<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file Number 0-2525
Huntington Bancshares Incorporated
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 31-0724920
--------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Huntington Center, 41 S. High Street, Columbus, OH 43287
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 480-8300
----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
-------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 31, 1997, was $6,030,289,368. As of January 31, 1998,
192,121,780 shares of common stock without par value were outstanding.
Documents Incorporated By Reference
- -----------------------------------
Parts I and II of this Form 10-K incorporate by reference certain
information from the registrant's 1997 Annual Report to Shareholders. Part III
of this Form 10-K incorporates by reference certain information from the
registrant's definitive Proxy Statement for the 1998 Annual Shareholders'
Meeting.
<PAGE> 2
Huntington Bancshares Incorporated
----------------------------------
Part I
------
ITEM 1: BUSINESS
Huntington Bancshares Incorporated (Huntington), incorporated in
Maryland in 1966, is a multi-state bank holding company headquartered in
Columbus, Ohio. Its subsidiaries 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,
selling other insurance products, and issuing commercial paper guaranteed by
Huntington, and provide other financial products and services. At December 31,
1997, Huntington's subsidiaries had 188 banking offices in Ohio, 134 banking
offices in Michigan, 50 banking offices in Florida, 44 banking offices in West
Virginia, 24 banking offices in Indiana, 13 banking offices in Kentucky, and
foreign offices in the Cayman Islands and Hong Kong. The Huntington Mortgage
Company (a wholly-owned subsidiary) has loan origination offices throughout the
Midwest and East Coast. Foreign banking activities, in total or with any
individual country, are not significant to the operations of Huntington. At
December 31, 1997, Huntington and its subsidiaries had 9,485 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, subject to certain
limitations by individual states.
On February 28, 1997, Huntington acquired Citi-Bancshares, Inc.
(Citi-Bancshares), a $548 million one-bank holding company headquartered in
Leesburg, Florida for $47.7 million in cash and 2.9 million shares of Huntington
common stock. On October 31, 1997, Huntington acquired The Bank of Winter Park
(Winter Park), a $90 million bank headquartered in Winter Park, Florida, for
approximately 364,000 shares of Huntington common stock. These transactions were
accounted for as purchases; accordingly, the results of Citi-Bancshares and
Winter Park have been included in the consolidated financial statements from the
date of acquisition.
Huntington completed its acquisition of First Michigan Bank Corporation
(First Michigan), a $3.6 billion bank holding company headquartered in Holland,
Michigan, on September 30, 1997, in a transaction accounted for as a pooling of
interests. Huntington issued approximately 32.2 million shares of common stock
to the shareholders of First Michigan based upon an exchange ratio of 1.155
shares of Huntington common stock for each outstanding share of First Michigan
common stock. All financial information reported by Huntington, except dividends
per share, has been restated for the First Michigan acquisition.
In December 1997, Huntington announced the acquisition of sixty banking
offices in Florida to be sold by NationsBank Corporation in connection with the
merger of NationsBank Corporation and Barnett Banks Inc. The branch acquisition
is expected to add $1.6 billion in loans and $2.6 billion in deposits. The
deposit premium, which is subject to final determination based on the deposit
levels at the closing of the transaction, is expected to be $523 million.
Huntington intends to raise $300 million of common equity and will sell an
additional $250 million of trust preferred (capital) securities in connection
with the transaction. The new capital amounts are estimates only and could
change based on Huntington's asset growth, the ultimate deposit premium paid,
and other developments over the next few months. The acquisition is expected to
close in the second quarter of 1998.
2
<PAGE> 3
REGULATORY MATTERS
GENERAL
As a registered bank holding company, Huntington is subject to the
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and is required to file with the Federal Reserve Board
reports and other information regarding its business operations and the business
operations of its subsidiaries. It is also subject to examination by the Federal
Reserve Board and is required to obtain Federal Reserve Board approval prior to
acquiring, directly or indirectly, ownership or control of voting shares of any
bank, if, after such acquisition, it would own or control more than 5% of the
voting stock of such bank. In addition, pursuant to federal law and regulations
promulgated by the Federal Reserve Board, Huntington 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, Huntington 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.
Huntington's two bank subsidiaries have deposits insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC").
Its national bank subsidiary is subject to supervision, examination, and
regulation by the Office of the Comptroller of the Currency ("OCC"), and its
state bank subsidiary is subject to such oversight by the state banking
authorities of Ohio and the Federal Reserve Board. Certain deposits of
Huntington's national bank subsidiary 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 bank and nonbank subsidiaries of
Huntington are affected significantly by the actions of the Federal Reserve
Board as it attempts to control the money supply and credit availability in
order to influence the economy.
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.
HOLDING COMPANY STRUCTURE
Huntington's depository institution subsidiaries are subject to
affiliate transaction restrictions under federal law which limit the transfer of
funds by the subsidiary banks to the parent and any nonbank subsidiaries of the
parent, whether in the form of loans, extensions of credit, investments, or
asset purchases. Such transfers by a subsidiary bank to its parent corporation
or to any individual nonbank subsidiary of the parent are limited in amount to
10% of the subsidiary bank's capital and surplus and, with respect to such
parent together with all such nonbank subsidiaries of the parent, to an
aggregate of 20% of the subsidiary bank's capital and surplus. Furthermore, such
loans and extensions of credit are required to be secured in specified amounts.
In addition, all affiliate transactions must be conducted on terms and under
circumstances that are substantially the same as such transactions with
unaffiliated entities. Under applicable regulations, at December 31, 1997,
approximately $172.5 million was available for loans to Huntington from its
subsidiary banks.
The Federal Reserve Board has a policy to the effect that a bank
holding company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and to commit resources to support each
such subsidiary bank. Under the source of strength doctrine, the Federal Reserve
Board may require a bank holding company to make capital injections into a
troubled subsidiary bank, and may charge the bank holding company with engaging
in unsafe and unsound practices for failure to commit resources to such a
subsidiary bank. This capital injection may be required at times when Huntington
may not have the resources to provide it. Any loans by a holding company to its
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. Moreover, in the event of a bank
holding company's bankruptcy, any commitment by such holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to a priority of payment.
3
<PAGE> 4
Comprehensive financial institutions legislation known as the Financial
Institutions Reform, Recovery, and Enforcement Act ("FIRREA") established, among
other things, a 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 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 either
insured bank subsidiary of Huntington causes a loss to the FDIC, the other bank
subsidiary of Huntington could be required to compensate the FDIC by reimbursing
to it the amount of such loss.
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, Ohio banking law
provides for pro rata assessment of shares to restore an Ohio bank's paid-in
capital. Huntington, as the sole shareholder of its subsidiary banks, is subject
to such provisions. Moreover, the claims of a receiver of an insured depository
institution for administrative expenses and the claims of holders of deposit
liabilities of such an institution are accorded priority over the claims of
general unsecured creditors of such an institution, including the holders of the
institution's note obligations, in the event of a liquidation or other
resolution of such institution. As a result of such legislation, claims of a
receiver for administrative expenses and claims of holders of deposit
liabilities of Huntington's depository subsidiaries (including the FDIC, as the
subrogee of such holders) would receive priority over the holders of notes and
other senior debt of such subsidiaries in the event of a liquidation or other
resolution and over the interests of Huntington as sole shareholder of its
subsidiaries.
DIVIDEND RESTRICTIONS
Dividends from subsidiary banks are a significant source of funds for
payment of dividends to Huntington's shareholders. In the year ended December
31, 1997, Huntington declared cash dividends to its shareholders of
approximately $128.0 million. There are, however, statutory limits on the amount
of dividends that Huntington's depository institution subsidiaries can pay to
Huntington without regulatory approval.
Huntington's subsidiary banks may not, without prior regulatory
approval, pay a dividend in an amount greater than such banks' 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, Huntington's
subsidiary banks could, without regulatory approval, declare dividends to
Huntington in 1998 of approximately $48.8 million plus an additional amount
equal to their net profits during 1998.
If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
and the OCC have issued policy statements which provide that insured banks and
bank holding companies should generally only pay dividends out of current
operating earnings.
FDIC INSURANCE
Under current FDIC practices, neither of Huntington's banks will be
required to pay deposit insurance premiums during 1998. However, both of
Huntington's banks will be required to make payments for the servicing of
obligations of the Financing Corporation ("FICO") issued in connection with the
resolution of savings and loan associations, so long as such obligations remain
outstanding.
4
<PAGE> 5
CAPITAL REQUIREMENTS
The Federal Reserve Board has issued risk-based capital ratio and
leverage ratio guidelines for bank holding companies such as Huntington. The
risk-based capital ratio guidelines establish a systematic analytical framework
that makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations, takes off-balance sheet exposures into
explicit account in assessing capital adequacy, and minimizes disincentives to
holding liquid, low-risk assets. Under the guidelines and related policies, bank
holding companies must maintain capital sufficient to meet both a risk-based
asset ratio test and a leverage ratio test on a consolidated basis. The
risk-based ratio is determined by allocating assets and specified off-balance
sheet commitments into four weighted categories, with higher weighting being
assigned to categories perceived as representing greater risk. A bank holding
company's capital (as described below) is then divided by total risk weighted
assets to yield the risk-based ratio. The leverage ratio is determined by
relating core capital (as described below) to total assets adjusted as specified
in the guidelines. Both of Huntington's subsidiary banks are 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 preferred stock in their Tier
1 capital, up to a limit of 25% of such Tier 1 capital. "Tier 2", or
supplementary capital, includes, among other things, cumulative and limited-life
preferred stock, hybrid capital instruments, mandatory convertible securities,
qualifying subordinated debt, and the allowance for loan and lease losses,
subject to certain limitations. "Total capital" is the sum of Tier 1 and Tier 2
capital.
The Federal Reserve Board and the other federal banking regulators
require that all intangible assets, with certain limited exceptions, be deducted
from Tier 1 capital. Under the Federal Reserve Board's rules, the only types of
intangible assets that may be included in (i.e., not deducted from) a bank
holding company's capital are originated or purchased mortgage servicing rights
("MSRs"), and purchased credit card relationships ("PCCRs"), provided that, in
the aggregate, the total amount of MSRs 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 MSRs 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 MSRs 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. In August 1997, the federal regulatory agencies
proposed, in light of the issuance of Financial Accounting Standard No. 125
("FAS 125") by the Financial Accounting Standards Board, that the limit on
inclusion in capital of mortgage servicing assets ("MSAs", currently designated
MSRs), when combined with PCCRs, be raised from 50 percent to 100 percent of
Tier 1 capital, and that all nonmortgage servicing assets and other intangible
assets (other than PCCRs) be deducted from Tier 1 capital. The 90 percent limit
on includable MSRs and PCCRs, and the 25 percent of Tier 1 capital sublimit on
PCCRs, would remain in place. The federal regulatory agencies have indicated
that the proposed changes are expected to become final in the first part of
1998.
