest of
Citi-Bancshares' shareholders. While Citi-Bancshares has relied primarily on
internal growth, Citi-Bancshares acquired Citizen's First Bancshares, Inc. in
April 1996.
In October 1995, Milton D. Baughman, Senior Vice President of
Huntington, contacted Ken W. Mullis, Chief Executive Officer of Citi-Bancshares,
about the possibility of an introductory meeting between Messrs. Mullis and
Baughman and Zuheir Sofia, President of Huntington. A meeting was held on
October 11, 1995, at which Messrs. Baughman, Sofia, and Mullis discussed
Huntington's banking presence in Florida and Huntington's commitment to
technology and the role of technology in banking in the future. Mr. Mullis also
stated the Citi-Bancshares' Board's position to maximize growth and
profitability and to enhance the long-term value of the Citi-Bancshares Common
Stock as an independent bank. At this October 11 meeting, there were no
discussions among Messrs. Mullis, Baughman, and Sofia regarding a possible
acquisition of Citi-Bancshares by Huntington.
On November 29, 1995, Mr. Baughman met with Mr. Mullis in Leesburg,
Florida, and extended an invitation for Mr. Mullis and Clifton L. Bridges, M.D.,
Chairman of the Board of Directors of Citi-Bancshares, to visit Huntington's
facilities in Columbus, Ohio, after the first of the year. Messrs. Baughman and
Mullis also discussed the role of technology in banking and Huntington's Florida
expansion program at this meeting.
On March 8, 1996, Dr. Bridges and Mr. Mullis traveled to Columbus,
Ohio, to meet with Messrs. Baughman and Sofia. The primary focus of this trip
was to give Dr. Bridges and Mr. Mullis an opportunity to review Huntington's
technology in an effort to evaluate Citi-Bancshares' technology capabilities and
needs. Accordingly, Dr. Bridges and Mr. Mullis toured a Huntington Access(SM)
banking office and the Huntington Direct(R) (Huntington's 24-hour a day virtual
bank) operations center in Columbus. There were no discussions regarding a
possible sale of Citi-Bancshares to Huntington during this meeting in Columbus.
Dr. Bridges and Mr. Mullis reported on their trip to the full Board at the next
regularly scheduled meeting of the Board.
On July 15, 1996, Dr. Bridges and Mr. Mullis were invited to lunch with
Messrs. Baughman and Sofia in Leesburg, Florida. During the course of this lunch
meeting, Mr. Sofia initially expressed Huntington's desire to enter into a
business combination with Citi-Bancshares. Mr. Sofia discussed a possible
purchase price range of between $26.00 and $27.00 per share. Dr. Bridges and Mr.
Mullis indicated their belief that the Citi-Bancshares Board of Directors would
have no interest in an offer in that range and reaffirmed that Citi-Bancshares
was not for sale. Discussions were ended at that point and Dr. Bridges and Mr.
Mullis assumed that discussions had ended. On August 8, 1996, Dr. Bridges and
Mr. Mullis presented their report regarding the July 15 meeting to the full
Board of Directors of Citi-Bancshares.
In early October 1996, Mr. Baughman called Mr. Mullis to ask if Messrs.
Baughman and Sofia could meet with Dr. Bridges and Mr. Mullis on October 15,
1996. At the October 15 meeting, Mr. Sofia asked Dr. Bridges and Mr. Mullis if
they believed that the Citi-Bancshares Board would be interested in a purchase
price in the range of $28.00 to $29.00 per share. Dr. Bridges and Mr. Mullis
responded that they believed the Citi-Bancshares Board, consistent with
- 12 -
<PAGE> 18
the shareholders' best interests, would generally be willing to consider only a
purchase price in the range of $29.00 to $32.00 per share. Mr. Sofia indicated
that this higher purchase price range would need to be reviewed and asked if he
could call Dr. Bridges and Mr. Mullis on the following day. Dr. Bridges and Mr.
Mullis agreed to that request.
On October 16, 1996, Mr. Sofia called Dr. Bridges and Mr. Mullis to
extend an offer of $30.00 per share. These parties also discussed (i) whether
the $30.00 consideration would be in the form of cash, Huntington Common Stock,
or a combination of Huntington Common Stock and cash, (ii) the percentage and
terms of a stock option in favor of Huntington to purchase shares of
Citi-Bancshares Common Stock, (iii) stock price limitations and other purchase
price adjustment terms, and (iv) other terms.
During the period between October 16 and October 21, 1996, Mr. Mullis
discussed the meetings, conversations, and proposed terms with legal counsel,
The Carson Medlin Company ("Carson Medlin"), and the Strategic Planning
Committee.
A special meeting of the Citi-Bancshares Board of Directors was held on
October 21, 1996. At this meeting the Citi-Bancshares Strategic Planning
Committee discussed the conversation between Mr. Sofia and Dr. Bridges and Mr.
Mullis of October 16 with the full Board and recommended that the Board
authorize continued negotiations at a purchase price of $30.00. The
Citi-Bancshares Board of Directors present at the meeting voted unanimously to
continue the process of negotiating a definitive agreement with Huntington at a
purchase price of $30.00 per share.
Between October 21, 1996, and October 30,1996, the terms of the
definitive Merger Agreement, Stock Option Agreement, and ancillary documents
were negotiated.
On October 30, 1996, the Citi-Bancshares Board of Directors met with
management, representatives of Alston & Bird, Atlanta, Georgia, Citi-Bancshares'
special legal counsel, and representatives of Carson Medlin to review the Board
of Directors' fiduciary duties and responsibilities, the results of management's
due diligence investigation of Huntington, the terms of the Merger, including
the proposed definitive Merger Agreement and related documents, and the
financial and operational impact of the Merger. Carson Medlin made a
presentation to the Board regarding the financial terms of the Huntington offer
and discussed its fairness opinion which is discussed in detail herein. After a
full discussion of the issues, the members of the Citi-Bancshares Board of
Directors present at the meting voted unanimously to approve and authorize the
execution of the Merger Agreement and the Stock Option Agreement substantially
in the forms presented to the meeting.
The Merger Agreement was entered into on October 31, 1996.
REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger, the Citi-Bancshares
Board of Directors considered, among other factors, the following:
1. The Financial Terms of the Merger. The Board believed that the
Exchange Ratio and per share purchase price represented, among other things, a
fair multiple of Citi-Bancshares' per share tangible book value and earnings.
The Board also considered the fact that Huntington has historically paid a
higher quarterly cash dividend, currently $0.20 per share, than the
Citi-Bancshares quarterly cash dividend, currently $0.12 per share and $0.22
per share on a proforma equivalent basis (based on the Estimated Exchange
Ratio). The Board also considered the fact that the absence of purchase price
adjustment provisions will ensure that holders of Citi-Bancshares Common Stock
will receive $30.00 of value at the Closing regardless of changes in the market
price of Huntington Common Stock.
2. Advice of Financial Advisor and Fairness Opinion. The
Citi-Bancshares Board considered the advice of its financial advisor and
reviewed detailed financial analyses, pro forma results, and other information
presented by Carson Medlin. The Citi-Bancshares Board considered the opinion of
Carson Medlin, including the assumptions and financial information and
projections relied upon by Carson Medlin in arriving at such opinion, that, as
of October 31,
- 13 -
<PAGE> 19
1996, and based upon the matters set forth in its written opinion as of that
date, the aggregate consideration was fair, from a financial point of view, to
the holders of Citi-Bancshares Common Stock. See "OPINION OF FINANCIAL ADVISOR."
3. Effect on Shareholder Value. In evaluating the effect on shareholder
value of Citi-Bancshares remaining independent compared to the effect of its
combining with Huntington, the Board considered various matters. First, the
Board considered whether it was reasonable to anticipate that Citi-Bancshares,
as an independent enterprise, could produce a value comparable to the value to
be received in the Merger. Second, the Board took into account that
Citi-Bancshares had special value to Huntington in enhancing its presence in
central Florida. Third, the Board was advised by management that continued
investment in technology by Citi-Bancshares to support its delivery systems and
to meet competition would be significant. Fourth, there was no reliable evidence
to suggest that another strategic alternative would produce better value for the
Citi-Bancshares shareholders.
4. Certain Financial and Other Information Concerning Citi-Bancshares
and Huntington. The financial and other information concerning Citi-Bancshares
and Huntington considered by Citi-Bancshares' Board included, but was not
limited to, information with regard to recent and historical stock performance,
the depth of the trading markets for each of Citi-Bancshares Common Stock and
Huntington Common Stock, valuation analyses, pro forma analyses, comparative
financial and operating performance, "Wall Street" research ratings comparisons,
and comparable merger and acquisition transactions as presented by Carson
Medlin.
5. Effect on Citi-Bancshares Constituencies. The Citi-Bancshares Board
also considered the general effects the Merger would have on the various
constituencies served by Citi-Bancshares, including its customers, employees,
and others. The Citi-Bancshares Board took into account that the combined
entity would be able to offer a more extensive range of products and banking
services to Citi-Bancshares' customers and communities.
6. Economic and Competitive Environment. The Citi-Bancshares Board took
into account the current and prospective economic and competitive environment
facing the financial services industry generally, and the respective capacities
of Citi-Bancshares and Huntington to compete effectively given the rapid changes
in the financial services industry.
7. Tax Treatment of the Merger. The Citi-Bancshares Board considered
the benefits derived from the expectation that the Merger will be a tax-free
reorganization for federal income tax purposes and that the Citi-Bancshares
shareholders who elect to receive shares of Huntington Common Stock in exchange
for their shares of Citi-Bancshares Common Stock will not recognize gain or loss
for federal income tax purposes to the extent their shares of Citi-Bancshares
Common Stock are converted into shares of Huntington Common Stock. See "FEDERAL
INCOME TAX CONSEQUENCES."
8. Regulatory Approvals. The Citi-Bancshares Board believed that the
requisite regulatory approvals necessary to complete the Merger would be
obtained. See "REGULATORY APPROVALS."
The foregoing discussion of the information and factors considered by
the Citi-Bancshares Board is not intended to be exhaustive, but is believed to
include the material factors considered by the Citi-Bancshares Board. In
reaching its determination to approve the Merger, the Citi-Bancshares Board did
not assign any relative or specific weight to any of the foregoing factors, and
individual directors may have given differing weights to different factors.
After deliberating with respect to the Merger and the other transactions
contemplated thereby, and considering, among other things, the matters discussed
above and the opinion of Carson Medlin referred to above, the Citi-Bancshares
Board unanimously approved the Merger Agreement and the transactions
contemplated thereby as being in the best interest of Citi-Bancshares and its
shareholders and consistent with the interests of all other Citi-Bancshares
constituencies.
THE BOARD OF DIRECTORS OF CITI-BANCSHARES BELIEVES THAT THE PROPOSED
MERGER IS IN THE BEST INTERESTS OF CITI-BANCSHARES' SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT
AND THE MERGER.
- 14 -
<PAGE> 20
Huntington considers the Merger advantageous principally because the
acquisition of Citi-Bancshares will enable Huntington to expand its banking and
related activities in Florida, which it views as an attractive market that is
complementary to its other operations.
OPINION OF FINANCIAL ADVISOR
GENERAL
The Board of Directors of Citi-Bancshares retained Carson Medlin to act
as its financial advisor, to review the terms of a possible business combination
and to provide Citi-Bancshares with a fairness opinion in connection with a
possible transaction. Citi-Bancshares selected Carson Medlin as its financial
advisor on the basis of Carson Medlin's four-year relationship with
Citi-Bancshares as well as such firm's experience and expertise in transactions
similar to the Merger. Carson Medlin is a National Association of Securities
Dealers, Inc. member investment banking firm which specializes in the securities
of southeastern United States financial institutions. As part of its investment
banking activities, Carson Medlin is regularly engaged in the valuation of
southeastern United States financial institutions and transactions relating to
their securities, including mergers and acquisitions.
As part of its engagement, representatives of Carson Medlin attended
the meeting of Citi-Bancshares' Board held on October 30, 1996, at which meeting
the terms of the proposed Merger were discussed and considered. Carson Medlin
delivered its written opinion (dated as of that date) to the Board of Directors
of Citi-Bancshares stating that the aggregate consideration to be received by
the shareholders of Citi-Bancshares for their Citi-Bancshares Common Stock in
the Merger is fair, from a financial point of view. Carson Medlin subsequently
confirmed such opinion in writing as of the date of this Proxy
Statement/Prospectus.
The full text of Carson Medlin's written opinion, dated the date of
this Proxy Statement/Prospectus, is attached as Exhibit B to this Proxy
Statement/Prospectus and should be read in its entirety with respect to the
procedures followed, assumptions made, matters considered, and qualification and
limitations on the review undertaken by Carson Medlin in connection with its
opinion. Carson Medlin's opinion is addressed to Citi-Bancshares' Board of
Directors and is substantially identical to the written opinion delivered to the
Citi-Bancshares Board dated October 30, 1996. The summary of the opinion of
Carson Medlin set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion attached as Exhibit B.
Carson Medlin has relied, without independent verification, upon the
accuracy and completeness of the information reviewed by it for purposes of such
opinion. Carson Medlin did not undertake any independent evaluation or appraisal
of the assets and liabilities of Citi-Bancshares or Huntington, nor was it
furnished with any such appraisals. Carson Medlin assumed that the financial
forecasts reviewed by it were reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the management of Citi-Bancshares
and Huntington, and that such projections would be realized in the amounts and
at the times contemplated thereby. Carson Medlin is not an expert in the
evaluation of loan portfolios, under-performing or non-performing assets, net
charge-offs, or the adequacy of allowances for losses with respect thereto, has
not reviewed any individual credit files, and has assumed that such allowances
for each of Citi-Bancshares and Huntington are in the aggregate adequate to
cover such losses. Carson Medlin assumed that the Merger will be recorded as a
purchase under generally accepted accounting principles. Carson Medlin's opinion
is necessarily based on economic, market, and other conditions as in effect on
the date of its analyses, and on information as of various earlier dates made
available to it. Certain financial forecasts furnished to Carson Medlin and used
by it in certain of its analyses were prepared by the management of
Citi-Bancshares. Neither Citi-Bancshares nor Huntington publicly discloses
internal management projections of the type provided to Carson Medlin in
conjunction with its review of the Merger. Such projections were not prepared
for, or with a view toward, public disclosure.
In connection with rendering its opinion, Carson Medlin performed a
variety of financial analyses. The preparation of a fairness opinion of this
nature involves various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances, and, therefore, is not readily susceptible to partial
analysis or summary description. Carson Medlin believes that its analyses must
be
- 15 -
<PAGE> 21
considered together as a whole and that selecting portions of such analyses and
the facts considered in performing those analyses, without considering all other
factors and analyses, could create an incomplete or inaccurate view of the
analyses and the process underlying Carson Medlin's opinion. In its analyses,
Carson Medlin made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond
the control of Citi-Bancshares and Huntington and which may not be realized. Any
estimates contained in Carson Medlin's analyses are not necessarily predictive
of future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which such companies or their
securities may actually be sold. Except as described below, none of the analyses
performed by Carson Medlin was assigned a greater significance by Carson Medlin
than any other.
In connection with rendering its opinion, dated as of the date hereof,
Carson Medlin reviewed (i) the Merger Agreement; (ii) the Annual Report to
shareholders of Huntington, including the audited financial statements for the
five years ended December 31, 1995; (iii) the audited financial statements of
Citi-Bancshares for the five years ended December 31, 1995; (iv) Bank Call
Reports for Citi-Bancshares for the five years ended December 31, 1995, and the
nine-month period ended September 30, 1996; (v) certain interim financial
statements of Huntington and Citi-Bancshares, including the Quarterly Report to
each company's shareholders for the nine month period ended September 30, 1996;
(vi) certain financial and operating information with respect to the business,
operations, and prospects of Citi-Bancshares and Huntington; and (vii) this
Proxy Statement/Prospectus.
Carson Medlin also (a) held discussions with members of the senior
management of Citi-Bancshares and Huntington regarding the historical and
current business operations, financial condition, and future prospects of their
respective companies; (b) reviewed the historical market prices and trading
activity for Citi-Bancshares Common Stock and Huntington Common Stock and
compared them with those of certain other publicly traded companies which it
deemed to be relevant; (c) compared the results of operations of Citi-Bancshares
and Huntington with those of certain other banking companies which it deemed to
be relevant; (d) compared the proposed financial terms of the Merger with the
financial terms, to the extent publicly available, of certain other recent
business combinations of commercial banking organizations; (e) analyzed the pro
forma financial impact of the Merger on Huntington; and (f) conducted such other
studies, analyses, inquiries, and examinations as Carson Medlin deemed
appropriate.
VALUATION METHODOLOGIES
The following is a summary of the principal analyses performed by
Carson Medlin and presented to the Citi-Bancshares' Board of Directors on
October 30, 1996, in connection with Carson Medlin's opinion of that date.
Summary of Proposal. Carson Medlin reviewed the terms of the proposed
transaction, including the Exchange Ratio and the aggregate transaction value.
Carson Medlin reviewed the implied value of the consideration offered based upon
the closing share price of Huntington Common Stock on October 29, 1996 which
showed that the implied value of the Huntington proposal was approximately
$30.00 per share of Citi-Bancshares' Common Stock, representing an 18.8% premium
to Citi-Bancshares' October 29, 1996 closing market price of $25.25 per share,
or a total transaction value of approximately $134 million. Based on the price
of $23.56 per share for Huntington Common Stock, Carson Medlin calculated that
the aggregate transaction value represented 258% of stated book value at
September 30, 1996, 16.9 times Citi-Bancshares' budgeted 1996 earnings, a 20%
core deposit premium (defined as the aggregate transaction value minus stated
book value divided by core deposits ) and 26% of total assets of Citi-Bancshares
at September 30, 1996.
Comparable Transaction Analysis. Carson Medlin reviewed certain
information relating to 21 selected Southeastern bank mergers announced or
completed since January 1993 in which the acquired bank had total assets from
$250 million to $1 billion, (the "Comparable Transactions"). The Comparable
Transactions were (acquiree/acquiror): Security Capital Bancorp/CCB Financial
Corporation; Commerce Bank/BB&T Financial Corporation; Consolidated Bank,
N.A./NationsBank Corporation; L.S.B Bancshares Inc. of South Carolina/BB&T
Financial Corporation; Allied Bankshares, Inc./Regions Financial Corporation;
Bank of North America Bancorp/Bank Atlantic Bancorp; Peoples Bank of
Lakeland/Huntington Bancshares Incorporated; Union Bank & Trust Company/Regions
Financial Corporation; Jefferson Bancorp/The Colonial BancGroup, Inc.; First
National Bank of Clearwater/AmSouth Bancorporation; Southwest Banks, Inc./FNB
Corporation; First City Bancorp, Inc./FNB Corporation; First City Bancorp,
Inc./First American Corporation; CSB Financial Corp./One Valley Bancorp, Inc.;
CFB Bancorp/Compass Bancshares, Inc.; Citizens National Corporation/AmSouth
Bancorporation; Wes-Tenn Bancorp/Bancorp South Inc.; 1st Performance National
Bank/Central Bancshares of the South, Inc.; W.B.T. Holding Company/First
Commercial Corp.; RHNB Corporation/NationsBank Corporation; Chattahoochee
Bancorp. Inc./Bank South Corp. Carson Medlin considered, among other factors,
the earnings, capital level, asset size and quality of assets of the acquired
financial institutions. Carson Medlin compared the transaction prices to
trailing four quarters earnings, stated book values, total assets and core
deposit premiums.
- 16 -
<PAGE> 22
On the basis of the Comparable Transactions, Carson Medlin calculated a
range of purchase prices as a percentage of stated book value for the Comparable
Transactions from a low of 126.6% to a high of 259.8%, with a mean of 203.9%.
These transactions indicated a range of values for Citi-Bancshares from $14.74
per share to $30.24 per share, with a mean of $23.73 per share (based on
Citi-Bancshares' stated book value of $11.64 per share at September 30, 1996).
The aggregate consideration implied by the terms of the Merger Agreement is
approximately $30.00 per share and implies a price to book value multiple of
258% which was in the high end of the range for the Comparable Transactions.
Carson Medlin calculated a range of purchase prices as a multiple of
earnings for the Comparable Transactions, from a low of 11.2 times to a high of
24.8 times, with a mean of 17.7 times. These transactions indicated a range of
values for Citi-Bancshares from $19.82 to $43.90 per share, with a mean of
$31.33 per share (based on Citi-Bancshares' budgeted 1996 earnings of $1.77 per
share). The aggregate consideration implied by the terms of the Merger Agreement
is approximately $30.00 per share and implies a price to earnings multiple of
16.9 times which is slightly below the average of the range for the Comparable
Transactions.
Carson Medlin calculated the core deposit premiums for the Comparable
Transactions and found a range of values from a low of 2.1% to a high of 21.8%,
with a mean of 12.3%. The premium on Citi-Bancshares' core deposits implied by
the terms of the Merger Agreement is 20%, which was in the high end of the range
for the Comparable Transactions.
Finally, Carson Medlin calculated a range of purchase prices as a
percentage of total assets for the Comparable Transactions from a low of 7.3% to
a high of 27.9%, with a mean of 17.3%. The percentage of total assets implied by
the terms of the Merger Agreement is approximately 26%, which was in the high
end of the range for the Comparable Transactions.
Industry Comparative Analysis. In connection with rendering its
opinion, Carson Medlin compared selected operating results of Citi-Bancshares to
those of 53 publicly-traded community commercial banks in Alabama, Florida,
Georgia, North Carolina, South Carolina, Virginia and West Virginia (the "SIBR
Banks") as contained in the Southeastern Independent Bank Review(TM), a
proprietary research publication prepared by Carson Medlin quarterly since 1991.
The SIBR Banks range in asset size from approximately $95 million to $2.1
billion and in shareholders' equity from approximately $7.9 million to $211.8
million. Carson Medlin considers this group of financial institutions more
comparable to Citi-Bancshares than larger, more widely traded regional financial
institutions. Carson Medlin compared, among other factors, profitability,
capitalization, and asset quality of Citi-Bancshares to these financial
institutions. Carson Medlin noted that based on results through the first six
months of 1996, (i) Citi-Bancshares had a return on average assets (ROA) for the
six months ended June 30, 1996 of 1.53%, compared to mean ROA of 1.26% for the
SIBR Banks; (ii) Citi-Bancshares had a return on average equity (ROE) for the
six months ended June 30, 1996 of 16.5%, compared to mean ROE of 12.9% for the
SIBR Banks; (iii) Citi-Bancshares had common equity to total assets at June 30,
1996 of 9.4%, compared to mean common equity to total assets of 9.7% for the
SIBR Banks; and (iv) Citi-Bancshares had non-performing assets (defined as loans
90 days past due, nonaccrual loans and other real estate) to total loans net of
unearned income and other real estate at June 30, 1996 of 0.66%, compared to
mean non-performing assets to total loans net of unearned income and other real
estate of 1.01% for the SIBR Banks. This comparison indicated that
Citi-Bancshares' financial performance was at or exceeded the average SIBR Bank
for most of the factors considered.
Carson Medlin also compared selected operating results of Huntington to
those of six other publicly-traded mid-size regional bank holding companies
defined as those with assets between $10 and $35 billion (the "Peer Banks")
located in the Midwest. The Peer Banks include: Comerica, Inc., Fifth Third
Bancorp, First of America Bank Corp., National City Corp., Old Kent Financial
Corp., and Star Banc Corp. Carson Medlin considers this group of midwestern
financial institutions comparable to Huntington as to financial characteristics,
stock price performance and trading volume. Carson Medlin compared selected
balance sheet data, asset quality, capitalization, profitability ratios and
market statistics using financial data at or for the nine months ended September
30, 1996 and market data as of October
- 17 -
<PAGE> 23
29, 1996. This comparison showed, among other things, that (i) for the nine
months ended September 30, 1996, Huntington's net interest margin was 4.11%
compared to a mean of 4.43% and a median of 4.47% for the Peer Banks; (ii) for
the nine months ended September 30, 1996, efficiency ratio (defined as non
interest expense divided by the sum of non interest income and taxable
equivalent net interest income before provision for loan losses) was 56.9%
compared to a mean of 57.1% and a median of 58.3% for the Peer Banks; (iii) for
the nine months ended September 30, 1996, Huntington's ROA was 1.30% compared to
a mean of 1.43% and a median of 1.44% for the Peer Banks; (iv) for the nine
months ended September 30, 1996, Huntington's ROE was 17.15% compared to a mean
of 16.79% and a median of 17.81% for the Peer Banks; (v) at September 30, 1996,
Huntington's stockholders' equity to total assets was 7.30% compared to a mean
of 8.47% and a median of 8.26% for the Peer Banks; (vi) at September 30, 1996,
Huntington's non-performing assets to total assets were 0.34% compared to a mean
of 0.40% and a median of 0.39% for the Peer Banks; (vii) at September 30, 1996,
the ratio of Huntington's loan loss reserves to non-performing assets was 284%
compared to a mean of 311% and a median of 310% for the Peer Banks; and, (viii)
at October 29, 1996, Huntington's market capitalization was $3.4 billion
compared to the Peer Banks which ranged from a low of $2.1 billion to a high of
$9.5 billion. This comparison indicated that Huntington's financial performance
is average in comparison to the Peer Banks.
No company or transaction used in the preceding Industry Comparative or
Comparable Transaction Analyses is identical to Citi-Bancshares or the
contemplated transaction. Accordingly, the results of these analyses necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of Citi-Bancshares and other factors
that could affect the value of the companies to which it is being compared.
Mathematical analysis (such as determining the average or median) is not, in
itself, a meaningful method of using comparable industry or transaction data.
Contribution Analysis. Carson Medlin reviewed the relative
contributions in terms of various balance sheet items, net income and market
capitalization to be made by Citi-Bancshares and Huntington to the combined
institution based on (i) balance sheet at September 30, 1996, and (ii) nine
month earnings as of September 30, 1996. The income statement and balance sheet
components analyzed included total assets, total loans (net), total deposits,
shareholders' equity, and nine months net income. This analysis showed that,
while Citi-Bancshares shareholders would own approximately 3.8% of the aggregate
outstanding shares of the combined institution based on the Exchange Ratio,
Citi-Bancshares was contributing 2.5% of total assets, 2.0% of total loans
(net), 3.4% of total deposits, 3.4% of shareholders' equity, and 3.0% of such
nine months' net income.
Present Value Analysis. Carson Medlin calculated the present value of
Citi-Bancshares assuming that Citi-Bancshares remained independent. For purposes
of this analysis, Carson Medlin utilized certain projections of
Citi-Bancshares' future earnings, dividends, and asset growth rates. It assumed
that Citi-Bancshares Common Stock would be sold at the end of five years at 17x
earnings. This value was then discounted to present value utilizing discount
rates of 12% through 16%. These rates were selected because, in Carson Medlin's
experience, they represent a reasonable estimate of the range of the rates that
investors in securities such as the Citi-Bancshares Common Stock would seek in
light of the potential appreciation and risks. On the basis of these
assumptions, Carson Medlin calculated that the present value of Citi-Bancshares
as an independent entity ranged from $20.43 per share to $24.18 per share. The
aggregate consideration implied by the terms of the Merger Agreement is
approximately $30.00 per share which is above this range under present value
analysis. Carson Medlin noted that the present value analysis was included
because it is a widely used valuation methodology, but noted that the results
of such methodology are highly dependent upon the numerous assumptions and
subjective judgments that must be made, including earnings growth rates,
dividend payout rates, terminal values and discount rates.
Stock Trading History. Carson Medlin reviewed and analyzed the
historical trading prices and volumes for the Huntington Common Stock on a
monthly basis from December 1992 to September 1996. Carson Medlin also compared
price performance of the Huntington Common Stock during this period to the six
Peer Banks.
During the four quarters ending September 30, 1996, the ratio of stock
price to trailing 12 months earnings per share for the Peer Banks was: a low of
13.1 times, a high of 15.5 times, and a mean of 14.1 times. Huntington's recent
price to earnings ratio ranged from a low of 12.8 times to a high of 14.3 times
with a mean of 13.4 times. Huntington Common Stock has traded on average at a
lower price to earnings ratio than the Peer Banks.
- 18 -
<PAGE> 24
During the four quarters ending September 30, 1996, the stock price as
a percentage of book value for Peer Banks was: a low of 203%, a high of 246%,
and a mean of 218%. Huntington's recent price to book ratio ranged from a low of
209% to a high of 228% with a mean of 217%. Huntington Common Stock has traded
near or slightly above average on price to book value basis compared to the Peer
Banks.
Carson Medlin also examined the recent trading volume in Huntington
Common Stock with that of the Peer Banks. During the four quarters ending
September 30, 1996, the quarter end monthly trading volume of outstanding shares
of the Peer Banks ranged from a low of 2.7% to a high of 6.4% with a mean of
4.2%. Huntington's quarter end monthly trading volume to outstanding shares
ranged from a low of 1.3% to a high of 3.2% with a mean of 2.1%. Carson Medlin
considers Huntington Common Stock to be liquid and marketable in comparison with
these Peer Banks and other bank holding companies.
Carson Medlin also examined the trading prices and volumes of
Citi-Bancshares Common Stock, although Carson Medlin did not place any weight on
the market price of the Citi-Bancshares Common Stock.
Other Analysis. Carson Medlin also reviewed selected investment
research reports on and earnings estimates for Huntington. In addition, Carson
Medlin prepared an overview of historical financial performance of both
Citi-Bancshares and Huntington, and an analysis of the total return of each of
Citi-Bancshares' and Huntington's Common Stock for the five year period ended
December 31, 1995 and a shareholder claims analysis.
The opinion expressed by Carson Medlin was based upon market, economic
and other relevant considerations as they existed and have been evaluated as of
the date of the opinion. Events occurring after the date of issuance of the
opinion, including but not limited to, changes affecting the securities markets,
the results of operations or material changes in the assets or liabilities of
Citi-Bancshares could materially affect the assumptions used in preparing the
opinion.
In connection with the opinion dated as of the date of this Proxy
Statement/Prospectus, Carson Medlin confirmed the appropriateness of its
reliance on the analyses used to render its October 30, 1996, opinion by
performing procedures to update certain of such analyses and reviewing the
assumptions on which its analyses were based and the factors considered in
connection therewith.
COMPENSATION OF CARSON MEDLIN
Pursuant to an engagement letter dated October 28, 1996, Citi-Bancshares engaged
Carson Medlin to review the terms of the transaction and to render a fairness
opinion in connection with the Merger. Citi-Bancshares paid Carson Medlin
$75,000.00 for its services pursuant to the terms of the engagement letter.
Citi-Bancshares agreed to reimburse Carson Medlin for its reasonable
out-of-pocket expenses and to indemnify Carson Medlin against certain
liabilities, including certain liabilities under the federal securities laws.
EFFECTIVE TIME OF THE MERGER
The Merger will be effective at the date and time (the "Effective
Time") specified in the Certificate of Merger to be filed with the Secretary of
State of Ohio and Articles of Merger to be filed with the Secretary of State of
Florida. Unless the parties otherwise mutually agree, Huntington and
Citi-Bancshares will use their reasonable efforts to cause the Merger to become
effective within five business days following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required regulatory approval, and (ii) the date on which the shareholders
of Citi-Bancshares approve the Merger Agreement as required by law. It is
anticipated that, if the shareholders of Citi-Bancshares approve the Merger
Agreement at the Special Meeting and the other conditions to the Merger set
forth in the Merger Agreement have been satisfied, the Effective Time will occur
in mid-February 1997.
TERMS OF THE MERGER
The Merger Agreement provides for the merger of Citi-Bancshares into
Huntington Florida pursuant to the applicable provisions of the laws of the
States of Ohio and Florida. Upon the effectiveness of the Merger, Huntington
Florida, as the surviving entity, will continue to be a wholly owned subsidiary
of Huntington, and the separate existence of Citi-Bancshares will cease. The
articles of incorporation and regulations of the surviving entity will be those
of Huntington Florida as in effect immediately prior to the Effective Time until
otherwise amended or repealed.
At the Effective Time, by virtue of the Merger, each share of
Citi-Bancshares Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares held by Citi-Bancshares, Huntington, or
Huntington's subsidiaries, in each case other than in a fiduciary capacity or as
a result of debts previously contracted,
- 19 -
<PAGE> 25
which will be canceled and retired at the Effective Time) will cease to be
outstanding and will be converted into the right to receive, at the option of
each Citi-Bancshares shareholder, either a number of whole shares of Huntington
Common Stock, or cash, or a combination of a number of whole shares of
Huntington Common Stock and cash, subject to certain limitations. Cash will be
paid in lieu of the issuance of any fractional shares of Huntington Common
Stock.
If a Citi-Bancshares shareholder elects to receive all shares of
Huntington Common Stock in exchange for such shareholder's shares of
Citi-Bancshares Common Stock (a "Stock Election"), such shareholder will be
entitled to receive a number of shares of Huntington Common Stock equal to the
product of the number of shares of Citi-Bancshares Common Stock held by such
shareholder multiplied by the "Exchange Ratio" (which shall be equal to $30.00
divided by the Average Closing Price), rounded down to the nearest whole share
(the "Stock Consideration"). If a Citi-Bancshares shareholder elects to receive
all cash in exchange for such shareholder's shares of Citi-Bancshares Common
Stock (a "Cash Election"), such shareholder will be entitled to receive cash in
an amount equal to the product of the number of shares of Citi-Bancshares Common
Stock held by such shareholder multiplied by $30.00 (the "Cash Consideration"),
subject to certain limitations described below. If a Citi-Bancshares shareholder
elects to receive a combination of shares of Huntington Common Stock and cash in
exchange for such shareholder's shares of Citi-Bancshares Common Stock (a "Mixed
Election"), such shareholder will be entitled to receive a number of shares of
Huntington Common Stock equal to 60 percent of the product of the number of
shares of Citi-Bancshares Common Stock held by such shareholder multiplied by
the Exchange Ratio, rounded down to the nearest whole share, plus cash in an
amount equal to 40 percent of the product of the number of shares of
Citi-Bancshares Common Stock held by such shareholder multiplied by $12.00 (the
"Mixed Consideration"), subject to certain limitations as described below.
The Merger Agreement provides that, in no event will Huntington pay
more than 40 percent of the "Aggregate Merger Consideration" (i.e., the
aggregate value of all the consideration, including the amount of cash and the
value of all shares of Huntington Common Stock, valued at the Average Closing
Price, to be received by holders of Citi-Bancshares Common Stock in the Merger)
in cash, including cash paid in exchange for shares of Citi-Bancshares Common
Stock in respect of which a Cash Election has been made (the "Cash Election
Shares"), and cash paid in exchange for shares of Citi-Bancshares Common Stock
in respect of which a Mixed Election has been made (the "Mixed Election
Shares"), and cash paid in lieu of the issuance of fractional shares.
Accordingly, if the total amount of cash that would be payable upon conversion
of all of the outstanding shares of Citi-Bancshares Common Stock in the Merger
in accordance with the elections of the shareholders of Citi-Bancshares would
exceed 40 percent of the Aggregate Merger Consideration (the "Cash Limitation"),
the following adjustments will be made:
(a) If the amount of cash that would be payable upon the
conversion of the Cash Election Shares, without regard to cash
that would be issued upon the conversion of the Mixed Election
Shares, is greater than the Cash Limitation, then (i) all
Mixed Election Shares will be converted into the right to
receive the Stock Consideration, (ii) the "Exchange Agent" (as
defined under "EXCHANGE OF CERTIFICATES" below) shall select
from among the holders of Cash Election Shares, by random
selection, a number of such holders who shall be designated to
receive the Stock Consideration ("Stock Designees"), such that
the total amount of cash to be paid in the Merger, as closely
as practicable, equals the Cash Limitation, and (iii) the Cash
Election Shares not held by Stock Designees will be converted
into the right to receive the Cash Consideration.
(b) If the amount of cash that would be payable upon the
conversion of the Cash Election Shares is less than the Cash
Limitation, but the amount of cash that would be payable upon
the conversion of the Cash Election Shares and the Mixed
Election Shares is greater than the Cash Limitation, then (i)
all Cash Election Shares will be converted into the right to
receive the Cash Consideration, (ii) the Exchange Agent shall
select from among the holders of Mixed Election Shares, by
random selection, a number of Stock Designees to receive Stock
Consideration, such that the total amount of cash to be paid
in the Merger, as closely as practicable, equals the Cash
Limitation, and all shares held by the Stock Designees will be
converted into the right to receive the Stock Consideration,
and (iii) the Mixed Election Shares not held by Stock
Designees will be converted into the right to receive the
Mixed Consideration.
- 20 -
<PAGE> 26
The average closing sale price per share of Huntington Common Stock as
reported on the Nasdaq National Market for the five trading days immediately
preceding the Record Date was $27.2876. If the actual Average Closing Price to
be determined at the Effective Time were $27.2876, the Exchange Ratio would be
1.0994 (i.e., $30.00 divided by such Average Closing Price) (the "Estimated
Exchange Ratio") and each shareholder of Citi-Bancshares who elects to receive
only shares of Huntington Common Stock in exchange for such shareholder's
shares of Citi-Bancshares Common Stock would be entitled to receive 1.0994
shares of Huntington Common Stock for each share of Citi-Bancshares Common
Stock held by such shareholder. Based on such Average Closing Price, each
shareholder of Citi-Bancshares who elects to receive a combination of shares of
Huntington Common Stock and cash in exchange for such shareholder's shares of
Citi-Bancshares Common Stock would be entitled to 0.6596 shares of Huntington
Common Stock for each share of Citi-Bancshares Common Stock held by such
shareholder (i.e., 60% of the Estimated Exchange Ratio), plus $12.00 in cash,
subject to the limitations described in the preceding paragraph. The market
price of Huntington Common Stock at the Effective Time, or on the date on which
certificates representing such shares are received, may be higher or lower than
the average closing sale price per share of Huntington Common Stock for the
five trading days immediately preceding the Record Date or the market price of
Huntington Common Stock as of the Record Date or at the time of the Special
Meeting. Shareholders are advised to obtain current market quotations for
Huntington Common Stock.
No interest will be payable with respect to any cash payments to be
received by any Citi-Bancshares shareholder.
At the Effective Time, each outstanding option to purchase shares of
Citi-Bancshares Common Stock shall be fully vested and shall be converted into
an option to acquire the same number of shares of Huntington Common Stock as the
holder would have been entitled to receive pursuant to the Merger if such holder
had exercised such option in full prior to the Effective Time and elected to
receive the Stock Consideration. The per share exercise price for each such
option will be adjusted to be equal to the aggregate exercise price for the
shares of Citi-Bancshares Common Stock purchasable pursuant to such option
immediately prior to the Effective Time divided by the number of shares of
Huntington Common Stock purchasable pursuant to such option immediately after
the Effective Time.
ELECTION PROCEDURES; EXCHANGE OF CERTIFICATES
The Huntington National Bank, Columbus, Ohio, a wholly owned subsidiary
of Huntington, is the transfer agent for Huntington Common Stock and has been
designated by Huntington to act as the exchange agent (the "Exchange Agent") in
connection with the Merger. Approval of the Merger Agreement by the shareholders
of Citi-Bancshares will constitute ratification of the appointment of the
Exchange Agent.
Each record holder of shares of Citi-Bancshares Common Stock (other
than shares held by Citi-Bancshares, Citizens Bank, Huntington, or any
subsidiary of Huntington, in each case other than in a fiduciary capacity or as
a result of debts previously contracted) immediately prior to the Effective Time
shall be entitled to submit a request specifying one of the following elections
to convert such shareholder's shares of Citi-Bancshares Common Stock into (i)
the Stock Consideration, in the case of a shareholder making a Stock Election,
(ii) the Cash Consideration, in the case of a shareholder making a Cash
Election, or (iii) the Mixed Consideration, in the case of a shareholder making
a Mixed Election, or to indicate that such record holder has no preference as to
the receipt of the Stock Consideration, the Cash Consideration, or the Mixed
Consideration for such shares (a "Non-Election"). Shares in respect of which a
Non-Election is made (including shares of Citi-Bancshares Common Stock in
respect of which no election is made prior to the Election Deadline (as defined
below) or shares in respect of which a Non-Election is deemed to have been made
under the terms of the Merger Agreement (collectively, "Non-Election Shares"))
shall be converted into the right to receive the Stock Consideration, except
that, any Non-Election Shares owned by a shareholder who owns fewer than 100
shares of Citi-Bancshares Common Stock of record will be deemed to be Cash
Election Shares.
Elections will be made on a form of letter of transmittal and form of
election (the "Letter of Transmittal and Form of Election") to be provided by
the Exchange Agent to holders of record of Shares, together with instructions
for use in effecting the surrender of the Certificates for payment therefor, as
soon as practicable following the Effective Time. The Letter of Transmittal and
Form of Election shall specify that delivery shall be effected, and risk of loss
and
- 21 -
<PAGE> 27
title to the Certificates transmitted therewith shall pass, only upon proper
delivery of the Certificates to the Exchange Agent. Elections shall be made by
mailing to the Exchange Agent a duly completed Letter of Transmittal and Form of
Election in accordance with the instructions furnished therewith. To be
effective as an election, a Letter of Transmittal and Form of Election must be
(i) properly completed, signed, and submitted to the Exchange Agent at its
designated office and so received by the Exchange Agent by the date specified in
such Letter of Transmittal and Form of Election (the "Election Deadline"), which
shall not be less than 20 business days after the date such Letter of
Transmittal and Form of Election is first mailed to former holders of
Citi-Bancshares Common Stock, and (ii) accompanied by the certificates
representing the shares of Citi-Bancshares Common Stock as to which the election
is being made (or by an appropriate guarantee of delivery of such certificates
by a commercial bank or trust company located in the United States or a member
of a registered national security exchange or of the National Association of
Securities Dealers, Inc., provided such certificates are in fact delivered to
the Exchange Agent within eight business days after the date of execution of
such guarantee of delivery). Huntington shall determine, in its sole and
absolute discretion, which authority it may delegate in whole or in part to the
Exchange Agent, whether any Letter of Transmittal and Form of Election has been
properly completed, signed, and submitted or revoked. The decision of Huntington
(or the Exchange Agent, as the case may be) in such matters shall be conclusive
and binding. Neither Huntington nor the Exchange Agent will be under any
obligation to notify any person of any defect in a Letter of Transmittal and
Form of Election submitted to the Exchange Agent.
Upon surrender of certificates for cancellation to the Exchange Agent,
together with such Letter of Transmittal and Form of Election duly completed and
executed and any other documents required by such instructions, the holder of
such certificates shall be entitled to receive for each of the shares formerly
represented by such certificates (i) either the Stock Consideration, the Cash
Consideration, or the Mixed Consideration (collectively, the "Merger
Consideration"), as elected by such holder, (ii) cash in lieu of any fractional
shares of Huntington Common Stock to which such holder is entitled, and (iii)
any dividends or distributions to which such holder may be entitled, in each
such case without any interest thereon and less any required withholding of
taxes, and the certificates so surrendered shall forthwith be canceled. If
payment is to be made to a person other than the person in whose name a
certificate so surrendered is registered on the stock transfer books of
Citi-Bancshares, it shall be a condition of payment that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such payment shall pay to the Exchange Agent any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
Huntington shall not be obligated to deliver the Merger Consideration
to which any former holder of Citi-Bancshares Common Stock is entitled as a
result of the Merger until such holder surrenders such holder's certificate or
certificates for exchange. The certificates so surrendered shall be duly
endorsed as the Exchange Agent may reasonably require. Neither Huntington,
Huntington Florida, nor the Exchange Agent shall be liable to a holder of
Citi-Bancshares Common Stock for any amounts paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property law.
The stock transfer books of Citi-Bancshares will be closed as of the
close of business on the day that is one business day prior to the Effective
Time and no transfer of Citi-Bancshares Common Stock by any shareholder shall
thereafter be made or recognized. Until surrendered for exchange, each
Certificate theretofore representing shares of Citi-Bancshares Common Stock
(other than shares to be canceled under the terms of the Merger Agreement) shall
from and after the Effective Time represent for all purposes only the right to
receive the Merger Consideration in exchange therefor, subject, however, to
Huntington Florida's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which have been
declared or made by Citi-Bancshares in respect of such shares of Citi-Bancshares
Common Stock and which remain unpaid at the Effective Time. To the extent
required by applicable law, former shareholders of record of Citi-Bancshares
shall be entitled to vote after the Effective Time at any meeting of Huntington
shareholders the number of whole shares of Huntington Common Stock into which
their respective shares of Citi-Bancshares Common Stock are converted,
regardless of whether such holders have exchanged their certificates
representing Citi-Bancshares Common Stock for certificates representing
Huntington Common Stock in accordance with the provisions of this Agreement.
Whenever a dividend or other distribution is declared by Huntington on the
Huntington Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares of Huntington Common Stock issuable pursuant to this Agreement, no
- 22 -
<PAGE> 28
dividend or other distribution payable to the holders of record of Huntington
Common Stock as of any time subsequent to the Effective Time shall be delivered
to the holder of any certificate representing shares of Citi-Bancshares Common
Stock issued and outstanding at the Effective Time until such holder surrenders
such certificate for exchange. However, upon surrender of such certificate, both
the certificate for such shares of Huntington Common Stock (together with all
such undelivered dividends or other distributions, without interest) and any
undelivered cash payments payable to such shareholder in the Merger (without
interest) shall be delivered and paid with respect to each share represented by
such certificate.
TERMS OF THE OPTION
Citi-Bancshares has granted the Option to Huntington pursuant to the
Stock Option Agreement. Under the terms of the Stock Option Agreement,
Huntington has the right to purchase up to 890,000 shares of Citi-Bancshares
Common Stock (subject to certain adjustments), which represents 19.9% of the
outstanding shares of Citi-Bancshares Common Stock, for a purchase price of
$30.00 per share (subject to certain adjustments), under certain circumstances.
Provided that Huntington is not in material breach of its obligations
under the Stock Option Agreement or the Merger Agreement, and provided that
there is no court order preventing the issuance of the shares subject to the
Option, Huntington may exercise the Option, in whole or in part, at any time
following the occurrence of a "Purchase Event," as defined below, provided that
the Option will terminate upon the earliest to occur of (i) the Effective Time,
(ii) termination of the Merger Agreement prior to the occurrence of a Purchase
Event or a "Preliminary Purchase Event," as defined below (other than a
termination for certain breaches of the agreement by Citi-Bancshares, a "Default
Termination") (iii) 12 months after a Default Termination, and (iv) 12 months
after any termination of the Merger Agreement (other than a Default Termination)
following the occurrence of a Purchase Event or a Preliminary Purchase Event;
and provided further, that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable law.
A "Purchase Event" means any of the following events subsequent to the
date of the Stock Option Agreement:
(i) without Huntington's prior written consent, Citi-Bancshares
authorizes, recommends, publicly proposes or publicly
announces an intention to authorize, recommend, or propose, or
entered into an agreement with any person (other than
Huntington or any Subsidiary of Huntington) to effect either
(A) a merger, consolidation, or similar transaction involving
Citi-Bancshares or Citizens Bank, (B) the disposition, by
sale, lease, exchange or otherwise, of assets of
Citi-Bancshares or Citizens Bank representing in either case
25% or more of the consolidated assets of Citi-Bancshares and
Citizens Bank, or (C) the issuance, sale, or other disposition
of (including by way of a merger or any similar transaction)
securities representing 25% or more of the voting power of
Citi-Bancshares or Citizens Bank (any of the foregoing, an
"Acquisition Transaction"); or
(ii) any person (other than Huntington or any Subsidiary of
Huntington) acquires beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of
or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act),
other than a group of which Huntington or any of its
Subsidiaries is a member, shall have been formed which
beneficially owns or has the right to acquire beneficial
ownership of, 25% or more of the then-outstanding shares of
Citi-Bancshares Common Stock.
A "Preliminary Purchase Event" means any of the following events:
(i) any person (other than Huntington or any Subsidiary of
Huntington) commences (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration
statement under the Securities Act with respect to, a tender
offer or exchange offer to purchase any shares of
Citi-Bancshares' Common Stock such that, upon consummation of
such offer, such person would own or control 25% or more of
the then outstanding shares of Citi-Bancshares' Common Stock
(such an offer being referred to herein as a "Tender Offer" or
an "Exchange Offer," respectively); or
- 23 -
<PAGE> 29
(ii) the holders of Citi-Bancshares Common Stock do not approve the
Merger Agreement at the Special Meeting, or the Special
Meeting is not held or is canceled prior to a termination of
the Merger Agreement, or Citi-Bancshares' Board of Directors
withdraws or modifies in a manner adverse to Huntington its
recommendation with respect to the Merger Agreement, in each
case if either (A) the Citi-Bancshares' Board of Directors
has withdrawn or modified its recommendation with respect to
the Merger Agreement in an effort to comply with its fiduciary
duties as permitted under the Merger Agreement, or (B) such
event occurs after it shall have been publicly announced that
any person (other than Huntington or any Subsidiary of
Huntington) shall have (1) made, or disclosed an intention to
make, a proposal to engage in an Acquisition Transaction, (2)
commenced or disclosed an intention to commence a Tender Offer
or filed a registration statement under the Securities Act
with respect to an Exchange Offer, or (3) filed an application
(or given a notice), whether in draft or final form, under any
federal or state statute or regulation seeking consent to an
Acquisition Transaction from any federal or state governmental
or regulatory authority or agency. For purposes of this
definition, the term "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
Under the terms of the Stock Option Agreement, Citi-Bancshares will
repurchase from Huntington (or any subsequent holder of the Option), at a price
based on the highest price paid for shares of Citi-Bancshares Common Stock in
connection with certain transactions involving a merger, business combination,
or other acquisition transaction relating to Citi-Bancshares, the Option and all
shares of Citi-Bancshares Common Stock purchased pursuant to the Option at the
request of Huntington (or any subsequent holder) at any time within one year of
the occurrence of such merger, business combination, or other transaction.
THE SUBSIDIARY MERGER
Immediately upon the consummation of the Merger, it is anticipated that
Citizens Bank will be merged with and into HNB-Florida, under the charter of
HNB-Florida (the "Subsidiary Merger"), and the separate existence of Citizens
Bank shall cease. The consummation of the Subsidiary Merger is not a condition
to the consummation of the Merger.
COVENANTS OF THE PARTIES
The Merger Agreement provides, among other things, that
Citi-Bancshares, Huntington, and its subsidiaries are required to use reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper, or advisable under applicable law to
consummate and make effective the Merger, subject to the terms and conditions of
the Merger Agreement. Each of Citi-Bancshares and Huntington is required to keep
the other party advised of all material developments relevant to its business
and the consummation of the Merger and to permit the other party to make
reasonable investigation of its business and properties.
The Merger Agreement provides that, unless the prior written consent of
Huntington to do otherwise is obtained, Citi-Bancshares will operate its
business in the usual, regular, and ordinary course; will preserve intact its
business organization and assets and maintain its rights and franchises; and
will take no action which would adversely affect the ability of Citi-Bancshares
or Huntington to obtain any consent from any regulatory agency or other person
required for the Merger without the imposition of a condition or restriction
that renders the consummation of the Merger inadvisable for either
Citi-Bancshares or Huntington or would materially adversely affect the ability
of Citi-Bancshares or Huntington to perform its covenants and agreements under
the Merger Agreement.
In addition, the Merger Agreement provides that, without the prior
written consent of Huntington (which consent will not be unreasonably withheld),
Citi-Bancshares cannot do, or agree or commit to do, any of the following: (i)
amend its Articles of Incorporation, By-laws, or other governing instruments;
(ii) incur any additional debt obligation except in the ordinary course of
business consistent with past practices or impose, or suffer the imposition, on
any asset of Citi-Bancshares any lien or other encumbrance, or permit any such
lien or other encumbrance to exist (subject to
- 24 -
<PAGE> 30
certain exceptions as specified in the Merger Agreement); (iii) repurchase,
redeem, or otherwise acquire or exchange (other than in the ordinary course
under employee benefit plans), any shares, or securities convertible into any
shares, of the capital stock of Citi-Bancshares, or declare or pay any dividend
or make any other distribution in respect to Citi-Bancshares' capital stock,
except as described below; (iv) except as previously disclosed to Huntington,
issue, sell, pledge, or permit to become outstanding any additional shares of
Citi-Bancshares Common Stock or any other capital stock or rights related
thereto; (v) adjust, split, combine, or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of shares of
Citi-Bancshares Common Stock or sell, lease, mortgage, or otherwise dispose of
any asset other than in the ordinary course of business for reasonable and
adequate consideration; (vi) purchase any securities or make any material
investments, except as provided for in the Merger Agreement; (vii) except as
previously disclosed to Huntington, grant any increase in compensation or
benefits to its employees or officers except as in accordance with past
practice, pay any severance or termination pay or any bonus other than pursuant
to written policies or contracts in effect on the date of the Merger Agreement,
enter into or amend any severance agreements with officers, grant any increase
in compensation or benefits to directors, or voluntarily accelerate the vesting
of any employee benefits; (viii) enter into or amend any employment contract,
other than as required by law or as previously disclosed to Huntington, that
Citi-Bancshares does not have the unconditional right to terminate without
liability at any time; (ix) adopt any new employee benefit plan, or terminate,
withdraw from, or make any material change to an existing employee benefit plan,
other than as required by law or deemed advisable by counsel to maintain the tax
qualified status of such plan or as previously disclosed to Huntington, or make
any distributions from such employee benefit plans except as required by law,
the terms of such plan, or consistent with past practice; (x) make any
significant change in any tax or accounting method or system of internal
accounting controls, except as may be appropriate to conform with changes in the
tax laws, regulatory accounting requirements, or generally accepted accounting
principles; (xi) commence any litigation other than in accordance with past
practice or settle certain material litigation; and (xii) enter into, modify,
amend, or terminate any material contract or waive, release, compromise, or
assign any material rights or claims, except in the ordinary course of business.
Notwithstanding the above, Citi-Bancshares may, but is not obligated
to, declare and pay its customary quarterly cash dividends on shares of
Citi-Bancshares Common Stock not in excess of $0.12 per share of Citi-Bancshares
Common Stock (increasing to $0.15 per share in 1997), with usual and regular
record and payment dates in accordance with past practices and a special
dividend in the fourth quarter of 1996 not in excess of $0.06 per share of
Citi-Bancshares Common Stock.
The Merger Agreement provides that Huntington will take no action
which, to its knowledge at the time of such action, would materially adversely
affect the ability of Citi-Bancshares or Huntington to obtain any consent from
any regulatory agency or other person required for the Merger without the
imposition of a condition or restriction that renders the consummation of the
Merger inadvisable for any party or would materially adversely affect the
ability of any party to perform its covenants and agreements under the Merger
Agreement. In addition, Huntington, without the prior written consent of
Citi-Bancshares (which consent cannot be unreasonably withheld), cannot, and
cannot agree or commit to, amend its Articles of Incorporation, Bylaws, or
Rights Plan (as described herein) in any manner adverse to the Citi-Bancshares
shareholders as compared to the rights of the Huntington shareholders as of the
date of the Merger Agreement.
Each of Citi-Bancshares and Huntington is required to give prompt
written notice to the other party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
subsidiaries which is reasonably likely to have a material adverse effect on it
or would cause or constitute a material breach of any of its representations,
warranties, or covenants contained in the Merger Agreement and to use reasonable
efforts to prevent or remedy the same. The Merger Agreement provides that
Citi-Bancshares, Huntington, and its subsidiaries will file all reports required
to be filed with the applicable regulatory authorities; that the financial
statements contained in all such reports will be prepared in accordance with the
laws applicable to such reports; and that all such reports filed with the
Commission will comply with all applicable securities laws and will not contain
an untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Under the Merger Agreement, each of Citi-Bancshares and Huntington
will, and will cause its agents and advisors to: (i) maintain the
confidentiality of all confidential information furnished to it by the other
party; (ii) not use such information other than in furtherance of the
transactions contemplated by the Merger Agreement; and (iii) promptly
- 25 -
<PAGE> 31
return or certify the destruction of all documents and work papers containing
confidential information received from the other party if the Merger Agreement
is terminated prior to the Effective Time.
Except with respect to the Merger Agreement, neither Citi-Bancshares
nor any affiliate or other person representing Citi-Bancshares will directly or
indirectly solicit or encourage any tender or exchange offer or any proposal for
a merger, acquisition of all of the stock or assets or other business
combination involving Citi-Bancshares or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, Citi-Bancshares (an
"Acquisition Proposal") by any person. In addition, except to the extent
necessary to comply with the fiduciary duties of Citi-Bancshares' Board of
Directors, neither Citi-Bancshares nor any affiliate or other person
representing Citi-Bancshares will furnish any non-public information that it is
not legally obligated to furnish, negotiate with respect to, or enter into any
contract or other agreement with respect to, any Acquisition Proposal.
Citi-Bancshares must promptly notify Huntington in the event that it receives
any inquiry or proposal relating to any such Acquisition Proposal.
Prior to the Effective Time, Citi-Bancshares and Huntington are
required to consult with each other as to the form and substance of any press
release or other public disclosure materially related to transactions
contemplated by the Merger Agreement. Citi-Bancshares and Huntington are
required to use reasonable efforts to cause the Merger to qualify as a
reorganization within the meaning of the applicable tax law.
In addition, Huntington is to provide certain benefits and
indemnification to certain present and former directors, officers, employees,
and agents of Citi-Bancshares. See "THE MERGER - INTERESTS OF MANAGEMENT."
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger and the other transactions contemplated thereby will occur
only if the Merger Agreement and the Merger are approved by the affirmative vote
of the holders of a majority of the outstanding shares of Citi-Bancshares Common
Stock. In addition, the obligation of Citi-Bancshares and Huntington to
consummate the Merger is subject to the satisfaction of certain other
conditions, including: (i) the receipt of all required approvals of the Merger
by the applicable regulatory authorities and the expiration of any applicable
waiting periods, with no such approval conditioned or restricted in a manner
which would materially impact the economic or business assumptions of the
transactions contemplated by the Merger Agreement so as to render inadvisable
the consummation of the Merger (see "THE MERGER - REGULATORY APPROVALS"); (ii)
the receipt of any and all third-party consents required in order to consummate
the Merger or prevent any material default under any contract, permit, or other
instrument of Citi-Bancshares or Huntington which, if not received or made, is
reasonably likely to have a material adverse effect on such party, with no such
consent conditioned or restricted in a manner which would materially impact the
economic or business assumptions of the transactions contemplated by the Merger
Agreement so as to render inadvisable the consummation of the Merger; (iii) the
absence of any law, regulation, reporting or licensing requirement,
administrative decision, decree, judgment, order, or any other action by any
court or regulatory authority having jurisdiction which prohibits, restricts, or
makes illegal the consummation of the transactions contemplated by the Merger
Agreement; (iv) the shares of Huntington Common Stock to be issued in the Merger
shall have been approved for listing on the Nasdaq National Market; (v)
Huntington shall have affirmed the employment agreement with Ken W. Mullis,
dated October 31, 1996; and (vi) the receipt by Citi-Bancshares and Huntington
of an opinion of counsel for Huntington and Huntington Florida regarding certain
tax aspects of the Merger (see "THE MERGER - FEDERAL INCOME TAX CONSEQUENCES").
The obligations of Citi-Bancshares to consummate the Merger are further
conditioned upon the following conditions precedent: (i) the representations and
warranties of Huntington set forth in the Merger Agreement being true and
correct in all material respects as of the date of the Merger Agreement and at
the Effective Time; (ii) the agreements and covenants of Huntington to be
performed pursuant to the Merger Agreement prior to the Effective Time having
been performed in all material respects; (iii) the receipt by Citi-Bancshares of
a certificate signed by Huntington to the effect that all such obligations of
Huntington have been satisfied and a certified copy of resolutions duly adopted
by the Board of Directors of Huntington and Huntington Florida and by
Huntington, as Huntington Florida's sole shareholder, with respect to the
transactions contemplated by the Merger Agreement; (iv) the receipt by
Citi-Bancshares of an opinion rendered by counsel to Huntington as to certain
matters set forth in the Merger Agreement; and (v) the receipt by
Citi-
- 26 -
<PAGE> 32
Bancshares of an opinion of Carson Medlin, dated not more than five
business days prior to the date of this Proxy Statement/Prospectus, stating that
the consideration to be received by the Citi-Bancshares shareholders in
connection with the Merger is fair, from a financial point of view, to such
shareholders.
The obligations of Huntington to consummate the Merger are further
conditioned upon the following conditions precedent: (i) the representations and
warranties of Citi-Bancshares set forth in the Merger Agreement being true and
correct in all material respects as of the date of the Merger Agreement and at
the Effective Time; (ii) the agreements and covenants of Citi-Bancshares to be
performed pursuant to the Merger Agreement prior to the Effective Time having
been performed in all material respects; (iii) the receipt by Huntington of a
certificate signed by Citi-Bancshares to the effect that all such obligations of
Citi-Bancshares have been satisfied and a certified copy of resolutions duly
adopted by the Board of Directors and shareholders of Citi-Bancshares with
respect to the transactions contemplated by the Merger Agreement; (iv) the
receipt by Huntington of an opinion rendered by legal counsel to Citi-Bancshares
as to certain matters set forth in the Merger Agreement; (v) the receipt by
Huntington from Citi-Bancshares' auditors of a letter or letters with respect to
certain financial information regarding Citi-Bancshares; (vi) the receipt by
Huntington from each affiliate of Citi-Bancshares of an agreement providing that
such person will not sell, pledge, transfer, or otherwise dispose of the shares
of Citi-Bancshares Common Stock held by such person except as provided for in
the Merger Agreement or the shares of Huntington Common Stock to be received in
the Merger except as permitted under applicable law, and (vii) the adjusted
total shareholders' equity of Citi-Bancshares as of the end of the last fiscal
quarter preceding Closing being not less than the adjusted total shareholders'
equity as of June 30, 1996.
Huntington and Citi-Bancshares may waive compliance by the other party
with any of the conditions, covenants, and agreements contained in the Merger
Agreement, except any condition which, if not satisfied, would result in the
violation of any law.
AMENDMENT; TERMINATION
The Merger Agreement may be amended, to the extent permitted by law, by
a subsequent writing signed by Citi-Bancshares and Huntington and authorized by
their respective Boards of Directors, whether before or after shareholder
approval of the Merger Agreement has been obtained, provided, that, after any
such approval by the shareholders of Citi-Bancshares, there will be no amendment
that under Florida Law requires further approval by such shareholders without
first obtaining such further shareholder approval.
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time as follows: (i) by mutual consent of the Board
of Directors of Huntington and the Board of Directors of Citi-Bancshares; (ii)
by the Board of Directors of either party in the event of an inaccuracy of any
representation or warranty of the other party or the material breach of any
covenant or agreement, in any case which cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of the breach
and which, in the case of the inaccuracy of any representation or warranty,
would provide the other party the ability to refuse to consummate the Merger
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement); (iii) by the Board of
Directors of either party in the event any required consent of any regulatory
authority is denied or the shareholders of Citi-Bancshares fail to vote their
approval of the Merger (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other agreement);
(iv) by the Board of Directors of either party in the event the Merger fails to
have been consummated by May 31, 1997, if such failure is not caused by any
breach of the Merger Agreement by the party electing to terminate; (v) by the
Board of Directors of either party in the event that any of the conditions
precedent to the obligations of such party cannot be fulfilled or satisfied by
May 31, 1997 (provided that the terminating party is not then in material breach
of any representation, warranty, covenant or other agreement); and (vi) by
Huntington, in the event that the Board of Directors of Citi-Bancshares fails to
reaffirm its approval of the Merger or resolves not to reaffirm the Merger, or
affirms, recommends, or authorizes entering into any other Acquisition Proposal
or other transaction involving a merger, share exchange, consolidation, or
transfer of substantially all of the assets of Citi-Bancshares.
In the event of the termination and abandonment of the Merger
Agreement, the Merger Agreement will become void and the respective
representations, warranties, obligations, covenants, and agreements of the
parties will not survive
- 27 -
<PAGE> 33
such termination, except for certain provisions which will remain in effect
under the express terms of the Merger Agreement.
NO DISSENTING SHAREHOLDERS' RIGHTS
Under Florida law, holders of Citi-Bancshares Common Stock are not
entitled to dissenting shareholders' rights, including rights of appraisal, in
connection with the consummation of the Merger.
INTERESTS OF MANAGEMENT
Immediately following the consummation of the Merger, it is the
intention of Huntington Florida, as sole shareholder of HNB-Florida, to elect
Ken W. Mullis, Clifton L. Bridges, M.D., and Walter S. McLin, III, as directors
of HNB-Florida. Mr. Mullis currently serves as an executive officer and director
of Citi-Bancshares. Dr. Bridges and Mr. McLin currently serve as directors of
Citi-Bancshares. It is anticipated that the Board of Directors of HNB-Florida
will then appoint Mr. Mullis to serve as its Chairman. In the event that
Huntington Florida and HNB-Florida are merged with the Ohio-based affiliates, it
is expected that Mr. Mullis will remain as a senior officer of Huntington's
Florida operations. See "THE MERGER - INTERESTS OF MANAGEMENT."
The Merger Agreement provides that, following the Effective Time,
Huntington is required to provide generally to officers and employees of
Citi-Bancshares certain employee benefits on terms and conditions which are
substantially similar to those currently provided to similarly situated
Huntington employees and officers. For purposes of participation and vesting
under such Huntington employee benefits plans, the service of Citi-Bancshares
employees prior to the Effective Time will be treated as service with Huntington
or one of its subsidiaries participating in such plans.
Huntington will also cause HNB-Florida to honor all employment,
severance, consulting, and other compensation agreements between Citi-Bancshares
and any current or former director, officer, or employee thereof. The Board of
Directors of Citi-Bancshares authorized Citi-Bancshares to enter into change in
control agreements with the following members of Citi-Bancshares' management in
June and July, 1996: Bill Binneveld, Amelia Carlton, Joe Cioppa, T. Michael
Killingsworth, Greg King, Ken W. Mullis, Maurice Murphy, Al Schmid, Phil
Stalcup, and Don Turner. Each of these change in control agreements is for an
initial term of three years, and is renewable thereafter for successive one-year
periods, in the sole discretion of the Compensation Committee of Citi-Bancshares
or its successor. The change in control agreements for Messrs. Binneveld,
Cioppa, Killingsworth, King, Mullis, and Schmid and Ms. Carlton provide that,
upon a termination by Huntington of such individual's employment without cause
within two years following a change in control of Citi-Bancshares, each such
individual shall be entitled to receive a parachute payment equal to his total
compensation for a period of 24 months from the date of his termination,
discounted to a present value according to the rules governing parachute
payments in Section 280G of the Code and paid in a lump sum within 30 days after
the termination, plus certain other insurance and retirement benefits. The
change in control agreements for Messrs. Murphy, Stalcup, and Turner provide
that, upon a termination by Huntington of such individual's employment without
cause within two years following a change in control of Citi-Bancshares, each
such individual shall be entitled to receive a parachute payment equal to his
total compensation for a period of six months from the date of his termination,
discounted to a present value according to the rules governing parachute
payments in Section 280G of the Code and paid in a lump sum within 30 days after
the termination, plus certain other insurance and retirement benefits. If the
Merger were consummated during the month of February 1997, and each of the
individuals listed above were terminated without cause and were to exercise his
or her right to receive the parachute payments, the parachute payments for each
individual would be approximately $187,123 for Mr. Binneveld, $220,031 for Ms.
Carlton, $215,243 for Mr. Cioppa, $233,446 for Mr. Killingsworth, $221,378 for
Mr. King, $623,415 for Mr. Mullis, $36,860 for Mr. Murphy, $258,769 for Mr.
Schmid, $29,135 for Mr. Stalcup, and $39,071 for Mr. Turner, for a total of
approximately $2,064,471. The parachute payments are subject to applicable
withholding taxes and the applicable discount rate used for calculating the
present value lump sum is subject to change.
In addition, on June 13, 1996, Citi-Bancshares adopted a Key Officer
Retention Plan (the "Retention Plan") providing to certain officers of
Citi-Bancshares certain severance benefits in the event such individuals'
employment is terminated following a change in control of Citi-Bancshares if
such termination occurs prior to the expiration of a certain "Transition
Period," which may be designated in the sole discretion of Citi-Bancshares for
each participant in
- 28 -
<PAGE> 34
the Retention Plan, but in no event will continue beyond the later of (i) the
date that is 12 months after the occurrence of such change in control, or (ii)
June 13, 2000. The severance benefits provided under the Retention Plan are as
follows: (a) each participant is entitled to receive a severance payment equal
to the product of (i) the participant's annual base salary immediately prior to
termination, divided by 52 and (ii) the number of full years of the
participant's continuous employment with Citi-Bancshares, and (b) medical
benefits substantially equal to the benefits to which the participant was
entitled immediately prior to termination for a period of six months following
termination. Any amounts owed under the Retention Plan are subject to offset for
amounts paid to the participants under other severance arrangements (including
the change in control agreements described above), and a participant's medical
benefits shall terminate upon receipt of substantially similar benefits through
a program of a subsequent employer or otherwise. The Retention Plan has 17
participants who, in the event the Merger were to close in February 1997 and
each participant were terminated prior to the expiration of the applicable
Transition Period, and received no offsetting severance payments, would be
entitled to receive an aggregate of approximately $578,319 in severance payments
under the Plan.
City-Bancshares, Huntington, Huntington-Florida and Mr. Mullis entered
into an Employment Agreement on October 31, 1996, that will become effective
immediately prior to the Effective Time of the Merger (the "Mullis Agreement").
The term of the Mullis Agreement is two years, with continuous automatic
extensions of one year unless earlier terminated. Pursuant to the Mullis
Agreement, Mr. Mullis will be employed as a senior executive officer of
Huntington Florida and HNB-Florida and receive an annual salary of $200,000 and
be eligible to participate in executive compensation and incentive plans and
arrangements generally available or provided to executive officers of
Huntington. In addition, the Mullis Agreement replaces Mr. Mullis' current
Change in Control Agreement with Citi-Bancshares described above.
Pursuant to the terms of the Citi-Bancshares' 1994 Stock Option and
Stock Appreciation Rights Plan and certain related Stock Option Agreements, the
Citi-Bancshares Board of Directors has determined that an "Acceleration Event"
will have occurred immediately prior to the Effective Time of the Merger.
Accordingly, (i) all Citi-Bancshares stock options currently outstanding will
become fully exercisable immediately prior to the Effective Time of the Merger
and (ii) all of Citi-Bancshares' scheduled stock options not previously granted
shall be granted and be fully exercisable immediately prior to the Effective
time of the Merger.
The Merger Agreement also provides that, for a period of three years
after the Effective Time, Huntington will, and will cause Huntington Florida and
HNB-Florida to, indemnify the present and former directors, officers, employees,
and agents of Citi-Bancshares against all liabilities arising out of acts or
omissions in the performance of each such person's service to Citi-Bancshares
or, at the request of Citi-Bancshares, to another enterprise at or prior to the
Effective Time to the fullest extent permitted under the applicable law, or by
Citi-Bancshares' Articles of Incorporation or By-laws, consistent with the
provisions detailed in the Merger Agreement.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States federal
income tax consequences of the Merger, including certain consequences to holders
of Citi-Bancshares Common Stock who are citizens of the United States and who
hold their shares as capital assets. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), and is for general information
only. The tax treatment of a particular shareholder will depend upon such
shareholder's particular situation. Special tax considerations not discussed
herein may be applicable to particular classes of taxpayers, such as
broker-dealers, certain retirement plans, financial institutions, or insurance
companies, or to any shareholder who acquired Citi-Bancshares Common Stock
through the exercise of an employee stock option or otherwise as compensation.
All shareholders should consult with their own tax advisors as to particular tax
consequences of the Merger to them, including the applicability and effect of
state, local, and foreign tax laws and possible changes in the tax law.
Consummation of the Merger is dependent upon receipt by Huntington,
Huntington Florida, and Citi-Bancshares of an opinion of Porter, Wright, Morris
& Arthur, counsel to Huntington and Huntington Florida, substantially to the
effect that, for federal income tax purposes, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and will result
in the tax consequences described below. In rendering such opinion, Porter,
Wright, Morris & Arthur is entitled to rely upon certain assumptions and
representations of the parties and their respective officers, directors, and
shareholders.
Assuming that the Merger constitutes a reorganization within the
meaning of Section 368(a) and that Citi-Bancshares, Huntington, and Huntington
Florida will each be a party to the reorganization within the meaning of Section
368(b) of the Code, the following is a summary of the tax consequences which
will result:
(a) No gain or loss will be recognized by a Citi-Bancshares
shareholder who receives solely shares of Huntington Common
Stock in exchange for such shareholder's shares of
Citi-Bancshares Common Stock, except to the extent that such
shareholder receives any cash in lieu of the issuance of
fractional shares.
(b) A Citi-Bancshares shareholder will realize gain, if any, upon
the receipt of a combination of shares of Huntington Common
Stock and cash, in exchange for such shareholder's shares of
Citi-Bancshares Common Stock equal to the excess of the fair
market value of the shares of Huntington Common Stock received
plus the amount of cash received over the cost or other basis
of the shares of Citi-
- 29 -
<PAGE> 35
Bancshares Common Stock surrendered in the exchange. Such gain
will be recognized, but not in excess of the amount of cash
received. If the exchange has the effect of the distribution
of a dividend (as defined under Section 316 of the Code and as
determined with the applications of Sections 302, 318, and
356(a)(2) of the Code), then the amount of gain recognized
that is not in excess of the shareholder's ratable share of
the undistributed earnings and profits of Citi-Bancshares will
be treated as a dividend. The determination of whether the
exchange has the effect of the distribution of a dividend will
be made on a shareholder by shareholder basis. No loss will be
recognized upon the exchange.
(c) Where solely cash is received by a Citi-Bancshares shareholder
in exchange for such shareholder's shares of Citi-Bancshares
Common Stock pursuant to the exercise of cash-only option
rights, the cash will be treated as having been received by
such shareholder as a distribution in redemption of his or her
Citi-Bancshares Common Stock, subject to the provisions and
limitations of Section 302 of the Code. Where, as a result of
such distribution, a former shareholder of Citi-Bancshares
owns no shares of Huntington Common Stock either directly or
through the application of Section 318(a) of the Code, the
redemption will be a complete termination of interest within
the meaning of Section 302(b)(3) of the Code and such cash
will be treated as a distribution in full payment in exchange
for such shareholder's shares of Citi-Bancshares Common Stock,
as provided in Section 302(a) of the Code. Under Section 1001
of the Code, gain or (subject to the limitations of Section
267 of the Code) loss will be realized and recognized to such
shareholder in an amount equal to the difference between the
amount of such cash and the adjusted basis of the shares of
Citi-Bancshares Common Stock surrendered, as determined under
Section 1011 of the Code.
(d) The basis of the Huntington Common Stock so received will be
the same as the basis of the Citi-Bancshares Common Stock
surrendered in exchange therefor, decreased by the amount of
cash received by the shareholder and increased by (i) the
amount, if any, that was treated as a dividend, and (ii) the
amount of gain recognized by the shareholder on the exchange
(not including any portion of such gain that is treated as a
dividend).
(e) The holding period of the Huntington Common Stock to be
received by Citi-Bancshares shareholders will include the
holding period of the shares of Citi-Bancshares Common Stock
surrendered in exchange therefor, provided that
Citi-Bancshares Common Stock was held as a capital asset in
the hands of the Citi-Bancshares shareholder on the Effective
Date.
(f) The basis of the assets of Citi-Bancshares to be received by
Huntington Florida will be the same as the basis of those
assets in the hands of Citi-Bancshares immediately prior to
the Merger.
(g) The holding period of the assets of Citi-Bancshares to be
received by Huntington Florida will, in each instance, include
the period for which such assets were held by Citi-Bancshares.
(h) No gain or loss will be recognized by Huntington or Huntington
Florida (except for the inclusion in income of amounts
resulting from any required changes in accounting methods or
similar items) upon the consummation of the Merger.
(i) No gain or loss will be recognized by Citi-Bancshares (except
for the inclusion in income of amounts resulting from any
required changes in accounting methods or similar items) upon
the consummation of the Merger.
Cash payments to holders of Citi-Bancshares Common Stock (other than
certain exempt entities and persons) paid in the Merger will be subject to a 31%
backup withholding tax under federal income tax law unless certain requirements
are met. Generally, the Exchange Agent will be required to deduct backup
withholding amounts if (i) the shareholder fails to furnish a taxpayer
identification number ("TIN") to the Exchange Agent or fails to certify under
penalty of perjury that such TIN is correct; (ii) the IRS notifies the Exchange
Agent that the TIN furnished by the shareholder is incorrect; (iii) the IRS
notifies the Exchange Agent that the shareholder has failed to report interest,
- 30 -
<PAGE> 36
dividends, or original issue discount in the past; or (iv) there has been a
failure by the shareholder to certify under penalty of perjury that such
shareholder is not subject to backup withholding tax. Any amounts withheld by
the Exchange Agent in collection of the backup withholding tax will reduce the
federal income tax liability of the shareholder from whom such tax was withheld.
The TIN of an individual shareholder is that shareholder's Social Security
number.
Citi-Bancshares, Huntington, Huntington-Florida and Mr. Mullis entered
into an Employment Agreement on October 31, 1996, that will become effective
immediately prior to the Effective Time of the Merger (the "Mullis Agreement").
The term of the Mullis Agreement is two years, with continuous automatic
extensions of one year unless earlier terminated. Pursuant to the Mullis
Agreement, Mr. Mullis will be employed as a senior executive officer of
Huntington Florida and HNB-Florida and receive an annual salary of $200,000 and
be eligible to participate in executive compensation and incentive plans and
arrangements generally available or provided to executive officers of
Huntington. The Mullis Agreement replaces Mr. Mullis' current Change in
Control Agreement with Citi-Bancshares described above and contains all of the
substantive provisions of that agreement.
Pursuant to the terms of the Citi-Bancshares' 1994 Stock Option and
Stock Appreciation Rights Plan and certain related Stock Option Agreements, the
Citi-Bancshares Board of Directors has determined that an "Acceleration Event"
will have occurred immediately prior to the Effective Time of the Merger.
Accordingly, (i) all Citi-Bancshares stock options currently outstanding will
become fully exercisable immediately prior to the Effective Time of the Merger
and (ii) all of Citi-Bancshares' scheduled stock options not previously
granted shall be granted and be fully exercisable immediately prior to the
Effective Time of the Merger.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for by Huntington
under the purchase method of accounting.
REGULATORY APPROVALS
It is anticipated that the Merger will qualify for an exemption from
the Federal Reserve Board's general requirement of an application for bank
holding company mergers. Such exemptions are afforded certain acquisitions that
are subject to the Bank Merger Act, and require, for qualifying transactions,
only a 30-day prior notice to the relevant Federal Reserve Bank, which in this
case is the Federal Reserve Bank of Cleveland. The Subsidiary Merger is subject
to the Bank Merger Act and must be approved by the OCC. An application to the
OCC was filed, and a notice to the Federal Reserve Bank of Cleveland was
submitted, on December 26, 1996.
Approval by the OCC requires that the criteria of the Bank Merger Act
be met. In conducting its review of any application under the Bank Merger Act,
the OCC is required to take into consideration the financial and managerial
resources (including the competence, experience, and integrity of the officers,
directors, and principal shareholders), the future prospects of the existing and
proposed institutions, and the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the OCC will,
among other things, evaluate the adequacy of the capital levels of the parties
to a proposed transaction.
The Bank Merger Act also prohibits the OCC from approving a merger if
it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the Untied States, or if its effect in any section of the country
would be substantially to lessen competition or tend to create a monopoly, or if
it would in any other manner result in a restraint of trade, unless the OCC
finds that the anti-competitive effects of a merger are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. In addition, under the
Community Reinvestment Act of 1977, as amended, the OCC must take into account
the record of performance of the existing institutions in meeting the credit
needs of the entire community, including low- and moderate-income neighborhoods,
served by such institutions.
The Bank Merger Act provides for the publication of notice of, and the
opportunity for administrative hearings relating to, the application for
approval noted and described above. Interested parties may intervene in the
approval proceedings. If an interested party intervenes, such intervention could
substantially delay the regulatory approvals required for consummation of the
Subsidiary Merger. Any merger approved by the OCC is subject to a statutory
waiting period of 15 to 30 days, during which time the United States Department
of Justice may challenge a merger on antitrust grounds. The commencement of an
antitrust action would stay the effectiveness of the regulatory agency's
approval unless a court specifically ordered otherwise.
The managements of Huntington and Citi-Bancshares believe that the OCC
will approve the application filed with it, that the Federal Reserve Board will
waive any application that would otherwise be required under the Bank Holding
Company Act, and that the Subsidiary Merger will not be subject to challenge by
the Department of Justice under the antitrust laws. However, no assurance can be
provided that such approval will be obtained, that such waiver will be granted,
that the Department of Justice will not challenge the subsidiary merger under
the antitrust laws or that the approval by the OCC will not contain conditions
unacceptable to either Huntington or Citi-Bancshares. See "THE MERGER -
CONDITIONS TO CONSUMMATION OF THE MERGER."
- 31 -
<PAGE> 37
RESALES OF HUNTINGTON COMMON STOCK
Although the Huntington Common Stock to be issued upon consummation of
the Merger has been registered under the Securities Act of 1933, as amended,
certain directors and officers of Citi-Bancshares and other persons deemed to be
affiliates of Citi-Bancshares and their affiliates may not resell or otherwise
dispose of the shares of Huntington Common Stock received by them in connection
with the Merger unless such sales are made pursuant to an effective registration
under the Securities Act of 1933, as amended, or pursuant to Rule 145
promulgated by the Commission or another exemption from registration under such
Act. Huntington has obtained from each of such persons a written undertaking to
the effect that no sale, transfer, or other disposition will be made of any
Huntington Common Stock received in the Merger except in accordance with the
above restrictions.
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
At the Effective Time, the Citi-Bancshares shareholders who elect to
receive, or who otherwise receive, shares of Huntington Common Stock in exchange
for their shares of Citi-Bancshares Common Stock, in whole or in part, in the
Merger will automatically become Huntington shareholders, and their rights as
shareholders will be determined by Maryland General Corporation Law and by
Huntington's Charter and Bylaws. The rights of Citi-Bancshares shareholders
differ in some respects from the rights they would have as shareholders of
Huntington. The following is a brief summary of the material differences in the
rights of Citi-Bancshares shareholders from the rights of shareholders of
Huntington; however, this summary does not purport to be a complete description
of such differences.
CAPITAL STOCK
Citi-Bancshares' Articles of Incorporation authorizes the issuance of
10,000,000 shares of common stock, par value $0.01 per share ("Citi-Bancshares
Common Stock").
Huntington's Charter authorizes the issuance of 306,617,808 shares of
capital stock, of which 300,000,000 shares are common stock, without par value,
and 6,617,808 shares are serial preferred stock, without par value ("Huntington
Preferred Stock"). Huntington's Board of Directors has the authority to classify
and reclassify any unissued shares of Huntington Preferred Stock in one or more
series with such preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, terms or conditions
of redemption, or other rights as may be authorized by the Board of Directors of
Huntington and stated in articles supplementary or other charter documents
providing for the issuance of such Huntington Preferred Stock. Huntington Common
Stock is subject to all of the terms and provisions of the Huntington Preferred
Stock as fixed by the Board of Directors. There are currently no shares of
Huntington Preferred Stock designated or outstanding.
Neither Citi-Bancshares shareholders nor Huntington shareholders have
any preemptive rights to purchase additional shares of stock upon an offering or
sale for cash or otherwise of such stock.