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.
5
<PAGE> 6
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 level.
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 December 31, 1997, the Tier 1 risk-based capital ratio, total
risk-based capital ratio, and Tier I leverage ratio for Huntington were as
follows:
<TABLE>
<CAPTION>
Requirement Huntington
----------- ----------
<S> <C> <C>
Tier 1 Risk-Based Capital Ratio 4.00% 8.83%
Total Risk-Based Capital Ratio 8.00% 11.68%
Tier I Leverage Ratio 3.00% 7.77%
</TABLE>
As of December 31, 1997, both of Huntington's bank subsidiaries had capital in
excess of the minimum requirements.
The risk-based capital standards of the Federal Reserve Board, the OCC,
and the FDIC specify that evaluations by the banking agencies of a bank's
capital adequacy will include an assessment of the exposure to declines in the
economic value of the bank's capital due to changes in interest rates. These
banking agencies issued a joint policy statement on interest rate risk
describing prudent methods for monitoring such risk that rely principally on
internal measures of exposure and active oversight of risk management activities
by senior management.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") 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 Tier I leverage ratio of 5% or greater and is not subject
to a regulatory order, agreement, or directive to meet and maintain a specific
capital level for any capital measure. An institution is deemed to be
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater, and, generally, a
Tier I leverage ratio of 4% or greater and the institution does not meet the
definition of a "well capitalized" institution. An institution that does not
meet one or more of the "adequately capitalized" tests is deemed to be
"undercapitalized". If the institution has a total risk-based capital ratio that
is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a
Tier I 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%.
6
<PAGE> 7
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a cash dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized institutions are subject to
growth limitations and are required to submit a capital restoration plan. If any
depository institution subsidiary of a holding company is required to submit a
capital restoration plan, the holding company would be required to provide a
limited guarantee regarding compliance with the plan as a condition of approval
of such plan by the appropriate federal banking agency. If an undercapitalized
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. Significantly undercapitalized institutions may
be subject to a number of requirements and restrictions, including orders to
sell sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions may not, beginning 60 days after
becoming critically undercapitalized, make any payment of principal or interest
on their subordinated debt. In addition, critically undercapitalized
institutions are subject to appointment of a receiver or conservator within 90
days of becoming critically undercapitalized.
Under FDICIA, a depository institution that is not well capitalized is
generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market. Huntington
expects that the FDIC's brokered deposit rule will not adversely affect the
ability of its depository institution subsidiaries to accept brokered deposits.
Under the regulatory definition of brokered deposits, Huntington's depository
subsidiaries had $485 million of brokered deposits at December 31, 1997.
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 believes that the regulation and guidelines
will not have a material effect on the operations of its depository institution
subsidiaries.
INTERSTATE BRANCHING AND CONSOLIDATIONS
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") 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, and interstate branching and consolidations of existing bank
subsidiaries in different states became permissible as of June 1, 1997.
Huntington availed itself of the interstate branching and consolidation
authority by merging all of its other bank subsidiaries, except The Huntington
State Bank, its state bank subsidiary in Ohio, into its lead national bank
subsidiary, The Huntington National Bank, headquartered in Columbus, Ohio, on
June 30, 1997. Future bank acquisitions, if any, in states where Huntington
formerly had a separate bank subsidiary, will not require compliance with
Riegle-Neal entry provisions.
OTHER DEVELOPMENTS
The Riegle Community Development and Regulatory Improvement Act of 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
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 duplicate 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
7
<PAGE> 8
activities by such bank holding companies may be commenced without prior 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.
GUIDE 3 INFORMATION
Information required by Industry Guide 3 relating to statistical
disclosure by bank holding companies is set forth in Huntington's 1997 Annual
Report to Shareholders, and is incorporated herein by reference:
<TABLE>
<CAPTION>
Table Page
<S> <C> <C>
Distribution of Assets, Liabilities and Shareholders'
Equity; Interest Rates and Interest Differential:
Average Balance Sheet N/A 26, 27
Net Interest Earnings Analysis N/A 26, 27
Change in Net Interest Income Due to
Changes in Average Volume and
Interest Rates 2 15
Investment Securities:
Book Value of Investments 7 20
Maturity Distribution and Yields 7 20
Securities Available for Sale:
Book Value of Investments 8 21
Maturity Distribution and Yields 8 21
Loan Portfolio:
Types of Loans 3 16
Maturities and Sensitivities to
Changes in Interest Rates 4 16
Non-accrual, Past Due and
Renegotiated Loans 12 23, 35
Potential Problem Loans 22
Loan Concentrations 3 16
Summary of Loan Loss Experience:
Allowance for Loan Losses 5 18, 19
Allocation of Allowance for Loan Losses 6 19
Deposits:
Average Balances N/A 26, 27
Large CD Maturities 10 23
Return on Equity and Assets 1 14
Short-Term Borrowings 11 23
</TABLE>
ITEM 2: PROPERTIES
The headquarters of Huntington and its lead subsidiary, The Huntington
National Bank, are located in the Huntington Center, a thirty-seven story office
building located in Columbus, Ohio. Of the building's total office space
available, Huntington 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 thirteen-story and a twelve-story office
building, both of which are located adjacent to the Huntington Center; a
twenty-one story office building, known as the Huntington Building, located in
Cleveland, Ohio; an eighteen-story office building in Charleston, West Virginia;
a three-story office building located in Holland, Michigan; an office building
in Lakeland, Florida; The Huntington Mortgage Company's building, located in the
greater Columbus area; an office complex located in Troy, Michigan; and two data
processing and operations centers located in Ohio. Of these properties,
Huntington owns the thirteen-story and twelve-story office buildings, the
building in Lakeland, Florida, The Huntington Mortgage Company building, the
building in Troy, Michigan, and the operations centers located in Cleveland and
Columbus. All of the other major properties are held under long-term leases.
8
<PAGE> 9
ITEM 3: LEGAL PROCEEDINGS
Information required by this item is set forth in Note 13 of Notes to
Consolidated Financial Statements on page 41 of the 1997 Annual Report to
Shareholders, and is incorporated herein by reference.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Part II
-------
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock of Huntington Bancshares Incorporated is traded on the
NASDAQ National Market System under the symbol "HBAN". The stock is listed as
"HuntgBcshr" or "HuntBanc" in most newspapers. As of January 31, 1998,
Huntington had 34,987 shareholders of record.
Information regarding the high and low sale prices of Huntington Common
Stock and cash dividends declared on such shares, as required by this item, is
set forth in a table entitled "Market Prices, Key Ratios and Statistics, Non
Performing Assets (Quarterly Data)" on page 28 of the 1997 Annual Report to
Shareholders, and is incorporated herein by reference. Information regarding
restrictions on dividends, as required by this item, is set forth under "Item 1:
Business-Regulatory Matters-Dividend Restrictions" above and in Notes 10 and 22
of Notes to Consolidated Financial Statements on pages 39 and 46, respectively,
of the 1997 Annual Report to Shareholders, and is incorporated herein by
reference.
ITEM 6: SELECTED FINANCIAL DATA
Information required by this item is set forth in Table 1 on page 14 of
Huntington's 1997 Annual Report to Shareholders, and is incorporated herein by
reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is set forth on pages 14 - 24 of
Huntington's 1997 Annual Report to Shareholders, and is incorporated herein by
reference.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information required by this item is set forth on pages 20 through 22
of Huntington's 1997 Annual Report of Shareholders, and is incorporated herein
by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on page 30 (report of
independent auditors) and pages 31 through 48 (consolidated financial
statements) of Huntington's 1997 Annual Report to Shareholders, and is
incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Part III
--------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth under the captions
"Class I Directors," "Class II Directors," and "Class III Directors" on pages 3
through 5, under the caption "Executive Officers of the Corporation" on pages 26
and 27, and under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 31, of Huntington's 1998 Proxy Statement, and is
incorporated herein by reference.
9
<PAGE> 10
ITEM 11: EXECUTIVE COMPENSATION
Information required by this item is set forth under the caption
"Executive Compensation" on pages 10 through 25, and under the caption
"Compensation of Directors" on pages 6 and 7, of Huntington's 1998 Proxy
Statement, and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth under the caption
"Ownership of Voting Stock" on pages 7 through 9, of Huntington's 1998 Proxy
Statement, and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under the caption
"Transactions With Directors and Executive Officers" on pages 9 and 10, and
under the caption "Compensation Committee Interlocks and Insider Participation"
on pages 19 and 20 of Huntington's 1998 Proxy Statement, and is incorporated
herein by reference.
Part IV
-------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8- K
(a) The following documents are filed as part of this report:
(1) The report of independent auditors and consolidated financial
statements appearing in Huntington's 1997 Annual Report to Shareholders on the
pages indicated below are incorporated by reference in Item 8:
<TABLE>
<CAPTION>
Annual
Report Page
-----------
<S> <C>
Report of Independent Auditors 30
Consolidated Balance Sheets as of 31
December 31, 1997 and 1996
Consolidated Statements of Income 32
for the years ended December 31,
1997, 1996, and 1995
Consolidated Statements of Changes 33
in Shareholders' Equity for the years
ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows 34
for the years ended December 31,
1997, 1996, and 1995
Notes to Consolidated Financial Statements 35-48
</TABLE>
(2) Huntington is not filing separately financial statement schedules
because of the absence of conditions under which they are required or because
the required information is included in the consolidated financial statements or
the notes thereto.
10
<PAGE> 11
(3) The exhibits required by this item are listed in the Exhibit Index
on pages 13 through 15 of this Form 10-K. The management contracts and
compensation plans or arrangements required to be filed as exhibits to this Form
10-K are listed as Exhibits 10(a) through 10(s) in the Exhibit Index.
(b) During the quarter ended December 31, 1997, Huntington filed two Current
Reports on Form 8-K. The first Report, dated September 30, 1997, was filed under
Items 2, 5, and 7, and concerned Huntington's results of operations for the
quarter ended September 30, 1997, and the completion of Huntington's acquisition
of First Michigan Bank Corporation. Also included in that report were certain
required pro forma financial information. That report was amended by a Current
Report on Form 8-K/A, also dated September 30, 1997, and filed under Items 5 and
7, for the purpose of including certain required historical financial
information of First Michigan Bank Corporation.
The second Report, dated December 8, 1997, was filed under Item 5 and
concerned Huntington's intention to purchase sixty banking offices and
associated deposit and loan products from NationsBank Corporation as a result of
the Barnett Banks Inc. merger into NationsBank Corporation.
(c) The exhibits to this Form 10-K begin on page 13.
(d) See Item 14(a)(2) above.
11
<PAGE> 12
Signatures
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, on the 18th day of
February, 1998.
HUNTINGTON BANCSHARES INCORPORATED
----------------------------------
(Registrant)
By: /s/Frank Wobst By: /s/Gerald R. Williams
----------------------------- ----------------------
Frank Wobst Gerald R. Williams
Director, Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 18th day of February, 1998.
/s/Don M. Casto, III /s/George A. Skestos
- ------------------------------ ------------------------------
Don M. Casto, III George A. Skestos
Director Director
/s/Don Conrad /s/Lewis R. Smoot, Sr.
- ------------------------------ ------------------------------
Don Conrad Lewis R. Smoot, Sr.
Director Director
/s/Patricia T. Hayot /s/Timothy P. Smucker
- ------------------------------ ------------------------------
Patricia T. Hayot Timothy P. Smucker
Director Director
/s/Wm. J. Lhota /s/Zuheir Sofia
- ------------------------------ ------------------------------
Wm. J. Lhota Zuheir Sofia
Director Director
/s/Robert H. Schottenstein
- ------------------------------ ------------------------------
Robert H. Schottenstein William J. Williams
Director Director
12
<PAGE> 13
Exhibit Index
- -------------
2(a). Purchase and Assumption Agreement, dated December 8, 1997, between
NationsBank Corporation and Huntington Bancshares
Incorporated.
3(i)(a). Articles of Restatement of Charter, Articles of Amendment to
Articles of Restatement of Charter, and Articles Supplementary
-- previously filed as Exhibit 3(i) to Annual Report on Form
10-K for the year ended December 31, 1993, and incorporated
herein by reference.
(i)(b). Articles of Amendment to Articles of Restatement of Charter --
previously filed as Exhibit 3(i)(b) to Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1996, and
incorporated herein by reference.
(ii). Bylaws.
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.
(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.
(c). Amendment No. 1 to the Rights Agreement, dated August 16, 1995,
previously filed as Exhibit 4(b) to Form 8-K, dated August 16,
1995, and incorporated herein by reference.
10. Material contracts:
(a). Employment Agreement, dated April 25, 1996, between Huntington
Bancshares Incorporated and Frank Wobst -- previously filed as
Exhibit 10(a) to Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996, and incorporated herein
by reference.
(b). 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.
(c). Reserved.
(d). Executive Agreement, dated January 22, 1997, between Huntington
Bancshares Incorporated and Frank Wobst -- previously filed as
Exhibit 10(d) to Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
(e). Executive Agreement, dated January 22, 1997, between Huntington
Bancshares Incorporated and Zuheir Sofia -- previously filed
as Exhibit 10(e) to Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
(f). Reserved.
(g). 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, 1996, and incorporated
herein by reference.
(h). Schedule identifying material details of Executive Agreements,
substantially similar to 10(g).
13
<PAGE> 14
(i). Huntington Bancshares Incorporated Incentive Compensation Plan --
previously filed as Exhibit 10(i) to Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995, and
incorporated herein by reference.
(j). Long-Term Incentive Compensation Plan, as amended and effective for
performance cycles beginning on or after January 1, 1996 --
previously filed as Exhibit 10(j)(2) to Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated
herein by reference.
(k)(1). 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.
(k)(2). Third Amendment to Supplemental Executive Retirement Plan
(l). 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.
(m)(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.
(m)(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.
(m)(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.
(m)(4). 1983 Stock Option Plan -- Fourth Amendment -- previously filed as
Exhibit (m)(4) to Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference.
(m)(5). 1983 Stock Option Plan -- Fifth Amendment -- previously filed as
Exhibit (m)(5) to Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
(n)(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.
(n)(2). First Amendment to Huntington Bancshares Incorporated 1990 Stock
Option Plan -- previously filed as Exhibit 10(q)(2) to Annual
Report on Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference.
(n)(3). Second Amendment to Huntington Bancshares Incorporated 1990 Stock
Option Plan -- previously filed as Exhibit 10(n)(3) to Annual
Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.
(n)(4). Amended and Restated 1994 Stock Option Plan -- previously filed as
Exhibit 10(r) to Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
(o)(1). The Huntington Supplemental Stock Purchase and Tax Savings Plan and
Trust (as amended and restated as of February 9, 1990) --
previously filed as Exhibit 4(a) to Registration Statement on
Form S-8, Registration No. 33-44208, filed with the Securities
and Exchange Commission on November 26, 1991, and incorporated
herein by reference.
(o)(2). First Amendment to The Huntington Supplemental Stock Purchase and
Tax Savings Plan and Trust.
14
<PAGE> 15
(p). 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.
(q). 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.
(r). Huntington Supplemental Retirement Income Plan -- previously filed
as Exhibit 10(s) to Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by reference.
13. Portions of Huntington's 1997 Annual Report to Shareholders.
21. Subsidiaries of the Registrant.
23(a). Consent of Ernst & Young, LLP, Independent Auditors.
23(b). Consent of BDO Seidman, LLP, Independent Auditors.
27. Financial Data Schedule.
99. Accountant's Report, BDO Seidman, LLP.
15
<PAGE> 1
Exhibit 2(a)
PURCHASE AND ASSUMPTION AGREEMENT
BETWEEN
NATIONSBANK CORPORATION
AND
HUNTINGTON BANCSHARES INCORPORATED
<PAGE> 2
PURCHASE AND ASSUMPTION AGREEMENT
---------------------------------
<TABLE>
<S> <C>
ARTICLE I - THE ASSETS ..............................................................1
Section 1.1. Banking Centers ..........................................1
Section 1.2. Substitutions and Additional Banking Centers .............2
ARTICLE II - TRANSFER OF ASSETS AND LIABILITIES ...................................2
Section 2.1. Transferred Assets........................................2
Section 2.2. Purchase Price ...........................................4
Section 2.3. Deposit Liabilities ......................................6
Section 2.4. Loans Transferred ........................................8
Section 2.5. Safe Deposit Business ...................................10
Section 2.6. Employee Matters ........................................10
Section 2.7. Records and Data Processing, etc ........................12
Section 2.8. Security ................................................12
Section 2.9. Taxes and Fees; Proration of Certain Expenses ...........13
Section 2.10. Real Property ..........................................13
ARTICLE III - CLOSING AND EFFECTIVE TIME ...........................................16
Section 3. 1. Effective Time ..........................................16
Section 3.2. Closing .................................................16
Section 3.3. Post Closing Adjustments ................................18
ARTICLE IV - INDEMNIFICATION .......................................................19
Section 4.1. NationsBank's Indemnification of Huntington .............19
Section 4.2. Huntington's Indemnification of NationsBank .............20
Section 4.3. Claims for Indemnity ....................................20
Section 4.4. Limitations on Indemnification ..........................20
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF SELLERS ..............................21
Section 5.1. Corporate Organization ..................................21
Section 5.2. No Violation ............................................21
Section 5.3. Corporate Authority .....................................21
Section 5.4. Enforceable Agreement ...................................21
Section 5.5. No Brokers ..............................................21
Section 5.6. Personal Property .......................................22
Section 5.7. Real Property and the Leased Banking Centers ............22
Section 5.8. Condition of Property ...................................22
Section 5.9. Ratios ..................................................23
Section 5.10. Employees ...............................................23
Section 5.11. Assumed Contracts .......................................23
Section 5.12. Loans ...................................................23
Section 5.13. Environmental Matters ...................................24
Section 5.14. Deposit Liabilities .....................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 5.15. Limitation of Representations and Warranties ............24
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PURCHASERS ..........................24
Section 6.1. Corporate Organization ..................................24
Section 6.2. No Violation ............................................24
Section 6.3. Corporate Authority .....................................25
Section 6.4. Enforceable Agreement ...................................25
Section 6.5. No Brokers ..............................................25
ARTICLE VII - OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE
TIME ......................................................................25
Section 7.1. Full Access .............................................25
Section 7.2. Delivery of Magnetic Media Records ......................26
Section 7.3. Application for Approval ................................26
Section 7.4. Conduct of Business; Maintenance of Properties ..........26
Section 7.5. No Solicitation by Sellers ..............................27
Section 7.6. Further Actions .........................................27
Section 7.7. Fees and Expenses .......................................27
Section 7.8. Breaches with Third Parties .............................28
Section 7.9. Operations ..............................................28
Section 7.10. Destruction and Condemnation ............................29
Section 7.11. Insurance ...............................................30
Section 7.12. Public Announcements ....................................30
Section 7.13. Tax Reporting ...........................................30
Section 7.14. Transitional Matters ....................................30
ARTICLE VIII - CONDITIONS TO PURCHASERS OBLIGATIONS ................................30
Section 8.1. Representations and Warranties True .....................31
Section 8.2. Obligations Performed ...................................31
Section 8.3. No Adverse Litigation ...................................31
Section 8.4. Regulatory Approval .....................................31
Section 8.5. Loan to Deposit Ratio ...................................31
ARTICLE IX - CONDITIONS TO SELLERS OBLIGATIONS .....................................31
Section 9.1. Representations and Warranties True .....................32
Section 9.2. Obligations Performed ...................................32
Section 9.3. No Adverse Litigation ...................................32
Section 9.4. Regulatory Approval .....................................32
Section 9.5. Barnett Transaction Closing .............................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X - TERMINATION ............................................................32
Section 10.1. Methods of Termination ..................................32
Section 10.2. Procedure Upon Termination ..............................33
Section 10.3. Payment of Expenses .....................................34
ARTICLE XI - MISCELLANEOUS PROVISIONS ..............................................34
Section 11.1. Completion of Barnett Transaction .......................34
Section 11.2. Assignment to Subsidiaries ..............................34
Section 11.3. Amendment and Modification ..............................34
Section 11.4. Waiver or Extension .....................................34
Section 11.5. Assignment ..............................................34
Section 11.6. Confidentiality .........................................35
Section 11.7. Addresses for Notices, Etc. .............................35
Section 11.8. Counterparts ............................................36
Section 11.9. Headings ................................................36
Section 11.10 Governing Law ...........................................36
Section 11.11 Sole Agreement ..........................................36
Section 11.12. Parties In Interest ............................36
</TABLE>
iii
<PAGE> 5
PURCHASE AND ASSUMPTION AGREEMENT
---------------------------------
THIS PURCHASE AND ASSUMPTION AGREEMENT (this "Agreement") is entered into as of
December 8, 1997 by and between NationsBank Corporation, a bank holding company
having its principal offices in Charlotte, North Carolina ("NationsBank"), and
Huntington Bancshares Incorporated, a Maryland corporation, having its principal
offices in Columbus, Ohio ("Huntington"):
W I T N E S S E T H:
--------------------
WHEREAS, NationsBank has entered into an Agreement and Plan of Merger with
Barnett Banks, Inc. ("Barnett") for the purpose of acquiring Barnett and its
subsidiaries (the "Barnett Transaction"); and
WHEREAS, NationsBank, by its own actions and through the actions of certain of
its banking and corporate subsidiaries (NationsBank and its subsidiaries being
hereinafter referred to as "Sellers") wishes to divest itself of certain assets,
deposits and other liabilities in order to meet regulatory requirements dictated
by the Barnett Transaction; and
WHEREAS, Huntington, by its own actions and through the actions of certain of
its banking and corporate subsidiaries (Huntington and its subsidiaries being
hereinafter referred to as "Purchasers") wishes to purchase such assets and
assume such liabilities upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, NationsBank and Huntington agree as follows:
ARTICLE I
---------
THE ASSETS
----------
Section 1.1. Banking Centers.