NOMINATION, ELECTION, AND REMOVAL OF DIRECTORS
Neither Florida law nor Citi-Bancshares' Articles of Incorporation or
By-laws sets forth specific procedures for the nomination of persons for
election to the Board of Directors of Citi-Bancshares. Citi-Bancshares' Articles
of Incorporation provide that the number of directors shall be fixed in the
By-laws, but shall not be fewer than one. Citi-Bancshares' By-laws provide that
the number of Directors shall be 13. There are currently 11 directors serving on
Citi-Bancshares' Board of Directors. Florida law permits cumulative voting in
elections of directors if called for in a corporation's articles of
incorporation. Citi-Bancshares' Articles of Incorporation do not provide for
cumulative voting. A director of Citi-Bancshares holds office until the next
annual meeting and until a successor is elected and qualified, subject, however,
to prior death, resignation, or removal from office. Under Citi-Bancshares'
By-laws, any director or
- 32 -
<PAGE> 38
the entire Board of Directors may be removed, with or without cause, at a
meeting of shareholders expressly called for that purpose, by a vote of the
holders of a majority of the shares then entitled to vote at an election of
directors.
Huntington's Bylaws provide that, in order for a person to be eligible
for election as a director of Huntington, such person must be nominated by or at
the direction of Huntington's Board of Directors or by a shareholder entitled to
vote for the election of directors in accordance with certain specified
procedures. Shareholder nominations must be made pursuant to timely written
notice to the Secretary of Huntington. In most cases, a shareholder's notice, to
be timely, must be received at the principal executive offices of Huntington not
less than 30 days nor more than 60 days prior to the date of a shareholders'
meeting. The notice must set forth certain specified information about the
shareholder giving the notice and the shareholder's proposed nominee.
Huntington's Charter currently provides for 12 directors, which number
may be altered by resolution of a majority of the entire Board of Directors to
not more than 25 nor fewer than three directors. The Board of Directors has
currently set the number of directors at 12. There are no residency requirements
for Huntington's Directors. Huntington's Charter provides for the division of
the Board of Directors into three classes. Each class must consist, as nearly as
possible, of one-third of the total number of directors. At each annual meeting
of shareholders, successors to the class of directors whose term expires at that
annual meeting are elected for a three-year term. If the number of directors is
changed, any increase or decrease must be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible. A
director holds office until the annual meeting for the year in which his term
expires and until his successor is elected and qualified. Neither Huntington's
Charter nor its Bylaws provide for cumulative voting. Under Huntington's
Charter, the shareholders of Huntington may remove a director with cause by the
affirmative vote of two-thirds of all shareholders entitled to vote at the
election of directors. No director may be removed by the shareholders of
Huntington without cause.
SHAREHOLDER PROPOSALS
In general, at any meeting of the shareholders of either Huntington or
Citi-Bancshares, only business that has been properly brought before such
meeting may be acted upon at such meeting. Huntington's Bylaws provide further
that, in order to be properly brought before a meeting of shareholders of
Huntington, business must be brought by or at the direction of the Board of
Directors or otherwise by a shareholder in accordance with certain specified
procedures. A shareholder proposing business must give timely written notice
thereof to the Secretary of Huntington. In most cases, a shareholder's notice,
to be timely, must be received at the principal executive offices of Huntington
not less than 30 days nor more than 60 days prior to the date of a shareholders'
meeting. The notice must set forth certain specified information about the
shareholder proposing such business and the shareholder's proposal. Neither the
Articles of Incorporation nor By-laws of Citi-Bancshares contain comparable
provisions.
SPECIAL VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
In general, Florida law requires the affirmative vote of the holders of
the majority of the shares entitled to vote to effect amendments to the articles
of incorporation which would create dissenters' rights, a merger, sale of assets
other than in the ordinary course of business, or dissolution of the
corporation.
Maryland law requires the affirmative vote of the holders of two-thirds
of the outstanding shares of Huntington stock entitled to vote to effect
material amendments to the charter, a merger, consolidation, sale of assets
other than in the ordinary course of business, or dissolution of the
corporation. Maryland law also requires a "super majority" vote, in addition to
any vote otherwise required by law or Huntington's Charter, for certain business
combinations. Unless certain value and other standards are met or an exemption
is available, any business combination between Huntington and any interested
person (defined generally as a 10% shareholder or an affiliate of such
shareholder) must be recommended by the Board of Directors and approved by the
affirmative vote of at least 80% of the votes entitled to be cast by holders of
Huntington voting stock, voting together as a single class, and two-thirds of
the votes entitled to be cast by holders of voting stock other than voting stock
beneficially owned by an interested shareholder who is a party to the business
combination, voting together as a single class.
- 33 -
<PAGE> 39
Both Maryland and Florida law provide certain limitations with respect
to "control shares." "Control shares" are generally defined under Maryland and
Florida law as shares of a corporation which would, if aggregated with all other
shares of that corporation owned by a person, entitle that person, directly or
indirectly, to exercise or direct the exercise of voting power in the election
of directors within specified ranges. "Control-share acquisition" is defined by
Maryland and Florida law as an acquisition (other than an acquisition
specifically exempted from the definition of control share acquisition, such as
an acquisition pursuant to certain mergers), directly or indirectly, by any
person of ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding control shares. Under Maryland law, control
shares acquired in a control share acquisition have no voting rights except to
the extent such rights are approved by the shareholders of the corporation by
the affirmative vote of two-thirds of all votes entitled to be cast on the
matter, excluding all interested shares of the corporation. Under Florida law,
control shares acquired in a control share acquisition have the same voting
rights as were accorded the shares before the control share acquisition only to
the extent granted by resolution approved by a majority of all shares entitled
to vote or, if applicable, by a majority of each class or series entitled to
vote separately on the proposal, excluding in each case any interested shares of
the corporation.
The super majority vote and control share provisions of Maryland law
may deter or render more difficult attempts by third parties to obtain control
of Huntington if such attempts are not supported by Huntington's Board of
Directors. See also "HUNTINGTON BANCSHARES INCORPORATED - DESCRIPTION OF COMMON
STOCK - RIGHTS PLAN." Similarly, Florida's control share statute may deter or
render more difficult attempts by third parties to obtain control of
Citi-Bancshares if such attempts are not supported by Citi-Bancshares' Board of
Directors.
EVALUATION OF MERGERS AND CONSOLIDATIONS
Under Florida law, in discharging any of his duties, a director of
Citi-Bancshares may consider such factors as the director deems relevant,
including the long-term prospects and interests of Citi-Bancshares and its
shareholders and the social, economic, legal, or other effects of any action on
the employees, suppliers, and customers of Citi-Bancshares, the communities in
which Citi-Bancshares operates, and the economy of the state and the nation.
Under Citi-Bancshares' By-laws, a director must discharge his or her duties as a
director, including his or her duties as a member of any committee of the board
upon which he or she serves, in good faith, with the care that an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner he or she reasonably believes to be in the best interests of
Citi-Bancshares.
Article Ninth of Huntington's Charter provides that, in connection with
the exercise of its judgment in determining what is in the best interests of
Huntington when evaluating a merger or consolidation of Huntington (among other
things), the Board of Directors must, in addition to considering the adequacy of
the amount to be paid in connection with any such transaction, consider all of
the following factors and any other factors which it deems relevant: (i) the
interests of the shareholders, including the relation of the consideration
offered in the then proposed transaction to the then current market price of
Huntington's stock and also the current value of Huntington in a freely
negotiated transaction and in relation to the Board of Directors' then estimate
of the future value of Huntington as an independent entity or as the subject of
a future merger or consolidation, (ii) the interests of depositors of banks
affiliated with Huntington and of other creditors of Huntington, and (iii) any
other factors that the Board of Directors determines to be relevant, including,
among other factors, the social, legal, and economic effects upon employees,
suppliers, customers, and the business of Huntington and on the communities in
which Huntington operates.
SPECIAL MEETINGS
Citi-Bancshares' By-laws provide that special meetings of the
shareholders for any purpose will be held when called by the President or the
Board of Directors or when requested in writing by the holders of not less than
10% of all the shares entitled to vote at the meeting. A meeting requested by
shareholders must be called for a date not less than 10 nor more than 60 days
after the request is made, unless the shareholders requesting the meeting
designate a later date. Written notice stating the place, day and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten nor more than sixty
days before the
- 34 -
<PAGE> 40
meeting. The shareholders at a special meeting shall transact only business that
is related to the purposes stated in the notice of the special meeting.
Pursuant to Maryland law and Huntington's Bylaws, a special meeting of
shareholders may be called by the Board of Directors, the Chairman, or the
President of Huntington and must be called by the Secretary upon written request
of the holders of not less than 25% of the outstanding shares entitled to vote
at the meeting. Any shareholder request must state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. The Secretary must
inform such shareholders of the reasonably estimated cost of preparing and
mailing the notice of the meeting, and upon payment to Huntington of such costs,
the Secretary must give notice of such meeting, except that no special meeting
need be called upon the request of the holders of less than a majority of all
votes entitled to be cast at such meeting to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
shareholders held during the preceding twelve months.
DIRECTORS' AND SHAREHOLDERS' RIGHT TO ADOPT, ALTER, OR REPEAL THE BYLAWS
Under Florida law and Citi-Bancshares' By-laws, either the Board of
Directors or the shareholders may adopt, amend, or repeal the By-laws of the
corporation; however, the Board of Directors may not amend or repeal any By-law
adopted by shareholders if the shareholders specifically provide that the By-law
is not subject to amendment or repeal by the directors.
Under Maryland law, the power to adopt, alter, and repeal the bylaws of
a corporation is vested in the shareholders, except to the extent that the
charter or bylaws vest it in the board of directors. Huntington's Charter and
Bylaws provide that Huntington's Bylaws may be adopted, amended, or repealed by
the affirmative vote of two-thirds of the votes entitled to be cast by the
outstanding shares of Huntington's voting stock or by the Board of Directors at
any regular or special meeting.
PERSONAL LIABILITY OF OFFICERS AND DIRECTORS TO SHAREHOLDERS
Florida law provides that no director will be personally liable to
Citi-Bancshares or its shareholders for monetary damages unless the director
breached or failed to perform his duties as a director and such breach or
failure to perform constitutes (i) a violation of criminal law (unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful), (ii) a transaction from
which such director derived an improper personal benefit, (iii) an unlawful
payment of a dividend or other distribution, (iv) willful misconduct or a
conscious disregard for the best interest of the corporation in a proceeding by
or in the right of the corporation or a shareholder, or (v) recklessness or an
act or omission committed in bad faith or with malicious purpose or in a manner
exhibiting wanton and willful disregard of human rights, safety, or property in
connection with a proceeding by or in the right of someone other than the
corporation or a shareholder.
Huntington's Charter provides that no director or officer will be
personally liable to the corporation or its shareholders for money damages to
the fullest extent permitted by Maryland statutory or decisional law. The effect
of this provision under Maryland law is that neither Huntington nor its
shareholders will be able to recover money damages against a director or officer
of Huntington unless Huntington or its shareholders is able to prove that (i)
the director or officer actually received an improper benefit in money,
property, or services (in which case recovery is limited to the actual amount of
such improper benefit), or (ii) the action, or failure to act, by the director
or officer was the result of active and deliberate dishonesty which was material
to the cause of action adjudicated in the proceeding.
RIGHTS PLAN
In 1990, the Board of Directors of Huntington entered into a Rights
Agreement, dated as of February 22, 1990, and amended as of August 16, 1995 (the
"Rights Agreement"), between Huntington and The Huntington Trust Company,
National Association, as Rights Agent. For a description of the Rights
Agreement, as amended, see
- 35 -
<PAGE> 41
"HUNTINGTON BANCSHARES INCORPORATED - DESCRIPTION OF HUNTINGTON COMMON STOCK."
Citi-Bancshares does not have a plan or agreement similar to the Rights
Agreement.
HUNTINGTON BANCSHARES INCORPORATED
GENERAL
Huntington, incorporated in Maryland in 1966, is a multi-state bank
holding company headquartered in Columbus, Ohio. At September 30, 1996,
Huntington had total assets of approximately $20.6 billion and total deposits of
approximately $13.2 billion.
Huntington's affiliates conduct a full service commercial and consumer
banking business, engage in mortgage banking, lease financing, trust services,
discount brokerage services, underwriting credit life and disability insurance,
and issuing commercial paper guaranteed by Huntington, and provide other
financial products and services. At September 30, 1996, Huntington's affiliates
operated 178 banking offices in Ohio, 45 banking offices in West Virginia, 42
banking offices in Michigan, 31 banking offices in Florida, 24 banking offices
in Indiana, 15 banking offices in Kentucky, and one foreign office in the Cayman
Islands. In addition, Huntington's mortgage company affiliate has loan
origination offices throughout the Midwest and East Coast, as well as one office
in Houston, Texas. Foreign banking activities, in total or with any individual
country, are not significant to the operations of Huntington. At September 30,
1996, Huntington and its subsidiaries had 7,897 full-time equivalent employees.
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 September 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, actual or potential
competition in each of Huntington's markets has been intensified. The same
federal legislation permits further competition through interstate branching
beginning in mid-1997, subject to certain limitations by individual states.
Huntington acquired Peoples Bank of Lakeland ("Lakeland"), a commercial
bank with $551 million in assets headquartered in Lakeland, Florida, on January
23, 1996. Huntington paid $46.2 million in cash and issued approximately 4.7
million shares of common stock in exchange for all the common stock of Lakeland.
The transaction was accounted for as a purchase. Other than the pending
acquisition of Citi-Bancshares, at the date of this Proxy Statement/Prospectus,
Huntington has no acquisitions pending; however, Huntington continues to explore
other opportunities to acquire banking and non-banking companies, both
interstate and intrastate.
The Riegle-Neal Act permits mergers between insured banks located in
different states effective on and after June 1, 1997, subject to the rights of
individual states to "opt-out" of interstate banking and consolidations.
Subject to obtaining the necessary regulatory approvals, Huntington presently
intends to merge all of its subsidiary banks except The Huntington State Bank
and HNB-Florida, into its principal bank, The Huntington National Bank,
headquartered in Columbus, Ohio, and to consolidate all of its subsidiary
holding companies, except Huntington Florida, into Huntington, as soon as
practicable after June 1, 1997 Huntington Florida and HNB Florida will not be
merged or liquidated in the foreseeable future into Huntington and the
Huntington National Bank, respectively, without a private letter ruling from
the Internal Revenue Service to the effect that the tax-free reorganization
with Citi-Bancshares will not be adversely impacted by such transactions.
HUNTINGTON FLORIDA AND HNB-FLORIDA
Huntington Florida is a wholly owned subsidiary of Huntington. At
September 30, 1996, Huntington Florida had total assets of $1.1 billion, total
deposits of $873.9 million, and operated 31 banking offices in Florida through
its wholly owned subsidiary, The Huntington National Bank of Florida
("HNB-Florida"). The principal executive offices of Huntington Florida are
located at Huntington Center, 41 South High Street, Columbus, Ohio 43287
(telephone
- 36 -
<PAGE> 42
number 614-480-8300). The principal executive offices of HNB-Florida are located
at 253 North Orlando Avenue, Maitland, Florida 32751 (telephone number
407-740-6300). If Huntington carries out the consolidation of its subsidiary
holding companies and banks on or after June 1, 1997, as presently intended (as
described in "GENERAL" above), Huntington Florida will be consolidated with
Huntington and will thereupon cease to exist as a separate entity and
HNB-Florida will be merged into The Huntington National Bank and will thereupon
cease to exist as a separate entity.
After consummation of the Merger, Huntington, through its subsidiaries,
will have 42 banking offices, with over $1.7 billion in assets, in central and
southwestern Florida.
HUNTINGTON DIRECTORS
Huntington's Charter provides for a classified Board of Directors.
Class I Directors serve for a three-year term expiring at the 1997 Annual
Shareholders Meeting; Class II Directors serve for a three-year term expiring at
the 1998 Annual Shareholders Meeting; and Class III Directors serve for a
three-year term expiring at the 1999 Annual Shareholders Meeting.
CLASS I DIRECTORS
<TABLE>
<CAPTION>
DIRECTORSHIPS HELD IN ANY COMPANY WITH
A CLASS OF SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE SECURITIES
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE EXCHANGE ACT OF 1934
- ------------------------------------------------------ --------- ------------- -----------------------------------------
<S> <C> <C> <C>
John B. Gerlach 69 1984 Lancaster Colony Corporation,
Chairman and Chief Executive Officer, Drug Emporium, Inc.,
Lancaster Colony Corporation, manufacturer M/I Schottenstein Homes, Inc.,
of consumer goods Scioto Downs, Inc.,
Worthington Foods, Inc.
W. Lee Hoskins 55 1991
Vice Chairman of Huntington; Chairman
and Chief Executive Officer,
The Huntington National Bank
Zuheir Sofia 52 1984
President, Chief Operating Officer, and
Treasurer of Huntington
William J. Williams 68 1985 Centerior Energy Corporation,
Retired Chairman, The Huntington National Republic Engineered Steel, Inc.,
Bank UNR Industries, Inc.
</TABLE>
CLASS II DIRECTORS
<TABLE>
<CAPTION>
DIRECTORSHIPS HELD IN ANY COMPANY WITH
A CLASS OF SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE SECURITIES
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE EXCHANGE ACT OF 1934
- ------------------------------------------------------ --------- ------------- -----------------------------------------
<S> <C> <C> <C>
Don Conrad 68 1989
Chairman and Chief Executive Officer,
WACO Oil Co., Inc., retail gasoline/
convenience stores, car washes, and
self storage warehouses
George A. Skestos 68 1995
Retired Chairman, Homewood Corporation,
residential construction and development
</TABLE>
- 37 -
<PAGE> 43
<TABLE>
<S> <C> <C> <C>
Lewis R. Smoot, Sr. 63 1995 M/I Schottenstein Homes, Inc.
President and Chief Executive Officer, The
Smoot Corporation, general construction and
construction management
Frank Wobst 63 1974
Chairman and Chief Executive Officer of
Huntington; Chairman of the Executive
Committee of The Huntington National Bank;
Chairman, The Huntington Trust Company,
National Association
</TABLE>
CLASS III DIRECTORS
<TABLE>
<CAPTION>
DIRECTORSHIPS HELD IN ANY COMPANY
WITH A CLASS OF SECURITIES
REGISTERED PURSUANT TO SECTIONS
DIRECTOR 12 OR 15(d) OF THE SECURITIES
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE EXCHANGE ACT OF 1934
- ------------------------------------------------------ ------- ---------- ----------------------------------
<S> <C> <C> <C>
Don M. Casto, III 51 1985
Principal, Don M. Casto Organization, real
estate developers
Wm. J. Lhota 57 1990 AEP Generating Company,
Executive Vice President, American Electric Appalachian Power Company,
Power Company, Inc., an investor-owned Blackhawk Coal Company,
electric utility system serving parts of Indiana, Columbus Southern Power Company,
Kentucky, Michigan, Ohio, Tennessee, Indiana Michigan Power Company,
Virginia and West Virginia Kentucky Power Company, Ohio
Power Company, State Auto
Financial Corporation
Patricia T. Hayot 51 1996
Head of Columbus School for Girls
Timothy P. Smucker 52 1978 The J. M. Smucker Company,
Chairman, The J. M. Smucker Company, Kellogg Company
manufacturer of jams, jellies, preserves,
and ice cream toppings
</TABLE>
- -------------------------
(1) Mr. Williams retired from the position of Chairman of The Huntington
National Bank as of September 1, 1993. Each other director has held the
various positions indicated or other executive positions with the same
organizations (or predecessor organizations) for at least the past five
years. Messrs. Hoskins, Sofia, and Wobst are also directors of The
Huntington National Bank, The Huntington Trust Company, National
Association, and various other entities affiliated with Huntington. Mr.
Williams is also a director of The Huntington National Bank and another
affiliated entity.
COMPENSATION OF HUNTINGTON DIRECTORS
Each non-employee director of Huntington receives $1,250 for each Board
or committee meeting of Huntington the director attends. In addition, each
non-employee director of Huntington receives retainer payments at an annual rate
of $20,000. Non-employee chairmen of standing committees of the Board of
Directors of Huntington receive additional retainer payments at an annual rate
of $3,125. All or any portion of the compensation otherwise payable to a
director may be deferred if such director elects to participate in the
Huntington Bancshares Incorporated Deferred Compensation Plan and Trust for
Huntington Bancshares Incorporated Directors (see below).
- 38 -
<PAGE> 44
DEFERRED COMPENSATION PLAN FOR DIRECTORS
The Huntington Bancshares Incorporated Deferred Compensation Plan and
Trust for Huntington Bancshares Incorporated Directors (the "Directors' Plan"),
adopted in 1991, allows the members of the Board of Directors of Huntington to
elect to defer receipt of all or a portion of the compensation payable to them
in the future for services as directors. Such deferred amounts are not included
in the gross income of the directors until such time as the deferred amounts are
distributed from the Directors' Plan. Huntington transfers cash equal to the
compensation deferred pursuant to the Directors' Plan to a trust fund where it
is allocated to the accounts of the participating directors. The trustee of the
Directors' Plan has broad investment discretion over the trust fund and is
authorized to invest in many forms of securities and other instruments,
including Huntington Common Stock. During 1995, the trustee invested the trust
fund primarily in Huntington Common Stock. The trustee may hold some assets of
the Directors' Plan in the form of cash to the extent the trustee deems
necessary. The trustee maintains a separate account for each participating
director. Amounts contributed to the Directors' Plan are credited to the account
of each director in the ratio that the amount deferred by each director bears to
the total amount deferred by all directors. Distribution of a director's account
will be made either in a lump sum or in equal annual installments over a period
of not more than ten years, as elected by each director. Such distribution will
commence upon the earlier of 30 days after the attainment of an age specified by
the director at the time the deferral election was made, or within 30 days of
the director's termination as a director. All of the assets of the Directors'
Plan are subject to the claims of the creditors of Huntington and the rights of
a director or his beneficiaries to any of the assets of the Directors' Plan are
no greater than the rights of an unsecured general creditor of Huntington.
Directors who are also employee of Huntington do not receive compensation as
directors and, therefore, are ineligible to participate in the Directors' Plan.
RETIREMENT PLAN FOR DIRECTORS
Huntington adopted the Huntington Bancshares Incorporated Retirement
Plan for Outside Directors (the "Directors' Retirement Plan") effective January
1, 1993. The Directors' Retirement Plan provides retirement benefits for
non-employee directors of Huntington who have completed five years of service on
Huntington's Board of Directors and for directors of Huntington who, in
Huntington's discretion, are named eligible to participate. Participation in the
Directors' Retirement Plan, which is voluntary and may be waived, commences
automatically for a director who has met the eligibility requirements.
Retirement benefits are payable annually upon the first to occur of termination
of service to the Board by reason of death, disability, or retirement upon or
after reaching age 70. The initial annual benefit is equal to the participant's
annual retainer, excluding meeting, committee, and other like fees, in effect as
of the date the initial benefit is paid. Subsequent benefit payments are equal
to the annual retainer in effect at the time of payment; provided, however, that
at no time will a participant's annual benefit be reduced. Benefits are payable
for the life of the participant.
In the event a participant dies prior to the commencement of benefit
payments or dies after distribution has commenced, but before the participant
has received ten annual payments, the benefits shall be payable to the
participant's surviving spouse until the surviving spouse dies or the combined
total number of annual payments to the participant and the surviving spouse
equals ten, whichever occurs first. Unless the participant is survived by a
spouse, entitlement to the benefits under the Directors' Retirement Plan
terminates at the death of the participant.
In the event of a change in control of Huntington, each non-employee
director then sitting on the Board shall become eligible, regardless of the
director's number of years of service, to receive the greater of the director's
annual retainer, excluding meeting, committee, and other like fees, then in
effect, or the director's largest annual retainer in effect at any time during
the two-year period immediately preceding the change in control. A participant
with fewer than five years of service will receive benefits annually for up to
ten years; a participant with five or more years of service will receive
benefits annually for life. In the event of a change in control, or in the event
a change in control is likely to occur, as determined by Huntington in its sole
discretion, Huntington may create and fund a grantor trust to provide for
payment of benefits under the Directors' Retirement Plan. Otherwise, the
Directors' Retirement Plan is unfunded and no provision will be made with
respect to segregating any assets of Huntington for payment of any benefits
thereunder. The participants and their spouses have only the rights of general
unsecured creditors of Huntington with respect to any rights under the
Directors' Retirement Plan.
- 39 -
<PAGE> 45
The Directors' Retirement Plan may be amended or terminated at
Huntington's discretion, however, no amendment or termination of the Directors'
Retirement Plan will deprive, directly or indirectly, any participant or
beneficiary of any benefit which has commenced prior to the effective date of
the amendment or termination. Under the Comprehensive Thrift and Bank Fraud
Prosecution and Taxpayer Recovery Act of 1990, the Federal Deposit Insurance
Corporation has the authority to limit or prohibit payments contingent upon the
termination of an individual's affiliation with Huntington, including payments
made under the Directors' Retirement Plan, but only if Huntington is insolvent,
has been placed in conservatorship or receivership, or is determined by the
Board of Governors of the Federal Reserve System to be a troubled financial
institution.
EXECUTIVE OFFICERS OF HUNTINGTON
The executive officers of Huntington are listed below. Each listing
includes a statement of the business experience of each executive officer during
at least the last five years. Executive officers are elected annually by the
Board of Directors and serve at the pleasure of the Board.
JUDITH D. FISHER, age 51, has served as Executive Vice President of
Huntington since February 1994 and as Executive Vice President and Manager of
the Treasury Group of The Huntington National Bank since January 1991. Ms.
Fisher has also served as President of Huntington Bancshares Financial
Corporation since April 1991. Ms. Fisher served as Senior Vice President and
Manager, Investment and Funds Management, from September 1987 to January 1991.
RALPH K. FRASIER, age 58, Executive Vice President, General Counsel,
Secretary, and Cashier of The Huntington National Bank and General Counsel and
Secretary of Huntington, joined The Huntington National Bank in November 1975 as
Vice President and General Counsel. Mr. Frasier was named Senior Vice President
and General Counsel of The Huntington National Bank and General Counsel of
Huntington in July 1976. Mr. Frasier became Secretary to the Boards of Directors
of both companies in June 1981 and was named Executive Vice President and
Cashier of The Huntington National Bank in March 1983. Mr. Frasier has served as
Secretary and Cashier of The Huntington Trust Company, National Association,
since February 1988.
PETER E. GEIER, age 39, has served as Vice Chairman of Huntington and
as a director and President and Chief Operating Officer of The Huntington
National Bank since December 1996. Mr. Geier served as Executive Vice President
of Huntington from November 1994 to December 1996 and Executive Director of
Consumer Services from March 1994 to December 1996. Mr. Geier served as Senior
Vice President of Huntington from March 1994 to November 1994. Prior thereto,
Mr. Geier served as Senior Vice President and Manager of Commercial Banking for
The Huntington National Bank from November 1989 to March 1994. Mr. Geier joined
The Huntington National Bank in March 1984 and served in various other
capacities prior to November 1989.
DIETER E. HEREN, age 55, has served as Executive Vice President and
Executive Director of Credit Administration of Huntington from November 1994 to
the present. From November 1992 to November 1994, Mr. Heren served as Senior
Vice President and Chief Credit Officer of Huntington. Prior thereto, Mr. Heren
served as Senior Vice President and Manager of Special Assets of The Huntington
National Bank from April 1987 to November 1992 and as Senior Vice President and
Division Executive for the International Department of The Huntington National
Bank from May 1985 to April 1987.
W. LEE HOSKINS, age 55, has served as Chairman of The Huntington
National Bank since September 1993 and as a director and Chief Executive Officer
since joining The Huntington National Bank in November 1991. He also served as
President of The Huntington National Bank from November 1991 to December 1996.
Since November 1991, Mr. Hoskins has served as a director and Vice Chairman of
Huntington and as a director of The Huntington Trust Company, National
Association. Prior to joining Huntington, Mr. Hoskins was the President and
Chief Executive Officer of the Federal Reserve Bank of Cleveland from October
1987 to November 1991. From March 1981 to September 1987, Mr. Hoskins served as
Senior Vice President and Chief Economist of PNC Financial Corp. in Pittsburgh,
Pennsylvania. Mr. Hoskins has announced his retirement as an officer and
director of Huntington. By an amendment to his employment agreement with
Huntington, Mr. Hoskins will continue to serve as a director and officer of
Huntington until June 30, 1997, or such earlier date as the parties may
mutually agree.
- 40 -
<PAGE> 46
THOMAS R. PAPROCKI, age 42, has served as Executive Vice President of
Huntington and as President of Huntington Capital Corp. since October 1996.
Prior to joining Huntington, Mr. Paprocki was Senior Vice President, Head Fixed
Income Trader and Director of Fixed Income Research for Robert W. Baird, Inc.,
and investment broker/dealer firm, from December 1993 to October 1996. From 1988
to December 1993, Mr. Paprocki served as Executive Vice President in charge of
all capital market activities for Mesirow Financial, Inc., an investment
broker/dealer firm.
WILLIAM M. RANDLE, age 57, has served as Senior Vice President of
Huntington and Director of Marketing and Strategic Planning from January 1990 to
the present. From October 1986 to January 1990, Mr. Randle was Senior Vice
President of Marketing for First Union National Bank of North Carolina.
RONALD J. SEIFFERT, age 39, has served as Vice Chairman of Huntington
and as a director and Vice Chairman of The Huntington National Bank since
December 1996. He served as Executive Vice President and Executive Director of
Commercial Services for Huntington from January 1996 to December 1996. Prior
thereto, Mr. Seiffert served as Executive Vice President and Group Manager of
the Commercial Banking Group for the Northern Region of The Huntington National
Bank from February 1994. Mr. Seiffert joined The Huntington National Bank in
1979 and served in various other capacities prior to February 1994.
ZUHEIR SOFIA, age 52, has served as President and a director of
Huntington from October 1984 to the present, as Chief Operating Officer from
September 1986 to the present, and as Treasurer from February 1989 to the
present. In addition, Mr. Sofia has served as a director of The Huntington
National Bank since February 1981 and a director of The Huntington Trust
Company, National Association, since February 1988. Mr. Sofia served as Vice
Chairman of The Huntington National Bank from March 1983 to September 1986, as
Senior Vice President of Huntington from March 1983 to October 1984, as
Executive Vice President of The Huntington National Bank from February 1981 to
March 1983, as Treasurer of Huntington from January 1984 to June 1984, and as
Senior Vice President and Division Executive of the Corporate Banking, Funds
Management, and International Divisions of The Huntington National Bank from
December 1976 to February 1981. From the time he joined Huntington in September
1971 until December 1976, Mr. Sofia served Huntington in various other
capacities.
JOHN D. VAN FLEET, age 42, has served as Corporate Controller and Chief
Accounting Officer for Huntington since April 1993 and as Senior Vice President
since February 1991. From June 1989 to April 1993, Mr. Van Fleet was the
Director of Accounting for Huntington. Mr. Van Fleet also served as Vice
President of Huntington from June 1989 to February 1991. Mr. Van Fleet joined
Price Waterhouse in June 1977 as a member of the audit staff and subsequently
served in various supervisory capacities prior to joining Huntington in June
1989.
GERALD R. WILLIAMS, age 60, has served as Executive Vice President and
Chief Financial Officer of Huntington from April 1989 to the present. From
January 1987 to April 1989, Mr. Williams was the owner and President of Mattara
Services, Inc., a consulting company to financial institutions and investors in
financial institutions.
FRANK WOBST, age 63, has served as Chairman of the Board and Chief
Executive Officer of Huntington from February 1981 to the present and as
Chairman of The Huntington Trust Company, National Association, from February
1988 to the present. Mr. Wobst has also served as a director of The Huntington
National Bank and Huntington from the time he joined Huntington in 1974 to the
present. Mr. Wobst served as President of Huntington from February 1981 to
October 1984, as President of The Huntington National Bank from July 1974 until
March 1983 and from March 1984 to September 1986, and as Chairman of the Board
and Chief Executive Officer of The Huntington National Bank from February 1981
to September 1986.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by Huntington and
its subsidiaries to Huntington's Chief Executive Officer and each of the four
most highly compensated executive officers for each of the last three fiscal
years ended December 31, 1995.
- 41 -
<PAGE> 47
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------
AWARDS PAYOUTS
OTHER ------ -------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING LTIP COMPEN-
SALARY BONUS SATION OPTIONS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($)(2) (#)(3) ($)(4) ($)(5)
- ----------------------------- ---- ------- ------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANK WOBST 1995 807,950 399,935 67,065 144,373 0 36,358
Chairman and Chief 1994 800,000 564,000 83,384 144,374 400,009 36,000
Executive Officer 1993 760,000 646,000 59,144 127,046 0 34,200
ZUHEIR SOFIA 1995 474,200 234,729 (2) 57,748 0 21,339
President, Chief Operating 1994 467,500 329,588 (2) 72,187 233,764 21,037
Officer, and Treasurer 1993 445,000 378,250 (2) 71,462 0 20,025
W. LEE HOSKINS 1995 474,200 234,729 (2) 72,185 0 21,339
Chairman and CEO, The 1994 467,500 329,588 (2) 72,187 233,759 21,037
Huntington National Bank 1993 445,000 378,250 (2) 59,550 0 20,025
GERALD R. WILLIAMS 1995 265,975 125,631 (2) 17,323 0 11,969
Executive Vice President and 1994 254,000 131,070 (2) 21,655 128,509 11,430
Chief Financial Officer 1993 245,000 195,755 (2) 17,465 0 11,025
JUDITH D. FISHER 1995 229,483 107,554 (2) 8,660 0 10,327
Executive Vice President 1994 220,000 112,200 (2) 28,874 110,011 9,900
1993 192,500 192,610 (2) 31,759 0 8,663
</TABLE>
- -------------------------
(1) Includes amounts deferred pursuant to Huntington's Employee Stock Purchase
and Supplemental Stock Purchase Plans.
(2) During 1995, 1994, and 1993, Mr. Wobst received other annual compensation,
including executive life insurance premiums in the amounts of $46,883,
$44,204, and $44,352, respectively. Other annual compensation for each of
the other named executive officers for each year indicated was less than
$50,000 and less than 10% of the total of annual salary and bonus reported
for the named executive.
(3) Adjusted for stock dividends and stock splits paid after the date of grant.
(4) Huntington's Long-Term Incentive Compensation Plan is set up in overlapping
three-year performance cycles commencing every other year. Awards were paid
for the cycle ended December 31, 1994. Figures indicated represent total
dollar value of the awards. Awards are normally made in shares of
Huntington Common Stock, however, a participant may elect to receive up to
fifty percent of an award in cash.
(5) Figures represent amounts contributed for each named executive officer by
Huntington to the Employee Stock Purchase Plan and the Supplemental Stock
Purchase Plan. For 1995, $6,750 was contributed for each of Messrs. Wobst,
Sofia, Hoskins, and Williams and Ms. Fisher under the Employee Stock
Purchase Plan and $29,607, $14,589, $14,589, $5,219, and $3,577 were
contributed for Messrs. Wobst, Sofia, Hoskins, and Williams and Ms. Fisher,
respectively, under the Supplemental Stock Purchase Plan.
- 42 -
<PAGE> 48
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE PRESENT
GRANTED IN PRICE EXPIRATION VALUE
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE ($)(3)
-------------------------- --------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Frank Wobst 144,373 18.8% 16.23 5/17/05 543,833
Zuheir Sofia 57,748 7.5 16.23 5/17/05 217,531
W. Lee Hoskins 72,185 9.4 16.23 5/17/05 271,914
Gerald R. Williams 17,323 2.3 16.23 5/17/05 65,256
Judith D. Fisher 8,660 1.1 16.23 5/17/05 32,626
</TABLE>
- -----------------------------
(1) Figures reflect the effects of a ten percent stock dividend paid July 31,
1996, and a five percent stock dividend paid July 31, 1995. The options
granted to each named executive officer become exercisable in equal
increments on each of the first four anniversaries of the May 17, 1995,
date of grant. Options not yet exercised are canceled upon a termination of
employment for any reason other than death, retirement under one or more of
Huntington's retirement plans, termination following a change in control of
Huntington, or a disposition (other than a change in control) of
substantially all of the stock or assets of Huntington, in which case all
options become exercisable immediately as of such termination date and
remain exercisable for a specified period following the termination.
Generally, the exercise price of options may be paid for in cash or in
shares of Common Stock of Huntington. In addition, any tax which Huntington
is required to withhold in connection with the exercise of any stock option
may be satisfied by the optionholder by electing to have the number of
shares to be delivered on the exercise of the option reduced by, or
otherwise by delivering to Huntington, such number of shares of Common
Stock having a fair market value equal to the amount of the withholding
requirement.
(2) In all cases, the exercise price was equal to the average of the high and
low market price of the underlying shares on the date of grant. The
exercise price has been adjusted to reflect the effects of the ten percent
stock dividend paid July 31, 1996, and the five percent stock dividend paid
July 31, 1995.
(3) The dollar amounts in this column are the result of calculations made using
the Black-Scholes model, a theoretical method for estimating the present
value of stock options based on complex assumptions about the stock's price
volatility and dividend rate as well as interest rates. Because of the
unpredictable assumptions required, the Black-Scholes model, or any other
valuation model, is incapable of accurately predicting Huntington's stock
price or of placing an accurate present value on options to purchase its
stock. In performing the calculations it was assumed that: the options were
exercised at the end of their ten-year terms; the volatility of the stock
price was equal to 22%, which was the volatility calculated on a natural
logarithmic basis of Huntington's stock price for the twelve-month period
preceding the date of grant; the risk-free rate of return was equal to the
ten-year United States Treasury Note Rate effective the week of the grant,
to correspond to the term of the options; and the dividend yield was equal
to Huntington's annualized dividend yield at the end of the first calendar
quarter of 1995, which was 4.37%. No adjustments were made for vesting
requirements, non-transferability, or risk of forfeiture. In spite of any
theoretical value which may be placed on a stock option grant, no increase
of the stock option's value is possible without an increase in the market
value of the underlying stock. Any appreciation in the market value of
Huntington's Common Stock would benefit all shareholders and would be
dependent in part upon the efforts of the named executive officers. The
total of the values indicated in the table for all stock options granted in
1995 to the named executive officers was $1,131,160, representing
approximately .045% of the value, on the date of grant, of all shares of
Huntington Common Stock outstanding at the date of grant.
- 43 -
<PAGE> 49
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY(3)
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END ($)
SHARES (#)(2)
ACQUIRED ON
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#)(1)(2) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
----------------------------------- ------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Frank Wobst 8,849 87,669 561,245/ 6,125,648/
252,653 1,213,463
Zuheir Sofia 22,117 196,441 196,803/ 1,878,203/
111,888 527,741
W. Lee Hoskins -0- -0- 186,772/ 1,665,216/
126,325 606,723
Gerald R. Williams 17,465 119,182 75,546/ 990,931/
33,564 158,311
Judith D. Fisher 47,748 350,751 13,885/ 72,975/
30,315 132,099
</TABLE>
- -----------------------------
(1) The actual number of shares received may be less than indicated in the
event the optionholder elects to have shares withheld for the payment of
the exercise price or withholding tax liability.
(2) Adjusted for stock splits and stock dividends paid after the date of grant.
(3) An option is in-the-money if the fair market value of the underlying Common
Stock exceeds the exercise price of the option.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------------ ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$200,000 $115,060 $115,060 $115,060 $115,060 $115,060
225,000 131,310 131,310 131,310 131,310 131,310
250,000 147,560 147,560 147,560 147,560 147,560
400,000 245,060 245,060 245,060 245,060 245,060
450,000 277,560 277,560 277,560 277,560 277,560
500,000 310,060 310,060 310,060 310,060 310,060
750,000 472,560 472,560 472,560 472,560 472,560
925,000 586,310 586,310 586,310 586,310 586,310
950,000 602,560 602,560 602,560 602,560 602,560
975,000 618,810 618,810 618,810 618,810 618,810
</TABLE>
The table above illustrates the operation of Huntington's Retirement
Plan and Supplemental Executive Retirement Plan (the "SERP") by showing various
annual benefits, after reduction for Social Security retirement income, assuming
various annual base salaries and years of credited service. Benefit figures
shown are computed on the assumption that participants retire at age 65. For
purposes of the table, it is assumed that each participant is receiving benefits
from the Retirement Plan in the form of a life annuity. Benefits under the SERP
are paid in the form of a life annuity (with 120 months certain).
- 44 -
<PAGE> 50
Only those executive officers selected by the Compensation and Stock
Option Committee may participate in the SERP. The SERP ensures that each
participating executive officer (who retires at age 65) receives a level of
retirement benefits, without respect to years of service, equal to at least 65%
of the officer's highest consecutive twelve months' base salary within the
previous 60 months. At the time a participating officer retires, the benefit the
participant is entitled to through the SERP is calculated, and then funds from
the following sources are deducted to determine the amount (if any) of the
payment due from Huntington under the SERP: (i) Social Security benefits
payable; (ii) the benefit under the Retirement Plan; and (iii) any benefits
under retirement plans of prior employers. For purposes of the table, it is
assumed that the participant is not receiving benefits from any prior employers'
retirement plans and that Social Security benefits payable are the maximum Old
Age, Survivors and Disability Insurance benefit payable. If the sum of the
payments due from Social Security, the Retirement Plan, and retirement plans of
prior employers exceeds 65% of the executive officer's highest consecutive
twelve months' base salary, then no payment will be due from Huntington under
the SERP. As illustrated by the table, the SERP generally has the effect of
equalizing a participant's combined retirement benefits for a particular level
of covered compensation for all years of service. Thus, the total annual
benefits payable by Huntington pursuant to the Retirement Plan and the SERP
would be the same for an executive officer with 15 years of service as for an
executive officer with 35 years of service, assuming each had the same level of
covered compensation, the only difference being that the 15 year executive
officer, having a smaller benefit from the Retirement Plan, will receive a
greater portion of his or her benefit from the SERP. Monthly benefits received
by participants under the SERP may be increased annually, if indicated, to
reflect increases in the United States Bureau of Labor Statistics Consumer Price
Index for Urban Wage Earners and Clerical Workers.
An employee who has completed two years of continuous service with
Huntington (or an affiliated company) and whose compensation is in excess of the
limitation imposed by Section 401(a)(17) the Internal Revenue Code (the "Code")
is eligible to participate in Huntington's Retirement Plan and Supplemental
Retirement Income Plan (the "SRIP"). The SRIP provides benefits according to the
same benefit formula as the Retirement Plan, except that benefits under the SRIP
are not limited by Code Sections 401(a)(17) and 415 of the Code. Code Section
401(a)(17) limits the annual amount of compensation that may be taken into
account when calculating benefits under the Retirement Plan. For 1995, this
limit was $150,000. Code Section 415 limits the annual benefit amount that a
participant may receive under the Retirement Plan. For 1995, this amount was
$120,000. Because the SERP generally provides a larger benefit than the SRIP,
executives participating in the SERP generally will not receive any payments
under the SRIP.
For each of the executive officers named in the Summary Compensation
Table, the compensation covered by the Retirement Plan, the SRIP, and, if
applicable, the SERP is base salary earned in 1995 as indicated in the Summary
Compensation Table. The estimated credited years of service for each of the
executive officers named in the Summary Compensation Table are 21.5 for Mr.
Wobst, 24.33 for Mr. Sofia, 4.17 for Mr. Hoskins, 6.75 for Mr. Williams, and
8.33 for Ms. Fisher. Messrs. Hoskins and Williams and Ms. Fisher did not
participate in the SERP in 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Huntington's Compensation and Stock Option Committee is composed of Don
Conrad, John B. Gerlach, George A. Skestos, and Timothy P. Smucker. None of the
members of the Compensation Committee are or have ever been officers of
Huntington or its subsidiaries except that Mr. Conrad served as Chairman of the
Board of Directors of Huntington Bancshares Kentucky, Inc. from inception in
1985 until its dissolution in 1996.
EMPLOYMENT AND EXECUTIVE AGREEMENTS
Messrs. Wobst and Sofia each have an agreed upon term of employment.
Under Employment Agreements, Mr. Wobst will be employed by Huntington through
November 15, 2001, with automatic five-year renewals until Mr. Wobst's death,
disability, or retirement, unless earlier terminated by either party upon
written notice delivered to the other party at least 60 days prior to the
expiration of the initial or any renewal period, at an annual rate of
compensation of not less than $807,950; Mr. Sofia will be employed by Huntington
through November 15, 2001, with automatic five-year renewals until his death,
disability, or retirement, unless earlier terminated by either party upon
written notice delivered to the other party at least 60 days prior to the
expiration of the initial or any renewal period, at an annual rate of
compensation of not less than $474,200. The Employment Agreements also provide
for the officers' continued participation in Huntington's Incentive Compensation
Plans, Stock Purchase and Tax Savings Plan, Retirement
- 45 -
<PAGE> 51
Plans, Stock Option Plans, and certain other benefits afforded to executive
officers of Huntington. In the event either Messrs. Wobst or Sofia is terminated
for cause, he will be entitled to receive salary payments for three calendar
months following the date of termination plus any compensation to which he is
entitled under the Incentive Compensation Plans. In the event either Messrs.
Wobst or Sofia is terminated without cause, he will be entitled to his full
compensation and benefits under his Employment Agreement until the later of six
months after his termination or the expiration of the then current term of the
Employment Agreement. In the event either Messrs. Wobst or Sofia becomes
disabled, which disability continues for more than six months during a
twelve-month period, Huntington may terminate such executive officer's
Employment Agreement, and such executive officer will be entitled to his full
compensation (base salary and payments under the Incentive Compensation Plans)
to the date of termination. Thereafter, the executive officer will be entitled
to two-thirds of his base salary, less disability benefits received from any of
Huntington's disability insurance programs, until the first to occur of the
termination of the disability, or until the termination of his Employment
Agreement in Mr. Wobst's case or the attainment of age sixty-five in Mr. Sofia's
case, with base salary to be reinstated upon return to employment. In the event
of the death of either of Messrs. Wobst or Sofia, their beneficiaries will
receive their base annual salary for six months plus Incentive Compensation Plan
payments.
Mr. Hoskins also has an agreed upon term of employment. Under an
amended Employment Agreement, Mr. Hoskins will become employed by Huntington
through June 30, 1997, or such earlier date as may be determined by mutual
agreement (the "Termination Date"), at an annual rate of compensation of not
less than $474,200. There is no provision for renewal. The Employment
Agreement provides for, among other things, Mr. Hoskins' continued participation
in Huntington's Incentive Compensation Plans, Stock Purchase and Tax Savings
Plan, Retirement Plans, and certain other benefits afforded to executive
officers of Huntington until the Termination Date, at which time Mr. Hoskins
will retire as an officer and director of Huntinton Bank and as an officer of
Huntington and all affiliated companies. Mr. Hoskins will receive a pro rata
payment under Huntington's Incentive Compensation Plans. Huntington will also
reimburse Mr. Hoskins for certain tax and financial planning expenses incurred
prior to June 30, 1997. Huntington will provide Mr. Hoskins with a retirement
benefit equal to $100,000 per year. Mr. Hoskins has agreed to forego the
exercise of certain stock options and has agreed not to engage in the banking
business with any financial institution having more than 5% of its loans or
deposits located in Ohio. Huntington has agreed to indemnify Mr. Hoskins to the
extent permitted by law from any claims arising from the performance of his
duties as an officer or director of Huntington or any affiliated company.
Huntington also has entered into Executive Agreements with Messrs.
Wobst, Sofia, Hoskins, and G. Williams which are designed to provide these
executive officers with some assurance as to the continuation of their
employment status and responsibilities in the event of a change in control of
Huntington. The Executive Agreements for Messrs. Wobst, Sofia, and Hoskins each
provide that, if a change in control of Huntington occurs and the executive
officer makes a good faith determination that such officer's employment status
or responsibilities has been materially and adversely affected thereby or if
such officer's employment is terminated after a change in control, the executive
officer is entitled to receive an amount equal to the greater of: (i) his then
current annual base salary through November 15, 1996, plus the amount of any
unpaid bonus, incentive compensation, or other benefit and credit for any
accrued vacation to which he is entitled under his Employment Agreement; or (ii)
three times his then current annual base salary. In either case, the executive
officer is also entitled to receive three times the average bonus or incentive
compensation paid to such officer in respect of the three fiscal years preceding
his termination. Huntington will maintain for the executive officer's benefit,
until the earlier of two years from the officer's termination of employment or
the commencement of full-time employment with a new employer, all health and
welfare benefit plans and other specified benefits which the officer was
entitled to participate in or receive prior to his termination. In the event the
payments to be received by Messrs. Wobst, Sofia, or Hoskins are subject to any
federal or state excise tax, Huntington will pay an additional amount to the
executive officer such that the net amount retained by the officer after payment
of any such tax will be equal to the amount which such officer was entitled to
receive before application of such taxes.
The Executive Agreement for Mr. G. Williams provides that, if a change
in control of Huntington occurs and the executive officer makes a good faith
determination within three years after such change in control that such
officer's employment status or responsibilities has been materially and
adversely affected thereby or if such officer's employment is terminated within
three years after a change in control, the executive officer is entitled to
receive an amount equal to three times his then current annual base salary plus
three times the average bonus or incentive compensation paid to such officer in
respect of the three fiscal years preceding his termination. Adjustments to
these payments will be made if the officer attains his normal retirement date
within three years of the termination of his employment. In addition, Huntington
will maintain for the executive officer's benefit, until the earlier of two
years from the officer's termination of employment, the commencement of
full-time employment with a new employer, or the attainment of such officer's
normal retirement date, all health and welfare benefit plans and other specified
benefits to which the officer was entitled prior to his termination. Any payment
which the officer would otherwise be entitled to receive will be reduced or
eliminated to the extent the payment is determined to be nondeductible by
Huntington for federal income tax purposes under applicable provisions of the
Internal Revenue Code.
The Executive Agreements provide that Huntington will pay the cost of
legal counsel for an executive officer in the event such officer is required to
enforce any of the rights granted under his Executive Agreement through
litigation or other legal action. An Executive Agreement will terminate if the
employment of the executive officer terminates prior to a change in control of
Huntington. Under the Comprehensive Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990, the Federal Deposit Insurance Corporation has the
authority to limit or prohibit payments contingent upon the termination of an
individual's affiliation with Huntington, but only if Huntington is
- 46 -
<PAGE> 52
insolvent, has been placed in conservatorship or receivership, or is determined
by the Board of Governors of the Federal Reserve System to be a troubled
financial institution.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Some of the directors and executive officers of Huntington are
customers of Huntington's affiliated financial and lending institutions and have
transactions with such affiliates in the ordinary course of business. Directors
and executive officers of Huntington also may be affiliated with entities which
are customers of Huntington's affiliated financial and lending institutions and
which enter into transactions with such affiliates in the ordinary course of
business. Transactions with directors, executive officers, and their affiliates
have been on substantially the same terms, including interest rates and
collateral on loans, as those prevailing at the time for comparable transactions
with others and did not involve more than the normal risk of collectibility or
present other unfavorable features.
OWNERSHIP OF HUNTINGTON COMMON STOCK
As of October 31, 1996, no person was known by Huntington to be the
beneficial owner of more than 5% of the outstanding shares of Huntington Common
Stock, except as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON PERCENT OF
OF BENEFICIAL OWNER STOCK OWNED CLASS
-------------------------------------------- ------------------ --------------
<S> <C> <C>
The Huntington Trust Company,
National Association
Huntington Center
41 South High Street
Columbus, Ohio 43287 22,967,391 (1) 15.88%
</TABLE>
- -------------------------
(1) These shares are held in various fiduciary capacities in the ordinary
course of business under numerous trust relationships by The Huntington
Trust Company, National Association (the "Trust Company") and affiliated
financial institutions. As fiduciary, or by agreement with the affiliated
fiduciary, the Trust Company has the sole or shared power to vote and/or
dispose of most of these shares; with respect to some of the shares, the
sole or shared power to vote and/or dispose may be retained by an
affiliated financial institution as fiduciary. The Trust Company or one of
its affiliates has sole power to dispose of 2,806,069 of these shares,
shared power to dispose of 2,682,370 of these shares, sole power to vote
6,138,215 of these shares, and shared power to vote 10,292,482 of these
shares.
The following table sets forth the beneficial ownership of Huntington's
Common Stock by each of Huntington's directors, each of the executive officers
named in the Summary Compensation Table, and the directors and executive
officers as a group as of October 31, 1996. Consummation of the Merger will not
have an effect on the number of shares of Huntington Common Stock owned by such
directors, executive officers, and group.
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENT OF
NAME OF BENEFICIAL OWNER STOCK OWNED(1) CLASS
------------------------------------------- --------------------- --------------
<S> <C> <C>
Don M. Casto, III ......................... 137,207(2)(4) 0.09%
Don Conrad ................................ 840,965(2)(4) 0.58%
Judith D. Fisher .......................... 76,565(2)(3) 0.05%
John B. Gerlach ........................... 1,227,274(2) 0.85%
Patricia T. Hayot ......................... 23,998(4) 0.02%
W. Lee Hoskins ............................ 108,033(3) 0.07%
</TABLE>
- 47 -
<PAGE> 53
<TABLE>
<S> <C> <C>
Wm. J. Lhota .............................. 29,010(2) 0.02%
George A. Skestos ......................... 13,735(2)(4) 0.01%
Lewis R. Smoot, Sr. ....................... 49,206(2)(4) 0.03%
Timothy P. Smucker ........................ 51,595(2)(4) 0.04%
Zuheir Sofia .............................. 629,888(2)(3) 0.43%
Gerald R. Williams ........................ 143,899(3) 0.10%
William J. Williams ....................... 99,633(2)(3) 0.07%
Frank Wobst ............................... 1,380,995(2)(3) 0.95%
Directors and Executive Officers
as a Group (21 in group) .................. 5,205,014(2)(3)(4) 3.57%
</TABLE>
- -------------------------
(1) Except as otherwise noted, none of the named individuals shares with
another person either voting or investment power as to the shares reported.
(2) Includes 1,849; 131,798; 3,609; 219,010; 2,310; 2,336; 2,885; 20,208;
1,057; and 89,950 shares of Common Stock owned by members of the immediate
families of Messrs. Casto and Conrad, Ms. Fisher, and Messrs. Gerlach,
Skestos, Smoot, Smucker, Sofia, W. Williams, and Wobst, respectively;
11,460 shares of Common Stock owned jointly by Mr. Lhota and his spouse;
255,866 shares of Common Stock owned by the Gerlach Foundation Inc., of
which Mr. Gerlach is trustee; 24,200 shares of Common Stock owned by Lehrs,
Inc., of which Mr. Gerlach is a director and officer; 3,711 shares of
Common Stock owned by the WACO Oil Co., Inc. Pension Plan, of which Mr.
Conrad is an administrator; 15,880 shares of Common Stock owned by The
Smoot Corporation, of which Mr. Smoot is an officer; and 542,136 shares
of Common Stock reported as owned by individuals included in directors
and executive officers as a group, as to which the respective directors
and executive officers have disclaimed beneficial ownership.
(3) Includes 16,604 shares for Ms. Fisher, 188,387 shares for Mr. Sofia, 85,291
shares for Mr. G. Williams, 7,937 shares for Mr. W. Williams, 564,017
shares for Mr. Wobst, and 1,025,838 shares of Common Stock for all
executive officers as a group which could have been acquired under stock
options exercisable within 60 days of October 31, 1996. Also includes 1,847
shares for Ms. Fisher, 9,765 shares for Mr. Hoskins, 21,645 shares for Mr.
Sofia, 5,814 shares for Mr. G. Williams, 45,630 shares for Mr. Wobst, and
85,452 shares of Common Stock for individuals included in directors and
executive officers as a group, held in the Supplemental Stock Purchase
Plan. Prior to the distribution of shares of Common Stock from the
Supplemental Stock Purchase Plan to participants, voting and dispositive
power for the shares allocated to the accounts of participants is held by
The Huntington Trust Company, National Association, as trustee of the plan.
(4) Includes 41,012 shares for Mr. Casto, 25,305 shares for Mr. Conrad, 23,586
shares for Dr. Hayot, 17,226 shares for Mr. Lhota, 5,651 shares for Mr.
Skestos, 29,533 shares for Mr. Smoot, 42,680 shares for Mr. Smucker, and
184993 shares of Common Stock for individuals included in directors and
executive officers as a group, held in the Deferred Compensation Plans for
Directors. Prior to the distribution of shares of Common Stock from the
Deferred Compensation Plans for Directors to participants, voting and
dispositive power for the shares allocated to the accounts of participants
is held by The Huntington National Bank, as trustee of the plans.
DESCRIPTION OF HUNTINGTON COMMON STOCK
The authorized capital stock of Huntington consists of 300,000,000
shares of Common Stock, of which 144,672,422 shares were issued and outstanding
as of October 31, 1996, and 6,617,808 shares of serial preferred stock,
without par value ("Huntington Preferred Stock"), none of which was issued and
outstanding as of October 31, 1996. The Board of Directors of Huntington is
entitled to issue, from time to time, without further shareholder action, the
authorized Huntington Preferred Stock in one or more series and to fix and
determine the relative rights and preferences of each such series of Huntington
Preferred Stock. Such determination may include, with respect to any series, the
dividend rate, the terms and conditions of redemption, liquidation value, voting
powers, conversion rights,
- 48 -
<PAGE> 54
and such other relative, participating, optional, or special rights,
qualifications, limitations, or restrictions as the Board of Directors may
determine.
Subject to the rights of holders of Huntington Preferred Stock that may
be issued and outstanding from time to time, holders of Huntington Common Stock
are entitled to receive such dividends as may be declared by the Board of
Directors and to share ratably in the assets available for distribution upon
liquidation. There are no cumulative voting rights, preemptive rights,
conversion rights, redemption provisions, or sinking fund provisions with
respect to Huntington Common Stock. Holders of Huntington Common Stock are
entitled to one vote per share on all matters presented to Huntington's
shareholders. All presently outstanding shares of Huntington Common Stock are,
and all such shares that will be issued in the Merger will be at the Effective
Time, fully paid and non-assessable.
Huntington initiated a common stock repurchase program in August 1987.
In February 1996, Huntington's Board of Directors authorized a continuation of
this program and the purchase of up to 11 million additional shares of
Huntington Common Stock (as adjusted for stock splits and stock dividends) by
means of open market purchases and privately negotiated transactions. The shares
of Huntington Common Stock purchased under this repurchase program are reserved
for reissue as required by the terms of Huntington's benefit plans as well as
for other corporate purposes. In the first nine months of 1996, Huntington
acquired 8.1 million shares of Huntington Common Stock at an aggregate cost of
$190.9 million, leaving 6.6 million shares of Huntington Common Stock available
for repurchase. Huntington's management believes the remaining authorized shares
will be repurchased by the end of 1997.
RIGHTS PLAN
In 1990, the Board of Directors of Huntington entered into the Rights
Agreement, which was amended on August 16, 1995. Pursuant to the Rights
Agreement, each Huntington shareholder received one "Right" for each outstanding
share of Huntington Common Stock held by that shareholder. In addition,
Huntington has and will continue to issue one Right with each newly-issued share
of Huntington Common Stock so that each outstanding share of Huntington Common
Stock (including the shares of Huntington Common Stock to be to issued to
Citi-Bancshares shareholders in connection with the Merger) will have a Right
attached.
The Rights currently have no value, are represented by the certificates
evidencing Huntington Common Stock, and until the Distribution Date (as defined
below), trade only with such stock. The Rights will separate from the Huntington
Common Stock and become exercisable only if a person or group ("Acquiror")
acquires beneficial ownership of 10% or more of the outstanding Huntington
Common Stock or announces a tender offer that would result in ownership of 10%
or more of the outstanding Huntington Common Stock (the "Distribution Date").
The Rights Agreement provides that, at the Distribution Date, each Right will
entitle the holder to purchase for $80, as adjusted from time to time for stock
dividends, stock splits, and other changes in capitalization (the "Exercise
Price"), one-hundredth of a share of Series A Junior Participating Stock of
Huntington (the "Series A Preferred Shares"). Each such fractional Series A
Preferred Share is intended to be the practical equivalent of one share of
Huntington Common Stock.
In the event an Acquiror acquires 10% or more of the then outstanding
shares of Huntington Common Stock (the "Triggering Event"), each Right held by
the Acquiror (or any affiliate or associate thereof) will become null and void
and each Right held by all other Huntington shareholders will entitle its holder
to purchase for the Exercise Price that number of Huntington Series A Preferred
Shares having a value (based upon the market value of Huntington Common Stock at
the time of the Triggering Event) equal to twice the Exercise Price. In the
event Huntington is acquired in a merger or other business combination or a
significant portion of its assets are sold, leased, exchanged, or otherwise
transferred to (i) a publicly traded Acquiror, each Right will entitle its
holder to purchase, for the Exercise Price, that number of shares of the
Acquiror which at the time of the transaction would have a market value of twice
the Exercise Price, or alternatively, (ii) an Acquiror that is not a publicly
traded corporation, each Right will entitle its holder to purchase, for the
Exercise Price, at such holder's option, (a) that number of shares of the
Acquiror (or, at such holder's option, of the surviving corporation in such
acquisition, which could be Huntington) which at the time of the transaction
would have a book value of twice the Exercise Price, or (b) if such Acquiror has
an affiliate that has publicly traded common shares, that number of common
shares of such affiliate which at the time of the transaction would have a
market value of twice the Exercise Price.
- 49 -
<PAGE> 55
The number of Series A Preferred Shares or other securities or property
issuable upon exercise of a Right, and the Exercise Price are subject to
adjustment upon the occurrence of certain events including, for example, a stock
dividend or split payable in Huntington Common Stock or Series A Preferred
Shares. The number of Rights may also be adjusted upon the occurrence of certain
events including, for example, a reverse stock split. The Rights are not
exercisable until the Distribution Date and will expire on August 16, 2005,
unless earlier redeemed by Huntington. Huntington may redeem the Rights for $.01
per Right under certain circumstances.
As with the super majority vote and control share provisions of
Maryland law, the Rights have certain anti-takeover effects. See "EFFECT OF THE
MERGER ON SHAREHOLDERS' RIGHTS - SPECIAL VOTING REQUIREMENTS FOR CERTAIN
TRANSACTIONS." The Rights may cause substantial dilution to a person or group
that attempts to acquire Huntington, except pursuant to an offer conditioned on
the Rights being redeemed or a substantial number of Rights being acquired. The
Rights, however, should not interfere with any merger or other business
combination approved by the Huntington Board of Directors due to the Board's
ability to redeem the Rights. Huntington's Board recognizes that a takeover
might in some circumstances be beneficial to Huntington's shareholders. Neither
the Rights Plan nor the Maryland law provisions described in this Proxy
Statement/Prospectus are designed to preclude an acquisition of Huntington, but
rather will give the Huntington Board of Directors adequate opportunity to
evaluate whether an acquisition offer is in the best interest of Huntington and
to protect its shareholders from coercive acquisition methods.
DIVIDENDS AND PRICE RANGE OF HUNTINGTON COMMON STOCK
Huntington Common Stock is traded on the Nasdaq National Market under
the symbol "HBAN" and is listed as "HuntgBcshr" or "HuntBanc" in most
newspapers. As of October 31, 1996, Huntington had 31,961 shareholders of
record. The following table sets forth the cash dividends declared and the high
and low last sale prices for Huntington Common Stock on the Nasdaq National
Market during the periods indicated. The dividends and price ranges have been
adjusted to reflect stock dividends and stock splits, as appropriate.
<TABLE>
<CAPTION>
PRICE RANGE
DIVIDENDS ----------------------------------
PER SHARE HIGH LOW
----------------- -------------- ---------------
<S> <C> <C> <C>
1994:
First Quarter ........... $0.14 $16 3/4 $15
Second Quarter .......... 0.14 19 1/4 15 1/2
Third Quarter ........... 0.17 18 3/4 15
Fourth Quarter .......... 0.17 16 14 1/2
1995:
First Quarter ........... $0.17 $16 1/2 $14
Second Quarter .......... 0.17 18 1/4 15
Third Quarter ........... 0.18 21 1/2 18
Fourth Quarter .......... 0.18 23 20
1996:
First Quarter ........... $0.18 $22 $20 1/2
Second Quarter .......... 0.18 23 21 1/2
Third Quarter ........... 0.20 23 1/2 21 1/4
Fourth Quarter .......... 0.20 28 7/8 22 7/8
</TABLE>
On October 30, 1996, the last trading day prior to the public
announcement of the proposed Merger, the high and low sales prices per share of
Huntington Common Stock on the Nasdaq National Market were $24 and $23 1/2,
respectively. On December 31, 1996, such prices were $ 26 5/8 and $26 3/8,
respectively.
- 50 -
<PAGE> 56
Huntington has declared regular cash dividends on Huntington Common
Stock in each quarter since Huntington was organized in 1966. The Board of
Directors of Huntington presently intends to continue to consider the payment of
regular quarterly cash dividends on Huntington Common Stock. The amount and
timing of any future dividends will depend upon the earnings of Huntington and
its subsidiaries, their financial condition, need for funds, and other relevant
factors. See "GOVERNMENT REGULATION - DIVIDEND RESTRICTIONS" and NOTES 8 AND 17
OF HUNTINGTON'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PROPERTIES
The headquarters of Huntington and its lead subsidiary, The Huntington
National Bank, are located in the Huntington Center, a 37 story office building
located in Columbus, Ohio. Of the building's total office space available,
Huntington occupies approximately 39 percent. The original lease term is 25
years, expiring in 2009, with renewal options for up to 50 years, with no
purchase option. The Huntington National Bank has an equity interest in the
entity that owns the building. In addition to these headquarters, Huntington's
other major properties consist of a 13 story and a 12 story office building,
both of which are located adjacent to the Huntington Center; a 21 story office
building, known as the Huntington Building, located in Cleveland, Ohio; The
Huntington Mortgage Company's building, located in the greater Columbus area; an
office complex located in Troy, Michigan; and several data processing and
operations centers located throughout Ohio. Of these properties, Huntington owns
the 12 story and 13 story office buildings, The Huntington Mortgage Company
building, the building in Troy, Michigan, and the operations centers located in
Cleveland and Columbus, Ohio. All of the other major properties are held under
long-term leases.
LEGAL PROCEEDINGS
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. The aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
Huntington's consolidated financial position.
CITI-BANCSHARES, INC.
GENERAL
Citi-Bancshares is a Florida corporation and a registered bank holding
company formed in November 1982, whose sole subsidiary, Citizens Bank, is a
national banking association formed in April 1953. Citi-Bancshares derives
substantially all of its revenue from dividends paid by Citizens Bank and
service fees charged to Citizens Bank for various services.
Citizens Bank provides a wide range of commercial and retail banking
services, trust services, and various other financial services, to customers
located in Lake, Sumter, and Marion counties in central Florida. Services
offered by Citizens Bank include checking accounts, money market and super NOW
deposit accounts, other savings accounts, certificates of deposit, money orders,
travelers cheques, safe deposit boxes, night depository facilities, installment
loans, mortgage loans, collection, investments, and trust and fiduciary
services. In addition, Citizens Bank offers agricultural loans for equipment and
crops and real estate loans. All deposit accounts are insured by the FDIC to the
maximum amount permitted by law. Citi-Bancshares solicits its accounts from
individuals, businesses, and governmental authorities.
On April 19, 1996, Citi-Bancshares completed the acquisition of
Citizens First Bancshares, Inc., a bank holding company headquartered in Ocala,
Florida, which operated two full service banking offices in Ocala. Citizens
First had approximately $41 million in assets and $35 million in deposits as of
the date of the merger. Citi-Bancshares has continued to operate the former
Citizens First branches as offices of Citizens Bank since the date of the
merger.
- 51 -
<PAGE> 57
Citizens Bank currently operates seven full service banking offices in
Lake County, Florida, one in Sumter County, Florida, and three in Marion County,
Florida. All of the offices have an automatic teller machine ("ATM") to provide
customers 24-hour access to their deposit accounts. Citizens Bank is a member of
the Honor, Cirrus, and Presto electronic funds networks, through an arrangement
with Mellon Network Services. Membership in these networks allows customers
access to their accounts statewide and in most parts of the United States. In
addition, Citi-Bancshares' proprietary ATMs can accommodate card holders on the
Plus/Visa, American Express, and Discover networks. Citi-Bancshares also offers
debit card services to its deposit customers. Citi-Bancshares' deposit customers
can use their debit cards at any merchant that accepts Visa or at any ATM that
is on the Honor, Cirrus, or Presto networks.
As of September 30, 1996, Citi-Bancshares had 198 full-time equivalent
employees.
COMPETITION
The banking business is highly competitive and many of Citi-Bancshares'
competitors are larger than Citi-Bancshares, have greater financial,
technological, and other resources than Citi-Bancshares, and are able to provide
a broader range of products and services than Citi-Bancshares. Citi-Bancshares
has the largest market share (in terms of deposits) in Lake County, Florida, its
primary service area. Other financial institutions in the area include eight
other commercial banks, including four regional banks, and two savings and loan
associations. Factors affecting competition in Citizens Bank's service area
include the location of offices, customer convenience, and banking services.
DESCRIPTION OF PROPERTY
Citi-Bancshares owns the real estate properties it occupies with the
exception of the Lake Square Mall, Eustis, and Tavares branches listed below,
which are leased. The following sets forth certain information regarding each of
the offices:
<TABLE>
<CAPTION>
ADDRESS YEAR OPENED DESCRIPTION
<S> <C> <C>
Citizens Center 1990 44,000 square foot building
1330 Citizens Blvd.
Leesburg, Florida 34748
Main Office 1963 20,000 square foot building
1211 N. Blvd. West
Leesburg, Florida 34748
Bank in the Park 1972 1,000 square foot building
1333 Citizens Blvd.
Leesburg, Florida 34748
Fruitland Park 1977 2,500 square foot building
3290 N. U.S. Hwy. 27/441
Fruitland Park, Florida 34731
The Villages 1985 4,500 square foot building
101 LaGrande Blvd.
Lady Lake, Florida 32159
Wildwood 1993 5,700 square foot building
300 S. Main Street
Wildwood, Florida 34785
Spruce Creek 1995 4,600 square foot building
17801 SE 109th Ave.
Summerfield, Florida 34491
</TABLE>
- 52 -
<PAGE> 58
<TABLE>
<S> <C> <C>
Ocala Main Office 1996 10,000 square foot building
2601 SW College Rd.
Ocala, Florida 34474
Ocala East 1996 2,500 square foot building
1025 E. Silver Springs Blvd.
Ocala, Florida 34470
Lake Square Mall 1985 1,958 square foot building
10415 U.S. Hwy. 44
Leesburg, Florida 34788
(Leased Property)
Eustis 1991 4,500 square foot building
200 E. Orange Ave.
Eustis, Florida 32726
(Leased Property)
Tavares 1991 1,400 square foot building
359 E. Burleigh Blvd.
Tavares, Florida 32778
(Leased Property)
</TABLE>
LEGAL PROCEEDINGS
Citi-Bancshares does not have any legal proceedings pending other than
routine litigation incidental to its business activities, none of which is
expected to have, individually or in the aggregate, a material adverse effect on
Citi-Bancshares.
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
Citi-Bancshares is not aware of any shareholder who is the beneficial
owner of more than 5% of the outstanding shares of Citi-Bancshares Common Stock
as of September 30, 1996. The following table sets forth (i) the name of each of
Citi-Bancshares' directors and executive officers whose cash compensation
exceeds $100,000; (ii) the number and percent of shares of Citi-Bancshares
Common Stock owned by each such person and by all directors and executive
officers of Citi-Bancshares as a group as of September 30, 1996; and (iii) the
estimated number of shares of Huntington Common Stock each such person or group
would receive as a result of the Merger, assuming that they elect to receive the
Stock Consideration in exchange for their shares of Citi-Bancshares Common
Stock, calculated by multiplying the number of shares of Citi-Bancshares Common
Stock beneficially owned by such person or group by the Estimated Exchange Ratio
of 1.0994 shares of Huntington Common Stock for each share of Citi-Bancshares
Common Stock.
- 53 -
<PAGE> 59
<TABLE>
SHARES OF
CITI-BANCSHARES COMMON STOCK HUNTINGTON COMMON
------------------------------------- STOCK EXPECTED TO
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY PERCENT BE BENEFICIALLY
OWNED(1) OWNED OWNED(2)
- ------------------------------------------------- --------------------- ------------ -------------------
<S> <C> <C> <C>
Douglas W. Braun 70,971 1.58% 78,025
Director
Clifton L. Bridges, M.D. 151,447 3.38% 166,500
Director
W. Thomas Brooks 29,877 0.67% 32,846
Director
Thomas N. Grizzard 21,547 0.48% 23,688
Director
William F. Herlong, Jr. 31,880 0.71% 35,048
Director
Wendell F. Husebo 67,649 1.51% 74,373
Director
Walter S. McLin, III 73,872 1.65% 81,214
Director
Ken W. Mullis 22,708 0.51 % 24,965
President, Chief Executive Officer, and Director
Bobby A. Sullivan 14,854 0.33% 16,473
Director
Terry Trexler 65,894 1.47% 72,443
Director
Ferrell Young, D.V.M. 50,883 1.14% 55,940
Director
T. Michael Killingsworth 3,500 0.08% 3,847
Senior Vice President and Chief
Financial Officer
D. Al Schmid 6,091 0.14% 6,696
Senior Vice President
All Directors and Executive Officers
as a group (13 in group) 611,168 13.65% 671,918
</TABLE>
- -------------------------
(1) Under applicable SEC regulations, shares are considered to be beneficially
owned by a person as of a particular date if such person either (i)
directly or indirectly has or shares the power to vote or dispose of the
shares, whether or not such person has any economic interest in the shares,
or (ii) has the right to acquire such shares within 60 days of the
particular date. Unless otherwise indicated, the named beneficial owner has
sole voting and dispositive power with respect to the shares reported.
Under such rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a beneficial
owner of securities as to which he or she may disclaim any beneficial
ownership. Accordingly, directors and officers are named as beneficial
owners of shares as to which they may disclaim any beneficial ownership.
(2) In each case, the number of shares of Huntington Common Stock indicated is
less than 1% of the number of shares of Huntington Common Stock that would
be issued and outstanding at the Effective Date of the Merger.
- 54 -
<PAGE> 60
DIVIDENDS AND PRICE RANGE OF CITI-BANCSHARES COMMON STOCK
Since March 1, 1994, Citi-Bancshares Common Stock has been traded on
the Nasdaq National Market under the symbol "CNBL." As of December 31, 1996,
Citi-Bancshares had 1,096 shareholders of record. The following table sets
forth the cash dividends declared and the high and low last sale prices for
Citi-Bancshares Common Stock on the Nasdaq National Market during the periods
indicated. The dividends and price ranges have been adjusted to reflect stock
dividends and stock splits, as appropriate.
<TABLE>
<CAPTION>
PRICE RANGE
DIVIDENDS ------------------------------------
PER SHARE HIGH LOW
----------------- ----------- -----------
<S> <C> <C> <C>
1994:
First Quarter ........... - 0 - $14 $11 1/4
Second Quarter .......... - 0 - 15 13
Third Quarter ........... - 0 - 16 3/4 14
Fourth Quarter .......... $0.35 (annual) 18 15 1/4
1995:
First Quarter ........... - 0 - $17 1/2 $15 1/4
Second Quarter .......... - 0 - 18 3/4 15 1/4
Third Quarter ........... - 0 - 19 3/4 17 1/4
Fourth Quarter .......... $0.44 (annual) 19 3/4 18 1/2
1996:
First Quarter ........... $0.12 $19 3/4 $17 1/2
Second Quarter .......... 0.12 20 17 3/4
Third Quarter ........... 0.12 24 3/4 19
Fourth Quarter .......... 0.18 30 1/4 23 1/2
</TABLE>
On October 30, 1996, the last trading day prior to the public
announcement of the proposed Merger, the high and low sales prices per share of
Citi-Bancshares Common Stock on the Nasdaq National Market were $25 1/4 and $24,
respectively. On December 31, 1996, the high and low prices were both 28 1/4,
respectively.
Citi-Bancshares has declared regular cash dividends on Citi-Bancshares
Common Stock since Citi-Bancshares was organized in 1982. These cash dividends
were paid annually until the first quarter of 1996, at which time
Citi-Bancshares began paying quarterly cash dividends. The Board of Directors of
Citi-Bancshares presently intends to continue to consider the payment of regular
quarterly cash dividends on Citi-Bancshares Common Stock pending the
consummation of the Merger. The amount and timing of any future dividends will
depend upon the earnings of Citi-Bancshares and Citizen Bank, and their
financial condition, need for funds, capital adequacy, and other relevant
factors. See "GOVERNMENT REGULATION - DIVIDEND RESTRICTIONS" and
CITI-BANCSHARES' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 55 -
<PAGE> 61
GOVERNMENT REGULATION
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 registered bank holding companies, Huntington and Citi-Bancshares
are subject to the supervision of the Federal Reserve Board and are required to
file with the Federal Reserve Board reports and other information regarding
their business operations and the business operations of their subsidiaries.
Each of them is also subject to examination by the Federal Reserve Board and
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 any class of voting stock
of such bank. In addition, pursuant to federal law and regulations promulgated
by the Federal Reserve Board, both Huntington and Citi-Bancshares may only
engage in, or own or control companies that engage in, activities deemed by the
Federal Reserve Board to be so closely related to banking as to be a proper
incident thereto. Under legislation effective September 30, 1996, both
Huntington and Citi-Bancshares may, in most cases, commence permissible new
non-banking business activities de novo with only subsequent notice to the
Federal Reserve Board and may acquire smaller companies that engage in
permissible non-banking activities under an expedited procedure requiring only
12 business days notice to the Federal Reserve Board.
The bank subsidiaries of both Huntington and Citi-Bancshares have
deposits insured by the Bank Insurance Fund ("BIF") of the FDIC, and are subject
to supervision, examination, and regulation by the OCC, if a national bank, or
by state banking authorities and either the FDIC or the Federal Reserve Board,
if a state-chartered bank. Certain deposits of certain of Huntington's bank
subsidiaries 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 supervision, examination, and regulation by the
Federal Reserve Board and examination by applicable federal and state banking
agencies. In addition to the impact of federal and state supervision and
regulation, the subsidiaries of Huntington and Citi-Bancshares 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
The depository institution subsidiaries of both Huntington and
Citi-Bancshares are subject to affiliate transaction restrictions under federal
law which limit the transfer of funds by the subsidiary banks to their parent
and any nonbank subsidiaries of the parent, whether in the form of loans,
extensions of credit, investments, or asset purchases. Such transfers by any
subsidiary bank to its parent corporation or to any nonbank subsidiary of the
parent are limited in amount to 10% of the institution's capital and surplus
and, with respect to such parent and all such nonbank subsidiaries of the
parent, to an aggregate of 20% of any such institution'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, 1995, approximately $179 million was available for loans to
Huntington from its subsidiary banks and approximately $7 million was available
for loans to Citi-Bancshares from Citizens 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 either
Huntington or Citi-Bancshares may not have the resources to provide it. Any
loans by a holding company to any of its subsidiary banks are subordinate in
right of payment to deposits and to certain other
- 56 -
<PAGE> 62
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.
In 1989, the United States Congress passed comprehensive financial
institutions legislation known as the Financial Institutions Reform, Recovery,
and Enforcement Act ("FIRREA"). Among other things, FIRREA established a new
principle of liability on the part of depository institutions insured by the
FDIC for any losses incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. Accordingly, in the event that any
insured bank subsidiary of Huntington causes a loss to the FDIC, other bank
subsidiaries of Huntington could be required to compensate the FDIC by
reimbursing to it the amount of such loss, and such reimbursement could cause a
loss of Huntington's investments in such other subsidiaries. These provisions do
not directly affect Citi-Bancshares as long as it has only one bank subsidiary.
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. Similarly, the laws of
certain states provide for such assessment and sale with respect to the
subsidiary banks chartered by such states. Huntington and Citi-Bancshares, as
the sole shareholder of their respective subsidiary banks, are subject to such
provisions. Moreover, under legislation that became effective August 10, 1993,
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 liquidation or other resolution of such institution. As a result of
such legislation, claims of a receiver for administrative expenses and claims of
holders of deposit liabilities of Huntington's and Citi-Bancshares' respective
depository subsidiaries (including the FDIC, as subrogee of such holders) would
receive priority over the holders of notes and other senior debt of such
subsidiaries in the event of liquidation or other resolution and over the
interests of Huntington and Citi-Bancshares as sole shareholders of their
respective subsidiaries.
DIVIDEND RESTRICTIONS
Dividends from subsidiary banks are a significant source of funds for
payment of dividends to the shareholders of bank holding companies. There are,
however, statutory limits on the amount of dividends a depository institution
subsidiary can pay to its parent without regulatory approval.
A subsidiary bank of Huntington or Citi-Bancshares 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 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, as of
September 30, 1996, Huntington's subsidiary banks have declared dividends to
Huntington in 1996 of approximately $151 million and, without regulatory
approval, could declare additional dividends of approximately $211 million
during the balance of 1996, and Citizens Bank could, without regulatory
approval, declare dividends in 1996 of approximately $15 million plus an
additional amount equal to its net income during 1996.
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
- 57 -
<PAGE> 63
practice. The Federal Reserve Board, the OCC, and the FDIC have issued policy
statements which provide that insured banks and bank holding companies should
generally only pay dividends out of current operating earnings.
FDIC INSURANCE
The FDIC is mandated by law to assess deposit insurance premiums on
depository institutions sufficient, but no more than sufficient, to achieve and
maintain a target reserve level (also referred to as a designated reserve ratio
or DRR) for both the BIF and the SAIF of 1.25 percent of insured deposits. The
BIF achieved its target reserve level in mid-1995, and the SAIF did so in late
1996 by means of a special assessment on savings associations and banks that
acquired SAIF-insured deposits on or prior to March 31, 1995.
The FDIC has employed a risk-based insurance assessment system for both
insurance funds since 1994, under which it places each insured depository
institution in one of nine risk categories based on its level of capital and
other relevant information (such as supervisory evaluations). The insured
depository subsidiaries of Huntington and Citi-Bancshares are all BIF members
and are subject to this risk-based system.
In the light of the current financial situation of the funds and the
current low level of depository institution failure, the FDIC has established
adjusted schedules of BIF and SAIF assessments with annual premium rates ranging
from 0% to 0.27% of insured deposits, depending on the assessment risk
classification of the assessed institution. The 0% rate is available to well
capitalized institutions having one of the two best supervisory ratings. All
Huntington and Citi-Bancshares depository subsidiaries are currently eligible
for the 0% rate. Unless the loss experience of the BIF in the future requires
the FDIC to make an upward adjustment of the assessment schedules, or a
Huntington or Citi-Bancshares depository subsidiary ceases to be well
capitalized or fails to obtain one of the two best supervisory ratings, all such
subsidiaries will continue to be able to obtain deposit insurance without
payment of premium.
CAPITAL REQUIREMENTS
The Federal Reserve Board has issued risk-based capital ratio and
leverage guidelines for bank holding companies, such as Huntington and
Citi-Bancshares. 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 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. Each of Huntington's and
Citi-Bancshares' subsidiary banks is subject to substantially similar capital
requirements adopted by applicable regulatory agencies.
Generally, under the applicable guidelines, a financial institution's
capital is divided into two tiers. "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 perpetual 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 perpetual and
limited-life preferred stock, hybrid capital instruments, mandatory convertible
securities, qualifying subordinated debt, and the allowance for loan 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 intangible assets, with certain 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
- 58 -
<PAGE> 64
mortgage servicing rights ("OMSRs"), readily marketable purchased mortgage
servicing rights ("PMSRs"), and purchased credit card relationships ("PCCRs"),
provided that, in the aggregate, the total amount of OMSRs, PMSRs, and PCCRs
included in capital does not exceed 50% of Tier 1 capital. PCCRs are subject to
a separate sublimit of 25% of Tier 1 capital. The amount of OMSRs, PMSRs, and
PCCRs that a bank holding company may include in its capital is limited to the
lesser of (i) 90% of such assets' fair market value (as determined under the
guidelines), or (ii) 100% of such assets' book value, each determined quarterly.
Identifiable intangible assets (i.e., intangible assets other than goodwill)
other than OMSRs, PMSRs, and PCCRs, including core deposit intangibles, acquired
on or before February 19, 1992 (the date the Federal Reserve Board issued its
original proposal for public comment), generally will not be deducted from
capital for supervisory purposes, although they will continue to be deducted for
purposes of evaluating applications filed by bank holding companies.
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 which exceeds 3% by a cushion of at least
100 to 200 basis points.
The guidelines also provide that financial institutions experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels.
Furthermore, the Federal Reserve Board's guidelines indicate that the Federal
Reserve Board will continue to consider a "tangible Tier 1 leverage ratio" in
evaluating proposals for expansion or new activities. The tangible Tier 1
leverage ratio is the ratio of an institution's Tier 1 capital, less all
intangibles, to total assets, less all intangibles.
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.
As of September 30, 1996, the Tier 1 risk-based capital ratios, total
risk-based capital ratios, and Tier 1 leverage ratios for Huntington and
Citi-Bancshares were as follows:
<TABLE>
<CAPTION>
HUNTINGTON
------------------------------
PRO CITI-
REQUIREMENT HISTORICAL FORMA (1) BANCSHARES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Tier 1 Risk-Based Capital Ratio ............ 4.00% 8.03% 8.20% 19.13%
Total Risk-Based Capital Ratio ............. 8.00% 11.57% 11.71% 20.38%
Tier 1 Leverage Ratio ...................... 3.00% 6.78% 6.93% 9.93%
</TABLE>
- -------------------------
(1) Includes Huntington and Citi-Bancshares on a pro forma combined basis,
assuming that all shares of Citi-Bancshares Common Stock are exchanged
exclusively for shares of Huntington Common Stock.
As of September 30, 1996, all of Huntington's bank subsidiaries and
Citizens Bank had capital in excess of the minimum requirements.
- 59 -
<PAGE> 65
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
made revisions to several other federal banking statutes.
Among other things, 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."
The federal banking regulatory agencies have adopted regulations to
implement the prompt corrective action provisions of FDICIA. Among other things,
the regulations define the relevant capital measures for the five capital
categories. 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 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
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 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 is required to submit a capital restoration
plan, its parent 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 subsidiaries to accept brokered deposits.
Under the regulatory definition of brokered deposits, as of September 30, 1996,
Huntington's bank subsidiaries had an immaterial amount of brokered deposits.
Citizens Bank does not have any brokered deposits.
FDICIA, as amended, directs that each federal banking regulatory agency
prescribe standards, by regulation or guideline, for depository institutions
relating to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, asset quality, earnings, and stock valuation. The Federal Reserve
Board has adopted a regulation in the form of guidelines covering most of these
items, and the other federal banking regulatory agencies are expected to adopt
identical regulations. Huntington and Citi-Bancshares believe that the
regulations and guidelines will not have a material effect on the operations of
their respective depository institution subsidiaries.
- 60 -
<PAGE> 66
INTERSTATE BRANCHING AND CONSOLIDATIONS
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
enacted in September 1994, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state became
permissible as of September 29, 1995. Interstate branching and consolidations
of existing bank subsidiaries in different states will be permissible beginning
June 1, 1997. The permissibility of consolidations and branching may be
accelerated by "opt-ins" by individual states. A state may also, until June 1,
1997, adopt legislation to "opt-out" of interstate branching and
consolidations, but in that event the state's own banks become ineligible to
branch into, or consolidate their operations, in other states. Subject to
obtaining all necessary regulatory approvals, Huntington presently intends to
merge all of its subsidiary banks except The Huntington State Bank and
HNB-Florida, into its principal bank, The Huntington National Bank,
headquartered in Columbus, Ohio, and to consolidate all of its subsidiary
holding companies, except Huntington Florida, into Huntington, as soon as
practicable after June 1, 1997. Huntington Florida and HNB Florida will not be
merged or liquidated in the foreseeable future into Huntington and the
Huntington National Bank, respectively, without a private letter ruling from
the Internal Revenue Service to the effect that the tax-free reorganization
with Citi-Bancshares will not be adversely impacted by such transactions.
OTHER APPLICABLE REGULATIONS
The Riegle Community Development and Regulatory Improvement Act of
1994, also enacted in September 1994, made several changes in existing law
affecting bank holding companies, including a reduction in the minimum
post-approval antitrust review waiting period for depository institution mergers
and acquisitions, and the substitution of a notice for an application when a
bank holding company proposes to engage in, or acquire a company to engage in,
nonbank activities.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996,
enacted in September, 1996, provided, in addition to arrangements for the
recapitalization of the SAIF, regulatory relief for bank holding companies in
several significant areas. Bank holding companies that also owned savings
associations and were therefore subject to regulation by the Office of Thrift
Supervision ("OTS") as savings and loan holding companies were relieved of such
duplicative regulation, and neither future acquisitions of savings associations
by bank holding companies nor mergers of savings associations into banks will
any longer require application to and approval by OTS. Acquisitions by
well-capitalized and well managed bank holding companies of companies engaging
in permissible nonbanking activities (other than savings associations) may now
be made with only 12 days prior notice to the Federal Reserve Board, and de novo
engagement in such activities by such bank holding companies may be commenced
without prior notice and with only subsequent notice to the Federal Reserve
Board. The same legislation gave regulatory relief to banks in regard to
corporate governance, branching, disclosure, and other operational areas.
EXPERTS
The consolidated financial statements of Huntington at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, appearing in this Proxy Statement/Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Citi-Bancshares as of December
31, 1995 and 1994, and for each of the three years in the period ended December
31, 1995, appearing in this Proxy Statement/Prospectus and Registration
Statement have been audited by Purvis, Gray & Company, independent auditors, as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
- 61 -
<PAGE> 67
LEGAL OPINIONS
The validity of the Huntington Common Stock to be issued to
Citi-Bancshares shareholders pursuant to the Merger and certain other legal
matters in connection with the Merger will be passed upon for Huntington by
Porter, Wright, Morris & Arthur, Columbus, Ohio. As of September 30, 1996,
members of such firm participating in the representation of Huntington on this
matter beneficially owned an aggregate of 19,808 shares of Huntington Common
Stock. Certain legal matters in connection with the Merger will be passed on for
Citi-Bancshares by Alston & Bird, Atlanta, Georgia and McLin Burnsed Morrison
Johnson Newman & Roy, P.A., Leesburg, Florida.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, management of
Citi-Bancshares knows of no business other than that described in this Proxy
Statement/Prospectus that will come before the Special Meeting. Should any other
matters properly come before the Special Meeting, the proxy in the enclosed form
confers upon the person or persons designated to vote the shares discretionary
authority to vote the same with respect to any such other matter in accordance
with their judgment.
- 62 -
<PAGE> 68
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF HUNTINGTON
Report of Ernst & Young LLP, Independent Auditors..................................................... F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................................... F-2
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993 .............. F-3
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
1995, 1994, and 1993 ............................................................................. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993........... F-5
Notes to Consolidated Financial Statements - December 31, 1995........................................ F-6
Management's Discussion and Analysis of Financial Condition and Results of Operations -
December 31, 1995, and other Financial Information ............................................... F-18
Consolidated Balance Sheets as of September 30, 1996, December 31, 1995, and September
30, 1995.......................................................................................... F-34
Consolidated Statements of Income for the Periods Ended September 30, 1996 and 1995................... F-35
Consolidated Statements of Changes in Shareholders' Equity for the Periods Ended
September 30, 1996 and 1995....................................................................... F-36
Consolidated Statements of Cash Flows for the Periods Ended September 30, 1996 and 1995............... F-37
Notes to Consolidated Financial Statements - September 30, 1996 ...................................... F-38
Management's Discussion and Analysis of Financial Condition and Results of Operations -
September 30, 1996................................................................................ F-41
FINANCIAL STATEMENTS OF CITI-BANCSHARES
Supplemental Report of Purvis, Gray & Company ........................................................ F-55
Supplemental Consolidated Balance Sheets as of December 31, 1995 and 1994 ............................ F-56
Supplemental Consolidated Statements of Income for the Years Ended December 31, 1995,
1994, and 1993.................................................................................... F-57
Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994, and 1993.............................................................................. F-58
Supplemental Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994, and 1993.................................................................................... F-59
Notes to Supplemental Consolidated Financial Statements - December 31, 1995.......................... F-60
</TABLE>
- 63 -
<PAGE> 69
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations -
December 31, 1995........................................................................................... F-84
Accountant's Review Report.......................................................................................F-104
Condensed Consolidated Balance Sheets as of September 30, 1996 and 1995......................................... F-105
Condensed Consolidated Statements of Income for the Periods Ended September 30, 1996 and 1995................... F-106
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Periods Ended
September 30, 1996 and 1995................................................................................. F-107
Condensed Consolidated Statements of Cash Flows for the Periods Ended September 30, 1996 and 1995............... F-108
Notes to Condensed Consolidated Financial Statements - September 30, 1996 ..................................... F-110
Management's Discussion and Analysis of Financial Condition and Results of Operations -
September 30, 1996.......................................................................................... F-114
</TABLE>
- 64 -
<PAGE> 70
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OR DIRECTORS AND SHAREHOLDERS
HUNTINGTON BANCSHARES INCORPORATED
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 1995 and 1994, 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,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntington
Bancshares Incorporated and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
January 10, 1996
F-1
<PAGE> 71
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) DECEMBER 31, 1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 860,958 $ 885,327
Interest bearing deposits in banks . . . . . . . . . . . . . . . . . . . . 284,393 3,059
Trading account securities . . . . . . . . . . . . . . . . . . . . . . . . 12,924 9,427
Federal funds sold and securities purchased under resale agreements . . . . 197,531 5,329
Mortgages held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 159,705 138,997
Securities available for sale -- at fair value . . . . . . . . . . . . . . 4,721,144 3,304,493
Investment securities -- fair value $69,196 and $474,147, respectively . . 67,604 475,692
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,261,667 12,264,436
Less allowance for loan losses . . . . . . . . . . . . . . . . . . . . . 194,456 200,492
------------- -------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,067,211 12,063,944
------------- -------------
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 296,465 288,793
Customers' acceptance liability . . . . . . . . . . . . . . . . . . . . . . 56,926 53,883
Accrued income and other assets . . . . . . . . . . . . . . . . . . . . . . 529,737 541,696
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,254,598 $17,770,640
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,088,074 $ 2,169,095
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,772,845 2,646,785
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,207,378 2,227,406
Certificates of deposit of $100,000 or more . . . . . . . . . . . . . . . . 909,403 605,763
Other domestic time deposits . . . . . . . . . . . . . . . . . . . . . . . 4,384,949 3,909,061
Foreign time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,933 406,957
------------- -------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,636,582 11,965,067
------------- -------------
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,514,773 2,898,201
Bank acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . 56,926 53,883
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,103,024 1,214,052
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . 424,428 227,617
------------- -------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,735,733 16,358,820
------------- -------------
Shareholders' equity
Preferred stock -- authorized 6,617,808 shares; none outstanding
Common stock -- without par value; authorized 200,000,000 shares;
issued and outstanding -- 141,402,769 and 131,119,504 shares, respectively 1,056,209 912,318
Less 8,351,978 and 904,739 treasury shares, respectively . . . . . . . . (180,632) (16,577)
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,802 215,084
Net unrealized gains (losses) on securities available for sale . . . . . 40,972 (63,289)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,514 364,284
------------- -------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 1,518,865 1,411,820
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . $ 20,254,598 $17,770,640
============= =============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 72
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts)
YEAR ENDED DECEMBER 31, 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest and fee income
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,156,446 $ 975,604 $ 896,932
Securities
Taxable . . . . . . . . . . . . . . . . . . . . . . . . 281,633 198,594 254,795
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . 8,099 13,663 20,268
Mortgages held for sale . . . . . . . . . . . . . . . . . 9,807 25,886 60,188
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,911 5,974 4,128
----------- ----------- -----------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . 1,461,896 1,219,721 1,236,311
----------- ----------- -----------
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 425,631 294,780 317,545
Short-term borrowings . . . . . . . . . . . . . . . . . . 212,110 106,646 89,444
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 99,592 62,245 33,122
----------- ----------- -----------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . 737,333 463,671 440,111
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . 724,563 756,050 796,200
----------- ----------- -----------
Provision for loan losses . . . . . . . . . . . . . . . . . . 28,721 15,284 79,294
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . 695,842 740,766 716,906
----------- ----------- -----------
Total non-interest income . . . . . . . . . . . . . . . . . 248,390 222,314 293,365
Total non-interest expense . . . . . . . . . . . . . . . . . 565,784 596,606 646,480
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE . . . . . . . . . . . 378,448 366,474 363,791
Provision for income taxes . . . . . . . . . . . . . . . . . 133,959 123,881 126,879
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912
=========== =========== ===========
PER COMMON SHARE(1)
Net income . . . . . . . . . . . . . . . . . . . . . . . . $1.78 $1.78 $1.76
Cash dividends . . . . . . . . . . . . . . . . . . . . . . $.78 $.68 $.56
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 137,702,243 136,209,760 134,729,322
See notes to consolidated financial statements.
<FN>
(1) Restated for the five percent stock dividend distributed July 31, 1995.
</TABLE>
F-3
<PAGE> 73
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) Net Unrealized
Common Common Treasury Treasury Capital Gains (Losses) Retained
Shares Stock Shares Stock Surplus on Securities Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 1, 1993 93,740 $ 634,763 (303) $ (6,069) $ 212,603 -- $ 288,372 $1,129,669
Stock issued for acquisitions . . 1,972 42,052 42,052
Net income . . . . . . . . . . . 236,912 236,912
Cash dividends declared
($.56 per share) . . . . . . . (68,064) (68,064)
Stock options exercised . . . . . 336 8,278 1,049 (6,897) 2,430
10% stock dividend . . . . . . . 8,479 224,544 (18) (224,747) (203)
Treasury shares purchased . . . . (1,447) (36,795) (36,795)
Treasury shares sold:
Shareholder dividend
reinvestment plan . . . . . 408 9,561 353 (59) 9,855
Employee benefit plans . . . . 416 9,735 691 (117) 10,309
Conversion of convertible notes . 36 346 346
Change in valuation allowance
for marketable equity securities 1,098 1,098
Pre-merger transactions
of pooled banks . . . . . . . 184 402 1,472 (4,846) (2,972)
------- ---------- ------- -------- --------- ------- --------- ----------
BALANCE -- DECEMBER 31, 1993 104,411 902,107 (608) (15,290) 216,168 -- 221,652 1,324,637
------- ---------- ------- -------- --------- ------- --------- ----------
Change in accounting method
for securities . . . . . . . . $65,548 1,624 67,172
Stock issued for acquisition. . . 573 9,842 1,318 24,984 (2,026) 32,800
Net income . . . . . . . . . . . 242,593 242,593
Cash dividends declared
($.68 per share) . . . . . . . (93,176) (93,176)
Stock options exercised . . . . . 290 6,625 775 (5,669) 1,731
Five-for-four stock split . . . . 26,088 (160)
Treasury shares purchased . . . . (3,537) (73,634) (73,634)
Treasury shares sold:
Shareholder dividend
reinvestment plan . . . . . . 1,159 26,635 30 (2,151) 24,514
Employee benefit plans . . . . 633 14,103 137 (589) 13,651
Conversion of convertible notes . 48 369 369
Change in net unrealized gains
(losses) on securities
available for sale . . . . . . (128,837) (128,837)
------- ---------- ------- -------- --------- ------- --------- ----------
BALANCE -- DECEMBER 31, 1994 131,120 912,318 (905) (16,577) 215,084 (63,289) 364,284 1,411,820
------- ---------- ------- -------- --------- ------- --------- ----------
Stock issued for acquisitions . . 3,510 3,434 20,061 (985) 8,474 30,984
Net income . . . . . . . . . . . 244,489 244,489
Cash dividends declared
($.78 per share) . . . . . . . (106,493) (106,493)
Stock options exercised . . . . . 231 4,155 7 (2,809) 1,353
5% stock dividend . . . . . . . . 6,732 140,146 (45) (140,272) (126)
Treasury shares purchased . . . . (9,625) (204,645) (204,645)
Treasury shares sold:
Shareholder dividend
reinvestment plan . . . . . 1,553 28,609 437 (1,114) 27,932
Employee benefit plans . . . . 439 7,826 213 (45) 7,994
Conversion of convertible notes . 41 311 311
Change in net unrealized gains
(losses) on securities
available for sale . . . . . . 105,246 105,246
------- ---------- ------- --------- --------- ------- --------- ----------
BALANCE -- DECEMBER 31, 1995. . . 141,403 $1,056,209 (8,352) $(180,632) $ 235,802 $40,972 $ 366,514 $1,518,865
======= ========== ======= ========= ========= ======= ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 74
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) YEAR ENDED DECEMBER 31, 1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses . . . . . . . . . . . . . . . 28,721 15,284 79,294
Provision for depreciation and amortization . . . . . . 68,763 84,215 127,459
Deferred income tax expense (benefit) . . . . . . . . . 26,694 57,329 (30,412)
(Increase) decrease in trading account securities . . . (3,497) 12,537 (20,681)
(Increase) decrease in mortgages held for sale . . . . . (20,708) 893,341 (288,296)
Gain on sale of subsidiary . . . . . . . . . . . . . . . (8,939) -- --
Net gains on sales of securities . . . . . . . . . . . . (9,056) (2,594) (27,189)
(Increase) decrease in accrued income receivable . . . . (23,331) (247) 3,924
Net increase in other assets . . . . . . . . . . . . . . (37,053) (59,397) (63,791)
Increase (decrease) in accrued expenses . . . . . . . . 112,963 (22,033) (8,775)
Net increase (decrease) in other liabilities . . . . . . 879 (46,649) 48,157
------------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . 379,925 1,174,379 56,602
------------- ------------ ------------
INVESTING ACTIVITIES
(Increase) decrease in interest bearing deposits in banks . (281,334) 9,551 152,077
Proceeds from:
Maturities and calls of investment securities . . . . . . 82,082 86,027 308,654
Maturities and calls of securities available for sale . . 216,878 317,031 542,062
Sales of investment securities . . . . . . . . . . . . . . -- -- 252,590
Sales of securities available for sale . . . . . . . . . . 2,653,545 2,316,843 2,306,111
Purchases of:
Investment securities . . . . . . . . . . . . . . . . . . (2,660) (230,676) (239,164)
Securities available for sale . . . . . . . . . . . . . . (3,719,144) (2,146,362) (2,956,527)
Proceeds from sales of loans . . . . . . . . . . . . . . . . 306,105 -- --
Net loan originations, excluding sales . . . . . . . . . . (1,267,185) (1,187,428) (959,314)
Proceeds from disposal of premises and equipment . . . . . . 2,902 1,200 13,035
Purchases of premises and equipment . . . . . . . . . . . . (33,429) (25,938) (56,820)
Proceeds from sales of other real estate . . . . . . . . . . 30,133 44,484 24,169
Net cash received (paid) from purchase/sale of subsidiaries 165,803 2,670 (13,173)
------------- ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES . . . . . . . (1,846,304) (812,598) (626,300)
------------- ------------ ------------
FINANCING ACTIVITIES
Increase (decrease) in total deposits . . . . . . . . . . . 397,675 (240,219) (300,206)
Increase (decrease) in short-term borrowings . . . . . . . . 620,369 (303,287) 517,008
Proceeds from issuance of long-term debt . . . . . . . . . . 1,095,220 475,000 560,961
Payment of long-term debt . . . . . . . . . . . . . . . . . (206,166) (26,415) (278,611)
Dividends paid on common stock . . . . . . . . . . . . . . . (105,520) (87,545) (61,892)
Acquisition of treasury stock . . . . . . . . . . . . . . . (204,645) (73,634) (36,795)
Proceeds from issuance of treasury stock . . . . . . . . . . 37,279 39,896 22,594
------------- ------------ ------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,634,212 (216,204) 423,059
------------- ------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . 167,833 145,577 (146,639)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . 890,656 745,079 891,718
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . $ 1,058,489 $ 890,656 $ 745,079
============= ============ ============
<FN>
NOTE: Huntington made interest payments of $667,712, $451,694, and $430,701 in
1995, 1994, and 1993, respectively. Federal income tax payments were $100,039
in 1995, $97,775 in 1994, and $155,457 in 1993.
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
NATURE OF OPERATIONS: Huntington Bancshares Incorporated (Huntington) is a
multi-state bank holding company organized under Maryland law in 1966 and
headquartered in Columbus, Ohio. Through its subsidiaries, Huntington conducts
a full-service commercial and consumer banking business and provides other
financial products and services, principally to domestic customers.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Huntington and its subsidiaries and are presented on the basis of
generally accepted accounting principles (GAAP). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been reclassified to conform with the current year's
presentation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in
the financial statements. Actual results could differ from those estimates.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (FAS 121). The Statement prescribes the accounting for the impairment
of long-lived assets and goodwill related to those assets. The new rules
specify when assets should be reviewed for impairment, how to determine whether
an asset or group of assets is impaired, how to measure an impairment loss, and
what financial statement disclosures are necessary. Also prescribed is the
accounting for long-lived assets and identifiable intangibles that a company
plans to dispose of, other than those that are a part of a discontinued
operation. Any impairment of a long-lived asset resulting from management's
review is to be recognized as a component of non-interest expense. The
adoption of FAS 121, which will occur in the first quarter of 1996, is not
expected to have a material effect on Huntington's consolidated financial
statements.
SECURITIES: Debt securities that Huntington has both the positive intent
and ability to hold to maturity are classified as investments and are carried
at amortized cost. Securities purchased with the intention of recognizing
short-term profits are placed in the trading account and carried at fair value.
Securities not classified as investments or trading are designated
available-for-sale and carried at fair value. Unrealized gains and losses on
securities classified as available-for-sale are carried as a separate component
of shareholders' equity. Unrealized gains and losses on securities classified
as trading are reported in earnings. The amortized cost of specific securities
sold is used to compute realized gains and losses.
On November 15, 1995, the FASB issued a Special Report entitled: "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (the Guide). As permitted by the Guide, concurrent with
its adoption in December 1995, Huntington made a one-time reclassification of
securities with an amortized cost of $327.6 million and an unrealized gain of
$1.5 million from the investment category to available-for-sale.
LOANS: Loans are stated at the principal amount outstanding, net of unearned
discount. Interest income on loans is primarily accrued based on principal
amounts outstanding. Income from lease financing is recognized on a basis to
achieve a constant periodic rate of return on the outstanding investment. The
accrual of interest income is discontinued when the collection of principal,
interest, or both is doubtful. When interest accruals are suspended, interest
income accrued in the current period is reversed. Huntington uses the cost
recovery method in accounting for cash received on non- accrual loans. Under
this method, cash receipts are generally applied entirely against principal
until the loan has been collected in full, after which time any additional cash
receipts are recognized as interest income.
Significant nonrefundable loan fees and certain direct loan origination
costs are deferred and amortized over the term of the loan as a yield
adjustment.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses reflects
management's judgment as to the level considered appropriate to absorb
potential losses inherent in the loan portfolio. This judgment is based on
a review of individual loans, historical loss experience, economic conditions,
portfolio trends, and other factors. The allowance is increased by provisions
charged to earnings and reduced by charge-offs, net of recoveries.
OTHER REAL ESTATE: Other real estate, acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower
of cost or fair value less estimated costs of disposition. At the date of
acquisition, any losses are charged to the allowance for loan losses.
Subsequent write-downs are included in non-interest expense. Realized losses
from disposition of the property and declines in fair value that are
considered permanent are charged to the reserve for other real estate.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for premises and 3
to 10 years for equipment.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are reported at the
lower of cost or aggregate market value primarily as determined by
outstanding commitments from investors.
Huntington adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights"
(FAS 122) during the third quarter of 1995. FAS 122, an amendment of Statement
65, requires the recognition of rights to service loans for others as separate
assets, however those servicing rights are acquired. FAS 122 also requires
that a mortgage banking enterprise assess its capitalized servicing rights for
impairment based on the fair value of those rights, using a disaggregated
approach for mortgage servicing rights capitalized after adoption of the new
standard. Mortgage servicing rights are amortized on an accelerated basis over
the estimated period of net servicing revenue. Adjustments to reduce amortized
cost to estimated fair value are included in non-interest income or
non-interest expense, as appropriate.
PURCHASE BUSINESS COMBINATIONS: Net assets of entities acquired in
transactions accounted for under the purchase method of accounting are recorded
at estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
generally ranging up to 25 years. Core deposits and other identifiable
acquired
F-6
<PAGE> 76
- -----------------------------------------------------------------------------
intangible assets are amortized on an accelerated basis over their estimated
useful lives.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Huntington uses certain
off-balance sheet financial instruments, principally interest rate swaps, in
connection with its asset/liability management activities. Interest rate
options (including caps and floors), futures, and forwards are also used to
manage interest rate risk. Provided these instruments meet specific criteria,
they are considered hedges and accounted for under the accrual or deferral
methods, as more fully discussed below. Off-balance sheet financial
instruments that do not meet the required criteria are carried on the balance
sheet at fair value with realized and unrealized changes in that value
recognized in earnings. Similarly, if the hedged item is sold or its
outstanding balance otherwise declines below that of the related hedging
instrument, the off-balance sheet product (or applicable excess portion
thereof) is marked-to-market and the resulting gain or loss is included in
earnings.
Accrual accounting is used when the cash flows attributable to the hedging
instrument satisfy the objectives of the asset/liability management strategy.
Huntington uses the accrual method for substantially all of its interest rate
swaps as well as for interest rate options. Amounts receivable or payable
under these agreements are recognized as an adjustment to the interest income
or expense of the hedged item. There is no recognition on the balance sheet
for changes in the fair value of the hedging instrument, except for interest
rate swaps designated as hedges of securities available for sale, for which
changes in fair values are reported in shareholders' equity. Premiums paid for
interest rate options are deferred as a component of other assets and amortized
to interest income or expense over the contract term. Gains and losses on
terminated hedging instruments are also deferred and amortized to interest
income or expense over the remaining life of the hedged item.
Huntington employs deferral accounting when the market value of the hedging
instrument meets the objectives of the asset/liability management strategy and
the hedged item is reported at other than fair value. In such cases, gains and
losses associated with futures and forwards are deferred as an adjustment to
the carrying value of the related asset or liability and are recognized in the
corresponding interest income or expense accounts over the remaining life of
the hedged item.
STATEMENT OF CASH FLOWS: Cash and cash equivalents are defined as "Cash
and due from banks" and "Federal funds sold and securities purchased under
resale agreements."
EARNINGS PER SHARE: Per common share amounts have been calculated based
upon the weighted average number of common shares outstanding in each period,
as adjusted for the five percent stock dividend distributed July 31, 1995.
The dilutive effects of unexercised stock options are not significant.
2. SECURITIES AVAILABLE FOR SALE
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
UNREALIZED
----------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995
U.S. Treasury . . . . . . . . $ 567,088 $ 5,453 $ 2,663 $ 569,878
Federal Agencies
Mortgage-backed securities . 882,855 18,115 111 900,859
Other agencies . . . . . . . 2,726,471 33,814 2,852 2,757,433
---------- ------- --------- -----------
Total U.S. Treasury
and Federal Agencies . . 4,176,414 57,382 5,626 4,228,170
---------- ------- --------- -----------
Other debt securities . . . . 472,771 13,327 124 485,974
Marketable equity securities. 8,359 -- 1,359 7,000
---------- ------- --------- -----------
Total securities
available for sale . . . $4,657,544 $70,709 $ 7,109 $ 4,721,144
========== ======= ========= ===========
AT DECEMBER 31, 1994
U.S. Treasury . . . . . . . . $ 854,414 $ 475 $ 38,798 $ 816,091
Federal Agencies
Mortgage-backed securities . 501,530 1,473 13,246 489,757
Other agencies . . . . . . . 1,744,122 805 44,498 1,700,429
Total U.S. Treasury
and Federal Agencies. . . . 3,100,066 2,753 96,542 3,006,277
---------- ------- --------- -----------
Other debt securities . . . . 293,686 -- 1,894 291,792
Marketable equity securities. 8,359 -- 1,935 6,424
---------- ------- --------- -----------
Total securities
available for sale. . . . . $3,402,111 $ 2,753 $ 100,371 $ 3,304,493
========== ======= ========= ===========
</TABLE>
Amortized cost and fair values by contractual maturity at December 31, 1995
and 1994 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- ----------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1995
Under 1 year . . . . . . . . . $ 238,329 $ 240,713
1-5 years . . . . . . . . . . . 2,289,209 2,322,765
6-10 years . . . . . . . . . . 1,340,200 1,360,798
Over 10 years . . . . . . . . . 781,447 789,868
Marketable equity securities . 8,359 7,000
---------- ----------
Total . . . . . . . . . . . $4,657,544 $4,721,144
========== ==========
AT DECEMBER 31, 1994
Under 1 year . . . . . . . . . $ 556,481 $ 551,937
1-5 years . . . . . . . . . . . 1,281,983 1,254,657
6-10 years . . . . . . . . . . 1,084,241 1,043,878
Over 10 years . . . . . . . . . 471,047 447,597
Marketable equity securities . 8,359 6,424
---------- ----------
Total . . . . . . . . . . . $3,402,111 $3,304,493
========== ==========
</TABLE>
Proceeds from sales of securities available for sale were $2.7 billion during
1995 and $2.3 billion in both 1994 and 1993. Gross gains of $12.5 million,
$15.2 million, and $25.9 million were realized in 1995, 1994, and 1993,
respectively. Gross losses totaled $3.5 million in 1995, $12.7 million in
1994, and $2.9 million in 1993.
F-7
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
UNREALIZED
----------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------
AT DECEMBER 31, 1995
<S> <C> <C> <C> <C>
U.S. Treasury . . . . $ 156 -- -- $ 156
States and political
subdivisions . . . 67,448 $1,704 $ 112 69,040
-------- ------ ------ -------
Total investment
securities . . . $ 67,604 $1,704 $ 112 $69,196
======== ====== ====== =======
AT DECEMBER 31, 1994
U.S. Treasury . . . . $ 150 -- -- $ 150
Federal Agencies
Mortgage-backed securities 8,313 $ 23 $ 53 8,283
Other agencies . . . 309,250 97 4,193 305,154
-------- ------ ------ -------
Total U.S. Treasury
and Federal Agencies 317,713 120 4,246 313,587
-------- ------ ------ -------
States and political
subdivisions . . . 153,649 3,996 1,335 156,310
Other securities . . 4,330 -- 80 4,250
-------- ------ ------ -------
Total investment
securities . . . $475,692 $4,116 $5,661 $474,147
======== ====== ====== =======
</TABLE>
Amortized cost and fair values by contractual maturity at December 31, 1995
and 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- --------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1995
Under 1 year . . . . . . . . . $ 27,340 $ 27,592
1-5 years . . . . . . . . . . . 23,793 24,652
6-10 years . . . . . . . . . . 12,638 13,040
Over 10 years . . . . . . . . . 3,833 3,912
-------- --------
Total . . . . . . . . . . . $ 67,604 $ 69,196
======== ========
AT DECEMBER 31, 1994
Under 1 year . . . . . . . . . $ 58,019 $ 58,738
1-5 years . . . . . . . . . . . 174,962 174,770
6-10 years . . . . . . . . . . 231,792 229,647
Over 10 years . . . . . . . . . 10,919 10,992
-------- --------
Total . . . . . . . . . . . $475,692 $474,147
======== ========
</TABLE>
There were no sales of investment securities in 1995 or 1994. Proceeds from
sale of investment securities were $252.6 million in 1993. Gross gains of $5.6
million and gross losses of $1.4 million were realized from such sales.
4. LOANS
At December 31, 1995 and 1994, loans were comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Commercial . . . . . . . . . . . . . $ 4,190,237 $ 3,668,898
Real estate
Construction . . . . . . . . . . . 367,889 304,769
Commercial . . . . . . . . . . . . 1,578,891 1,378,398
Residential. . . . . . . . . . . . 1,176,715 1,624,367
Consumer (net of $11,632 and $11,651
unearned discount, respectively) . 5,094,036 4,641,946
Lease financing . . . . . . . . . . . 853,899 646,058
----------- -----------
Total loans . . . . . . . . . . . $13,261,667 $12,264,436
=========== ===========
</TABLE>
Huntington's subsidiaries have granted loans to its officers, directors, and
their associates. Such loans were made in the ordinary course of business at
the banking subsidiaries' normal credit terms, including interest rate and
collateralization, and do not represent more than the normal risk of
collection. These loans to related parties are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year. . . . . . . $ 98,225 $ 100,856
Loans made . . . . . . . . . . . . . 12,747 14,069
Repayments . . . . . . . . . . . . . (14,544) (21,066)
Changes due to status of executive
officers and directors. . . . . . 46,210 4,366
-------------- ---------------
Balance, end of year . . . . . . . . . $ 142,638 $ 98,225
============== ===============
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES
A summary of the transactions in the allowance for loan losses for the three
years ended December 31 follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $200,492 $211,835 $153,654
Allowance of assets acquired/other 6,827 1,393 11,241
Loan losses . . . . . . . (55,568) (46,122) (45,592)
Recoveries of loans previously
charged off . . . . . 13,984 18,102 13,238
Provision for loan losses 28,721 15,284 79,294
-------- -------- --------
Balance, end of year . . $194,456 $200,492 $211,835
======== ======== ========
</TABLE>
On January 1, 1995, Huntington adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" (FAS 114), as amended by FAS 118. Under
the new rules, the 1995 allowance for loan losses related to loans that are
identified for evaluation in accordance with FAS 114 is based on discounted
cash flows using the loan's initial effective interest rate or the fair value
of the collateral for collateral-dependent loans. Prior to 1995, the allowance
for loan losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral-dependent loans.
Under FAS 114, $27.1 million of the non-performing loans presented in Table
12 of Management's Discussion and Analysis were considered impaired at December
31, 1995. Included in this amount is $20 million of impaired loans for which
the related allowance for loan losses is $7.3 million and $7.1 million of
impaired loans that as a result of write-downs do not have an allowance for
loan losses. The average recorded investment in impaired loans during the year
ended December 31, 1995, was approximately $26 million.
F-8
<PAGE> 78
6. PREMISES AND EQUIPMENT
At December 31, 1995 and 1994, premises and equipment stated at cost were
comprised of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(in thousands of dollars) 1995 1994
- ---------------------------------------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . $ 47,353 $ 44,445
Buildings . . . . . . . . . . . 222,942 215,708
Leasehold improvements . . . . 80,987 79,350
Equipment . . . . . . . . . . . 265,607 250,049
-------- --------
Total premises and equipment 616,889 589,552
Less accumulated depreciation
and amortization . . . . . . 320,424 300,759
-------- --------
Net premises and equipment . . $296,465 $288,793
======== ========
</TABLE>
Depreciation and amortization charged to expense and rental income credited
to occupancy expense were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Occupancy expense . . . . . . $11,795 $11,382 $10,720
Equipment expense . . . . . . 17,555 16,588 16,399
------- ------- -------
Total depreciation and amortization $29,350 $27,970 $27,119
======= ======= =======
Rental income credited to
occupancy expense . . . . $11,447 $11,798 $12,264
======= ======= =======
</TABLE>
7. SHORT-TERM BORROWINGS
At December 31, 1995 and 1994, short-term borrowings were comprised of the
following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase $2,854,142 $1,442,138
Medium-term bank notes with original
maturities of less than one year 494,000 1,264,000
Medium-term (Parent Company) notes with
original maturities of less than one year 80,000 25,000
Commercial paper . . . . . . . 69,096 50,987
Other . . . . . . . . . . . . . 17,535 116,076
---------- ----------
Total short-term borrowings . . $3,514,773 $2,898,201
========== ==========
</TABLE>
Commercial paper is issued by Huntington Bancshares Financial
Corporation, a non-bank subsidiary, with principal and interest guaranteed by
Huntington Bancshares Incorporated (Parent Company).
Huntington has the ability to borrow under a line of credit totaling
$200 million to support commercial paper borrowings or other short-term working
capital needs. Under the terms of agreement, a quarterly fee must be paid and
there are no compensating balances required. The line is cancelable, by
Huntington, upon written notice and terminates September 30, 1997. There were
no borrowings under the line in 1995 or 1994.
Securities pledged to secure public or trust deposits, repurchase
agreements, and for other purposes were $1.5 billion and $1.7 billion at
December 31, 1995 and 1994, respectively.
8. LONG-TERM DEBT
At December 31, 1995 and 1994, long-term debt was comprised of the
following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Subordinated Notes, 7 5/8%, maturing in 2003,
face value $150,000 at December 31, 1995
and 1994, net of discount . . . $ 149,518 $ 149,450
Subordinated Notes, 7 7/8%, maturing in 2002,
face value $150,000 at December 31, 1995
and 1994, net of discount . . . 149,121 148,994
Subordinated Notes, 6 3/4%, maturing in 2003,
face value $100,000 at December 31, 1995
and 1994, net of discount . . . 99,753 99,720
Medium Term Bank Notes
maturing through 1997 . . . . . 1,510,000 616,600
Medium Term (Parent Company) Notes
maturing through 1998 . . . . . 95,000 50,000
Federal Home Loan Bank Notes
maturing through 1997 . . . . . 99,000 148,500
Other . . . . . . . . . . . . . . . 632 788
---------- ----------
Total long-term debt . . . . . . . $2,103,024 $1,214,052
========== ==========
</TABLE>
PARENT COMPANY OBLIGATIONS:
The 7 7/8% Notes are not redeemable prior to maturity in 2002 and do no
provide for any sinking fund.
The Medium Term Notes had weighted average interest rates of 5.85% and
5.59% at December 31, 1995 and 1994, respectively.
SUBSIDIARY OBLIGATIONS:
The 7 5/8% Notes and the 6 3/4% Notes were both issued by The Huntingto
National Bank in 1993. These Notes are not redeemable prior to maturity in
2003, and do not provide for any sinking fund.
The Medium Term Bank Notes had weighted average interest rates of 5.89%
and 5.68% at December 31, 1995 and 1994, respectively.
The Federal Home Loan Bank Notes mature serially over the period
beginning January 1996 through February 1997 and had a weighted average
interest rate of 6.41% and 6.25% at December 31, 1995 and 1994, respectively.
These advances cannot be prepaid without penalty.
The terms of Huntington's long-term debt obligations contain various
restrictive covenants including limitations on the acquisition of additional
debt in excess of specified levels, dividend payments, and the disposition of
subsidiaries. As of December 31, 1995, Huntington was in compliance with all
such covenants.
Interest rate swaps were used by Huntington to convert the Subordinated
Notes to a variable interest rate. The stated interest rates on certain of the
Medium Term Bank Notes have also been modified by interest rate swaps. At
December 31, 1995, the weighted average effective interest rate on the
synthetically altered Subordinated Notes and Medium Term Bank Notes was 5.82%
and 6.59%, respectively.
The following table summarizes the maturities of Huntington's
long-term debt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Year (in thousands of dollars)
- ---------------------------------------------------------------
<S> <C>
1996 . . . . . . . . . . . . . . $ 1,415,275
1997 . . . . . . . . . . . . . . 219,356
1998 . . . . . . . . . . . . . . 70,000
1999 . . . . . . . . . . . . . . --
2000 . . . . . . . . . . . . . . --
2001 and thereafter . . . . . . . 400,000
2,104,631
Discount . . . . . . . . . . . . (1,607)
----------
Total . . . . . . . . . . . . . . $2,103,024
==========
</TABLE>
F-9
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
9. OPERATING LEASES
At December 31, 1995, 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, 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Year (in thousands of dollars)
- ----------------------------------------------------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . $ 19,565
1997 . . . . . . . . . . . . . . . . . . . . 16,759
1998 . . . . . . . . . . . . . . . . . . . . 14,719
1999 . . . . . . . . . . . . . . . . . . . . 13,622
2000 . . . . . . . . . . . . . . . . . . . . 15,223
2001 and thereafter . . . . . . . . . . . . . 124,214
--------
Total Minimum Payments . . . . . . . . . . . $204,102
========
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $61.6 million due in the future under noncancelable subleases. The
rental expense for all operating leases, except those with terms of a month or
less, was $23.6 million for 1995, compared with $23.8 million in 1994 and $22.1
million in 1993.
- -------------------------------------------------------------------------------
10. OFF-BALANCE SHEET TRANSACTIONS
In the normal course of business, Huntington is party to financial
instruments with varying degrees of credit and market risk in excess of the
amounts reflected as assets and liabilities in the consolidated balance sheet.
Loan commitments and letters of credit are commonly used to meet the financing
needs of customers, while interest rate swaps, 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, 1995, Huntington's credit risk from these off-balance sheet
arrangements, including trading activities, was approximately $63.6 million.
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1995 and 1994, is presented in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(in millions of dollars) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial . . . . . . . . . . . $2,857 $2,672
Consumer . . . . . . . . . . . . 2,561 2,169
Other . . . . . . . . . . . . . 360 218
Standby letters of credit . . . . . 424 416
Commercial letters of credit . . . 143 137
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps . . . . . . 4,507 6,840
Purchased interest rate options 600 1,130
Interest rate forwards and futures 231 92
Trading activities
Interest rate swaps . . . . . . 284 303
Interest rate options . . . . . 169 397
</TABLE>
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 40% of standby
letters of credit are collateralized, and approximately 85% are expected to
expire without being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments which facilitate customer trade transactions and have maturities of
no longer than ninety days. These instruments are normally secured by the
merchandise or cargo being traded.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount.
Huntington enters into swaps to synthetically alter
F-10
<PAGE> 80
the repricing characteristics of designated earning assets and interest bearing
liabilities and, on a much more limited basis, as an intermediary for
customers. Because only interest payments are exchanged, cash requirements of
swaps are significantly less than the notional amounts.
Interest rate futures are commitments to either purchase or sell a financial
instrument at a future date for a specified price or yield and may be settled
in cash or through delivery of the underlying financial instrument. Forward
contracts, used primarily by Huntington in connection with its mortgage banking
activities, settle in cash at a specified future date based on the differential
between agreed interest rates applied to a notional amount. Huntington also
purchases interest rate options (e.g. caps and floors) to manage fluctuating
interest rates. Premiums paid for interest rate options grant Huntington the
right to receive at specified future dates the amount, if any, by which a
specified market interest rate exceeds the fixed cap rate or falls below the
fixed floor rate, applied to a notional amount. Exposure to loss from interest
rate contracts changes as interest rates fluctuate.
For more detailed information concerning off-balance sheet transactions,
refer to the "Interest Rate Risk Management" section of Management's Discussion
and Analysis.
- -------------------------------------------------------------------------------
11. STOCK OPTION PLANS
Huntington has non-qualified and incentive stock option plans covering key
employees. Under these plans, the exercise price of the options may not be
less than the fair market value of the common stock at the date of grant. As
of December 31, 1995 and 1994, options available for future grants totaled
8,059,586 and 8,729,428, respectively.
Huntington follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) in accounting for its stock options.
Under APB 25, because the exercise price of the options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized by Huntington. All outstanding options are considered common stock
equivalents for purposes of computing primary and fully-diluted earnings per
share.
Activity in the plans for 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
Shares
Under
Option Price Range
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1994 2,704,647 $ 2.57-$19.67
Granted . . . . . . . . . . 667,654 $ 19.57-$20.12
Exercised (559,578) $ 2.57-$16.50
Cancelled . . . . . . . . . (43,669) $ 7.06-$20.12
-------------------------------
Outstanding at December 31, 1994 2,769,054 $ 2.62-$20.12
- --------------------------------------------------------------------------
Exercisable at December 31, 1994 2,095,425 $ 2.62-$19.67
- --------------------------------------------------------------------------
OUTSTANDING AT JANUARY 1, 1995 2,769,054 $ 2.62-$20.12
GRANTED . . . . . . . . . . 696,300 $ 17.86-$21.44
EXERCISED . . . . . . . . . (352,867) $ 2.62-$20.12
CANCELLED (26,379) $ 13.46-$21.44
-------------------------------
OUTSTANDING AT DECEMBER 31, 1995 3,086,108 $ 6.18-$21.44
- --------------------------------------------------------------------------
EXERCISABLE AT DECEMBER 31, 1995 1,910,428 $ 6.18-$20.12
- --------------------------------------------------------------------------
</TABLE>
12. LEGAL CONTINGENCIES
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. The aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
Huntington's consolidated financial position.
- -------------------------------------------------------------------------------
13. EMPLOYEE BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan
covering substantially all employees. The plan provides benefits based upon
length of service and compensation levels. The funding policy of Huntington is
to contribute an annual amount which is at least equal to the minimum funding
requirements but not more than that deductible under the Internal Revenue Code.
Plan assets, held in trust, primarily consist of mutual funds.
The following tables show the funded status of the plan at
December 31, 1995 and 1994, the components of pension cost recognized in 1995,
1994, and 1993, and the assumptions used in determining the benefit liabilities
and costs.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation . $ 76,711 $ 64,496
=============== ==============
Accumulated benefit obligation $ 82,958 $ 70,172
=============== ==============
Projected benefit obligation . $ 128,642 $ 104,381
Plan assets, at fair value . . 113,029 97,105
--------------- --------------
Projected benefit obligation in excess
of plan assets . . . . . . . 15,613 7,276
Unrecognized transition asset,
net of amortization . . . . 2,940 3,480
Unrecognized net gain . . . . 14,223 14,090
Unrecognized prior service cost (1,636) (1,776)
--------------- --------------
Accrued pension cost . . . . . $ 31,140 $ 23,070
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET PENSION COST INCLUDED THE
FOLLOWING COMPONENTS
Service cost--benefits earned
during the period . . . $ 9,399 $ 10,604 $ 7,485
Interest cost on projected
benefit obligation . . . 8,242 7,923 7,060
Net amortization and deferral 15,574 (12,111) (1,292)
Actual (return) loss on plan assets (24,247) 1,899 (7,448)
----------- ------------- -------------
Net pension expense . . . $ 8,968 $ 8,315 $ 5,805
=========== ============= =============
ACTUARIAL ASSUMPTIONS
Discount rate used for year-end
benefit obligations . . 7.50% 8.00% 7.00%
Rate of salary increases 5.00% 5.00% 5.00%
Long-term rate of return
on assets . . . . . . . 8.75% 8.75% 8.75%
</TABLE>
Huntington also sponsors an unfunded Supplemental Executive Retirement Plan,
a non-qualified plan that provides certain key officers of Huntington and its
subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1995 and 1994, the accrued pension cost for
this plan totaled
F-11
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
$8.2 million and $7.0 million, respectively. Pension expense for this plan
was $1.3 million in 1995, $1.2 million in 1994, and $1.0 million in 1993.
Huntington's unfunded defined benefit post-retirement plan provides certain
health care and life insurance benefits to retired employees who have attained
the age of 55 and have at least 10 years of service. For any employee retiring
on or after January 1, 1993, Huntington's contribution is based upon the
employee's number of months of service and is limited to the actual cost of
coverage. The expected cost of providing these post-retirement benefits is
recognized in the financial statements during the employees' active service
period.
Net periodic post-retirement benefit cost included the following
components for the years ended December 31:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
(in thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . $ 970 $1,458 $ 782
Interest cost . . . . . . . . . . . . . . 2,534 2,853 2,095
Amortization of transition obligation . . 1,261 1,261 1,261
Net amortization and deferral . . . . . . 397 722 -
------ ------ ------
Net periodic post-retirement benefit cost $5,162 $6,294 $4,138
====== ====== ======
</TABLE>
The following table sets forth the status of the post-retirement benefit
obligation at December 31:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
(in thousands of dollars) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees . . . . . . . . . . . . . . . $ 19,381 $ 20,426
Fully eligible active plan participants 6,309 7,045
Other active plan participants . . . . 10,109 9,805
-------- --------
Total accumulated post-retirement . .
benefit obligation . . . . . . . 35,799 37,276
Unrecognized net gain (loss) . . . . . 2,566 (1,352)
Unrecognized prior service cost . . . . (5,503) (6,320)
Unrecognized transition obligation . . (21,432) (22,693)
-------- --------
Accrued post-retirement benefit cost. $ 11,430 $ 6,911
======== ========
</TABLE>
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% and 8.0%, respectively at December
31, 1995 and 1994. The 1995 health care cost trend rate was projected to be
10.75% for pre-65 participants and 9.0% for post-65 participants compared with
11.5% and 9.5% in 1994. These rates are assumed to decrease gradually until
they reach 5.5% in the year 2004 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated post-retirement benefit obligation as
of December 31, 1995, by $1.9 million and the aggregate of the service and
interest components of net periodic post-retirement benefit cost for 1995 by
$200,000.
Huntington has a contributory employee stock purchase plan available to
eligible employees. Employee contributions of up to 6% of eligible
compensation are matched 75% by Huntington. Huntington may also make
additional matching contributions up to an additional 25% of employee
contributions, at the discretion of the Board of Directors. Eligible employees
may contribute in excess of 6% up to an additional 10% on an after tax basis.
These additional contributions are not matched by Huntington. The cost of
providing this plan was $6.6 million in 1995, $8.2 million in 1994, and $6.7
million in 1993.
- --------------------------------------------------------------------------------
14. ACQUISITIONS
Huntington acquired Security National Corporation (Security), a $189
million one-bank holding company headquartered in Maitland, Florida on May 1,
1995, and Reliance Bank of Florida (Reliance), a $98 million bank headquartered
in Melbourne, Florida on May 16, 1995. Huntington issued approximately 3.5
million shares of common stock in exchange for all of the common stock of
Security and Reliance. Both transactions were accounted for as
pooling-of-interests; however, prior year financial statements have not been
restated due to immateriality. On July 16, 1995, Huntington acquired First
Seminole Bank, a $51 million bank headquartered in Lake Mary, Florida for cash
of $8.4 million in a transaction accounted for as a purchase.
In August 1995, Huntington signed a definitive merger agreement with Peoples
Bank of Lakeland (Peoples), a $534 million commercial bank headquartered in
Lakeland, Florida. The acquisition was completed on January 23, 1996, with
Huntington acquiring all of the common shares of Peoples in exchange for 4.7
million shares of Huntington common stock and cash of approximately $46.2
million. The transaction was accounted for as a purchase.
F-12
<PAGE> 82
- --------------------------------------------------------------------------------
15. INCOME TAXES
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal .............................. $102,709 $ 62,648 $151,204
State ................................ 4,556 3,904 6,087
-------- -------- --------
Total current ...................... 107,265 66,552 157,291
Deferred tax expense(benefit)
Federal .............................. 26,866 56,624 (29,107)
State ................................ (172) 705 (1,305)
-------- -------- --------
Total deferred ..................... 26,694 57,329 (30,412)
-------- -------- --------
Total provision for income taxes ..... $133,959 $123,881 $126,879
======== ======== ========
</TABLE>
Tax expense associated with securities transactions included in the above
amounts was $3.2 million in 1995, $908,000 in 1994, and $9.5 million in 1993.
The following is a reconcilement of income tax expense to the amount
computed at the statutory federal rate of 35%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income computed
at the statutory rate .............. $132,456 $128,266 $127,327
Increases (decreases):
Tax-exempt interest income ......... (4,180) (6,077) (8,236)
State income taxes ................. 2,849 2,996 3,109
Other-net .......................... 2,834 (1,304) 4,679
-------- -------- --------
Provision for income taxes ......... $133,959 $123,881 $126,879
======== ======== ========
</TABLE>
The significant components of Huntington's deferred tax assets and
liabilities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses ................ $ 59,472 $ 63,380
Allowance for other real estate losses ... 8,122 13,791
Securities ............................... -- 33,711
Pension and other employee benefits ...... 23,722 18,158
Other .................................... 11,471 11,806
-------- --------
Total deferred tax assets .............. 102,787 140,846
Deferred tax liabilities:
Financial instruments .................... 20,465 25,811
Lease financing .......................... 88,938 67,099
Premises and equipment ................... 8,795 7,790
Revalued liabilities-net ................. 4,678 7,779
Securities ............................... 22,061 --
Other .................................... 11,855 8,081
-------- --------
Total deferred tax liabilities ......... 156,792 116,560
-------- --------
Net deferred tax (liability) asset ..... $(54,005) $ 24,286
======== ========
</TABLE>
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) I Q II Q III Q IV Q
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Interest income ................ $342,397 $360,203 $377,859 $381,437
Interest expense ............... 166,188 180,313 191,281 199,551
-------- -------- -------- --------
Net interest income ............ 176,209 179,890 186,578 181,886
-------- -------- -------- --------
Provision for loan losses ...... 4,608 4,787 7,187 12,139
Securities gains ............... 60 6,379 2,315 302
Non-interest income ............ 58,895 53,491 58,889 68,059
Non-interest expense ........... 145,709 142,398 138,850 138,827
-------- -------- -------- --------
Income before income taxes...... 84,847 92,575 101,745 99,281
Provision for income taxes ..... 29,985 34,414 35,808 33,752
-------- -------- -------- --------
Net income ..................... $ 54,862 $ 58,161 $ 65,937 $ 65,529
======== ======== ======== ========
Net income per common share(1).. $.39 $.42 $.48 $.49
<CAPTION>
- -------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) I Q II Q III Q IV Q
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Interest income ................ $301,637 $297,485 $301,724 $318,875
Interest expense ............... 98,470 105,403 118,173 141,625
-------- -------- -------- --------
Net interest income ............ 203,167 192,082 183,551 177,250
-------- -------- -------- --------
Provision for loan losses ...... 8,464 3,219 1,113 2,488
Securities gains (losses) ...... 1,798 203 648 (55)
Non-interest income ............ 56,869 58,781 53,145 50,925
Non-interest expense ........... 151,439 147,195 151,356 146,616
-------- -------- -------- --------
Income before income taxes ..... 101,931 100,652 84,875 79,016
Provision for income taxes ..... 35,189 33,199 28,973 26,520
-------- -------- -------- --------
Net income ..................... $ 66,742 $ 67,453 $ 55,902 $ 52,496
======== ======== ======== ========
Net income per common share(1).. $.49 $.49 $.41 $.39
<FN>
(1) Restated for the five percent stock dividend distributed July 31, 1995.
- -------------------------------------------------------------------------------
</TABLE>
17. REGULATORY RESTRICTIONS
The bank subsidiaries of Huntington are required to maintain reserve
balances with the Federal Reserve Bank. During 1995, the average balances were
$132.5 million.
Payment of dividends to Huntington by its subsidiary banks is subject to
various regulatory restrictions. Regulatory approval is required prior to the
declaration of any dividends in excess of available retained earnings. For
national banks, the amount of dividends that may be declared without regulatory
approval is further limited to the sum of net income for that year and retained
net income for the preceding two years, less any required transfers to surplus.
Huntington's subsidiary banks could, without regulatory approval, declare
dividends in 1996 of approximately $193.9 million plus an additional amount
equal to their net income through the date of declaration.
The subsidiary banks are also restricted as to the amount and type of
loans they may make to Huntington. At December 31, 1995, the subsidiary banks
could lend to Huntington $179 million, subject to the qualifying collateral
requirements defined in the regulations.
F-13
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
18. NON-INTEREST INCOME
A summary of the components in non-interest income for the three years ended
December 31 follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands of dollars) 1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Service charges on deposit accounts ... $ 85,118 $ 76,836 $ 73,172
Mortgage banking ...................... 39,593 50,367 99,185
Trust services ........................ 30,377 28,448 27,948
Credit card fees ...................... 23,495 20,999 19,381
Investment product sales .............. 8,121 6,624 9,016
Securities gains ...................... 9,056 2,594 27,189
Other ................................. 52,630 36,446 37,474
---------- -------- --------
TOTAL NON-INTEREST INCOME .......... $ 248,390 $222,314 $293,365
========== ======== ========
</TABLE>
- ------------------------------------------------------------------------------
19. NON-INTEREST EXPENSE
A summary of the components in non-interest expense for the three years ended
December 31 follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands of dollars) 1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Salaries .............................. $ 220,168 $226,668 $226,405
Commissions ........................... 9,843 10,775 20,992
Employee benefits ..................... 57,790 58,158 55,259
Net occupancy ......................... 41,263 40,291 39,955
Equipment ............................. 38,271 38,792 37,230
FDIC insurance ....................... 15,056 25,271 25,322
Printing and supplies ................. 14,147 14,821 14,721
Credit card ........................... 13,407 13,493 11,835
Advertising ........................... 11,271 15,320 13,259
Legal and loan collection ............. 8,643 8,298 11,361
Other ................................. 135,925 144,719 190,141
---------- -------- --------
TOTAL NON-INTEREST EXPENSE ......... $ 565,784 $596,606 $646,480
========== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
F-14
<PAGE> 84
- -------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington's financial
instruments are presented below. Certain assets, the most significant being
premises and equipment, do not meet the definition of a financial instrument
and are excluded from this disclosure. Similarly, mortgage servicing rights
and deposit base and other customer relationship intangibles are not considered
financial instruments and are not discussed below. Accordingly, this fair
value information is not intended to, and does not, represent Huntington's
underlying value. Many of the assets and liabilities subject to the disclosure
requirements are not actively traded, requiring fair values to be estimated by
management. These estimations necessarily involve the use of judgment about a
wide variety of factors, including but not limited to, relevancy of market
prices of comparable instruments, expected future cash flows, and appropriate
discount rates.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
- ----------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- ----------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term assets . . . $ 1,342,882 $ 1,342,882
Trading account securities. . . . 12,924 12,924
Mortgages held for sale . . . . 159,705 159,705
Securities . . . . . . . . . . . 4,780,281 4,781,873
Loans . . . . . . . . . . . . . 13,067,211 13,096,826
Customers' acceptance liability . 56,926 56,926
Interest rate contracts:
Asset/liability management . . 11,261 44,465
Customer accommodation . . . . 1,188 1,188
FINANCIAL LIABILITIES:
Deposits . . . . . . . . . . . . (12,636,582) (12,672,505)
Short-term borrowings . . . . . (3,514,773) (3,514,773)
Bank acceptances outstanding. . . (56,926) (56,926)
Long-term debt . . . . . . . . . (2,103,024) (2,132,567)
Interest rate contracts:
Asset/liability management . . -- (33,571)
Customer accommodation . . . . (970) (970)
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
AT DECEMBER 31, 1994
- ----------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- ----------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term assets. . . . $ 893,715 $ 893,715
Trading account securities. . . . 9,427 9,427
Mortgages held for sale . . . . . 138,997 138,997
Securities . . . . . . . . . . . 3,782,742 3,781,197
Loans . . . . . . . . . . . . . 12,063,944 11,855,952
Customers' acceptance liability . 53,883 53,883
Interest rate contracts:
Asset/liability management . . 4,768 38,029
Customer accommodation . . . . 12,643 12,643
FINANCIAL LIABILITIES:
Deposits . . . . . . . . . . . . (11,965,067) (11,925,464)
Short-term borrowings . . . . . (2,898,201) (2,898,201)
Bank acceptances outstanding. . . (53,883) (53,883)
Long-term debt . . . . . . . . . (1,214,052) (1,183,634)
Interest rate contracts:
Asset/liability management. . . -- (300,729)
Customer accommodation . . . . (12,351) (12,351)
</TABLE>
The terms and short-term nature of certain assets and liabilities
result in their carrying value approximating fair value. These include cash
and due from banks, interest bearing deposits in banks, trading account
securities, federal funds sold and securities purchased under resale
agreements, customers' acceptance liabilities, short-term borrowings, and bank
acceptances outstanding. Loan commitments and letters of credit generally have
short-term, variable rate features and contain clauses which limit Huntington's
exposure to changes in customer credit quality. Accordingly, their carrying
values, which are immaterial at the respective balance sheet dates, are
reasonable estimates of fair value. The following methods and assumptions were
used by Huntington to estimate the fair value of the remaining classes of
financial instruments:
Mortgages held for sale are valued at the lower of aggregate cost or market
value primarily as determined using outstanding commitments from investors.
Accordingly, the carrying amount of mortgages held for sale approximates
fair value.
Fair values of securities available for sale and investment securities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments. The carrying amount and fair value of securities exclude the
fair value of asset/liability management interet rate contracts designated
as hedges of securities available for sale.
For variable rate loans that reprice frequently, fair values are based
on carrying amounts, as adjusted for estimated credit losses. The fair
values for other loans are estimated using discounted cash flow analyses and
employ interest rates currently being offered for loans with similar terms.
The rates take into account the position of the yield curve, as well as an
adjustment for prepayment risk, operating costs, and profit. This value is
also reduced by an estimate of losses inherent in the loan portfolio.
Although not considered financial instruments, lease financing receivables
have been included in the loan totals at their carrying amounts.
The fair values of demand deposits, savings accounts, and money
market deposits are, by definition, equal to the amount payable
on demand. The fair values of fixed rate time deposits are
estimated by discounting cash flows using interest rates currently being
offered on certificates with similar maturities.
The fair values of Huntington's fixed rate long-term debt are based upon
quoted market prices or, in the absence of quoted market prices, discounted
cash flows using rates for similar debt with the same maturities. The
carrying amount of variable rate notes approximates fair value.
The fair values of interest rate swap agreements and other off-balance sheet
interest rate contracts are based upon quoted market prices or prices of
similar instruments, when available, or calculated with pricing models
using current rate assumptions.
F-15
<PAGE> 85
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
21. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (in thousands of dollars) December 31, 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,020 $ 69,767
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,999 6,424
Due from non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,467 102,751
Investment in subsidiaries on the equity method
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,629,910 1,426,888
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,377 48,195
Excess of cost of investment in subsidiaries over net assets acquired . . . . . . . . 23,926 25,159
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,994 15,760
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,952,693 $ 1,694,944
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000 $ 25,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,121 198,994
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,881 25,908
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . 82,826 33,222
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433,828 283,124
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,518,865 1,411,820
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . $ 1,952,693 $ 1,694,944
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (in thousands of dollars) YEAR ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $209,201 $167,729 $127,414
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,730 5,245 5,356
Interest from
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,753 2,876 3,759
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,252 2,601 6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 407 824
-------- -------- --------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,747 178,858 137,359
-------- -------- --------
EXPENSE
Interest on borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,298 15,056 13,292
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,182 12,075 15,303
-------- -------- --------
TOTAL EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,480 27,131 28,595
-------- -------- --------
Income before income taxes and equity in undistributed net income of subsidiaries . . 198,267 151,727 108,764
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,936) (8,007) (8,324)
-------- -------- --------
Income before equity in undistributed net income of subsidiaries . . . . . . . . . . 206,203 159,734 117,088
-------- -------- --------
Equity in undistributed net income of
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,638 80,004 117,177
Non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,648 2,855 2,647
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $244,489 $242,593 $236,912
======== ======== ========
</TABLE>
F-16
<PAGE> 86
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (in thousands of dollars) YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries . . . . . . . . . . . . . . . . (38,286) (82,859) (119,824)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,707 4,974 2,400
(Gains) losses on sales of securities . . . . . . . . . . . . . . . . . . . . . . . (20) 25 21
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,990) (4,951) (5,400)
(Decrease) increase in other liabilities . . . . . . . . . . . . . . . . . . . . . (10,284) 295 (2,372)
---------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . 189,616 160,077 111,737
---------- --------- --------
INVESTING ACTIVITIES
Proceeds from sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . 431 173 329
Repayments from (advances to) subsidiaries . . . . . . . . . . . . . . . . . . . . . 20,789 (94,968) 94,485
Acquisitions and additional capitalization of subsidiaries . . . . . . . . . . . . . (9,697) (10) (31,944)
---------- --------- --------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES . . . . . . . . . . . . . . . 11,523 (94,805) 62,870
---------- --------- --------
FINANCING ACTIVITIES
Increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 25,000 --
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . 95,000 50,000 --
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,000) (23,184) (100,246)
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,520) (87,545) (61,892)
Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,645) (73,634) (36,795)
Proceeds from issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . 37,279 39,896 22,594
---------- --------- --------
NET CASH USED FOR FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . (172,886) (69,467) (176,339)
---------- --------- --------
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . 28,253 (4,195) (1,732)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . 69,767 73,962 75,694
---------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . $ 98,020 $ 69,767 $ 73,962
========== ========= ========
</TABLE>
F-17
<PAGE> 87
<TABLE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Table 1
- ------------------------------------------------------------------------------------------------------------------------------
Consolidated Selected Financial Data Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per
share amounts) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Total interest income . . $ 1,461,896 $ 1,219,721 $ 1,236,311 $ 1,202,286 $ 1,208,407 $ 1,266,770
Total interest expense . 737,333 463,671 440,111 504,846 659,918 780,759
Net interest income . . . 724,563 756,050 796,200 697,440 548,489 486,011
Securities gains . . . . 9,056 2,594 27,189 36,332 16,951 579
Provision for loan losses 28,721 15,284 79,294 81,562 62,061 76,434
Net income . . . . . . . 244,489 242,593 236,912 161,046 133,940 99,765
Per Common Share(1)
Net income . . . . . . . 1.78 1.78 1.76 1.21 1.01 .75
Cash dividends declared . .78 .68 .56 .48 .44 .39
Book value at year-end . 11.42 10.32 9.72 8.45 7.71 7.08
Balance Sheet Highlights
Total assets at year-end 20,254,598 17,770,640 17,618,707 16,246,526 14,500,477 13,671,182
Total long-term debt at year-end 2,103,024 1,214,052 762,310 478,872 261,168 206,578
Average long-term debt . 1,423,537 927,797 640,976 299,905 218,645 200,939
Average shareholders' equity 1,502,911 1,403,314 1,216,470 1,074,159 977,073 917,474
Average total assets . . $19,047,912 $16,749,850 $16,850,719 $15,165,151 $13,612,543 $13,489,939
- ------------------------------------------------------------------------------------------------------------------------------
Key Ratios and Statistics 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Margin Analysis As a %
of average earning assets(2)
Interest income . . . . . 8.34% 7.97% 8.03% 8.75% 9.85% 10.51%
Interest expense . . . . 4.19 3.01 2.83 3.63 5.30 6.37
----- ----- ----- ----- ----- -----
Net interest margin . . . 4.15% 4.96% 5.20% 5.12% 4.55% 4.14%
===== ===== ===== ===== ===== =====
Return on
Average total assets . . 1.28% 1.45% 1.41% 1.06% .98% .74%
Average earning assets . 1.39 1.57 1.53 1.16 1.08 .81
Average shareholders' equity 16.27 17.29 19.48 14.99 13.71 10.87
Dividend payout ratio . . . 43.82 38.50 32.47 38.99 42.86 51.52
Average shareholders' equity to
average total assets . . 7.89 8.38 7.22 7.08 7.18 6.80
Tier I risk-based capital ratio 8.39 9.55 9.60 9.39 9.07 8.68
Total risk-based capital ratio 12.03 13.57 14.02 12.56 11.27 11.19
Tier I leverage ratio . . . 6.87% 7.99% 7.03% 6.72% 7.00% 6.54%
- ------------------------------------------------------------------------------------------------------------------------------
Other Data 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Full-time equivalent employees 7,551 8,153 8,395 8,039 7,562 7,074
Banking offices . . . . . . 322 344 352 346 334 318
<FN>
(1)Restated for the five percent stock dividend distributed July 31, 1995.
(2)Presented on a fully tax equivalent basis assuming a 35% tax rate in years
1993 through 1995 and a 34% tax rate in years 1990 through 1992.
</TABLE>
F-18
<PAGE> 88
OVERVIEW
Huntington Bancshares Incorporated (Huntington) reported earnings of
$244.5 million in 1995, compared with $242.6 million and $236.9 million in 1994
and 1993, respectively. On a per share basis, net income was $1.78 in both
1995 and 1994 versus $1.76 in 1993. Per share amounts for all prior periods
have been restated to reflect the five percent stock dividend distributed to
shareholders in July 1995.
Huntington's returns on average assets (ROA) and average equity (ROE)
during 1995 were 1.28% and 16.27%. In the prior two years, ROA was 1.45% and
1.41%, and ROE was 17.29% and 19.48%.
Total assets were $20.3 billion at December 31, 1995, up 14% from the
end of last year due to strong loan volumes and a larger investment securities
portfolio. Loan growth was achieved in all major categories, with the
commercial and consumer components each contributing significantly to the
increased outstandings. Securities available for sale were higher as a result
of programs directed by Huntington's Asset/Liability Management Committee (ALCO)
to neutralize the interest rate risk exposure arising from customer-driven
business sectors.
Total deposits grew 5.6% from one year ago to $12.6 billion, due largely
to bank acquisitions consummated during 1995 and an increase in certificates of
deposit of $100,000 or more. The mix of deposits also changed, as retail
customers shifted their investment preferences, opting for the higher yields
available through certificates of deposit. As more fully discussed in the
"Liquidity Management" section, core deposits represent the company's most
significant source of funding. When combined with other core funding sources,
they continue to provide approximately 70% of Huntington's funding needs.
Huntington's short-term and long-term borrowings were also up from December 31,
1994, as a result of increased purchases of federal funds and the issuance of
additional medium-term notes.
Shareholders' equity was $1.5 billion at the most recent year end, an
increase of 7.6% over the last twelve months. Huntington's regulatory capital
ratios, including those of its bank subsidiaries, exceeded the levels
established for well-capitalized institutions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Table 2
- --------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income Due to Changes in Average Volume and Interest Rates(1)
- --------------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis(2) 1995 1994
---------------------------------- ----------------------------------
(in millions of dollars) Increase (Decrease) Increase (Decrease)
From Previous From Previous
Year Due To: Year Due To:
---------------------------------- ----------------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in banks $ 1.1 $ (.1) $ 1.0 $ (1.3) $ .4 $ (.9)
Trading account securities . . . . .6 .2 .8 .2 .2 .4
Federal funds sold and securities
purchased under resale agreements (3.8) 1.8 (2.0) 1.5 .9 2.4
Mortgages held for sale . . . . . . (17.8) 1.7 (16.1) (32.5) (1.8) (34.3)
Taxable securities . . . . . . . . 64.2 18.7 82.9 (69.9) 13.7 (56.2)
Tax-exempt securities . . . . . . . (6.8) (1.0) (7.8) (7.6) (1.0) (8.6)
Total loans . . . . . . . . . . . . 136.8 43.8 180.6 119.1 (40.7) 78.4
------ ------ ------ ------ ------ ------
Total earning assets . . . . . 174.3 65.1 239.4 9.5 (28.3) (18.8)
------ ------ ------ ------ ------ ------
Interest bearing demand deposits . (4.0) 6.3 2.3 1.2 (5.0) (3.8)
Savings deposits . . . . . . . . . (5.3) 12.7 7.4 1.3 (9.8) (8.5)
Certificates of deposit of $100,000 or more 10.2 11.3 21.5 (9.1) 3.6 (5.5)
Other domestic time deposits . . . 41.1 53.7 94.8 (2.1) (.1) (2.2)
Foreign time deposits . . . . . . . (1.1) 5.9 4.8 (6.5) 3.6 (2.9)
Short-term borrowings . . . . . . . 41.9 63.5 105.4 (6.5) 23.8 17.3
Long-term debt . . . . . . . . . . 34.8 2.6 37.4 17.6 11.6 29.2
------ ------ ------ ------ ------ ------
Total interest bearing liabilities 117.6 156.0 273.6 (4.1) 27.7 23.6
------ ------ ------ ------ ------ ------
Net Interest Income . . . . . . $ 56.7 $ (90.9) $ (34.2) $ 13.6 $ (56.0) $ (42.4)
====== ====== ====== ====== ====== ======
<FN>
(1) The change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship
of the absolute dollar amounts of the change in each.
(2) Calculated assuming a 35% tax rate.
</TABLE>
F-19
<PAGE> 89
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Table 3
- -----------------------------------------------------------------------------------------------------------------------
Summary of Allowance for Loan Losses and Selected Statistics
- -----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR $200,492 $211,835 $153,654 $134,770 $123,622 $ 91,039
LOAN LOSSES
Commercial . . . . . . . . . . . . . . (12,084) (10,404) (20,289) (26,634) (26,610) (17,524)
Real estate
Construction . . . . . . . . . . . (391) (5,957) (422) (14,001) (34) (850)
Mortgage . . . . . . . . . . . . . (4,490) (5,428) (2,060) (6,665) (6,859) (8,115)
Consumer . . . . . . . . . . . . . . . (34,360) (23,356) (21,492) (25,621) (28,773) (26,276)
Lease financing . . . . . . . . . . . (4,243) (977) (1,329) (2,734) (1,338) (1,255)
-------- -------- -------- -------- -------- --------
Total loan losses . . . . . . . . . . (55,568) (46,122) (45,592) (75,655) (63,614) (54,020)
-------- -------- -------- -------- -------- --------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial . . . . . . . . . . . . . . 3,284 7,724 3,564 3,607 2,589 3,527
Real estate
Construction . . . . . . . . . . . 5 1 1 - 400 -
Mortgage . . . . . . . . . . . . . 653 506 352 120 736 179
Consumer . . . . . . . . . . . . . . . 9,727 9,503 9,058 8,313 6,781 6,229
Lease financing . . . . . . . . . . . 315 368 263 424 230 197
-------- -------- -------- -------- -------- --------
Total recoveries of loans previously
charged off 13,984 18,102 13,238 12,464 10,736 10,132
-------- -------- -------- -------- -------- --------
NET LOAN LOSSES . . . . . . . . . . . . (41,584) (28,020) (32,354) (63,191) (52,878) (43,888)
-------- -------- -------- -------- -------- --------
PROVISION FOR LOAN LOSSES . . . . . . . 28,721 15,284 79,294 81,562 62,061 76,434
ALLOWANCE OF ASSETS ACQUIRED/OTHER . . 6,827 1,393 11,241 513 1,965 37
-------- -------- -------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR . $194,456 $200,492 $211,835 $153,654 $ 134,770 $ 123,622
======== ======== ======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses . . . . . . . . . . .32% .24% .32% .69% .61% .52 %
Provision for loan losses .22% .13% .78% .89% .72% .91%
Allowance for loan losses as a %
of total loans (end of period) . . . 1.47% 1.63% 1.93% 1.61% 1.52% 1.42 %
Net loan loss coverage (1) . . . . . . 9.79x 13.62x 13.69x 4.98x 4.77x 4.82x
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Income before income taxes and the provision for loan losses to net loan
losses.
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $724.6 million in 1995, compared
with $756.1 million and $796.2 million, respectively, in 1994 and 1993. The
net interest margin, on a fully tax equivalent basis, was 4.15% during the most
recent twelve months, a decrease from 4.96% in 1994 and 5.20% in 1993. The
reduced net interest income and lower margin were the result of narrowed
spreads. As illustrated in the table of "Consolidated Average Balances and
Interest Rates" on pages 24 and 25, Huntington's funding costs increased more
rapidly than the yields on earning assets. Competitive factors that influenced
the pricing of new loans and actions taken during 1994 to reduce earnings
sensitivity to rising rates also exerted downward pressure on the margin. The
larger investment securities portfolio in the second half of 1995 produced
additional net interest income for the company but, as anticipated by
management, caused further margin compression over the final six months of the
year. On the liability side, the mix of deposits shifted from non- and
lower-interest bearing accounts to certificates of deposit and other more
expensive liabilities as customers continued to seek higher yielding products.
Similar to what was experienced in 1995, net interest income and the margin in
1994 were lower than 1993, primarily because of the significant increase in
short-term interest rates during that period (250 basis point increase in the
federal funds rate).
For the year ended December 31, 1995, interest rate swaps and other
off-balance sheet financial instruments used for asset/liability management
purposes reduced interest income by $32.8 million and increased interest
expense by $23.0 million. These products
F-20
<PAGE> 90
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 4
- ----------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial . . . . $ 104,783 31.6% $ 120,582 29.8% $ 137,756 32.1% $ 90,711 33.5% $ 69,988 33.3%
Real estate
Construction . . 1,342 2.8 908 2.5 1,636 3.1 1,329 4.0 6,672 4.9
Mortgage . . . . 14,091 20.8 16,677 24.5 18,008 24.5 12,274 23.7 10,545 23.6
Consumer . . . . . 34,944 38.4 28,672 37.9 24,901 35.9 23,604 34.9 23,836 34.6
Lease financing . . 3,977 6.4 2,972 5.3 2,107 4.4 1,943 3.9 1,565 3.6
Unallocated . . . . 35,319 - 30,681 - 27,427 - 23,793 - 22,164 -
--------- ----- -------- ----- --------- ----- --------- ----- ---------- -----
Total . . . . . $ 194,456 100.0% $ 200,492 100.0% $ 211,835 100.0% $ 153,654 100.0% $ 134,770 100.0%
========= ===== ======== ===== ========= ===== ========= ===== ========== =====
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
increased interest income by $29.0 million and $61.0 million and decreased
interest expense by $5.6 million and $30.0 million in 1994 and 1993,
respectively. Included in the preceding amounts is amortization of deferred
gains and losses from terminated contracts, that decreased net interest income
by $28.6 million in 1995, and increased net interest income by $21.6 million in
1994 and $12.2 million in 1993. Expressed in terms of the margin, the effect
of the off-balance sheet portfolio was a reduction of 32 basis points in the
most recent twelve months, approximately 17 basis points of which related to
amortization of net losses from closed positions. A swap strategy initiated by
Huntington in late 1994 to create synthetic fixed rate wholesale liabilities,
while lowering 1995 funding costs from what would have resulted from a
comparable cash instrument, resulted in the majority of the remaining margin
reduction attributable to the off-balance sheet portfolio. In the two
preceding years, swaps and other interest rate contracts contributed 22 basis
points and 59 basis points, respectively, to the margin.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $28.7 million in 1995, $15.3 million in
1994, and $79.3 million in 1993. The increase from 1994 to 1995 was largely a
function of loan growth. Although higher in the second half versus the first
six months of the year, net charge-offs as a percent of average total loans
were only .32% for all of 1995. The lower provision in 1994, compared with
the immediately preceding year, was related to the low level of net loan losses
and the significant reduction in non-performing loans. Net charge-offs as a
percentage of average total loans were .24% in 1994 and .32% in 1993.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of losses inherent in the
loan portfolio. The procedures employed by Huntington in evaluating the
adequacy of the ALL include an analysis of specific credits that are generally
selected for review on the basis of size and relative risk, portfolio trends,
current and historical loss experience, prevailing economic conditions, and
other relevant factors. For analytical purposes, the ALL has been allocated to
various portfolio segments. However, the total ALL is available to absorb
losses from any segment of the portfolio. The methods used by Huntington to
allocate the ALL are also subject to change; accordingly, the December 31,
1995, allocation is not necessarily indicative of the trend of future loan
losses in any particular loan category.
At the most recent year end, the ALL of $194.5 million represented 1.47% of
total loans and covered 353.76% of non-performing loans; when combined with the
allowance for other real estate, it was 238.65% of total non-performing
assets. Additional information regarding the ALL and asset quality appears in
the section "CREDIT RISK".
NON-INTEREST INCOME
Non-interest income was $248.4 million in 1995, an increase of $26.1
million, or 11.7%, over the previous twelve months. The 1994 total of $222.3
million was $71.1 million, or 24.2%, lower than the corresponding amount for
1993 of $293.4 million. Excluding securities transactions, the respective
amounts were $239.3 million, $219.7 million, and $266.2 million. Huntington
achieved broad-based growth in non-interest income during the year just ended,
with all categories but mortgage banking income showing improvement.
Similarly, the decrease in non-interest income from 1993 to 1994 was largely
attributable to a significant downturn in mortgage banking operations.
F-21
<PAGE> 91
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The major components of mortgage banking income were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net servicing fees $15,233 $21,586 $15,105
Fee income 4,871 13,428 38,639
Gain on sale of
servicing rights 6,405 11,583 31,765
Other income 13,084 3,770 13,676
------- ------- -------
Total $39,593 $50,367 $99,185
======= ======= =======
</TABLE>
Net servicing fees declined in 1995 due to a reduction in the average volume
and a change in the mix of loans serviced by Huntington during the year. The
decreased fee income was the result of a drop in mortgage loan production from
$2.2 billion in 1994 to $1.2 billion in the year just ended. Gains from
servicing sales were also lower, as Huntington only sold $1.1 billion of
servicing rights in 1995, compared with $2.2 billion in the prior year. At the
end of 1995, mortgage loans serviced by Huntington totaled $5.8 billion.
Other mortgage banking income was up from 1994 largely because of the
adoption of Financial Accounting Standards Board Statement No. 122, "Accounting
for Mortgage Servicing Rights" (FAS 122) in the third quarter of 1995. The
increased income from FAS 122 implementation relates primarily to 1995 sales of
retail loan production for which the retained servicing rights were
capitalized.
Although mortgage banking income reflected a year-to-year decline, cost
reductions from Huntington's restructuring initiatives enabled The Huntington
Mortgage Company to post a profit of $3.6 million in 1995 versus a loss of
$11.2 million in 1994. (See further discussion in the following section titled
"Non-Interest Expense").
Huntington realized gains from securities transactions of $9.1 million in
1995, $2.6 million in 1994, and $27.2 million in 1993. These gains resulted
principally from specific ALCO programs in each of the years. The majority of
the 1995 gains related to sales of short-term government securities, the
proceeds from which were reinvested in securities of moderately longer
duration. The 1994 activity was undertaken to sell certain fixed rate
securities in anticipation of increased market interest rates, while the more
significant sales of 1993 were the result of a program to change the earning
asset mix, by deploying proceeds from securities sales into loans.
Other non-interest income was up significantly in 1995 primarily because
of an $8.9 million gain on the sale of the company's Pennsylvania bank, higher
trading account profits, and volume-driven increases related to various
fee-based activities.
NON-INTEREST EXPENSE
The company's non-interest expenses declined in every quarter of 1995 and
were down $30.8 million, or 5.2%, from last year and $80.7 million,
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TABLE 5
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and Federal Agencies . . . . . . . . . . . . . . . $ 156 $317,713 $ 94,466
States and political subdivisions . . . . . . . . . . . . . . . . 67,448 153,649 232,721
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,330 32,158
-------- -------- --------
Total Investment Securities . . . . . . . . . . . . . . . . . $ 67,604 $475,692 $359,345
======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1995
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
1 - 5 years . . . . . . . . . . . . . . . . . . . . . . . . . $ 156 $ 156 7.75%
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 156
-------- --------
States and political subdivisions
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 27,340 27,592 9.63
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 23,637 24,496 9.25
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 12,638 13,040 7.73
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . 3,833 3,912 9.17
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,448 69,040
-------- --------
Total Investment Securities . . . . . . . . . . . . . . . . . . $ 67,604 $ 69,196
======== ========
</TABLE>
(1)Weighted average yields were calculated on the basis of amortized cost and
have been adjusted to a fully tax equivalent basis, assuming a 35% tax rate.
At December 31, 1995, Huntington had no concentrations of securities by a
single issuer in excess of 10% of shareholders' equity.
F-22
<PAGE> 92
or 12.5%, from 1993.
The drop in expenses for 1995 was primarily attributable to initiatives
begun in the preceding year to reduce operating costs through the restructuring
of certain business activities. The resulting decrease in full-time equivalent
employees contributed to a $7.8 million, or 2.6%, decline in salaries,
commissions, and benefits. These initiatives also gave rise to substantial
reductions in various components of other non-interest expense, particularly at
The Huntington Mortgage Company.