- ------------ ----------------
(a) Purchasers shall purchase from Sellers the assets of, and assume the
liabilities assigned to branch banking offices specified by NationsBank
in the following Florida counties: Brevard, Charlotte, Flagler,
Hernando, Hillsborough, Lee, Manatee, Pasco, Pinellas, Sarasota and
Volusia (collectively, the "Targeted Region") which in the aggregate
have deposits of at least $2,500,000,000 (collectively, the "Banking
Centers").
(b) NationsBank has preliminarily identified the specific Banking Centers
that Purchasers shall purchase from Sellers; a list of those Banking
Centers is attached hereto as EXHIBIT 1.1(b).
<PAGE> 6
Section 1.2. Substitutions and Additional Banking Centers.
- ------------ ---------------------------------------------
(a) If, in connection with its regulatory applications for approval of the
Barnett Transaction, NationsBank finds it necessary to revise the
number and location of Targeted Region Banking Centers it deems
necessary to sell in order to obtain such regulatory approval (a
"Determination"), Purchasers will purchase the assets of, and assume
the liabilities assigned to, those additional or substitute Banking
Centers, keeping as a guiding principle the necessity for NationsBank
to obtain regulatory approval for the Barnett Transaction. Such
Determination shall be made after consultation with Purchasers and
shall be reasonably satisfactory to Purchasers.
(b) Once it has made a Determination, NationsBank will notify Purchasers of
the additional or substitute Banking Centers that Purchasers will be
required to purchase under this Agreement, specifying the location for
each Banking Center added or substituted. The delivery of such notice
will be deemed to automatically amend this Agreement and EXHIBIT 1.1(b)
to include the additional or substitute Banking Centers, with
corresponding adjustments in the calculation of the Purchase Price
under Section 2.2. Any references in this Agreement to Banking Centers,
the assets transferred, Excluded Assets, Loans and Deposit Liabilities
shall reflect all additions and substitutions made under this Section
1.2 and Sections 2.10, 7.8 and 7.10.
ARTICLE II
----------
TRANSFER OF ASSETS AND LIABILITIES
----------------------------------
Section 2.1. Transferred Assets.
- ------------ -------------------
(a) As of the Effective Time (as defined in Section 3.1 below) and upon the
terms and conditions set forth herein, Sellers will sell, assign,
transfer, convey and deliver to Purchasers, and Purchasers will
purchase from Sellers, the following assets at the Banking Centers
except as otherwise excluded from sale pursuant to the provisions of
Subsection 2.1 (b) below (the "Transferred Assets"):
(1) subject to Section 2.10 hereof, all of Sellers' transferable
right, title and interest in and to all real estate and
improvements thereon at the Banking Centers, but not including
any leasehold estates covered by sub-section (3) below,
together with all rights and appurtenances pertaining thereto
(the "Real Property");
(2) the furniture, fixtures, leasehold improvements, equipment and
other tangible personal property located on or affixed to the
Real Property or located at leased Banking Center locations,
including any of such items on order at the Closing or subject
to the terms of any Equipment Leases (the "Personal
Property");
(3) all assignable leases affecting the Banking Centers, including
all leases of real property and space in real property where
Sellers are the lessee (the "Real Property Leases"), any
leases of real property and space in real property where
Sellers are a lessor (the
2
<PAGE> 7
"Tenant Leases") and all leases for equipment (the "Equipment
Leases"), and those assignable, stand-alone software licenses
and leases acceptable to Purchasers (the "Software Licenses");
(4) all safe deposit contracts and leases for the safe deposit
boxes located at the Banking Centers as of the Effective Time
(the "Safe Deposit Contracts");
(5) all Loans transferred pursuant to Section 2.4; and
(6) all coins and currency located at the Banking Centers as of
the Effective Time (the "Coins and Currency").
(b) Excluded from the assets, properties and rights being transferred,
conveyed and assigned to Purchasers under this Agreement are (1) the
proprietary merchandising equipment and other assets listed on EXHIBIT
2.1(b) hereto, (2) Sellers' rights in and to the names "NationsBank"
and "Barnett" and any of their predecessor banks' names and any of
Sellers' or Sellers' predecessors' corporate logos, trademarks, trade
names, signs, paper stock, forms and other supplies containing any such
logos, trademarks or trade names, (3) residential mortgage servicing
rights for 1-4 family residential mortgages loans at the Banking
Centers, (4) any regulatory licenses or any other nonassignable
licenses and permits, (5) trust, brokerage, mutual fund and similar
relationships and (6) proprietary NationsBank or Barnett software (the
"Excluded Assets"). Sellers shall coordinate with Purchasers to remove
the Excluded Assets from the Banking Centers on or prior to the
Effective Time. Sellers shall remove the Excluded Assets at their own
cost and using their reasonable efforts to attempt to minimize any
damage as a result of such removal. Apart from making any repairs
necessitated by Sellers' negligence in removing the Excluded Assets,
Sellers shall be under no obligation to restore the premises to their
original condition, which shall be the responsibility of Purchasers.
(c) Except for data provided pursuant to Sections 2.3, 2.4, 2.5 and 2.6,
all RMMS (as defined below) data and information and any copies or
extracts thereof or other data or analyses delivered therefrom, and all
internal reports and data relating to, containing or derived from the
operating results of Barnett and its affiliates or any subsidiary or
division or line of business thereof, whether contained in books,
records or other paper format, accessed through the computer and data
processing systems of Barnett and its affiliates, or otherwise in the
possession of Barnett or Sellers, shall remain solely the property of
Sellers, and nothing contained in this Agreement shall be construed as
transferring to or vesting in Purchasers or any of Purchasers'
affiliates any right or interest in or to such data and information or
to grant to Purchasers any ongoing rights to the use of the RMMS or
data derived therefrom. Purchasers acknowledge that Sellers shall be
entitled to take all such steps prior to or following the Closing as
shall be necessary in Sellers' sole discretion to effect the foregoing,
including taking such actions as are necessary to ensure that all
access to such information at the offices of Sellers shall be
terminated as of the Closing. Purchasers shall promptly return to
Sellers any such information or data described herein, which remains at
any facilities transferred hereunder following the Closing.
3
<PAGE> 8
For purposes of this Agreement, the term "RMMS" means the Retail Market
Management System, a proprietary strategic and marketing system of Barnett which
combines customer transaction, balance and demographic data with a proprietary
analytic methodology to produce specific customer and market management tools.
These management tools include but are not limited to market potential models,
customer profitability analysis, market segmentation analysis and customer
activity analysis.
Section 2.2. Purchase Price.
- ------------ ---------------
(a) As consideration for the purchase of the Banking Centers, Purchasers
shall pay Sellers a purchase price equal to the sum of the following:
(1) The Net Book Value (as defined in Section 2.2(d) hereof) of
the Personal Property and the real estate and improvements
(including leasehold improvements) at the Banking Centers on
the Closing Date.
(2) A premium for the Deposit Liabilities (as defined in Section
2.3(a) hereof) and franchise value assigned to the Banking
Centers equal to 20.25% of the initial $2,000,000,000 of
Deposit Liabilities and 19.00% of all Deposit Liabilities in
excess of $2,000,000,00;
(3) The Net Book Value (as defined in Section 2.2(d) hereof) of
the Loans as set forth in Section 2.4 hereof on the Closing
Date; and
(4) The face amount of the Coins and Currency.
(b) In addition, Purchasers shall assume, as of the Effective Time, all of
the duties, obligations and liabilities of Sellers relating to the
Deposit Liabilities and to any of the following accruing or arising on
or after the Effective Time: the Real Property, the Real Property
Leases, the Tenant Leases, the Equipment Leases, the Software Licenses,
the Safe Deposit Contracts and all other assignable operating contracts
of the Banking Centers. Specifically excluded from the above are:
(i) Liabilities or obligations with respect to any litigation,
suits, claims, demands or governmental proceedings related to
any fact, circumstance or event occurring prior to Closing and
related to the Banking Centers.
(ii) Any and all obligations arising under any service agreements
entered into between NationsBank or Barnett and their
subsidiaries.