In September of the recent year, the FDIC lowered its assessment rates on
deposits insured by the Bank Insurance Fund (BIF) from 23 basis points to 4
basis points retroactive to June 1, 1995. In December, the FDIC further
lowered BIF assessment rates to zero, effective January 1, 1996. Currently,
the FDIC assessment on SAIF deposits remains at 23 basis points.
Non-interest expenses decreased
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
TABLE 6
- --------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and Federal Agencies . . . . . . . . . . . . . . . $4,228,170 $3,006,277 $3,691,190
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,974 298,216 148,874
---------- ---------- ----------
Total Securities Available for Sale . . . . . . . . . . . . . $4,721,144 $3,304,493 $3,840,064
========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Amortized cost and fair values by maturity at December 31, 1995
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . $ 176,502 $ 178,264 6.55%
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 228,234 231,018 6.10
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 162,352 160,596 5.46
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,088 569,878
---------- -----------
Federal Agencies
Mortgage-backed securities
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 1,097 1,124 8.08
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 110,192 114,723 7.60
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 712,804 724,317 6.99
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . . 58,762 60,695 7.80
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 882,855 900,859
---------- -----------
Other agencies
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 53,912 54,499 7.04
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 1,928,431 1,953,446 6.75
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 234,393 234,920 6.19
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . 509,735 514,568 6.54
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,726,471 2,757,433
---------- -----------
Total U.S. Treasury and Federal Agencies . . . . . . . . . . . . 4,176,414 4,228,170
---------- -----------
Other
Under 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 6,818 6,826 5.99
1-5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 22,352 23,578 7.33
6-10 years . . . . . . . . . . . . . . . . . . . . . . . . . . 230,651 240,965 6.41
Over 10 years . . . . . . . . . . . . . . . . . . . . . . . . 212,950 214,605 6.68
Marketable equity securities . . . . . . . . . . . . . . . . . 8,359 7,000 5.57
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,130 492,974
---------- -----------
Total Securities Available for Sale . . . . . . . . . . . . . . . $4,657,544 $ 4,721,144
========== ===========
</TABLE>
(1)Weighted average yields were calculated on the basis of amortized cost.
At December 31, 1995, Huntington had no concentrations of securities by a
single issuer in excess of 10% of shareholders' equity.
F-23
<PAGE> 93
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
from 1993 to 1994 mostly due to a sharp decline in amortization of purchased
mortgage servicing rights, as the unsurpassed levels of mortgage refinancings
experienced by Huntington in 1993 resulted in a significant acceleration of
expense. Reduced mortgage activity in 1994 also resulted in lower commission
expense during that period.
PROVISION FOR INCOME TAXES
The provision for income taxes was $134.0 million in 1995, compared with
$123.9 million in 1994 and $126.9 million in 1993. Huntington's effective tax
rate increased during the most recent twelve months as a result of a $2.1
million charge recorded in connection with the conversion of an existing thrift
to a bank charter, lower nontaxable interest income, and various nondeductible
expenses associated with bank acquisitions. The effective tax rate in 1994 was
down slightly from the immediately preceding year principally because of a $4.0
million charge in 1993 related to an acquired thrift.
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. ALCO
oversees risk management, establishing broad policies and specific operating
limits that govern a variety of risks inherent in Huntington's operations
including interest rate, liquidity, and market risks. On and off-balance sheet
strategies and tactical programs are reviewed and monitored regularly by ALCO
to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing both the
business flows onto the balance sheet and the changing market and business
environment. Effective management of interest rate risk begins with
appropriately diversified financial instruments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly utilizes
a multiple of markets: money market, bond market, and futures and options
market. In addition, dealers in over-the-counter financial instruments provide
availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process. A
key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. Management reporting of this information
is regularly shared with the Board of Directors.
At December 31, 1995, the results of Huntington's internal interest
sensitivity analysis indicated that a 100 basis points increase or decrease in
the federal funds rate (assuming the change occurs evenly over the next year
and that corresponding changes in other market rates occur as forecasted) would
be expected to reduce net interest income by less than 1%. A similar decline
is anticipated if rates were to fall 200 basis points. A 200 basis points
increase in rates could result in a decrease in net interest income of up to
1.7%.
Active interest rate risk management includes the use of various types of
off-balance sheet financial instruments, primarily interest rate swaps. These
are used to reduce risk in a variety of ways. For example, risk created by
different indices on assets and liabilities, by unequal terms to maturity of
assets and liabilities and by products that are appealing to customers but
incompatible with current risk limits are but a few risks that can be
eliminated or decreased in a cost efficient manner. The swap strategy has also
enabled Huntington to lower the costs of raising wholesale funds.
Other off-balance sheet instruments used to control risk effectively include
financial futures, interest rate caps and floors, options, and forward rate
agreements. These instruments are used regularly in mortgage banking,
securities investing, and wholesale funding. The use of these products versus
similar cash instruments is often preferable because, though they perform
financially quite similarly, they may require less capital and preserve access
to the marketplace for future needs.
Table 7 illustrates the approximate market values, estimated maturities, and
weighted average rates of the interest rate swaps used by Huntington in its
interest rate risk management program. The valuation of interest rate swap
contracts is largely a function of the financial market's expectations
regarding the future direction of interest rates. At December 31, 1995, the
marketplace anticipated flat to slightly lower short-term rates versus
expectations at the end of 1994 for significantly higher rates. Consequently,
the interest rate swap portfolio experienced substantial appreciation during
1995 and closed the year at a net unrealized gain of $10.9 million. Current
market values are not necessarily indicative of the future impact of the swaps
on net interest income. This will depend, in large part, on the shape of the
yield curve as well as interest rate levels. For purposes of the variable rate
information and the indexed amortizing swap maturities presented in the table
below, management made no assumptions with respect to future changes in
interest rates.
The pay rates on Huntington's receive fixed swaps vary based on movements in
the applicable London inter-bank offered rate (LIBOR). Receive fixed liability
conversion swaps with a notional value of $150 million
F-24
<PAGE> 94
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TABLE 7
- -----------------------------------------------------------------------------
INTEREST RATE SWAP PORTFOLIO
- -----------------------------------------------------------------------------
(in millions of dollars) December 31, 1995
- -----------------------------------------------------------------------------
Average
Notional Maturity Market Average Rate
Value (years) Value Receive Pay
----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C>
ASSET CONVERSION SWAPS
Receive fixed $ 809 1.39 $ 2.6 5.67% 5.92%
Receive fixed-amortizing 306 2.73 (.5) 5.81 5.67
------ -------
Total asset conversion swaps $1,115 1.76 $ 2.1 5.71% 5.85%
====== =======
LIABILITY CONVERSION SWAPS
Receive fixed $ 851 3.74 $ 33.6 6.33% 5.68%
Receive fixed-amortizing 208 3.33 (2.5) 5.59 5.75
Pay fixed 2,083 .64 (20.9 ) 5.85 7.04
------ -------
TOTAL LIABILITY CONVERSION SWAPS $3,142 1.66 $ 10.2 5.96% 6.59%
====== =======
BASIS PROTECTION SWAPS $ 250 3.20 $ (1.4) 5.77% 5.87%
====== =======
</TABLE>
have embedded written LIBOR-based caps. Also, receive fixed liability
conversion swaps with a notional value of $150 million and receive fixed asset
conversion swaps with a notional value of $200 million have embedded written
LIBOR-based call options. The portfolio of amortizing swaps consists of
contracts with notional values that are indexed to the prepayment experience of
a specified pool of mortgage loans, LIBOR, or Constant Maturity U.S. Treasury
yields (CMT). As market interest rates change, the amortization of the
notional values will also change, generally slowing as rates increase and
accelerating when rates fall. Basis swaps are contracts which provide for both
parties to receive floating rates of interest according to different indices
and are used to protect against changes in spreads. All receive and pay
amounts applicable to Huntington's basis swaps are determined by LIBOR, the
prime rate, or other indices common to the banking industry. The basis swaps
also have embedded written periodic caps.
The notional values of the swap portfolio represent contractually determined
amounts on which calculations of interest payments to be exchanged are based.
These notional values do not represent direct credit exposures. At December
31, 1995, Huntington's credit risk from interest rate swaps used for
asset/liability management purposes was $62.5 million, which is significantly
less than the notional value of the contracts, and represents the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. In order to
minimize the risk that a swap counterparty will not satisfy its interest
payment obligation under the terms of the contract, Huntington performs credit
reviews on all counterparties, restricts the number of counterparties used to a
select group of high quality institutions, obtains collateral, and enters into
formal netting arrangements. Huntington has never experienced any past due
amounts from a swap counterparty and does not anticipate non-performance in the
future by any such counterparties.
Terminations reflect the decisions made by ALCO to modify, refine, or change
balance sheet management strategies, as a result of either a change in overall
interest rate risk tolerances or changes in balance sheet composition. At
December 31, 1995, Huntington had deferred approximately $36.5 million of net
realized losses from terminated interest rate swaps, which are to be amortized
as yield adjustments over the remaining term of the original contracts, as
presented in Table 9.
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 $453 million at December 31, 1995. Total
credit exposure from such contracts, represented by those instruments with a
positive fair value, was $1.1 million at the most recent year end. These
separate activities, which are accounted for at fair value, are not a
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Table 8
- -------------------------------------------------------------------------------
Interest Rate Swap Activity - Notional Values
- -------------------------------------------------------------------------------
(in millions)
- -------------------------------------------------------------------------------
Asset Liability Basis
Conversion Conversion Protection
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1994 $2,281 $1,821 $ 2,800
Additions 1,063 2,079 350
Maturities/Amortization (236) (568) (100)
Terminations (600) -- (2,050)
------- ------ --------
Balance at December 31, 1994 2,508 3,332 1,000
------- ------ --------
Additions -- 1,140 --
Maturities/Amortization (198) (996) (750)
Terminations (1,195) (334) --
------- ------ --------
Balance at December 31, 1995 $1,115 $3,142 $ 250
======= ====== ========
</TABLE>
F-25
<PAGE> 95
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
TABLE 9
- ---------------------------------------------------------------------------------
INTEREST RATE SWAPS - DEFERRED GAINS AND LOSSES
- ---------------------------------------------------------------------------------
(in millions) Amortizing In
- ---------------------------------------------------------------------------------
1996 1997 1998 1999 Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995:
Deferred gains $ 15.0 $ 8.3 $ 7.0 $5.7 $ 36.0
Deferred losses (51.4) (19.4) (1.3) (.4) (72.5)
------- ------- ----- ---- -------
Net (losses) gains $(36.4) $(11.1) $ 5.7 $5.3 $(36.5)
======= ======= ===== ==== =======
</TABLE>
significant part of Huntington's operations. Accordingly, they have been
excluded from the above discussion of off-balance sheet financial instruments
and the related tables.
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The goal
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 extensive network of geographically dispersed banking
offices. Retail deposits and other core funding sources provided approximately
70% or more of all funding needs in both 1995 and 1994. This core funding is
supplemented by Huntington's demonstrated ability to raise funds in capital
markets and to access national funds. Huntington's $4 billion bank note program
is a significant source of wholesale funding. Notes issuable under such
program may range in maturity from 30 days to 15 years, with interest based on
prevailing market rates. At the end of the most recent twelve months, a total
of $2.0 billion of bank notes was outstanding . A similar note program is
available to the parent company, the proceeds from which are used from time to
time to fund certain non-banking activities, finance acquisitions, repurchase
the company's stock, or for other general corporate purposes. Approximately
$175 million was outstanding at year end 1995 in connection with the parent
company program, with $750 million available for future use. Huntington also
has a fully available $200 million line of credit that supports commercial
paper borrowings and other short-term working capital needs.
In addition, Huntington has significant asset liquidity from its portfolio
of securities available for sale, loans that may be securitized and sold, and
maturing investments. ALCO regularly monitors the liquidity position and
ensures that various alternative strategies exist to cover unanticipated
reductions in presently available funding sources. At December 31, 1995,
sufficient liquidity was available to meet Huntington's short-term and
long-term funding needs.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
underwriting standards which emphasize "in-market" lending to established
borrowers. Highly leveraged transactions as well as industry or other
concentrations are avoided. The credit administration function also employs
extensive monitoring procedures to ensure problem loans are promptly identified
and adherence with corporate compliance policies. These procedures provide
executive management with information necessary to implement appropriate change
and take corrective action as needed.
Asset quality continues to be strong. Non-performing assets, which include
loans that are no longer accruing interest, loans that have been renegotiated
based upon financial difficulties of the borrower, and real estate acquired
through foreclosure, totaled $77.0 million at the most recent year end and were
down $19.4 million, or 20.1%, from one year ago. As of December 31, 1995,
non-performing loans represented .41% of total loans and non-performing assets
as a percent of total loans and other real estate were only .58%.
Huntington also has certain loans which are past due ninety days or more but
have not been placed on nonaccrual status. These loans, which total $27.0
million at year end 1995, are primarily consumer and residential real estate
loans that are considered well-secured and in the process of collection. There
were also loans outstanding of $49.0 million and $51.5 million, respectively,
at December 31, 1995 and 1994, that Huntington considers to be potential
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
TABLE 10
- ---------------------------------------------------------------------------------
MATURITIES OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
AS OF DECEMBER 31, 1995 (in thousands of dollars)
- ---------------------------------------------------------------------------------
<S> <C>
Three months or less . . . . . . . . . . $529,560
Over three through six months . . . . . . 171,864
Over six through twelve months . . . . . 85,161
Over twelve months . . . . . . . . . . . 122,818
--------
Total . . . . . . . . . . . . . . . . . . $909,403
========
</TABLE>
NOTE: All foreign time deposits are denominated in amounts greater than
$100,000.
F-26
<PAGE> 96
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 11
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end . . . . . . . . . . . . . . . . . . $2,854,142 $1,442,138 $2,164,752
Weighted average interest rate at year-end . . . . . . 5.12% 4.82% 2.62%
Maximum amount outstanding at month-end during the year $2,854,142 $1,798,524 $2,361,306
Average amount outstanding during the year . . . . . . $2,154,114 $1,374,741 $1,964,282
Weighted average interest rate during the year . . . . 5.77% 3.58% 2.89%
BANK NOTES WITH ORIGINAL MATURITIES OF LESS THAN ONE YEAR
Balance at year-end . . . . . . . . . . . . . . . . . . $ 494,000 $1,264,000 $ 860,000
Weighted average interest rate at year-end . . . . . . 6.17% 5.55% 3.49%
Maximum amount outstanding at month-end during the year $ 1,401,000 $1,364,000 $1,000,000
Average amount outstanding during the year . . . . . . $ 1,127,228 $1,138,280 $ 719,767
Weighted average interest rate during the year . . . . 6.67% 4.48% 3.55%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
problem credits and is closely monitoring for any further deterioration in
borrower performance.
CAPITAL AND DIVIDENDS
Huntington places significant emphasis on the maintenance of strong capital,
which promotes investor confidence, provides access to the national markets
under favorable terms, and enhances the ability to capitalize on business
growth and acquisition opportunities. The company also recognizes the
importance of managing excess capital and continually strives to maintain an
appropriate balance between capital adequacy and returns to shareholders.
Capital is managed at each subsidiary based upon the respective risks and
growth opportunities, as well as regulatory requirements.
Huntington's ratio of average equity to average assets over the last twelve
months was 7.89%, compared with 8.38% and 7.22%, respectively, in the two
preceding years. As presented below, the December 31 regulatory
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 12
- ----------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans . . . . . . . . . . . $ 50,669 $ 41,929 $ 75,933 $ 87,541 $139,024 $ 100,899
Renegotiated loans . . . . . . . . . . . 4,299 2,550 1,254 2,508 5,491 9,447
--------- -------- --------- ---------- -------- ---------
TOTAL NON-PERFORMING LOANS . . . . . . . 54,968 44,479 77,187 90,049 144,515 110,346
--------- -------- --------- ---------- -------- ---------
Other real estate, net . . . . . . . . . 22,026 51,909 62,446 73,130 99,646 57,467
--------- -------- --------- ---------- -------- ---------
TOTAL NON-PERFORMING ASSETS . . . . . . $ 76,994 $ 96,388 $ 139,633 $ 163,179 $244,161 $167,813
========= ======== ========= ========== ======== =========
NON-PERFORMING LOANS AS A % OF
TOTAL LOANS . . . . . . . . . . . . . .41% .36% .70% .95% 1.63% 1.27%
NON-PERFORMING ASSETS AS A % OF
TOTAL LOANS AND OTHER REAL ESTATE . . .58% .78% 1.27% 1.70% 2.72% 1.91%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS . . . . . . . . 353.76% 450.76% 274.44% 170.63% 93.26% 112.03%
ALLOWANCE FOR LOAN LOSSES AND
OTHER REAL ESTATE AS A % OF
NON-PERFORMING ASSETS . . . . . . . . 238.65% 193.13% 143.41% 95.22% 56.53% 74.36%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $27,018 $20,877 $ 25,550 $24,298 $36,270 $30,169
========= ======== ========= ========== ======== =========
ACCRUING LOANS PAST DUE 90 DAYS
OR MORE TO TOTAL LOANS . . . . . . . .20% .17% .23% .26% .41% .35%
</TABLE>
NOTE: The amount of interest income which would have been recorded under the
original terms for total loans classified as non-accrual or renegotiated
was $6.0 million in 1995 and $5.6 million in 1994. Amounts actually
collected and recorded as interest income for these loans totalled $0.8
million and $1.7 million, respectively.
F-27
<PAGE> 97
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
capital ratios exceeded the levels established for "well-capitalized"
institutions:
<TABLE>
<CAPTION>
"Well
1995 1994 Capitalized"
---- ---- -----------
<S> <C> <C> <C>
Tier 1 risk-based
capital ratio 8.39% 9.55% 6.00%
Total risk-based
capital ratio 12.03 13.57 10.00
Leverage ratio 6.87 7.99 5.00
</TABLE>
Cash dividends declared were $.78 a share in 1995, up 14.7% from the
corresponding amount in 1994 of $.68 per share. A 5% stock dividend was also
distributed to shareholders in 1995.
On April 27, 1995, the Board of Directors authorized Huntington to
repurchase up to 10.5 million additional shares of its common stock (as
adjusted for the July 1995 stock dividend) through open market purchases and
privately negotiated transactions. The authorization represents a continuation
of the common stock repurchase program begun in August 1987 and provides that
the shares will be reserved for reissue in connection with Huntington's benefit
plans as well as for other corporate purposes. The company acquired 9.6
million shares in 1995 at an aggregate cost of $204.6 million. Approximately
4.7 million of the repurchased shares were reissued in January 1996 in the
acquisition of the Peoples Bank of Lakeland, Florida. As of December 31, 1995,
3.9 million shares were available for repurchase. Huntington's management
believes the majority of these shares will be repurchased in the first half of
1996.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1995 was $65.5 million, or $.49
per share, compared with $52.5 million, or $.39 per share, in the same period
last year. ROA and ROE for the most recent quarter were 1.31% and 17.50%,
respectively, versus 1.22% and 14.78% in the final three months of 1994.
Net interest income was $181.9 million in the quarter just ended versus
$177.3 million in the corresponding period of the prior year. Though spreads
available in the marketplace remained narrow in the latter part of 1995,
evidenced by the 56 basis points quarter-to-quarter drop in the margin, net
interest income was up 2.6% due to increased balance sheet leverage from
Huntington's strong loan growth and larger investment securities portfolio.
The provision for loan losses was $12.1 million in the last quarter of
the year, compared with $2.5 million in the same period of 1994. Net
charge-offs were .53% of average loans in the recent three months, up from .31%
in both the preceding quarter and the final quarter of 1994. The 1995 loss
ratio was adversely affected by a single charge-off totaling $4.9 million.
Non-interest income was $68.4 million and $50.9 million, respectively,
for the three months ended December 31, 1995 and 1994. All major categories
showed increases over the prior year. Securities transactions were not
significant in either period. Included in the fourth quarter 1995 amounts was
a gain of $8.9 million from the sale of Huntington's Pennsylvania bank as well
as a gain of $2.8 million on the sale of residential mortgages from the loan
portfolio.
Non-interest expense totaled $138.8 million in the most recent three
months, down 5.3% from the corresponding period last year. This reduction
resulted largely from a drop in BIF assessment rates, as well as the
restructuring of certain business activities, including the company's mortgage
banking operations.
The provision for income taxes was $33.8 million in the fourth quarter
of 1995, up significantly from $26.5 million in the same period a year ago.
The higher provision relates principally to increased pre-tax earnings.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Table 13
- -------------------------------------------------------------------------------
Loan Portfolio Composition December 31,
- -------------------------------------------------------------------------------
(in millions of dollars) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . $ 4,190 $ 3,669 $ 3,507 $3,191 $2,960
Real estate
Construction . . . . . . . 368 305 337 379 439
Mortgage . . . . . . . . . 2,756 3,002 2,685 2,252 2,097
Consumer . . . . . . . . . . 5,094 4,642 3,944 3,325 3,061
Lease financing . . . . . . . 854 646 481 368 321
------- ------- ------- ------ ------
TOTAL LOANS . . . . . . $13,262 $12,264 $10,954 $9,515 $8,878
======= ======= ======= ====== ======
- -------------------------------------------------------------------------------
</TABLE>
NOTE: There are no loans outstanding which would be considered a concentration
of lending in any particular industry or group of industries.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Table 14
- -------------------------------------------------------------------------------
Maturity Schedule of Selected Loans
- -------------------------------------------------------------------------------
(in thousands of dollars) December 31, 1995
- -------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . $2,554,535 $1,243,862 $391,840 $4,190,237
Real estate construction . 161,081 145,251 61,557 367,889
---------- ---------- -------- ----------
Total . . . . . . . . . $2,715,616 $1,389,113 $453,397 $4,558,126
========== ========== ======== ==========
Variable interest rates . . . $1,112,299 $345,454
========== ========
Fixed interest rates . . . . $ 276,814 $107,943
========== ========
- -------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 98
SELECTED ANNUAL INCOME STATEMENT DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) Year Ended December 31,
1995 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME . . . . $1,461,896 $ 1,219,721 $1,236,311 $ 1,202,286 $1,208,407 $1,266,770
TOTAL INTEREST EXPENSE . . . . 737,333 463,671 440,111 504,846 659,918 780,759
----------- ----------- ---------- ----------- ---------- ----------
NET INTEREST INCOME . . . . . 724,563 756,050 796,200 697,440 548,489 486,011
Provision for loan losses . . . 28,721 15,284 79,294 81,562 62,061 76,434
----------- ----------- ---------- ----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . 695,842 740,766 716,906 615,878 486,428 409,577
----------- ----------- ---------- ----------- ---------- ----------
Service charges on deposit accounts 85,118 76,836 73,172 64,471 57,024 50,559
Mortgage banking . . . . . . . 39,593 50,367 99,185 63,297 41,753 33,949
Trust services . . . . . . . . 30,377 28,448 27,948 25,129 24,435 23,769
Credit card fees . . . . . . . 23,495 20,999 19,381 17,550 16,585 15,025
Investment product sales . . . 8,121 6,624 9,016 5,193 2,548 746
Securities gains . . . . . . . 9,056 2,594 27,189 36,332 16,951 579
Other . . . . . . . . . . . . . 52,630 36,446 37,474 28,680 28,545 30,087
----------- ----------- ---------- ----------- ---------- ----------
TOTAL NON-INTEREST INCOME . . 248,390 222,314 293,365 240,652 187,841 154,714
----------- ----------- ---------- ----------- ---------- ----------
Salaries . . . . . . . . . . . 220,168 226,668 226,405 206,429 175,749 162,621
Commissions . . . . . . . . . . 9,843 10,775 20,992 18,310 9,307 5,908
Employee benefits . . . . . . . 57,790 58,158 55,259 46,596 42,435 37,504
Net occupancy . . . . . . . . . 41,263 40,291 39,955 36,272 33,542 32,464
Equipment . . . . . . . . . . . 38,271 38,792 37,230 34,184 31,735 29,608
FDIC insurance . . . . . . . . 15,056 25,271 25,322 25,500 22,126 12,200
Printing and supplies . . . . . 14,147 14,821 14,721 13,588 12,599 12,625
Credit card . . . . . . . . . . 13,407 13,493 11,835 10,987 9,710 7,354
Advertising . . . . . . . . . . 11,271 15,320 13,259 13,308 10,526 9,460
Legal and loan collection . . . 8,643 8,298 11,361 13,109 10,807 12,471
Other . . . . . . . . . . . . . 135,925 144,719 190,141 204,812 125,615 107,013
----------- ----------- ---------- ----------- ---------- ----------
TOTAL NON-INTEREST EXPENSE . . 565,784 596,606 646,480 623,095 484,151 429,228
----------- ----------- ---------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES . . 378,448 366,474 363,791 233,435 190,118 135,063
Provision for income taxes . . 133,959 123,881 126,879 72,389 56,178 35,298
----------- ----------- ---------- ----------- ---------- ----------
Net Income . . . . . . . . . . $ 244,489 $ 242,593 $ 236,912 $ 161,046 $ 133,940 $ 99,765
=========== =========== ========== =========== ========== ==========
PER COMMON SHARE(1)
Net income . . . . . . . . . $1.78 $1.78 $1.76 $1.21 $1.01 $.75
Cash dividends declared . . $.78 $.68 $.56 $.48 $.44 $.39
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income . . . . . . $ 724,563 $ 756,050 $ 796,200 $ 697,440 $ 548,489 $ 486,011
Tax Equivalent Adjustment(2) . 6,766 9,505 11,670 14,897 18,007 21,321
----------- ----------- ---------- ----------- ---------- ----------
Tax Equivalent Net Interest Income 731,329 765,555 807,870 712,337 566,496 $507,332
=========== =========== ========== =========== ========== ==========
</TABLE>
(1)Adjusted for the five percent stock dividend distributed July 31, 1995.
(2)Calculated assuming a 35% tax rate in years 1993 through 1995 and a 34% tax
rate in years 1990 through 1992.
F-29
<PAGE> 99
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES
(ANNUAL DATA)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis(1) 1995 1994
(in millions of dollars) -------------------------------- ------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- --------------------------------------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks . . . . . $ 21 $ 1.3 5.99% $ 4 $ .3 7.57%
Trading account securities . . . . . . . . . 23 1.7 7.29 14 .9 6.16
Federal funds sold and securities purchased
under resale agreements . . . . . . . . . 46 3.0 6.45 115 5.0 4.32
Mortgages held for sale . . . . . . . . . . . 130 9.8 7.58 367 25.9 7.06
Securities:
Taxable . . . . . . . . . . . . . . . . 4,191 281.6 6.72 3,217 198.6 6.17
Tax Exempt . . . . . . . . . . . . . . . 124 12.6 10.30 190 20.5 10.80
-------- -------- ------- --------
Total Securities . . . . . . . . . . . . 4,315 294.2 6.82 3,407 219.1 6.43
-------- -------- ------- --------
Loans
Commercial . . . . . . . . . . . . . . . . 4,049 341.1 8.43 3,565 302.2 8.48
Real Estate
Construction . . . . . . . . . . . . . . 339 29.1 8.58 298 23.1 7.75
Mortgage . . . . . . . . . . . . . . . . 3,070 256.6 8.36 2,786 220.3 7.91
Consumer . . . . . . . . . . . . . . . . . 4,892 434.3 8.88 4,316 354.2 8.21
Lease financing . . . . . . . . . . . . . 731 57.1 7.81 556 40.8 7.34
-------- -------- ------- --------
Total loans . . . . . . . . . . . . . . 13,081 1,118.2 8.55 11,521 940.6 8.16
Allowance for loan losses/loan fees . . 200 40.4 212 37.4
-------- -------- ------- --------
Net loans . . . . . . . . . . . . . . . 12,881 1,158.6 8.86 11,309 978.0 8.49
-------- -------- ------- --------
Total earning assets . . . . . . . . . . 17,616 $1,468.6 8.34% 15,428 $1,229.2 7.97%
-------- -------- ------- --------
Cash and due from banks . . . . . . . . . . . 780 741
All other assets . . . . . . . . . . . . . . 852 793
-------- -------
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 19,048 $16,750
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing . . . . . . . . . . . $ 2,179 $ 2,116
Interest bearing . . . . . . . . . . . . . 2,539 $ 62.2 2.45% 2,713 $ 59.9 2.21%
Savings deposits . . . . . . . . . . . . . . 2,053 56.4 2.75 2,281 49.0 2.15
Certificates of deposit of $100,000 or more . 812 47.1 5.80 607 25.6 4.22
Other domestic time deposits . . . . . . . . 4,383 242.9 5.54 3,523 148.1 4.20
Foreign time deposits . . . . . . . . . . . . 261 17.0 6.50 286 12.2 4.25
-------- -------- ------- --------
Total deposits . . . . . . . . . . . . . . 12,227 425.6 3.48 11,526 294.8 3.13
-------- -------- ------- --------
Short-term borrowings . . . . . . . . . . . . 3,491 212.1 6.08 2,629 106.7 4.06
Long-term debt . . . . . . . . . . . . . . . 1,424 99.6 7.00 928 62.2 6.71
-------- -------- ------- --------
Interest bearing liabilities . . . . . . . 14,963 $ 737.3 4.93% 12,967 $ 463.7 3.58%
-------- -------- ------- --------
All other liabilities . . . . . . . . . . . . 403 264
Shareholders' equity . . . . . . . . . . . . 1,503 1,403
======== =======
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . $ 19,048 $16,750
======== =======
Net interest rate spread . . . . . . . . . . 3.41% 4.39%
Impact of non-interest bearing funds on margin .74% .57%
NET INTEREST INCOME/MARGIN . . . . . . . . . $ 731.3 4.15% $ 765.5 4.96%
======== ========
<FN>
(1)Fully tax equivalent yields are calculated assuming a 35% tax rate in years
1993 through 1995 and a 34% tax rate in years 1990 through 1992. Average loan
balances include non-accruing loans. Loan income includes cash received on
non-accruing loans.
</TABLE>
F-30
<PAGE> 100
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
Interest Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 26 $ 1.1 4.16% $ 81 $ 4.0 4.88% $ 52 $ 3.8 7.32% $ 63 $5.4 8.71%
10 .5 5.04 22 1.2 5.43 27 1.8 6.83 9 .8 8.69
78 2.6 3.36 126 4.9 3.90 152 8.8 5.76 231 18.4 7.94
827 60.2 7.28 681 55.1 8.09 386 34.0 8.80 274 27.0 9.86
4,199 254.9 6.07 3,510 244.9 6.98 2,761 235.5 8.53 2,802 248.9 8.88
260 29.1 11.22 336 31.7 9.43 396 41.6 10.51 458 47.9 10.47
- -------- -------- -------- --------- -------- -------- ------- --------
4,459 284.0 6.37 3,846 276.6 7.19 3,157 277.1 8.78 3,260 296.8 9.10
- -------- -------- -------- --------- -------- -------- ------- --------
3,293 281.3 8.54 3,076 257.6 8.38 2,967 274.3 9.24 2,921 307.9 10.54
368 26.1 7.09 393 26.4 6.71 457 38.2 8.37 547 57.4 10.49
2,473 203.6 8.24 2,145 191.2 8.92 2,036 202.9 9.96 1,947 203.1 10.44
3,575 323.8 9.06 3,190 340.7 10.68 2,904 336.6 11.59 2,710 324.1 11.96
424 34.4 8.11 342 30.8 9.00 314 30.0 9.57 298 29.1 9.75
- -------- -------- -------- --------- -------- -------- ------- --------
10,133 869.2 8.58 9,146 846.7 9.26 8,678 882.0 10.16 8,423 921.6 10.94
194 30.4 144 28.6 131 19.2 100 18.1
- -------- -------- -------- --------- -------- -------- ------- --------
9,939 899.6 8.88 9,002 875.3 9.57 8,547 901.2 10.38 8,323 939.7 11.16
- -------- -------- -------- --------- -------- -------- ------- --------
15,533 $1,248.0 8.03% 13,902 $ 1,217.1 8.75% 12,452 $1,226.7 9.85% 12,260 $1,288.1 10.51%
- -------- -------- -------- --------- -------- -------- ------- --------
693 636 567 670
819 771 725 660
- -------- -------- -------- -------
$ 16,851 $ 15,165 $ 13,613 $13,490
======== ======== ======== =======
$ 2,141 $ 1,749 $ 1,401 $ 1,393
2,662 $ 63.7 2.39% 2,513 $ 76.5 3.05% 2,210 $ 103.3 4.68% 2,070 $ 112.1 5.42%
2,229 57.5 2.58 1,770 64.1 3.62 1,326 64.9 4.89 1,228 61.3 4.99
831 31.1 3.74 1,251 56.7 4.53 1,523 100.1 6.57 1,714 142.8 8.34
3,572 150.3 4.21 4,066 206.8 5.09 4,223 288.5 6.83 3,894 307.1 7.89
455 15.0 3.30 153 5.7 3.73 69 3.8 5.56 40 3.2 7.85
- -------- -------- -------- --------- -------- -------- ------- --------
11,890 317.6 3.26 11,502 409.8 4.20 10,752 560.6 5.99 10,339 626.5 7.00
- -------- -------- -------- --------- -------- -------- ------- --------
2,825 89.4 3.17 2,062 72.9 3.54 1,406 81.2 5.77 1,731 136.5 7.89
640 33.1 5.18 300 22.1 7.36 219 18.4 8.41 20 117.8 8.88
- -------- -------- -------- --------- -------- -------- ------- --------
13,214 $ 440.1 3.33% 12,115 $ 504.8 4.17% 10,976 $ 660.2 6.01% 10,878 $780.8 7.18%
- -------- -------- -------- --------- -------- -------- ------- --------
280 227 259 302
1,216 1,074 977 917
- -------- -------- -------- -------
$ 16,851 $ 15,165 $ 13,613 $13,490
======== ======== ======== =======
4.70% 4.58% 3.84% 3.33%
.50% .54% .71% .81%
$ 807.9 5.20% $ 712.3 5.12% $ 566.5 4.55% $ 507.3 4.14%
======== ========= ======== =========
</TABLE>
F-31
<PAGE> 101
<TABLE>
MARKET PRICES, KEY RATIOS AND STATISTICS,
NON-PERFORMING ASSETS (QUARTERLY DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
QUARTERLY COMMON STOCK SUMMARY(1) 1995 1994
IV Q III Q II Q I Q IV Q III Q II Q I Q
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High . . . . . . . . . . . . . . . . $25 3/8 $23 5/8 $20 1/8 $18 1/8 $18 $20 5/8 $21 1/8 $18 3/8
Low . . . . . . . . . . . . . . . . . 22 3/8 20 1/4 17 1/8 16 1/8 15 7/8 17 1/4 17 16 7/8
Close . . . . . . . . . . . . . . . . 24 22 1/2 19 3/4 17 3/8 16 1/2 17 1/4 19 1/4 17 1/2
Cash dividends declared . . . . . . . .20 .20 .19 .19 .19 .19 .15 .15
<FN>
(1)Restated for the five percent stock dividend distributed July 31, 1995.
Note: Stock price quotations were obtained from NASDAQ.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
KEY RATIOS AND STATISTICS 1995 1994
MARGIN ANALYSIS -- AS A %
OF AVERAGE EARNING ASSETS(1) IV Q III Q II Q I Q IV Q III Q II Q I Q
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . 8.26% 8.37% 8.38% 8.26% 8.11% 7.98% 7.91% 7.86%
Interest expense . . . . . 4.28 4.19 4.17 4.00 3.57 3.09 2.78 2.55
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Margin . . 3.98% 4.18% 4.21% 4.26% 4.54% 4.89% 5.13% 5.31%
RETURN ON
Average total assets . . . 1.31% 1.34% 1.25% 1.23% 1.22% 1.35% 1.64% 1.60%
Average earning assets . . 1.41% 1.45% 1.35% 1.33% 1.32% 1.46% 1.78% 1.73%
Average shareholders' equity 17.50% 17.03% 15.08% 15.08% 14.78% 15.77% 19.43% 19.26%
<FN>
(1)Presented on a fully tax equivalent basis assuming a 35% tax rate.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NON-PERFORMING ASSETS 1995 1994
(QUARTER-END)
(in thousands of dollars) IV Q III Q II Q I Q IV Q III Q II Q I Q
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans . . . . $ 50,669 $ 41,997 $ 41,554 $ 41,576 $ 41,929 $ 40,313 $ 61,015 $ 60,060
Renegotiated loans . . . 4,299 4,313 13,424 11,568 2,550 13,547 5,737 8,048
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-PERFORMING LOANS 54,968 46,310 54,978 53,144 44,479 53,860 66,752 68,108
-------- -------- -------- -------- -------- -------- -------- --------
Other real estate, net . 22,026 23,668 24,029 26,558 51,909 51,558 59,157 65,664
-------- -------- -------- -------- -------- -------- -------- --------
Total Non-Performing Assets $ 76,994 $ 69,978 $ 79,007 $ 79,702 $ 96,388 $105,418 $125,909 $133,772
======== ======== ======== ======== ======== ======== ======== ========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS .41% .34% .42% .41% .36% .45% .57% .61%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND
OTHER REAL ESTATE .58% .52% .60% .62% .78% .88% 1.08% 1.20%
ALLOWANCE FOR LOAN LOSSES
AS A % OF NON-PERFORMING
LOANS 353.76% 428.79% 360.62% 378.38% 450.76% 382.41% 318.31% 314.37%
ALLOWANCE FOR LOAN LOSSES
AND OTHER REAL ESTATE AS
A % OF NON-PERFORMING
ASSETS 238.65% 263.26% 234.30% 235.10% 193.13% 181.70% 160.22% 152.27%
ACCRUING LOANS PAST DUE
90 DAYS OR MORE . . . $ 27,018 $ 24,001 $ 20,685 $ 19,771 $ 20,877 $ 24,182 $ 23,464 $ 19,601
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-32
<PAGE> 102
<TABLE>
SELECTED QUARTERLY INCOME STATEMENT DATA
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994
(in thousands of dollars,
except per share amounts) IV Q III Q II Q I Q IV Q III Q II Q I Q
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME . . $381,437 $377,859 $360,203 $342,397 $318,875 $301,724 $297,485 $301,637
TOTAL INTEREST EXPENSE . . 199,551 191,281 180,313 166,188 141,625 118,173 105,403 98,470
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME . . . 181,886 186,578 179,890 176,209 177,250 183,551 192,082 203,167
Provision for loan losses . 12,139 7,187 4,787 4,608 2,488 1,113 3,219 8,464
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 169,747 179,391 175,103 171,601 174,762 182,438 188,863 194,703
-------- -------- -------- -------- -------- -------- -------- --------
Service charges on
deposit accounts . . . . 21,008 21,109 20,487 22,514 19,417 19,628 19,225 18,566
Mortgage banking . . . . . 11,315 9,678 7,959 10,641 8,630 9,246 15,418 17,073
Trust services . . . . . . 7,424 7,312 7,586 8,055 6,686 6,732 6,902 8,128
Credit card fees . . . . . 7,190 5,939 5,467 4,899 5,873 5,846 4,933 4,347
Securities gains (losses) . 302 2,315 6,379 60 (55) 648 203 1,798
Investment product sales. . 2,292 2,159 1,971 1,699 1,307 1,694 1,750 1,873
Other . . . . . . . . . . . 18,830 12,692 10,021 11,087 9,012 9,999 10,553 6,882
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME 68,361 61,204 59,870 58,955 50,870 53,793 58,984 58,667
-------- -------- -------- -------- -------- -------- -------- --------
Salaries . . . . . . . . . 54,695 54,391 54,974 56,108 54,314 57,740 57,535 57,079
Commissions . . . . . . . . 3,149 3,074 1,932 1,688 1,523 3,547 2,624 3,081
Employee benefits . . . . . 12,752 13,958 15,419 15,661 13,091 13,388 15,244 16,435
Net occupancy . . . . . . . 10,459 10,039 10,079 10,686 9,962 10,593 9,621 10,115
Equipment . . . . . . . . . 9,406 9,470 9,593 9,802 10,151 9,651 9,491 9,499
FDIC insurance . . . . . . 1,820 151 6,549 6,536 6,218 5,992 6,530 6,531
Printing and supplies . . . 3,705 3,508 3,362 3,572 3,911 3,734 3,710 3,466
Credit card . . . . . . . . 3,695 3,398 3,196 3,118 3,426 3,777 3,219 3,071
Advertising . . . . . . . . 2,179 3,149 2,912 3,031 4,152 2,684 4,296 4,188
Legal and loan collection . 2,758 1,857 1,905 2,123 3,370 1,719 1,808 1,401
Other . . . . . . . . . . . 34,209 35,855 32,477 33,384 36,498 38,531 33,117 36,573
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 138,827 138,850 142,398 145,709 146,616 151,356 147,195 151,439
-------- -------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 99,281 101,745 92,575 84,847 79,016 84,875 100,652 101,931
Provision for income taxes 33,752 35,808 34,414 29,985 26,520 28,973 33,199 35,189
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME . . . . . . . . $ 65,529 $ 65,937 $ 58,161 $ 54,862 $ 52,496 $ 55,902 $ 67,453 $ 66,742
======== ======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE(1)
Net income . . . . . . . $.49 $.48 $.42 $.39 $.39 $.41 $.49 $.49
Cash dividends declared $.20 $.20 $.19 $.19 $.19 $.19 $.15 $.15
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income . . . . $181,886 $186,578 $179,890 $176,209 $177,250 $183,551 $192,082 $203,167
Tax Equivalent Adjustment(2) 1,523 1,635 1,723 1,885 2,042 2,211 2,545 2,707
-------- -------- -------- -------- -------- -------- -------- --------
Tax Equivalent Net Interest Income $183,409 $188,213 $181,613 $178,094 $179,292 $185,762 $194,627 $205,874
======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1)Adjusted for the five percent stock dividend distributed July 31, 1995.
(2)Calculated assuming a 35% tax rate.
</TABLE>
F-33
<PAGE> 103
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ........................................................ $ 872,300 $ 860,958 $ 852,399
Interest bearing deposits in banks ............................................. 1,653 284,393 1,259
Trading account securities ..................................................... 11,444 12,924 19,135
Federal funds sold and securities
purchased under resale agreements ......................................... 8,868 197,531 276,747
Mortgages held for sale ........................................................ 114,169 159,705 156,051
Securities available for sale - at fair value .................................. 4,782,503 4,721,144 4,290,570
Investment securities - fair value $66,655; $69,196;
and $419,773 respectively ................................................ 66,229 67,604 416,236
Total loans (1) ................................................................ 13,939,218 13,261,667 13,457,831
Less allowance for loan losses ............................................ 200,215 194,456 198,573
------------ ------------ ------------
Net loans ...................................................................... 13,739,003 13,067,211 13,259,258
------------ ------------ ------------
Premises and equipment ......................................................... 312,457 296,465 296,708
Customers' acceptance liability ................................................ 56,023 56,926 59,785
Accrued income and other assets ................................................ 601,156 529,737 544,982
------------ ------------ ------------
TOTAL ASSETS ................................................................... $ 20,565,805 $ 20,254,598 $ 20,173,130
============ ============ ============
LIABILITIES
Total deposits (1) ............................................................. $ 13,175,649 $ 12,636,582 $ 12,544,500
Short-term borrowings .......................................................... 3,797,739 3,514,773 4,047,206
Bank acceptances outstanding ................................................... 56,023 56,926 59,785
Long-term debt ................................................................. 1,690,998 2,103,024 1,622,411
Accrued expenses and other liabilities ......................................... 344,312 424,428 416,429
------------ ------------ ------------
Total Liabilities ......................................................... 19,064,721 18,735,733 18,690,331
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized 300,000,000 shares; issued and
outstanding 151,883,704; 141,402,769; and 141,394,248
shares, respectively ................................................. 1,264,661 1,056,209 1,056,146
Less 7,514,688; 8,351,978; and 6,877,908
treasury shares, respectively ........................................ (160,641) (180,632) (144,262)
Capital surplus ........................................................... 240,349 235,802 235,661
Net unrealized (losses) gains on securities
available for sale ................................................... (32,829) 40,972 7,162
Retained earnings ......................................................... 189,544 366,514 328,092
------------ ------------ ------------
Total Shareholders' Equity ................................................ 1,501,084 1,518,865 1,482,799
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 20,565,805 $ 20,254,598 $ 20,173,130
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
(1) See page 7 for detail of total loans and total deposits.
F-34
<PAGE> 104
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands of dollars, except per share amounts) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
Interest and fee income 1996 1995 1996 1995
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Loans....................................... $300,888 $296,472 $886,656 $857,639
Securities.................................. 74,774 77,694 232,002 211,159
Other....................................... 2,760 3,693 9,139 11,661
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME............. 378,422 377,859 1,127,797 1,080,459
----------- ----------- ----------- -----------
Interest Expense
Deposits.................................... 115,555 111,549 342,049 313,207
Short-term borrowings....................... 42,565 57,054 128,845 156,763
Long-term debt.............................. 28,601 22,678 91,191 67,812
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE............ 186,721 191,281 562,085 537,782
----------- ----------- ----------- -----------
NET INTEREST INCOME............... 191,701 186,578 565,712 542,677
----------- ----------- ----------- -----------
Provision for loan losses........................ 20,250 7,187 43,916 16,582
----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 171,451 179,391 521,796 526,095
----------- ----------- ----------- -----------
Total non-interest income (1).................... 71,028 59,800 206,366 176,211
Total non-interest expense (1)................... 141,578 137,446 430,540 423,139
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES........ 100,901 101,745 297,622 279,167
Provision for income taxes....................... 34,438 35,808 103,246 100,207
----------- ----------- ----------- -----------
NET INCOME........................ $66,463 $65,937 $194,376 $178,960
=========== =========== =========== ===========
PER COMMON SHARE (2)
Net income.................................. $0.46 $0.44 $1.33 $1.17
Cash dividends declared..................... $0.20 $0.18 $0.56 $0.52
AVERAGE COMMON SHARES OUTSTANDING................ 145,287,296 150,901,045 146,672,598 153,024,040
</TABLE>
See notes to consolidated financial statements.
(1) See page 8 for detail of non-interest income and non-interest expense.
(2) Adjusted for the ten percent stock dividend distributed July 31, 1996.
F-35
<PAGE> 105
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
COMMON COMMON TREASURY TREASURY CAPITAL (LOSSES) ON RETAINED
(IN THOUSANDS) SHARES STOCK SHARES STOCK SURPLUS SECURITIES EARNINGS TOTAL
------- -------- ---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1995:
Balance, beginning of period 131,120 $912,318 (905) ($16,577) $215,084 ($63,289) $364,284 $1,411,820
Stock issued for acquisitions 3,510 3,434 20,061 (985) 8,474 30,984
Net income 178,960 178,960
Cash dividends declared
($.52 per share) (79,852) (79,852)
Stock options exercised 184 3,233 76 (2,342) 967
5% stock dividend 6,732 140,146 (45) (140,272) (126)
Treasury shares purchased (7,726) (159,368) (159,368)
Treasury shares sold:
Shareholder dividend reinvestment plan 1,213 21,434 310 (1,114) 20,630
Employee benefit plans 401 7,016 130 (46) 7,100
Conversion of convertible notes 32 248 248
Change in net unrealized gains (losses)
on securities available for sale 71,436 71,436
------- -------- ---- -------- -------- -------- -------- ----------
Balance, end of period 141,394 $1,056,146 (6,878) ($144,262) $235,661 $7,162 $328,092 $1,482,799
======= ========== ====== ========= ======== ======== ======== ==========
NINE MONTHS ENDED SEPTEMBER 30, 1996:
BALANCE, BEGINNING OF PERIOD 141,403 $1,056,209 (8,352) ($180,632) $235,802 $40,972 $366,514 $1,518,865
STOCK ISSUED FOR ACQUISITION 4,733 102,760 5,037 107,797
NET INCOME 194,376 194,376
CASH DIVIDENDS DECLARED
($.56 PER SHARE) (82,556) (82,556)
STOCK OPTIONS EXERCISED 179 3,566 (2,984) 582
10% STOCK DIVIDEND 10,431 208,110 2,837 78,030 2,444 (288,790) (206)
TREASURY SHARES PURCHASED (8,066) (190,294) (582) (190,876)
TREASURY SHARES SOLD:
SHAREHOLDER DIVIDEND REINVESTMENT PLAN 994 22,378 386 22,764
EMPLOYEE BENEFIT PLANS 160 3,551 246 3,797
CONVERSION OF CONVERTIBLE NOTES 50 342 342
CHANGE IN NET UNREALIZED GAINS (LOSSES)
ON SECURITIES AVAILABLE FOR SALE (73,801) (73,801)
------- -------- ---- -------- -------- -------- -------- ----------
BALANCE, END OF PERIOD 151,884 $1,264,661 (7,515) ($160,641) $240,349 ($32,829) $189,544 $1,501,084
======= ========== ====== ========= ======== ======== ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE> 106
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands of dollars) NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ........................................................... $ 194,376 $ 178,960
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses .................................. 43,916 16,582
Provision for depreciation and amortization ................ 62,259 47,182
Deferred income tax expense ................................ 11,699 18,034
Decrease (increase) in trading account securities .......... 1,480 (9,708)
Decrease (increase) in mortgages held for sale ............. 45,536 (17,054)
Net gains on sales of securities ........................... (13,463) (8,754)
Decrease (increase) in accrued income receivable ........... 7,912 (26,900)
Net increase in other assets ............................... (41,489) (30,797)
(Decrease) increase in accrued expenses .................... (17,781) 114,417
Net (decrease) increase in other liabilities ............... (26,108) 15,393
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 268,337 297,355
----------- -----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks ....................... 282,940 1,800
Proceeds from :
Maturities and calls of investment securities .................... 17,889 61,792
Maturities and calls of securities available for sale ............ 306,122 212,750
Sales of securities available for sale ........................... 2,068,196 2,388,018
Purchases of:
Investment securities ............................................ (4,000) (2,660)
Securities available for sale .................................... (2,199,930) (3,377,820)
Proceeds from sales of loans ......................................... 94,755 --
Net loan originations, excluding sales ............................... (697,586) (1,071,526)
Proceeds from disposal of premises and equipment ..................... 1,616 2,344
Purchases of premises and equipment .................................. (30,924) (23,255)
Proceeds from sales of other real estate ............................. 14,000 26,446
Net cash received from purchase of subsidiaries ...................... 631 148,490
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES ............. (146,291) (1,633,621)
----------- -----------
FINANCING ACTIVITIES
Increase in total deposits ........................................... 87,783 231,223
Increase in short-term borrowings .................................... 268,924 1,144,187
Proceeds from issuance of long-term debt ............................. 450,424 590,000
Payment of long-term debt ............................................ (862,280) (181,565)
Dividends paid on common stock ....................................... (80,485) (78,292)
Acquisition of treasury stock ........................................ (190,876) (159,368)
Proceeds from issuance of treasury stock ............................. 27,143 28,571
----------- -----------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (299,367) 1,574,756
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ................ (177,321) 238,490
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 1,058,489 890,656
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 881,168 $ 1,129,146
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods. The Notes to Consolidated Financial Statements appearing in
Huntington's 1995 Annual Report to Shareholders should be read in conjunction
with these interim financial statements.
B. On January 1, 1996, Huntington adopted Financial Accounting Standards Board
(FASB) Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of " (FAS 121). The Statement
prescribes the accounting for the impairment of long-lived assets and goodwill
related to those assets. The new rules specify when assets should be reviewed
for impairment, how to determine whether an asset or group of assets is
impaired, how to measure an impairment loss, and what financial statement
disclosures are necessary. Also prescribed is the accounting for long-lived
assets and identifiable intangibles that a company plans to dispose of, other
than those that are part of a discontinued operation. Any impairment of a
long-lived asset resulting from management's review is to be recognized as a
component of non-interest expense. The adoption of FAS 121 did not have a
material effect on Huntington's consolidated financial statements.
In June 1996, the FASB issued Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(FAS 125). The standard provides that, following a transfer of financial assets,
an entity is to recognize the financial and servicing assets it controls and the
liabilities it has incurred, derecognize financial assets when control has been
surrendered, and derecognize liabilities when extinguished. The Statement is
effective for transactions occurring after December 31, 1996. The adoption of
FAS 125 is not expected to have a material impact on Huntington's consolidated
financial statements.
C. Huntington acquired Peoples Bank of Lakeland (Lakeland), a $551 million
commercial bank headquartered in Lakeland, Florida, on January 23, 1996.
Huntington paid $46.2 million in cash and issued approximately 4.7 million
shares of common stock in exchange for all the common stock of Lakeland. The
transaction was accounted for as a purchase; accordingly, the results of
Lakeland have been included in the consolidated financial statements from the
date of acquisition.
In October 1996, Huntington entered into a merger agreement with
Citi-Bancshares, Inc. (Citi-Bancshares), a $524 million bank holding company
headquartered in Leesburg, Florida. Huntington is to exchange a combination of
its common stock and cash for the outstanding common stock of Citi-Bancshares in
a purchase transaction. The acquisition is expected to be completed in the first
quarter of 1997, subject to approval by Citi-Bancshares' shareholders and
applicable regulatory authorities.
D. Per common share amounts have been calculated based on the weighted average
number of common shares outstanding in each period, adjusted for the ten percent
stock dividend issued July 31, 1996. The dilutive effects of unexercised stock
options and convertible debentures were not significant for any period
presented.
E. Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1996 presentation. These reclassifications had
no effect on net income.
F-38
<PAGE> 108
FINANCIAL REVIEW
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION
(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Commercial ................................. $ 4,381,646 $ 4,260,561 $ 4,233,861
Real Estate
Construction .......................... 430,992 367,889 364,721
Commercial ............................ 1,660,610 1,578,891 1,540,534
Residential ........................... 1,130,455 1,176,715 1,546,754
Consumer
Loans ................................. 5,291,826 5,094,036 5,059,492
Leases ................................ 1,043,689 783,575 712,469
----------- ----------- -----------
TOTAL LOANS ........................... $13,939,218 $13,261,667 $13,457,831
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DEPOSIT COMPOSITION
(in thousands of dollars) .................. SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Demand deposits
Non-interest bearing .................. $ 2,343,743 $ 2,088,074 $ 1,989,624
Interest bearing ...................... 2,500,209 2,772,845 2,686,800
Savings deposits ........................... 2,591,667 2,207,378 2,118,333
Certificates of deposit of $100,000 or more 989,886 909,403 916,157
Other domestic time deposits ............... 4,410,190 4,384,949 4,523,528
Foreign time deposits ...................... 339,954 273,933 310,058
----------- ----------- -----------
TOTAL DEPOSITS ........................ $13,175,649 $12,636,582 $12,544,500
=========== =========== ===========
</TABLE>
F-39
<PAGE> 109
FINANCIAL REVIEW
<TABLE>
<CAPTION>
ANALYSIS OF NON-INTEREST INCOME
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, PERCENT SEPTEMBER 30, PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 23,342 $ 21,109 10.58% $ 68,935 $ 64,110 7.53%
Mortgage banking .................. 9,680 8,274 16.99 26,533 24,460 8.48
Trust services .................... 8,432 7,312 15.32 25,549 22,953 11.31
Securities gains .................. 6,173 2,315 166.65 13,463 8,754 53.79
Credit card fees .................. 4,092 4,669 (12.36) 17,472 13,013 34.27
Investment product sales .......... 2,694 2,159 24.78 9,219 5,829 58.16
Electronic banking fees ........... 2,988 1,270 135.28 6,826 3,292 107.35
Other ............................. 13,627 12,692 7.37 38,369 33,800 13.52
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME ......... $ 71,028 $ 59,800 18.78% $206,366 $176,211 17.11%
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NON-INTEREST EXPENSE
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, PERCENT SEPTEMBER 30, PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries ......................... $ 58,475 $ 54,391 7.51% $171,070 $165,473 3.38%
Commissions ...................... 3,117 3,074 1.40 10,204 6,694 52.44
Employee benefits ................ 13,858 13,958 (0.72) 45,875 45,038 1.86
Net occupancy .................... 10,602 10,039 5.61 32,311 30,804 4.89
Equipment ........................ 10,670 9,470 12.67 30,551 28,865 5.84
Credit card and electronic banking 4,255 3,398 25.22 11,850 9,712 22.01
Printing and supplies ............ 3,712 3,508 5.82 11,371 10,442 8.90
Advertising ...................... 2,845 3,149 (9.65) 9,762 9,092 7.37
Legal and loan collection ........ 2,000 1,857 7.70 6,392 5,885 8.62
FDIC insurance ................... 332 151 119.87 1,530 13,236 (88.44)
Other ............................ 31,712 34,451 (7.95) 99,624 97,898 1.76
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ....... $141,578 $137,446 3.01% $430,540 $423,139 1.75%
======== ======== ======== ========
</TABLE>
F-40
<PAGE> 110
Management's Discussion and Analysis
OVERVIEW
Huntington reported net income of $66.5 million, or $.46 per share, for
the third quarter of 1996 compared with $65.9 million, or $.44 per share, for
the same period last year. For the first nine months of the year, net income was
$194.4 million, or $1.33 per share, versus $179.0 million, or $1.17 per share,
in the corresponding period of 1995.
Huntington's return on average equity (ROE) was 17.92% in the recent
three months of 1996 and 17.15% year-to-date, up from 17.03% and 15.75%,
respectively, in 1995. Return on average assets (ROA) was 1.33% in the third
quarter and 1.30% for the nine months ended September 30, 1996. ROA for the
comparable periods last year was 1.34% and 1.27%.
Total assets were $20.6 billion at the recent quarter-end, a slight
increase from both December 31 and September 30, 1995. Total loans increased
$677.6 million, or 5.1%, during the first nine months of the year, which was
largely offset by a reduction in temporary investments. With respect to the
average balance sheet, consumer loans were up 11.05% when comparing the
year-to-date total to the same period in 1995; commercial growth was also a
respectable 5.2%.
Huntington's funding mix changed somewhat over the first three quarters
of 1996 as total deposits grew 4.3% and borrowed funds decreased 2.3% from
year-end. The increase in deposits was principally due to the January 1996
acquisition of Peoples Bank of Lakeland, Florida.
Shareholders' equity was relatively flat versus December 31 and
September 30, 1995. Excluding the effects of net unrealized gains and losses on
securities available for sale, equity increased approximately 4%. Huntington
continues to maintain an appropriate balance between capital adequacy and
returns to shareholders. A primary tool used by management in this regard has
been the common stock repurchase program. At the recent quarter-end,
Huntington's regulatory capital ratios, including those of its bank
subsidiaries, exceeded the levels established for well-capitalized institutions.
(See "Capital" section for further information).
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $191.7 million and $565.7
million, respectively, for the three and nine months ended September 30, 1996,
compared with $186.6 million and $542.7 million for the corresponding periods in
1995. The net interest margin of 4.16% during the quarter just ended was largely
unchanged from the previous three months and the third quarter a year ago.
For the recent three months, interest rate swaps and other off-balance
sheet financial instruments used for asset/liability management purposes reduced
interest income by $8.2 million and increased interest expense by $4.2 million.
On a year-to-date basis, the decrease in interest income was $26.4 million and
interest expense was up $16.6 million. For the same periods last year, these
products lowered interest income by $9.5 million and $22.2 million and
F-41
<PAGE> 111
increased interest expense by $3.8 million and $16.8 million. Included in the
preceding amounts is amortization of deferred gains and losses from terminated
contracts, that decreased net interest income by $9.2 million in the recent
quarter and $29.8 million in the first nine months of the year, compared with
reductions in the year-ago periods of $8.9 million and $18.6 million. At the
recent quarter-end, deferred net losses remaining to be amortized totaled $9.6
million.
Expressed in terms of the margin, the effect of the off-balance sheet
portfolio was a reduction of 27 basis points in the third quarter of 1996 and 31
basis points for the nine months versus declines in the respective periods last
year of 29 basis points and 30 basis points. A large part of the current year
margin reduction (21 basis points) is related to amortization of net losses from
closed positions. A swap strategy used by Huntington to create synthetic fixed
rate wholesale liabilities, while lowering funding costs from what would have
resulted from a comparable cash instrument, resulted in the majority of the
remaining margin reduction attributable to the off-balance sheet portfolio.
NON-INTEREST INCOME
Non-interest income, excluding securities transactions, totaled $64.9
million and $192.9 million in the recent three and nine month periods, up 12.8%
and 15.2% from the same periods one year ago. Fee income remained strong in all
major categories. Credit card fees were up significantly on a year-to-date basis
but down 12.4% when comparing third quarter 1996 to the same three months last
year. These fluctuations relate primarily to an alliance formed in the preceding
quarter that resulted in the sale by Huntington of a portion of its interest in
certain payment processing contracts.
Mortgage banking income was $9.7 million in the third quarter and $26.5
million in the first nine months of 1996, up from $8.3 million and $24.4 million
in the three and nine months ended September 30, 1995. Fueled by lower interest
rates in the early part of the year, mortgage loan originations totaled $1.0
billion for the nine months, an increase of 13.6% from the same period last
year. In addition to the increased fee income from higher production, Huntington
benefited from improved marketing gains and the sale of certain portfolio loans
in first quarter 1996. These favorable effects were somewhat offset by reduced
gains from servicing sales, as Huntington sold no servicing rights through
September 30, 1996, versus $432 million sold in the first nine months of last
year that generated gains of $5.3 million. Net servicing fees were also down
approximately 8.5% on a year-to-date basis. The decrease is principally due to a
change in the mix of loans serviced by Huntington, following the sale in early
1995 of the governmental servicing portfolio. At the recent quarter end, the
mortgage loan servicing portfolio (including loans serviced by Huntington on its
own behalf) totaled $6.0 billion.
Net gains from sales of securities were $6.2 million in the quarter
just ended and $13.5 million for the nine months. The third quarter gains were
largely due to the sale of U.S. Treasury securities, while the gains in the
first half of the year resulted principally from collateralized mortgage
obligations and mortgage backed securities that were sold to reduce price and/or
prepayment risk.
F-42
<PAGE> 112
NON-INTEREST EXPENSE
Non-interest expense was $141.6 million in the three months just ended
and $430.5 million in the first nine months of the year, compared with $137.4
million and $423.1 million in the year-ago periods. The growth in expenses was
due, in part, to the acquisition of two Florida banks, that added $2.4 million
and $8.6 million, respectively, to the third quarter and year-to-date totals.
Excluding these amounts, non-interest expense would have been flat with the same
periods in 1995. FDIC insurance was down significantly for the nine months, as
Huntington benefited from the reduction in assessment rates on bank deposits
that occurred in the latter part of 1995. The legislation recently enacted to
recapitalize the Savings Association Insurance Fund did not have a material
effect on Huntington's results of operations.
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income
and net income while managing volatility arising from shifts in interest rates.
The Asset/Liability Management Committee (ALCO) oversees risk management,
establishing broad policies and specific operating limits that govern a variety
of risks inherent in Huntington's operations including interest rate, liquidity,
and market risks. On and off-balance sheet strategies and tactical programs are
reviewed and monitored regularly by ALCO to ensure consistency with approved
risk tolerances.
Interest rate risk management is a dynamic process, encompassing both
the business flows onto the balance sheet and the changing market and business
environment. Effective management of interest rate risk begins with
appropriately diversified financial instruments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly uses a
multiple of markets: money market, bond market, and futures and options market.
In addition, dealers in over-the-counter financial instruments provide
availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process.
A key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets and liabilities and off-balance sheet financial
instruments, accounting for significant variables which are believed to be
affected by interest rates. These include prepayment speeds on real estate
mortgages and consumer installment credits, cash flow assumptions on other
financial instruments, and changing balance sheet volume assumptions. The model
captures embedded options, e.g. interest rate caps and floors or call options,
and accounts for changes in rate relationships as various rate indices lead and
lag changes in short-term market rates. While these assumptions are inherently
uncertain, management believes that the model provides an accurate indication of
the company's interest rate risk exposure and is a more relevant depiction of
interest rate risks than less sophisticated measures. Management reporting of
this information is regularly shared with the Board of Directors.
At September 30, 1996, the results of Huntington's internal interest
sensitivity analysis indicated that net interest income would be relatively
unchanged by a 100 basis points increase
F-43
<PAGE> 113
or decrease in the federal funds rate (assuming the change occurs evenly over
the next year and that corresponding changes in other market rates occur as
forecasted); a slight reduction of .5% to .8% should rates rise versus a modest
increase if rates drop. Net interest income is expected to increase 1.6% if
rates were to fall 200 basis points. A 200 basis points rise in rates could
result in a decline in net interest income of up to 3.2%.
Active interest rate risk management includes the use of various types
of off-balance sheet financial instruments, primarily interest rate swaps. Risk
created by different indices on assets and liabilities, by unequal terms to
maturity of assets and liabilities, and by products that are appealing to
customers but incompatible with current risk limits are but a few risks that can
be eliminated or decreased in a cost efficient manner. In addition, the swap
strategy has enabled Huntington to lower the costs of raising wholesale funds.
Financial futures, interest rate caps and floors, options, and forward rate
agreements are also used to control risk effectively. Off-balance sheet products
are often preferable to similar cash instruments because, though they perform
financially quite similarly, they may require less capital and preserve access
to the marketplace for future needs.
The following table illustrates the approximate market values,
estimated maturities and weighted average rates of the interest rate swaps used
by Huntington in its interest rate risk management program. The valuation of
interest rate swap contracts is largely a function of the financial market's
expectations regarding the future direction of interest rates. At September 30,
1996, forward rates were higher than those prevailing at the recent year-end.
Consequently, the interest rate swap portfolio ended the third quarter with an
unrealized loss of $10.7 million versus a $10.9 million unrealized gain at
December 31. Current market values are not necessarily indicative of the future
impact of the swaps on net interest income. This will depend, in large part, on
the shape of the yield curve as well as interest rate levels. For purposes of
the variable rate information and the indexed amortizing swap maturities
presented in the table below, management made no assumptions with respect to
future changes in interest rates.
<TABLE>
<CAPTION>
Average
Notional Maturity Market Average Rate
(dollars in millions) Value (years) Value Receive Pay
- --------------------- ----- ------- ----- ------- ---
<S> <C> <C> <C> <C> <C>
September 30, 1996:
ASSET CONVERSION SWAPS
Receive fixed $ 800 2.22 ($9.5) 5.65% 5.62%
Receive fixed-amortizing 93 1.73 (1.2) 5.27 5.73
------ -----
TOTAL ASSET CONVERSION SWAPS $ 893 2.17 ($10.7) 5.61% 5.63%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,630 2.17 $ 6.5 5.96% 5.50%
Receive fixed-amortizing 195 2.75 (4.5) 5.63 5.50
Pay fixed 950 .09 (1.8) 5.65 7.11
------ -----
TOTAL LIABILITY CONVERSION SWAPS $2,775 1.50 $ .2 5.83% 6.05%
====== =====
BASIS PROTECTION SWAPS $ 250 2.44 ($ .2) 5.60% 5.57%
====== =====
</TABLE>
F-44
<PAGE> 114
The pay rates on Huntington's receive fixed swaps vary based on
movements in the applicable London inter-bank offered rate (LIBOR). Receive
fixed asset conversion swaps with a notional value of $200 million have embedded
written LIBOR-based call options. Also, receive fixed liability conversion swaps
with a notional value of $150 million have embedded written LIBOR-based caps.
The portfolio of amortizing swaps consists of contracts with notional values
that are indexed to the prepayment experience of a specified pool of mortgage
loans or Constant Maturity U.S. Treasury yields (CMT). As market interest rates
change, the amortization of the notional values will also change, generally
slowing as rates increase and accelerating when rates fall. Basis swaps are
contracts which provide for both parties to receive floating rates of interest
according to different indices and are used to protect against changes in
spreads. The receive and pay amounts applicable to Huntington's basis swaps are
determined by LIBOR or other indices common to the banking industry.
The notional values of the swap portfolio represent contractually
determined amounts on which calculations of interest payments to be exchanged
are based. These notional values do not represent direct credit exposures. At
September 30, 1996, Huntington's credit risk from interest rate swaps used for
asset/liability management purposes was $47.6 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.
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $450 million at September 30, 1996. Total
credit exposure from such contracts, represented by those instruments with a
positive fair value, was $1.7 million at the recent quarter-end. These separate
activities, which are accounted for at fair value, are not a significant part of
Huntington's operations. Accordingly, they have been excluded from the above
discussion of off-balance sheet financial instruments and the related tables.
ASSET QUALITY
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending to
established borrowers. Highly leveraged transactions and excessive industry or
other concentrations are avoided. The credit administration function also
employs extensive monitoring procedures to ensure that problem loans are
promptly identified and that loans adhere to corporate policy. These procedures
provide executive management with the information necessary to implement
appropriate change and take corrective action as needed.
Asset quality continues to be strong. Non-performing loans, which
include loans that are no longer accruing interest and loans that have been
renegotiated based upon financial difficulties of the borrower, totaled $55.0
million at the most recent quarter end and represented .39% of total loans.
Huntington also has certain loans that are past due ninety days or more but have
not
F-45
<PAGE> 115
been placed on nonaccrual status. These loans, which totaled $32.4 million
at September 30, 1996, are primarily consumer and residential real estate loans
that are considered well-secured and in the process of collection or are being
renewed.
Other real estate owned (ORE) was $15.6 million at the end of the first
nine months of 1996, down from $23.7 million at the same time last year.
Huntington's management continues to aggressively pursue the sale of its ORE to
further reduce these non-performing assets.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management based on its estimate of losses inherent in the loan
portfolio. The procedures employed by Huntington in evaluating the adequacy of
the ALL include an analysis of specific credits that are generally selected for
review on the basis of size and relative risk, portfolio trends, current and
historical loss experience, prevailing economic conditions, and other relevant
factors. Annualized net charge-offs as a percent of average total loans were
.48% for the quarter just ended and .40% for the first nine months of the year,
versus .32% for all of 1995. At the recent quarter end, the ALL represented
1.44% of total loans and 364% of non-performing loans. The combined ALL and
allowance for other real estate was 275% of total non-performing assets.
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances the ability to capitalize on
business growth and acquisition opportunities. Huntington also recognizes the
importance of managing excess capital and continually strives to maintain an
appropriate balance between capital adequacy and returns to shareholders.
Capital is managed at each subsidiary based upon the respective risks and growth
opportunities, as well as regulatory requirements.
Average equity to average assets was 7.41% in the third quarter of 1996
and 7.60% for the nine months, compared with 7.87% and 8.10% in the same periods
one year ago. Presented below are Huntington's regulatory capital ratios and the
related levels established for "well-capitalized" institutions:
September 30, 1996 "Well Capitalized"
------------------ ------------------
Tier 1 risk-based capital 8.03% 6.00%
Total risk-based capital 11.57 10.00
Leverage 6.78 5.00
On February 21, 1996, the Board of Directors authorized Huntington to
repurchase up to 10 million additional shares of its common stock through open
market purchases and privately negotiated transactions. The authorization
represents a continuation of the common stock repurchase program begun in August
1987 and provides that the shares will be reserved for reissue in connection
with Huntington's benefit plans as well as for other corporate purposes. The
company acquired 8.1 million shares in the first nine months of 1996 at an
aggregate cost of $190.9 million, leaving 6.6 million shares available for
repurchase. Huntington's management believes the remaining authorized shares
will be repurchased by the end of 1997.
F-46
<PAGE> 116
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
--------------- --------------- ---------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 % CHANGE
--------------- --------------- ---------------
<S> <C> <C> <C>
NET INCOME ................................ $ 66,463 $ 65,937 0.8 %
PER COMMON SHARE (1):
Net income ........................... $ 0.46 $ 0.44 4.5
Cash dividends declared .............. $ 0.20 $ 0.18 11.1
AVERAGE SHARES OUTSTANDING (1) ............ 145,287,296 150,901,045 (3.7)
KEY RATIOS
Return on:
Average total assets ................. 1.33% 1.34% (0.7)
Average shareholders' equity ......... 17.92% 17.03% 5.2
Efficiency ratio .......................... 55.57% 56.49% (1.6)
Average equity/average assets ............. 7.41% 7.87% (5.8)
Net Interest Margin ....................... 4.16% 4.18% (0.5)
--------------- --------------- ---------------
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 % CHANGE
--------------- --------------- ---------------
NET INCOME ................................ $ 194,376 $ 178,960 8.6 %
PER COMMON SHARE (1):
Net income ........................... $ 1.33 $ 1.17 13.7
Cash dividends declared .............. $ 0.56 $ 0.52 7.7
AVERAGE SHARES OUTSTANDING (1) ............ 146,672,598 153,024,040 (4.2)
KEY RATIOS
Return on:
Average total assets ................. 1.30% 1.27% 2.4
Average shareholders' equity ......... 17.15% 15.75% 8.9
Efficiency ratio .......................... 56.87% 59.41% (4.3)
Average equity/average assets ............. 7.60% 8.10% (6.2)
Net Interest Margin ....................... 4.11% 4.21% (2.4)
--------------- --------------- ---------------
AT SEPTEMBER 30, 1996 1995 % CHANGE
--------------- --------------- ---------------
Total Loans ............................... $ 13,939,218 $ 13,457,831 3.6 %
Total Deposits ............................ $ 13,175,649 $ 12,544,500 5.0
Total Assets .............................. $ 20,565,805 $ 20,173,130 1.9
Shareholders' Equity ...................... $ 1,501,084 $ 1,482,799 1.2
Period-End Shares Outstanding (1) ......... 144,369,016 147,967,974 (2.4)
Shareholders' Equity Per Common Share (1) . $ 10.40 $ 10.02 3.8
Total Risk-Adjusted Assets ................ $ 16,899,738 $ 16,116,690 4.9
Tier 1 Risk-Based Capital Ratio ........... 8.03% 8.46% (5.1)
Total Risk-Based Capital Ratio ............ 11.57% 12.17% (4.9)
Tier 1 Leverage Ratio ..................... 6.78% 6.96% (2.6)
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 31, 1996.
F-47
<PAGE> 117
FINANCIAL REVIEW
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER
30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(in thousands of dollars) SEPTEMBER 30, 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
1-5 years .................. $ 156 $ 156 $ 156 $ 156
------- ------- ------- -------
Total ................... 156 156 156 156
------- ------- ------- -------
States and political subdivisions
Under 1 year ............... 20,216 20,341 27,340 27,592
1-5 years .................. 22,942 23,410 23,637 24,496
6-10 years ................. 21,065 21,037 12,638 13,040
Over 10 years .............. 1,850 1,711 3,833 3,912
------- ------- ------- -------
Total ................... 66,073 66,499 67,448 69,040
------- ------- ------- -------
Total Investment Securities ..... $66,229 $66,655 $67,604 $69,196
======= ======= ======= =======
</TABLE>
F-48
<PAGE> 118
FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995.
<TABLE>
<CAPTION>
(in thousands of dollars) September 30, 1996 December 31, 1995
Amortized Cost Fair Value Amortized Cost Fair Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Under 1 year ...................... $ 73,597 $ 74,549 $ 176,502 $ 178,264
1-5 years ......................... 768,395 762,341 228,234 231,018
6-10 years ........................ 159,838 150,841 162,352 160,596
---------- ---------- ---------- ----------
Total .......................... 1,001,830 987,731 567,088 569,878
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ...................... 575 573 1,097 1,124
1-5 years ......................... 142,309 143,371 110,192 114,723
6-10 years ........................ 912,914 890,913 712,804 724,317
Over 10 years ..................... 76,814 76,635 58,762 60,695
---------- ---------- ---------- ----------
Total .......................... 1,132,612 1,111,492 882,855 900,859
---------- ---------- ---------- ----------
Other agencies
Under 1 year ...................... 76,572 77,066 53,912 54,499
1-5 years ......................... 1,646,655 1,640,624 1,928,431 1,953,446
6-10 years ........................ 189,413 186,820 234,393 234,920
Over 10 years ..................... 328,791 323,964 509,735 514,568
---------- ---------- ---------- ----------
Total .......................... 2,241,431 2,228,474 2,726,471 2,757,433
---------- ---------- ---------- ----------
Total U.S. Treasury and Federal agencies 4,375,873 4,327,697 4,176,414 4,228,170
---------- ---------- ---------- ----------
Other
Under 1 year ...................... 3,875 3,945 6,818 6,826
1-5 years ......................... 13,236 13,897 22,352 23,578
6-10 years ........................ 157,371 156,533 230,651 240,965
Over 10 years ..................... 275,254 273,397 212,950 214,605
Marketable equity securities ...... 8,480 7,034 8,359 7,000
---------- ---------- ---------- ----------
Total .......................... 458,216 454,806 481,130 492,974
---------- ---------- ---------- ----------
Total Securities Available for Sale .... $4,834,089 $4,782,503 $4,657,544 $4,721,144
========== ========== ========== ==========
</TABLE>
F-49
<PAGE> 119
FINANCIAL REVIEW
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE
(in thousands of dollars) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 196,486 $ 198,264 $ 194,456 $ 200,492
Loan losses ................................... (20,799) (13,557) (53,923) (34,068)
Recoveries of loans previously charged off .... 4,278 3,222 13,566 10,490
Provision for loan losses ..................... 20,250 7,187 43,916 16,582
Allowance of assets acquired .................. -- 3,457 2,200 5,077
--------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES, END OF PERIOD ...... $ 200,215 $ 198,573 $ 200,215 $ 198,573
========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses -- annualized ............... 0.48 % 0.31 % 0.40 % 0.24 %
Provision for loan losses -- annualized ..... 0.59 % 0.22 % 0.43 % 0.17 %
Allowance for loan losses as a % of total loans 1.44 % 1.48 % 1.44 % 1.48 %
Net loan loss coverage (1) .................... 7.33 x 10.54 x 8.46 x 12.54 x
</TABLE>
(1) Income before taxes and the provision for loan losses to net loan losses.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Quarter-End) 1996 1995
------------------------------------------------------------------------
(in thousands of dollars) III Q II Q I Q IV Q III Q
--------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans ...................... $49,800 $51,470 $57,530 $50,669 $41,997
Renegotiated loans ..................... 5,174 5,558 5,578 4,299 4,313
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS ............. 54,974 57,028 63,108 54,968 46,310
------- ------- ------- ------- -------
Other real estate, net ................. 15,610 21,720 20,386 22,026 23,668
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS ............ $70,584 $78,748 $83,494 $76,994 $69,978
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ..................... 0.39% 0.42% 0.47% 0.41% 0.34%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE 0.51% 0.57% 0.62% 0.58% 0.52%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS ................. 364.20% 344.54% 312.76% 353.76% 428.79%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 274.54% 238.03% 225.01% 238.65% 263.26%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $32,382 $29,859 $25,824 $27,018 $24,001
======= ======= ======= ======= =======
</TABLE>
F-50
<PAGE> 120
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
FULLY TAX EQUIVALENT BASIS (1) 3RD QUARTER 1996 2ND QUARTER 1996
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE
------------------ -----------------
<S> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks.................................. $2 5.91 % $2 9.43 %
Trading account securities.......................................... 15 5.83 14 5.47
Federal funds sold and securities purchased under resale agreements. 17 6.61 29 5.33
Mortgages held for sale............................................. 109 8.23 117 7.62
Securities:
Taxable........................................................ 4,593 6.39 4,609 6.52
Tax exempt..................................................... 89 9.32 96 9.75
------- -------
Total Securities.......................................... 4,682 6.44 4,705 6.58
------- -------
Loans
Commercial..................................................... 4,275 7.72 4,319 7.68
Real Estate
Construction.............................................. 413 8.46 386 8.50
Mortgage.................................................. 2,793 8.50 2,783 8.49
Consumer
Loans..................................................... 5,225 8.85 5,142 9.04
Leases.................................................... 991 7.88 885 7.85
------- -------
Total Loans............................................... 13,697 8.34 13,515 8.40
------- -------
Allowance for loan losses................................. 202 199
------- -------
Net loans................................................. 13,495 8.86 13,316 8.89
------- -------
Total earning assets...................................... 18,522 8.15 % 18,382 8.19 %
------- -------
Cash and due from banks............................................. 754 755
All other assets.................................................... 853 906
------- -------
TOTAL ASSETS........................................................ $19,927 $19,844
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing........................................... $2,315 $2,307
Interest bearing............................................... 2,561 2.36 % 2,595 2.40 %
Savings deposits.................................................... 2,474 3.21 2,437 3.19
Certificates of deposit of $100,000 or more......................... 1,011 5.25 971 5.37
Other domestic time deposits........................................ 4,417 5.56 4,406 5.61
Foreign time deposits............................................... 343 5.85 219 6.17
------- -------
Total deposits................................................. 13,121 4.24 12,935 4.26
------- -------
Short-term borrowings............................................... 3,114 5.35 3,061 5.39
Long-term debt...................................................... 1,810 6.22 1,927 6.40
------- -------
Interest bearing liabilities................................... 15,730 4.69 % 15,616 4.75 %
------- -------
All other liabilities............................................... 406 430
Shareholders' equity................................................ 1,476 1,491
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,927 $19,844
======= =======
Net interest rate spread............................................ 3.46 % 3.44 %
Impact of non-interest bearing funds on margin...................... 0.70 % 0.71 %
NET INTEREST MARGIN................................................. 4.16 % 4.15 %
</TABLE>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
F-51
<PAGE> 121
<TABLE>
<CAPTION>
------------------ ------------------ -----------------
1ST QUARTER 1996 4TH QUARTER 1995 3RD QUARTER 1995
------------------ ------------------ -----------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE BALANCE RATE
---------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks.................................. $39 5.70% $74 6.10% $2 5.73%
Trading account securities.......................................... 19 5.64 20 6.88 24 7.54
Federal funds sold and securities purchased under resale agreements. 27 6.19 48 5.52 22 7.49
Mortgages held for sale............................................. 127 7.18 129 6.78 174 7.73
Securities:
Taxable........................................................ 4,835 6.55 4,550 6.74 4,473 6.76
Tax exempt..................................................... 106 9.09 110 10.04 118 10.55
------- ------- -------
Total Securities.......................................... 4,941 6.60 4,660 6.82 4,591 6.86
------- ------- -------
Loans
Commercial..................................................... 4,281 7.77 4,251 7.91 4,173 8.13
Real Estate
Construction.............................................. 364 8.52 369 8.54 349 8.68
Mortgage.................................................. 2,760 8.48 3,011 8.56 3,058 8.59
Consumer
Loans..................................................... 5,079 8.99 5,099 8.97 4,979 9.05
Leases.................................................... 811 7.87 753 7.89 673 7.46
------- ------- -------
Total Loans............................................... 13,295 8.41 13,483 8.53 13,232 8.56
------- ------- -------
Allowance for loan losses................................. 198 198 198
------- ------- -------
Net loans................................................. 13,097 8.87 13,285 8.93 13,034 9.04
------- ------- -------
Total earning assets...................................... 18,448 8.14% 18,414 8.26% 18,045 8.37%
------- ------- -------
Cash and due from banks............................................. 746 766 783
All other assets.................................................... 988 895 876
------- ------- -------
TOTAL ASSETS........................................................ $19,984 $19,877 $19,506
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing........................................... $2,391 $2,241 $2,194
Interest bearing............................................... 2,506 2.53% 2,514 2.48% 2,488 2.45%
Savings deposits.................................................... 2,249 3.03 2,084 2.93 2,020 2.76
Certificates of deposit of $100,000 or more......................... 977 5.52 926 5.68 878 5.78
Other domestic time deposits........................................ 4,458 5.69 4,458 5.76 4,467 5.69
Foreign time deposits............................................... 268 6.15 189 6.50 318 6.32
------- ------- -------
Total deposits................................................. 12,849 4.36 12,412 4.38 12,365 4.34
------- ------- -------
Short-term borrowings............................................... 3,078 5.58 3,682 5.91 3,786 5.96
Long-term debt...................................................... 2,016 6.41 1,850 6.76 1,403 6.36
------- ------- -------
Interest bearing liabilities................................... 15,552 4.87% 15,703 5.02% 15,360 4.92%
------- ------- -------
All other liabilities............................................... 464 447 416
Shareholders' equity................................................ 1,577 1,486 1,536
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,984 $19,877 $19,506
======= ======= =======
Net interest rate spread............................................ 3.27% 3.24% 3.45%
Impact of non-interest bearing funds on margin...................... 0.76% 0.74% 0.73%
NET INTEREST MARGIN................................................. 4.03% 3.98% 4.18%
</TABLE>
F-52
<PAGE> 122
SELECTED QUARTERLY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------
(in thousands of dollars, except per share amounts) IIIQ IIQ IQ IVQ IIIQ
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME............................ $378,422 $375,079 $374,296 $381,437 $377,859
TOTAL INTEREST EXPENSE........................... 186,721 185,786 189,578 199,551 191,281
-------- -------- -------- -------- --------
NET INTEREST INCOME.............................. 191,701 189,293 184,718 181,886 186,578
Provision for loan losses........................ 20,250 11,843 11,823 12,139 7,187
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES...................... 171,451 177,450 172,895 169,747 179,391
-------- -------- -------- -------- --------
Service charges on deposit accounts ............. 23,342 23,132 22,461 21,008 21,109
Mortgage banking ................................ 9,680 7,976 8,877 9,752 8,274
Trust services .................................. 8,432 8,324 8,793 7,424 7,312
Securities gains ................................ 6,173 200 7,090 302 2,315
Credit card fees ................................ 4,092 8,544 4,836 5,450 4,669
Investment product sales ........................ 2,694 3,286 3,239 2,292 2,159
Electronic banking fees ......................... 2,988 2,172 1,666 1,740 1,270
Other ........................................... 13,627 13,542 11,200 18,830 12,692
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ....................... 71,028 67,176 68,162 66,798 59,800
-------- -------- -------- -------- --------
Salaries ........................................ 58,475 56,776 55,819 54,695 54,391
Commissions ..................................... 3,117 3,480 3,607 3,149 3,074
Employee benefits ............................... 13,858 14,801 17,216 12,752 13,958
Net occupancy ................................... 10,602 10,835 10,874 10,459 10,039
Equipment ....................................... 10,670 10,267 9,614 9,406 9,470
Credit card and electronic banking............... 4,255 4,023 3,572 3,695 3,398
Printing and supplies ........................... 3,712 4,164 3,495 3,705 3,508
Advertising ..................................... 2,845 4,052 2,865 2,179 3,149
Legal and loan collection ....................... 2,000 2,498 1,894 2,758 1,857
FDIC insurance .................................. 332 679 519 1,820 151
Other ........................................... 31,712 33,891 34,021 32,646 34,451
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ...................... 141,578 145,466 143,496 137,264 137,446
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ...................... 100,901 99,160 97,561 99,281 101,745
Provision for income taxes ...................... 34,438 34,072 34,736 33,752 35,808
-------- -------- -------- -------- --------
NET INCOME ...................................... $66,463 $65,088 $62,825 $65,529 $65,937
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income .................................... $0.46 $0.45 $0.42 $0.45 $0.44
Cash dividends declared ....................... $0.20 $0.18 $0.18 $0.18 $0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ............................. $191,701 $189,293 $184,718 $181,886 $186,578
Tax Equivalent Adjustment (2) ................... 1,204 1,319 1,368 1,523 1,635
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income .............. $192,905 $190,612 $186,086 $183,409 $188,213
======== ======== ======== ======== ========
</TABLE>
(1) Adjusted for the ten percent stock dividend distributed July 31, 1996.
(2) Calculated assuming a 35% tax rate.
F-53
<PAGE> 123
Huntington Bancshares Incorporated
Computation of Earnings Per Share
For Periods Ended September 30, 1996, and 1995
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------
1996 1995 1996 1995
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Net Income $66,463 $65,937 $194,376 $178,960
Effect of Convertible Debt 0 8 13 34
----------- ----------- ----------- -----------
Fully Diluted Net Income $66,463 $65,945 $194,389 $178,994
=========== =========== =========== ===========
Average Common Shares Outstanding 145,287,296 150,901,045 146,672,598 153,024,040
Dilutive Effect of Stock Options 1,101,311 1,021,261 1,136,341 899,726
----------- ----------- ----------- -----------
Average Common Shares and Common
Share Equivalents -- Primary 146,388,607 151,922,306 147,808,939 153,923,766
Additional Dilutive Effect of Stock Options 72,972 88,805 72,972 87,142
Dilutive Effect of Convertible Debt 2,010 69,737 35,463 92,793
----------- ----------- ----------- -----------
Fully Diluted Shares 146,463,589 152,080,848 147,917,374 154,103,701
=========== =========== =========== ===========
Net Income per Common Share Outstanding $0.46 $0.44 $1.33 $1.17
Primary Earnings per Share $0.45 $0.43 $1.32 $1.16
Fully Diluted Earnings per Share $0.45 $0.43 $1.31 $1.16
</TABLE>
F-54
<PAGE> 124
PURVIS
GRAY &
COMPANY
INDEPENDENT AUDITORS' REPORT
Board of Directors
Citi-Bancshares, Inc. and Subsidiary
Leesburg, Florida
We have audited the supplemental consolidated balance sheets of Citi-Bancshares,
Inc. and Subsidiary as of December 31, 1995 and 1994, and the related
supplemental consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1995. These supplemental consolidated financial statements are the
responsibility of Citi-Bancshares, Inc.'s management. Our responsibility is
to express an opinion on these supplemental consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
The supplemental consolidated financial statements give retroactive effect to
the merger of Citi-Bancshares, Inc. and Citizens First Bancshares, Inc. on April
19, 1996, which has been accounted for as a pooling of interests as described in
note 2 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Citi-Bancshares, Inc.
and Subsidiary after financial statements covering the date of consummation of
the business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Citi-Bancshares, Inc. and Subsidiary at December 31, 1995 and 1994,
and the results of their operations and cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles applicable after financial statements are issued
for a period which includes the date of consummation of the business
combination.
February 1, 1996, Except For Note 2,
as to Which the Date is April 19, 1996
Gainesville, Florida
CERTIFIED PUBLIC ACCOUNTANTS
P.O. Box 23999 222 N.E. 1st Street Gainesville, Florida 32602 (352) 378-2461
Laurel Ridge Professional Center 2347 S.E. 17th Street Ocala, Florida 34471
(352) 732-3872
1415 Piedmont Drive, East, Suite 2 Tallahassee, Florida 32312 (904) 385-0554
FAX (904) 385-9801
MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS
MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES
AND S.E.C. PRACTICE SECTIONS
F-55
<PAGE> 125
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
ASSETS
1995 1994
------------------- ------------------
<S> <C> <C>
Cash and Demand Deposits Due From Banks $ 17,833,406 $ 17,153,492
Investment Securities (Market Value 1995 -
$228,916,322; 1994 - $208,905,506) 228,916,322 211,571,390
Federal Funds Sold 7,392,000 0
Loans Receivable 253,510,041 222,606,888
Less:
Unearned Income (825,330) (1,054,152)
Allowance For Loan Losses (3,800,277) (3,404,535)
------------------- ------------------
Loans Receivable, Net 248,884,434 218,148,201
Real Estate Owned 662,822 686,735
Premises and Equipment, Net 9,285,149 7,828,091
Accrued Interest Receivable 4,514,828 4,199,844
Other Assets 1,985,539 4,750,341
------------------- ------------------
TOTAL ASSETS 519,474,500 464,338,094
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing 47,925,825 42,914,352
Interest-Bearing 403,672,290 373,185,211
------------------- ------------------
Total Deposits 451,598,115 416,099,563
------------------- ------------------
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 8,497,780 6,873,216
Accrued Interest Payable 4,180,191 2,429,383
Other Liabilities 4,314,016 2,015,573
------------------- ------------------
TOTAL LIABILITIES 468,590,102 427,417,735
------------------- ------------------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $.01 Per Share -
Authorized: 10,000,000 Shares; Issued
4,609,402 Shares 46,094 46,094
Capital Surplus 15,052,435 14,241,404
Retained Earnings 32,758,593 27,325,488
Less: Treasury Stock at Cost (136,988 Shares
in 1995 and 1994, Respectively) (791,924) (791,924)
Unrealized Gains (Losses) on Certain Securities 3,819,200 (3,900,703)
------------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 50,884,398 36,920,359
------------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 519,474,500 $ 464,338,094
=================== ==================
</TABLE>
See accompanying notes.
F-56
<PAGE> 126
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 21,696,714 $ 16,726,976 $ 14,378,445
---------------- ---------------- ----------------
Investment Securities:
Taxable 11,784,671 11,900,860 12,196,338
Exempt From Federal Income Taxes 2,851,226 2,759,492 2,296,789
---------------- ---------------- ----------------
14,635,897 14,660,352 14,493,127
Federal Funds Sold 827,157 272,182 383,698
---------------- ---------------- ----------------
TOTAL INTEREST INCOME 37,159,768 31,659,510 29,255,270
---------------- ---------------- ----------------
INTEREST EXPENSE
Deposits 17,328,225 12,756,803 12,079,129
Securities Sold Under Repurchase Agreements 376,971 161,279 91,702
---------------- ---------------- ----------------
TOTAL INTEREST EXPENSE (17,705,196) (12,918,082) (12,170,831)
---------------- ---------------- ----------------
NET INTEREST INCOME 19,454,572 18,741,428 17,084,439
PROVISION FOR LOAN LOSSES (255,000) (600,000) (1,096,000)
---------------- ---------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 19,199,572 18,141,428 15,988,439
---------------- ---------------- ----------------
NONINTEREST INCOME
Investment Securities (Losses) Gains (73,997) (167,875) 445,454
Service Charges on Deposit Accounts 1,633,113 1,492,698 1,592,376
Trust Income 841,847 715,607 587,912
Other Income 409,676 455,788 488,106
---------------- ---------------- ----------------
TOTAL NONINTEREST INCOME 2,810,639 2,496,218 3,113,848
---------------- ---------------- ----------------
NONINTEREST EXPENSE
Salaries and Employee Benefits 6,306,731 6,147,274 5,859,799
Occupancy Expense 1,323,391 1,261,516 1,350,318
Equipment Expense 1,046,509 1,003,841 882,715
Other Expenses 3,527,029 3,714,110 3,427,735
---------------- ---------------- ----------------
TOTAL NONINTEREST EXPENSE (12,203,660) (12,126,741) (11,520,567)
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 9,806,551 8,510,905 7,581,720
PROVISION FOR INCOME TAXES (2,592,483) (2,221,534) (1,906,286)
---------------- ---------------- ----------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 7,214,068 6,289,371 5,675,434
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING
METHOD OF ACCOUNTING FOR INCOME TAXES 0 0 625,898
---------------- ---------------- ----------------
NET INCOME $ 7,214,068 $ 6,289,371 $ 6,301,332
================ ================ ================
EARNINGS PER SHARE
Income Before Cumulative Effect of Change
in Accounting Principle $ 1.61 $ 1.41 $ 1.27
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 .00 .14
---------------- ---------------- ----------------
EARNINGS PER SHARE $ 1.61 $ 1.41 $ 1.41
================ ================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING 4,477,097 4,472,414 4,474,822
================ ================ ================
</TABLE>
See accompanying notes.
F-57
<PAGE> 127
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
COMMON CAPITAL RETAINED TREASURY CERTAIN
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
-------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1992, AS ORIGINALLY REPORTED $41,846 $11,207,783 $18,277,054 $(742,676) $ 0 $28,784,007
Common Stock Issued For Pooled Bank Acquired
April 19, 1996 4,248 3,033,621 (870,819) 0 0 2,167,050
-------- ----------- ----------- --------- ----------- -----------
BALANCES, DECEMBER 31, 1992, AFTER STOCK
ISSUED FOR POOLED BANK 46,094 14,241,404 17,406,235 (742,676) 0 30,951,057
Net Income 0 0 6,301,332 0 0 6,301,332
Cash Dividends Declared $.28 Per Share) 0 0 (1,254,771) 0 0 (1,254,771)
Purchase of Treasury Stock, 2,205 Shares 0 0 0 (49,248) 0 (49,248)
Unrealized Gain on Certain Securities 0 0 0 0 3,586,368 3,586,368
-------- ----------- ----------- --------- ----------- -----------
BALANCES, DECEMBER 31, 1993 46,094 14,241,404 22,452,796 (791,924) 3,586,368 39,534,738
Net Income 0 0 6,289,371 0 0 6,289,371
Cash Dividends Declared ($.32 Per Share) 0 0 (1,416,679) 0 0 (1,416,679)
Unrealized (Loss) on Certain Securities 0 0 0 0 (7,487,071) (7,487,071)
-------- ----------- ----------- --------- ----------- -----------
BALANCES, DECEMBER 31, 1994 46,094 14,241,404 27,325,488 (791,924) (3,900,703) 36,920,359
Net Income 0 0 7,214,068 0 0 7,214,068
Premerger Warrants Exercised, $10 Per Share 0 714,551 0 0 0 714,551
Premerger Stock Options Exercised, $10.05
Per Share 0 96,480 0 0 0 96,480
Cash Dividends Declared ($.40 Per Share) 0 0 (1,780,963) 0 0 (1,780,963)
Unrealized Gain on Certain Securities 0 0 0 0 7,719,903 7,719,903
-------- ----------- ----------- --------- ----------- -----------
BALANCES, DECEMBER 31, 1995 $46,094 $15,052,435 $32,758,593 $(791,924) $ 3,819,200 $50,884,398
======== =========== =========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-58
<PAGE> 128
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,214,068 $ 6,289,371 $ 6,301,332
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Provision For Loan Losses 255,000 600,000 1,096,000
Depreciation 769,085 769,173 630,826
Net Accretion of Discount on Investments (351,457) (375,547) (5,039)
Loss on Sale of Investments and Other Real Estate 73,997 167,875 (445,453)
Provision For Deferred Income Taxes 146,806 12,869 (257,038)
Cumulative Effect on Prior Years of Changing
Method of Accounting For Income Taxes 0 0 (625,898)
Net Amortization of Deferred Loan Fees (132,087) (176,802) (38,807)
(Increase) in Accrued Interest Receivable (314,984) (354,854) (141,112)
Increase in Accrued Interest Payable 1,750,809 470,032 (92,288)
Other 236,759 (17,507) (114,814)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,647,996 7,384,610 6,307,709
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Federal Funds 0 0 2,304,000
Proceeds From Sales of Investment Securities 85,626,511 21,754,099 37,944,615
Proceeds From Maturities of Investment Securities 38,448,000 29,874,512 47,975,099
Purchases of Investment Securities (128,974,598) (63,043,229) (102,419,452)
Net (Increase) in Loans Receivable (31,041,000) (26,984,966) (21,861,528)
Payment of Other Costs on Real Estate Owned (28,139) (172,013) (76,278)
Proceeds From Sale of Real Estate Owned 101,818 1,711,770 997,120
Purchases of Premises and Equipment (2,226,142) (840,988) (578,858)
Proceeds From Sales of Equipment 0 1,899 1,488
--------------- --------------- ---------------
NET CASH (USED IN) INVESTING ACTIVITIES (38,093,550) (37,698,916) (35,713,794)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Premerger Stock Activity of Acquired Company 811,031 0 0
Net (Decrease) Increase in Demand Deposits, NOW
Accounts, and Savings Accounts (19,149,644) 2,132,524 12,539,658
Net Increase in Certificates of Deposit 54,648,196 27,780,840 6,877,954
Net Increase in Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 1,624,564 1,202,153 2,880,892
Dividends Paid (1,416,679) (1,254,771) (1,134,792)
Purchases of Treasury Stock 0 0 (49,248)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,517,468 29,860,746 21,114,464
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,071,914 (453,560) (8,291,621)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,153,492 17,607,052 25,898,673
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 25,225,406 $ 17,153,492 $ 17,607,052
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH AND CASH EQUIVALENTS
Cash and Demand Deposits Due From Banks $ 17,833,406 $ 17,153,492 $ 16,509,052
Federal Funds Sold 7,392,000 0 1,098,000
--------------- --------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS $ 25,225,406 $ 17,153,492 $ 17,607,052
=============== =============== ===============
INTEREST PAID $ 15,954,387 $ 12,404,370 $ 12,172,399
=============== =============== ===============
INCOME TAXES PAID $ 2,422,537 $ 2,292,048 $ 2,282,506
=============== =============== ===============
DISPOSALS OF PREMISES AND EQUIPMENT
Cost $ 0 $ 2,035 $ 110,514
(Accumulated Depreciation) 0 (138) (109,026)
--------------- --------------- ---------------
TOTAL DISPOSALS OF PREMISES AND EQUIPMENT $ 0 $ 1,897 $ 1,488
=============== =============== ===============
</TABLE>
See accompanying notes.
F-59
<PAGE> 129
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITY
Citi-Bancshares, Inc. (the Company) is a bank holding company
whose sole subsidiary, Citizens National Bank of Leesburg (the
Bank) is engaged in bank and bank-related activities. The Bank
commenced operation as a national bank on April 11, 1953. It is a
member of the Federal Reserve System, Federal Deposit Insurance
Corporation (FDIC) and the Bank Insurance Fund (BIF) The Company's
primary service area consists of Lake, Sumter and
Marion Counties in central Florida.
PRINCIPLES OF CONSOLIDATION
The supplemental consolidated financial statements include the
accounts of Citi-Bancshares, Inc., its wholly-owned subsidiary,
Citizens National Bank of Leesburg and Citizens First Bancshares,
Inc., as described in note 2. All significant intercompany
accounts and transactions have been eliminated. Assets held in an
agency or fiduciary capacity are not assets of the Bank and,
accordingly, are not included in the accompanying supplemental
consolidated financial statements.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include cash, demand deposits due from banks and
federal funds sold. Generally, federal funds sold mature within
ninety days.
SECURITIES
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards Statement No. 115 (FASB No. 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB No.
115, the Company is required to classify acquired debt and equity
securities into one of three categories: held-to-maturity,
available-for-sale and trading.
o Investments in debt securities are classified as
held-to-maturity only if the Company has the positive intent
and ability to hold such securities to maturity. These
investments are carried in the balance sheet at amortized cost,
i.e., cost adjusted for amortization of premiums and accretion
of discounts as computed by the interest method.
F-60
<PAGE> 130
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
SECURITIES (CONCLUDED)
o All investments not classified as either held-to-maturity
securities or trading securities are classified as
available-for-sale. These securities are carried at market
value as of the date of the balance sheet. The unrealized gains
and losses on these securities are excluded from earnings for
the year. Instead, the net unrealized gain or loss, net of the
applicable deferred income taxes, is shown as a separate
component of stockholders' equity in the balance sheet.
o Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as
trading securities. Such securities, if any, are carried at
market value and the unrealized gains and losses on such
securities are included in income for the current year.
Prior to the adoption of FASB No. 115, investment debt securities
were stated at cost adjusted for amortization of premiums and
accretion of discounts as computed by the interest method.
Investments in marketable equity securities were carried at the
lower of cost or market value. Unrealized losses on such equity
securities considered to be temporary were charged against
stockholders' equity; declines in market value considered to be
other than temporary were charged to earnings.
In December 1995, the Company utilized the FASB guidance outlined
in "Special Report-A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities,"
and reclassified all of its securities in held-to-maturity to
available-for-sale. The gain, net of tax, is included in the
separate component of stockholders' equity as "Unrealized Gain
(Losses) on Certain Securities."
Gains and losses on the sale of investment securities are computed
on the basis of specific identification of the adjusted cost of
each security.
LOANS RECEIVABLE
The Company adopted Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan (FASB
No. 114) on January 1, 1995. FASB No. 114 addresses the accounting
by creditors for impairment of certain loans, uncollateralized as
well as collateralized, except large groups of smaller-balance
homogeneous loans which the Bank considers to be credit card,
consumer installment, residential real estate and home equity
loans that are collectively evaluated for impairment. Also, FASB
No. 114 requires that impaired loans be measured either by the
present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable market
price or the fair value of the collateral if the loan is
collateral dependent. Management considers a loan impaired when it
becomes probable that there will be a loss resulting from the
credit after foreclosure and liquidation of the collateral or as a
result of not receiving payments when contractually agreed upon,
which could result in a loss of principal or interest.
F-61
<PAGE> 131
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
LOANS RECEIVABLE (CONCLUDED)
Nonaccrual loans are loans on which the accrual of interest has
been discontinued because either a reasonable doubt exists as to
the full and timely collection of interest or principal, or when a
loan becomes contractually past due ninety days or more with
respect to interest or principal. A nonaccrual loan may not have
an anticipated loss associated with it because of the collateral
supporting the credit and, therefore, not be considered impaired.
An impaired loan is anticipated to have a loss and may or may not
be on nonaccrual. When a loan is placed on nonaccrual status, all
interest previously accrued, but not collected, is reversed
against current period interest income. Interest income on
nonaccrual loans and impaired loans is recognized only to the
extent cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans
only when they are brought fully current with respect to interest
and principal and when, in management's judgment, the loans are
estimated to be fully collectible as to both principal and
interest.
Interest income on loans is recognized based upon the principal
amounts outstanding, except that on consumer loans, the sum of the
month's digits method is used.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely or, with respect to
consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing
loans and commitments to extend credit, based on evaluations of
the collectibility and prior loss experience of loans and
commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, and current and anticipated
economic conditions that may affect the borrower's ability to pay.
Recoveries of previous charge-offs are added back to the
allowance.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure
is carried at the lower of its estimated fair value less estimated
costs to sell or the balance of the related loan at the date the
real estate is acquired. Costs relating to the development and
improvement of the real estate are capitalized, whereas those
costs relating to holding the real estate are charged to expense.
Sales of real estate owned are recorded under the full accrual
method of accounting. Under this method, a sale is not recognized
until payments received aggregate a specific required percentage
of the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real
estate is greater than the estimated net realizable value.
F-62
<PAGE> 132
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
PREMISES AND EQUIPMENT
Land is stated at cost. The premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed on
the straight-line method over the assets' estimated useful lives.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO
REPURCHASE
The Bank enters into agreements to repurchase securities sold to
customers. The securities sold are United States Treasury and
agency securities which are included in the Bank's investment
portfolio and are held in safekeeping by other large banks. The
repurchase agreements outstanding at December 31, 1995, are one
day agreements which are automatically renewable unless the
customer notifies the Bank. The interest rate on such agreements
varies between 4.38% and 8.50%.
Federal funds purchased mature within one to four days from the
transaction date.
INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded to
reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at year end. The change in deferred
taxes attributable to the carrying value of investments
categorized as "Available-for-Sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related to
operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for under the
flow-through method.
Citi-Bancshares, Inc. files consolidated federal and state income
tax returns with its subsidiary, Citizens National Bank of
Leesburg. Federal and state income taxes are allocated between the
Company and its subsidiary in proportion to the respective
contributions to consolidated taxable income.
Effective January 1, 1993, the Company adopted the asset and
liability method of accounting for income taxes as required by
FASB No. 109, Accounting for Income Taxes. The Company previously
used the deferred method to account for income taxes. The Company
accounted for this change as a cumulative effect of an accounting
change in the 1993 financial statements.
F-63
<PAGE> 133
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
------------------------------------------
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares of common stock outstanding, adjusted retroactively for
stock dividends, stock splits and the pooling of Citizens First
Bancshares, Inc., as described in note 2.
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial, and residential loans
primarily to customers in Lake, Marion and Sumter Counties in the
state of Florida. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate economic sector
as described in note 3.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
current financial reporting to facilitate comparison of the
financial data.
NOTE 2 - ACQUISITION OF CITIZENS FIRST BANCSHARES, INC.
----------------------------------------------
These supplemental consolidated financial statements give
retroactive effect to the pooling of interests acquisition of
Citizens First Bancshares, Inc., as more fully described below. As
a result, the supplemental consolidated balance sheets as of
December 31, 1995 and 1994, and the related supplemental
consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period
ended December 31, 1995, are presented as if the combining
companies had been consolidated for all periods presented. As
required by generally accepted accounting principles, the
supplemental consolidated financial statements will become the
historical consolidated financial statements upon issuance of the
consolidated financial statements for the period that includes the
date of the acquisition. The supplemental consolidated statements
of changes in stockholders' equity reflect the accounts of the
Company as if the additional common stock had been issued during
all the periods presented. The supplemental consolidated financial
statements, including the notes thereto, should be read in
conjunction with the historical consolidated financial statements
of the Company included in the Company's 1995 annual report on
Form 10-K and the audited financial statements of Citizens First
Bancshares, Inc.
As a result of the merger, each share of issued and outstanding
Citizens First Bancshares, Inc. common stock was converted into
1.317911 shares of the Company's common stock with cash being paid
for fractional share interests. 424,711 shares of the Company's
stock were issued for 322,480 shares of Citizens First Bancshares,
Inc. common stock. On the date of the merger, Citizens First
Bancshares, Inc. had assets of $40,866,000, net loans of
$25,668,000, deposits of $35,863,000 and net income of $144,376.
F-64
<PAGE> 134
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - SECURITIES
----------
The carrying value of securities, including information regarding
amortized cost, gross unrealized gains, gross unrealized losses
and market value is tabulated below:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
1995 (AVAILABLE-FOR-SALE)
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 26,101,113 $ 840,147 $ 0 $ 26,941,260
U.S. Government Agencies 93,091,187 1,690,358 352,591 94,428,954
Mortgage-Backed Securities 39,651,178 882,254 148,581 40,384,851
Obligations of State and
Political Subdivisions 62,260,489 3,057,166 11,218 65,306,437
Corporate Securities 1,000,000 82,670 0 1,082,670
------------- ------------- ------------- -------------
Total Debt Securities 222,103,967 6,552,595 512,390 228,144,172
Equity Securities 772,150 0 0 772,150
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 222,876,117 $ 6,552,595 $ 512,390 $ 228,916,322
============= ============= ============= =============
For the year ended December 31, 1994:
<CAPTION>
CARRYING VALUE SUMMARY
-------------------------------------------
1994
-------------------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Treasury Securities $ 39,164,010 $ 0 $ 39,164,010
U.S. Government Agencies 53,145,174 11,238,149 64,383,323
Mortgage-Backed Securities 38,135,420 8,122,239 46,257,659
Obligations of State and
Political Subdivisions 5,895,856 50,365,192 56,261,048
Corporate Securities 4,874,300 1,200 4,875,500
------------- ------------- -------------
Total Debt Securities 141,214,760 69,726,780 210,941,540
Equity Securities 169,850 460,000 629,850
------------- ------------- -------------
TOTAL SECURITIES $ 141,384,610 $ 70,186,780 $ 211,571,390
============= ============= =============
<CAPTION>
1994 AVAILABLE-FOR-SALE
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 39,882,852 $ 148,074 $ 866,916 $ 39,164,010
U.S. Government Agencies 56,292,163 117,300 3,264,289 53,145,174
Mortgage-Backed Securities 40,313,770 104,726 2,283,076 38,135,420
Obligations of State and
Political Subdivisions 5,862,952 79,907 47,003 5,895,856
Corporate Securities 4,990,202 30,850 146,752 4,874,300
------------- ------------- ------------- -------------
Total Debt Securities 147,341,939 480,857 6,608,036 141,214,706
Equity Securities 169,850 0 0 169,850
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 147,511,789 $ 480,857 $ 6,608,036 $ 141,384,610
============= ============= ============= =============
</TABLE>
F-65
<PAGE> 135
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - SECURITIES (CONTINUED)
----------
<TABLE>
<CAPTION>
1994 HELD-TO-MATURITY
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 0 $ 0 $ 0 $ 0
U.S. Government Agencies 11,238,149 0 565,544 10,672,605
Mortgage-Backed Securities 8,122,239 19,482 193,955 7,947,766
Obligations of State and
Political Subdivisions 50,365,192 795,335 2,721,202 48,439,325
Corporate Securities 1,200 0 0 1,200
------------- ------------- ------------- -------------
Total Debt Securities 69,726,780 814,817 3,480,701 67,060,896
Equity Securities 460,000 0 0 460,000
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 70,186,780 $ 814,817 $ 3,480,701 $ 67,520,896
============= ============= ============= =============
For the year ended December 31, 1993:
<CAPTION>
CARRYING VALUE SUMMARY
--------------------------------------------
1993
--------------------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Treasury Securities $ 45,887,114 $ 1,021,848 $ 46,908,962
U.S. Government Agencies 50,327,127 997,363 51,324,490
Mortgage-Backed Securities 48,782,975 6,882,449 55,665,424
Obligations of State and
Political Subdivisions 6,841,190 43,127,242 49,968,432
Corporate Securities 7,285,100 0 7,285,100
------------- ------------- -------------
Total Debt Securities 159,123,506 52,028,902 211,152,408
Equity Securities 82,000 460,000 542,000
------------- ------------- -------------
TOTAL SECURITIES $ 159,205,506 $ 52,488,902 $ 211,694,408
============= ============= =============
<CAPTION>
1993 AVAILABLE-FOR-SALE
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 43,409,978 $ 2,477,801 $ 665 $ 45,887,114
U.S. Government Agencies 49,334,633 1,060,111 67,617 50,327,127
Mortgage-Backed Securities 47,436,779 1,402,397 56,201 48,782,975
Obligations of State and
Political Subdivisions 6,347,849 493,341 0 6,841,190
Corporate Securities 6,974,939 310,161 0 7,285,100
------------- ------------- ------------- -------------
Total Debt Securities 153,504,178 5,743,811 124,483 159,123,506
Equity Securities 82,000 0 0 82,000
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 153,586,178 $ 5,743,811 $ 124,483 $ 159,205,506
============= ============= ============= =============
</TABLE>
F-66
<PAGE> 136
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - SECURITIES (CONTINUED)
----------
<TABLE>
<CAPTION>
1993 HELD-TO-MATURITY
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,021,848 $ 0 $ 1,248 $ 1,020,600
U.S. Government Agencies 997,363 2,637 0 1,000,000
Mortgage-Backed Securities 6,882,449 315,291 0 7,197,740
Obligations of State and
Political Subdivisions 43,127,242 2,925,530 0 45,995,636
Corporate Securities 0 0 57,136 0
------------- ------------- ------------- -------------
Total Debt Securities 52,028,902 3,243,458 58,384 55,213,976
Equity Securities 460,000 0 0 460,000
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 52,488,902 $ 3,243,458 $ 58,384 $ 55,673,976
============= ============= ============= =============
</TABLE>
The amortized cost, carrying (market) value and weighted average
yields of investment securities at December 31, 1995, by
contractual maturity are shown below. The weighted average yield
is determined using the amortized cost of securities. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligation with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING
AMORTIZED (MARKET) WEIGHTED
COST VALUE AVERAGE YIELD
--------------- --------------- -------------
<S> <C> <C> <C>
Due in One Year or Less $ 12,690,000 $ 12,897,000 7.70
Due After One Year Through Five Years 41,288,000 41,873,000 6.34
Due After Five Years Through Ten Years 75,313,000 77,907,000 7.46
Due After Ten Years 53,162,000 55,855,000 8.01
--------------- ---------------
182,453,000 188,532,000
Mortgage-Backed Securities and Equity
Securities 40,423,000 40,385,000 7.47
--------------- ---------------
TOTAL $ 222,876,000 $ 228,917,000 7.40
=============== ===============
</TABLE>
Proceeds from sales of investment securities classified as
available-for-sale during 1995 were $85,626,511, with gross gains
of $831,762 and gross losses of $905,759. There were no sales or
transfers of assets classified as held-to-maturity during 1994.
During 1994, proceeds from sales of investment securities
classified as available-for-sale were $21,754,099, with gross
gains of $80,158 and gross losses of $275,998. Proceeds from sales
of investment securities during 1993 were $37,944,615, with gross
gains of $567,334 and gross losses of $121,181. In computing
recognized gains and losses, cost is determined using specific
identification of securities.
As of December 31, 1995, investment securities with a carrying
value of $11,654,685 were pledged as collateral for public funds,
trust deposits and repurchase agreements.
F-67
<PAGE> 137
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - SECURITIES (CONCLUDED)
----------
UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
As discussed in note 1, effective December 31, 1993, the Company
adopted the investment categorization and carrying value rules as
required by FASB No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Under this statement, the unrealized
gain or loss on investment securities available-for-sale, net of
the applicable deferred income taxes, is shown as a separate
component of stockholders' equity in the balance sheet.
In December 1995, the Company utilized the FASB guidance outlined
in "Special Report-A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities"
and reclassified all its securities in held-to-maturity to
available-for-sale. As of the transfer date, the amortized cost
was $77,480,555 and market value was $80,807,215. Accordingly,
there was an unrealized gross gain of $3,326,660 at transfer,
which is included net of $1,251,822 tax as part of the unrealized
gains (losses) on certain securities component of stockholders'
equity.
The following is a summary of the effects of the statement on
stockholders' equity as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------------- ---------------
<S> <C> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale $ 6,040,205 $ (6,127,180)
Deferred Income Tax (Liability) Asset on
Unrealized Gain (2,221,005) 2,226,477
----------------- ---------------
NET INCREASE (DECREASE) IN STOCKHOLDERS' EQUITY $ 3,819,200 $ (3,900,703)
================= ===============
</TABLE>
The following tabulation presents the net change in unrealized
gain or loss on available-for-sale securities that is shown as a
separate component of stockholders' equity.
<TABLE>
<CAPTION>
1995 1994
----------------- ----------------
<S> <C> <C>
Increase (Decrease) in Unrealized Gain or Loss $ 12,167,385 $ (11,617,861)
(Increase) Decrease in Related Deferred Income Taxes (4,447,482) 4,130,790
----------------- ----------------
NET INCREASE (DECREASE) IN STOCKHOLDERS' EQUITY $ 7,719,903 $ (7,487,071)
================= ================
</TABLE>
At December 31, 1995, the investment portfolio included $9,153,178
in structured note derivative financial instruments, which is
4.00% of the total carrying value. The derivative instruments are
classified as available-for-sale and included as a component of
investment securities on the balance sheet. Recognition and
measurement policies for derivatives are the same as all
investment securities detailed in note 1. The Company maintains
only one class of derivative instruments, structured notes, which
were originally purchased for investment yield. Current objectives
are to divest of any and all structured notes as the market allows
while minimizing any loss on the sales. In January 1996, the
Company sold two notes, reducing the total derivative instruments
to $6,653,178.
F-68
<PAGE> 138
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
-----------------------------------
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Commercial, Financial and Agricultural $ 24,484,870 $ 15,342,082
Real Estate 200,776,886 181,075,083
Installment Loans 28,248,285 26,189,723
---------------- -----------------
Loans Receivable (Gross) 253,510,041 222,606,888
(Unearned Income) (825,330) (1,054,152)
---------------- -----------------
LOANS RECEIVABLE (NET OF UNEARNED INCOME) $ 252,684,711 $ 221,552,736
================ =================
</TABLE>
The maturity ranges of the loan portfolio and the amount of loans
with predetermined interest rates and floating rates in each
maturity range, as of December 31, 1995, are summarized as
follows:
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DISTRIBUTION
---------------------------------------------------------
WITHIN ONE - AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural $ 19,822,007 $ 4,506,444 $ 149,398 $ 24,477,849
Real Estate 149,183,199 37,812,142 13,167,560 200,162,901
Installment Loans 7,847,282 18,713,597 1,483,082 28,043,961
------------- ------------ ------------ --------------
TOTAL LOANS (NET OF UNEARNED INCOME) 176,852,488 61,032,183 14,800,040 252,684,711
============= ============ ============ ==============
Loans With Predetermined Rate 7,974,921 61,003,433 14,800,040 83,778,394
Loans With a Floating Rate 168,877,567 28,750 0 168,906,317
------------- ------------ ------------ --------------
TOTAL LOANS (NET OF UNEARNED INCOME) $ 176,852,488 $ 61,032,183 $ 14,800,040 $ 252,684,711
============= ============ ============ ==============
</TABLE>
The Bank has granted loans to its executive officers, directors
and principal equity holders and their associates. The aggregate
dollar amount of these loans was approximately $4,024,800 and
$2,980,763 at December 31, 1995 and 1994, respectively. During
1995, approximately $1,529,658 in new loans were made while
repayments approximated $485,621.
Loans on which the accrual of interest has been discontinued or
reduced at December 31, 1995 and 1994, approximated $1,100,383 and
$509,829, respectively. Interest income realized on these loans
was $53,207 and $43,472 in 1995 and 1994, respectively. If
interest on those loans had been accrued, it would not have a
material effect on the accompanying supplemental consolidated
financial statements. At December 31, 1995, the Bank had loans
subject to floors and caps totalling $98,210,031. The floors and
caps on these loans range from 2.75% to 15.25%.
At December 31, 1995, there were no commitments to lend additional
funds to borrowers whose loans are classified as nonaccrual.
F-69
<PAGE> 139
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
-----------------------------------
Changes in the allowance for loan losses for 1995, 1994 and 1993
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,404,535 $ 2,876,745 $ 1,990,081
Provisions Charged to Expense 255,000 600,000 1,096,000
Recoveries of Loans Previously Charged-Off:
Commercial, Financial and Agricultural 29,816 65,242 65,189
Real Estate 222,180 47,904 21,674
Installment Loans 55,585 42,118 99,210
-------------- -------------- --------------
Total Recoveries 307,581 155,264 186,073
-------------- -------------- --------------
Loans Charged-Off:
Commercial, Financial and Agricultural 1,448 55,389 0
Real Estate 9,430 77,479 320,967
Installment Loans 155,961 94,606 74,442
-------------- -------------- --------------
Total Loans Charged-Off (166,839) (227,474) (395,409)
-------------- -------------- --------------
BALANCE, END OF YEAR $ 3,800,277 $ 3,404,535 $ 2,876,745
============== ============== ==============
RATIO OF NET (RECOVERIES) CHARGE-OFFS TO
AVERAGE LOANS OUTSTANDING (.06)% 0.3% (.11%)
===== ==== ====
RATIO OF ALLOWANCE FOR LOAN LOSSES AS A
PERCENTAGE OF YEAR END LOANS 1.50% 1.54% 1.48%
===== ====== ====
</TABLE>
As of December 31, 1995 and 1994, the allowance for loan losses
was allocated as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------- ---------------------------
PERCENT BY PERCENT BY
AMOUNT CATEGORY AMOUNT CATEGORY
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Commercial $ 363,655 10% $ 776,575 23%
Real Estate 3,306,283 87% 2,502,467 73%
Installment 130,339 3% 125,493 4%
------------- ---- ------------- -----
TOTAL ALLOWANCE FOR LOAN
LOSSES $ 3,800,277 100% $ 3,404,535 100%
============= ==== ============= =====
</TABLE>
At December 31, 1995, the total recorded investment in impaired
loans was $1,845,025, which had a related allowance for credit
losses of $516,128. None of the recorded investment in impaired
loans were without a related allowance for credit losses. The
average recorded investment in impaired loans at December 31,
1995, was $1,797,821. The amount of interest income recognized
during the time within the year ended December 31, 1995, that the
loans were impaired was $166,505. The amount of interest income
recognized using a cash basis method of accounting during the time
within the year ended December 31, 1995, that the loans were
impaired was $30,378.
F-70
<PAGE> 140
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 5 - PREMISES AND EQUIPMENT
----------------------
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Land $ 1,517,188 $ 1,298,534
Buildings 7,968,370 7,368,568
Construction in Process 963,308 0
Furniture, Fixtures and Equipment 6,274,859 5,857,925
---------------- -----------------
16,723,725 14,525,027
(Accumulated Depreciation) (7,438,576) (6,696,936)
---------------- -----------------
TOTAL PREMISES AND EQUIPMENT $ 9,285,149 $ 7,828,091
================ =================
</TABLE>
NOTE 6 - DEPOSITS
--------
A summary of interest-bearing deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Demand $ 59,682,951 $ 61,680,947
Savings 92,243,568 114,406,689
Time 251,745,771 197,097,575
---------------- -----------------
TOTAL INTEREST-BEARING DEPOSITS $ 403,672,290 $ 383,185,211
================ =================
</TABLE>
Time deposit maturities for future years are presented in the
following table:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 $ 174,576,188
1997 30,687,056
1998 15,162,273
1999 19,013,297
2000 11,790,596
Thereafter 516,361
------------------
TOTAL $ 251,745,771
==================
</TABLE>
Included in interest-bearing deposits are certificates of deposit
in amounts of $100,000 or more. These certificates and their
remaining maturities at December 31, 1995 and 1994, are as
follows:
F-71
<PAGE> 141
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 6 - DEPOSITS (CONCLUDED)
--------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Three Months or Less $ 9,309,066 $ 8,120,125
Three Through Six Months 4,249,532 3,403,564
Six Through Twelve Months 10,562,661 6,475,557
Over Twelve Months 11,880,719 11,884,021
---------------- -----------------
TOTAL $ 36,001,978 $ 29,883,267
================ =================
</TABLE>
A summary of interest on deposits is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest-Bearing Demand Deposits $ 2,577,015 $ 2,864,827 $ 2,991,149
Savings 1,469,119 1,373,569 1,294,052
Time Deposits of $100,000 or More 1,848,587 1,321,072 1,113,637
Other Time Deposits 11,433,504 7,197,335 6,680,291
--------------- --------------- ---------------
TOTAL $ 17,328,225 $ 12,756,803 $ 12,079,129
=============== =============== ===============
</TABLE>
NOTE 7 - INCOME TAXES
------------
As discussed in note 1, effective January 1, 1993, the Company
adopted the asset and liability method of accounting for income
taxes as required by FASB No. 109, Accounting for Income Taxes.
The Company previously used the deferred method to account for
income taxes. The Company accounted for this change as the
cumulative effect of an accounting changes in the 1993 financial
statements. The cumulative effect of $625,898 is recognized in the
1993 consolidated statement of income.
The total provision (benefit) for income taxes in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
CURRENT INCOME TAX EXPENSE
<S> <C> <C> <C>
U.S. Federal $ 2,074,201 $ 1,924,114 $ 1,841,861
State of Florida 371,476 284,551 321,463
-------------- -------------- --------------
TOTAL CURRENT INCOME TAX EXPENSE 2,445,677 2,208,665 2,163,324
-------------- -------------- --------------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal (67,503) (91,167) (306,163)
State of Florida 5,437 (8,935) (42,404)
-------------- -------------- --------------
TOTAL DEFERRED INCOME TAX (BENEFIT) (62,066) (100,102) (348,567)
-------------- -------------- --------------
INCOME TAX EXPENSE FROM REALIZATION
OF NET OPERATING LOSS CARRYOVER
OF ACQUIRED COMPANY 208,872 112,971 91,529
-------------- -------------- --------------
TOTAL INCOME TAX EXPENSE $ 2,592,483 $ 2,221,534 $ 1,906,286
============== ============== ==============
</TABLE>
F-72
<PAGE> 142
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - INCOME TAXES (CONTINUED)
------------
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ------------------------- ------------------------
AMOUNT % AMOUNT % AMOUNT %
-------------- ----- ---------------- ------ --------------- ------
<S> <C> <C> <C> <C> <C> <C>
Computed "Expected" Income
Tax Expense $ 3,334,228 34.0 $ 2,893,708 34.0 $ 2,574,372 34.0
Interest Income Exempt From
Federal Income Tax (851,596) (8.7) (851,507) (10.0) (717,410) (9.6)
State Income Taxes, Net of
Federal Income Tax Benefits 260,949 2.6 186,194 2.2 187,834 2.5
Other (59,523) (.6) (6,861) (.1) (138,510) (1.8)
Difference Between Estimate and
Actual of Net Operating Loss
Carryover (91,575) (.9) 0 .0 0 .0
-------------- ----- ---------------- ------ --------------- ------
TOTAL $ 2,592,483 26.4 $ 2,221,534 26.1 $ 1,906,286 25.1
============== ======= ================ ====== =============== ======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1995 1994
----------------- ---------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $ 192,899 $ 161,493
Basis Difference on Investment Securities
Available-For-Sale 2,221,005 0
Deferred Other Income and Expenses 106,242 66,383
----------------- ---------------
GROSS DEFERRED TAX LIABILITIES 2,520,146 227,876
----------------- ---------------
DEFERRED TAX (ASSETS)
Basis Difference on Investment Securities
Available-For-Sale 0 2,226,477
Allowance For Loan Losses 894,076 800,200
Allowance For Losses on Other Real Estate Owned 53,114 61,633
Earnings of Real Estate Mortgage Investment
Conduit (REMIC) 50,947 46,108
Tax Net Operating Loss 139,283 358,155
Deferred Expenses Payable 175,845 89,635
Deferred Loan Income 257,537 290,612
----------------- ---------------
GROSS DEFERRED TAX (ASSETS) (1,570,802) (3,872,820)
----------------- ---------------
NET DEFERRED TAX LIABILITIES (ASSETS) $ 949,344 $ (3,644,944)
================= ===============
</TABLE>
F-73
<PAGE> 143
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - INCOME TAXES (CONCLUDED)
------------
The sources of timing differences and the related income tax
effect of each of the years ended December 31, 1995, 1994 and
1993, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- --------------
<S> <C> <C> <C>
Provision For Loan and Other Real Estate Owned
Losses For Income Tax Purposes (Less)
Than For Financial Statement Purposes $ (85,357) $ (153,672) $ (324,687)
Interest Income Earned on Real Estate Mortgage
Investment Conduit For Income Tax Purposes
(Less) Greater Than For Financial Statement
Purposes (4,840) 39,800 39,461
Depreciation Deducted For Tax Purposes Greater
(Less) Than That Recognized as Expense For
Financial Statement Purposes 31,407 6,069 1,931
Loan Fee Income Realized For Income Tax
Purposes Greater (Less) Than For Financial
Statement Purposes 33,075 (15,468) (35,674)
Adjustment For Accrual to Cash Income and
Expenses (34,340) 12,501 (19,303)
Other (2,011) 10,668 (10,295)
Utilization of Net Operating Loss 208,872 112,971 91,529
------------- ------------- -------------
TOTAL $ 146,806 $ 12,869 $ (257,038)
============= ============= =============
</TABLE>
As a result from gains and losses on sales of securities, income
tax expense increased (decreased) by the following amounts:
$(27,845) in 1995; $(63,171) in 1994; $167,624 in 1993.
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
INVESTMENT SECURITIES
For marketable equity securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes.
For other securities held as investments, fair value equals quoted
market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
F-74
<PAGE> 144
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
-----------------------------------------------------
LOANS RECEIVABLE
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Substantially all of the Bank's commitments to extend credit and
standby letters of credit are at variable rates and are subjected
to the same credit criteria as for recognized loans receivable.
The variable rates ascribed to these commitments to extend credit
and standby letters of credit approximate market rates for such
instruments. Accordingly, the carrying amount is considered a
reasonable estimate of fair value.
The estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1995 1994
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term
Investments $ 25,225,406 $ 25,225,406 $ 17,153,492 $ 17,153,492
Investment Securities $ 228,916,322 $ 228,916,322 $ 211,571,390 $ 208,905,506
Loans Receivable, Net $ 248,884,434 $ 250,378,086 $ 218,148,201 $ 217,254,051
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1995 1994
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
FINANCIAL LIABILITIES
<S> <C> <C> <C> <C>
Deposits $ 451,598,115 $ 453,433,912 $ 416,099,563 $ 417,767,137
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase $ 8,497,780 $ 8,497,780 $ 6,873,216 $ 6,873,216
</TABLE>
F-75
<PAGE> 145
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
-----------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1995 1994
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
UNRECOGNIZED FINANCIAL
INSTRUMENTS
Commitments to Extend
Credit $ 39,027,862 $ 39,027,862 $ 37,127,843 $ 37,127,843
Standby Letters of
Credit $ 1,007,867 $ 1,007,867 $ 991,602 $ 991,602
</TABLE>
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters
of credit and interest rate caps and floors written. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
statement of financial position. The contract or notional amounts
of those instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. For interest rate caps and floors, the contract or
notional amounts do not represent exposure to credit loss.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit
is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable,
inventory, property, plant, and equipment, and income-producing
commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and
similar transactions. Most guarantees extend for only one year and
expire in decreasing amounts through 1997. The credit risk
involved in issuing
F-76
<PAGE> 146
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
-----------------------------------------------------
letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank holds marketable
securities, certificates of deposit, securities sold under
agreements to repurchase and real estate, as collateral supporting
those commitments for which collateral is deemed necessary.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
-----------------------------
In the normal course of business, the Bank has various commitments
and contingent liabilities outstanding, such as commitments to
extend credit and standby letters of credit which are not
reflected in the supplemental consolidated financial statements.
At December 31, 1995, the Bank had commitments to customers of
approximately $1,007,867 for standby letters of credit, and
$27,277,137 for approved lines of credit. Unfunded loan
commitments at December 31, 1995, were $11,750,725. No losses are
anticipated as a result of these transactions.
The Bank is involved in legal proceedings primarily concerning the
recovery of loans previously charged-off or adequately provided
for in the allowance for loan losses. Management, after a review
of all litigation with counsel, believes that the resolution of
these matters will not have a material effect on the accompanying
supplemental consolidated financial statements.
Minimum commitments for rental expenditures under all
noncancellable operating leases are presented for future years in
the following table:
<TABLE>
<S> <C> <C>
1996 $ 39,413
1997 36,000
1998 36,000
1999 36,000
2000 36,000
Thereafter 0
-------------
TOTAL MINIMUM LEASE PAYMENTS $ 183,413
=============
</TABLE>
Rental expense for all operating leases was $83,654, $116,319 and
$165,940 in 1995, 1994, and 1993, respectively.
NOTE 10 - STOCKHOLDERS' EQUITY
--------------------
AVERAGE SHARES OUTSTANDING
The weighted-average number of shares outstanding during 1995,
1994 and 1993, after giving rise to the pooling of interests
acquisition described in note 2, were 4,477,097, 4,472,414 and
4,474,822, respectively.
F-77
<PAGE> 147
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 10 - STOCKHOLDERS' EQUITY (CONCLUDED)
--------------------
REGULATORY MATTERS
There are no restrictions on the ability of the Company to pay
dividends from its retained earnings; however, banking regulations
limit the amount of dividends national banks may declare without
receiving prior approval from the Comptroller of the Currency. At
December 31, 1995, approximately $16,262,502 was available for
payment of dividends by the Bank without such approval.
The Board of Governors of the Federal Reserve System has specified
guidelines for purposes of evaluating a bank's capital adequacy.
Currently, banks must maintain a minimum primary capital ratio of
capital to risk assets of 8.0%. Primary capital includes the
Company's stockholders' equity and the allowance for loan losses.
At December 31, 1995, the primary capital ratio of capital to risk
assets was in excess of 10.0%.
STOCK OPTION PLAN
In 1994, the Company adopted a stock option plan for granting
nonqualified stock options to specified officers. The nonqualified
stock options are granted to the officers provided the Bank meets
certain target performance and asset quality criteria. The stock
options, after a two-year vesting requirement, are exercisable at
a price equal to the book value per share, net of FASB No. 115.
The Board normally makes its decision on whether or not to grant
the options for a given year in February of the following year,
allowing time to review complete financial data and achievement of
certain performance criteria. If approved, the options are granted
effective the first business day following the end of the year.
The option price is the year-end book value, net of FASB No. 115,
for the year just completed. Should a grantee retire, the options
granted to him or her are exercisable within one year of
retirement. In 1995, options for 11,250 shares were granted
effective January 2, 1995, based on the Company's performance for
the year ended December 31, 1994. The Company follows APB Opinion
No. 25, Accounting for Stock Issued to Employees in recognizing
stock options. In December 1995, the Board approved a stock option
of 6,250 shares for the Chief Financial Officer to be effective
starting January 2, 1996. This was done as per discussions with
the Chief Financial Officer prior to his employment in March 1995.
NOTE 11 - OTHER EXPENSES
--------------
A summary of other expenses is as follows:
F-78
<PAGE> 148
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 11 - OTHER EXPENSES (CONCLUDED)
--------------
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Stationery and Supplies $ 395,056 $ 408,508 $ 315,989
Advertising 360,444 298,926 279,518
Insurance, Including Regulatory Assessments 535,987 988,706 955,246
Postage 271,401 229,760 200,453
Taxes (Other Than Payroll, Real Estate and
Income Taxes) 290,803 201,413 222,943
Directors' Fees 290,646 282,688 271,767
Trust Department Expense 137,060 136,116 118,255
Miscellaneous 1,245,632 1,167,993 1,063,564
-------------- -------------- --------------
TOTAL OTHER EXPENSES $ 3,527,029 $ 3,714,110 $ 3,427,735
============== ============== ==============
</TABLE>
NOTE 11 - DEFINED BENEFIT PENSION PLAN AND DEFINED CONTRIBUTION PLANS
-----------------------------------------------------------
The Bank maintains a noncontributory defined benefit pension and
two defined contribution plans covering eligible officers and
employees. Defined contribution plan contributions ($385,325 in
1995, $387,442 in 1994 and $261,991 in 1993) are determined
annually at the discretion of the Board of Directors of the Bank.
Effective January 1, 1988, the Bank adopted FASB No. 87,
Employers' Accounting For Pensions. Under this statement, pension
expense must be accounted for using the projected unit credit
method. Net periodic pension expense for the defined benefit plan
for the years ended December 31 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Service Cost $ 278,586 $ 255,148 $ 224,639
Interest Cost 180,647 175,201 149,779
Return on Plan Assets (447,457) 65,955 (111,429)
Amortization of Net Transition Asset (7,823) (7,283) (7,283)
Amortization of Prior Service Cost 18,040 18,040 19,989
Amortization of Net Loss (Gain) From
Earlier Periods 54,429 69,363 60,512
Asset Gain (Loss) Deferred 284,841 (210,725) (11,112)
------------ ------------ -------------
TOTAL PENSION EXPENSE $ 361,263 $ 365,699 $ 325,095
============ ============ =============
</TABLE>
The initial unrecognized asset at January 1, 1988, was $316,896,
which is the excess of the fair value of assets over the projected
benefit obligation on that date. The initial unrecognized
transition asset, as adjusted for any subsequent lump-sum
settlements, is being amortized over thirty-one years.
F-79
<PAGE> 149
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 12 - DEFINED BENEFIT PENSION PLAN AND DEFINED CONTRIBUTION
PLANS (CONCLUDED)
-----------------------------------------------------------
The Bank's funding policy is to make an annual contribution that
will not be less than the minimum required contribution nor
greater than the maximum federal income tax deductible limit. The
Bank contributed $271,000 for 1995; $362,000 for 1994; and
$345,588 for 1993.
The funded status of the defined benefit pension plan at December
31, 1995 and 1994, as determined by consulting actuaries, was as
follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Vested $ 2,024,378 $ 1,934,126
Nonvested 356,173 259,354
--------------- ---------------
TOTAL $ 2,380,551 $ 2,193,480
=============== ===============
ACCRUED PENSION LIABILITY
Projected Benefit Obligation $ (3,452,703) $ (3,199,274)
Fair Value of Plan Assets 3,242,746 2,548,469
--------------- ---------------
PROJECTED BENEFIT OBLIGATION (IN EXCESS OF
OR) LESS THAN PLAN ASSETS (209,957) (650,805)
UNRECOGNIZED NET TRANSITION ASSET (167,516) (174,799)
UNRECOGNIZED NET LOSSES (GAINS) 630,757 1,151,651
UNRECOGNIZED PRIOR SERVICE COST 177,642 195,682
--------------- ---------------
PREPAID PENSION COST $ 430,926 $ 521,729
=============== ===============
</TABLE>
The expected long-term rate of return on plan assets was 6.00% in
1995, 1994 and 1993, and 9% for the preceding years. The discount
rate and rate of increase in future compensation levels used in
determining the actuarial present value of benefit obligations is
presented below for each year.
<TABLE>
<CAPTION>
1995 1994 1993
-------------- --------------- ---------------
<S> <C> <C> <C>
Discount Rate 6.00% 6.00% 6.00%
Rate of Compensation Increase 5.00% 5.00% 5.00%
</TABLE>
As of December 31, 1995, the assets of the defined benefit pension
plan were invested as follows: 17% in cash and cash equivalents;
34% in U.S. Treasury and government agency debt securities; 11% in
taxable obligations of state and political subdivisions; 15% in
corporate debt securities; and 23% in equity securities. Five
percent of the value of the defined pension benefit plan's assets
is invested in the common stock of the Company.
F-80
<PAGE> 150
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
-------------------------------------------------
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters
of credit, interest rate caps and floors written. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The contract or notional amounts of
those instruments reflect the extent of involvement the Bank has
in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. For interest rate caps and floors, the contract or
notional amounts do not represent exposure to credit loss.
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
The following represents summarized quarterly financial data of
the Company which, in the opinion of management, reflects
adjustments (comprising only normal recurring accruals) necessary
for fair presentation:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
-----------------------------------------------------------------
1995 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------------------ ------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Interest Income $ 9,699 $ 9,522 $ 9,272 $ 8,667
Interest Expense (4,664) (4,620) (4,479) (3,943)
Net Interest Income 5,035 4,902 4,793 4,724
Provision For Losses
on Loans 0 (130) (95) (30)
Security Gains (Losses) (103) 26 18 (15)
Net Income 2,027 1,901 1,667 1,619
Earnings Per Share .45 .43 .37 .36
</TABLE>
F-81
<PAGE> 151
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONCLUDED)
-----------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------------------------------------
1994 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C>
Interest Income $ 8,402 $ 8,052 $ 7,899 $ 7,307
Interest Expense (3,564) (3,342) (3,062) (2,950)
Net Interest Income 4,838 4,710 4,837 4,357
Provision For Losses
on Loans (77) (201) (172) (150)
Security Gains (Losses) (44) 0 (178) 54
Net Income 1,642 1,647 1,589 1,412
Earnings Per Share .37 .37 .35 .32
</TABLE>
NOTE 15 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
----------------------------------------
Condensed financial statements of Citi-Bancshares, Inc. (Parent
Company Only) for the years ended December 31, 1995 and 1994, are
presented as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
Cash $ 1,793,399 $ 1,553,312
Investment in Wholly-Owned Subsidiary,
at Equity in Underlying Assets 50,856,914 36,777,266
Other Assets 66,427 50,921
--------------- ---------------
TOTAL ASSETS 52,716,740 38,381,499
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividends Payable 1,780,963 1,416,675
Deferred Compensation 50,641 43,728
Other 738 737
--------------- ---------------
TOTAL LIABILITIES 1,832,342 1,461,140
--------------- ---------------
STOCKHOLDERS' EQUITY
Common Stock 46,094 46,094
Capital Surplus 15,052,435 14,241,404
Retained Earnings 32,758,593 27,325,488
(Treasury Stock) (791,924) (791,924)
Unrealized Gains (Losses) on Certain Securities 3,819,200 (3,900,703)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 50,884,398 36,920,359
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 52,716,740 $ 38,381,499
=============== ===============
</TABLE>
F-82
<PAGE> 152
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 15 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONCLUDED)
----------------------------------------
CONDENSED STATEMENTS OF INCOME
------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME
Cash Dividends From Subsidiary $ 1,683,000 $ 1,500,000 $ 1,400,000
Interest 24,508 21,350 16,798
Other 6,000 2,500 0
--------------- --------------- ---------------
TOTAL INCOME 1,713,508 1,523,850 1,416,798
--------------- --------------- ---------------
EXPENSES
Interest 3,015 2,856 1,910
Other Expense 70,321 92,736 76,311
--------------- --------------- ---------------
TOTAL EXPENSES (73,336) (95,592) 78,221
--------------- --------------- ---------------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARY 1,640,172 1,428,258 1,338,577
INCOME TAX BENEFIT RESULTING FROM FILING
CONSOLIDATED INCOME TAX RETURNS 14,152 23,294 19,814
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 5,559,744 4,837,819 4,942,941
--------------- --------------- ---------------
NET INCOME $ 7,214,068 $ 6,289,371 $ 6,301,332
=============== =============== ===============
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
1995 1994 1993
-------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,214,068 $ 6,289,371 $ 6,301,332
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Deferred Compensation 6,913 (15,968) 10,926
Income From Subsidiary (5,559,745) (4,837,819) (4,942,941)
Tax Benefit (14,152) (23,294) (19,814)
Other (1,352) (2,817) 87,006
-------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,645,732 1,409,473 1,436,509
-------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid (1,416,675) (1,254,769) (1,134,792)
Proceeds From Options Exercised 96,480 0 0
Proceeds From Warrants Exercised 714,550 0 (49,248)
-------------- --------------- ---------------
NET CASH (USED IN) FINANCING ACTIVITIES (605,645) (1,254,769) (1,184,040)
-------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Infusion to Subsidiary (800,000) 0 0
-------------- --------------- ---------------
INCREASE IN CASH 240,087 154,704 252,469
CASH, BEGINNING OF YEAR 1,553,312 1,398,608 1,146,139
-------------- --------------- ---------------
CASH, END OF YEAR $ 1,793,399 $ 1,553,312 $ 1,398,608
============== =============== ===============
</TABLE>
F-83
<PAGE> 153
F I N A N C I A L R E V I E W
1995 Management's Discussion and Analysis
The following review is a discussion of the performance and financial condition
of Citi-Bancshares, Inc. (CBI). All CBI historical financial data has been
restated for the pooling of interests acquisition of Citizens First Bancshares,
Inc. (CFB and collectively with CBI, the Company) which was consummated on
April 19, 1996. Citizens National Bank of Leesburg (CNBL) is a wholly owned
subsidiary of CBI. Citizens First Bank of Ocala (CFBO and collectively with
CNBL, the Bank) a wholly owned subsidiary of CFB was merged with and into CNBL
on or about April 19, 1996. This discussion and analysis is designed to provide
a better understanding of the significant factors related to the Company's
results of operations and financial condition. Such discussion and analysis
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto, and the Financial Highlights provided previously
in this report.
OVERVIEW OF OPERATIONS
Net income for 1995 totalled $7,214,068 or $1.61 per share compared with
$6,289,000 or $1.41 per share in 1994 and $6,301,332 or $1.41 per share in 1993.
Earnings were aided by continued strong asset quality, growth in net earning
assets, good overhead control and reduced FDIC insurance premiums. Return on
average assets was 1.46 percent and return on average shareholders' equity was
15.39 percent for 1995, compared to the prior year's results of 1.40 percent and
16.57 percent, respectively, and 1993's results of 1.52 percent and 18.87
percent, respectively.
During 1995, core earnings (income before income taxes, excluding the provision
for loan losses, securities gains and losses, expenses associated with
acquisition and disposition of foreclosed properties and cumulative effect of
change in accounting principles) also showed strong improvement with a return on
average assets from core earnings of 2.05 percent and a return on average equity
(net of FASB No. 115 changes in the values of marketable securities) from core
earnings of 21.63 percent.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
AS A PERCENT OF AVERAGE ASSETS TABLE 1
(Tax Equivalent Basis)
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income ........................ 4.23 4.47 4.39
Provision for loan losses .................. (.05) (.13) (.26)
Noninterest income:
Investment securities gains (losses)...... (.02) (.04) .11
Service charges on deposit accounts ...... .24 .33 .38
Other income ............................. .25 .26 .26
Noninterest expenses ....................... (2.46) (2.69) 2.77)
---- ---- ----
Income before income taxes ................. 2.19 2.20 2.11
Provision for income taxes including
tax equivalent adjustment ................. (.73) (.80) (.74)
Cumulative effect of change in method
of accounting for income taxes ............ .00 .00 .15
---- ---- ----
Net Income ................................ 1.46 1.40 1.52
==== ==== ====
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, on a fully tax equivalent basis (TEB), totalled $20,923,000
for 1995, an increase of $761,000 or 3.77 percent from the Company's
year-earlier performance. The net interest spread decreased during 1995. The
average cost of interest-bearing liabilities increased from 3.52 percent during
1994 to 4.36 percent during 1995, while the average yield on earning assets
increased from 7.78 percent during 1994 to 8.21 percent during 1995. The
increases in average interest costs and yields on earning assets, coupled with
increased noninterest-bearing deposits and shareholders' equity resulted in a
decrease in the net interest income/yield on average earning assets from 4.74
percent in 1994 to 4.45 percent during 1995.
As a percentage of average earning assets, net interest margin (TEB) was 4.46
percent in the fourth quarter 1995, compared to 4.44 percent in the third
quarter, 4.43 percent in the second quarter and 4.57 percent for the first
quarter of 1995 and 4.77 percent for the fourth quarter in 1994.
Average earning assets for 1995 increased $44,522,000 or 9.88 percent compared
to prior year as a result of increased loans and investment securities funded
with the increase in deposits during 1995. Average loan balances have increased
$31,338,000 or 15.21 percent from 1994 to $237,397,000, while average
investment securities increased $6,761,000 or 3.19 percent to $219,025,000.
For the year ended December 31, 1995, average loans represented 50.47 percent of
average earning assets compared to 48.48 percent for 1994. While loan yields
increased 85 basis points, investment security yields increased only 4 basis
points, resulting in a yield increase of 43 basis points from 7.78 percent in
1994 to 8.21 percent. During 1995, the Bank changed its prime rate three times
beginning and ending at 8.5%. In 1994, the prime rate changed five times
increasing from 6% to 8.5%. The Bank did not change its prime rate during 1993.
For the years ended December 31, 1995 and 1994, Table 3 discloses the increases
and decreases in net interest income attributable to changes in the volume and
rates of individual earning assets and interest-bearing liabilities. The
balances of nonaccruing loans are included in average loans outstanding.
F-84
<PAGE> 154
<TABLE>
CHANGES IN AVERAGE EARNING ASSETS
(Dollars in thousands) TABLE 2
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
-------------------- ----------------------
1995 vs. 1994 1994 vs. 1993
<S> <C> <C> <C> <C>
Investment securities:
Taxable ............ $ 3,172 1.9% $ 7,978 4.9%
Nontaxable ......... 3,589 8.1 11,822 36.4
Federal funds sold
and other short-
term investments ... 7,288 109.0 (6,086) (47.6)
Loans, net ........... 31,338 15.2 20,519 11.1
------- --------
TOTAL .............. $45,387 10.7 $ 34,233 4.8
======= ========
</TABLE>
F-85
<PAGE> 155
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS)
Amount of Increase (Decrease) (Dollars in thousands) TABLE 3
1995 vs. 1994 1994 vs. 1993
------------------------------ ------------------------------------
Due to Change in: Due to Change in:
Volume Rate Total Volume Rate Total
------ ------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment securities:
Taxable ......................................... $ 225 $ (342) $ (117) $ 609 $ (904) $ (295)
Nontaxable ...................................... 338 (198) 140 1,265 (565) 700
Federal funds sold and other short-term investments 297 258 555 (183) 72 (111)
Loans ............................................. 2,545 2,425 4,970 1,590 759 2,349
------- ------- ------- ------- ------- -------
TOTAL INTEREST INCOME ........................... 3,405 2,143 5,548 3,281 (638) 2,643
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing demand ........................... (9) 70 61 69 (73) (4)
Savings and money market .......................... (501) 247 (254) 135 (178) (43)
Time deposit accounts ............................. 2,653 2,112 4,765 698 26 724
Federal funds purchased and securities sold
under agreements to repurchase .................. 95 123 218 25 43 68
------- ------- ------- ------- ------- -------
TOTAL INTEREST EXPENSE .................... 2,238 2,552 4,790 927 (182) 745
------- ------- ------- ------- ------- -------
NET INTEREST INCOME ............................. $ 1,167 $ (409) $ 758 $2,354 $ (456) $ 1,898
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN AVERAGE
INTEREST-BEARING LIABILITIES TABLE 4
(Dollars in thousands)
Increase/(Decrease) Increase/(Decrease)
1995 vs. 1994 1994 vs. 1993
------------------ -------------------
<S> <C> <C> <C> <C>
Interest-bearing
demand ........................ $ (454) (.80)% $ 3,236 5.94%
Savings and money
market......................... (19,885) (16.29) 5,072 4.43
Time deposits................... 56,936 31.16 15,010 8.95
Securities sold under
agreements to
repurchase..................... 2,635 58.45 977 27.67
------- -------
Total ......................... $39,232 10.69% $24,295 7.09%
======= =======
</TABLE>
INTEREST EXPENSE
Like earning asset yields, the interest rates paid on interest-bearing
liabilities increased. The 84 basis point climb from 3.52 percent in 1994 to
4.36 percent in 1995 was primarily a result of a shift into higher, rate time
deposits from interest-bearing demands and savings accounts and additional net
growth in time deposits. The average balance for interest-bearing liabilities
increased $39,232,000 or 10.69 percent in 1994 to $406,249,000 in 1995 compared
to 1994. Table 4 shows the components comprising this increase.
Net interest income (TEB) totalled $20,923,000 for 1995, an increase of $761,000
or 3.77 percent from the prior year. Net interest income (TEB) as a percent of
average earning assets was 4.45 percent in 1995 compared to 4.74 percent for
1994. The decrease in this ratio during 1995 can be attributed to an increase in
net earning assets, offset by a decrease in yields.
Yields on earning assets declined in 1994 as a result of lower interest rates
generally. The yield on earning assets declined 1 basis point from 7.79 percent
to 7.78 percent for the year 1994 compared to 1993. Approximately $73,798,000 of
earning assets were acquired primarily with cash received from increased
deposits.
The decline in yields on average earning assets in 1994 was offset by a 3 basis
point decrease in interest rates paid on average interest-bearing liabilities
from 3.55 percent in 1993 to 3.52 percent in 1994. Reduced loan demand and
declining market interest rates permitted bank management to decrease the rates
offered on demand accounts, savings, and money market accounts. Rates paid for
time deposits increased 1 basis point during 1994. Average time deposits
increased 8.95 percent to $182,753,000.
F-86
<PAGE> 156
<TABLE>
THREE-YEAR SUMMARY
TABLE 5
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1995 1994 1993
- ---------------------- ---- ---- ----
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Investment securities
Taxable............................. $171,100 $ 11,785 6.89% $167,928 $11,902 7.09% $159,950 $ 12,197 7.63%
Nontaxable (1)...................... 47,925 4,320 9.01 44,336 4,180 9.43 32,514 3,480 10.70
------- ------ ------- ------ ------- ------
TOTAL INVESTMENT SECURITIES 219,025 16,105 7.35 212,264 16,082 7.58 192,464 15,677 8.15
Federal funds sold and other short-term
investments......................... 13,975 827 5.92 6,687 272 4.07 12,773 383 3.00
Loans, net (2)....................... 237,397 21,697 9.24 206,059 16,727 8.12 185,540 14,378 7.75
------- ------ ------- ------ ------- ------
TOTAL EARNINGS ASSETS............ 470,397 38,629 8.21 425,010 33,081 7.78 390,777 30,438 7.79
------ ------ ------
Allowance for loan losses (3,559) (3,148) (2,472)
Cash and due from banks.............. 13,290 13,589 12,979
Bank premises and equipment 8,148 8,048 7,842
Other assets......................... 6,884 7,139 6,658
------- ------- -------
TOTAL ASSETS..................... 495,160 450,638 415,784
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand............. 57,217 1,221 2.13 57,671 1,160 2.01 54,435 1,164 2.14
Savings and money market............ 102,200 2,825 2.76 122,085 3,079 2.52 117,013 3,122 2.67
Time deposits....................... 239,689 13,283 5.54 182,753 8,518 4.66 167,743 7,794 4.65
Federal funds purchased and securities
sold under agreement to repurchase. 7,143 377 5.28 4,508 159 3.53 3,531 91 2.58
------- ------- ------- ------ ------- ------
TOTAL INTEREST-BEARING
LIABILITIES .................... 406,249 17,706 4.36 367,017 12,916 3.52 342,722 12,171 3.55
------- ------ ------
Demand deposits:
Noninterest-bearing................. 36,985 41,685 37,026
Other liabilities................... 5,061 3,977 2,654
------- ----- -----
TOTAL LIABILITIES................... 448,295 412,679 382,402
Shareholders' Equity................ 46,865 37,959 33,382
------- ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $495,160 $450,638 $415,784
======== ======== ========
Interest expense as % of earning
assets............................... 3.77% 3.04% 3.11%
Net interest income/yield on earnings assets $ 20,923 4.45% $ 20,165 4.74% $ 18,267 4.67%
========= ========= ========
<FN>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
</TABLE>
F-87
<PAGE> 157
PROVISION FOR LOAN LOSSES
Net (recoveries) charge-offs for 1995 declined $212,000 or 294.4 percent to
$(140,000). The significant decline in net charge-offs and delinquencies in 1995
resulted in a $395,000 or 11.60 percent decline in the 1995 provision for loan
losses when compared to 1994. The net recoveries were primarily attributed to
one real estate loan previously written down. See "Nonperforming Assets" and
"Allowance for Loan Losses."
The Company's internal loan monitoring systems provide monthly analysis of
delinquencies, nonperforming assets, and potential problem loans, which are
reviewed regularly by the Board of Directors.
Management determines the provision for loan losses which is charged to
operations by constantly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge-offs, and by estimating losses inherent in its
portfolio. While the Company's policies and procedures used to estimate the
monthly provision for loan losses charged to operations are considered adequate
by management and are reviewed from time to time by the Office of the
Comptroller of the Currency (OCC), there exist factors beyond the control of the
Company, such as general economic conditions, both locally and nationally, which
make management's judgment as to the adequacy of the provision necessarily
approximate. Based on current available information, management expects the
provision for loan losses to approximate the 1995 levels.
For the year ended December 31, 1995, the provision for loan losses was
$255,000, compared to $600,000 for 1994, a 57.5 percent decrease.
For the year ended December 31, 1994, the provision for loan losses was $600,000
compared to $1,096,000 for 1993. The 1994 reduction in the provision resulted
from a decline in net charge-offs and delinquencies from the higher levels
encountered in 1993 and 1992.
NONINTEREST INCOME
Table 6 shows the Company's noninterest income for the years indicated.
<TABLE>
<CAPTION>
NONINTEREST INCOME TABLE 6
(Dollars in thousands)
Year Ended % Change
----------------------- -----------------
1995 1994 1993 95/94 94/93
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts........................... $1,633 $1,493 $1,592 9.38 (6.22)
Trust income................................ 842 716 588 17.60 21.77
Other income................................ 410 455 488 (9.89) (6.56)
Investment securities
gain (loss)................................ (74) (168) 445 55.95 (137.98)
------ ------ ------
TOTAL.................................... $2,811 $2,496 $3,113 12.62 (19.82)
====== ====== ======
</TABLE>
Noninterest income, excluding securities gains, increased as a result of
increased income from trust income and service charges on deposit accounts,
partially offset by decreased fee income from secondary market mortgages. These
changes resulted from increased trust volume and increased pricing of certain
trust services and increased volume of service charge activity.
Securities transactions resulted in losses of $74,000 for the year ended
December 31, 1995, compared to losses of $168,000 in 1994, or a total change of
$94,000. Securities gains in 1993 were $445,000.
F-88
<PAGE> 158
NONINTEREST EXPENSES
Table 7 shows the Company's noninterest expenses for the years indicated.
<TABLE>
<CAPTION>
NONINTEREST EXPENSES
(Dollars in thousands) TABLE 7
Year Ended % Change
---------------------------------- -------------------
1995 1994 1993 95/94 94/93
<S> <C> <C> <C> <C> <C>
Salaries and employee
benefits ............. $ 6,307 $ 6,147 $ 5,859 2.6% 4.9%
Occupancy expense ...... 1,323 1,261 1,350 4.9 (6.6)
Equipment expense ...... 1,047 1,004 883 4.3 13.7
Stationery and supplies 395 409 326 (3.4) 25.5
Advertising ............ 360 299 289 20.4 3.5
Insurance, including
regulatory assessments 536 989 893 (45.8) 10.8
Postage ................ 271 230 204 17.8 12.7
Taxes (other than
payroll, real estate
and income taxes) .... 291 201 214 44.8 (6.1)
Directors' fees ........ 291 283 284 2.8 (0.4)
Trust Department expense 137 136 118 0.7 15.3
Other expense .......... 1,246 1,167 1,100 6.8 6.1
------- ------- -------
TOTALS ............. $12,204 $12,126 $11,520 0.6% 5.3%
======= ======= =======
</TABLE>
Noninterest expenses increased in 1995 by $77,000 or 0.6 percent over 1994. This
increase was primarily the result of an increase in salaries and employee
benefits from $6,147,000 in 1994 to $6,307,000 in 1995, or 2.6 percent. Salaries
and employee benefits increased due to general salary increases, increased
profit sharing payments that are related to bank performance and the related
payroll taxes.
Occupancy expense increased by $62,000 in 1995 compared to 1994, or 4.9 percent.
This increase is primarily due to slight rate increases in rent, utilities and
property taxes, as well as the opening of the Spruce Creek Branch and Ocala loan
processing center in late 1995.
FDIC deposit insurance premiums decreased to $.04 per $100 on deposits from $.23
per $100 deposits as a result of a change in the FDIC rate structure. The FDIC
also issued a recapitalization refund on assessments paid for the second and
third quarters of 1995. The Company received a $270,000 refund in 1995. Since
1989, the annual premium rate has decreased from 0.23 percent of total deposits
to 0.04 percent of total deposits. The rate assessed on deposits depends on the
capital adequacy and examination ratings imposed by governing bank regulatory
authorities on individual financial institutions. Management anticipates that
the rate that the Bank will be assessed will be among the lowest based on these
guidelines.
The increase in noninterest expenses in 1994 was attributable in part to a 4.9
percent growth in salaries and employee benefits, general salary increases and
increased profit sharing payments that are related to bank performance and
related increases in payroll taxes.
FDIC deposit insurance premiums increased $96,000 or 10.8 percent in 1994 due to
increased deposit balances. Other noninterest expenses increased $33,000 or 2.9
percent in 1994.
INCOME TAXES
Income taxes for the year 1995 were $2,592,000 or 16.7 percent above the
$2,222,000 for 1994 which was 16.6 percent above the $1,906,000 in 1993. The
effective rate in 1995 was 26.4 percent and was 26.1 percent in 1994, and was
25.1 percent in 1993. The increase in rate reflects the decreased amount of
tax-exempt interest income as a percent of total income in 1995 and 1994
compared to 1993.
FINANCIAL CONDITION
The Company increased its assets 11.9 percent between December 31, 1994 and
December 31, 1995 from $464,338,000 to $519,475,000. In comparison, the Company
increased its assets 6.5 percent between December 31, 1993 and December 31,
1994.
F-89
<PAGE> 159
CAPITAL RESOURCES
Table 8 summarizes the Company's capital position and selected ratios.
<TABLE>
<CAPTION>
CAPITAL RESOURCES (1)
(Dollars in thousands) TABLE 8
December 31 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
TIER 1 CAPITAL
Common stock.................. $ 46 $ 46 $ 46
Additional paid-in
capital...................... 15,052 14,241 14,241
Retained earnings............. 32,759 27,325 22,453
Treasury stock................ (792) (792) (792)
------- ------- -------
Total Tier 1 capital.......... 47,065 40,820 35,948
------- ------- -------
TIER 2 CAPITAL
Allowance for loan losses, as
limited....................... 3,139 2,996 2,702
------- ------- -------
Total Tier 2 capital............ 3,139 2,996 2,702
------- ------- -------
Total risk-based capital........ 50,204 43,816 38,650
======= ======= =======
Risk-weighted assets............ $251,765 $239,378 $219,511
======= ======= =======
Tier 1 risk-based capital ratio. 18.69% 17.05% 16.38%
Total risk-based capital ratio.. 19.94 18.30 17.61
Shareholders' equity to assets.. 9.06 8.79 8.25
Average shareholders' equity to
average total assets.......... 8.70% 8.42% 8.03%
<FN>
(1) Amounts are exclusive of adjustments made to recognize fair value of
certain securities in accordance with FASB No. 115 (see Notes 1 and 2 to
consolidated financial statements).
</TABLE>
The Company's capital increased by $13,964,000 at December 31, 1995 compared to
year end 1994. Of this increase, $7,720,000 was attributable to the change in
the adjustment to the unrealized (losses)/gains on certain securities required
by Statement No. 115 of the Financial Accounting Standards Board, Accounting for
Certain Investments in Debt and Equity Securities (see discussion of FASB No.
115 in the section on investment securities following and notes 1 and 2 to the
consolidated statements following). Net income of $7,214,000 less dividends
declared totalling $1,781,000 and $811,000 of option and warrant activity prior
to the merger at CNB and CFB comprises the remainder of increase.
The Company's ratio of stockholders' equity to period end assets was 9.80
percent after the adjustment for FASB No. 115 and 9.06 percent excluding assets
and capital attributed to FASB No. 115. The 9.06 percent at December 31, 1995
(net of FASB No. 115) compares to the year end 1994 ratio of 8.79 percent and
the year end 1993 ratio of 8.25 percent.
Book value per common share outstanding was $11.36 per share with the adjustment
for FASB No. 115 and $10.51 without regard to the FASB No. 115 adjustment at
December 31, 1995. Again, this compares to the book value per share before FASB
No. 115 at year end 1994 of $9.13 and $8.03 per share at December 31, 1993.
LOAN PORTFOLIO
Table 9 shows total loans (net of unearned income) by category outstanding
atTABLE 9he indicated dates.
<TABLE>
<CAPTION>
LOANS OUTSTANDING TABLE 9
(Dollars in thousands)
December 31 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate.............. $200,163 $180,293 $155,183 $130,651 $114,276
Commercial, finan-
cial and
agriculture............ 24,478 15,332 16,159 20,730 22,678
Installment loans 28,044 25,928 23,478 23,034 3,322
-------- -------- -------- -------- --------
TOTAL $252,685 $221,553 $194,820 $174,415 $140,276
======== ======== ======== ======== ========
</TABLE>
The Company makes substantially all of its loans to customers located within the
three counties of Lake, Sumter and Marion. It has no foreign loans or highly
leveraged transaction (HLT) loans.
The increases in the Company's loan balances in 1995 are attributable primarily
to good growth in residential and commercial real estate loans. The Company also
sold $780,000 in fixed rate mortgage loans in the secondary market this year.
At December 31, 1995, the Company's portfolio of mortgage loan balances secured
by residential properties amounted to $133,493,000 or 52.65 percent of total
loans. Loans secured by commercial real estate totalled $71,565,000 or 28.32
percent of total loans. Most of the commercial real estate loans were made to
local businesses and professionals secured by owner-occupied properties. Loans
and commitments for 1-4 family residential properties and commercial real estate
are generally secured with first mortgages on property, with the loan to fair
market value of the property not exceeding 80 percent on the date the loan is
made.
Between December 31, 1994 and December 31, 1995, residential real estate
mortgage loans increased $18,007,000 or 17.00 percent and commercial real estate
mortgage loans increased $6,961,000 or 10.78 percent.
Installment loans at December 31, 1995 showed an increase of $2,116,000 from
year end 1994 excluding installment real estate loans. The Company's home equity
line portfolio and consumer loan ARM's (included in real estate loans above)
increased at year end by $410,000 and $518,000, respectively.
The Company believes that the local demand for residential real estate mortgages
and service industry related loan demand will continue to be strong. This
assumption is based on the continued migration of retirees moving to this market
area to live.