(c) Sellers shall prepare a balance sheet (the "Pre-Closing Balance Sheet")
in accordance with generally accepted accounting principles
consistently applied as of a date not earlier than 30 calendar days
prior to the Effective Time anticipated by the parties (the
"Pre-Closing Balance Sheet Date") reflecting the assets to be sold and
assigned hereunder and the liabilities to be transferred and assumed
hereunder; Sellers agree to pay to Purchasers at the Closing (as
4
<PAGE> 9
defined in Section 3.1 hereof), in immediately available funds, the
excess amount, if any, of the amount of Deposit Liabilities assumed by
Purchasers pursuant to subsection (b) above as reflected by the
Pre-Closing Balance Sheet over the aggregate purchase price computed in
accordance with subsection (a) above, as reflected by the Pre-Closing
Balance Sheet. Purchasers agree to pay Sellers at the Closing, in
immediately available funds, the excess, if any, of the aggregate
purchase price computed in accordance with subsection (a) above, as
reflected by the Pre-Closing Balance Sheet over the amount of Deposit
Liabilities assumed by Purchasers pursuant to subsection (b) above as
reflected by the Pre-Closing Balance Sheet. Amounts paid at Closing
shall be subject to subsequent adjustment based on the Post-Closing
Balance Sheet (as defined in Section 3.3 hereof).
(d) With regard to Personal Property and Real Property and improvements
(including leasehold improvements), Net Book Value is the value that
the asset is carried on Sellers' general ledger. With regard to Loans,
Net Book Value is the aggregate principal amount of the Loans, plus
accrued and unpaid interest and late charges thereon, but such value
shall not include any loan loss reserves or general reserve.
(e) (1) Sellers and Purchasers agree to allocate the purchase price in
accordance with Section 1060 of the Internal Revenue Code (the "Code").
Within 120 days after the Closing Date, Purchasers shall provide to
Sellers Purchasers' proposed allocation of the purchase price as
finally determined and paid by Purchasers hereunder. Within 30 days
after the receipt of such allocation, Sellers shall propose to
Purchasers any changes to such allocation or otherwise shall be deemed
to have agreed with such allocation.
(2) Sellers and Purchasers shall reduce such allocation to writing,
including jointly and properly executing completed Internal Revenue
Service Form 8594, and any other forms or statements required by the
Code, Treasury Regulations or the Internal Revenue Service, together
with any and all attachments required to be filed therewith. Sellers
and Purchasers shall file timely any such forms and statements with the
Internal Revenue Service.
(3) To the extent consistent with applicable law, Sellers and
Purchasers shall not file any tax return or other documents or
otherwise take any position with respect to taxes which is inconsistent
with such allocation of the final purchase price, provided, however,
that neither Sellers nor Purchasers shall be obligated to litigate any
challenge to such allocation of the final purchase price by a
governmental authority.
(4) Sellers and Purchasers shall promptly inform one another of any
challenge by any governmental authority to any allocation made pursuant
to this subsection and agree to consult with and keep one another
informed with respect to the state of, and any discussion, proposal or
submission with respect to, such challenge.
5
<PAGE> 10
Section 2.3. Deposit Liabilities.
- ------------ --------------------
(a) "Deposit Liabilities" shall mean all of Sellers duties, obligations and
liabilities relating to the deposit accounts assigned to the Banking
Centers as of the Effective Time (including accrued but unpaid or
uncredited interest thereon).
(b) Except for those liabilities and obligations specifically assumed by
Purchasers under 2.2(b) above, Purchasers are not assuming any other
liabilities or obligations. Liabilities not assumed include, but are
not limited to, the following:
(1) Sellers' cashier checks, letters of credit, money orders,
traveler's checks, interest checks and expense checks issued
prior to closing, consignments of U.S. Government "E" and "EE"
bonds and any cash items paid by Sellers and not cleared prior
to the Effective Time.
(2) Deposit accounts associated with or securing lines of credit
where the line of credit is excluded in accordance with
Section 2.4 (b).
(3) Self-directed individual retirement accounts, if any, as well
as those individual retirement accounts which, by their terms,
are not subject to assignment, it being understood that all
other types of IRA Deposit Liabilities are intended to be
transferred.
(c) Sellers do not represent or warrant that any deposit customers whose
accounts are assumed by Purchasers will become or continue to be
customers of Purchasers after the Effective Time.
(d) Purchasers agree to pay in accordance with law and customary banking
practices all properly drawn and presented checks, drafts and
withdrawal orders presented to Purchasers by mail, over the counter or
through the check clearing system of the banking industry, by
depositors of the accounts assumed, whether drawn on the checks,
withdrawal or draft forms provided by Sellers or by Purchasers, and in
all other respects to discharge, in the usual course of the banking
business, the duties and obligations of Sellers with respect to the
balances due and owing to the depositors whose accounts are assumed by
Purchasers.
(e) If, after the Effective Time, any depositor, instead of accepting the
obligation of Purchasers to pay the Deposit Liabilities assumed, shall
demand payment from Sellers for all or any part of any such assumed
Deposit Liabilities, Sellers shall not be liable or responsible for
making any such payment; provided, that if Sellers shall pay the same,
Purchasers agree to reimburse Sellers for any such payments, and
Sellers shall not be deemed to have made any representations or
warranties to Purchasers with respect to any such checks, drafts or
withdrawal orders and any such representations or warranties implied by
law are hereby expressly disclaimed. Sellers and Purchasers shall make
arrangements to provide for the daily settlement with immediately
available funds by Purchasers of checks, drafts, withdrawal orders,
returns and other items presented to and paid by Sellers within 90
calendar days after
6
<PAGE> 11
the Effective Time and drawn on or chargeable to accounts that have
been assumed by Purchasers; provided, however, that Sellers shall be
held harmless and indemnified by Purchasers for acting in accordance
with such arrangements.
(f) Purchasers agree, at their cost and expense, (1) to assign new account
numbers to depositors of assumed Deposit Liabilities, (2) to notify
such depositors, on or before the Effective Time, in a form and on a
date mutually acceptable to Sellers and Purchasers, of Purchasers
assumption of Deposit Liabilities, (3) to furnish such depositors with
checks on the forms of Purchasers and with instructions to utilize
Purchasers' checks and to destroy unused check, draft and withdrawal
order forms of Sellers (if Purchasers so elect, Purchasers may offer to
buy from such depositors their unused Sellers' check, draft and
withdrawal order forms), (4) to reissue all ATM and debit cards (with
new PIN numbers) associated with the depositors of assumed Deposit
Liabilities, (5) to replace all line of credit checks with checks on
the forms of Purchasers with instructions to utilize Purchasers' checks
and to destroy the unused checks and (6) to disable and to notify
customers of its disabling of all credit card overdraft protection. At
its expense, Sellers will prepare and deliver to Purchasers two sets of
its normal customer mailing labels relating to the Deposit Liabilities.
In addition, subsequent to regulatory approval, Sellers will notify its
affected customers by letter of the pending assignment of Sellers'
Deposit Liabilities to Purchasers, which notice shall be at Sellers'
cost and expense and shall be in a form mutually agreeable to Sellers
and Purchasers.
(g) Purchasers agree to pay promptly to Sellers an amount equivalent to the
amount of any checks, drafts or withdrawal orders credited to any
assumed Deposit Liabilities as of the Effective Time that are returned
to Sellers after the Effective Time.
(h) As of the Effective Time, Purchasers will assume and discharge Sellers'
duties and obligations in accordance with the terms and conditions and
laws, rules and regulations that apply to the certificates, accounts
and other Deposit Liabilities assumed under this Agreement.
(i) As of the Effective Time, Purchasers will maintain and safeguard in
accordance with applicable law and sound banking practices all account
documents, deposit contracts, signature cards, deposit slips, canceled
items and other records related to the Deposit Liabilities assumed
under this Agreement, subject to Sellers' right of access to such
records as provided in this Agreement.
(j) Sellers will render a final statement to each depositor of an account
assumed under this Agreement as to transactions occurring through the
Effective Time and will comply with all laws, rules and regulations
regarding tax reporting of transactions of such accounts through the
Effective Time. Sellers will be entitled to impose normal fees and
service charges on a per-item basis, but Seller s will not impose
periodic fees or blanket charges in connection with such final
statements. Purchasers will comply with all laws, rules and regulations
regarding tax reporting of transactions of such accounts after the
Effective Time.
(k) Prior to the Closing Date, Purchasers, at their expense, will notify
all Automated Clearing House ("ACH") originators of the transfers and
assumptions made pursuant to the
7
<PAGE> 12
Agreement; provided, however, that Sellers may, at their option, notify
all such originators (on behalf of Purchasers) also at the expense of
Purchasers. For a period of 90 calendar days beginning on the Effective
Time, Sellers will honor all ACH items related to accounts assumed
under this Agreement which are mistakenly routed or presented to
Sellers. Sellers will make no charge to Purchasers for honoring such
items, and will electronically transmit such ACH data to Purchasers. ff
Purchasers cannot receive an electronic transmission, Sellers will make
available to Purchasers at Sellers' operations center receiving items
from the Automated Clearing House tapes containing such ACH data. Items
mistakenly routed or presented after the 90-day period will be returned
to the presenting party. Sellers and Purchasers shall make arrangements
to provide for the daily settlement with immediately available funds by
Purchasers of any ACH items honored by Sellers, and Sellers shall be
held harmless and indemnified by Purchasers for acting in accordance
with this arrangement to accept ACH items.
(l) Following the Effective Time, Purchasers agree to use their best
efforts to collect from Purchasers' customers amounts equal to any Visa
or MasterCard charge backs under the MasterCard and Visa Merchant
Agreements between Sellers and their customers or amounts equal to any
deposit items returned to Sellers after the Effective Time which were
honored by Sellers prior to the Effective Time and remit such amounts
so collected to Sellers. Purchasers agree to immediately freeze and
remit to Sellers any funds, up to the amount of the charged back or
returned item that had been previously credited by Sellers if such
funds are available at the time of notification by Sellers to
Purchasers of the charged back or returned item. Notwithstanding the
foregoing, Purchasers shall have no duty to remit funds for any item or
charge that has been improperly returned or charged to Sellers. Solely
for the purposes of this Section 2.3(i), all references to Sellers
shall be deemed to include Sellers and its assignees.
(m) As of the Effective Time, Sellers shall transfer and assign all files,
documents and records related to the Deposit Liabilities to Purchasers,
including such information held in electronic form, and Purchasers will
be responsible for maintaining and safeguarding all such materials in
accordance with applicable law and sound banking practices.
Section 2.4. Loans Transferred.