F-90
<PAGE> 160
The Company's market is primarily a residential area with relatively little
commercial activity other than professional retail and service businesses
serving local residents. Therefore, real estate mortgage lending (particularly
residential properties) is expected to remain an important segment of the
Company's lending activities. Exposure to market interest rate volatility, with
respect to mortgage loans, is managed by attempting to match maturities and
repricing opportunities for assets against liabilities, when possible. At
December 31, 1995, approximately $90,773,000 or 35.81 percent of the Company's
total real estate loans were adjustable rate 10-to 30-year residential mortgage
loans (ARMs) that reprice based upon the one-year constant maturity United
States Treasury Index plus a margin. Generally, the ARMs' interest rate
adjustments are limited to two percent per annual and six percent over the life
of the loan. Such ARMs may be originated at rates greater than the index rate,
but below the total of the index rate and the margin for an
<TABLE>
<CAPTION>
LOAN MATURITY DISTRIBUTION TABLE 10
(Dollars in thousands)
Commercial,
Financial & Real
December 31, 1995 Installment Agricultural Estate Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In one year or less ...... $ 7,847 $ 19,822 $149,183 $176,852
After one year but
within five years:
Interest rates are
floating or adjust-
able .................. 26 0 0 26
Interest rates are
fixed ................. 18,688 4,506 37,812 61,006
In five years or more:
Interest rates are
floating or adjustable 0 0 0 0
Interest rates are fixed 1,483 150 13,168 14,801
-------- -------- -------- --------
TOTAL ................. $ 28,044 $ 24,478 $200,163 $252,685
======== ======== ======== ========
</TABLE>
initial period ending on the first adjustment date. All such loans are generally
made to borrowers upon terms and conditions that would make such loans eligible
for resale, after seasoning, under Federal National Mortgage Association (FNMA)
or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. ARM borrowers are
qualified based upon the initial ARM loan interest rate plus 200 basis points
and upon various debt service ratios of the borrower, including a total debt
service ratio of not more than 36 percent of total income.
Commercial lending activities are directed principally towards businesses whose
demand for funds are within the Company's lending limits, such as small-to
medium-sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Most of such loans are secured by real
estate used by such businesses, although certain lines are unsecured.
The Company makes a variety of consumer loans, including installment loans,
loans for automobiles, boats, home improvements and other personal, family and
household purposes, and indirect loans through dealers to finance automobiles.
Most consumer loans are secured. The Company has engaged in lending to
automobile purchasers through dealers. The Company's indirect automobile lending
risks have been reduced through screening and monitoring of a small number of
dealers with whom the Company does business. The bank also had approximately
$1,496,000 of unsecured credit card loans at December 31, 1995.
Second mortgage loans and home equity lines also are extended by the Company. No
negative amortization loans or lines have been offered by the Company at the
present time. Terms of second mortgage loans include fixed rates for up to 10
years on smaller loans of $25,000 or less. Such loans are sometimes made for
larger amounts, with a fixed rate, but with a balloon payment upon maturity not
to exceed five years. The Company offers variable-rate second mortgage loans
with terms of up to 15 years. Loan-to-value ratios for these loans generally do
not exceed 80 percent of appraised value. Home equity lines are offered on a
variable rate basis only and the maximum loan-to-value ratio for such loans is
normally 80 percent of the appraised value when the loan is extended.
F-91
<PAGE> 161
The Company had commitments to make loans (excluding unused home equity and
credit card lines) of $11,751,000 at December 31, 1995. The Company attempts to
reduce its exposure to the risk of the local real estate market by making
commercial real estate loans primarily on owner-occupied properties. The Company
at year-end 1995 had 28.23 percent of its total loans in commercial real estate.
The remainder of the real estate loan portfolio is residential mortgages to
individuals, and home equity loans, which the Company considers less susceptible
to adverse effects from a downturn in the real estate market, especially given
the area's large percentage of retired persons. The Company's historical
charge-off rates for real estate loans have been relatively low, with net
recoveries of .06 percent for the year ended December 31, 1995.
ALLOWANCE FOR LOAN LOSSES
Table 11 provides certain information concerning the Company's allowances for
loan losses for the years indicated.
The allowance for loan losses was $3,800,000 at December 31, 1995, $395,000
higher than one year earlier. The ratio of the allowance for loan losses to
total loans outstanding (net of unearned income) was 1.50 percent at December
31, 1995. The ratio was 1.54 percent at December 31, 1994. The allowance for
loan losses as a percent of nonaccrual loans was 345.45 percent at December 31,
1995, compared to 667.64 percent at December 31, 1994. There were no accruing
loans past due 90 days or more at December 31, 1995 or 1994.
During 1995, the Company experienced net recoveries of $140,000, compared to net
charge-offs of $72,000 one year earlier. The net recoveries of $140,000 were
primarily attributable to the recovery of $200,000 on a loan previously written
down at the direction of the O.C.C. in 1992. Net (recoveries) charge-offs as a
percent of average loans outstanding were (.06) percent for 1995, the lowest
percentage the Company has reported since 1988. Net installment loan losses were
$100,000 in 1995, versus $53,000 in 1994. Commercial, financial and agricultural
losses were $(29,000) (net recovery) and $(10,000) (net recovery), respectively,
for the same periods. Real estate loan net recoveries were $211,000 in 1995. In
1994, real estate loan net charge-offs were $29,000.
Table 12 summarizes the Company's allocation of the allowance for loan losses to
each type of loan and information regarding the composition of the loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE TABLE 11
(Dollars in thousands)
Year Ended December 31 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Beginning balance.............................................. $ 3,405 $ 2,877 $ 1,990 $ 2,079 $ 2,004
-------- -------- -------- --------- --------
Provision for loan loss expense................................ 255 600 1,096 1,450 1,004
-------- -------- -------- --------- --------
Gross loan charge-offs:
Commercial, financial and agricultural....................... 1 55 0 732 339
Installment.................................................. 156 95 74 139 347
Real estate.................................................. 9 77 321 790 456
-------- -------- -------- --------- --------
TOTAL CHARGE-OFFS........................................... (166) (227) (395) (1,661) (1,142)
-------- -------- -------- --------- --------
Recoveries:
Commercial, financial and agricultural....................... 30 65 65 13 23
Installment.................................................. 56 42 99 95 133
Real estate.................................................. 220 48 22 14 57
-------- -------- -------- --------- --------
TOTAL RECOVERIES............................................ 306 155 186 122 213
-------- -------- -------- --------- --------
ENDING BALANCE.............................................. $ 3,800 $ 3,405 $ 2,877 $ 1,990 $ 2,079
======== ======== ======== ========= ========
Loans outstanding at end of year*................................ $252,685 $221,553 $194,820 $ 174,415 $157,216
Ratio of allowance for loan losses to loans outstanding at
end of year.................................................... 1.50% 1.54% 1.48% 1.14% 1.32%
Daily average loans outstanding*................................. $237,397 $206,059 $185,540 $ 166,605 $147,362
Ratio of net charge-offs to average loans outstanding............ (.06)% .03% .11% .92% .63%
<FN>
* Net of unearned income
</TABLE>
F-92
<PAGE> 162
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, the Company's loan loss experience,
the amount of past due and nonperforming loans, current and anticipated
economic conditions, and the values of certain loan collateral, and other
assets. The size of the allowance also reflects the large amount of permanent
residential loans held by the Company whose historical charge-offs and
delinquencies have been very satisfactory.
<TABLE>
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) TABLE 12
<CAPTION>
Allowance Amount
December 31 1995 1994 1993 1992 1991
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and
financial loans...... $ 364 $ 777 $ 298 $ 316 $ 291
Real estate loans..... 3,306 2,503 2,192 1,432 1,559
Installment loans..... 130 125 387 242 229
------ ------ ------ ------ ------
TOTAL............... $3,800 $3,405 $2,877 $1,990 $2,079
====== ====== ====== ====== ======
Percent of Loans in Each Category to Total Loans
December 31 1995 1994 1993 1992 1991
- ----------- ---- ---- ---- ---- ----
Commercial and
financial loans...... 9.7% 6.9% 8.3% 11.9% 16.2%
Real estate loans..... 79.2 81.4 79.6 74.9 81.4
Installment loans..... 11.1 11.7 12.1 13.2 2.4
------ ------ ------ ------ ------
TOTAL............... 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
It is the Company's policy to charge off loans in the current period in which a
loss is considered probable. There are always risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of economy as well as conditions
affecting individual borrowers, management's judgment of the allowance is
necessarily approximate. It is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance for loan losses and the size of the
allowance for loan losses in comparison to peer group companies identified by
the regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its ongoing review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged off and to assess the
risk characteristics of the portfolio in the aggregate. This review considers
the judgments of management, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular examination process. An
examination by the OCC during 1995 revealed no major differences in judgments or
methodology related to the allowance for loan losses.
On December 31, 1994, the allowance for loan losses was $3,405,000, $528,000
higher than one year earlier. The ratio of the allowance for loan losses to net
loans outstanding was 1.56 percent at December 31, 1994, compared to 1.50
percent at December 31, 1993.
For 1994, the Company had net charge-offs of $72,000 compared to $209,000 for
the same period in 1993. Total commercial, financial and agricultural loan net
(recoveries) were ($10,000) for 1994 versus ($65,000) for the comparable period
in 1993. Total real estate net charge-offs were $29,000 in 1994 and $299,000 in
1993.
F-93
<PAGE> 163
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
Table 13 summarizes nonperforming loans and other real estate owned at the dates
indicated.
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS TABLE 13
(Dollars in thousands)
December 31 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) .. $ 1,100 $ 510 $ 1,011 $ 4,284 $ 2,206
Other real estate
owned ............... 663 687 2,046 1,721 1,179
-------- -------- -------- -------- --------
TOTAL NONPER-
FORMING ASSETS ..... $ 1,763 $ 1,197 $ 3,057 $ 6,005 $ 3,385
======== ======== ======== ======== ========
Amount of loans out-
standing at end of
year (2) ............ $252,685 $221,553 $194,820 $174,415 $140,276
Ratio of total non-
performing assets to
loans outstanding
and other real estate
owned at end of
period .............. .70% .54% 1.55% 3.41% 2.39%
Ratio of total non-
performing assets to
total average assets .36% .27% .74% 1.54% .97%
Accruing loans past
due 90 days or more . 0 0 0 1 107
- --------------------------------------------------------------------------------
<FN>
(1) Interest income that could have been recorded during 1995 related to
nonaccrual loans was $53, none of which was included in interest income or
net income. All nonaccrual loans were secured.
(2) Net of unearned income.
- -------------------------------------------------------------------------------
</TABLE>
Nonperforming assets (other real estate owned and nonaccrual loans) at December
31, 1995, were $1,763,000 an increase of $416,000 or 34.96 percent from December
31, 1994. At December 31, 1995, the Company's ratio of nonperforming assets to
loans outstanding plus other real estate owned was .70 percent, compared to .54
percent at December 31, 1994. The increase in nonperforming assets from December
31, 1994 to December 31, 1995 included decreases in net other real estate owned
of $24,000 and increased nonaccrual loans of $590,000.
At December 31, 1995, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned was .54 percent, compared to 1.55
percent at December 31, 1993. The decrease in nonperforming assets from December
31, 1993 to December 31, 1994 included decreases in other real estate owned of
$1,359,000 and decreased nonaccrual loans of $501,000.
Nonperforming assets are subject to changes in the economy, both nationally and
locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from the Company's subsidiary bank. No assurance can
be given that nonperforming assets will not in fact increase or otherwise
change. A similar judgmental process is involved in the methodology used to
estimate and establish the Company's allowance for loan losses.
F-94
<PAGE> 164
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------
U.S. Treasury
and U.S. Government Agencies Mortgage-Backed Securities
---------------------------------------------------------------
Market Carrying Weighted Market Carrying Weighted
December 31, 1995 Value Value Yield Value Value Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturity
Within one year............................................. $ 12,639 $ 12,639 7.50% $ 0 $ 0 0.00%
One to five years........................................... 40,084 40,084 6.20 0 0 0.00
Five to ten years........................................... 63,659 63,659 7.15 0 0 0.00
Over ten years and equity
securities................................................. 4,989 4,989 7.77 0 0 0.00
Mortgage-backed securities.................................. 0 0 0.00 40,385 40,385 7.46
---------- ---------- ---------- ----------
TOTAL VALUE.............................................. $ 121,371 $ 121,371 6.90% $ 40,385 $ 40,385 7.46%
========== ========== ========== ==========
December 31, 1994............................................. $ 102,981 $ 103,547 6.46% $ 46,083 $ 46,258 6.92%
========== ========== ========== ==========
TOTAL VALUE..............................................
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) On a tax-equivalent basis
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale Securities Held to Maturity
----------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies....................... $119,193 $ 2,531 $ 353 $121,371 $ 0 $ 0 $ 0 $ 0
Mortgage-backed securities....... 39,651 882 148 40,385 0 0 0 0
Obligations of state and political
subdivisions................... 62,260 3,057 11 65,306 0 0 0 0
Other securities................. 1,772 83 0 1,855 0 0 0 0
------- ------- ------- -------- -------- ------- ------- -------
TOTAL.......................... $222,876 $ 6,553 $ 512 $228,917 $ 0 $ 0 $ 0 $ 0
======== ======= ======= ======== ======== ======= ======= =======
<CAPTION>
Grand Totals
----------------------------------
Total Total Average
Carrying Market Years to
December 31, 1995 Value Value Maturity
- -----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies....................... $121,371 $121,371 5.97
Mortgage-backed securities....... 40,385 40,385 6.24
Obligations of state and political
subdivisions................... 65,306 65,306 11.23
Other securities................. 1,855 1,855 5.69
------- --------
TOTAL.......................... $228,917 $228,917 7.56
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale Securities Held to Maturity
----------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies....................... $96,175 $ 265 $ 4,131 $ 92,309 $ 11,238 $ 0 $ 566 $10,672
Mortgage-backed securities
Fixed.......................... 36,940 105 1,843 35,202 1,893 0 70 1,823
Adjustable..................... 3,374 0 441 2,933 6,230 19 124 6,125
Obligations of state and political
subdivisions................... 5,863 80 47 5,896 50,365 795 2,721 48,439
Other securities................. 5,160 31 147 5,044 460 0 0 460
-------- ------- ------- -------- -------- ------- ------- -------
TOTAL.......................... $147,512 $ 481 $ 6,609 $141,384 $ 70,186 $ 814 $ 3,481 $67,519
======== ======= ======= ======== ======== ======= ======= =======
<CAPTION>
Grand Totals
----------------------------------
Total Total Average
Carrying Market Years to
December 31, 1994 Value Value Maturity
- -----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies....................... $103,547 $102,981 4.83
Mortgage-backed securities.......
Obligations of state and political 37,095 37,025 3.91
subdivisions................... 9,163 9,058 8.43
Other securities.................
TOTAL.......................... 56,261 54,335 10.36
5,504 5,504 2.44
-------- -------
$211,570 $208,903 6.32
======== ========
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale Securities Held to Maturity
----------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
December 31, 1993 Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies....................... $92,744 $ 3,538 $ 68 $ 96,214 $ 2,019 $ 3 $ 2 $ 2,020
Mortgage-backed securities
Fixed.......................... 42,465 1,401 45 43,821 708 6 0 714
Adjustable..................... 4,972 1 11 4,962 6,141 310 0 6,451
Obligations of state and political
subdivisions................... 6,348 493 0 6,841 43,127 2,925 57 45,995
Other securities................. 7,057 310 0 7,367 494 0 0 494
------- ------- ------- -------- -------- ------- ------- -------
TOTAL.......................... $153,586 $ 5,743 $ 124 $159,205 $ 52,489 $ 3,244 $ 59 $55,674
======== ======= ======= ======== ======== ======= ======= =======
<CAPTION>
Grand Totals
----------------------------------
Total Total Average
Carrying Market Years to
December 31, 1993 Value Value Maturity
- -----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies....................... $ 98,233 $98,234 4.14
Mortgage-backed securities.......
Obligations of state and political 44,529 44,535 5.73
subdivisions................... 11,103 11,413 7.97
Other securities.................
49,968 52,836 10.25
TOTAL.......................... 7,861 7,861 3.13
-------- -------
$211,694 $214,879 6.12
======== ========
</TABLE>
F-95
<PAGE> 165
<TABLE>
<CAPTION>
TABLE 14
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of States and Political
Subdivisions Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
Market Carrying Weighted Market Carrying Weighted Market Carrying Weighted
Value Value Yield (1) Value Value Yield Value Value Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 258 $ 258 17.53% $ 0 $ 0 0.00% $ 12,897 $ 12,897 7.70%
1,789 1,789 9.36 0 0 0.00 41,873 41,873 6.34
13,165 13,165 8.83 1,083 1,083 9.31 77,907 77,907 7.46
50,094 50,094 8.03 772 772 0.00 55,855 55,855 8.01
0 0 0.00 0 0 0.00 40,385 40,385 7.47
- --------- ---------- ---------- --------- ---------- ----------
$ 65,306 $ 65,306 8.26% $ 1,855 $ 1,855 9.31% $ 228,917 $ 228,917 7.40%
========= ========== ========== ========= ========== ==========
$ 54,335 $ 56,261 6.40% $ 5,504 $ 5,504 7.15% $ 208,903 $ 211,570 7.01%
========= ========== ========== ========= ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT SECURITIES
Information relating to yields, amortized cost, market values, and unrealized
gains (losses) of the Company's investment securities is set forth in Table 14.
The yield data is determined using the amortized cost of the securities.
Effective December 31, 1993, the Company adopted the investment categorization
and carrying value rules as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 (FASB 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB 115, the Company
classifies its investment securities as either available-for-sale or
held-to-maturity or trading. Held-to-maturity investments are carried at
amortized cost. Securities available-for-sale and trading are carried at market
value.
In December 1995, the Company utilized the FASB guidance outlined in "Special
Report - A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities," and reclassified all its securities
in held-to-maturity to available-for-sale. As of the transfer date, the
amortized cost was $77,481,000 and market value was $80,807,000. Accordingly,
there was an unrealized gross gain of $3,326,000 at transfer, which is included
net of $1,252,000 tax as part of the separate component of shareholders' equity.
The Company has no securities classified as trading and currently has no plans
to hold or acquire any securities for trading. For 1994, majority of securities
classified as held-to-maturity (71.76 percent) are obligations of state and
political subdivisions and are held for their after-tax yield. Other securities
are classified as held-to-maturity based on an individual analysis. Securities
that are classified as available-for-sale represent 69.68 percent of the total
carrying value.
Average outstanding investment securities during the year increased by
$6,761,000 to $219,025,000. The increase in average outstanding investment
securities is related to an increase in deposits. The investment of these
proceeds into investment securities was done after considering future projected
liquidity needs and then current economic conditions. U.S. Treasury and
Government agency securities with maturities from two to ten years were
emphasized with the intent to hold these securities as available-for-sale. Also,
the Company continued to reduced its position in mortgage-backed securities due
to perceived market price sensitivity. The Company maintained its tax-exempt
securities to maximize long-term tax-equivalent yields.The changes made to the
investment securities portfolio increased the average yield from 7.01 percent at
year end 1994 to 7.40 percent at year end 1995. This was primarily due to higher
yield reinvestment opportunities.
The above-described transactions changed the composition of the investment
securities portfolio during 1995. At December 31, 1995, 53.02 percent of the
total carrying value of the $228,917,000 of the investment portfolio is
comprised of U.S. Treasury and Government agency securities. This compares to
48.94 percent at December 31, 1994. In addition, 17.64 percent of total
investment securities are represented by mortgage-backed securities compared to
21.78 percent at December 31, 1994.
The mortgage-backed securities consist of pass-through and collateralized
mortgage obligations issued by governmental agencies, primarily the Governmental
National Mortgage Association, and private issuers, primarily Federal National
Mortgage Association, Inc. Approximately twenty percent of the mortgage-backed
portfolio consisted of variable rate securities with the balance invested in
fixed rate securities. The primary risk associated with these securities is
interest rate risk; that is, how a change in interest rates influences the
prepayments of the underlying mortgage obligations thereby affecting the actual
yield to maturity on the mortgage-backed security and how such changes affect
the market values of such securities. The investment policy of CBI states that
mortgage-backed securities shall have a maximum average expected maturity of 15
years. A decreasing trend in interest rates would increase the market value and
shorten the expected maturity of the portfolio due to the anticipated increase
in prepayments of the underlying mortgage obligations. Conversely, an increasing
trend in interest rates would have the opposite effect of decreasing the market
value and lengthening the expected maturity of the portfolio.
F-96
<PAGE> 166
The unrealized net appreciation of the portfolio at December 31, 1995, was
$6,041,000. This represents 2.71 percent of amortized cost and 2.64 percent of
carrying value as compared to unrealized net depreciation of 1.26 percent at
December 31, 1994. For investment securities, the largest segment of unrealized
loss at December 31, 1995, is represented by U.S. Treasury and Government agency
securities ($353,000 or .15 percent of the carrying value of the entire
portfolio). The largest segment of unrealized gain at December 31, 1995, is
represented by obligations of state and political subdivisions ($3.1 million or
1.33 percent of the carrying value of the entire portfolio).
At December 31, 1995, the investment portfolio included $9,153,000 in structured
note derivative financial instruments, which is 4.00 percent of the total
carrying value. The derivative instruments are classified as available-for-sale
and included as a component of investments securities on the balance sheet.
Recognition and measurement policies for derivatives are the same as all
investment securities. The Company maintains only one class of derivative
instruments, structured notes, which were originally purchased for investment
yield. Current objectives are to divest of any and all structured notes as the
market allows while minimizing any loss on the sales. In January 1995, the
Company sold two notes, reducing the total derivative instruments to $6,653,000.
DEPOSITS
Total deposits increased $35,499,000 or 8.53 percent to $451,598,000 at December
31, 1995, compared to one year earlier. As total deposits increased, the
composition of deposit type changed. As interest rates increased,
interest-bearing deposits and savings decreased while time deposits increased by
a greater amount. According to the Florida Bankers' Association's Deposit Share
Report as of September 30, 1995, the Company increased its market share of total
IPC deposits in Lake County from 18.30 percent on December 31, 1994 to 18.71
percent on September 30, 1995.
F-97
<PAGE> 167
<TABLE>
<CAPTION>
MATURITY OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
(Dollars in thousands) TABLE 15
- -------------------------------------------------------------------------------------------------------
% OF % of
December 31 1995 TOTAL 1994 Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Group:
Under 3 months $ 9,309 25.9% $ 8,120 27.2%
3 to 6 months 4,250 11.8 3,404 11.4
6 to 12 months 10,562 29.3 6,476 21.7
Over 12 months 11,881 33.0 11,884 39.7
-------------- ------------- --------------- -------------
TOTAL $ 36,002 100.0% $ 29,884 100.0%
============== ============= =============== =============
</TABLE>
Time deposits increased $54,648,000 or 27.73 percent to $251,746,000 at December
31, 1995. Jumbo CDs increased $6,118,000 or 21.48 percent to $36,002,000.
Savings deposits (including money market deposit accounts) totalled $92,244,000
at December 31, 1995, $22,163,000 or 19.37 percent less than at December 31,
1994. An increase of $5,011,000 or 11.68 percent to $47,926,000 occurred in
noninterest-bearing demand deposits. Interest-bearing demand and NOW accounts
decreased $10,373,000 or 14.81 percent to $59,683,000. The decline in savings
deposits is partly attributed to declining interest rates paid on deposits.
Total time deposits increased as interest-bearing deposits and savings
decreased, due in part to product repricing.
Average noninterest-bearing demand deposits comprised 8.48 percent of average
deposits for the year ended December 31, 1995, compared to 10.31 percent for the
same period one year earlier.
INTEREST RATE SENSITIVITY
Interest rate movements and deregulation of interest rates have made managing
the Company's interest rate sensitivity increasingly important. The Company's
Assets/Liability Management Committee is responsible for managing the Company's
exposure to changes in market interest rates. This committee attempts to
maintain stable net interest margins by generally matching the volume of assets
and liabilities maturing, or subject to repricing, and by adjusting rates to
market conditions and changing interest rates.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS (1)
(Dollars in thousands)
TABLE 16
0-3 4-12 1-5 Over 5
December 31, 1995 Months Months Years Years Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold
and other short-
term investments $ 7,392 $ 7,392
Investment securi-
ties (2)...... 11,269 $ 21,856 $ 43,661 $146,090 222,876
Loans (3)....... 69,562 104,063 65,613 13,446 252,684
--------- -------- -------- -------- --------
Earning assets (3) 88,223 125,919 109,274 159,536 482,952
--------- -------- -------- -------- ---------
Savings deposits 151,927 151,927
Certificates of
deposit....... 61,818 112,759 76,653 515 251,745
Federal funds purchased
and other short-term
borrowings.... 8,498 8,498
--------- -------- -------- -------- --------
Interest-bearing
liabilities... 222,243 112,759 76,653 515 412,170
Interest sensitivity
gap........... (134,020) 13,160 32,621 159,021 70,782
Cumulative gap.. (134,020) (120,860) (88,239) 70,782
Cumulative gap to
earnings assets (%) (27.8%) (25.0%) (18.3%) (14.7%)
Earnings assets to
interest-bearing
liabilities... 39.7% 111.7% 142.6% 30977.5%
<FN>
- --------------------------------------------------------------------------------
(1) The repricing dates may differ from maturity dates for certain assets due to
repayment assumptions.
(2) Investment securities are stated at amortized cost.
</TABLE>
Interest rate exposure is managed by monitoring the relationship between earning
assets and interest-bearing liabilities, focusing primarily on those that are
rate-sensitive. Rate-sensitive assets and liabilities are those that reprice at
market interest rates within a relatively short period, defined here as one year
or less. The difference between rate-sensitive assets and rate-sensitive
liabilities represents the Company's interest sensitivity gap, which may be
either positive (assets exceed liabilities) or negative (liabilities exceed
assets).
On December 31, 1995, the Company had a negative gap position based on
contractual maturities and prepayment assumptions for the next twelve months
with a negative interest rate sensitivity gap as a percent of total earning
assets of 25.0 percent. This means that the Company's assets reprice more slowly
than its deposits. In a declining interest rate environment, the cost of the
Company's deposits and other liabilities may be expected to fall faster than the
interest received on its earnings assets, thus increasing the net interest
spread. If interest rates generally increase, the negative gap means that the
interest received on earning assets may be expected to increase more slowly than
the interest paid on the Company's liabilities, therefore decreasing the net
interest spread.
F-98
<PAGE> 168
Management feels that an immediate increase in interest rates of 1 percent would
negatively impact Net Interest Margins by 7 basis points (7 one-hundredths of
one percent). Management monitors the gap position on an ongoing basis to keep
interest rate risk within levels acceptable to the Company.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the
Company's ability to meet deposit withdrawals either on demand or at contractual
maturity and to make new loans and investments as opportunities arise.
Contractual maturities for assets and liabilities are reviewed to meet current
and future liquidity requirements. Sources of liquidity, both anticipated and
unanticipated, are maintained through a portfolio of high-quality marketable
assets, such as residential mortgage loans, investment securities, and federal
funds sold. The Company has access to federal funds lines of credit and is able
to provide short-term financing of its activities by selling, under agreement to
repurchase, U.S. Treasury and Government agency securities (including certain
mortgage-backed securities) not pledged to secure public deposits or trust
funds. At December 31, 1995, the Company had available federal funds lines of
credit of $8,500,000. At December 31, 1995, the Company had $102,700,000 U.S.
Treasury and Government agency securities not pledged and available for sale
under repurchase agreements. At December 31, 1994, the amount of securities
available and unpledged was $208,859,000.
Liquidity, as measured in the form of cash and cash equivalents, totalled
$25,225,000 at December 31, 1995. At December 31, 1994, cash and cash
equivalents totalled $17,153,000. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer, and
vary with the level of principal repayments occurring in the Company's
investment securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing (primarily in
loans and securities) and from financing (primarily through deposit generation
and short-term borrowings) are greatly in excess of cash flows from operations.
In 1995, the cash flow from operations of $9,648,000 was 30.65 percent higher
than during the same period of 1994. Cash flows from investing and financing
activities reflect the increase in securities, loans and deposit balances
experienced in 1995. In 1994, cash flows from operations of $7,385,000 were
17.07 percent higher than in 1993.
CONTINGENCIES AND LEGAL MATTERS
The Company is involved in no litigation individually or in the aggregate that
is reasonably likely to have a material adverse effect on its financial
condition. A lawsuit filed against the Company involving the Bank's Trust
Department was settled in 1993 and all expenses related thereto were accrued in
1992.
Two other suits involving the Trust Department were settled in 1992 resulting in
increased legal fees and other expense in 1993 that did not recur in 1994.
Accordingly, these expenses decreased significantly in 1994.
EFFECTS OF INFLATION AND CHANGING INTEREST RATES
The financial statements presented herein were prepared in accordance with
generally accepted accounting principles and do not attempt to consider changes
in the relative value of money due to inflation over a period of time.
Changing property values, in an economy that is still struggling towards
recovery could have a negative impact on the value of real estate owned by the
Company acquired through foreclosure as well as real estate securing the
Company's loans. Accordingly, management conducts an ongoing review of the
property owned through foreclosure and the property values securing delinquent
loans and will write down or reserve for marginal equity positions as deemed
necessary.
Interest rates have a greater impact on a financial institutions performance
than the general levels of inflation and asset/liability analysis will continue
in order to quantify and maintain interest rate risks within levels acceptable
to the Company.
FASB 107 DISCLOSURES ABOUT FAIR VALUES OF
FINANCIAL INSTRUMENTS
The Company has calculated and reported the fair value of its financial
instruments in accordance with the Statement of Financial Accounting Standards
No. 107. While market value information has been reported for its investment
securities portfolio in prior years based on quoted market prices, this
statement also requires the estimating of fair values for financial instruments
with no quoted market prices. For most instruments with no quoted market values,
there are a variety of judgments which must be applied with a wide variation in
reported results. Management has followed the requirements of the statement and
used an acceptable method to estimate fair value for these instruments. However,
various other values could result if different assumptions were used. Therefore,
management believes it is not relevant and potentially misleading to compare the
amount of appreciation or depreciation of financial instruments with no quoted
values to any other financial institution.
Although the statement does not prohibit estimating and reporting the fair value
of deposits, management has elected not to estimate a value for its core deposit
portfolio because of reliability and comparability issues.
EFFECTS OF ACCOUNTING CHANGES
In April 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed. The statement requires an impairment loss to be
recognized when the aggregate of estimated future cash inflows to be generated
by an assets are less than the asset's carrying value. The statement is
effective for years beginning after December 15, 1995. Management has not
determined the effect of this statement on future financial statements, but
anticipates it to be immaterial.
In May 1995, the Financial Accounting Standards Board issued Statement No. 122,
Accounting for Mortgage Servicing Rights. The statement requires that an
enterprise engaging in mortgage banking activities recognize as separate assets
rights to service mortgage loans for others. Currently, CBI does not engage in
servicing loans
F-99
<PAGE> 169
for others and therefore this statement will have no effect on its financial
statements.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, Accounting for Stock-Based Compensation. The statement requires that
transactions with other than employees in which goods or services are acquired
by issuing equity instruments are accounted for using the value of the
instrument issued. This Statement also requires that stock-based employee
compensation arrangements be accounted for either by applying the value method
or the intrinsic value method in Opinion 25 of the Accounting Principles Board
(which allows for disclosure only, rather than recognition of certain employee
compensation arrangements). This Statement applies to transactions entered into
after October 15, 1995. Management has not determined the effect of this
Statement on future financial statements, but anticipates it to be immaterial.
CURRENT DEVELOPMENTS:
DIVIDENDS
In January 1996, the Company changed its policy on dividend payments. Dividends
will be paid on a quarterly basis rather than annually. The Board approved a
$.12 dividend per share payable on April 1, 1996 to shareholders of record on
March 1, 1996. On an annualized basis, this represents a 9.09 percent increase
over the $.44 annual dividend declared in 1995 and paid on January 2, 1996.
BRANCH OPENINGS
During 1995, the Company opened two new branches, bringing the total number of
locations to thirteen. Both branches are located in Marion County, Florida. The
Company constructed a building for the Spruce Creek Branch and is leasing space
in the Cascades Office Complex for the Ocala Branch.
F-100
<PAGE> 170
<TABLE>
<CAPTION>
SELECTED QUARTERLY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rate(1)
(Dollars in thousands) 1995 Quarters
- ------------------------------------------------------------------------------------------------------------------------------------
FOURTH Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment securities:
Taxable........................ $ 168,321 7.03% $ 171,303 7.06% $ 170,616 7.15% $ 165,276 7.16%
Nontaxable..................... 50,970 8.77 46,082 9.02 46,767 9.13 47,866 9.15
---------- ----------- ---------- ----------
TOTAL INVESTMENT SECURITIES.... 219,291 7.44 217,385 7.48 217,383 7.57 213,142 7.22
Federal funds sold and other short-
term investments............... 16,458 5.98 15,698 5.86 15,326 4.33 8,308 4.91
Loans, net (2)................... 249,538 9.23 240,763 9.27 233,166 9.58 224,637 8.91
---------- ----------- ---------- ----------
TOTAL EARNINGS ASSETS.......... 485,287 8.30 473,846 8.34 465,875 8.27 446,087 8.11
Allowance for loan losses........... (3,801) (3,556) (3,463) (3,413)
Cash and due from banks............. 13,728 12,861 12,933 13,644
Bank premises and equipment......... 8,798 8,152 7,852 7,783
Other assets........................ 7,034 7,282 7,306 7,143
---------- ----------- ---------- ----------
TOTAL ASSETS................... 511,046 498,585 490,503 471,244
========== =========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand........... 60,208 2.16 60,198 2.13 60,647 2.13 61,184 2.20
Savings and money market.......... 98,813 2.74 98,692 2.73 100,743 2.68 109,702 2.63
Time deposits..................... 248,954 5.70 244,887 5.76 236,044 5.74 212,248 5.31
Federal funds purchased and securities
sold under agreement to
repurchase....................... 8,789 5.19 7,505 5.44 6,934 5.36 5,302 5.05
---------- ----------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 416,764 4.48 411,282 4.49 404,368 4.43 388,436 4.06
Demand deposits:
Noninterest-bearing............... 39,899 37,832 38,111 37,391
Other liabilities................... 5,934 5,020 4,305 4,377
---------- ----------- ---------- ----------
TOTAL LIABILITIES.............. 462,597 454,134 446,784 430,204
Shareholders' equity................ 48,449 44,451 43,719 41,040
---------- ----------- ---------- ----------
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY........... $ 511,046 $ 498,585 $ 490,503 $ 471,244
========== =========== ========== ==========
Interest expense as % of earning assets 3.84 3.90 3.85 3.54
Net interest income/yield on earnings 4.46% 4.44% 4.43% 4.57%
assets............................
<FN>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
</TABLE>
F-101
<PAGE> 171
<TABLE>
<CAPTION>
SELECTED QUARTERLY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rate(1)
(Dollars in thousands) 1994 Quarters
- ------------------------------------------------------------------------------------------------------------------------------------
FOURTH Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment securities:
Taxable........................ $ 167,777 6.87% $ 168,517 6.73% $ 169,166 6.73% $ 166,116 6.67%
Nontaxable..................... 46,325 9.29 44,878 9.97 44,196 9.07 41,890 9.63
---------- ----------- ---------- ----------
TOTAL INVESTMENT SECURITIES.... 214,102 7.39 213,395 7.41 213,362 7.22 208,006 7.27
Federal funds sold and other short-
term investments............... 6,175 5.18 5,982 4.48 6,261 3.83 6,363 3.11
Loans, net (2)................... 217,830 8.73 209,607 8.43 200,180 8.62 197,982 7.75
---------- ----------- ---------- ----------
TOTAL EARNINGS ASSETS.......... 438,107 8.03 428,984 7.87 419,803 7.83 412,351 7.41
Allowance for loan losses........... (3,363) (3,220) (3,074) (2,929)
Cash and due from banks............. 13,651 12,981 13,950 13,984
Bank premises and equipment......... 7,885 8,054 8,221 8,033
Other assets........................ 6,901 6,765 7,577 7,676
---------- ----------- ---------- ----------
TOTAL ASSETS................... 463,181 453,564 446,477 439,115
========== =========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand........... 59,080 2.05 58,032 2.03 59,013 1.92 57,909 1.95
Savings and money market.......... 117,905 2.67 122,063 2.61 123,655 2.47 123,534 2.41
Time deposits..................... 195,049 4.97 186,187 4.75 177,559 4.47 171,924 4.39
Federal funds purchased and securities
sold under agreement to
repurchase....................... 4,508 4.44 4,022 3.88 4,054 3.45 5,466 2.56
---------- ----------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 376,542 3.79 370,304 3.61 364,281 3.37 358,833 3.29
Demand deposits:
Noninterest-bearing............... 42,943 41,260 42,019 40,495
Other liabilities................... 3,607 2,710 2,754 3,333
---------- ----------- ---------- ----------
TOTAL LIABILITIES.............. 423,092 414,274 409,054 402,661
Shareholders' equity................ 40,089 39,290 37,423 36,454
---------- ----------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY........... $ 463,181 $ 453,564 $ 446,477 $ 439,115
========== =========== ========== ==========
Interest expense as % of earning assets 3.25 3.12 2.92 2.86
Net interest income/yield on earnings 4.77% 4.73% 4.92% 4.56%
assets............................
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
</TABLE>
F-102
<PAGE> 172
<TABLE>
<CAPTION>
SELECTED QUARTERLY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Quarterly Consolidated Income Statement (1)
1995 Quarters 1994 Quarters
-------------------------------------- -------------------------------------
(Dollars in thousands except per share data) FOURTH Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income:
Interest income................................ $ 10,075 $ 9,874 $ 9,636 $ 9,044 $ 8,793 $ 8,413 $ 8,226 $ 7,650
Interest expense............................... (4,664) (4,620) (4,479) (3,943) (3,564) (3,342) (3,062) (2,950)
-------- -------- -------- -------- -------- -------- ------- ------
Net interest income............................ 5,411 5,254 5,157 5,101 5,229 5,071 5,164 4,700
-------- -------- -------- -------- -------- -------- ------- ------
Provision for loan losses........................ 0 (130) (95) (30) (77) (201) (172) (150)
-------- -------- -------- -------- -------- -------- ------- ------
Noninterest income:
Service charges on deposit accounts............ 465 416 375 377 382 383 359 369
Trust income................................... 213 212 202 215 177 174 156 209
Other income................................... 15 88 95 196 127 117 94 118
Investment securities gains (losses)........... (103) 41 18 (15) (44) 0 (178) 54
-------- -------- -------- -------- -------- -------- ------- ------
Total noninterest income....................... 590 757 690 773 642 674 431 750
-------- -------- -------- -------- -------- -------- ------- ------
Noninterest expenses:
Salaries and employee benefits................. 1,425 1,654 1,620 1,607 1,542 1,536 1,545 1,525
Occupancy expense.............................. 325 214 443 341 355 317 232 357
Equipment expense.............................. 290 243 254 259 253 244 274 233
Stationery and supplies........................ 116 99 97 83 132 87 113 77
Advertising.................................... 96 92 85 88 102 64 70 63
Insurance, including regulatory assessments.... 40 (8) 240 240 248 233 253 238
Postage........................................ 70 65 64 73 54 56 62 57
Taxes (2)...................................... 67 70 79 67 54 20 73 69
Directors' fees................................ 75 73 72 71 67 71 73 71
Trust department expense....................... 31 42 28 36 31 44 26 35
Other expense.................................. 464 354 125 334 348 280 193 351
-------- -------- -------- -------- -------- -------- ------- ------
Total noninterest expenses..................... (2,999) (2,898) (3,107) (3,199) (3,186) (2,952) (2,914) (3,076)
-------- -------- -------- -------- -------- -------- ------- ------
Income before income taxes....................... 3,002 2,983 2,645 2,645 2,608 2,592 2,509 2,224
Provision for income taxes....................... (975) (1,087) (973) (1,026) (966) (945) (920) (812)
-------- -------- -------- -------- -------- -------- ------- ------
Net income ...................................... $ 2,027 $ 1,896 $ 1,672 $ 1,619 $ 1,642 $ 1,647 1,589 $ 1,412
======== ======== ======== ======== ======== ======== ======== =======
PER SHARE DATA
Net income before cumulative effect of a change
in accounting principle...................... .45 .43 .37 .36 .37 .37 .35 .32
======== ======== ======== ======= ======= ======= ======== =======
Cash dividends declared on common stock........ $ .40 $ .00 $ .00 $ .00 $ .32 $ .00 $ .00 $ .00
Market price of common stock at end of period (3) $ 19.00 $ 19.50 $ 18.00 $ 16.00 $ 16.00 $ 16.25 $ 14.00 $ 12.88
<FN>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Taxes other than payroll, real estate and income taxes.
(3) Based on quoted market price at quarter end without regard to shares issued to effect the merger of April 19, 1996.
</TABLE>
F-103
<PAGE> 173
ACCOUNTANTS' REVIEW REPORT
Board of Directors
Citi-Bancshares, Inc. and Subsidiary
Leesburg, Florida
We have reviewed the condensed consolidated balance sheets of Citi-Bancshares,
Inc. and its subsidiary as of September 30, 1996 and 1995, and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended September 30, 1996 and 1995, and the condensed consolidated
statements of changes in stockholders' equity for the nine months ended
September 30, 1996, and the condensed consolidated statements of cash flows for
the nine-month periods ended September 30, 1996 and 1995. These financial
statements are the responsibility of Citi-Bancshares, Inc. and its subsidiary's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year then ended (not presented herein) and, in our report
dated February 1, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1995, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
October 7, 1996
Gainesville, Florida
F-104
<PAGE> 174
CONDENSED CONSOLIDATED BALANCE SHEETS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED) (UNAUDITED)
MONTH END AS YEAR END AS MONTH END AS
OF 9/30/96 OF 12/31/95 OF 9/30/95
------------------ ----------------- -----------------
<S> <C> <C> <C>
Cash and Demand Deposits Due From Banks $ 17,606 $ 17,833 $ 16,946
Investment Securities (Market Value 9/30/96 -
$202,535; 12/31/95 - $228,916; 9/30/95 -
$217,723) 202,535 228,916 215,284
Federal Funds Sold 4,135 7,392 9,410
Loan Receivables 287,009 253,510 246,655
Less: Unearned Income (614) (826) (906)
Allowance For Loan Losses (3,949) (3,800) (3,637)
------------------ ----------------- -----------------
Loan Receivables, Net 282,446 248,884 242,112
Real Estate Owned 528 663 613
Premises and Equipment, Net 9,941 9,285 8,311
Accrued Interest Receivable 5,078 4,515 4,587
Other Assets 2,096 1,986 2,166
------------------ ----------------- -----------------
TOTAL ASSETS 524,365 519,474 499,429
================== ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing 45,971 47,929 41,581
Interest-Bearing 412,650 403,669 397,679
------------------ ----------------- -----------------
Total Deposits 458,621 451,598 439,260
------------------ ----------------- -----------------
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 9,105 8,498 7,834
Accrued Interest Payable 3,542 4,180 4,029
Other Liabilities 1,053 4,314 972
------------------ ----------------- -----------------
TOTAL LIABILITIES 472,321 468,590 452,095
------------------ ----------------- -----------------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $.01 Per Share;
Authorized 10,000,000 Shares; Issued
4,609,402 Shares 46 46 46
Capital Surplus 15,309 15,052 15,052
Retained Earnings 37,145 32,759 32,504
Less: Treasury Stock at Cost (136,988
Shares) (792) (792) (792)
Unrealized Gains on Certain Securities 336 3,819 524
------------------ ----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 52,044 50,884 47,334
------------------ ----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 524,365 $ 519,474 $ 499,429
================== ================= =================
</TABLE>
See accompanying notes.
F-105
<PAGE> 175
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
1996 1995 1996 1995
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 17,554 $ 15,942 $ 6,085 $ 5,582
-------------- ------------- ------------ -------------
Investment Securities:
Taxable 8,052 8,825 2,501 3,024
Exempt From Federal Income Taxes 2,653 2,113 904 686
-------------- ------------- ------------ -------------
Total Investment Securities 10,705 10,938 3,405 3,710
Federal Funds Sold 372 581 149 230
-------------- ------------- ------------ -------------
TOTAL INTEREST INCOME 28,631 27,461 9,639 9,522
-------------- ------------- ------------ -------------
INTEREST EXPENSE
Deposits 13,228 12,779 4,440 4,522
Securities Sold Under Repurchase
Agreements 300 263 107 98
-------------- ------------- ------------ -------------
TOTAL INTEREST EXPENSE 13,528 13,042 4,547 4,620
-------------- ------------- ------------ -------------
NET INTEREST INCOME 15,103 14,419 5,092 4,902
PROVISION FOR LOAN LOSSES 200 255 150 130
-------------- ------------- ------------ -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 14,903 14,164 4,942 4,772
-------------- ------------- ------------ -------------
NONINTEREST INCOME
Investment Securities Gains 24 29 35 26
Service Charges on Deposit Accounts 1,571 1,175 509 416
Trust Income 700 629 236 212
Other Income 368 293 104 104
-------------- ------------- ------------ -------------
TOTAL NONINTEREST INCOME 2,663 2,126 884 758
-------------- ------------- ------------ -------------
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,043 4,881 1,760 1,654
Occupancy Expense 940 998 320 325
Equipment Expense 906 756 321 243
Other Expenses 2,552 2,568 740 681
-------------- ------------- ------------ -------------
TOTAL NONINTEREST EXPENSE 9,441 9,203 3,141 2,903
-------------- ------------- ------------ -------------
INCOME BEFORE INCOME TAXES 8,125 7,087 2,685 2,627
PROVISION FOR INCOME TAXES 2,179 1,908 711 734
-------------- ------------- ------------ -------------
NET INCOME $ 5,946 $ 5,179 $ 1,974 $ 1,893
============== ============= ============ =============
EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $ 1.33 $ 1.16 $ .44 $ .42
============== ============= ============ =============
AVERAGE NUMBER OF SHARES 4,484 4,482 4,486 4,483
============== ============= ============ =============
</TABLE>
See accompanying notes.
F-106
<PAGE> 176
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
COMMON CAPITAL RETAINED TREASURY ON CERTAIN
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
------ ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994
(AUDITED) $ 42 $ 11,208 $ 27,338 $ (792) $ (3,820) $ 33,976
Common Stock Issued For Pooled
Bank Acquired April 16,
1996 4 3,844 (12) 0 (80) 3,756
------- ---------- ----------- ---------- -------- ---------
BALANCES, DECEMBER 31, 1994,
AFTER STOCK ISSUED FOR POOLED
BANK 46 15,052 27,326 (792) (3,900) 37,732
Net Income 0 0 7,214 0 0 7,214
Cash Dividends Declared ($.44
Per Share) 0 0 (1,781) 0 0 (1,781)
Unrealized Gains on Certain
Securities 0 0 0 0 7,719 7,719
------- ---------- ----------- ---------- -------- ---------
BALANCES, DECEMBER 31, 1995 46 15,052 32,759 (792) 3,819 50,884
Net Income 0 0 5,946 0 0 5,946
Cash Dividends Declared ($.12
Per Share Per Quarter) 0 0 (1,560) 0 0 (1,560)
Pre-Merger Options Exercised For
Stock of Acquired Company 0 181 0 0 0 181
Stock Options Grants 0 76 0 0 0 76
Unrealized (Loss) on Certain
Securities 0 0 0 0 (3,483) (3,483)
------- ---------- ----------- ---------- -------- ---------
BALANCES, SEPTEMBER 30, 1996 $ 46 $ 15,309 $ 37,145 $ (792) $ 336 $ 52,044
======= ========== =========== ========== ======== =========
</TABLE>
See accompanying notes.
F-107
<PAGE> 177
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,946 $ 5,179
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Provision For Loan Losses 200 255
Depreciation 653 544
Loss on Fixed Asset Disposal 157 0
Net Amortization/(Accretion) of Discount on Investments 145 (327)
(Gain) on Sale of Land (194) 0
(Gain) on Sale of Investments and Real Estate Owned (28) (30)
Net Amortization of Deferred Loan Fees (357) (143)
(Increase) in Accrued Interest Receivable (563) (455)
(Decrease) Increase in Accrued Interest Payable (638) 1,599
Other 24 590
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,345 7,212
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales of Investment Securities 59,474 65,151
Proceeds From Maturities of Investment Securities 9,792 21,120
Purchases of Investment Securities (48,511) (82,767)
Net (Increase) in Loan Receivables (33,548) (24,104)
Proceeds From Sale of Real Estate Owned 278 102
Proceeds From Sale of Land 296 0
Purchases of Premises and Equipment (1,568) (1,027)
------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES (13,787) (21,525)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Pre-Merger Stock Activity of Acquired Company 181 810
Net Increase in Demand Deposits, NOW Accounts,
and Savings Accounts 836 593
Net Increase in Certificates of Deposit 6,187 22,569
Net Increase in Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase 607 961
Dividends Paid (2,853) (1,417)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,958 23,516
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,484) 9,203
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,225 17,153
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,741 $ 26,356
============= =============
</TABLE>
See accompanying notes.
F-108
<PAGE> 178
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
(CONCLUDED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and Demand Deposits Due From Banks $ 17,606 $ 16,946
Federal Funds Sold 4,135 9,410
------------- -------------
TOTAL CASH AND CASH EQUIVALENTS $ 21,741 $ 26,356
============= =============
INTEREST PAID $ 14,166 $ 11,444
============= =============
INCOME TAXES PAID $ 1,981 $ 1,476
============= =============
DISPOSAL OF PREMISES AND EQUIPMENT
- ----------------------------------
Cost Basis $ 921 $ 2
(Accumulated Depreciation) (764) 0
------------- -------------
TOTAL $ 157 $ 2
============= =============
GAIN ON LAND SALE
- -----------------
Proceeds Received $ 296 $ 0
Cost Basis (102) 0
------------- -------------
GAIN $ 194 $ 0
============= =============
</TABLE>
See accompanying notes.
F-109
<PAGE> 179
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Citi-Bancshares, Inc.
(the Company) and its subsidiary conform to generally accepted
accounting principles and to predominant practices within the
banking industry.
In the opinion of the Company's management, all adjustments
necessary to present fairly the financial position as of September
30, 1996, and the results of operations and cash flows for the
period then ended have been included and are of a normal and
recurring nature.
Certain amounts for 1996 and 1995 were reclassified to conform
with statement presentation for September 30, 1996. These
reclassifications have no effect on stockholders' equity or net
income as previously reported.
NOTE 2 - INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded
to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at year end. The change in deferred
taxes attributable to the carrying value of investments
categorized as "available-for-sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related
to operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for using the
flow-through method.
The Company files consolidated federal and state income tax
returns with its subsidiary, Citizens National Bank of Leesburg.
Federal and state income taxes are allocated between the Company
and its subsidiary in proportion to the respective contributions
in consolidated taxable income.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------
(UNAUDITED) (AUDITED) (UNAUDITED)
9/30/96 12/31/95 9/30/95
---------------- --------------- ---------------
<S> <C> <C> <C>
Commercial, Financial and Agricultural $ 30,814 $ 24,478 $ 23,196
Real Estate 225,678 200,185 195,453
Installment Loans 30,517 28,847 28,006
---------------- --------------- ---------------
LOANS RECEIVABLE $ 287,009 $ 253,510 $ 246,655
================ =============== ===============
</TABLE>
F-110
<PAGE> 180
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------
(UNAUDITED) (AUDITED) (UNAUDITED)
9/30/96 12/31/95 9/30/95
---------------- --------------- ---------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 3,800 $ 3,404 $ 3,404
---------------- --------------- ---------------
Additions:
Provision Charged to Expense 200 255 255
Recoveries on Loans Previously
Charged Off 83 308 81
---------------- --------------- ---------------
Total Additions 283 563 336
(Loans Charged Off) (134) (167) (103)
---------------- --------------- ---------------
BALANCE, END OF PERIOD $ 3,949 $ 3,800 $ 3,637
================ =============== ===============
</TABLE>
NOTE 4 - UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under this statement,
the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes,
is shown as a separate component of stockholders' equity in the
balance sheet. The following is a summary of the effects of the
statement of stockholders' equity as of September 30, 1996,
December 31, 1995, and September 30, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------
(UNAUDITED) (AUDITED) (UNAUDITED)
9/30/96 12/31/95 9/30/95
---------------- --------------- ---------------
<S> <C> <C> <C>
Gross Unrealized Gains on Investment
Securities Available-For-Sale $ 531 $ 6,040 $ 821
Deferred Income Tax Asset (Liability)
on Unrealized Gain (195) (2,221) (298)
---------------- --------------- ---------------
NET INCREASE IN STOCKHOLDERS'EQUITY $ 336 $ 3,819 $ 523
================ =============== ===============
</TABLE>
F-111
<PAGE> 181
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------
(UNAUDITED) (AUDITED) (UNAUDITED)
9/30/96 12/31/95 9/30/95
---------------- --------------- ---------------
<S> <C> <C> <C>
Land $ 1,451 $ 1,518 $ 1,518
Buildings 9,526 7,969 7,546
Furniture, Fixtures and Equipment 6,237 6,274 6,000
Construction in Process 0 963 463
---------------- --------------- ---------------
17,214 16,724 15,527
(Accumulated Depreciation) (7,273) (7,439) (7,216)
---------------- --------------- ---------------
TOTAL PREMISES AND EQUIPMENT, NET $ 9,941 $ 9,285 $ 8,311
================ =============== ===============
</TABLE>
NOTE 6 - DEPOSITS
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------
(UNAUDITED) (AUDITED) (UNAUDITED)
9/30/96 12/31/95 9/30/95
---------------- --------------- ---------------
<S> <C> <C> <C>
Demand $ 56,830 $ 59,679 $ 50,807
Savings 97,886 92,243 102,831
Time 257,934 251,747 244,041
---------------- --------------- ---------------
TOTAL INTEREST-BEARING ACCOUNTS $ 412,650 $ 403,669 $ 397,679
================ =============== ===============
</TABLE>
NOTE 7 - STOCK OPTION PLAN
In 1994, the Company adopted a stock option plan for granting
nonqualified stock options to specified officers. The
nonqualified stock options are granted to the officers provided
the Bank meets certain target performance and asset quality
criteria. The stock options, after a two-year vesting
requirement, are exercisable at a price equal to the book value
per share, net of FASB No. 115. The Company follows APB Opinion
No. 25, Accounting for Stock Issued to Employees in recognizing
stock options. Total shares outstanding at September 30, 1996,
was 23,750.
These securities were included in the calculation of primary
earnings per share as a common stock equivalent.
F-112
<PAGE> 182
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONCLUDED)
NOTE 8 - ACQUISITIONS
On April 19, 1996, the Company acquired Citizens First Bancshares,
Inc. (CFB), a bank holding company in Ocala, Florida. The merger
was accounted for as a pooling of interests. As a result, the
financial information presented is as if the combining companies
had been consolidated for all periods presented.
On the date of the merger, CFB had assets of $40,866,000, net
loans of $25,668,000, deposits of $35,863,000 and net income of
$144,375.
Per the Merger Agreement, each share of issued and outstanding CFB
common stock was converted into 1.317911 shares of the Company's
common stock with cash being paid for fractional share interests.
424,711 shares of the Company's stock were issued for 322,480
shares of CFB common stock.
F-113
<PAGE> 183
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Citi-Bancshares, Incorporated ( the "Company" ) is a one bank holding company
located in Leesburg, Florida. It's sole subsidiary, Citizens National Bank,
operates full- service banking offices in central Florida. Citizens National
Bank, a national bank organized under the laws of the United States, operates
from a main office in Leesburg and ten branch offices in Eustis, Fruitland Park,
Lady Lake, Leesburg, Ocala, Summerfield and Tavares.
Citizens National Bank has eleven offices including the main office in Leesburg.
On April 19,1996, the Company aquired Citizens First Bancshares, Inc. (CFB), a
bank holding company in Ocala, Florida. The merger was accounted for as a
pooling of interests. As a result, the financial information presented is as if
the combining companies had been consolidated for all periods presented.
On the date of the merger, CFB had assets of $40,866,000, net loans of
$25,668,000, and deposits of $35,863,000 and net income of $144,000.
THIRD QUARTER 1996
- ------------------
The following is a discussion of the Company's financial performance,
results of operations and overall financial condition. This discussion should be
read in conjunction with the Company's Condensed Consolidated Financial
Statements and the notes attached thereto.
F-114
<PAGE> 184
FINANCIAL CONDITION
-------------------
LOAN PORTFOLIO
- --------------
Total loans (net of unearned income and excluding the allowance for loan losses)
were $282,446,000 at September 30, 1996, $40,334,000 or 16.66% more than at
September 30, 1995, and $33,562,000 or 13.48% more than at December 31, 1995.
Gross loans at September 30, 1996 were up $33,499,000 over December 31, 1995, an
increase of 13.21%. This is up from the $21,867,000 growth we enjoyed in the
first nine months of last year. Our loan growth in the first nine months of this
year was primarily in residential and commercial real estate mortgages. Real
Estate loans grew approximately $25,493,000 or 12.73% in the first nine months
of 1996. The Company also experienced growth in the commercial loan portfolio of
$6,336,000 or 25.88% from the end of the previous year ended December 31, 1995.
The ratio of gross loans to total deposits for September 30, 1996 was 62.58%
compared to 54.64% at year-end 1995 and 54.88% at September 30, 1995
LOANS (CON'T)
- -----
<TABLE>
<CAPTION>
(in thousands)
$
DOLLAR PERCENTAGE
9/30/96 12/31/95 GROWTH GROWTH
------- -------- ------ ------
<S> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $ 30,814 $ 24,478 $ 6,336 25.88%
Real Estate 225,678 200,185 25,493 12.73%
Installment Loans 30,517 28,847 1,670 5.79%
-------- -------- -------- -----
LOANS RECEIVABLE $287,009 $253,510 $ 33,499 13.21%
-------- -------- -------- -----
</TABLE>
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similiar activities which would cause them to be similarly impacted
by economic or other conditions. The Company on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loans to deposit ratios, and industry trends.
F-115
<PAGE> 185
Concentrations of loans in the following categories constituted the total loan
portfolio as follows:
<TABLE>
9/30/96 12/31/95 9/30/95
------- -------- -------
<S> <C> <C> <C>
Commercial, Financial
and Agricultural 10.74% 9.66% 9.40%
Real Estate Loans 78.63 78.97 79.24
Installment Loans 10.63 11.37 11.36
------ ------ ------
LOANS RECEIVABLE 100.00% 100.00% 100.00%
</TABLE>
The Company's market is primarily a residential area with relatively little
commercial activity other than professional retail and service businesses
serving local residents. Therefor, real estate mortgage lending, particularly
residential properties, is expected to remain an important segment of the
Company's lending activities. Exposure to market interest rate volatility with
respect to mortgage loans is managed by attempting to match maturities and
repricing opportunities for assets and liabilities, when possible. At September
30, 1996, approximately $108,063,000 or 84.78% of the Company's mortgage loan
balances secured by residential properties were adjustable.
The Loan Committee of the Board of Directors of the Company concentrates its
efforts and resources, and that of its senior management and lending officers,
on loan review and underwriting procedures. Internal controls include ongoing
reviews of loans made to monitor documentation and the existence and valuations
of collateral. In addition, management of the Company has established a review
process with the objective of identifying, evaluating, and initiating necessary
corrective action for marginal loans. The goal of the loan review process is to
address classified and nonperforming loans as early as possible.
F-116
<PAGE> 186
All loans and commitments for one-to-four family residential properties and
commercial real estate are generally secured with first mortgages on property
with the amount loaned at inception to the fair value of the property not to
exceed 80%. Nearly all of the residential real estate loans are made upon terms
and conditions that would make such loans eligible for resale under Federal
National Mortgage Association (FNMA) or Federal Home Mortgage Corporation
(FHLMC) guidelines.
The Company's charge-offs for residential real estate loans have been minimal,
with no charge offs related to residential real estate loans for the first nine
months of 1996 and $9,430 for all of 1995.
At September 30, 1996 the Company had commitments to make loans (excluding
unused equity lines of credit and credit card lines) of $23,061,000, compared to
$17,955,000 at September 30, 1995.
DEPOSITS
- --------
Deposits are the major source of the Company's funds for lending and other
investment purposes. Deposits are attracted principally from within the
Company's primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by the
Company on a periodic basis. The determination of rates and terms is predicated
on the funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
F-117
<PAGE> 187
Total deposits at September 30, 1996 increased $7,023,000 over December 31,
1995, an increase of 2.07%. In comparison, deposits grew $15,355,000 in the same
period last year. Non-interest bearing deposits decreased $1,958,000 from
December 31, 1995 to September 30, 1996 and interest-bearing deposits increased
$8,981,000 during the same period. From December 31, 1995 to September 30, 1996
we saw the following changes in interest-bearing deposits:
<TABLE>
<CAPTION>
(in thousands)
$ %
DOLLAR PERCENTAGE
9/30/96 12/31/95 GROWTH GROWTH
<S> <C> <C> <C> <C>
Demand $ 56,830 $ 59,679 $(2,849) ( 4.77%)
Savings 97,886 92,243 5,643 6.12%
Time 257,934 251,747 6,187 2.46%
------- ------- ----- ---
Total Interest-Bearing $412,650 $403,669 $ 8,981 2.23%
Non-Interest Bearing $ 45,971 $ 47,929 $ (1,958) (4.09)%
Total Deposits $458,621 $451,598 $ 7,023 1.56%
</TABLE>
Management believes that the Company does not have a concentration of deposits
from any one source, the loss of which would have a material adverse effect on
the business of the bank. Management believes that substantially all of the
depositors are residents in its primary market area.
EARNINGS SUMMARY
----------------
INTEREST INCOME
- ---------------
The interest income on earning assets was $9,639,000 in the third
quarter of 1996, an increase of $117,000 when compared to the third quarter of
1995. The increase in income was due entirely to the increase in outstanding
loan balances. The rates paid on loans actually decreased in the third quarter
of 1996 which had a negative impact on interest income.
F-118
<PAGE> 188
INTEREST EXPENSE
- ----------------
Interest expense was $4,547,000 in the third quarter of 1996, a decrease of $
73,000 when compared to the same period in 1995. Most of the decrease in
interest expense is due to the decrease in rates paid by the bank in the third
quarter of 1996 as compared to the third quarter of 1995. The net interest
margin remained fairly stable in the third quarter of 1996. The dollar volume of
interest bearing deposits increased $14,971,000 from the ending of third quarter
1996 as compared to the ending balance of third quarter 1995.
NET INTEREST INCOME
- -------------------
Net interest income for the third quarter of 1996 was $5,092,000, an increase of
$190,000 or 3.88% over the third quarter 1995 level of $4,902,000.
PROVISION/ALLOWANCE FOR LOAN LOSSES
- -----------------------------------
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Company
and other factors related to the collectibility of the loan portfolio.
The provision for loan losses was $150,000 in the third quarter of 1996. This is
an increase of $20,000 over the 1995 third quarter loan provision of $130,000.
The increase in the provision is primarily a result of the growth in loans
experienced in the third quarter of 1996.
Net charge-offs in the first nine months of 1996 were $51,000 compared to net
charge-offs of $15,000 for the first nine months of 1995.
F-119
<PAGE> 189
The allowance for loan losses as a percentage of gross loans is as follows:
9/30/96 12/31/95
------- --------
Allowance/Gross Loans 1.38% 1.50%
Loan Loss Reserve $3,949,000 $3,800,000
The Company decided to reduce the Reserve for Loss on Loans as a percentage of
Gross Loans in the first nine months of 1996 due to the urging by the Company's
regulators. The regulators commented that the percentage was high given the high
quality of the loan portfolio.
The allowance for loan losses as a percentage of nonaccrual loans and loans 90
days or more past due was 305.41% at September 30, 1996, compared to 132.40% at
September 30, 1995.
Management determines the provision for loan losses which is charged to
operations by regularly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge-offs, and by estimating losses inherent in its
portfolio. While the Company's policies and procedures used to estimate the
monthly provision for loan losses charged to operations are considered adequate
by management and are reviewed from time to time by the Office of the
Comptroller of the Currency, there exists factors beyond the control of the
Company, such as general economic conditions both locally and nationally, which
make management's judgment as to the adequacy of the provision necessarily
approximate and imprecise.
F-120
<PAGE> 190
RISK ELEMENTS
DELINQUENT AND NONACCRUAL LOANS
All loan delinquencies over 30 days past due and all loans on non-accrual as a
percentage of gross loans are reflected below:
9/30/96 12/31/95 9/30/95
------- -------- -------
Total Loan Delinquencies 0.38% 0.31% 0.71%
Total Non-Accrual Loans ` 0.46% 0.35% 0.28%
Total Delinquencies and
Non-Accruals 0.84% 0.66% 0.99%
At September 30, 1996, accruing loans past due thirty (30) days or more and
nonaccrual loans outstanding were $3,337,000 and $1,293,000 respectively as
compared to $2,126,000 and $621,000 as of September 30, 1995.
Generally, interest on loans accrues and is credited to income based upon the
principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as non-accrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal and interest is
not likely to be paid in accordance with the terms of the obligation.
Loans are not returned to accrual status until principal and interest payments
are brought current and future payments appear reasonably certain. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is charged
against interest income. Subsequent payments received are applied to the
outstanding principal balance.
F-121
<PAGE> 191
OTHER REAL ESTATE OWNED
Other Real Estate Owned (OREO) consists primarily of foreclosed real estate and
has decreased in the past year as the Company disposed of OREO in an improving
economy:
9/30/96 12/31/95 9/30/95
------- -------- -------
OREO/Total Real
Estate Loans 0.23% 0.46% 0.31%
Book value of OREO $528,000 $662,000 $613,000
OREO/Total Assets 0.10% 0.13% 0.12%
All OREO has been written down to the current appraised value at the time the
Company took ownership. Further allowances for losses in OREO are recorded by a
charge to operations at the time management believes additional deterioration in
value has occurred.
NON-INTEREST INCOME
- -------------------
Non-interest income for the third quarter of 1996, net of securities
gains/losses from securities sales was $849,000, an increase of $117,000 or
15.98% over the third quarter of 1995 figure of $732,000. The increase in
non-interest income was due primarily to the increase in service charges on
deposit accounts. Noninterest income, net of gains and losses from securities
sales, for the first nine months of 1996 increased $542,000 or 25.85%.
Gains on the sale of securities in the third quarter of 1996 were $35,000 as
compared to $26,000 of gains on sales of securities in the third quarter of
1995.
The Company will continue to manage its securities portfolio in this moderately
progressive yield curve rate environment to sell any lower yielding securities
and purchase higher yielding investments as the opportunity arises.
Trust income for the third quarter of 1996 was up $24,000 over the same period a
year ago.
F-122
<PAGE> 192
NON-INTEREST EXPENSE
- --------------------
The Company's non-interest expense was $3,141,000 in the third quarter of 1996,
an increase of $238,000 or 8.20% from the corresponding period in 1995. Included
in the non-interest expense classification for the third quarter of 1996 is the
non-capitalizable cost associated with the new wide area network that the
Company installed this year. Also, there were some cost paid in the third
quarter that were associated with the merger of Citizens First Bank of Ocala
that was merged in the second quarter of 1996.
Management continues to emphasize expense control in all areas as evidenced by
the Bank Holding Company Performance Report for June 30, 1996, which compares
our holding company to 165 holding companies in our peer group:
6/30/96 6/30/96
OUR PEER
COMPANY GROUP
------- -----
Overhead Expense as Percentage
of Average Assets 2.54% 3.25%
INCOME TAXES
- ------------
During the nine months ended September 30, 1996 and 1995, the Company recorded
taxes on income of $2,179,000 and $1,908,000, respectively, reflecting effective
income tax rates of 26.82% for 1996 and 26.92% for 1995. The effective rate is
lower than the corporate rate of 34% primarily due to the large amount of tax
exempt securities comprising the Company's investment portfolio.
F-123
<PAGE> 193
NET INCOME
- ----------
Net income for the third quarter of 1996 totaled $1,974,000 or $0.44 per share,
compared with $1,893,000 or $0.42 per share in the third quarter of 1995.
Earnings in 1996 were favorably impacted by the increase in the demand for
loans, the increase in noninterest income and the continued control of
noninterest expenses.
The annualized return on average assets for the third quarter was 1.51% compared
to 1.52% for the same period in 1995. The annualized return on average assets
for the first nine months of 1996 was 1.53% as compared to 1.42% for the same
period in 1995.
The annualized return on average equity, including the impact of FASB 115, for
the third quarter of 1996 was 15.63% as compared to the third quarter of 1995
annualized return on average equity of 16.50%. The annualized return on average
equity for the first nine months of 1996, including the effects of FASB 115, was
16.18% as compared to 15.79% for the the comparable period in 1995.
CAPITAL RESOURCES
- -----------------
Total stockholders' equity, excluding the effect of FASB 115, was
$51,708,000 on September 30, 1996, an increase of $4,643,000 over the December
31, 1995 level of $47,065,000. This 9.87% increase in capital was provided
entirely through retained earnings. The Company has changed it's dividend
payment policy from an annually payable dividend to a quarterly payable dividend
beginning in January of 1996.
F-124
<PAGE> 194
When including the effect of FASB 115 by adding in the net unrealized gain on
securities classified "available for sale" the September 30, 1996 total
stockholders' equity is $52,044,000 compared to year-end 1995 stockholders'
equity of $50,884,000. On December 31, 1995 the Company had $ 3,819,000 in net
unrealized gains on securities classified as "available for sale" compared to $
336,000 in net unrealized gains on September 30, 1996. As a percentage of total
assets, stockholders' equity including adjustments for FASB 115, increased from
9.80% on December 31, 1995 to 9.93% on September 30, 1996. Excluding the impact
of FASB 115, stockholders' equity as a percentage of total assets was 9.06% on
December 31, 1995 compared to 9.86% on September 30, 1996.
RISK BASED CAPITAL RATIOS
- -------------------------
Risk based capital ratios, excluding the effect of FASB 115, are shown below:
REGULATORY
ACTUAL ACTUAL MINIMUM
9/30/96 9/30/95 12/31/95
------- ------- --------
Tier I Risk Based Capital
(Tier I Stockholders' Equity
to Risk Based Assets at
Quarter End) 19.13% 18.77% 4.0%
Total Risk Based Capital
(Total Stockholders' Equity
plus Loan Loss Reserve to
Risk Based Assets at Quarter
End) 20.38% 20.02% 8.0%
Leverage Capital (excluding
FASB 115)
(Stockholders' Equity to
Average Total Assets for
the Quarter) 9.86% 9.31% 3.0%
F-125
<PAGE> 195
INTEREST RATE SENSITIVITY
- -------------------------
Interest rate movements and deregulation of interest rates have made managing
the Company's interest rate sensitivity increasingly important. The Company's
Asset/Liability Management Committee (ALCO) is responsible for managing the
Company's exposure to changes in market interest rates. The committee attempts
to maintain stable net interest margins by generally matching the volume of
assets and liabilities maturing, or subject to repricing, and by adjusting rates
to market conditions and changing interest rates.
Interest rate exposure is managed by monitoring the relationship between earning
assets and interest bearing liabilities, focusing primarily on those that are
rate sensitive. Rate sensitive assets and liabilities are those that reprice at
market interest rates within a relatively short period, defined here as one year
or less. The differences between rate sensitive assets and rate sensitive
liabilities represent the Company's interest sensitivity gap, which may be
either positive (assets exceed liabilities) or negative (liabilities exceed
assets).
On September 30, 1996, the Company had a negative gap position based on
contractual maturities and prepayment assumptions for the next twelve months,
with a negative cumulative interest rate sensitivity gap as a percentage of
total earning assets of 0.04%. This means that the Company's assets reprice more
slowly than its deposits. In a declining interest rate environment, the cost of
the Company's deposits and other liabilities may be expected to fall faster than
the interest received on its earnings assets, thus increasing the net interest
spread. If interest rates generally increase, the negative gap means that the
interest received on its earning assets may be expected to increase more slowly
than the interest paid on the Company's liabilities, therefore decreasing the
net interest spread.
F-126
<PAGE> 196
It has been the Company's experience that deposit balances for NOW and savings
accounts are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points. Therefore, the
Company's ALCO uses model simulation to manage and measure its interest rate
sensitivity. Management's strategy is to maintain a balanced interest rate risk
position to protect its net interest margin from market fluctuations.
The Company has determined that an acceptable level of interest rate risk would
be for net interest income to fluctuate no more than 10 percent given an
immediate change in interest rates (up or down) 200 basis points.
LIQUIDITY MANAGEMENT
- --------------------
The objective of liquidity management is to ensure the availability of
sufficient resources to meet all financial commitments and to capitalize on
opportunities for business growth. Liquidity Management addresses the ability to
meet deposit withdrawals either on demand or by contractual maturity, to repay
other borrowings as they mature and to make new loans and investments as
opportunities arise.
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage loans,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit. At September 30, 1996, the Company had federal
funds lines of credit available of $8,500,000.
Liquidity, as measured in the form of cash and cash equivalents, totaled
$21,741,000 at September 30, 1996. At September 30, 1995, cash and cash
equivalents totaled $26,356,000, a decrease of $4,614,000, which is attributed
primarily to an increase in loans outstanding.
As is typical of financial institutions, cash flows from investing (primarily in
loans and securities) and from financing (primarily through deposit operations
and short-term borrowings) are in excess of cash flows from operations. For the
nine months ended September 30, 1996, the cash flow provided from operations was
$5,345,000, cash used in investing activities was $13,787,000 and cash provided
by financing activities was $4,958,000.
F-127
<PAGE> 197
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The financial statements presented herein have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money, over time, due to
inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general levels of inflation. However, inflation affects financial institutions'
increased cost for goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings and shareholders' equity.
Mortgage originations and refinancings tend to slow as interest rates increase,
and likely will reduce the Company's earnings from such activities and the
income from the sale of residential mortgage loans in the secondary market.
SUMMARY
-------
The Company continues to enjoy good earnings through the third quarter
of 1996. While interest margins have remained moderate in the last nine months,
good investment portfolio management, expense control and loan growth have all
contributed to this profitability. Other Real Estate and non-performing assets
have remained at very satisfactory levels.
F-128
<PAGE> 198
At September 30, 1996, the Company held $202,535,000 in its securities
portfolio. This is a decrease of $12,749,000 or .059% from the amount at
September 30, 1995. The securities portfolio as a percentage of earning assets
was 41.76% at September 30, 1996, compared to 47.07% at September 30, 1995. The
decrease is directly related to the increase in the demand for loans. The
Company has no securities in its investments portfolio that equal 10% or more of
our capital as of September 30, 1996. The unrealized gains in the investment
portfolio on securities classified "Available for Sale" at September 30, 1996
were $ 336,000. These numbers are shown without any consideration of income tax
effects. While FASB 115 requires the "available-for-sale" securities be shown at
the market value we would receive if they were sold, the majority of these
securities will be held to maturity and no gain or loss will be incurred.
Management opted at year-end 1995 to put 100% of its portfolio in the
available-for-sale classification simply to provide the flexibility needed to
maintain liquidity and reposition its portfolio as necessary. Management does
not know of any loans not already classified or on non-accrual that would
materially impact future operating results, liquidity or capital resources. Nor
does Management know of any trends, events, current regulatory proposals or
uncertainties that will have, or that are reasonably likely to have a material
effect on the Company's liquidity, capital, resources or operations.
Item 5 Other Information
As previously mentioned, Citizens First Bancshares, Inc., Ocala, Florida was
merged into Citi-Bancshares, Inc. on April 19, 1996. The merger was accounted
for as a pooling of interest and accordingly the figures reported herein reflect
the merger as if the two institutions had been together in previous periods.
F-129
<PAGE> 199
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
-------- ----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Execution of Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 - MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Anti-Dilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Shares Held by Citi-Bancshares or Huntington . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 - ELECTION; EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Election and Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Rights of Former Citi-Bancshares Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CITI-BANCSHARES . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Citi-Bancshares Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
- i -
<PAGE> 200
<TABLE>
<S> <C>
5.18 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.19 Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.21 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.22 Directors' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.23 Compliance with Certain Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF HUNTINGTON . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.10 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 Authority of Huntington-Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.12 Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7 - CONDUCT OF BUSINESS PENDING CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Affirmative Covenants of Citi-Bancshares . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Negative Covenants of Citi-Bancshares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.3 Covenants of Huntington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 Adverse Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8 - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Registration Statement; Proxy Statement; Shareholder Approval . . . . . . . . . . . . . . . . 28
8.2 Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.3 Applications; Antitrust Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.4 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.5 Agreement as to Efforts to Consummate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.6 Investigation and Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.7 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.8 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.9 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.10 Agreements with respect to Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.11 Employee Benefits and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.13 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 9 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Conditions to Obligations of Huntington . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Conditions to Obligations of Citi-Bancshares . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
- ii -
<PAGE> 201
<TABLE>
<S> <C>
ARTICLE 10 - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.3 Non-Survival of Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 11 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.12 Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.13 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
- iii -
<PAGE> 202
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
1. Stock Option Agreement. (Section 1.4).
2. Form of Shareholder's Agreement. (Section 5.22).
3. Form of Affiliates' Agreement of Citi-Bancshares. (Section
8.10).
4. Matters as to which Alston & Bird will opine. (Section
9.2(d)).
5. Matters as to which Porter, Wright, Morris & Arthur will
opine. (Section 9.3(d)).
</TABLE>
- iv -
<PAGE> 203
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CITI-BANCSHARES, INC.,
HUNTINGTON BANCSHARES FLORIDA, INC.
AND
HUNTINGTON BANCSHARES, INCORPORATED
DATED AS OF OCTOBER 31, 1996
<PAGE> 204
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
-------- ----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Execution of Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 - MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Anti-Dilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Shares Held by Citi-Bancshares or Huntington . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 - ELECTION; EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Election and Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Rights of Former Citi-Bancshares Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CITI-BANCSHARES . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Citi-Bancshares Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
- i -
<PAGE> 205
<TABLE>
<S> <C>
5.18 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.19 Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.21 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.22 Directors' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.23 Compliance with Certain Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF HUNTINGTON . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.10 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 Authority of Huntington-Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.12 Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7 - CONDUCT OF BUSINESS PENDING CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Affirmative Covenants of Citi-Bancshares . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Negative Covenants of Citi-Bancshares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.3 Covenants of Huntington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 Adverse Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8 - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Registration Statement; Proxy Statement; Shareholder Approval . . . . . . . . . . . . . . . . 28
8.2 Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.3 Applications; Antitrust Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.4 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.5 Agreement as to Efforts to Consummate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.6 Investigation and Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.7 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.8 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.9 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.10 Agreements with respect to Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.11 Employee Benefits and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.13 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 9 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Conditions to Obligations of Huntington . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Conditions to Obligations of Citi-Bancshares . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
- ii -
<PAGE> 206
<TABLE>
<S> <C>
ARTICLE 10 - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.3 Non-Survival of Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 11 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.12 Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.13 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
- iii -
<PAGE> 207
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
1. Stock Option Agreement. (Section 1.4).
2. Form of Shareholder's Agreement. (Section 5.22).
3. Form of Affiliates' Agreement of Citi-Bancshares. (Section
8.10).
4. Matters as to which Alston & Bird will opine. (Section
9.2(d)).
5. Matters as to which Porter, Wright, Morris & Arthur will
opine. (Section 9.3(d)).
</TABLE>
- iv -
<PAGE> 208
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of October 31, 1996, by and among CITI-BANCSHARES, INC.,
("Citi-Bancshares"), a Florida corporation having its principal office located
in Leesburg, Florida; HUNTINGTON BANCSHARES INCORPORATED ("Huntington"), a
Maryland corporation having its principal office located in Columbus, Ohio; and
HUNTINGTON BANCSHARES FLORIDA, INC. ("Huntington-Florida"), an Ohio corporation
and a wholly owned subsidiary of Huntington having its principal office located
in Columbus, Ohio.
PREAMBLE
The Boards of Directors of Citi-Bancshares, Huntington-Florida, and
Huntington are of the opinion that the transactions described herein are in the
best interests of the parties and their respective shareholders. This Agreement
provides for the acquisition of Citi-Bancshares by Huntington pursuant to the
merger of Citi-Bancshares with and into Huntington-Florida. At the Effective
Time of such merger, the outstanding shares of the capital stock of Citi-
Bancshares shall be converted (except as provided herein) into the right to
receive the common stock of Huntington, cash, or a combination thereof. As a
result of the Merger, Citi-Bancshares' shareholders, who so elect or are
otherwise entitled to receive shares of Huntington Common Stock in exchange for
their shares of Citi-Bancshares Common Stock, shall become shareholders of
Huntington, and Huntington-Florida as the Surviving Corporation shall continue
to conduct its business and operations as a wholly-owned subsidiary of
Huntington. The transactions described in this Agreement are subject to the
approvals of the shareholders of Citi-Bancshares, the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency, and the
Florida State Banking Department and other applicable Regulatory Authorities,
and the satisfaction of certain other conditions described in this Agreement. It
is the intention of the parties to this Agreement that for federal income tax
purposes, the Merger shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code, and for accounting purposes shall
qualify for treatment as a purchase.
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Citi-Bancshares shall be merged (the "Merger") with
and into Huntington-Florida in accordance with the provisions of and with the
effect provided in Sections 607.1101, 607.1103, 607.1105, 607.1106 and 607.1107
of the FBCA, Sections 1701.78, 1701.81
<PAGE> 209
and 1701.82 of the ORC and subject to the provisions of this Agreement. The
transactions contemplated in this Agreement shall be consummated at the
Effective Time. Subject the terms and conditions hereof, the Board of Directors
of Citi-Bancshares shall recommend that Citi-Bancshares' shareholders vote in
favor of this Agreement and the Merger. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
a majority of the respective Boards of Directors of Citi-Bancshares, Huntington,
and Huntington-Florida.
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at
9:00 A.M. on the date that the Effective Time occurs (or the immediately
preceding day if the Effective Time is earlier than 9:00 A.M.), or at such
other time as the Parties, acting through their chief executive officers or
chief financial officers, may mutually agree. The Closing shall be held at
such place as may be mutually agreed upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions
contemplated by this Agreement shall become effective on the date and at the
time specified in the Articles of Merger filed with the Florida Department of
State and in the Certificate of Merger filed with the Secretary of the State of
Ohio (the "Effective Time"), and not prior to January 15, 1997. Subject to the
terms and conditions hereof, unless otherwise mutually agreed upon in writing by
the chief executive officers or chief financial officers of each Party, the
Parties shall use their reasonable efforts to cause the Effective Time to occur
within five business days following the last to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last required
Consent of any Regulatory Authority having authority over and approving or
exempting the Merger, and (ii) the date on which the shareholders of
Citi-Bancshares approve this Agreement as required by applicable Law.
1.4 EXECUTION OF STOCK OPTION AGREEMENT. On the first calendar
day following the execution and delivery of this Agreement by the Parties and as
a condition and inducement to Huntington's entering into this Agreement,
Citi-Bancshares shall execute and deliver to Huntington a stock option agreement
(the "Stock Option Agreement"), in substantially the form of Exhibit 1, pursuant
to which Citi-Bancshares shall grant to Huntington an option to purchase shares
of Citi-Bancshares Common Stock not to exceed 19.9% of the outstanding shares of
Citi-Bancshares Common Stock.
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. The Articles of Incorporation of Huntington-Florida
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until otherwise amended or repealed.
2.2 REGULATIONS. The Regulations of Huntington-Florida in
effect immediately prior to the Effective Time shall be the Regulations of the
Surviving Corporation until otherwise amended or repealed.