- ------------ ------------------
(a) Sellers will transfer to Purchasers as of the Effective Time, subject
to the terms and conditions of this Agreement, all of Sellers' right,
title and interest in (including accrued but unpaid interest and late
charges and collateral relating thereto) loans maintained, serviced and
listed as loans assigned to the Banking Centers (collectively, the
"Loans"); provided, however, the Loans shall not include any loans
described in subsection (b) below. Such Loans (as well as any lien or
security interest related thereto) shall be transferred by means of a
blanket (collective) assignment and not individually (except as may be
otherwise required by law).
8
<PAGE> 13
(b) Notwithstanding the provisions of subsection (a) above, the Loans shall
not include:
(1) nonaccruals (which term shall include loans in which the
collateral securing same has been repossessed or in which
collection efforts have been instituted or claim and delivery
or foreclosure proceedings have been filed)-,
(2) loans 90 calendar days or more past due or otherwise in
default;
(3) loans upon which insurance has been force-placed;
(4) credit card loans;
(5) loans in connection with which the borrower has filed a
petition for relief under the United States Bankruptcy Code
prior to the Effective Time;
(6) loans identified by Purchasers in writing within 45 calendar
days after the Effective Time as not being purchased because
of failure to meet generally applicable credit or
documentation standards of Purchasers; or
(7) servicing rights in connection with residential real estate
related loans.
(c) Sellers and Purchasers agree that Purchasers will become the
beneficiary of credit life insurance written on direct consumer
installment loans and coverage will continue to be the obligation of
the current insurer after the Effective Time and for the duration of
such insurance as provided under the terms of the policy or
certificate. If Purchasers become the beneficiary of credit life
insurance written on direct consumer installment loans, Sellers and
Purchasers agree to cooperate in good faith to develop a mutually
satisfactory method by which the current insurer will make rebate
payments to and satisfy claims of the holders of such certificates of
insurance after the Effective Time. After the Effective Time, Sellers
will promptly deliver to Purchasers the proceeds of any credit life
insurance relating to Loans inadvertently received by it. The parties'
obligations in this section are subject to any restrictions contained
in existing insurance contracts as well as applicable laws and
regulations.
(d) In connection with the transfer of any loans requiring notice to the
borrower and the servicer, Purchasers and Sellers will comply with all
notice and reporting requirements of the loan documents or of any law
or regulation.
(e) All Loans will be transferred without recourse and without any
warranties or representations as to their collectibility or the
creditworthiness of any of the obligors of such Loans.
(f) Purchasers will at their expense issue new coupon books or other forms
of payment identification for payment of Loans for which Sellers
provide coupon books with instructions to utilize Purchasers coupons or
forms and to destroy coupons furnished by Sellers.
9
<PAGE> 14
(g) For a period of 90 calendar days after the Effective Time, Sellers will
forward to Purchasers loan payments received by Sellers. Purchasers
shall reimburse Sellers for checks returned on payments forwarded to
Purchasers.
(h) As of the Effective Time, Sellers shall transfer and assign all files,
documents and records related to the Loans to Purchasers, including
such information held in electronic form, and Purchasers will be
responsible for maintaining and safeguarding all such materials in
accordance with applicable law and sound banking practices.
(i) If the balance due on any Loan purchased pursuant to this Section 2.4
has been reduced by Sellers as a result of a payment by check received
prior to the Effective Time, which item is returned after the Effective
Time, the asset value represented by the Loan transferred shall be
correspondingly increased and an amount in cash equal to such increase
shall be paid by Purchasers to Sellers promptly upon demand.
(j) Sellers shall grant to Purchasers as of the Effective Time a limited
power of attorney, in substantially the form attached hereto as EXHIBIT
2.4(j) (the "Power of Attorney").
(k) Barnett and its subsidiaries have previously contributed a 100%
participation interest in certain 1-4 family residential Loans (the
"REIT Loans") to Barnett Real Estate Management, Inc. (the "REIT"). By
the Closing Date, Sellers will take appropriate action to have the REIT
cause such participations to be included in the Loans transferred
hereunder.
Section 2.5. Safe Deposit Business.
- ------------ ----------------------
(a) As of the Effective Time, Purchasers will assume and discharge Sellers
obligations with respect to the safe deposit box business at the
Banking Centers in accordance with the terms and conditions of
contracts or rental agreements related to such business, and Purchasers
will maintain all facilities necessary for the use of such safe deposit
boxes by persons entitled to use them.
(b) As of the Effective Time, Sellers shall transfer and assign the records
related to such safe deposit box business to Purchasers, and Purchasers
shall maintain and safeguard all such records and be responsible for
granting access to and protecting the contents of safe deposit boxes at
the Banking Centers.
(c) Safe deposit box rental payments collected by Sellers before the
Effective Time shall be prorated.
Section 2.6. Employee Matters.
- ------------ -----------------
(a) Purchasers will offer employment to all employees actively employed by
Sellers at the Banking Centers as of the Effective Time (the
"Employees"), subject to Purchasers' normal screening process,
including drug testing, finger printing and interviews.
10
<PAGE> 15
(i) The base salary for each Employee hired by Purchasers shall
not be less than the base salary provided by Sellers
immediately prior to the Effective Time, subject to changes
due to employment classification.
(ii) With respect to Purchasers' qualified plans, the Employees
will be treated as new hires; however, Employees who
immediately become employees of Purchasers will immediately
participate in welfare benefit plans maintained by Purchasers
without regard to pre-existing conditions or waiting periods.
Employees will be required to satisfy the deductible and
employee payments (if any) required by Purchasers' plans.
Employees shall receive full credit for prior service with
Sellers for purposes of determining their participation and
benefit accrual under Purchasers' vacation and sick leave
policies.
(iii) Employees who immediately become employees of Purchasers will
be eligible for severance benefits consistent with the
Huntington Transitional Pay Plan; all service with the Sellers
shall be taken into account in determining benefits under the
Huntington Transitional Pay Plan. Purchasers shall not be
responsible or liable for any benefits accrued under the
pension or welfare plans of Sellers.
(iv) Employees who are not employed by Purchasers will have no
rights to continuation coverage under Purchasers' group
medical insurance plan, and their continuation rights, if any,
will be with Sellers' group medical insurance plans.
Until December 31, 1998, the amount of severance benefits paid
Employees shall at least be equal to the Barnett Severance Benefits
shown on Exhibit 2.6(a). In the event the severance benefits actually
paid to an Employee under this Section 2.6(a) as a result of
termination of employment prior to December 31, 1998 exceed the
benefits otherwise payable under the Huntington Transitional Pay Plan
then in effect, then NationsBank will promptly reimburse the Purchasers
for the amount of such excess.
(b) After the execution of this Agreement, Sellers will continue their
normal employment practices in staffing the Banking Centers; however,
Sellers make no representations or warranties about whether any of the
Employees who become employees of Purchasers will remain employed at
the Banking Centers after the Effective Time. Sellers will use their
best efforts to: (i) maintain the Employees as employees of Sellers at
the Banking Centers until the Effective Time, (ii) refrain from
dissuading any Employee from accepting an offer of employment with
Purchasers or (iii) refrain from recruiting employees for alternate
positions with Sellers. Sellers shall affirmatively advise Banking
Center Employees that their current positions will terminate as of the
Effective Time. Any Employee whose employment shall be terminated for
any reason prior to the Effective Time shall be dealt with by Sellers
in their sole and absolute discretion. Any Employee who, for any
reason, does not receive an offer of employment from Purchasers or
elects not to accept such offer of employment shall be deemed to be
part of Sellers' pool of unassigned employees and may, after the
Effective Time, be assigned to any openings in sellers' banking system.
Sellers agree that, for a period of 24
11
<PAGE> 16
months after the Closing, they will not solicit for employment any
Employee who remains employed by Purchasers.
(c) After the execution of this Agreement and subject to any legal
restrictions, Sellers shall permit Purchasers, at reasonable times and
upon reasonable notice, to examine and inspect Sellers' records
relating to Employees.
Section 2.7. Records and Data Processing, etc.
(a) As of the Effective Time, Purchasers shall become responsible for
maintaining the files, documents and records referred to in this
Agreement. Purchasers will preserve and safekeep them as required by
applicable law and sound banking practice for the joint benefit of
Sellers and Purchasers. After the Effective Time, Purchasers will
permit Sellers and their representatives, for reasonable cause, at
reasonable times and upon reasonable notice, to examine, inspect, copy
and reproduce any such files, documents or records as Sellers deem
reasonably necessary and to have similar access to such records and
Sellers' former employees for purposes of preparation of records and
reports (including regulatory and tax reports and returns) and as
Sellers require in connection with third party litigation.
(b) As of the Effective Time, Sellers will permit Purchasers and their
representatives, for reasonable cause, at reasonable times and upon
reasonable notice, to examine, inspect, copy and reproduce files,
documents or records retained by Sellers regarding the assets and
liabilities transferred under this Agreement as Purchasers deem
reasonably necessary.
(c) For a period of 180 days after the Effective Time, the party providing
copies of records shall do so without charge; thereafter it may charge
its customary rate for such copies.
(d) It is understood that certain of Sellers' records, including
certificates of deposit, may be available only in electronic form or in
the form of photocopies, film copies or other nonoriginal and non-paper
media.
(e) Prior to the Closing, Sellers will make reasonable efforts to identify
and to disclose to Purchasers any additional relationships with Deposit
customers, including those Excluded Assets identified under Section 2.1
(b)(6); such information will be maintained in confidence by Purchasers
and not transferred to any third parties.
(f) After the execution of this Agreement, Sellers will work with
Purchasers to prepare mutually satisfactory Schedules of Assets and
contracts to be sold hereunder.
Section 2.8. Security.
- ------------ ---------
As of the Effective Time, Purchasers shall be solely responsible for the
security of and insurance on all persons and property located in or about the
Banking Centers.
12
<PAGE> 17
Section 2.9. Taxes and Fees Proration of Certain Expenses.
- ------------ ---------------------------------------------
Purchasers shall not be responsible for, or have any liability with respect to,
taxes on any income to Sellers arising out of this transaction. Purchasers shall
not be responsible for any income tax liability of Sellers arising from the
business or operations of the Banking Centers before the Effective Time, and
Sellers shall not be responsible for any tax liabilities of Purchasers arising
from the business or operations of the Banking Centers after the Effective Time.