- 2 -
<PAGE> 210
2.3 DIRECTORS AND OFFICERS. The directors of Huntington-Florida
in office immediately prior to the Effective Time, together with such additional
persons as may thereafter be elected, shall serve as the directors of the
Surviving Corporation from and after the Effective Time in accordance with the
Regulations of the Surviving Corporation. The officers of Huntington-Florida in
office immediately prior to the Effective Time, together with such additional
persons as may thereafter be elected, shall serve as the officers of the
Surviving Corporation from and after the Effective Time in accordance with the
Regulations of the Surviving Corporation.
2.4 NAME. The name of the Surviving Corporation shall be
"Huntington Bancshares Florida, Inc."
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3,
at the Effective Time, by virtue of the Merger and without any action on the
part of Huntington, Citi-Bancshares, Huntington-Florida or the shareholders of
any of the foregoing, the shares of the constituent corporations shall be
converted as follows:
(a) Each share of Huntington Capital Stock issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding from and after the Effective Time.
(b) Each share of Huntington-Florida Common Stock issued and
outstanding at the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(c) Each share of Citi-Bancshares Common Stock (excluding shares
held by any Citi-Bancshares Company or any Huntington Company, in each
case other than in a fiduciary capacity or as a result of debts
previously contracted) issued and outstanding at the Effective Time shall
cease to be outstanding and shall be converted into by virtue of the
Merger and without further action on the part of the holders thereof, and
exchanged for the right to receive, pursuant to Section 4.1, any one of
the following, payable to the holder of such shares of Citi-Bancshares
Common Stock without interest thereon, less any required withholding of
taxes, upon surrender of the certificate formerly representing such share
(a "Certificate") in accordance with Section 4.1, in each case as such
holder shall elect in accordance with Section 4.1:
(i) a number of shares of Huntington Common Stock equal
to the product of $30.00 and the Exchange Ratio (as defined below)
(the "Stock Consideration");
(ii) $30.00 (the "Cash Price") in cash (the "Cash
Consideration"); and
- 3 -
<PAGE> 211
(iii) (x) a number of shares of Huntington Common Stock
(the "Mixed Stock Amount") equal to the product of $18.00 and the
Exchange Ratio, plus (y) $12.00 in cash (the "Mixed
Consideration");
provided, that the aggregate amount of cash payments that shall be issued in the
Merger to satisfy elections to receive the Cash Consideration (a "Cash
Election") or the Mixed Consideration (a "Mixed Election") together with any
cash paid for fractional shares pursuant to Section 3.4 hereof or for dissenting
shareholders pursuant to Section 3.5 hereof, if any, shall not exceed 40% of the
Aggregate Merger Consideration paid in the Merger (the "Cash Limitation"); and
provided further, that holders of record of fewer than 100 shares of
Citi-Bancshares Common Stock are not entitled to elect the "Mixed
Consideration".
(d) Each of any such form of consideration elected by a holder of
shares of Citi-Bancshares Common Stock is referred to herein as the "Merger
Consideration," and the aggregate of all Merger Consideration to be paid to
holders of shares of Citi-Bancshares Common Stock in connection with the Merger
is referred to hereinafter as the "Aggregate Merger Consideration."
(e) Within ten business days after the Election Deadline, Huntington
shall cause the exchange agent selected by Huntington (the "Exchange Agent") to
effect the allocation among the holders of Citi-Bancshares Common Stock as
follows:
(i) if the amount of cash that would be issued upon
conversion in the Merger of shares in respect of which Mixed
Elections ("Mixed Election Shares") and Cash Elections ("Cash
Election Shares") have been made is less than or equal to the Cash
Limitation, then all Cash Election Shares shall be converted into
the right to receive the Cash Consideration, and all Mixed
Election Shares shall be converted into the right to receive the
Mixed Consideration;
(ii) If the amount of cash that would be issued upon the
conversion of the Cash Election Shares, without regard to cash
that would be issued upon the conversion of the Mixed Election
Shares, is greater than the Cash Limitation, then (1) all Mixed
Election Shares shall be converted into the right to receive the
Stock Consideration, (2) the Exchange Agent shall select from
among the holders of Cash Election Shares (other than shares as to
which dissenters rights are asserted), by random selection, a
sufficient number of such holders ("Stock Designees") such that
the amount of cash that will be issued in the Merger equals as
closely as practicable the Cash Limitation, and all shares held by
the Stock Designees shall be converted into the right to receive
the Stock Consideration, and (3) the Cash Election Shares not held
by Stock Designees shall be converted into the right to receive
the Cash Consideration; and
- 4 -
<PAGE> 212
(iii) If the amount of cash that would be issued upon the
conversion of the Cash Election Shares is less than the Cash
Limitation, but the amount of cash that would be issued upon the
conversion of the Cash Election Shares and the Mixed Election
Shares is greater than the Cash Limitation, then (1) all Cash
Election Shares (other than shares as to which dissenters rights
are asserted) shall be converted into the right to receive the
Cash Consideration, (2) the Exchange Agent shall select from among
the holders of Mixed Election Shares, by random selection, a
sufficient number of Stock Designees such that the amount of cash
that will be issued in the Merger equals as closely as practicable
the Cash Limitation, and all shares held by the Stock Designees
shall be converted into the right to receive the Stock
Consideration, and (3) the Mixed Election Shares not held by Stock
Designees shall be converted into the right to receive the Mixed
Consideration.
(f) The exchange ratio (the "Exchange Ratio") for determining
the number of shares of Huntington Common Stock to be issued in exchange for
each share of Citi-Bancshares Common Stock held by any holder of shares of
Citi-Bancshares Common Stock who elects to receive the Stock Consideration (a
"Stock Election") or who makes a Mixed Election, as the case may be, shall be
determined by dividing $1.00 by the average of the last sale prices for the
Huntington Common Stock as reported in the Nasdaq National Market for the five
trading days ending on the fifth trading day immediately prior to the Effective
Time (the "Average Closing Price").
(g) Pursuant to the Huntington Rights Agreement, each share of
Huntington Common Stock issued in connection with the Merger upon conversion of
Citi-Bancshares Common Stock shall be accompanied by a Huntington Right.
3.2 ANTI-DILUTION PROVISIONS. In the event Huntington changes the
number of shares of Huntington Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 SHARES HELD BY CITI-BANCSHARES OR HUNTINGTON. Each of the shares
of Citi-Bancshares Common Stock held by any Citi-Bancshares Company or by any
Huntington Company, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
3.4 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Citi-Bancshares Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of Huntington Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof,
- 5 -
<PAGE> 213
cash (without interest) in an amount equal to such fractional part of a share
of Huntington Common Stock multiplied by the Average Closing Price. No such
holder will be entitled to dividends, voting rights, or any other rights as a
shareholder in respect of any fractional shares.
3.5 DISSENTING SHAREHOLDERS. The Parties agree that Citi-Bancshares
shareholders are not entitled to any dissenters' rights of appraisal under the
FBCA because Citi-Bancshares Common Stock is traded on the Nasdaq National
Market. In the event that the Citi-Bancshares Common Stock fails to remain so
traded on the Nasdaq National Market, then any holder of shares of
Citi-Bancshares Common Stock who perfects his dissenters' rights in accordance
with and as contemplated by Section 607.1301 et seq. of the FBCA shall be
entitled to receive the value of such shares in cash as determined pursuant to
such provision of Law; provided, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the FBCA and surrendered to Citi-Bancshares
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time, a dissenting
shareholder of Citi-Bancshares fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, CBI shall issue and
deliver the consideration to which such holder of shares of Citi-Bancshares
Common Stock is entitled under this Article 3 (without interest) upon surrender
by such holder of the certificate or certificates representing shares of
Citi-Bancshares Common Stock held by him.
ARTICLE 4
ELECTION; EXCHANGE OF SHARES
4.1 ELECTION AND EXCHANGE PROCEDURES.
(a) Each record holder of shares of Citi-Bancshares Common
Stock (other than shares held by any Citi-Bancshares Company or any Huntington
Company, in each case other than in a fiduciary capacity or as a result of debts
previously contracted, and excluding shares held by shareholders who perfect
their statutory dissenters' rights, if any, as provided in Section 3.4 of this
Agreement) issued and outstanding immediately prior to the Effective Time shall
be entitled to submit a request specifying one of the following elections to
convert such record holder's shares of Citi-Bancshares Common Stock into (i)
the Cash Consideration, in the case of a shareholder making a Cash Election,
(ii) the Stock Consideration, in the case of a shareholder making a Stock
Election, or (iii) the Mixed Consideration, in the case of a shareholder making
a Mixed Election, or to indicate that such record holder has no preference as to
the receipt of Cash Consideration, Stock Consideration or Mixed Consideration
for such Shares (a "Non-Election"). Shares in respect of which a Non-Election is
made (including shares of Citi-Bancshares Common Stock in respect of which no
election is made prior to the Election Deadline (as defined below) or shares in
respect of which a Non-Election is deemed to have been made pursuant to this
Section 4.1(a) (collectively, "Non-Election Shares") shall be deemed to be
Shares in respect of which a Stock Election has been made; provided that if a
record holder holds less than 100 shares of record and such record holder's
shares are Non-Election Shares, then such record holder shall be deemed to have
made a Cash Election.
- 6 -
<PAGE> 214
(b) Elections pursuant to Section 4.1(a) shall be made on
the form of letter of transmittal and form of election (the "Letter of
Transmittal and Form of Election") to be provided by the Exchange Agent to
holders of record of Shares, together with instructions for use in effecting the
surrender of the Certificates for payment therefor, as soon as practicable
following the Effective Time. The Letter of Transmittal and Form of Election
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates transmitted therewith shall pass, only upon proper delivery of the
Certificates to the Exchange Agent. Elections shall be made by mailing to the
Exchange Agent a duly completed Letter of Transmittal and Form of Election in
accordance with this Section 4.1(b). To be effective as an election, a Letter
of Transmittal and Form of Election must be (i) properly completed, signed and
submitted to the Exchange Agent at its designated office (and so received by the
Exchange Agent by the date specified in such Letter of Transmittal and Form of
Election (the "Election Deadline"), which shall not be less than 20 business
days after the date such Letter of Transmittal and Form of Election is first
mailed to former holders of Citi-Bancshares Common Stock) and (ii) accompanied
by the Certificates representing the shares of Citi-Bancshares Common Stock as
to which the election is being made (or by an appropriate guarantee of delivery
of such Certificates by a commercial bank or trust Citi-Bancshares in the United
States or a member of a registered national security exchange or of the National
Association of Securities Dealers, Inc., provided such Certificates are in fact
delivered to the Exchange Agent within eight business days after the date of
execution of such guarantee of delivery). Huntington shall determine, in its
sole and absolute discretion, which authority it may delegate in whole or in
part to the Exchange Agent, whether any Letter of Transmittal and Form of
Election has been properly completed, signed and submitted or revoked. The
decision of Huntington (or the Exchange Agent, as the case may be) in such
matters shall be conclusive and binding. Neither Huntington nor the Exchange
Agent will be under any obligation to notify any person of any defect in a
Letter of Transmittal and Form of Election submitted to the Exchange Agent.
(c) Upon surrender of Certificates for cancellation to
the Exchange Agent, together with such Letter of Transmittal and Form of
Election duly completed and executed and any other documents required by such
instructions, the holder of such Certificates shall be entitled to receive for
each of the Shares formerly represented by such Certificates (x) the Merger
Consideration elected by such holder pursuant to Section 3.1(c), (y) cash in
lieu of any fractional shares of Huntington Common Stock to which such holder
is entitled pursuant to Section 3.4, and (z) any dividends or distributions to
which such holder may be entitled pursuant to Section 4.2, in each such case
without any interest thereon and less any required withholding of taxes, and
the Certificates so surrendered shall forthwith be canceled. If payment is to
be made to a person other than the person in whose name a Certificate so
surrendered is registered on the stock transfer books of Citi-Bancshares, it
shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such payment shall pay to the Exchange Agent any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
- 7 -
<PAGE> 215
(d) Huntington shall not be obligated to deliver the
consideration to which any former holder of Citi-Bancshares Common Stock is
entitled as a result of the Merger until such holder surrenders such holder's
Certificate or Certificates for exchange as provided in this Section 4.1. The
Certificates so surrendered shall be duly endorsed as the Exchange Agent may
reasonably require. Any other provision of this Agreement notwithstanding,
neither Huntington, the Surviving Corporation nor the Exchange Agent shall be
liable to a holder of Citi-Bancshares Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any
applicable abandoned property Law. Approval of this Agreement by the
shareholders of Citi-Bancshares shall constitute ratification of the
appointment of the Exchange Agent.
4.2 RIGHTS OF FORMER CITI-BANCSHARES SHAREHOLDERS. At the
Effective Time, the stock transfer books of Citi-Bancshares shall be closed as
to holders of Citi-Bancshares Common Stock as of the close of business on the
day that is one (1) business day prior to the Effective Time and no transfer of
Citi-Bancshares Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions
of Section 4.1 of this Agreement, each Certificate theretofore representing
shares of Citi-Bancshares Common Stock (other than shares to be canceled
pursuant to Section 3.3 of this Agreement) shall from and after the Effective
Time represent for all purposes only the right to receive the Merger
Consideration provided in Section 3.1 of this Agreement in exchange therefor,
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which have been declared or made by Citi-Bancshares in respect
of such shares of Citi-Bancshares Common Stock in accordance with the terms of
this Agreement and which remain unpaid at the Effective Time. To the extent
required by Law, former shareholders of record of Citi-Bancshares shall be
entitled to vote after the Effective Time at any meeting of Huntington
shareholders the number of whole shares of Huntington Common Stock into which
their respective shares of Citi-Bancshares Common Stock are converted,
regardless of whether such holders have exchanged their certificates
representing Citi-Bancshares Common Stock for certificates representing
Huntington Common Stock in accordance with the provisions of this Agreement.
Whenever a dividend or other distribution is declared by Huntington on the
Huntington Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares of Huntington Common Stock issuable pursuant to this Agreement, no
dividend or other distribution payable to the holders of record of Huntington
Common Stock as of any time subsequent to the Effective Time shall be delivered
to the holder of any certificate representing shares of Citi-Bancshares Common
Stock issued and outstanding at the Effective Time until such holder surrenders
such certificate for exchange as provided in Section 4.1 of this Agreement.
However, upon surrender of such Citi-Bancshares Common Stock Certificate, both
the Huntington Common Stock certificate (together with all such undelivered
dividends or other distributions, without interest) and any undelivered cash
payments payable hereunder (without interest) shall be delivered and paid with
respect to each share represented by such Certificate.
- 8 -
<PAGE> 216
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CITI-BANCSHARES
Citi-Bancshares hereby represents and warrants to Huntington as
follows:
5.1 ORGANIZATION, STANDING, AND POWER. Citi-Bancshares is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Florida, and has the corporate power and authority to
carry on its business as now conducted and to own, lease and operate its
material Assets. Citi-Bancshares does not conduct any business or own any
assets outside the State of Florida that require it to be qualified or licensed
to transact business as a foreign corporation in any such other States of the
United States or any foreign jurisdictions.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Citi-Bancshares has the corporate power and authority
necessary to execute, deliver, and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery, and performance of this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Citi-Bancshares, subject to the approval of this Agreement by a
majority of the outstanding Citi-Bancshares Common Stock, which is the only
shareholder vote required for approval of this Agreement and consummation of
the Merger by Citi-Bancshares. Subject to such requisite shareholder
approval, this Agreement represents a legal, valid, and binding obligation of
Citi-Bancshares, enforceable against Citi-Bancshares in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, receivership, conservatorship, reorganization,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) Except as provided in Section 5.2(b) of the
Citi-Bancshares Disclosure Memorandum, neither the execution and delivery of
this Agreement by Citi-Bancshares, nor the consummation by Citi-Bancshares of
the transactions contemplated hereby, nor compliance by Citi-Bancshares with
any of the provisions hereof, will (i) conflict with or result in a breach of
any provision of Citi-Bancshares' Articles of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any Citi-Bancshares Company
under, any Contract or Permit of any Citi-Bancshares Company, where such
Default or Lien, or any failure to obtain such Consent, is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Citi-Bancshares, or, (iii) subject to receipt of the requisite approvals
referred to in Section 9.1(b) of this Agreement, violate any Law or Order
applicable to any Citi-Bancshares Company or any of their respective material
Assets.
(c) Other than in connection or compliance with the
provisions of applicable state corporate and securities Laws, rules of the NASD
and other than Consents required from
- 9 -
<PAGE> 217
Regulatory Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, or under the HSR Act, and other than Consents, filings,
or notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Citi-Bancshares, no notice to, filing with, or Consent of, any public body or
authority is necessary for the consummation by Citi-Bancshares of the Merger
and the other transactions contemplated in this Agreement.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of Citi-Bancshares
consists of 10,000,000 shares of Citi-Bancshares Common Stock, of which
4,472,414 shares are issued and outstanding as of the date of this Agreement.
Citi-Bancshares has no shares of preferred stock authorized, issued or
outstanding. All of the issued and outstanding shares of capital stock of
Citi-Bancshares are duly and validly issued and outstanding and are fully paid
and nonassessable. None of the outstanding shares of capital stock of
Citi-Bancshares has been issued in violation of any preemptive rights of the
current or past shareholders of Citi-Bancshares. Citi-Bancshares has reserved
111,025 shares of Citi-Bancshares Common Stock for issuance under the
Citi-Bancshares Stock Plans, pursuant to which options to purchase not more
than 67,525 shares of Citi-Bancshares Common Stock will be outstanding as of
the Effective Time. Citi-Bancshares has no outstanding stock appreciation
rights under the Citi-Bancshares Stock Option Plans.
(b) Except for the Stock Option Agreement and as set
forth in Section 5.3(a) of this Agreement, or as disclosed in Section 5.3 of
the Citi-Bancshares Disclosure Memorandum, there are no shares of capital stock
or other equity securities of Citi-Bancshares outstanding and no outstanding
Rights relating to the capital stock of Citi-Bancshares.
5.4 CITI-BANCSHARES SUBSIDIARIES. Citi-Bancshares has disclosed
in Section 5.4 of the Citi-Bancshares Disclosure Memorandum all of the
Citi-Bancshares Subsidiaries that are corporations (identifying its
jurisdiction of incorporation, each jurisdiction in which it is qualified
and/or licensed to transact business, and the number of shares owned and
percentage ownership interest represented by such share ownership) and all of
the Citi-Bancshares Subsidiaries that are general or limited partnerships,
limited liability companies, or other non-corporate entities (identifying the
Law under which such entity is organized, each jurisdiction in which it is
qualified and/or licensed to transact business, and the amount and nature of
the ownership interest therein). Except as disclosed in Section 5.4 of the
Citi-Bancshares Disclosure Memorandum, Citi-Bancshares or one of its
Subsidiaries owns all of the issued and outstanding shares of capital stock (or
other equity interests) of each Citi-Bancshares Subsidiary. Except as
disclosed in the Disclosure Memorandum, no capital stock (or other equity
interest) of any Citi-Bancshares Subsidiary is or may become required to be
issued (other than to another Citi-Bancshares Company) by reason of any Equity
Rights, and there are no Contracts by which any Citi-Bancshares Subsidiary is
bound to issue (other than to another Citi-Bancshares Company) additional
shares of its capital stock (or other equity interests) or Equity Rights or by
which any Citi-Bancshares Company is or may be bound to transfer any shares of
the capital stock (or other equity interests) of any Citi-Bancshares
Subsidiary (other than to another Citi-Bancshares
- 10 -
<PAGE> 218
Company). There are no Contracts relating to the rights of any Citi-Bancshares
Company to vote or to dispose of any shares of the capital stock (or other
equity interests) of any Citi-Bancshares Subsidiary. All of the shares of
capital stock (or other equity interests) of each Citi-Bancshares Subsidiary
held by a Citi-Bancshares Company are fully paid and (except pursuant to 12
U.S.C. Section 55 in the case of national banks and comparable, applicable
state Law, if any, in the case of state depository institutions) nonassessable
under the applicable corporation Law of the jurisdiction in which such
Subsidiary is incorporated or organized and are owned by the Citi-Bancshares
Company free and clear of any Lien. Except as disclosed in Section 5.4 of the
Citi-Bancshares Disclosure Memorandum, each Citi-Bancshares Subsidiary is
either a bank, a savings association, or a corporation, and each such
Subsidiary is duly organized, validly existing, and (as to corporations) in
good standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the corporate power and authority necessary for it to own,
lease, and operate its Assets and to carry on its business as now conducted.
Each Citi-Bancshares Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Citi-Bancshares. Each Citi-Bancshares Subsidiary
that is a depository institution is an "insured institution" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder, and the
deposits in which are insured by the Bank Insurance Fund ("BIF"). The minute
books and other organizational documents for each Citi-Bancshares Subsidiary
have been made available to Huntington for its review.
5.5 FINANCIAL STATEMENTS. Citi-Bancshares has previously
provided or included in Section 5.5 of the Citi-Bancshares Disclosure
Memorandum copies of all Citi-Bancshares Financial Statements for periods ended
prior to the date hereof and will deliver to Huntington copies of all
Citi-Bancshares Financial Statements prepared subsequent to the date hereof.
The Citi-Bancshares Financial Statements (as of the dates thereof and for the
periods covered thereby) (i) are, or if dated after the date of this Agreement,
will be in accordance with the books and records of Citi-Bancshares, which are
or will be, as the case may be, complete and correct and which have been or
will have been, as the case may be, maintained in accordance with good business
practices, and (ii) present or will present, as the case may be, fairly the
consolidated financial position of Citi-Bancshares as of the dates indicated
and the consolidated results of operations, changes in shareholders' equity,
and cash flows of Citi-Bancshares for the periods indicated, in accordance with
GAAP or regulatory accounting principles applicable to banks (subject to any
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material in amount of effect).
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
Section 5.6 of the Citi-Bancshares Disclosure Memorandum, no Citi-Bancshares
Company has any Liabilities that are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Citi-Bancshares, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Citi-Bancshares as of December 31, 1995 and June 30, 1996, included
in the Citi-Bancshares Financial Statements delivered prior to the date of this
Agreement or reflected in the
- 11 -
<PAGE> 219
notes thereto. Except as may be disclosed in Section 5.6 of the Citi-Bancshares
Disclosure Memorandum, Citi-Bancshares has not incurred or paid any Liability
since June 30, 1996, except for (i) such Liabilities incurred or paid in the
ordinary course of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Citi-Bancshares or that are permitted hereunder and (ii) such
Liabilities incurred in connection with the sale of Citi-Bancshares.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1995, except as disclosed in the Citi-Bancshares Financial Statements
delivered prior to the date of this Agreement or as disclosed in Section 5.7 of
the Citi-Bancshares Disclosure Memorandum, (i) there have been no events,
changes, or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Citi-Bancshares,
and (ii) Citi-Bancshares has not taken any action, or failed to take any
action, prior to the date of this Agreement, which action or failure, if taken
after the date of this Agreement, would represent or result in a material
breach or violation of any of the covenants and agreements of Citi-Bancshares
provided in Article 7 of this Agreement.
5.8 TAX MATTERS. Except as may be disclosed in Section 5.8 of
the Citi-Bancshares Disclosure Memorandum:
(a) All Tax returns required to be filed by or on behalf
of any of the Citi-Bancshares Companies have been timely filed or requests for
extensions have been timely filed, granted, and have not expired for periods
ended on or before December 31, 1995, and on or before the date of the most
recent fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on Citi-Bancshares, and all returns
filed are complete and accurate to the Knowledge of Citi-Bancshares. All Taxes
shown on filed returns have been paid. As of the date of this Agreement, there
is no audit examination, deficiency, or refund Litigation with respect to any
Taxes that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on Citi-Bancshares,
except as reserved against in the Citi-Bancshares Financial Statements
delivered prior to the date of this Agreement or as disclosed in Section 5.8 of
the Citi-Bancshares Disclosure Memorandum. All Taxes and other Liabilities due
with respect to completed and settled examinations or concluded Litigation have
been paid.
(b) Citi-Bancshares has not executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due (excluding such statutes that relate to years currently under examination
by the Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
(c) Adequate provision for any Taxes due or to become due
for any of the Citi-Bancshares Companies for the period or periods through and
including the date of the respective Citi-Bancshares Financial Statements has
been made and is reflected on such Citi-Bancshares Financial Statements.
- 12 -
<PAGE> 220
(d) Deferred Taxes of the Citi-Bancshares Companies have
been provided for in accordance with GAAP.
(e) Each of the Citi-Bancshares Companies is in compliance
with, and its records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state, and local Tax
Laws, and such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for such
instances of noncompliance and such omissions as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Citi-Bancshares.
(f) To the Knowledge of Citi-Bancshares, the federal
income tax returns of Citi-Bancshares have not been audited by the Internal
Revenue Service.
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. In the opinion of
management of Citi-Bancshares, the allowance for possible loan or credit losses
(the "Allowance") shown on the June 30, 1996 consolidated balance sheets of
Citi-Bancshares included in the Citi-Bancshares Financial Statements dated
prior to the date of this Agreement was, and the Allowance shown on the
consolidated balance sheets of Citi-Bancshares included in the Citi-Bancshares
Financial Statements as of dates subsequent to the execution of this Agreement
will be, as of the dates thereof, adequate (within the meaning of GAAP and
applicable regulatory requirements or guidelines) to provide for all known or
reasonably anticipated losses relating to or inherent in the loan and lease
portfolios (including accrued interest receivables) of the Citi-Bancshares
Companies and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the Citi-Bancshares Companies as
of the dates thereof, except where the failure of such Allowance to be so
adequate is not reasonably likely to have a Material Adverse Effect on
Citi-Bancshares.
5.10 ASSETS. Except as disclosed in Section 5.10 of the
Citi-Bancshares Disclosure Memorandum, the normal exceptions to the real
property title insurance commitments to be delivered pursuant to Section 7.1(b)
hereof (the "Title Insurance Commitments") and/or as disclosed or reserved
against in the Citi-Bancshares Financial Statements delivered prior to the date
of this Agreement, Citi-Bancshares has good and marketable title, free and clear
of all Liens, to all of its Assets. All tangible properties used in the
businesses of Citi-Bancshares are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
Citi-Bancshares' past practices. All Assets which are material to
Citi-Bancshares' business, held under leases or subleases by Citi-Bancshares,
are held under valid Contracts enforceable in accordance with their respective
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other Laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect. Citi-Bancshares currently maintains
insurance and blanket bonds (collectively, "Insurance") similar in amounts,
scope, and coverage to that maintained by other peer banking organizations.
Citi-Bancshares has not received notice from any Insurance carrier that (i) such
Insurance will be
- 13 -
<PAGE> 221
canceled or that coverage thereunder will be reduced or eliminated, or (ii)
premium costs with respect to such policies of insurance will be substantially
increased. There are presently no claims pending under such policies of
Insurance and no notices have been given by Citi-Bancshares under such policies
and Citi-Bancshares has no Knowledge of any events that require any such notice
to be given. Section 5.10 of the Citi-Bancshares Disclosure Memorandum sets
forth a list of all material real property owned or leased by Citi-Bancshares
(the "Real Property"). Except as disclosed in Section 5.10 of the
Citi-Bancshares Disclosure Memorandum, normal exceptions to the Title Insurance
Commitments or as disclosed in the Citi-Bancshares Financial Statements prior
to the date hereof, to the Knowledge of Citi-Bancshares, (i) the Real Property
and the use of such Real Property does not violate zoning, land use laws,
government regulations or restrictive covenants, (ii) the Real Property and the
use thereof does not encroach upon any property owned by any other person, and
(iii) no property owned by any other person encroaches upon any of the Real
Property, in any manner that would have an Material Adverse Effect on
Citi-Bancshares.
5.11 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Citi-Bancshares, Citi-Bancshares'
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Citi-Bancshares.
(b) To the Knowledge of Citi-Bancshares, there is no
Litigation pending or threatened before any court, governmental agency, or
authority or other forum in which Citi-Bancshares or any of its Participation
Facilities has been or, with respect to threatened Litigation, may be named as
a defendant (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the environment of
any Hazardous Substance, whether or not occurring at, on, under, or involving a
site owned, leased, or operated by Citi-Bancshares or any of its Participation
Facilities, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Citi-Bancshares.
(c) To the Knowledge of Citi-Bancshares, there is no
Litigation pending or threatened before any court, governmental agency, or
board or other forum in which any of its Loan Properties (or Citi-Bancshares in
respect of such Loan Property) has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible party (i)
for alleged noncompliance (including by any predecessor) with any Environmental
Law or (ii) relating to the release into the environment of any Hazardous
Substance, whether or not occurring at, on, under, or involving a Loan
Property, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Citi-Bancshares.
(d) To the Knowledge of Citi-Bancshares, there is no
reasonable basis for any Litigation of a type described in subsections (b) or
(c), except such as is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Citi-Bancshares.
- 14 -
<PAGE> 222
(e) During the period of (i) Citi-Bancshares' ownership or
operation of any of their respective current properties, (ii) Citi-Bancshares'
participation in the management of any Participation Facility, or (iii)
Citi-Bancshares' holding of a security interest in a Loan Property, there have
been no releases of Hazardous Substance in, on, under, or affecting such
properties, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Citi-Bancshares. Prior to the
period of (i) Citi-Bancshares ownership or operation of any of their respective
current properties, (ii) Citi-Bancshares participation in the management of any
Participation Facility, or (iii) Citi-Bancshares holding of a security interest
in a Loan Property, to the Knowledge of Citi-Bancshares, there were no releases
of Hazardous Substance in, on, under, or affecting any such property,
Participation Facility or Loan Property, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Citi-Bancshares.
5.12 COMPLIANCE WITH LAWS. Citi-Bancshares is duly registered as
a bank holding company under the BHC Act. Each Citi-Bancshares Company has in
effect all Permits necessary for it to own, lease, or operate its material
Assets and to carry on its business as now conducted, except for those Permits,
the absence of which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Citi-Bancshares, and there has occurred
no Default under any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Citi-Bancshares. Except as disclosed in Section 5.12 of the Citi-Bancshares
Disclosure Memorandum, Citi-Bancshares:
(a) is not in Default under its Certificate of Incorporation or
Bylaws (or other governing instrument); or
(b) is not in violation of, or Default under, any Laws, Orders,
or Permits applicable to its business or employees conducting its business,
except for violations which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Citi-Bancshares; and
(c) has not received any notification or communication from any
agency or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that Citi-Bancshares is not in
compliance with any of the Laws or Orders, including the CRA, which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Citi-Bancshares, (ii) threatening to revoke any
Permits, the revocation of which is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Citi-Bancshares, or (iii)
requiring Citi-Bancshares to enter into or consent to the issuance of a cease
and desist order, formal agreement, directive, commitment, or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management, or the
payment of dividends, or which are reasonably likely to delay or prevent the
consummation of the transactions contemplated herein.
- 15 -
<PAGE> 223
5.13 LABOR RELATIONS. Citi-Bancshares is not the subject of any
Litigation asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or comparable state law) or seeking
to compel it to bargain with any labor organization as to wages or conditions
of employment, nor is there any strike or other labor dispute involving
Citi-Bancshares, pending or threatened, or to the Knowledge of Citi-Bancshares,
is there any activity involving any Citi-Bancshares' employees seeking to
certify a collective bargaining unit or engaging in any other organization
activity.
5.14 EMPLOYEE BENEFIT PLANS.
(a) Citi-Bancshares has disclosed in Section 5.14 of the
Citi-Bancshares Disclosure Memorandum, and has delivered or made available to
Huntington prior to the execution of this Agreement copies in each case of, all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
any Citi-Bancshares Company or Subsidiary thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Citi-Bancshares Benefit Plans"). Any of the
Citi-Bancshares Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to herein as a
"Citi-Bancshares ERISA Plan." Each Citi-Bancshares ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code) is referred to herein as a "Citi-Bancshares Pension Plan." No Citi-
Bancshares Pension Plan is or has been a multiemployer plan within the meaning
of Section 3(37) of ERISA.
(b) Except as disclosed in Section 5.14 of the
Citi-Bancshares Disclosure Memorandum, all Citi-Bancshares Benefit Plans are
in compliance with the applicable terms of ERISA, the Internal Revenue Code
including the 1986 amendments thereto and any other applicable Laws, the breach
or violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Citi-Bancshares. Except as disclosed
in Section 5.14(b) of the Citi-Bancshares Disclosure Memorandum, each
Citi-Bancshares ERISA Plan which is intended to be qualified under Section
401(a) of the Internal Revenue Code has received a favorable determination
letter which takes into account the Tax Reform Act of 1986 and subsequent
legislation for which a determination letter is available from the Internal
Revenue Service, and Citi-Bancshares is not aware of any circumstances likely
to result in revocation of any such favorable determination letter. To the
Knowledge of Citi-Bancshares, no Citi-Bancshares Company has engaged in a
transaction with respect to any Citi-Bancshares Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
any Citi-Bancshares Company to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Citi-Bancshares.
- 16 -
MERGER.DOC
<PAGE> 224
(c) Except as disclosed in Section 5.14 of the
Citi-Bancshares Disclosure Memorandum, as of January 1, 1996, no Citi-Bancshares
Pension Plan has any "unfunded current liability," as that term is defined in
Section 302(d)(8)(A) of ERISA, and the fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan terminated in accordance with all applicable legal
requirements and assuming the adoption of interest rates and mortality tables
described in Section 417(e)(3)(A)(i) and the use of such interest rates
published in October 1996, and assuming that all participants who were eligible
for a lump sum (assuming the plan were terminated on January 1, 1996), being
those currently eligible to elect normal or early retirement under the
Citi-Bancshares Pension Plan, take a lump sum distribution of their vested
accrued benefits on January 1, 1996. Since the date of the most recent
actuarial valuation, there has been (i) no material change in the financial
position of any Citi-Bancshares Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Citi-Bancshares Pension Plan, and (iii) no
increase in benefits under any Citi-Bancshares Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Citi-Bancshares
or materially adversely affect the funding status of any such plan. Neither any
Citi-Bancshares Pension Plan nor any "single-employer plan," within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly maintained by any
Citi-Bancshares Company, or the single-employer plan of any entity which is
considered one employer with Citi-Bancshares under Section 4001 of ERISA or
Section 414 of the Internal Revenue Code (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, which is reasonably likely to
have a Material Adverse Effect on Citi-Bancshares. No Citi-Bancshares Company
has provided, or is required to provide, security to a Citi-Bancshares Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(d) Within the six-year period preceding the Effective
Time, no Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any Citi-Bancshares Company with respect to any
ongoing, frozen, or terminated single-employer plan or the single-employer plan
of any ERISA Affiliate, which Liability is reasonably likely to have a Material
Adverse Effect on Citi-Bancshares. No Citi-Bancshares Company has incurred any
withdrawal Liability with respect to a multiemployer plan under Subtitle B of
Title IV of ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a Material Adverse
Effect on Citi-Bancshares. No notice of a "reportable event," within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement has
not been waived or for which penalties for failure to report a reportable event
have not been waived under PBGC Technical Update 95-3, has been required to be
filed for any Citi-Bancshares Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(e) Except as disclosed in Section 5.14 of the
Citi-Bancshares Disclosure Memorandum, no Citi-Bancshares Company has any
Liability for retiree health and life benefits under any of the Citi-Bancshares
Benefit Plans.
- 17 -
<PAGE> 225
(f) Except as disclosed in Section 5.14 of the
Citi-Bancshares Disclosure Memorandum, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including severance, unemployment compensation,
golden parachute, or otherwise) becoming due to any director or any employee of
any Citi-Bancshares Company from any Citi-Bancshares Company under any
Citi-Bancshares Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any Citi-Bancshares Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit, where such
payment, increase, or acceleration is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Citi-Bancshares.
(g) All liabilities under any Citi-Bancshares benefit
plan, other than benefits accrued pursuant to funded retirement plans subject
to the provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the audited Citi-Bancshares Financial
Statements to the extent required by and in accordance with GAAP.
5.15 MATERIAL CONTRACTS. Except as disclosed in Section 5.15 of
the Citi-Bancshares Disclosure Memorandum or otherwise reflected in the
Citi-Bancshares Financial Statements, none of Citi-Bancshares, nor any of its
respective Assets, businesses or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement or other Contract providing for
aggregate payments to any Person in any calendar year in excess of $50,000, and
(ii) any Contract relating to the borrowing of money by Citi-Bancshares or the
guarantee by Citi-Bancshares of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, and Federal Reserve Bank advances, Federal Home Loan
Bank advances, trade payables, and Contracts relating to borrowings or
guarantees made in the ordinary course of business) (together with all
Contracts referred to in Sections 5.10 and 5.14(a) of this Agreement, the
"Citi-Bancshares Contracts"). With respect to each Citi-Bancshares Contract
and except as disclosed in Section 5.15 of the Citi-Bancshares Disclosure
Memorandum: (i) the Contract is in full force and effect; (ii) Citi-Bancshares
is not in Default thereunder, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Citi-Bancshares; (iii) Citi-Bancshares has not repudiated or waived any
material provision of any such Contract; and (iv) no other party to any such
Contract is, to the Knowledge of Citi-Bancshares, in Default in any respect,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Citi-Bancshares, or has repudiated
or waived any material provision thereunder.
5.16 LEGAL PROCEEDINGS. Except as may be disclosed in Section
5.16 of the Citi-Bancshares Disclosure Memorandum, there is no Litigation
instituted or pending, or, to the Knowledge of Citi-Bancshares, threatened (or
unasserted but considered probable of assertion and which if asserted would
have at least a reasonable probability of an unfavorable outcome) against any
Citi-Bancshares Company, or against any Asset, interest, or right of any of
them, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against Citi-Bancshares
that is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect. Section 5.16 of the Citi-Bancshares Disclosure
- 18 -
<PAGE> 226
Memorandum includes a summary report of all Litigation as of the date of this
Agreement to which Citi-Bancshares is a party and which names Citi-Bancshares
as a defendant or cross-defendant.
5.17 REPORTS. Since December 31, 1992, or the date of
organization if later, each Citi-Bancshares Company has timely filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with (i) the SEC, including, but
not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii)
other Regulatory Authorities, and (iii) any applicable state securities or
banking authorities (except, in the case of state securities authorities,
failures to file which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Citi-Bancshares). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such report and
document did not, in all material respects, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.18 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument, or other writing furnished or to be furnished by Citi-Bancshares or
any Affiliate thereof to Huntington pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to
be supplied by any Citi-Bancshares Company or any Affiliate thereof for
inclusion in the Registration Statement to be filed by Huntington with the SEC
will, when the Registration Statement becomes effective, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein not misleading. None of the information
supplied or to be supplied by any Citi-Bancshares Company or any Affiliate
thereof for inclusion in the Proxy Statement to be mailed to Citi-Bancshares'
shareholders in connection with the Shareholders' Meeting, and any other
documents to be filed by a Citi-Bancshares Company or any Affiliate thereof
with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
shareholders of Citi-Bancshares, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meeting. All
documents that any Citi-Bancshares Company or any Affiliate thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
- 19 -
<PAGE> 227
5.19 TAX AND REGULATORY MATTERS. Neither Citi-Bancshares nor any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or that (ii)
would materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) of this Agreement or result in the
imposition of a condition or restriction of the type referred to in the last
sentence of such Section.
5.20 STATE TAKEOVER LAWS. Each Citi-Bancshares Company shall
take all necessary steps to exempt the transactions contemplated by this
Agreement from, or if necessary challenge the validity or applicability of, any
applicable state takeover Law.
5.21 CHARTER PROVISIONS. Citi-Bancshares has taken all action so
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of Citi-Bancshares or
restrict or impair the ability of Huntington or any of its Subsidiaries to
vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of Citi-Bancshares that may be directly or indirectly acquired or
controlled by it.
5.22 SHAREHOLDER'S AGREEMENTS. Each of the 10 Citi-Bancshares
directors holding of record the largest number of shares of Citi-Bancshares
Common Stock has executed and delivered to Huntington an agreement in
substantially the form of Exhibit 2.
5.23 COMPLIANCE WITH CERTAIN LAWS. Citi-Bancshares is in
compliance with all currently applicable capital requirements and guidelines
prescribed by all appropriate federal or state bank Regulatory Authorities.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF HUNTINGTON
Huntington hereby represents and warrants to Citi-Bancshares as
follows:
6.1 ORGANIZATION, STANDING, AND POWER. Huntington is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Maryland, and has the corporate power and authority to
carry on its business as now conducted and to own, lease and operate its
material Assets. Huntington is duly qualified or licensed to transact business
as a foreign corporation in good standing in the States of the United States
and foreign jurisdictions where the character of its Assets or the nature or
conduct of its business requires it to be so qualified or licensed, except for
such jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Huntington.
- 20 -
<PAGE> 228
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Huntington has the corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Huntington. This Agreement represents a legal, valid, and binding
obligation of Huntington, enforceable against Huntington in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement
by Huntington, nor the consummation by Huntington of the transactions
contemplated hereby, nor compliance by Huntington with any of the provisions
hereof, will (i) conflict with or result in a breach of any provision of
Huntington's Articles of Incorporation or Bylaws, or (ii) constitute or result
in a Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of any Huntington Company under, any Contract
or Permit of any Huntington Company, where such Default or Lien, or any failure
to obtain such Consent, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Huntington, or, (iii) subject to
receipt of the requisite approvals referred to in Section 9.1(b) of this
Agreement, violate any Law or Order applicable to any Huntington Company or any
of their respective material Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and securities
Laws, and rules of the NASD, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any
employee benefit plans, and other than Consents, filings, or notifications
which, if not obtained or made, are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Huntington, no notice to,
filing with, or Consent of, any public body or authority is necessary for the
consummation by Huntington of the Merger and the other transactions
contemplated in this Agreement.
6.3 CAPITAL STOCK. The authorized capital stock of Huntington
consists of (i) 300,000,000 shares of Huntington Common Stock, of which
144,740,515 shares are issued and outstanding as of October 28, 1996, and (ii)
6,617,808 shares of Huntington Preferred Stock, none of which are designated,
issued or outstanding. All of the issued and outstanding shares of Huntington
Capital Stock are, and all of the shares of Huntington Common Stock to be
issued in exchange for shares of Citi-Bancshares Common Stock upon consummation
of the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable.
None of the outstanding shares of Huntington Capital Stock has been, and none
of the shares of Huntington Common Stock to be issued in
- 21 -
<PAGE> 229
exchange for shares of Citi-Bancshares Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past shareholders of Huntington.
6.4 FINANCIAL STATEMENTS. Huntington has delivered to
Citi-Bancshares all Huntington Financial Statements for periods ended prior to
the date hereof and will deliver to Citi-Bancshares copies of all Huntington
Financial Statements prepared subsequent to the date hereof. The Huntington
Financial Statements (as of the dates thereof and for the periods covered
thereby) (i) are or, if dated after the date of this Agreement, will be in
accordance with the books and records of the Huntington Companies, which are or
will be, as the case may be, complete and correct and which have been or will
have been, as the case may be, maintained in accordance with good business
practices, and (ii) present or will present, as the case may be, fairly the
consolidated financial position of the Huntington Companies as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows of the Huntington Companies for the periods indicated,
in accordance with GAAP (subject to exceptions as to consistency specified
therein or as may be indicated in the notes thereto or, in the case of interim
financial statements, to normal recurring year-end adjustments that are not
material in amount or effect).
6.5 RIGHTS AGREEMENT. The execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement will not result in the grant of any rights to
any Person under the Huntington Rights Agreement (other than to Citi-Bancshares
Stockholders as contemplated by Section 3.1 of this Agreement) or enable or
require the Huntington Rights to be exercised, distributed or triggered.
6.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1995, except as disclosed in the Huntington Financial Statements delivered
prior to the date of this Agreement or as disclosed in Section 6.6 of the
Huntington Disclosure Memorandum, (i) there have been no events, changes or
occurrences which have had, or are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Huntington.
6.7 COMPLIANCE WITH LAWS. Huntington and Huntington-Florida are
each duly registered as a bank holding company under the BHC Act and with the
Florida State Banking Department. Each Huntington Company has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Huntington, and there has occurred no Default under
any such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Huntington.
Except as disclosed in Section 6.7 of the Huntington Disclosure Memorandum, no
Huntington Company:
(a) is in Default under its Articles of Incorporation or Bylaws
(or other governing instruments); or
- 22 -
<PAGE> 230
(b) is in violation of, or in Default under, any Laws, Orders or
Permits applicable to its business or employees conducting its business, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Huntington; and
(c) has received any notification or communication from any
agency or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Huntington Company is not
in compliance with any of the Laws or Orders, including the CRA, which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Huntington or which would prevent or delay the
consummation of the transactions contemplated herein, (ii) threatening to
revoke any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Huntington,
(iii) requiring any Huntington Company to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies, its
management, or the payment of dividends, or which are reasonably likely to
delay or prevent the consummation of the transactions contemplated herein.
6.8 LEGAL PROCEEDINGS. There is no Litigation pending, or to
the Knowledge of Huntington, threatened against Huntington or any Huntington
Company that seeks to enjoin, delay or prevent the execution, delivery or
performance of this Agreement or the completion of the transactions
contemplated herein.
6.9 REPORTS. Since December 31, 1992, Huntington has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with (i) the SEC, including, but
not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii)
other Regulatory Authorities, and (iii) any applicable state securities or
banking authorities (except, in the case of state securities authorities,
failures to file which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Huntington). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such report and
document did not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
6.10 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument or other writing furnished or to be furnished by Huntington or any
Affiliate thereof to Citi-Bancshares pursuant to this Agreement or any other
document, agreement or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to
be supplied by Huntington or any
- 23 -
<PAGE> 231
Affiliate thereof for inclusion in the Registration Statement to be filed by
Huntington with the SEC, will, when the Registration Statement becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by Huntington
or any Affiliate thereof for inclusion in the Proxy Statement to be mailed to
Citi-Bancshares' shareholders in connection with the Shareholders' Meeting, and
any other documents to be filed by Huntington or any Affiliate thereof with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement, when first mailed to the shareholders of
Citi-Bancshares, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Shareholders' Meeting, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
any proxy for the Shareholders' Meeting. All documents that Huntington or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
6.11 AUTHORITY OF HUNTINGTON-FLORIDA. Huntington-Florida is an
Ohio corporation, duly organized, validly existing and in good standing under
the Laws of the State of Ohio as a wholly owned Subsidiary of Huntington, with
its principal office located in Columbus, Florida. The authorized capital stock
of Huntington-Florida consists of 850 shares of Huntington-Florida Common Stock,
all of which is validly issued and outstanding, fully paid and nonassessable and
is owned by Huntington free and clear of any Lien. Huntington-Florida has the
corporate power and authority necessary to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby, subject to the receipt of the necessary Consents of the applicable
Regulatory Authorities. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein,
including the Merger, has been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Huntington-Florida. This
Agreement represents a legal, valid, and binding obligation of
Huntington-Florida, enforceable against Huntington-Florida in accordance with
its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
6.12 TAX AND REGULATORY MATTERS. No Huntington Company or any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in
- 24 -
<PAGE> 232
Section 9.1(b) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such Section.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF CITI-BANCSHARES.
(a) Unless the prior written consent of Huntington shall have
been obtained, and except as otherwise expressly contemplated herein,
Citi-Bancshares shall and shall cause each of its Subsidiaries to (i) operate
its business only in the usual, regular, and ordinary course, (ii) preserve
intact its business organization and Assets and maintain its rights and
franchises, and (iii) take no action which would (A) adversely affect the
ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the
type referred to in the last sentences of Section 9.1(b) or 9.1(c) of this
Agreement, or (B) adversely affect the ability of any Party to perform its
covenants and agreements under this Agreement.
(b) Citi-Bancshares shall obtain surveys of, Title Insurance
Commitments and title insurance from reputable insurers on all Real Property
comprising the main offices and branches of Citizens National Bank of Leesburg
on forms customarily used for commercial property in the areas where such Real
Property is located.
7.2 NEGATIVE COVENANTS OF CITI-BANCSHARES. Except as provided
in this Agreement or as disclosed in the Citi-Bancshares Disclosure Memorandum,
from the date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement, Citi-Bancshares covenants and agrees that it
will not do or agree or commit to do, or permit any of its Subsidiaries to do
or agree or commit to do, any of the following without the prior written
consent of the chief executive officer, president or chief financial officer of
Huntington, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any Citi-Bancshares Company, or
(b) incur any additional debt obligation or other obligation for
borrowed money except in the ordinary course of the business of Citi-Bancshares
and its Subsidiaries consistent with past practices (which shall include
creation of deposit liabilities, purchases of federal funds, advances from the
Federal Reserve Bank or Federal Home Loan Bank, and entry into repurchase
agreements fully secured by U.S. government or agency securities), or impose,
or suffer the imposition, on any Asset of Citi-Bancshares of any Lien or permit
any such Lien to exist (other than in connection with deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts established
in the ordinary course of business, the satisfaction of legal requirements in
the exercise of trust powers, and Liens in effect as of the date hereof that
are disclosed in the Citi-Bancshares Disclosure Memorandum); or
- 25 -
<PAGE> 233
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans), directly
or indirectly, any shares, or any securities convertible into any shares, of
the capital stock of Citi-Bancshares, or declare or pay any dividend or make
any other distribution in respect of Citi-Bancshares' capital stock, provided
that Citi-Bancshares may (to the extent legally and contractually permitted to
do so), but is not obligated hereunder, to declare and pay its customary
quarterly cash dividends on the shares of Citi-Bancshares Common Stock not in
excess of $0.12 per share of Citi-Bancshares Common Stock with usual and
regular record and payment dates in accordance with past practice and a special
dividend in the fourth quarter of 1996 not in excess of $.06 per share of
Citi-Bancshares Common Stock as disclosed in Section 7.2(c) of the
Citi-Bancshares Disclosure Memorandum, and provided further that if the Closing
and the Effective Time has not occurred prior to the record dates for any
regular quarterly dividends on Citi-Bancshares Common Stock in 1997, then
Citi-Bancshares may continue to declare and pay regular quarterly dividends on
Citi-Bancshares Common Stock (the "1997 Dividends"). The 1997 Dividends shall
be determined by Citi-Bancshares' Board of Directors and shall be payable from
funds lawfully available therefor, in an amount not to exceed $0.15 per share
of Citi-Bancshares Common Stock per quarter.; provided that in no event shall
holders of Citi-Bancshares Common Stock be entitled to receive a dividend from
both Citi-Bancshares and Huntington in the same quarter with respect to shares
of Citi-Bancshares Common Stock and Huntington Common Stock issued or issuable
for such Citi-Bancshares Common Stock; or
(d) except for this Agreement, the Stock Option Agreement or
pursuant to the exercise of options to purchase shares of Citi-Bancshares
Common Stock and the transactions contemplated herein, issue, sell, pledge,
encumber, authorize the issuance of, enter into any Contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Citi-Bancshares Common Stock or any other
capital stock of any Citi-Bancshares Company, or any Rights; or
(e) adjust, split, combine or reclassify any capital stock of
any Citi-Bancshares Company, or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Citi-Bancshares
Common Stock, or sell, lease, mortgage or otherwise dispose of any Asset (other
than Assets acquired as a result of debts previously contracted) other than in
the ordinary course of business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency (including FNMA and FHLMC) securities in the ordinary course
of business, which in either case have maturities of three years or less,
purchase any securities or make any material investment, either by purchase of
stock of securities, contributions to capital, Asset transfers, or purchase of
any Assets, in any Person other than a wholly owned Citi-Bancshares Subsidiary,
or otherwise acquire direct or indirect control over any Person, other than in
connection with (i) foreclosures in the ordinary course of business, (ii)
acquisitions of control by a depository institution Subsidiary in its fiduciary
capacity, or
- 26 -
<PAGE> 234
(iii) the creation of new wholly owned Subsidiaries organized to conduct or
continue activities otherwise permitted by this Agreement; or
(g) except as disclosed in Section 7.2(g) of the Citi-Bancshares
Disclosure Memorandum or as a result of the transactions contemplated herein,
(i) grant any increase in compensation or benefits to the employees or officers
of any Citi-Bancshares Company or as required by Law, (ii) pay any severance or
termination pay or any bonus other than pursuant to written policies or written
Contracts in effect on the date of this Agreement, (iii) enter into or amend
any severance agreements with officers of Citi-Bancshares, (iv) grant any
increase in fees or other increases in compensation or other benefits to the
directors of Citi-Bancshares, (v) voluntarily accelerate the vesting of any
employee benefits, or (vi) grant any stock appreciation rights or other Rights
to acquire Citi-Bancshares securities under any Citi-Bancshares Stock Option
Plan; or
(h) except as disclosed in Section 7.2(h) of the Citi-Bancshares
Disclosure Memorandum, enter into or amend any employment Contract between
Citi-Bancshares and any Person (unless such amendment is required by Law) that
Citi-Bancshares does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time on
or after the Effective Time;
(i) adopt any new employee benefit plan of Citi-Bancshares' or
any Citi-Bancshares Company or terminate or withdraw from, or make any material
change in or to, any existing employee benefit plans of Citi-Bancshares or any
Citi-Bancshares Company other than any such change that is required by Law, or
that, in the opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan, or that is disclosed or contemplated in
Section 7.2(i) of the Citi-Bancshares Disclosure Memorandum, or make any
distributions from such employee benefit plans except as required by Law, the
terms of such plans or consistent with Citi-Bancshares' past practice; or
(j) make any significant change in any Tax or accounting methods
or systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of Citi-Bancshares for
material money damages or restrictions upon the operations of Citi-Bancshares;
or
(l) except in the ordinary course of business, enter into,
modify, amend or terminate any material Contract or waive, release, compromise
or assign any material rights or claims.
7.3 COVENANTS OF HUNTINGTON. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
Huntington covenants and agrees that it shall take no action which to its
knowledge at the time of such action, would (i) materially adversely affect the
ability of any Party to obtain any Consents required for the transactions
- 27 -
<PAGE> 235
contemplated hereby without imposition of a condition or restriction of the
type referred to in the last sentences of Section 9.1(b) or 9.1(c) of this
Agreement, or (ii) materially adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement. Huntington further
covenants and agrees that it will not or agree or commit to, amend the Articles
of Incorporation or Bylaws or Regulations of Huntington or Huntington-Florida
or the Huntington Rights Agreement, in each case, in any manner adverse to the
holders of Citi-Bancshares Common Stock as compared to rights of holders of
Huntington Common Stock generally as of the date of this Agreement, without the
prior written consent of the chairman or president of Citi-Bancshares, which
consent shall not be unreasonably withheld.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to it
or any of its Subsidiaries which (i) is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on it or (ii) would cause or
constitute a material breach of any of its representations, warranties, or
covenants contained herein, and to use its reasonable efforts to prevent or
promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other Party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the
entity filing such statements as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows for the
periods then ended in accordance with GAAP (subject in the case of interim
financial statements to normal recurring year-end adjustments that are not
material). As of their respective dates, such reports filed with the SEC will
comply in all material respects with the Securities Laws and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER
APPROVAL. As soon as reasonably practicable after execution of this Agreement,
Huntington shall file the Registration Statement with the SEC, and shall use
its reasonable efforts to cause the Registration Statement to become effective
under the 1933 Act and take any action required to be taken under the
applicable state Blue Sky or securities Laws in connection with the issuance of
the shares of Huntington Common Stock upon consummation of the Merger.
Citi-Bancshares shall furnish all information concerning it and the holders of
its capital stock as Huntington may reasonably request in connection with such
action. Citi-Bancshares shall call a Shareholders' Meeting, to be held as soon
as reasonably practicable after the Registration Statement is declared
effective by the
- 28 -
<PAGE> 236
SEC, for the purpose of voting upon approval of this Agreement, Merger and such
other related matters as it deems appropriate. In connection with the
Shareholders' Meeting, (i) Citi-Bancshares and Huntington shall prepare, as
part of the Registration Statement filed with the SEC, a Proxy Statement and
mail such Proxy Statement to Citi-Bancshares' shareholders, (ii) the Parties
shall furnish to each other all information concerning them that they may
reasonably request in connection with such Proxy Statement, (iii) the Board of
Directors of Citi-Bancshares shall recommend (subject to compliance with their
fiduciary duties as advised by counsel) to Citi-Bancshares' shareholders the
approval of this Agreement, and (iv) the Board of Directors and officers of
Citi-Bancshares shall (subject to compliance with their fiduciary duties as
advised by counsel) use its reasonable efforts to obtain such shareholders'
approval.
8.2 NASDAQ LISTING. Huntington shall use its reasonable efforts
to list, prior to the Effective Time, on the Nasdaq National Market the shares
of Huntington Common Stock to be issued to the holders of Citi-Bancshares
Common Stock pursuant to the Merger, and Huntington shall give all notices and
make all filings with the NASD, required in connection with the transactions
contemplated herein.
8.3 APPLICATIONS. Huntington shall promptly prepare and file,
and Citi-Bancshares shall cooperate in the preparation and, where appropriate,
the filing of, applications with all Regulatory Authorities having jurisdiction
over the transactions contemplated by this Agreement, including the Federal
Reserve, Florida State Banking Department, seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.4 [RESERVED.]
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, their respective reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper, or advisable under applicable Laws to consummate and make effective, as
soon as reasonably practicable after the date of this Agreement, the
transactions contemplated by this Agreement, including using its reasonable
efforts to lift or rescind any Order adversely affecting its ability to
consummate the transactions contemplated herein and to cause to be satisfied
the conditions referred to in Article 9 of this Agreement; provided, that
nothing herein shall preclude either Party from exercising its rights under
this Agreement. Each Party shall use, and shall cause each of its Subsidiaries
to use, its reasonable efforts to obtain all Consents necessary or desirable
for the consummation of the transactions contemplated by this Agreement on or
prior to March 15, 1997. The Parties shall deliver to each other, copies of
all filings, correspondence and orders to and from all Regulatory Authorities
in connection with the transactions contemplated hereby.
8.6 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party shall keep
the other Party advised of all material developments relevant to its business
and to consummation of the Merger and shall permit the other Party to make or
cause to be made such investigation of the business and
- 29 -
<PAGE> 237
properties of it and its Subsidiaries and of their respective financial and
legal conditions as the other Party reasonably requests, provided that such
investigation shall be reasonably related to the transactions contemplated
hereby and shall not interfere unnecessarily with normal operations. No
investigation by a Party shall affect the representations and warranties of the
other Party.
(b) Each Party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return or certify the destruction of
all documents and copies thereof, and all work papers containing confidential
information received from the other Party. The Parties are subject to a
Confidentiality Agreement dated as of October 20, 1996, which is hereby
reaffirmed and adopted, and which shall remain in full force and effect
unmodified hereby and which shall survive any termination of this Agreement.
(c) Each Party agrees to give the other Party notice as
soon as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent,
either a material breach of any representation, warranty, covenant or agreement
of the other Party or which has had or is reasonably likely to have a Material
Adverse Effect on the other Party.
8.7 PRESS RELEASES. Prior to the Effective Time,
Citi-Bancshares and Huntington shall consult with each other and their
respective counsel as to the form and substance of any press release or other
public disclosure materially related to this Agreement or any other transaction
contemplated hereby; provided, that nothing in this Section 8.7 shall be deemed
to prohibit any Party from making any disclosure which its counsel deems
necessary or advisable in order to satisfy such Party's disclosure obligations
imposed by Law.
8.8 CERTAIN ACTIONS. Except with respect to this Agreement and
the transactions contemplated hereby, neither Citi-Bancshares nor any Affiliate
or any Representatives thereof retained by Citi-Bancshares shall directly or
indirectly solicit or encourage any Acquisition Proposal by any Person. Except
to the extent necessary to comply with the fiduciary duties of Citi-Bancshares'
Board of Directors as advised by counsel, neither Citi-Bancshares nor any
Affiliate or Representative thereof shall furnish any non-public information
that it is not legally obligated to furnish, negotiate with respect to, or
enter into any Contract with respect to, any Acquisition Proposal, but Citi-
Bancshares may communicate information about such an Acquisition Proposal to
its shareholders if and to the extent that it is required to do so in order to
comply with its legal obligations as advised by counsel. Citi-Bancshares shall
promptly notify Huntington orally and in writing in the event that it receives
any inquiry or proposal relating to any such transaction. Citi-Bancshares
shall (i) immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with respect
- 30 -
<PAGE> 238
to any of the foregoing, and (ii) direct and use its reasonable efforts to
cause all of its Representatives not to engage in any of the foregoing.
8.9 TAX TREATMENT. Each of the Parties undertakes and agrees to
use its reasonable efforts to cause the Merger, and to take no action which
would cause the Merger not, to qualify for treatment as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue code for federal
income tax purposes.
8.10 AGREEMENTS WITH RESPECT TO AFFILIATES. Citi-Bancshares has
disclosed in Section 8.10 of the Citi-Bancshares Disclosure Memorandum all
Persons whom it reasonably believes is an "affiliate" of Citi-Bancshares for
purposes of Rule 145 under the 1933 Act. Citi-Bancshares shall use its
reasonable efforts to cause each such Person to deliver to Huntington not later
than 30 days prior to the Effective Time, a written agreement, substantially in
the form of Exhibit 3, providing that such Person will not sell, pledge,
transfer, or otherwise dispose of the shares of Citi-Bancshares Common Stock
held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of Huntington Common Stock to be received by such Person upon
consummation of the Merger except in compliance with applicable provisions of
the 1933 Act.
8.11 EMPLOYEE BENEFITS AND CONTRACTS.
(a) Except as set forth in this Agreement, including Section
8.13, following the Effective Time, Huntington shall provide to officers and
employees of Citi-Bancshares employee benefits under employee benefit and
welfare plans, incentive plans and stock option and other plans involving the
potential issuance of Huntington Common Stock, on terms and conditions which
when taken as a whole are substantially similar to those currently provided
generally by Huntington and its Affiliates to their similarly situated officers
and employees. For purposes of participation and vesting under such employee
benefit plans, the service of the employees of the Citi-Bancshares Companies
prior to the Effective Time shall be treated as service with a Huntington
Company participating in such employee benefit plans. Furthermore, officers
and employees of Citi-Bancshares Companies (and their spouses and dependents,
if applicable) may, upon the cessation of their participation in a
Citi-Bancshares Benefit Plan, immediately participate in the corresponding
Benefit Plan maintained by Huntington without regard to pre-existing conditions
or waiting periods and all claims paid under a Citi-Bancshares Benefit Plan
shall be counted under a Huntington Benefit Plan for purposes of annual
deductibles and annual out of pocket expenses. Benefit accruals under any
Huntington defined benefit pension plan ("Huntington Plan") will not be offset
by benefit accruals under the "Citizens National Bank of Leesburg Defined
Benefit Pension Plan (the "Pension Plan"); however, in the event the Pension
Plan merges with the Huntington Plan, and if benefit accruals under the Pension
Plan cease, the Huntington Plan will provide future benefit accruals under the
Huntington Plan that are no less than those benefits that would accrue assuming
the Huntington Plan implements a "fresh start formula without wear away" (as
described in Treasury Regulation Section 1.401(a)(4)-13(c)(4)(i)). To the
extent a participant has a vested benefit or other vested amount earned or
accrued through the Effective Time under a Citi-Bancshares Benefit Plans,
Huntington agrees to pay such benefits in accordance with the terms of such
Citi-Bancshares Benefit Plans; provided, however, that (i) with
- 31 -
<PAGE> 239
respect to the Citizens National Bank of Leesburg Profit Sharing Plan & Trust
and the Pension Plan (other than death benefits and interest rates as set forth
below), compliance with section 411(d)(6) of the Code will constitute
satisfaction of the requirements of this sentence; (ii) with respect to a
participant's accrued benefit under the Pension Plan, Huntington agrees, for
twenty-four months following the Effective Time (to the extent permitted by
applicable law), to continue to pay death benefits and compute benefits using
the death benefit provisions and interest rate factors set forth in the Pension
Plan as of the Effective Time.
(b) Section 8.11 of the Citi-Bancshares Disclosure Memorandum sets
forth certain Citi-Bancshares Benefit Plans, employment agreements and other
arrangements. Among those listed include severance benefits, employment
agreements, change in control agreements, retention agreements, consulting
contracts, compensation contracts (collectively, "Continuation Benefits").
After the Effective Time, Huntington shall provide to officers and employees of
Citi-Bancshares Companies benefits in accordance with either (i) the
Continuation Benefits or (ii) in the absence of any such contracts, plans or
policies giving rise to such Continuation Benefits, in accordance with the
Huntington's policies generally.
8.12 INDEMNIFICATION.
(a) For a period of four years after the Effective Time,
Huntington shall, and shall cause its Subsidiaries, including the Surviving
Corporation to, indemnify, defend and hold harmless the present and former
directors, officers, employees and agents of the Citi-Bancshares Companies
(each, an "Indemnified Party") against all Liabilities arising out of actions
or omissions arising out of the Indemnified Party's service or services as
directors, officers, employees or agents of Citi-Bancshares or, at
Citi-Bancshares' request, of another corporation, partnership, joint venture,
trust or other enterprise occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement) to the full extent
permitted under Federal and/or Florida Law, or by Citi-Bancshares' Articles of
Incorporation and Bylaws consistent with Florida Law as in effect on the date
hereof, whether or not any Huntington Company is insured against such matter,
including provisions relating to advances of expenses incurred in the defense
of any Litigation, with respect to any Liability, claim, demand, action or
Litigation asserted or made prior to or at any time after the Effective Time.
All such rights to indemnification with respect to any such Liability, claim,
demand, or action shall continue until the final disposition of such
Litigation, claims, Liability, demands and actions regardless of when such
claim, demand, action Litigation and/or Liability was made or asserted;
provided, however, that nothing contained herein shall increase or lengthen the
duration of obligations with respect to such indemnification by the Huntington,
the Surviving Corporation or any other Huntington Company over that to which
Citi-Bancshares would have been subject had the Merger not been consummated.
The provisions of this Section 8.12 shall survive the Effective Time and the
Closing Date. Without limiting the foregoing, in any case in which approval by
the Surviving Corporation is required to effectuate any indemnification,
Huntington shall cause the Surviving Corporation to direct, at the election of
the Indemnified Party, that the determination of any such approval shall be
made by independent counsel mutually agreed upon between Huntington and the
Indemnified Party.
- 32 -
<PAGE> 240
8.13 STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares of
Citi-Bancshares Common Stock (a "Citi-Bancshares Stock Option") issued
pursuant to any Citi-Bancshares Stock Plan shall be fully vested and shall be
converted into an option under the Huntington Stock Option Plan (the
"Huntington Stock Option Plan") to acquire, on the same terms and conditions as
were applicable to vested rights under such Citi-Bancshares Stock Option, the
same number of shares of Huntington Common Stock as the holder of such
Citi-Bancshares Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time and elected to receive the Stock Consideration, at an
exercise price per share of Huntington Common Stock equal to (y) the aggregate
exercise price for the shares of Citi-Bancshares Common Stock otherwise
purchasable pursuant to such Citi-Bancshares Stock Option immediately prior to
the Effective Time divided by (z) the number of full shares of Huntington
Common Stock deemed purchasable pursuant to such Citi-Bancshares Stock Option
immediately prior to the Effective Time.
(b) As soon as practicable after the Effective Time,
Huntington shall deliver to the holders of such converted Citi-Bancshares Stock
Options appropriate notices setting forth such holders' rights pursuant to the
Huntington Stock Option Plan and the agreements evidencing such converted
Citi-Bancshares Stock Options and the original grants of such Citi-Bancshares
Stock Options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 8.13 after giving effect
to the Merger and the conversion as set forth above).
(c) Huntington shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Huntington Common
Stock for delivery upon exercise of Citi-Bancshares Stock Options converted in
accordance with this Section 8.13. As soon as practicable after the Effective
Time, Huntington shall include the shares of Huntington Common Stock issuable
under the converted Citi-Bancshares Stock Options under an existing effective
registration statement or shall file a registration statement on Form S-3 or
Form S-8, as the case may be (or any successor or other appropriate forms made
available by the SEC), or another appropriate form with respect to the shares
of Huntington Common Stock subject to such options and shall use all reasonable
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
With respect to those individuals who subsequent to the Merger will be subject
to the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Huntington shall administer the Huntington Stock Option Plan in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act to the
extent the Citi-Bancshares Plan complied with such rule prior to the Merger.
- 33 -
<PAGE> 241
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.6 of this Agreement:
(A) SHAREHOLDER APPROVAL. The shareholders of Citi-Bancshares
shall have approved this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required by Law
and by the provisions of any governing instruments.
(B) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority which is necessary
to consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner (including requirements relating to the raising of
additional capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of either Party would so materially
adversely impact the economic or business assumptions of the transactions
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger.
(C) CONSENTS AND APPROVALS. Each Party shall have obtained any
and all Consents required for consummation of the Merger (other than those
referred to in Section 9.1(b) of this Agreement) or for the preventing of any
Default under any Contract or Permit of such Party which, if not obtained or
made, is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on such Party. No Consent so obtained which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of either Party would so materially adversely impact the
economic or business assumptions of the transactions contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
(D) LEGAL PROCEEDINGS. No court or governmental authority or
Regulatory Authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits, restricts
or makes illegal consummation of the transactions contemplated by this
Agreement.
(E) REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness of
the Registration Statement shall have been issued, no action, suit, proceeding
or investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing, and all
- 34 -
<PAGE> 242
necessary approvals under state securities Laws or the 1933 Act or 1934 Act
relating to the issuance or trading of the shares of Huntington Common Stock
issuable pursuant to the Merger shall have been received.
(F) NASDAQ NATIONAL MARKET LISTING. The shares of Huntington
Common Stock issuable pursuant to the Merger shall have been approved for
listing on the Nasdaq National Market.
(G) TAX MATTERS. Each Party shall have received a written
opinion of counsel from Huntington's Counsel, in form reasonably satisfactory
to such Parties (the "Tax Opinion"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) the exchange in the Merger of Citi-Bancshares
Common Stock for Huntington Common Stock will not give rise to gain or loss to
the shareholders of Citi-Bancshares with respect to such exchange (except to
the extent of any cash received), and (iii) none of Citi-Bancshares,
Huntington-Florida or Huntington will recognize gain or loss as a consequence
of the Merger (except for amounts resulting from any required change in
accounting methods and any income and deferred gain recognized pursuant to
Treasury regulations issued under Section 1502 of the Internal Revenue Code).
In rendering such Tax Opinion, such counsel shall be entitled to rely upon
representations of Citi-Bancshares' officers, directors and those Persons that
have executed Shareholder's Agreements and officers of Huntington reasonably
satisfactory in form and substance to such counsel.
(H) EMPLOYMENT AGREEMENTS. Huntington shall have affirmed those
certain employment agreements between Citi-Bancshares, Huntington,
Huntington-Florida and each of the persons identified in Section 9.1(h) of the
Citi-Bancshares Disclosure Memorandum, which have been entered into on or
prior to the date hereof.
9.2 CONDITIONS TO OBLIGATIONS OF HUNTINGTON. The obligations of
Huntington to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Huntington pursuant to Section 11.6(a)
of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of
Citi-Bancshares set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as though all
such representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of Citi-Bancshares set forth in Section 5.3 of this Agreement shall
be true and correct (except for inaccuracies which are de minimis in amount).
The representations and warranties of Citi-Bancshares set forth in Sections
5.19, 5.20, and 5.21 of this Agreement shall be true and correct in all
material respects. There shall not exist inaccuracies in the representations
and warranties of Citi-Bancshares set forth in this Agreement (including the
- 35 -
<PAGE> 243
representations and warranties set forth in Sections 5.3, 5.19, 5.20, and 5.21)
such that the aggregate effect of such inaccuracies has, or is reasonably
likely to have, a Material Adverse Effect on Citi-Bancshares; provided that,
for purposes of this sentence only, those representations and warranties which
are qualified by references to "material" or "Material Adverse Effect" shall be
deemed not to include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Citi-Bancshares to be performed and complied
with pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied with in
all material respects.
(C) CERTIFICATES. Citi-Bancshares shall have delivered to
Huntington (i) a certificate, dated as of the Effective Time and signed on its
behalf by its chief executive officer and its chief financial officer, to the
effect that the conditions of its obligations set forth in Section 9.2(a) and
9.2(b) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Citi-Bancshares' Board of Directors and
shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as Huntington and its counsel shall request.
(D) OPINION OF COUNSEL. Huntington shall have received an
opinion of McLin Burnsed Morrison Johnson Newman & Roy, counsel to
Citi-Bancshares, and Alston & Bird, special counsel to Citi-Bancshares, dated
as of the Closing, in form reasonably satisfactory to Huntington, as to the
matters set forth in Exhibit 4.
(E) ACCOUNTANT'S LETTERS. Huntington shall have received from
Citi-Bancshares' Auditors letters dated not more than five days prior to the
date of the Proxy Statement with respect to certain financial information
regarding Citi-Bancshares, in form and substance reasonably satisfactory to
Huntington, which letters shall be based upon customary specified procedures
undertaken by such firm in accordance with Statement of Auditing Standard No.
72.
(F) AFFILIATES' AGREEMENTS. Huntington shall have received from
each Affiliate of Citi-Bancshares, the affiliate's agreement as and to the
extent specified in Section 8.10 of this Agreement.
(G) SHAREHOLDERS' EQUITY. Citi-Bancshares' shareholders' equity
as of the end of last fiscal quarter preceding Closing shall not be less than
Citi-Bancshares' shareholders' equity as of June 30, 1996, excluding for
purposes of the calculation of such shareholders' equity, the effects of (i)
all dividends declared and/or payable by Citi-Bancshares consistent with terms
of this Agreement, (ii) all net changes resulting from application of FASB
Statement No. 115 with respect to unrealized securities gains and losses, or
other changes in Laws, GAAP or RAP not in effect for the Citi-Bancshares'
Companies for periods prior to June 30, 1996, (iii) all costs, fees and
charges, including fees and charges of Citi-Bancshares' accountants, counsel
and investment bankers, whether or not accrued or paid, that are
- 36 -
<PAGE> 244
related to the sale of Citi-Bancshares, and (iv) any reductions in
Citi-Bancshares' shareholders' equity resulting from any actions or changes in
policies of Citi-Bancshares taken at the request of Huntington.
9.3 CONDITIONS TO OBLIGATIONS OF CITI-BANCSHARES. The
obligations of Citi-Bancshares to perform this Agreement and consummate the
Merger and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by Citi-Bancshares
pursuant to Section 11.6(b) of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of
Huntington set forth in this Agreement shall be assessed as of the date of this
Agreement and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
Huntington set forth in Section 6.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimis in amount). The representations
and warranties of Huntington set forth in Section 6.12 of this Agreement shall
be true and correct in all material respects. There shall not exist
inaccuracies in the representations and warranties of Huntington set forth in
this Agreement (including the representations and warranties set forth in
Sections 6.3 and 6.12 such that the aggregate effect of such inaccuracies has,
or is reasonably likely to have, a Material Adverse Effect on Huntington;
provided that, for purposes of this sentence only, those representations and
warranties which are qualified by references to "material" or "Material Adverse
Effect" shall be deemed not to include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Huntington to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior
to the Effective Time shall have been duly performed and complied with in all
material respects, and the Registration Statement shall have been declared and
shall remain effective.
(C) CERTIFICATES. Huntington shall have delivered to
Citi-Bancshares (i) a certificate, dated as of the Effective Time and signed on
its behalf by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in Section 9.3(a)
and 9.3(b) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Huntington's Board of Directors and
Huntington-Florida's Board of Directors and shareholders evidencing the taking
of all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Citi-Bancshares and its
counsel shall request.
(D) OPINION OF COUNSEL. Citi-Bancshares shall have received an
opinion of Porter, Wright, Morris & Arthur, counsel to Huntington, dated as of
the Effective Time, in form reasonably acceptable to Citi-Bancshares, as to the
matters set forth in Exhibit 5.
- 37 -
<PAGE> 245
(E) FAIRNESS OPINION. Citi-Bancshares shall have received from
The Carson Medlin Company or such other investment banking firm retained by
Citi-Bancshares, a letter, dated not more than five business days prior to the
date of the Proxy Statement, to the effect that, in the opinion of such firm,
the consideration to be received by Citi-Bancshares shareholders in connection
with the Merger is fair, from a financial point of view, to such shareholders.
ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of Citi-Bancshares, this Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of Huntington
and the Board of Directors of Citi-Bancshares; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of an inaccuracy of any representation or warranty contained in this
Agreement of the other Party which cannot be or has not been cured within 30
days after the giving of written notice to such Party of such inaccuracy and
which inaccuracy would provide the other Party the ability to refuse to
consummate the Merger under the applicable standard set forth in Section 9.2(a)
of this Agreement in the case of any termination by Huntington and Section
9.3(a) of this Agreement in the case of any termination by Citi-Bancshares; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within 30
days after the giving of written notice to the breaching Party of such breach;
or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event (i) any Consent of any Regulatory Authority required for consummation of
the Merger and the other transactions contemplated hereby shall have been
denied by final nonappealable action of such authority or if any action taken
by such authority is not appealed within the time limit for appeal, or (ii) the
shareholders of Citi-Bancshares fail to vote their approval of this Agreement
and the transactions contemplated hereby as required by the FBCA at the
Shareholders' Meeting where the transactions were presented to such
shareholders for approval and voted upon; or
- 38 -
<PAGE> 246
(e) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by May 31, 1997, if the failure to
consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 10.1(e) of this Agreement; or
(g) By Huntington, in the event that the Board of Directors of
Citi-Bancshares shall have failed to reaffirm its approval of the Merger and
the transactions contemplated by this Agreement (to the exclusion of any other
Acquisition Proposal), or shall have resolved not to reaffirm the Merger, or
shall have affirmed, recommended or authorized entering into any other
Acquisition Proposal or other transaction involving a merger, share exchange,
consolidation or transfer of substantially all of the Assets of
Citi-Bancshares.
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Section 8.6(b) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant
to Sections 10.1(b), 10.1(c) or 10.1(f) of this Agreement shall not relieve the
breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination. The Stock Option Agreement and the Confidentiality Agreement
shall be governed by their own terms and as to termination and not by this
Section 10.2.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The
respective representations, warranties, obligations, covenants, and agreements
of the Parties shall not survive the Effective Time except this Section 10.3
and Articles 2, 3, 4 and 11 and Sections 8.10, 8.11, and 8.12.
ARTICLE 11
MISCELLANEOUS
11.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"ACQUISITION PROPOSAL" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition of all
of the stock or assets of, or
- 39 -
<PAGE> 247
other business combination involving such Party or any of its Subsidiaries or
the acquisition of a substantial equity interest in, or a substantial portion
of the assets of, such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity
or voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated herein by
reference.
"ARTICLES OF MERGER" shall mean Articles of Merger or a
Certificate of Merger executed by Huntington-Florida and Citi-Bancshares, and
filed with the Secretary of States of the States of Florida and Ohio relating
to the Merger as contemplated by Section 1.1 of this Agreement.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to or utilized in such Person's business,
directly or indirectly, in whole or in part, whether or not carried on the
books and records of such Person, and whether or not owned in the name of such
Person or any Affiliate of such Person and wherever located.
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956, as amended.
"CITI-BANCSHARES COMMON STOCK" shall mean the $.01 par value
common stock of Citi-Bancshares.
"CITI-BANCSHARES COMPANIES" shall mean, collectively,
Citi-Bancshares and all Citi-Bancshares Subsidiaries.
"CITI-BANCSHARES DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Citi-Bancshares, Inc. Disclosure Memorandum" delivered
prior to the date of this Agreement to Huntington describing in reasonable
detail the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under which
such disclosure is being made. Information disclosed with respect to one
Section shall not be deemed to be disclosed for purposes of any other Section
not specifically referenced with respect thereto.
"CITI-BANCSHARES FINANCIAL STATEMENTS" shall mean (i) the
consolidated balance sheets (including related notes and schedules, if any) of
Citi-Bancshares as of June 30, 1996, and as of December 31, 1995 and 1994, and
the related statements of income,
- 40 -
<PAGE> 248
changes in shareholders' equity, and cash flows (including related notes and
schedules, if any) for the six months ended June 30, 1996, and for each of the
three fiscal years ended December 31, 1995, 1994 and 1993, and (ii) the
consolidated balance sheets of Citi-Bancshares (including related notes and
schedules, if any) and related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any) included
in the Call Reports filed with the FDIC with respect to periods ended
subsequent to June 30, 1996.
"CITI-BANCSHARES STOCK PLANS" shall mean the stock option and
other stock-based compensation plans and agreements of Citi-Bancshares.
"CITI-BANCSHARES SUBSIDIARIES" shall mean the Subsidiaries of
Citi-Bancshares, if any, which shall include the Citi-Bancshares Subsidiaries
described in Section 5.4 of this Agreement and any corporation, bank, savings
association, or other organization acquired as a Subsidiary of Citi-Bancshares
in the future and owned by Citi-Bancshares at the Effective Time.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant to
any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a breach
or violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the giving
of notice would give rise to a right to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit, where, in any such event, such Default is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on a Party.
"FBCA" shall mean the Florida Business Corporation Act.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water,
- 41 -
<PAGE> 249
land surface or subsurface strata) and which are administered, interpreted or
enforced by the United States Environmental Protection Agency and state and
local agencies with jurisdiction over, and including common law in respect of,
pollution or protection of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act, as amended, 42 U.S.C.
9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases or threatened releases of any Hazardous Substance, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous Substance.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants, or
other binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall have the meaning provided in Section 5.14
of this Agreement.
"EXHIBITS" 1 through 5, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"HAZARDOUS SUBSTANCE" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance or toxic substance (as
those terms are defined by any applicable Environmental Laws) and (ii) any
chemicals, pollutants, contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement, removal or
encapsulation pursuant to the requirements of governmental authorities and any
polychlorinated biphenyls).
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by
Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"HUNTINGTON CAPITAL STOCK" shall mean, collectively, the
Huntington Common Stock, the Huntington Preferred Stock and any other class or
series of capital stock of Huntington.
- 42 -
<PAGE> 250
"HUNTINGTON COMMON STOCK" shall mean the no par value common stock
of Huntington.
"HUNTINGTON COMPANIES" shall mean, collectively, Huntington and
all Huntington Subsidiaries.
"HUNTINGTON FINANCIAL STATEMENTS" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
Huntington as of June 30, 1996, and as of December 31, 1995 and 1994, and the
related statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for the three months ended June
30, 1996, and for each of the three years ended December 31, 1995, 1994 and
1993, as filed by Huntington in SEC Documents, and (ii) the consolidated
statements of condition of Huntington (including related notes and schedules,
if any) and related statements of income, changes in shareholders' equity, and
cash flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to June 30, 1996.
"HUNTINGTON PREFERRED STOCK" shall mean the "blank" serial
preferred stock of Huntington without par value.
"HUNTINGTON RIGHTS" shall mean the preferred stock purchase rights
issued pursuant to the Huntington Rights Agreement.
"HUNTINGTON RIGHTS AGREEMENT" shall mean that certain Rights
Agreement; dated as of February 22, 1990, as amended and or restated, between
Huntington and The Huntington Trust Company, N.A., as Rights Agent.
"HUNTINGTON-FLORIDA COMMON STOCK" shall mean the no par value
common stock of Huntington-Florida.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a Person (including references
to such Person being aware of a particular matter) shall mean those facts that
are known or should reasonably have been known after due inquiry by the
Chairman, President, Chief Financial Officer, Chief Accounting Officer, Chief
Credit Officer, General Counsel, any Assistant or Deputy General Counsel, or
any Senior or Executive Vice President of such Person and the knowledge of any
such persons obtained or which would have been obtained from a reasonable
investigation.
"LAW" shall mean any code, law, ordinance, regulation, reporting
or licensing requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business, including those promulgated, interpreted or
enforced by any Regulatory Authority.
- 43 -
<PAGE> 251
"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of notes,
bills, checks, and drafts presented for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute or contingent,
liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party, pledges
to secure deposits and other Liens incurred in the ordinary course of the
banking business, and (iii) Liens which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on a Party.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including Contracts related to it), or the transactions
contemplated by this Agreement, but shall not include regular, periodic
examinations of depository institutions and their Affiliates by Regulatory
Authorities.
"LOAN PROPERTY" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or Subsidiary
holds a security interest, and, where required by the context, includes the
owner or operator of such property, but only with respect to such property.
"MATERIAL" OR "MATERIAL" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance.
"MATERIAL ADVERSE EFFECT" on a Party shall mean an event, change
or occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (ii) the ability of such Party to perform its obligations under
this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "material adverse effect" shall
not be deemed to include the impact of (x) changes in banking and similar Laws
of general applicability or interpretations thereof by courts or governmental
authorities, (y) changes in generally accepted accounting principles or
regulatory accounting principles generally applicable to banks and their
holding companies, and (z) the Merger and compliance with the provisions of
this Agreement on the operating performance of the Parties.
- 44 -
<PAGE> 252
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NASDAQ NATIONAL MARKET" shall mean the National Market System of
the National Association of Securities Dealers Automated Quotations System.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"ORC" shall mean the Ohio Revised Code.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility or property in
which the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such facility
or property.
"PARTY" shall mean either Citi-Bancshares or Huntington, and
"PARTIES" shall mean both Citi-Bancshares and Huntington.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing, franchise,
license, notice, permit, or right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any Person or its securities,
Assets or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"PROXY STATEMENT" shall mean the proxy statement used by
Citi-Bancshares to solicit the approval of its shareholders of the transactions
contemplated by this Agreement, which shall include the prospectus of
Huntington relating to the issuance of the Huntington Common Stock to holders
of Citi-Bancshares Common Stock.
"REGISTRATION STATEMENT" shall mean the Registration Statement on
Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
Huntington under the 1933 Act with respect to the shares of Huntington Common
Stock to be issued to the shareholders of Citi-Bancshares in connection with
the transactions contemplated by this Agreement.
- 45 -
<PAGE> 253
"REGULATORY AUTHORITIES" shall mean, collectively, the United
States Department of Justice, the Board of the Governors of the Federal Reserve
System, the Office of the Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Florida State Banking Department, all other state
regulatory agencies having jurisdiction over the Parties and their respective
Subsidiaries, the NASD, and the SEC.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a Person.
"RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants,
stock appreciation rights or other binding obligations of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of a Person or by which a Person
is or may be bound to issue additional shares of its capital stock or other
Rights.
"SEC DOCUMENTS" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed, or
required to be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of any Regulatory Authority promulgated thereunder.
"SHAREHOLDERS' MEETING" shall mean the meeting of the shareholders
of Citi-Bancshares to be held pursuant to Section 8.1 of this Agreement,
including any adjournment or adjournments thereof.
"SUBSIDIARIES" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, there shall not be included any such entity acquired through
foreclosure or any such entity the equity securities of which are owned or
controlled in a fiduciary capacity.
"SURVIVING CORPORATION" shall mean Huntington-Florida as the
surviving corporation resulting from the Merger.
"TAX" or "TAXES" shall mean any federal, state, county, local, or
foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise, occupancy, and other taxes, assessments,
charges, fares, or impositions, including interest, penalties, and additions
imposed thereon or with respect thereto.
- 46 -
<PAGE> 254
(b) The terms set forth below shall have the meanings
ascribed thereto in the referenced sections:
<TABLE>
<S> <C>
Aggregate Merger Consideration Section 3.1(d)
Allowance Section 5.9
Average Closing Price Section 3.1(f)
BIF Section 5.4
Cash Consideration Section 3.1(c)
Cash Election Section 3.1(c)
Cash Limitation Section 3.1(c)
Cash Price Section 3.1(c)
Certificate Section 3.1(c)
Citi-Bancshares Contracts Section 5.10
Citi-Bancshares ERISA Plan Section 5.154
Closing Section 1.2
Effective Time Section 1.3
Election Deadline Section 4.1(b)
ERISA Affiliate Section 5.14(c)
Exchange Agent Section 4.1(e)
Exchange Ratio Section 3.1(f)
Indemnified Party Section 8.12(a)
Insurance Section 5.10
Letter of Transmittal and Form of Election Section 4.1(b)
Merger Section 1.1
Mixed Consideration Section 3.1(c)
Mixed Election Shares Section 3.1(c)
Mixed Stock Amount Section 3.1(c)
Non-Election Shares Section 4.1(a)
Pension Plan Section 8.11
Real Property Section 5.10
Stock Consideration Section 3.1(c)
Stock Designees Section 3.1(d)
Stock Election Section 3.1(f)
Tax Opinion Section 9.1(g)
Title Insurance Commitment Section 5.10
</TABLE>
(c) Any singular term in this Agreement shall be deemed
to include the plural, and any plural term the singular. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation."
11.2 EXPENSES. Each of the Parties shall bear and pay all direct
costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing, registration and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel, except that
each of the Parties shall bear and pay one-half of the filing fees payable in
connection with the
- 47 -
<PAGE> 255
Registration Statement and the Proxy Statement and printing costs incurred in
connection with the printing of the Registration Statement and the Proxy
Statement and Huntington shall pay all expenses of obtaining surveys of Citi-
Bancshares' Real Property.
11.3 BROKERS AND FINDERS. Except for The Carson Medlin Company
or other investment banker retained by Citi-Bancshares, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by Citi-Bancshares or Huntington, each of
Citi-Bancshares and Huntington, as the case may be, agrees to indemnify and
hold the other Party harmless of and from any Liability in respect of any such
claim.
11.4 ENTIRE AGREEMENT. Except for the Confidentiality Agreement
between Citi-Bancshares and Huntington, and as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Nothing in this
Agreement expressed or implied, is intended to confer upon any Person, other
than the Parties or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, other than as
provided in Section 8.13 and 8.14 of this Agreement.
11.5 AMENDMENTS. To the extent permitted by Law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after shareholder approval of this Agreement has been obtained; provided, that
after any such approval by the holders of Citi-Bancshares Common Stock, there
shall be made no amendment that pursuant to Florida Law requires further
approval by such shareholders without the further approval of such
shareholders.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, Huntington, acting
through its Board of Directors, chairman, chief executive officer or other
authorized officer, shall have the right to waive any Default in the
performance of any term of this Agreement by Citi-Bancshares, to waive or
extend the time for the compliance or fulfillment by Citi-Bancshares of any and
all of its obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of Huntington under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of Huntington.
(b) Prior to or at the Effective Time, Citi-Bancshares,
acting through its Board of Directors, chief executive officer or other
authorized officer, shall have the right to waive any Default in the
performance of any term of this Agreement by Huntington, to waive or extend the
- 48 -
<PAGE> 256
time for the compliance or fulfillment by Huntington of any and all of its
obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of Citi-Bancshares under this Agreement, except
any condition which, if not satisfied, would result in the violation of any
Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of Citi-Bancshares.
(c) The failure of any Party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such Party at a later time to enforce the same or any other provision of
this Agreement. No waiver of any condition or of the breach of any term
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of such condition or breach or a
waiver of any other condition or of the breach of any other term of this
Agreement.
11.7 ASSIGNMENT. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors
and assigns.
11.8 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre- paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
<TABLE>
<S> <C>
Citi-Bancshares: Citi-Bancshares, Inc.
1211 North Boulevard West
Leesburg, FL 34738-5351
Telecopy Number: (352) 326-4738
Attention: Kenneth W. Mullis
Copy to Counsel: McLin, Burnsed, Morrison, Johnson, Newman and Ray
100 West Main Street
Leesburg, Florida
Telecopy Number (352) 787-4265
Attention: Walter S. McLin, III, Esq.
Copy to Counsel: Alston & Bird
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-7777
Attention: Ralph F. MacDonald, III, Esq.
</TABLE>
- 49 -
<PAGE> 257
<TABLE>
<S> <C>
Huntington: Zuheir Sofia
President
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Telecopy number: (614) 480-5485
Copy to Counsel: Ralph K. Frasier, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Telecopy number: (614) 480-5485
Copy to Counsel: Michael T. Radcliffe, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Telecopy number: (614) 227-2100
</TABLE>
11.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Ohio, without regard to
any applicable conflicts of Laws.
11.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement shall
be considered the draftsman. The parties acknowledge and agree that this
Agreement has been reviewed, negotiated and accepted by all parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
11.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any
- 50 -
<PAGE> 258
state having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
11.14 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
- 51 -
<PAGE> 259
IN WITNESS WHEREOF, each of the Parties has caused this Agreement
to be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: CITI-BANCSHARES, INC.
/s/ T. MICHAEL KILLINGSWORTH By: /s/ KENNETH W. MULLIS
- ---------------------------------- -------------------------
Secretary Kenneth W. Mullis
President and Chief
Executive Officer
[CORPORATE SEAL]
ATTEST: HUNTINGTON BANCSHARES
INCORPORATED
/s/ RALPH K. FRASIER By: /s/ FRANK WOBST
- ---------------------------------- -------------------------
Secretary Frank Wobst
Chairman
[CORPORATE SEAL]
ATTEST: HUNTINGTON BANCSHARES
FLORIDA, INC.
/s/ JOHN W. LIEBERSBACH By: /s/ FRANK WOBST
- ---------------------------------- -------------------------
Secretary Frank Wobst
Chairman
[CORPORATE SEAL]
- 52 -
<PAGE> 260
EXHIBIT I TO AGREEMENT AND PLAN OF MERGER
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into
as of November 1, 1996, by and between Citi-Bancshares, Inc., a Florida
corporation ("Issuer"), and Huntington Bancshares, Incorporated, a Maryland
corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into that certain Agreement and
Plan of Merger, dated as of October 31, 1996 (the "Merger Agreement"), providing
for, among other things, the merger of Issuer with and into a wholly owned
Subsidiary of Grantee, with such Subsidiary as the surviving entity; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed,
to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein and in the Merger
Agreement, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 890,000 shares (as adjusted as set forth herein, the "Option
Shares," which shall include the Option Shares before and after any transfer of
such Option Shares) of common stock, $.01 par value per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (subject to adjustment
as set forth herein, the "Purchase Price") equal to $30.00.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder (as hereinafter defined),
as applicable, shall not be in material breach of its agreements or covenants
contained in this Agreement or the Merger Agreement, and (ii) no preliminary or
permanent injunction or other order against the delivery of shares covered by
the Option issued by any court of competent jurisdiction in the United States
shall be in effect, Holder may exercise the Option, in whole or in part, at any
time and from time to time following the occurrence of a Purchase Event;
provided that the Option shall terminate and be of no further force and effect
upon the earliest to occur of (A) the Effective Time, (B) termination of the
Merger Agreement in accordance with the terms thereof prior to the occurrence of
a Purchase Event or a Preliminary Purchase Event (other than a termination of
the Merger Agreement by Grantee pursuant to Section 10.1(b) (but only if such
termination was a result of a willful breach by Issuer) or Section 10.1(c)
thereof (each a "Default Termination")), (C) twelve(12) months after a Default
Termination, and (D) twelve (12) months after any
<PAGE> 261
termination of the Merger Agreement (other than a Default Termination) following
the occurrence of a Purchase Event or a Preliminary Purchase Event; provided
further, that any purchase of shares upon exercise of the Option shall be
subject to compliance with applicable law, including, without limitation, the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The term "Holder"
shall mean the holder or holders of the Option from time to time, and which
initially is the Grantee. The rights set forth in Section 8 shall terminate when
the right to exercise the Option terminates (other than as a result of a
complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following
events subsequent to the date of this Agreement:
(i) without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any Subsidiary of
Grantee) to effect an Acquisition Transaction (as defined below). As used
herein, the term "Acquisition Transaction" shall mean (A) a merger,
consolidation or similar transaction involving Issuer or any of its
Subsidiaries (other than transactions solely between Issuer's
Subsidiaries), (B) except as permitted pursuant to Section 7.1 of the
Merger Agreement, the disposition, by sale, lease, exchange or otherwise,
of Assets of Issuer or any of its Subsidiaries representing in either
case 25% or more of the consolidated assets of Issuer and its
Subsidiaries, or (C) the issuance, sale or other disposition of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities representing 25% or more of the voting power of
Issuer or any of its Subsidiaries (any of the foregoing, an "Acquisition
Transaction"); or
(ii) any person (other than Grantee or any Subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the right
to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act), other than a group of which Grantee or
any of its Subsidiaries of Grantee is a member, shall have been formed
which beneficially owns or has the right to acquire beneficial ownership
of, 25% or more of the then-outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of
the following events:
(i) any person (other than Grantee or any Subsidiary of
Grantee) shall have commenced (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement
under the Securities Act with respect to, a tender offer or exchange
offer to purchase any shares of Issuer Common Stock such that, upon
consummation of such offer, such person would own or control 25% or more
of the then-outstanding shares of Issuer Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively); or
-2-
<PAGE> 262
(ii) the holders of Issuer Common Stock shall not have
approved the Merger Agreement at the meeting of such shareholders held
for the purpose of voting on the Merger Agreement, such meeting shall not
have been held or shall have been canceled prior to termination of the
Merger Agreement, or Issuer's Board of Directors shall have withdrawn or
modified in a manner adverse to Grantee the recommendation of Issuer's
Board of Directors with respect to the Merger Agreement, in each case if
either (A) the Issuer's Board of Directors has withdrawn or modified its
recommendation with respect to the Merger Agreement in an effort to
comply with its fiduciary duties as permitted under the Merger Agreement,
or (B) such event occurs after it shall have been publicly announced that
any person (other than Grantee or any Subsidiary of Grantee) shall have
(X) made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction, (Y) commenced or disclosed an intention to
commence Tender Offer or filed a registration statement under the
Securities Act with respect to an Exchange Offer, or (Z) filed an
application (or given a notice), whether in draft or final form, under
any federal or state statute or regulation (including a notice filed
under the HSR Act and an application or notice filed under the BHC Act,
the Bank Merger Act, or the Change in Bank Control Act of 1978) seeking
the Consent to an Acquisition Transaction from any federal or state
governmental or regulatory authority or agency.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) In the event any Holder shall wish to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein referred
to as the "Notice Date") specifying (i) the total number of Option Shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than three business days nor later than 15 business days from the Notice
Date for the closing (the "Closing") of such purchase (the "Closing Date"). If
prior Consent of any governmental or regulatory agency or authority is required
in connection with such purchase, Issuer shall cooperate with Holder in the
filing of the required notice or application for such Consent and the obtaining
of such Consent and the Closing shall occur immediately following receipt of
such Consents (and expiration of any mandatory waiting periods).
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender this
Agreement to the Issuer at the address of the Issuer specified in Section 13(f)
hereof.
(b) At each Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided in
Section 4(a), (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no pre-emptive rights, and
(B) if the Option is exercised in part
-3-
<PAGE> 263
only, an executed new agreement with the same terms as this Agreement evidencing
the right to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder, and (ii) Holder shall deliver to Issuer a letter agreeing
that Holder shall not offer to sell or otherwise dispose of such Option Shares
in violation of applicable federal and state law or of the provisions of this
Agreement.
(c) In addition to any other legend that is required by applicable
law, certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 1,
1996. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Holder shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals referred to herein, to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Issuer. This Agreement has been duly executed and
delivered by Issuer.
(b) Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, and, at all times from
the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance,
upon exercise of the Option, the number of shares of Issuer Common Stock
necessary for Holder to exercise the Option, and Issuer will take all
necessary corporate action to authorize and reserve for issuance all
additional shares of Issuer Common Stock or other securities which may be
issued pursuant to Section 7 upon exercise of the Option. The shares of
Issuer Common Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common Stock or other
securities which may be issuable pursuant to Section 7, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid, and
nonassessable, and shall be delivered free and clear of all liens,
claims, charges,
-4-
<PAGE> 264
and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of Issuer.
6. REPRESENTATIONS AND WARRANTS OF GRANTEE. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) This Option is not being, and any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered
or exempt from registration under the Securities Laws.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of
a stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of
the number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger; (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then-outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company; or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of
-5-
<PAGE> 265
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that upon the consummation of any
such transaction and upon the terms and conditions set forth herein, Holder
shall receive for each Option Share with respect to which the Option has not
been exercised an amount of consideration in the form of and equal to the per
share amount of consideration that would be received by the holder of one share
of Issuer Common Stock less the Purchase Price (and, in the event of an election
or similar arrangement with respect to the type of consideration to be received
by the holders of Issuer Common Stock, subject to the foregoing, proper
provision shall be made so that Holder would have the same election or similar
rights as would the holder of the number of shares of Issuer Common Stock for
which the Option is then exercisable) (such consideration, the "Substitute
Consideration").
(c) Issuer shall not enter into any agreement of the type
described in Section 7(b) unless the other party thereto consents to provide the
funding required for Issuer to pay the Section 8 Repurchase Consideration.
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) Subject to the last sentence of Section 3(a), at the request
of Holder at any time commencing upon the first occurrence of a Repurchase Event
(as defined in Section 8(d)) and ending 12 months immediately thereafter, Issuer
shall repurchase from Holder the Option and all shares of Issuer Common Stock
purchased by Holder pursuant hereto with respect to which Holder then has
beneficial ownership. The date on which Holder exercises its rights under this
Section 8 is referred to as the "Request Date." Such repurchase shall be at an
aggregate price (the "Section 8 Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any shares
of Issuer Common Stock acquired by Holder pursuant to the Option with
respect to which Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as
defined below) for each share of Issuer Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 7), multiplied
by the number of shares of Issuer Common Stock with respect to which the
Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in
the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Holder for
each share of Issuer Common Stock with respect to which the Option has
been exercised and with respect to which Holder then has beneficial
ownership, multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer
shall, within ten business days after the Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment Holder shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
-6-
<PAGE> 266
thereunder with respect to which Holder then has beneficial ownership, and
Holder shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or Consent of any governmental or regulatory
agency or authority is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole or
in part, or to require that Issuer deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for Consent and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
Consent). If any governmental or regulatory agency or authority disapproves of
any part of Issuer's proposed repurchase pursuant to this Section 8, Issuer
shall promptly give notice of such fact to Holder. If any governmental or
regulatory agency or authority prohibits the repurchase in part but not in
whole, then Holder shall have the right (i) to revoke the repurchase request or
(ii) to the extent permitted by such agency or authority, determine whether the
repurchase should apply to the Option and/or Option Shares and to what extent to
each, and Holder shall thereupon have the right to exercise the Option as to the
number of Option Shares for which the Option was exercisable at the Request Date
less the sum of the number of shares covered by the Option in respect of which
payment has been made pursuant to Section 8(a)(ii) and the number of shares
covered by the portion of the Option (if any) that has been repurchased. Holder
shall notify Issuer of its determination under the preceding sentence within
five business days of receipt of notice of disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all of
Holder's rights under this Section 8 shall terminate on the date of termination
of this Option pursuant to Section 3(a).
(c) For purposes of this Agreement, the "Applicable Price" means
the highest of (i) the highest price per share of Issuer Common Stock paid for
any such share by the person or groups described in Section 8(d)(i), (ii) the
price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest
closing sales price per share of Issuer Common Stock quoted on the Nasdaq
National Market (or if Issuer Common Stock is not quoted on the Nasdaq National
Market, the highest bid price per share as quoted on the principal trading
market or securities exchange on which such shares are traded as reported by a
recognized source chosen by Holder) during the 60 business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's Assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by an independent nationally recognized investment banking
firm selected by Holder and reasonably acceptable to Issuer (which determination
shall be conclusive for all purposes of this Agreement), divided by the number
of shares of the Issuer Common Stock outstanding at the time of such sale. If
the consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Holder and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of this
Agreement.
-7-
<PAGE> 267
(d) As used herein, "Repurchase Event" shall occur if (i) any
person (other than Grantee or any Subsidiary of Grantee) shall have acquired
actual ownership or control, or any "group" (as such term is defined under the
1934 Act) shall have been formed which shall have acquired actual ownership or
control, of 50% or more of the then-outstanding shares of Issuer Common Stock,
or (ii) any of the transactions described in Section 7(b)(i), 7(b)(ii) or
7(b)(iii) shall be consummated.
(e) In connection with the application of the provisions of this
Section 8, Grantee acknowledges (i) that Issuer's ability to fund the Section 8
Repurchase Consideration in accordance with the provisions of this Section 8 may
be dependent upon the payment by Issuer's Subsidiaries of a capital distribution
or distributions ("Capital Distribution") to Issuer and that any such Capital
Distribution will be subject to the prior approval of the Federal Reserve Board
and the principal federal and state regulatory agencies having jurisdiction over
Issuer's Subsidiary banks, and (ii) that, unless there has been an agreement of
the type described in Section 7(b), Issuer's obligations under this Section 8 do
not impose on Issuer an obligation to otherwise finance the payment of the
Section 8 Repurchase Consideration through the incurrence of indebtedness or the
issuance of capital instruments or securities by Issuer in either case
sufficient in amount to satisfy the payment of the Section 8 Repurchase
Consideration. Accordingly, Issuer shall not be deemed to be in breach of this
Section 8 if, after making its best efforts to obtain regulatory authorization
for a Capital Distribution required to pay the Section 8 Repurchase
Consideration, it is unable to do so.
9. CERTAIN RESTRICTIONS.
(a) Following the date hereof and prior to the Expiration Date (as
defined in subparagraph (c) below), Holder shall (i) vote any shares of capital
stock of Issuer acquired by Holder pursuant to this Agreement ("Restricted
Shares") or otherwise beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) by Holder on each matter submitted to a vote
of shareholders of Issuer for and against such matter in the same proportion as
the vote of all other shareholders of Issuer are voted (whether by proxy or
otherwise) for and against such matter, and (ii) shall not, directly or
indirectly, by operation of law or otherwise, sell, assign, pledge, or otherwise
dispose of or transfer any Restricted Shares beneficially owned by Holder, other
than (i) pursuant to Section 8 hereof, (ii) following termination of the Merger
Agreement, pursuant to a merger, share exchange, tender or exchange offer, or
other business combination that has been approved or recommended, or otherwise
determined to be fair and in the best interests of the shareholders of Issuer,
by a majority of the members of the Board of Directors of Issuer (which majority
shall include a majority of the directors who were directors prior to the
announcement of such business combination), or (iii) in accordance with Section
10 hereof.
(b) Other than pursuant to the Merger Agreement, following the
date hereof and prior to the Expiration Date, without the prior written consent
of Issuer, Holder shall not, nor shall Holder permit its affiliates to, directly
or indirectly, alone or in concert or conjunction with any other Person or Group
(as defined in subparagraph (c) below), (i) in any manner acquire,
-8-
<PAGE> 268
agree to acquire or make any proposal to acquire, any securities of, equity
interest in, or any material property of, the Company (other than pursuant to
this Agreement or the Merger Agreement), (ii) except at the specific written
request of Issuer, propose to enter into any merger, share exchange, or other
business combination involving Issuer or to purchase a material portion of the
Assets of Issuer, (iii) make or in any way participate in any "solicitation" of
"proxies" (as such terms are used in Regulation 14A promulgated under the
Exchange Act) to vote, or seek to advise or influence any Person with respect to
the voting of, any voting securities of Issuer, (iv) form, join or in any way
participate in a Group with respect to any voting securities of Issuer, (v) seek
to control or influence the management, Board of Directors or policies of
Issuer, (vi) disclose any intention, plan or arrangement inconsistent with the
foregoing, (vii) advise, assist or encourage any other Person in connection with
the foregoing, or (viii) request Issuer (or its directors, officers, employees
or agents) to amend or waive any provision of this Section 9(b), or take any
action which may require Issuer to make a public announcement regarding the
possibility of a business combination or merger with such party. Issuer shall
not adopt any "Rights Plan" or similar arrangement in any manner which would
cause Holder, if Holder has complied with its obligations under this Agreement,
to become an "Acquiring Person" under such Rights Agreement solely by reason of
the beneficial ownership of the shares purchasable hereunder.
(c) For purposes of this Agreement, (i) the term "Expiration Date"
with respect to any obligation or restriction imposed on a party hereunder shall
mean the earlier to occur of (A) the third anniversary of the date hereof or (B)
such time as the other party shall have suffered a Change of Control, and (ii)
the term "Change of Control" with respect to a party shall be deemed to have
occurred whenever (A) there shall be consummated (1) any consolidation or merger
of such party in which such party is not the continuing or surviving corporation
or pursuant to which the shares of such party's common stock would be converted
in whole or in part into cash, other securities or other property, other than a
merger of such Person in which the holders of such party's common stock
immediately prior to the merger have substantially the same proportionate
ownership of common stock of the surviving or acquiring corporation immediately
after the merger, or (2) any sale, lease, exchange or transfer (in one
transaction or a series of related transactions) of all or substantially all of
the Assets of such party, or (B) the shareholders of such party shall approve
any plan or proposal for the liquidation or dissolution of such party, or (C)
any Person, other than such party or a Subsidiary thereof or any employee
benefit plan sponsored by such party or a Subsidiary thereof or a corporation
owned, directly or indirectly, by the stockholders of such party in
substantially the same proportions as their ownership of stock of such party,
shall become the beneficial owner of securities of such party representing 25%
or more of the combined voting power of then-outstanding securities ordinarily
(and apart from rights accruing in special circumstances) having the right to
vote in the election of directors, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, or (D) at
any time during the period commencing on the date of this Agreement and ending
on the Expiration Date, individuals who at the date hereof constituted the Board
of Directors of such party shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for election by such
party's stockholders of each new director during the period commencing on the
date of this Agreement and ending on the Expiration Date was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the date hereof, or (E) any other event shall occur with respect to such
party that
-9-
<PAGE> 269
would be required to be reported in response to Item 6(e) (or any successor
provision) of Schedule 14A of Regulation 14A promulgated under the Exchange Act.
10. REGISTRATION RIGHTS.
(a) Following termination of the Merger Agreement, Issuer shall,
subject to the conditions of subparagraph (c) below, if requested by any Holder,
including Grantee and any permitted transferee ("Selling Holder"), as
expeditiously as possible prepare and file a registration statement under the
Securities Laws if necessary in order to permit the sale or other disposition of
any or all shares of Issuer Common Stock or other securities that have been
acquired by or are issuable to Selling Holder upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Holder in such request, including, without limitation, a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and Issuer shall use its best efforts to qualify such shares or other securities
for sale under any applicable state securities laws.
(b) If Issuer at any time after the exercise of the Option
proposes to register any shares of Issuer Common Stock under the Securities Laws
in connection with an underwritten public offering of such Issuer Common Stock,
Issuer will promptly give written notice to Holder of its intention to do so
and, upon the written request of Holder given within 30 days after receipt of
any such notice (which request shall specify the number of shares of Issuer
Common Stock intended to be included in such underwritten public offering by
Selling Holder), Issuer will cause all such shares, the holders of which shall
have requested participation in such registration, to be so registered and
included in such underwritten public offering; provided, that Issuer may elect
to not cause any such shares to be so registered (i) if the underwriters in good
faith object for valid business reasons, or (ii) in the case of a registration
solely to implement a dividend reinvestment or similar plan, an employee benefit
plan or a registration filed on Form S-4 or any successor form, or a
registration filed on a form which does not permit registrations of resales;
provided, further, that such election pursuant to clause (i) may only be made
two times. If some but not all the shares of Issuer Common Stock, with respect
to which Issuer shall have received requests for registration pursuant to this
subparagraph (b), shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Selling Holders and any
other person (other than Issuer or any person exercising demand registration
rights in connection with such registration) who or which is permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested to
be registered by each Selling Holder bears to the total number of shares
requested to be registered by all persons then desiring to have Issuer Common
Stock registered for sale.
(c) Issuer shall use all reasonable efforts to cause each
registration statement referred to in subparagraph (a) above to become effective
and to obtain all consents or waivers of other parties which are required
therefor and to keep such registration statement effective, provided, that
Issuer may delay any registration of Option Shares required pursuant to
subparagraph (a) above for a period not exceeding 90 days provided Issuer shall
in good faith determine that any such registration would adversely affect an
offering or contemplated offering
-10-
<PAGE> 270
of other securities by Issuer, and Issuer shall not be required to register
Option Shares under the Securities Laws pursuant to subparagraph (a) above:
(i) on more than two occasions;
(ii) more than once during any calendar year;
(iii) within 90 days after the effective date of a
registration referred to in subparagraph (b) above pursuant to which the
Selling Holders concerned were afforded the opportunity to register such
shares under the Securities Laws and such shares were registered as
requested; and
(iv) unless a request therefor is made to Issuer by Selling
Holders holding at least 25% or more of the aggregate number of Option
Shares then outstanding.
In addition to the foregoing, Issuer shall not be required
to maintain the effectiveness of any registration statement after the expiration
of 120 days from the effective date of such registration statement. Issuer shall
use all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares, provided, that Issuer shall not
be required to consent to general jurisdiction or qualify to do business in any
state where it is not otherwise required to so consent to such jurisdiction or
to so qualify to do business.
(d) Except where applicable state law prohibits such payments,
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), accounting expenses, legal expenses including the reasonable fees
and expenses of one counsel to the Selling Holders, printing expenses, expenses
of underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subparagraph (a) or (b) above (including the
related offerings and sales by Selling Holders) and all other qualifications,
notifications or exemptions pursuant to subparagraph (a) or (b) above.
Underwriting discounts and commissions relating to Option Shares and any other
expenses incurred by such Selling Holders in connection with any such
registration shall be borne by such Selling Holders.
(e) In connection with any registration under subparagraph (a) or
(b) above Issuer hereby indemnifies the Selling Holders, and each underwriter
thereof, including each person, if any, who controls such holder or underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission,
or alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
-11-
<PAGE> 271
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer and each officer, director and controlling person of Issuer shall be
indemnified by such Selling Holder, or by such underwriter, as the case may be,
for all such expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such holder or
such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this
subparagraph (e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this subparagraph (e), such indemnified
party shall notify the indemnifying party in writing of the commencement of such
action, but the failure so to notify the indemnifying party shall not relieve it
of any liability which it may otherwise have to any indemnified party under this
subparagraph (e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party falls to assume the defense
of such action with counsel' satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subparagraph (e)
is unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, all selling shareholders and the underwriters from the offering of
the securities and also the relative fault of Issuer, all selling shareholders
and the underwriters in connection with the statements or omissions which
resulted in such expenses, losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any
-12-
<PAGE> 272
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim; provided, that in no case
shall any Selling Holder be responsible, in the aggregate, for any amount in
excess of the net offering proceeds attributable to its Option Shares included
in the offering. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any obligation by any holder to indemnify shall be several
and not joint with other holders.
In connection with any registration pursuant to subparagraph
(a) or (b) above, Issuer and each Selling Holder (other than Grantee) shall
enter into an agreement containing the indemnification provisions of this
subparagraph (e).
(f) Issuer shall comply with all reporting requirements and will
do all such other things as may be necessary to permit the expeditious sale at
any time of any Option Shares by Holder in accordance with and to the extent
permitted by any rule or regulation promulgated by the SEC from time to time,
including, without limitation, Rules 144 and 144A. Issuer shall at its expense
provide Holder with any information necessary in connection with the completion
and filing of any reports or forms required to be filed by them under the
Securities Laws, or required pursuant to any state securities laws or the rules
of any stock exchange.
(g) Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save Holder harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
11. QUOTATION; LISTING. If Issuer Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the Nasdaq National Market or any securities exchange or
other automated quotations system maintained by a self-regulatory organization,
Issuer, upon the request of Holder, will promptly file an application, if
required, to authorize for quotation or trading or listing the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
the Nasdaq National Market or such securities exchange or other automated
quotations system maintained by a self-regulatory organization and will use its
best efforts to obtain approval, if required, of such quotation or listing as
soon as practicable.
12. DIVISION OF OPTION. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an
-13-
<PAGE> 273
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
13. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 11, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY.
This Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferees of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 13(h)) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
governmental or regulatory agency or authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Holder to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section
7), it is the express intention of Issuer to allow Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Florida without regard to
any applicable conflicts of law rules.
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the addresses set forth in the Merger Agreement(or
at such other address for a party as shall be specified by like notice).
-14-
<PAGE> 274
(g) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned Subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) FURTHER ASSURANCES. In the event of any exercise of the Option
by Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
-15-
<PAGE> 275
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
ATTEST: CITI-BANCSHARES, INC.
By: By:
--------------------------------- ----------------------------------
Title: Secretary Title: President and Chief Executive
Officer
[CORPORATE SEAL]
ATTEST: HUNTINGTON BANCSHARES, INCORPORATED
By: By:
--------------------------------- ----------------------------------
Title: Assistant Secretary Title: Senior Vice President
[CORPORATE SEAL]
-16-
<PAGE> 276
EXHIBIT 2 TO AGREEMENT AND PLAN OF MERGER
SHAREHOLDER'S AGREEMENT
-----------------------
THIS SHAREHOLDER'S AGREEMENT (this "Agreement") is made and entered
into as of October 31, 1996, by and between Huntington Bancshares Incorporated,
a Maryland corporation ("Huntington"), and the undersigned shareholder (the
"Shareholder") of Citi-Bancshares, Inc. ("Citi-Bancshares").
The Shareholder desires that Huntington and Citi-Bancshares enter into
an Agreement and Plan of Merger dated as of the date hereof (as the same may be
amended or supplemented, the "Merger Agreement") with respect to the merger (the
"Merger") of Citi-Bancshares with and into Huntington Bancshares Florida, Inc.,
a wholly-owned subsidiary of Huntington ("Huntington-Florida").
The Shareholder is executing this Agreement as an inducement to
Huntington and Huntington-Florida to enter into, execute and perform the Merger
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by
Huntington and Huntington-Florida of the Merger Agreement and the mutual
covenants, conditions and agreements contained herein and therein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES. The Shareholder represents and
warrants to Huntington and Huntington-Florida as follows:
(a) The Shareholder is the record and beneficial owner of the
number of shares (the "Shareholder's Shares") of common stock, $.01 par
value, of Citi-Bancshares ("Citi-Bancshares Stock") set forth below
such Shareholder's name on the signature page hereof. Except for the
Shareholder's Shares and any other shares of Citi-Bancshares Stock
subject hereto, the Shareholder is not the record or beneficial owner
of any shares of Citi-Bancshares Stock. This Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and
binding agreement of, the Shareholder, enforceable in accordance with
its terms.
(b) Neither the execution and delivery of this Agreement nor
the consummation by the Shareholder of the transactions contemplated
hereby will result in a violation of, or a default under, or conflict
with, any contract, trust, commitment, agreement, understanding,
arrangement or restriction of any kind to which the Shareholder is a
party or bound or to which the Shareholder's Shares are subject.
Consummation by the Shareholder of the transactions contemplated hereby
will not violate, or require any consent, approval, or notice under,
any provision of any judgment, order, decree, statute, law, rule or
regulation applicable to the Shareholder or the Shareholder's Shares.
(c) The Shareholder's Shares and the certificates representing
such Shares are now, and at all times during the term hereof will be,
held by the Shareholder, or by a nominee or custodian for the benefit
of such Shareholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or
<PAGE> 277
any other encumbrances whatsoever, except for any such encumbrances
or proxies arising hereunder and as specifically disclosed on the
attachment hereto. The undersigned has and will at the date of the
Shareholders' Meeting (as defined below) have full power and authority
to vote all Shareholder's Shares, and if any of the Shareholder's
Shares are pledged, has arranged for their exchange in the Merger via
trust receipt.
(d) Except as disclosed in the Merger Agreement, no broker,
investment banker, financial adviser or other Person is entitled to any
broker's, finder's, financial adviser's or other similar fee or
commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of the Shareholder.
(e) The Shareholder understands and acknowledges that
Huntington is entering into, and causing Huntington-Florida to enter
into, the Merger Agreement in reliance upon the Shareholder's execution
and delivery of this Agreement.
2. VOTING AGREEMENTS. The Shareholder agrees with, and covenants to,
Huntington and Huntington-Florida as follows:
(a) At any Shareholders' Meeting, the Shareholder shall vote
(or cause to be voted) the Shareholder's Shares in favor of the Merger,
the execution and delivery by Citi-Bancshares of the Merger Agreement,
and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement, provided that the
terms of the Merger Agreement shall not have been amended to reduce the
consideration payable to Citi-Bancshares shareholders.
(b) At any meeting of Shareholders of Citi-Bancshares or at
any adjournment thereof or in any other circumstances upon which their
vote, consent or other approval is sought, the Shareholder shall vote
(or cause to be voted) such Shareholder's Shares against (i) any
Acquisition Proposal, including, without limitation, any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by
Citi-Bancshares or (ii) any amendment of Citi-Bancshares' Articles of
Incorporation or Bylaws or other proposal or transaction involving
Citi-Bancshares or any of its subsidiaries which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent
or nullify the Merger, the Merger Agreement, the Transaction or any of
the other transactions contemplated by the Merger Agreement (each of
the foregoing in clause (i) or (ii) above, a "Competing Transaction").
3. COVENANTS. The Shareholder agrees with, and covenants to, Huntington
and Huntington-Florida as follows:
-2-
<PAGE> 278
(a) Prior to the Citi-Bancshares Shareholders' Meeting, the
Shareholder shall not (i) transfer (which term shall include, without
limitation, for the purposes of this Agreement, any sale, gift, pledge
or other disposition), or consent to any transfer of, any or all of the
Shareholder's Shares or any interest therein; (ii) enter into any
contract, option or other agreement or understanding with respect to
any transfer of any or all of such Shares or any interest therein,
(iii) grant any proxy, power of attorney or other authorization in or
with respect to such Shares, except consistent with this Agreement, or
(iv) deposit such Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares; provided, that
the Shareholder may transfer (as defined above) any of the
Shareholder's Shares to any other person who is on the date hereof, or
to any family member of a person or charitable institution which prior
to the Shareholders' Meeting and prior to such transfer becomes, a
party to this Agreement bound by all the obligations of the
"Shareholder" hereunder; provided that the Shareholder shall not
transfer any of the Shareholder's Shares pursuant to the preceding
proviso unless the transferee agrees in writing to be bound by this
Agreement.
(b) If the holders of a majority (or such lesser percentage as
may be required by applicable Law) of Citi-Bancshares Stock approve the
Merger and the Merger Agreement, the Shareholder's Shares shall,
pursuant to the terms of the Merger Agreement, be exchanged for the
right to receive the number of shares of Huntington Common Stock,
amount of cash or combination of Huntington Common Stock and cash
provided in the Merger Agreement. The Shareholder hereby waives any
rights of appraisal, or rights to dissent from the Merger, that such
Shareholder may have.
(c) In the event Citi-Bancshares' Board of Directors does not,
following delivery and maintenance by Huntington of an effective
Registration Statement and the review and clearance of the Proxy
Statement, call and hold a Citi-Bancshares shareholders' meeting to
consider the Merger, then the Shareholder shall use its reasonable
efforts to cause a Citi-Bancshares shareholders' meeting to be called
and held as provided in Citi-Bancshares' By-Laws to consider the Merger
Agreement, the Merger and the transactions contemplated in the Merger
Agreement.
4. ABSENCE OF PRIOR PROXIES.
The Shareholder represents, warrants and covenants that any proxies or
voting rights heretofore given in respect of the Shareholder's shares are not
irrevocable, and that any such proxies or voting rights are hereby revoked.
5. CERTAIN EVENTS. The Shareholder agrees that this Agreement and the
obligations hereunder shall attach to the Shareholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Shareholder's successors or assigns. In the event of any stock
split, stock dividend, merger, reorganization, recapitalization or other change
in the capital structure of Citi-Bancshares affecting the Citi-Bancshares Stock,
or the acquisition of additional shares of Citi-Bancshares Stock or other voting
securities of Citi-Bancshares by any Shareholder, the number of Shares subject
to the terms of this Agreement shall be adjusted
-3-
<PAGE> 279
appropriately and this Agreement and the obligations hereunder shall attach to
any additional shares of Citi-Bancshares Stock or other voting securities of
Citi-Bancshares issued to or acquired by the Shareholder.
6. STOP TRANSFER. The Shareholder hereby directs Citi-Bancshares to not
register the transfer of any certificate representing any of the Shareholder's
Shares, unless such transfer is made to Huntington or Citi-Bancshares or
otherwise in compliance with this Agreement.
7. REGULATORY APPROVALS. Each of the provisions of this Agreement is
subject to compliance with applicable regulatory conditions and receipt of any
required regulatory approvals.
8. FURTHER ASSURANCES. The Shareholder shall, upon request of
Huntington, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by Huntington to be necessary or desirable
to carry out the provisions hereof.
9. TERMINATION. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the first to occur of (x) the Effective
Time of the Merger or (y) the date upon which the Merger Agreement is terminated
in accordance with its terms; provided that if an "Extension Event" shall have
occurred as of or prior to termination of the Merger Agreement, then, for a
period of six months following such termination, (i) the rights and obligations
of the parties hereto under Sections 2(b), 3(c), and 5 hereof shall continue in
full force and effect and (ii) no Shareholder shall transfer any or all of such
Shareholder's shares of Citi-Bancshares Common Stock in connection with any
competing Business Combination or takeover proposal (a "Competing Proposal").
For purposes of the foregoing, an "Extension Event" shall mean any of the
following events: (A) the Citi-Bancshares shareholders meeting to approve the
Merger Agreement shall not have been held or the approval of the Merger at such
meeting by the holders of a majority of the outstanding shares of
Citi-Bancshares Common Stock shall not have been obtained, or (B) any person
(other than Huntington or any subsidiary of Huntington Company) shall have made,
or disclosed an intention to make, a takeover proposal or proposal for a
Competing Transaction.
10. MISCELLANEOUS.
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to them in the
Merger Agreement.
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice): (i) if to Huntington, to the address set forth in Section 11.8
of the Merger Agreement; and (ii) if to the Shareholder, to its address
shown below its signature on the last page hereof.
(c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
-4-
<PAGE> 280
(d) This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same
agreement.
(e) This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida, regardless of the
laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise, by any of the parties without
the prior written consent of the other parties, except as expressly
contemplated by Section 3(a) hereof. Any assignment in violation of the
foregoing shall be void.
(h) The Shareholder agrees that irreparable damage would occur
and that Huntington would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Huntington shall be entitled to an
injunction or injunctions to prevent breaches by the Shareholder of
this Agreement and to enforce specifically the terms and provisions of
this Agreement in any court of the United States located in the State
of Florida or in Florida state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit such party
to the personal jurisdiction of any Federal court located in the State
of Florida or any Florida state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby,
(ii) agrees that such party will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any
such court and (iii) agrees that such party will not bring any action
relating to this Agreement or any of the transactions contemplated
hereby in any court other than a Federal court sitting in the State of
Florida or a Florida state court.
(i) If any term, provision, covenant or restriction herein, or
the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any
way be affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law.
(j) No amendment, modification or waiver in respect of this
Agreement shall be effective against any party unless it shall be in
writing and signed by such party.
-5-
<PAGE> 281
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Shareholders Agreement as of the day and year first above written.
ATTEST: HUNTINGTON BANCSHARES INCORPORATED
By: By:
------------------------------ ------------------------------------
Name: John W. Liebersbach Name: Milton D. Baughman
Title: Assistant Secretary Title: Senior Vice President
[SEAL]
Witness: SHAREHOLDER:
(Seal)
- --------------------------------- ---------------------------------
Name: Name:
---------------------------- ----------------------------------
Address:
-------------------------------
---------------------------------------
Number of Shares
Beneficially Owned:
--------------------
Number of Shares
Pledged, if any:
-----------------------
Name of Pledgee(s),
if any:
--------------------------------
-6-
<PAGE> 282
EXHIBIT 3 TO AGREEMENT AND PLAN OF MERGER
AFFILIATE AGREEMENT
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Attention: Mr. Zuheir Sofia, President
Ladies and Gentlemen:
The undersigned is a shareholder of Citi-Bancshares, Inc., a Florida
corporation ("Citi-Bancshares"), and may become a shareholder of Huntington
Bancshares Incorporated, a Maryland corporation ("Huntington") pursuant to the
transactions described in a certain Agreement and Plan of Merger, dated as of
October 31, 1996 (the "Merger Agreement"), by and among Huntington, Huntington
Bancshares Florida, Inc., an Ohio corporation ("Huntington Florida"), and Citi-
Bancshares. Under the terms of the Merger Agreement, Citi-Bancshares will be
merged with and into Huntington Florida (the "Merger"), and the shares of the
$.01 par value common stock of Citi- Bancshares ("Citi-Bancshares Common Stock")
will be converted into the right to receive, at the option of each shareholder
(subject to certain limitations), either (i) shares of the no par value common
stock of Huntington ("Huntington Common Stock"), (ii) cash, or (iii) a
combination of shares of Huntington Common Stock and cash. This Affiliate
Agreement represents an agreement between the undersigned and Huntington
regarding certain rights and obligations of the undersigned in connection with
any and all shares of Huntington Common Stock to be received by the undersigned
as a result of the Merger.
In consideration of the Merger and the mutual covenants contained
herein, the undersigned and Huntington hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
Citi-Bancshares he is an "affiliate" under Rule 145(c), as defined in Rule 405
of the Rules and Regulations of the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("1933 Act"), and the undersigned
anticipates that he will be such an "affiliate" at the time of the Merger.
2. Covenants and Warranties of Undersigned. The undersigned represents,
warrants, and agrees that:
(a) Huntington has informed the undersigned that any distribution by
the undersigned of Huntington Common Stock has not been registered under the
1933 Act and that shares of Huntington Common Stock received pursuant to the
Merger can only be sold by the undersigned (1) following registration under the
1933 Act, or (2) in conformity with the volume and other requirements of Rule
145(d) promulgated by the SEC as the same now exist or may hereafter
<PAGE> 283
be amended, or (3) to the extent some other exemption from registration under
the 1933 Act might be available.
(b) The undersigned is aware that Huntington intends to treat the
Merger as a tax-free reorganization under Section 368 of the Internal Revenue
Code ("Code") for federal income tax purposes. The undersigned agrees to treat
the transaction in the same manner as Huntington for federal income tax
purposes. The undersigned acknowledges that Section 1.368-1(b) of the Income Tax
Regulations requires "continuity of interest" in order for the Merger to be
treated as tax-free under Section 368 of the Code. This requirement is satisfied
if, taking into account those Citi- Bancshares shareholders who receive cash in
exchange for their stock (in full or in part) or who receive cash in lieu of
fractional shares, there is no plan or intention on the part of the Citi-
Bancshares shareholders to sell or otherwise dispose of the Huntington Common
Stock to be received in the Merger that will reduce such shareholders' ownership
to a number of shares having, in the aggregate, a value at the time of the
Merger of less than 50% of the total fair market value of the Citi-Bancshares
Common Stock outstanding immediately prior to the Merger. The undersigned has no
prearrangement, plan or intention to sell or otherwise dispose of any number of
shares of Huntington Common Stock to be received by the undersigned in the
Merger which would cause the foregoing requirement not to be satisfied.
3. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Merger Agreement and this Affiliate Agreement and discussed
their requirements and impact upon his ability to sell, transfer, or otherwise
dispose of the shares of Huntington Common Stock received by the undersigned as
a result of the Merger, to the extent he believes necessary, with his counsel or
counsel for Citi-Bancshares.
4. Filing of Reports by Huntington. Huntington agrees, for a period of
three years after the effective date of the Merger, to file on a timely basis
all reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Huntington Common Stock issued to the undersigned pursuant to the
Merger.
5. Transfers.
(a) If the undersigned desires to sell or otherwise transfer the
shares of Huntington Common Stock received by him as a result of the Merger in
reliance on Rule 145 or 144 at any time during the restrictive period set forth
in Rules 145(d) or Rule 144, the undersigned will provide the necessary
representation letter to the transfer agent for Huntington Common Stock together
with such additional information as the transfer agent may reasonably request.
If Huntington's counsel concludes that such proposed sale or transfer complies
with the requirements of Rule 145(d) or Rule 144, Huntington shall cause such
counsel to provide such opinions as may be necessary to Huntington's Transfer
Agent so that the undersigned may complete the proposed sale or transfer.
- 2 -
<PAGE> 284
(b) If the undersigned desires to sell shares of Huntington Common
Stock pursuant to a registration statement to be filed by Huntington at any
time, he shall cooperate with Huntington to supply the selling shareholder
information required by SEC Regulation S-K, Item 507, and the undersigned
represents and warrants that such information will be true and correct in all
material respects.
6. Miscellaneous. This Affiliate Agreement is the complete agreement
between Huntington and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Ohio.
This Affiliate Agreement is executed by the undersigned as of the ____
day of ______________, 1996.
Very truly yours,
_____________________________________________
Signature
_____________________________________________
Print Name
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Address
[add below the signatures of all registered
owners of shares deemed beneficially owned by
the affiliate]
_____________________________________________
Name:
_____________________________________________
Name:
_____________________________________________
Name:
- 3 -
<PAGE> 285
The foregoing Affiliate Agreement is agreed to and accepted by the
undersigned as of _____________ ___, 1996
HUNTINGTON BANCSHARES
INCORPORATED
By: _________________________________________
Milton D. Baughman, Senior Vice President
- 4 -
<PAGE> 286
EXHIBIT 4 TO AGREEMENT AND PLAN OF MERGER
MATTERS AS TO WHICH ALSTON & BIRD SHALL OPINE
1. Citi-Bancshares is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Florida with full corporate
power and authority to carry on the business in which it is engaged as described
in the Proxy Statement and to own and use its material Assets.
2. Citizens National Bank is a national banking association duly
organized, validly existing, and in good standing under the laws of the United
States with full corporate power and authority to carry on the business in which
it is engaged as described in the Proxy Statement and to own and use its
material Assets.
3. The execution and delivery of the Merger Agreement and compliance
with its terms by Citi-Bancshares do not and will not violate or contravene any
provision of the Articles of Incorporation or By-laws of Citi-Bancshares nor, to
our knowledge but without any independent investigation, any Law, Order, Permit
or Contract to which Citi-Bancshares is a party or by which Citi-Bancshares or
any of its material Assets is bound.
4. The Merger Agreement has been duly and validly executed and
delivered by Citi-Bancshares, and assuming valid authorization, execution and
delivery by Huntington, constitutes a valid and binding agreement of
Citi-Bancshares enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
similar laws affecting creditors' rights generally, provided, however, that we
express no opinion as to the availability of the equitable remedy of specific
performance.
5. Citi-Bancshares has the corporate power and authority to own its
properties and assets and to carry on its business within the State of Florida.
To our Knowledge, Citi-Bancshares is not required to be qualified to do business
in any jurisdiction other than Florida.
6. All corporate actions required to be taken by the directors and
shareholders of Citi-Bancshares to authorize the Merger Agreement and the
transactions contemplated thereby have been taken.
7. All eligible accounts of deposit in Citizens National Bank are
insured by the Federal Deposit Insurance Corporation to the fullest extent
permitted by Law.
In giving these opinions, Alston & Bird may rely upon the opinion of McLin
Burnsed Morrison Johnson Newman & Ray, P.A., with respect to matters of Florida
Law.
<PAGE> 287
EXHIBIT 5 TO AGREEMENT AND PLAN OF MERGER
MATTERS AS TO WHICH PORTER, WRIGHT, MORRIS & ARTHUR SHALL OPINE
1. Huntington is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland with full corporate power
and authority to carry on the business in which it is engaged as described in
the Proxy Statement and to own and use its material Assets.
2. Huntington Florida is a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio with full corporate
power and authority to carry on the business in which it is engaged as described
in the Proxy Statement and to own and use its material Assets.
3. The execution and delivery of the Merger Agreement and compliance
with its terms by Huntington and Huntington Florida do not and will not violate
or contravene any provision of the Articles of Incorporation or Bylaws of
Huntington or Huntington Florida or, to our knowledge but without any
independent investigation, any Law, Order, or Permit to which Huntington or
Huntington Florida is a party or by which Huntington or Huntington Florida is
bound.
4. The Merger Agreement has been duly and validly executed and
delivered by Huntington and Huntington Florida, and assuming valid
authorization, execution and delivery by Citi-Bancshares, constitutes a valid
and binding agreement of each of Huntington and Huntington Florida enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or similar laws affecting creditors'
rights generally, provided, however, that we express no opinion as to the
availability of the equitable remedy of specific performance.
5. The shares of Huntington Common Stock to be issued to the
shareholders of Citi-Bancshares as contemplated by the Agreement have been
registered under the Securities Act of 1933, as amended, and when properly
issued and delivered following consummation of the Merger will be duly
authorized, validly issued, fully paid and non-assessable under the Maryland
Business Corporation Act.
<PAGE> 288
EXHIBIT B
THE CARSON MEDLIN COMPANY
INVESTMENT BANKERS
January 6, 1997
Board of Directors
Citi-Bancshares, Inc.
1211 North Blvd. West
Leesburg, FL 34748-5351
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of
Citi-Bancshares, Inc. ("Citi-Bancshares") under the terms of a certain Agreement
and Plan of Merger dated October 30, 1996 (the "Agreement") pursuant to which
Citi-Bancshares will be acquired by Huntington Bancshares Incorporated
("Huntington") (the "Merger"). Under the terms of the Agreement, each of the
outstanding shares of Citi-Bancshares common stock shall be converted into the
right to receive consideration of $30.00 per share. Each holder of
Citi-Bancshares common stock shall make an election whether to receive the
consideration in the form of: (i) 100% cash; (ii) 100% Huntington common stock;
or, (iii) a mixture of 40% cash and 60% Huntington common stock, all subject to
certain limitations. The foregoing summary of the Merger is qualified in its
entirety by reference to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in Florida and the major commercial banks operating
in that market. We have been retained by Citi Bancshares in a financial advisory
capacity to render our opinion hereunder, for which we will receive
compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of Huntington and Citi-Bancshares. We have
reviewed: (i) the Agreement; (ii) the annual reports to shareholders of
Huntington, including audited financial statements for the five years ended
December 31, 1995; (iii) audited financial statements of Citi-Bancshares for the
five years ended December 31, 1995; (iv) the unaudited interim financial
statements of Huntington for the nine months ended September 30, 1996; (v) the
unaudited interim financial statements of Citi Bancshares for the nine months
ended September 30, 1996; (vi) certain financial and operating information
with respect to the business, operations and prospects of Huntington and
Citi-Bancshares; and, (vii) this Proxy Statement/Prospectus. We also:
<PAGE> 289
Board of Directors
Citi-Bancshares, Inc.
January 6, 1997
Page 2
(i) held discussions with members of the senior management of Huntington and
Citi-Bancshares regarding historical and current business operations, financial
condition and future prospects of their respective companies; (ii) reviewed the
historical market prices and trading activity for the common stocks of
Huntington and Citi-Bancshares and compared them with those of certain publicly
traded companies which we deemed to be relevant; (iii) compared the results of
operations of Huntington and Citi-Bancshares with those of certain banking
companies which we deemed to be relevant; (iv) compared the proposed financial
terms of the Merger with the financial terms, to the extent publicly available,
of certain other recent business combinations of commercial banking
organizations; (v) analyzed the pro forma financial impact of the Merger on
Huntington; and (vi) conducted such other studies, analyses, inquiries and
examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of
Citi-Bancshares or Huntington. The opinion we express herein is necessarily
based upon market, economic and other relevant considerations as they exist and
can be evaluated as of the date of this letter.
Based upon the foregoing, it is our opinion that the aggregate consideration
provided for in the Agreement is fair, from a financial point of view, to the
shareholders of Citi-Bancshares, Inc.
Very truly yours,
THE CARSON MEDLIN COMPANY
<PAGE> 290
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation, as amended, provide that it
shall indemnify its directors to the full extent of the general laws of the
State of Maryland now or hereafter in force, including the advance of expenses
to directors subject to procedures provided by such laws; its officers to the
same extent it shall indemnify its directors; and its officers who are not
directors to such further extent as shall be authorized by the Board of
Directors and be consistent with law.
Section 2-418 of the Maryland general corporation law provides, in
substance, that a corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding, unless it is proved that the act or omission of
the director was material to the cause of action adjudicated in the proceeding
and was committed in bad faith or was the result of active and deliberate
dishonesty; or the director actually received an improper personal benefit in
money, property, or services; or, in the case of any criminal proceeding, the
director had reasonable cause to believe that the act or omission was unlawful.
Notwithstanding the above, a director may not be indemnified in respect of any
proceeding, by or in the right of the corporation, in which such director shall
have been adjudged liable to the corporation or in respect of any proceeding
charging improper receipt of a personal benefit.
Termination of any proceeding by judgment, order, or settlement does
not create a presumption that the director did not meet the requisite standard
of conduct. Termination of any proceeding by conviction, plea of nolo contendere
or its equivalent, or entry of an order of probation prior to judgment, creates
a rebuttable presumption that the director did not meet the requisite standard
of conduct. Indemnification is not permitted unless authorized for a specific
proceeding, after a determination that indemnification is permissible because
the requisite standard of conduct has been met (1) by a majority of a quorum of
directors not at the time parties to the proceeding (or a majority of a
committee of two or more such directors designated by the full board); (2) by
special legal counsel selected by the board of directors; or (3) by the
stockholders.
The reasonable expenses incurred by a director who is a party to a
proceeding may be paid or reimbursed by the corporation in advance of the final
disposition of the proceeding upon receipt by the corporation of both a written
affirmation by the director of his good faith belief that the standard of
conduct necessary for indemnification by the corporation has been met, and a
written undertaking by or on behalf of the director to repay the amount if it
shall be ultimately determined that the standard of conduct has not been met.
The indemnification and advancement of expenses provided or authorized
by Section 2-418 are not exclusive of any other rights to which a director may
be entitled both as to action in his official capacity and as to action in
another capacity while holding such office.
Pursuant to Section 2-418, a corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or who, while serving in such capacity, is or was
at the request of the corporation serving as a director, officer, partner,
trustee, employee, or agent of another corporation or legal entity or of an
employee benefit plan, against liability asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the corporation would have the power to indemnify against liability under
Section 2-418. A corporation may provide similar protection, including a trust
fund, letter of credit, or surety bond, which is not inconsistent with Section
2-418. A subsidiary or an affiliate of the corporation may provide the insurance
or similar protection.
Subject to certain exceptions, the directors and officers of the
Registrant and its affiliates are insured to the extent of 100% of loss up to a
maximum of $35,000,000 (subject to certain deductibles) in each policy year
because of any claim or claims made against them by reason of their wrongful
acts while acting in their capacities as such directors or officers and up to a
maximum of $10,000,000 (subject to certain deductibles) in each policy year
because
<PAGE> 291
of any claim or claims made against them by reason of their wrongful acts while
acting in their capacities as fiduciaries in the administration of certain of
the Registrant's employee benefit programs. The Registrant is insured, subject
to certain retentions and exceptions, to the extent it shall have indemnified
the directors and officers for such loss.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
2(a) Agreement and Plan of Merger, dated as of October 31, 1996,
among Citi-Bancshares, Inc., Huntington Bancshares Florida,
Inc., and Huntington Bancshares Incorporated (Attached as
Exhibit A to the Prospectus filed herewith).
2(b) * Stock Option Agreement, dated as of November 1, 1996, between
Citi-Bancshares, Inc. and Huntington Bancshares Incorporated.
3(i) 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.
3(ii) Bylaws -- previously filed as Exhibit 3(b) to Annual Report on
Form 10-K for the year ended December 31, 1987, and incorporated
herein by reference.
4(a) Instruments defining the Rights of Security Holders -- reference
is made to Articles V, VIII, and X 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.
4(b) Rights Plan, dated February 22, 1990, between Huntington
Bancshares Incorporated and 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.
4(c) Amendment No. 1 To Rights Plan, dated August 16, 1995, between
Huntington Bancshares Incorporated and The Huntington Trust
Company, National Association-- previously filed as Exhibit 4(b)
to Current Report on Form 8-K, filed with the Securities and
Exchange Commission on August 28, 1995, and incorporated herein
by reference.
5 * Opinion of Porter, Wright, Morris & Arthur regarding legality.
8 ** Opinion of Porter, Wright, Morris & Arthur regarding tax
matters.
10(a) * Schedule identifying material details of Shareholder's
Agreements substantially identical to Exhibit 2 to Exhibit 2(a)
above.
10(b) Employment Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Frank Wobst -- previously
filed as Exhibit 10(a) to Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by
reference.
II-2
<PAGE> 292
10(c) Employment Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Zuheir Sofia --
previously filed as Exhibit 10(b) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(d) Employment Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and W. Lee Hoskins --
previously filed as Exhibit 10(c) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(e) Executive Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Frank Wobst -- previously
filed as Exhibit 10(f) to Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by
reference.
10(f) Executive Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Zuheir Sofia --
previously filed as Exhibit 10(g) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(g) Executive Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and W. Lee Hoskins --
previously filed as Exhibit 10(h) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(h) Form of Executive Agreement for certain executive officers --
previously filed as Exhibit 10(g) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(i) Schedule identifying material details of Executive Agreements,
substantially similar to 10(h) -- previously filed as Exhibit
10(h) to Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference.
10(j) Incentive Compensation Plan -- previously filed as Exhibit 10(i)
to Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference.
10(k) Incentive Compensation Plan Amendment-- previously filed as
Exhibit 10(i) to Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1995, and incorporated herein by reference.
10(l) Long-Term Incentive Compensation Plan, as amended and effective
for performance cycles beginning on or after January 1, 1992 --
previously filed as Exhibit 10(j) to Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein by
reference.
10(m) Supplemental Executive Retirement Plan -- 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.
10(n) 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.
10(o)(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.
II-3
<PAGE> 293
10(o)(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.
10(o)(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.
10(o)(4) 1983 Stock Option Plan -- Fourth Amendment -- previously filed
as Exhibit 10(m)(4) to Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference.
10(p)(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.
10(p)(2) First Amendment to the 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.
10(q) 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.
10(r) 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.
10(s) 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.
10(t) 1994 Stock Option Plan -- reference is made to Exhibit 4(a) of
Registration Statement on Form S-8, Registration No. 33-52553,
filed with the Securities and Exchange Commission on March 8,
1994, and incorporated herein by reference.
21 * Subsidiaries of the Registrant.
23(a) Consent of Porter, Wright, Morris & Arthur (included in Exhibits
5 and 8 filed herewith).
23(b) * Consent of Ernst & Young LLP re: financial statements of
Huntington Bancshares Incorporated.
23(c) * Consent of Purvis, Gray & Company re: financial statements of
Citi-Bancshares, Inc.
23(d) * Consent of The Carson Medlin Company.
24 * Powers of Attorney.
- ---------------------
* Previously filed with this Registration Statement
** Filed herewith
II-4
<PAGE> 294
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Registration Statement, within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE> 295
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Columbus, State of Ohio, on February 27, 1997.
HUNTINGTON BANCSHARES INCORPORATED
By: /s/ Ralph K. Frasier
------------------------------------
Ralph K. Frasier
Secretary and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*Frank Wobst Chairman and Chief Executive Officer )
- ----------------------------- (principal executive officer) )
Frank Wobst )
)
)
*W. Lee Hoskins Vice Chairman and Director )
- ----------------------------- )
W. Lee Hoskins )
)
)
*Zuheir Sofia President, Chief Operating Officer )
- ----------------------------- Treasurer, and Director )
Zuheir Sofia )
)
)
*Gerald R. Williams Executive Vice President and )
- ----------------------------- Chief Financial Officer ) February 27, 1997
Gerald R. Williams (principal financial officer) )
)
)
*John D. Van Fleet Senior Vice President and )
- ----------------------------- Corporate Controller )
John D. Van Fleet (principal accounting officer) )
)
*Don M. Casto, III Director )
- ----------------------------- )
Don M. Casto, III )
)
*Don Conrad Director )
- ----------------------------- )
Don Conrad )
)
- ----------------------------- Director )
John B. Gerlach )
)
</TABLE>
II-6
<PAGE> 296
<TABLE>
<S> <C> <C>
*Patricia T. Hayot Director )
- ----------------------------- )
Patricia T. Hayot )
)
*Wm. J. Lhota Director )
- ----------------------------- )
Wm. J. Lhota )
)
- ----------------------------- Director )
George A. Skestos )
) February 27, 1997
)
*Lewis R. Smoot, Sr. Director )
- ----------------------------- )
Lewis R. Smoot, Sr. )
)
)
*Timothy P. Smucker Director )
- ----------------------------- )
Timothy P. Smucker )
)
)
*William J. Williams Director )
- ----------------------------- )
William J. Williams )
</TABLE>
*By: /s/ Ralph K. Frasier
------------------------------------
Ralph K. Frasier, attorney-in-fact
for each of the persons indicated
II-7
<PAGE> 297
Registration No. 333-18729
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
HUNTINGTON BANCSHARES INCORPORATED
EXHIBITS
<PAGE> 298
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2(a) Agreement and Plan of Merger, dated as of October 31, 1996,
among Citi-Bancshares, Inc., Huntington Bancshares Florida,
Inc., and Huntington Bancshares Incorporated (Attached as
Exhibit A to the Prospectus filed herewith).
2(b) * Stock Option Agreement, dated as of November 1, 1996, between
Citi-Bancshares, Inc. and Huntington Bancshares Incorporated.
3(i) 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.
3(ii) Bylaws -- previously filed as Exhibit 3(b) to Annual Report on
Form 10-K for the year ended December 31, 1987, and incorporated
herein by reference.
4(a) Instruments defining the Rights of Security Holders -- reference
is made to Articles V, VIII, and X 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.
4(b) Rights Plan, dated February 22, 1990, between Huntington
Bancshares Incorporated and 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.
4(c) Amendment No. 1 To Rights Plan, dated August 16, 1995, between
Huntington Bancshares Incorporated and The Huntington Trust
Company, National Association-- previously filed as Exhibit 4(b)
to Current Report on Form 8-K, filed with the Securities and
Exchange Commission on August 28, 1995, and incorporated herein
by reference.
5 * Opinion of Porter, Wright, Morris & Arthur regarding legality.
8 ** Opinion of Porter, Wright, Morris & Arthur regarding tax
matters.
10(a) * Schedule identifying material details of Shareholder's
Agreements substantially identical to Exhibit 2 to Exhibit 2(a)
above.
10(b) Employment Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Frank Wobst -- previously
filed as Exhibit 10(a) to Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by
reference.
10(c) Employment Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Zuheir Sofia --
previously filed as Exhibit 10(b) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(d) Employment Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and W. Lee Hoskins --
previously filed as Exhibit 10(c) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
<PAGE> 299
10(e) Executive Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Frank Wobst -- previously
filed as Exhibit 10(f) to Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by
reference.
10(f) Executive Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and Zuheir Sofia --
previously filed as Exhibit 10(g) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(g) Executive Agreement, dated September 16, 1991, between
Huntington Bancshares Incorporated and W. Lee Hoskins --
previously filed as Exhibit 10(h) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(h) Form of Executive Agreement for certain executive officers --
previously filed as Exhibit 10(g) to Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference.
10(i) Schedule identifying material details of Executive Agreements,
substantially similar to 10(h) -- previously filed as Exhibit
10(h) to Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference.
10(j) Incentive Compensation Plan -- previously filed as Exhibit 10(i)
to Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference.
10(k) Incentive Compensation Plan Amendment-- previously filed as
Exhibit 10(i) to Quarterly Report on Form 10-Q for the Quarter
ended March 31, 1995, and incorporated herein by reference.
10(l) Long-Term Incentive Compensation Plan, as amended and effective
for performance cycles beginning on or after January 1, 1992 --
previously filed as Exhibit 10(j) to Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein by
reference.
10(m) Supplemental Executive Retirement Plan -- 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.
10(n) 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.
10(o)(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.
10(o)(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.
10(o)(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.
<PAGE> 300
10(o)(4) 1983 Stock Option Plan -- Fourth Amendment -- previously filed
as Exhibit 10(m)(4) to Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference.
10(p)(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.
10(p)(2) First Amendment to the 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.
10(q) 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.
10(r) 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.
10(s) 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.
10(t) 1994 Stock Option Plan -- reference is made to Exhibit 4(a) of
Registration Statement on Form S-8, Registration No. 33-52553,
filed with the Securities and Exchange Commission on March 8,
1994, and incorporated herein by reference.
21 * Subsidiaries of the Registrant.
23(a) Consent of Porter, Wright, Morris & Arthur (included in Exhibits
5 and 8 filed herewith).
23(b) * Consent of Ernst & Young LLP re: financial statements of
Huntington Bancshares Incorporated.
23(c) * Consent of Purvis, Gray & Company re: financial statements of
Citi-Bancshares, Inc.
23(d) * Consent of The Carson Medlin Company.
24 * Powers of Attorney.
- ---------------------
* Previously filed with this Registration Statement
** Filed herewith
<PAGE> 1
EXHIBIT 8
41 South High Street
Columbus, Ohio 43215-6194
Telephone: 614-227-2000
Facsimile: 614-227-2100
Nationwide: 800-533-2794
January 6, 1997
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Huntington Bancshares Florida, Inc.
253 N. Orlando Ave.
Maitland, FL 32751
Citi-Bancshares, Inc.
1211 North Boulevard West
Leesburg, FL 34738
Gentlemen:
We are counsel for Huntington Bancshares Incorporated, a Maryland
corporation ("Huntington"), and Huntington Bancshares Florida, Inc., a Florida
corporation and a wholly owned subsidiary of Huntington ("Huntington Florida"),
in connection with the proposed merger (the "Merger") of Citi-Bancshares, Inc.,
a Florida corporation ("Citi-Bancshares"), with and into Huntington Florida
pursuant to which the shareholders of Citi-Bancshares will receive shares of
common stock, without par value, of Huntington ("Huntington Common"), cash, or a
combination of shares of Huntington Common and cash, at the option of the
Citi-Bancshares shareholder, subject to certain limitations as set forth in the
Agreement and Plan of Merger, among Huntington, Huntington Florida, and
Citi-Bancshares, dated as of October 31, 1996 (the "Merger Agreement"), in
exchange for their shares of common stock of Citi-Bancshares ("Citi-Bancshares
Common"). The separate existence and corporate organization of Citi-Bancshares
will cease. Immediately following the Merger, Citizens National Bank of
Leesburg, a national banking association and a wholly owned subsidiary of
Citi-Bancshares ("Citizens Bank"), will be merged (the "Subsidiary Merger") into
the Huntington National Bank of Florida, a national banking association and a
wholly owned subsidiary of Huntington Florida ("HNB-Florida"); HNB-Florida will
continue as a wholly-owned subsidiary of Huntington Florida; and the separate
existence and corporation organization of Citizens Bank will cease. At your
request, and pursuant to Section 9.1(g) of the Merger Agreement, we are
rendering our opinion concerning certain federal income tax consequences of the
Merger.
For purposes of the opinion set forth below, we are relying, with the
consent of Huntington and Citi-Bancshares, upon the accuracy and completeness of
certain statements and representations (which statements and representations we
have neither investigated nor verified) that will be
Cincinnati / Cleveland / Columbus / Dayton / Naples, FL / Washington, DC
<PAGE> 2
Huntington Bancshares Incorporated
Huntington Bancshares Florida, Inc.
Citi-Bancshares, Inc.
January 6, 1997
Page 2
contained, respectively, in certificates of the officers of Huntington and
Citi-Bancshares and we have assumed that such certificates will be complete and
accurate as of the Effective Time. We have also assumed that the transactions
contemplated by the Merger Agreement will be consummated in accordance with the
Merger Agreement and that the Merger will constitute a merger pursuant to the
applicable provisions of the laws of the United States and the laws of the
states of Florida and Ohio.
Unless otherwise specified, the section numbers cited herein refer to
sections in the Internal Revenue Code of 1986, as amended (the "Code"). All
capitalized terms not otherwise defined herein shall have the meanings assigned
to them in the Merger Agreement. For the purposes of the rendering of this
opinion, we have assumed that the officers of Huntington and Citi-Bancshares
will have made the following representations by the Effective Date and upon
which we are relying in rendering this opinion:
a. The fair market value of the Huntington Common and other
consideration received by each Citi-Bancshares shareholder will be
approximately equal to the fair market value of the Citi-Bancshares
Common surrendered in the Merger.
b. To the best of the knowledge of the management of Citi-Bancshares,
there is no plan or intention on the part of the shareholders of
Citi-Bancshares to sell, exchange, or otherwise dispose of a number
of shares of Huntington Common to be received in the Merger that
would reduce the Citi-Bancshares shareholders' ownership of
Huntington Common to a number of shares having a value on the
Effective Time of less than 50 percent of the value of all of the
formerly outstanding Citi-Bancshares Common as of the same date. For
purposes of this representation, shares of Citi-Bancshares Common
exchanged for cash or other property or exchanged for cash in lieu
of fractional shares of Huntington Common will be treated as
outstanding Citi-Bancshares Common on the Effective Time. Moreover,
shares of Citi-Bancshares Common and shares of Huntington Common
held by Citi-Bancshares shareholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the Merger have been
considered in making this representation.
c. Huntington Florida will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Citi-Bancshares
immediately prior to the Merger. For purposes of this
representation, amounts paid by Citi-Bancshares to shareholders who
receive cash or other property, Citi-Bancshares assets used to pay
its reorganization expenses, and all redemptions
<PAGE> 3
Huntington Bancshares Incorporated
Huntington Bancshares Florida, Inc.
Citi-Bancshares, Inc.
January 6, 1997
Page 3
and distributions (except for regular, normal dividends) made by
Citi-Bancshares immediately preceding the transfer, will be included
as assets of Citi-Bancshares held immediately prior to the Merger.
d. Prior to the transaction, Huntington will be in control of
Huntington Florida and Huntington Florida will be in control of
HNB-Florida within the meaning of Section 368(c) of the Code.
e. Following the transaction, Huntington Florida will not issue
additional shares of its stock that would result in Huntington
losing control of Huntington Florida within the meaning of Section
368(c) of the Code.
f. Neither Huntington nor Huntington-Florida has any plan or intention
to liquidate Huntington Florida or HNB-Florida, respectively; to
merge Huntington Florida or HNB-Florida with and into another
corporation; to sell or otherwise dispose of the stock of Huntington
Florida or HNB-Florida; or to cause Huntington Florida or
HNB-Florida to sell or otherwise dispose of any of the assets of
Citi-Bancshares acquired in the Merger or the Subsidiary Merger,
except for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code.
g. The liabilities of Citi-Bancshares and Citizens Bank assumed by
Huntington Florida and HNB-Florida and the liabilities to which the
transferred assets of Citi-Bancshares and Citizens Bank are subject
were incurred by Citi-Bancshares and Citizens Bank in the ordinary
course of their businesses.
h. Huntington has no plan or intention to redeem or otherwise reacquire
any Huntington Common issued in the Merger that would reduce the
former Citi-Bancshares shareholders' ownership of Huntington Common
to a number of shares having a value on the effective date of the
Merger of less than 50 percent of the value of the formerly
outstanding Citi-Bancshares Common as of the same date.
i. Following the Merger and the Subsidiary Merger, Huntington Florida
and HNB-Florida will continue the historic businesses of
Citi-Bancshares and Citizens Bank or use a significant portion of
Citi-Bancshares' and Citizens Bank's business assets in their
businesses.
j. Huntington, Huntington Florida, HNB-Florida, Citi-Bancshares,
Citizens Bank and the shareholders of Citi-Bancshares and Citizens
Bank will each pay their respective expenses, if any, incurred in
connection with the Merger and the Subsidiary Merger.
k. There is no intercorporate indebtedness existing between Huntington
and Citi-Bancshares or between Huntington Florida and
Citi-Bancshares or between HNB-Florida and Citizens Bank that was
issued, acquired, or will be settled at a discount.
<PAGE> 4
Huntington Bancshares Incorporated
Huntington Bancshares Florida, Inc.
Citi-Bancshares, Inc.
January 6, 1997
Page 4
l. No party to the transaction is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
m. The fair market value of the assets of Citi-Bancshares and Citizens
Bank transferred to Huntington Florida and HNB-Florida,
respectively, in the Merger will equal or exceed the sum of the
liabilities assumed by Huntington Florida and HNB-Florida, plus the
amount of liabilities, if any, to which the transferred assets are
subject.
n. Neither Huntington, Huntington Florida, HNB-Florida,
Citi-Bancshares, nor Citizens Bank is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
o. No stock of Huntington Florida will be issued in the transaction.
p. None of the compensation received by any shareholder-employee of
Citi-Bancshares will be separate consideration for, or allocable to,
any of his or her shares of Citi- Bancshares Common; none of the
shares of Huntington Common received by any shareholder-employee
will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employee of
Citi-Bancshares will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
q. Neither Huntington nor Huntington Florida owned any shares of
Citi-Bancshares prior to the Merger.
r. No material dividends or distributions have been or will be made,
with respect to the Citi-Bancshares Common or the Citizens Bank
common stock in contemplation of the Merger or the Subsidiary
Merger, except for dividends normal and customary in amount.
s. The payment of cash in lieu of fractional shares of Huntington
Common is solely for the purpose of avoiding the expense and
inconvenience to Huntington of issuing fractional shares and does
not represent separately bargained for consideration. The total cash
consideration that will be paid in the Merger to Citi-Bancshares
shareholders instead of issuing fractional shares of Huntington
Common will not exceed one percent of the total consideration that
will be issued in the Merger to Citi-Bancshares shareholders for
their shares of Citi-Bancshares stock. The fractional share
interests of each Citi-Bancshares shareholder will be aggregated,
and no Citi-Bancshares shareholder will receive cash in an amount
greater than the value of one full share of Huntington Common with
respect to any cash payment in lieu of a fractional share.
t. The Merger will be consummated solely in compliance with the
material terms and conditions of the Merger Agreement and the Merger
Agreement represents the entire understanding of the Parties with
respect to the Merger.
u. The Subsidiary Merger is being consummated for business purposes
separate and distinguishable from the Merger.
In reliance on the assumptions and the representations set forth above,
and assuming that the shareholders of Citi-Bancshares do not sell, exchange,
transfer by gift, or otherwise dispose of a number of shares of Huntington
Common received in the Merger that would reduce the ownership of Huntington
Common by the former shareholders of Citi-Bancshares to a number of shares
having
<PAGE> 5
Huntington Bancshares Incorporated
Huntington Bancshares Florida, Inc.
Citi-Bancshares, Inc.
January 6, 1997
Page 5
a value, as of the date of the Merger, of less than 50 percent of the value of
all of the formerly outstanding Citi-Bancshares Common as of the same date, we
are of the opinion that:
(a) No gain or loss will be recognized by a Citi-Bancshares shareholder
who receives solely shares of Huntington Common Stock in exchange
for such shareholder's shares of Citi-Bancshares Common Stock,
except to the extent of any cash received in lieu of a fractional
share of Huntington Common Stock.
(b) A Citi-Bancshares shareholder will realize gain, if any, upon the
receipt of a combination of shares of Huntington Common Stock and
cash in exchange for such shareholder's shares of Citi-Bancshares
Common Stock equal to the excess of the fair market value of the
shares of Huntington Common Stock received plus the amount of cash
received over the cost or other basis of the shares of
Citi-Bancshares Common Stock surrendered in the exchange. Such gain
will be recognized, but not in excess of the amount of cash
received. If the exchange has the effect of the distribution of a
dividend (as defined under Section 316 of the Code and as determined
with the applications of Sections 302, 318, and 356(a)(2) of the
Code), then the amount of gain recognized that is not in excess of
the shareholder's ratable share of the undistributed earnings and
profits of Citi-Bancshares will be treated as a dividend. The
determination of whether the exchange has the effect of the
distribution of a dividend will be made on a shareholder by
shareholder basis. No loss will be recognized upon the exchange.
(c) Where solely cash is received by a Citi-Bancshares shareholder in
exchange for such shareholder's shares of Citi-Bancshares Common
Stock pursuant to the exercise of the Cash Election, the cash will
be treated as having been received by such shareholder as a
distribution in redemption of his or her Citi-Bancshares Common
Stock, subject to the provisions and limitations of Section 302 of
the Code. Where, as a result of such distribution, a former
shareholder of Citi-Bancshares owns no shares of Huntington Common
Stock either directly or through the application of Section 318(a)
of the Code, the redemption will be a complete termination of
interest within the meaning of Section 302(b)(3) of the Code and
such cash will be treated as a distribution in full payment in
exchange for such shareholder's shares of Citi-Bancshares Common
Stock, as provided in Section 302(a) of the Code. Under Section 1001
of the Code, gain or (subject to the limitations of Section 267 of
the Code) loss will be realized and recognized to such shareholder
in an amount equal to the difference between the amount of such cash
and the adjusted basis of the shares
<PAGE> 6
Huntington Bancshares Incorporated
Huntington Bancshares Florida, Inc.
Citi-Bancshares, Inc.
January 6, 1997
Page 6
of Citi-Bancshares Common Stock surrendered, as determined under
Section 1011 of the Code.
(d) In general, the basis of the Huntington Common Stock so received
will be the same as the basis of the Citi-Bancshares Common Stock
surrendered in exchange therefor, decreased by the amount of cash
received by the shareholder and increased by (i) the amount, if any,
that was treated as a dividend, and (ii) the amount of gain
recognized by the shareholder on the exchange (not including any
portion of such gain that is treated as a dividend).
(e) The holding period of the Huntington Common Stock to be received by
Citi-Bancshares shareholders will include the holding period of the
shares of Citi-Bancshares Common Stock surrendered in exchange
therefor, provided that Citi-Bancshares Common Stock was held as a
capital asset in the hands of the Citi-Bancshares shareholder on
the Effective Date.
(f) The basis of the assets of Citi-Bancshares to be received by
Huntington Florida will be the same as the basis of those assets in
the hands of Citi-Bancshares immediately prior to the Merger.
(g) The holding period of the assets of Citi-Bancshares to be received
by Huntington Florida will, in each instance, include the period for
which such assets were held by Citi-Bancshares.
(h) No gain or loss will be recognized by Huntington or Huntington
Florida (except for the inclusion in income of amounts resulting
from any required changes in accounting methods or similar items)
upon the consummation of the Merger.
(i) No gain or loss will be recognized by Citi-Bancshares (except for
the inclusion in income of amounts resulting from any required
changes in accounting methods or similar items) upon the
consummation of the Merger.
We have given this opinion pursuant to Section 9.1 (g) of the Merger
Agreement in connection with the transactions contemplated thereby and such
opinion is not to be relied upon for any other purpose. This opinion may not be
applicable to Citi-Bancshares shareholders whose Citi-Bancshares Common is not
held as a capital asset, certain particular classes of shareholders or Citi-
Bancshares shareholders who are not citizens of the United States. No opinion is
expressed about
<PAGE> 7
Huntington Bancshares Incorporated
Huntington Bancshares Florida, Inc.
Citi-Bancshares, Inc.
January 6, 1997
Page 7
the tax treatment of the transaction under other provisions of the Code and the
Treasury Regulations issued thereunder or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that are not specifically addressed by the foregoing opinion. No opinion is
expressed as to the effect of state, local, and foreign tax laws.
You should be aware that this opinion represents our conclusions as to the
application of existing law and is based on the representations given as of the
date hereof. The statutory provisions, regulations, interpretations, and other
authorities upon which our opinion is based are subject to change, and such
changes could apply retroactively. In addition, there can be no assurance that
positions contrary to those stated in our opinion will not be taken by the
Internal Revenue Service. No person other than the addressees named herein may
rely on this opinion for any purpose.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. By giving this consent, however, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ PORTER, WRIGHT, MORRIS & ARTHUR
-----------------------------------
Porter, Wright, Morris & Arther