Utility payments, telephone charges, real property taxes, personal property
taxes, rent, salaries, deposit insurance premiums or assessments, maintenance
items, other ordinary operating expenses of the Banking Centers and other
expenses related to the liabilities assumed or assets purchased hereunder shall
be prorated between the parties as of the Effective Time. To the extent any such
item has been prepaid by Sellers for a period extending beyond the Effective
Time, there shall be a proportionate monetary adjustment in favor of Sellers.
Purchasers shall be responsible for the payment of any non-delinquent
assessments. Real estate taxes shall be pro-rated based upon the maximum
allowable discount and other applicable exemptions. Until December 15, 1998
Purchasers may elect to reprorate real estate taxes based upon 1998 rates and
valuations; thereafter there shall be no reproration of real estate taxes.
Sellers and Purchasers shall each be responsible for their own costs with
respect to the preparation and filing of any tax returns, as were as the
preparation, review and analysis of the allocation statements and any forms or
statements prepared in connection with the allocation of the final purchase
price.
Section 2.10. Real Property.
- ------------- --------------
(a) Title Matters.
--------------
(i) Sellers agree to deliver to Purchasers as soon as reasonably
possible upon Purchasers' request copies of all title
information in possession of Sellers, including, but not
limited to, title insurance policies, attorneys' opinions on
title, surveys, covenants, deeds and easements relating to the
Real Property and the leased Banking Center locations. Such
delivery shall constitute no warranty by Sellers as to the
accuracy or completeness thereof or that Purchasers is
entitled to rely thereon.
(ii) Purchasers agree to notify Sellers, in writing within 120
calendar days after the date of this Agreement (and 20 days
after the identification of any alternate or substitute
Banking Centers), of any mortgages, pledges, material liens,
encumbrances, reservations, tenancies, encroachments, overlaps
or other title exceptions, survey objections, or zoning or
similar land use violations (excluding legal but nonconforming
uses) or material engineering or structural problems related
to the Real Property and the leased Banking Center locations
to which Purchasers reasonably objects (the "Title Defects").
If Purchasers do not notify Sellers of Title Defects within
such time periods, Purchasers shall be deemed to have waived
their rights under this Section 2.10. Purchasers agree that
Title Defects shall not include real property taxes not yet
due and payable or easements, restrictions, tenancies, survey
matters or other title matters, and rights of way which do not
materially interfere with the use of the Real Properly or the
leased Banking Center locations as such facilities are
currently utilized. During the applicable 120- or 20-day
period, Sellers shall make a
13
<PAGE> 18
good faith effort to correct any such Title Defect to
Purchasers' reasonable satisfaction; provided, however, that
Sellers shall not be obligated to bring any lawsuit or make
any payments of money (except to pay liens that Sellers do not
dispute in good faith) to cure a Title Defect. If Seller s are
unable or unwilling to cure any such Title Defects to
Purchaser& reasonable satisfaction, Purchasers shall have the
option either to terminate this Agreement (upon written notice
to Sellers) with respect to the Banking Center, at which the
Real Property or the leased Banking Center locations having
such Title Defects is located or to receive title in its then
existing condition. Upon termination of this Agreement with
respect to a particular tract of property pursuant to this
Section 2.10, no party shall have any further liability to the
other party under this Agreement with respect to such parcel
of Real Property or the leased Banking Center locations (or
the other Assets or Deposit Liabilities associated with that
facility) and the purchase price shall be adjusted
accordingly.
(iii) Purchasers shall have the right to update title matters up to
10 business days prior to Closing for any changes which may
have arisen between the date of Purchasers' original title
search and the Closing Date. If such update indicates that any
Title Defects have been placed of record since the date of
Purchasers' original title search, and Purchasers reasonably
object thereto in writing, then Sellers shall make a good
faith effort to cure any such Title Defect to Purchasers'
reasonable satisfaction; provided that Seller s shall not be
obligated to bring any lawsuit or make any payments of money
(except to pay liens that Sellers do not dispute in good
faith) to cure a Title Defect. If Sellers are unable or
unwilling to cure any such Title Defect, Purchasers shall have
the option to receive title in the then existing condition or
to enter into the lease of that Banking Center described in
Section 2.10(a)(iv).
(iv) In the event Purchasers notify Sellers of their intent under
this Section 2.10(a) to terminate this Agreement with respect
to any Banking Center due to an unacceptable Title Defect,
Sellers may elect to either sublease or lease the Banking
Center to Purchasers at existing market rates for a term of 10
years (in which event Purchasers will have no right to
terminate the Agreement with respect to that particular
Banking Center) or to designate and substitute an alternate
Banking Center. The parties agree that, if they cannot agree
upon a rent to be payable for any such Banking Center to be
leased to Purchasers under this provision, the "market rate"
shall be determined by an appraisal to be conducted by an
appraiser acceptable to both parties, with the cost of such
appraisal to be shared equally by both parties.
(b) Environmental Matters.
----------------------
(i) Sellers agree to deliver to Purchasers as soon as reasonably
possible upon Purchasers' request copies of all environmental
studies, reports and audits in Sellers possession related to
the Banking Centers.
(ii) Purchasers shall have the right, but not the obligation, at
their sole cost and expense, to cause such investigations and
tests to be made as they deem necessary to determine
14
<PAGE> 19
whether there has been any soil, surface water, groundwater,
or building space contamination on or under the Real Property
and the leased Banking Center locations. Sellers shall provide
reasonable assistance to Purchasers and/or their agents or
contractors in their evaluation and testing of the Real
Property and the leased Banking Center locations and Sellers
shall provide Purchasers and/or their agents or contractors
access to pertinent records and documents. Sellers authorize
Purchasers and/or their agents or contractors to contact
governmental agencies regarding the environmental status of
the Real Property and the leased Banking Center locations.
Purchasers shall report the results of any such investigations
or tests to Sellers no later than 120 days after the date of
this Agreement (or, in the case of the description of an
alternate or substitute site, 20 days after such designation);
provided, however, that without the prior written consent of
Sellers, which consent will not unreasonably be withheld, and
execution of a satisfactory property access agreement,
Purchasers shall not conduct subsurface testing, any ground
water monitoring or install any test well or undertake any
other investigation which requires a permit or license from,
or the reporting of the investigation or the results thereof
to, a local or state environmental regulatory authority or the
United States Environmental Protection Agency. If Purchasers
object to any material adverse environmental condition which
impacts the Banking Center, Sellers shall have the right, but
not the obligation, to cure any such material adverse
environmental condition which is discovered by Purchasers'
investigation. If at the end of the applicable 120- or 20-day
period, Sellers are unable or unwilling to cure such problem,
Purchasers shall have the option to accept the premises in the
then existing condition or to terminate the Agreement with
respect to that particular Banking Center affected by the
environmental problem, in which event neither party shall have
any liability to the other party with respect to such Banking
Center.
(iii) In the event Purchasers notify Sellers of their intent under
this Section 2.10(b) to terminate this Agreement with respect
to any Banking Center due to an environmental problem, Sellers
may elect to either lease the Banking Center to Purchasers at
existing market rates for a term of 10 years (in which event
Purchasers will have no right to terminate the Agreement with
respect to that particular Banking Center) or to designate and
substitute an alternate Banking Center. The parties agree
that, if they cannot agree upon a rent to be payable for any
such Banking Center to be leased to Purchasers under this
provision, the "market rate" shall be determined by an
appraisal to be conducted by an appraiser acceptable to both
parties, with the cost of such appraisal to be shared equally
by both parties.
(c) Sellers have filed an application for approval of the Barnett
Transaction with the Board of Governors of the Federal Reserve System.
The delivery of that approval to the Sellers will be deemed to finalize
the fist of Banking Centers to be transfer-red under the terms of this
Agreement and thereafter neither party will have the unilateral right
to terminate this Agreement with respect to any Banking Center. The
right to elect a lease (in lieu of purchase) of a Banking Center under
Sections 2.10(a)(iv) and 2.10((b)(iii)) will continue until 10 business
days prior to Closing, at which time such right will lapse.
15
<PAGE> 20
ARTICLE III
-----------
CLOSING AND EFFECTIVE TIME
--------------------------
Section 3.1. Effective Time.
- ------------ ---------------
The purchase of assets and assumption of liabilities provided for in this
Agreement shall occur at a closing (the "Closing") to be held at the offices of
Sellers in Charlotte, North Carolina at 10:00 a.m. local time or at such other
time and place as the parties shall mutually agree, on a date to be mutually
agreed upon between the parties, which date shall be after the closing of the
Barnett Transaction and after the receipt of all approvals by regulatory
agencies and after all statutory waiting periods have expired and no later than
June 30, 1998. The effective time (the "Effective Time") shall be 5:00 p.m.,
local time, on the day on which the Closing occurs (the "Closing Date").
Section 3.2. Closing.
- ------------ --------
(a) All actions taken and documents delivered at the Closing shall be
deemed to have been taken and executed simultaneously, and no action
shall be deemed taken nor any document delivered until all have been
taken and delivered.
(b) At the Closing, subject to all the terms and conditions of this
Agreement, Sellers shall execute and deliver to Purchasers or, in the
case of subsections (b), (6), (7), (8) and (10), make reasonably
available to Purchasers:
(1) Special warranty deeds in recordable form executed by the
appropriate Seller transferring Seller's interest in and to
each parcel of Real Property to Purchasers in substantially
the form attached hereto as EXHIBIT 3.2(b)(1);
(2) A Bill of Sale, in substantially the form attached hereto as
EXHIBIT 3.2(b)(2) (the "Bill of Sale"), transferring to
Purchasers all of Sellers interest in the Personal Property
and in the Loans;
(3) An Assignment and Assumption Agreement, in substantially the
form attached hereto as EXHIBIT 3.2(b)(3) (the "Assignment and
Assumption Agreement"), assigning Sellers' interest in the
Equipment Leases, the Tenant Leases, the Safe Deposit
Contracts, and the Deposit Liabilities;
(4) An Assignment and Assumption of Lease, in substantially the
form attached hereto as EXHIBIT 3.2(b)(4) (the "Assignment and
Assumption of Lease"), assigning Sellers' interest in the Real
Property Leases;
(5) Consents from third persons that are required to effect the
assignments set forth in the Assignment and Assumption
Agreement, and in the Assignment and Assumption of Leases;
16
<PAGE> 21
(6) Sellers' keys to the safe deposit boxes and Sellers' records
related to the safe deposit box business at the Banking
Centers;
(7) Sellers' files and records related to the Loans;
(8) Sellers' records related to the Deposit Liabilities assumed by
Purchasers;
(9) Immediately available funds in the net amount shown as owing
to Purchasers by Sellers on the Closing Statement, if any;
(10) The Coins and Currency;
(11) Such of the other assets to be purchased as shall be capable
of physical delivery;
(12) A certificate of a proper officer of each Seller, dated as of
the date of Closing, certifying to the fulfillment of all
conditions which are the obligation of that Seller and that
all of the representations and warranties of such Seller set
forth in this Agreement remain true and correct in all
material respects as of Effective Time;
(13) Copies of (A) the charters and bylaws of Seller s and (B) a
resolution of the Boards of Directors of Seller s, or the
Executive Committees of Sellers, approving the sales
contemplated herein;
(14) Such certificates and other documents as Huntington and its
counsel may reasonably require to evidence the receipt by
Sellers of all necessary regulatory authorizations and
approvals for the consummation of the transactions provided
for in this Agreement;
(15) A Closing Statement using amounts shown on the Pre-Closing
Balance Sheet, substantially in the form attached hereto as
Exhibit 3.2(b)(15) (the "Closing Statement");
(16) An affidavit of Sellers certifying that Sellers are not
"foreign persons" as defined in the federal Foreign Investment
in Real Property Tax Act of 1980;
(17) The Power of Attorney;
(18) Lease agreements for any Banking Centers to be leased to the
Purchasers under the provisions of Sections 2.10;
(19) At the Purchasers' request, title insurance affidavits in the
form of Exhibit 3.2(b)(19); and
(20) Such certificates and other documents as Huntington and its
counsel may reasonably require to evidence receipt by Sellers
of all necessary regulatory authorizations and approvals for
the consummation of the transactions provided for in this
Agreement.
17
<PAGE> 22
It is understood that the items listed in subsections (b)(6)
and (b)(10) shall be transferred after the Banking Centers
have closed for business on the Closing Date and that the
records listed in subsections (b)(7) and (b)(8) will be
transferred as soon as possible after the Closing, but in no
event more than 30 days after the Closing.
(c) At the Closing subject to all the terms and conditions of this
Agreement, Purchasers shall execute and deliver to Sellers:
(1) The Assignment and Assumption Agreement;
(2) The Assignment and Assumption of Lease;
(3) A certificate and receipt acknowledging the delivery and
receipt of possession of the Assets and records referred to in
this Agreement;
(4) Immediately available funds in the net amount shown as owing
to Sellers by Purchasers on the Closing Statement, if any;
(5) A certificate of a proper officer of Huntington, dated as of
the Date of Closing, certifying to the fulfillment of all
conditions which are the obligation of Purchasers and that all
of the representations and warranties of Purchasers set forth
in this Agreement remain true and correct in all material
respects as of the Effective Time;
(6) Copies of (A) the charters and bylaws of Purchasers and (B) a
resolution of the Boards of Directors, or the Executive
Committees, of Purchasers approving the purchases contemplated
herein; and
(7) Such certificates and other documents as NationsBank and its
counsel may reasonably require to evidence the receipt by
Purchasers of all necessary regulatory authorizations and
approvals for the consummation of the transactions provided
for in this Agreement.
(d) All instruments, agreements and certificates described in this Section
3.2 shall be in form and substance reasonably satisfactory to the
parties' respective legal counsel.
Section 3.3. Post Closing Adjustments.
- ------------ -------------------------
(a) Not later than 60 business days after the Effective Time (the
"Post-Closing Balance Sheet Delivery Date"), NationsBank shall deliver
to Huntington a balance sheet dated as of the Effective Time and
prepared in accordance with generally accepted accounting principles
consistently applied reflecting the assets sold and assigned and the
liabilities transferred and assumed hereunder (the "Post-Closing
Balance Sheet") together with a copy of NationsBank's calculation of
the adjusted purchase price and amounts payable thereunder.
Additionally, NationsBank shall deliver to Huntington a list of Loans
purchased, individually identified by account number. NationsBank shall
afford Huntington and its accountants and attorneys the opportunity to
review all work papers and documentation used by NationsBank in
preparing the Post-Closing Balance Sheet.
18
<PAGE> 23
Within 15 business days following the Post-Closing Balance Sheet
Delivery Date (the "Adjustment Payment Date"), NationsBank and
Huntington shall meet at the offices of NationsBank in Charlotte, North
Carolina or such other location as may be mutually agreed, to effect
the transfer of any funds as may be necessary to reflect changes in
such assets and liabilities between the Pre-Closing Balance Sheet and
the Post-Closing Balance Sheet and resulting changes in the purchase
price, together with interest thereon computed from the Effective Time
to the Adjustment Payment Date at the applicable Federal Funds Rate (as
hereinafter defined).
(b) In the event that a dispute arises as to the appropriate amounts to be
paid to either party on the Adjustment Payment Date, each party shall
pay to the other on such Adjustment Payment Date all amounts other than
those as to which a dispute exists. Any disputed amounts retained by a
party which are later found to be due to the other party shall be paid
to such other party promptly upon resolution with interest thereon from
the Effective Time to the date paid at the applicable Federal Funds
Rate.
(c) The Federal Funds Rate shall be the mean of the high and low rates
quoted for Federal Funds in the Money Rates Column of The Wall Street
Journal adjusted as such mean may increase or decrease during the
period between the Effective Time and the date paid.
ARTICLE IV
----------
INDEMNIFICATION
---------------
Section 4.1. NationsBank's Indemnification of Huntington.
- ------------ --------------------------------------------
(a) Subject to any limitations in Sections 4.1 (b) and 5.7(e) or otherwise
contained in this Agreement, NationsBank shall indemnify, hold harmless
and defend Huntington from and against (i) any breach by Sellers of any
representation or warranty contained herein, (h) claims or liabilities
relating to any Title Defect or environmental contamination existing
prior to the Effective Time in any Banking Center leased to the
Purchasers under the provisions of Section 2.10(a)(iv) and Section
2.10(b)(iii), and (iii) all claims, losses, liabilities, demands and
obligations, including reasonable attorneys' fees and expenses, arising
out of any actions, suits or proceedings commenced prior to the
Effective Time (other than proceedings to prevent or limit the
consummation of this transaction) relating to Sellers' operations at
the Banking Centers; and, except as otherwise provided in this
Agreement, NationsBank shall further indemnify, hold harmless and
defend Huntington from and against all claims, losses, liabilities,
demands and obligations, including reasonable attorneys' fees and
expenses, real estate taxes, intangibles and franchise taxes, sales and
use taxes, social security and unemployment taxes, all accounts payable
and operating expenses (including salaries, rents and utility charges)
incurred by Sellers prior to the Effective Time and which are claimed
or demanded on or after the Effective Time, or which arise out of any
actions, suits or proceedings commenced on or after the Effective Time
and which relate to Sellers' operations or transactions at the Banking
Centers prior to the Effective Time.
(b) The Purchasers' sole remedy for a breach of the representations and
warranties contained in Section 5.12 shall be to require the Sellers to
purchase any Loans which they in good faith deem to breach such
representation and warranty (a "Purchase Right"). The Purchase Right
can be
19
<PAGE> 24
exercised only for a period ending on the earlier of 60 days after
discovery of such breach or 24 months after the Closing Date.
Alternatively, the parties may agree to extend that exercise period
with respect to a particular Loan or group of Loans and permit
Purchasers to continue their customary processing and collection
efforts with respect to such Loans.
Section 4.2. Huntington's Indemnification of NationsBank.
- ------------ --------------------------------------------
Huntington shall indemnify, hold harmless and defend NationsBank from and
against any breach by Huntington of any representation or warranty contained
herein and all claims, losses, liabilities, demands and obligations, including
reasonable attorneys' fees and expenses, real estate taxes, intangibles and
franchise taxes, sales and use taxes, social security and unemployment taxes,
all accounts payable and operating expenses (including salaries, rents and
utility charges), which NationsBank may receive, suffer or incur in connection
with operations and transactions occurring after the Effective Time and which
involve the Banking Centers, the Transferred Assets or the liabilities assumed
pursuant to this Agreement.
Section 4.3. Claims for Indemnity.
- ------------ ---------------------
(a) A claim for indemnity under Sections 4.1 or 4.2 of this Agreement may
be made by the claiming party at any time prior to (i) 120 months after
the Effective Time in case of a claim under Section 4.1(a)(ii) and (ii)
24 months after the Effective Time for all other items by the giving of
written notice thereof to the other party. Such written notice shall
set forth in reasonable detail the basis upon which such claim for
indemnity is made. In the event that any such claim is made within the
prescribed period, the indemnity relating to such claim shall survive
until such claim is resolved. Claims not made within such period shall
cease and no indemnity shall be made therefor.
(b) In the event that any person or entity not a party to this Agreement
shall make any demand or claim or file or threaten to file any lawsuit,
which demand, claim or lawsuit may result in any liability, damage or
loss to one party hereto of the kind for which such party is entitled
to indemnification pursuant to Section 4.1 or 4.2 hereof, then, after
written notice is provided by the indemnified party to the indemnifying
party of such demand, claim or lawsuit, the indemnifying party shall
have the option, at its cost and expense, to retain counsel for the
indemnified party to defend any such demand, claim or lawsuit. In the
event that the indemnifying party shall fail to respond within five
calendar days after receipt of such notice of any such demand, claim or
lawsuit, then the indemnified party shall retain counsel and conduct
the defense of such demand, claim or lawsuit as it may in its
discretion deem proper, at the cost and expense of the indemnifying
party. In effecting the settlement of any such demand, claim or
lawsuit, an indemnified party shall act in good faith, shall consult
with the indemnifying party and shall enter into only such settlement
as the indemnifying party shall approve (the indemnifying party's
approval will be implied if it does not respond within ten calendar
days of its receipt of the notice of such settlement offer).
Section 4.4. Limitations on Indemnification.
- ------------ -------------------------------
Notwithstanding anything to the contrary contained in this Article IV, no
indemnification shall be required to be made by either party until the aggregate
amount of all such claims by a party exceeds $100,000. Once such aggregate
amount exceeds $100,000, such party shall thereupon be entitled to
indemnification
20
<PAGE> 25
for all amounts in excess of such $100,000. IN ADDITION, THE PARTIES SHALL HAVE
NO OBLIGATIONS UNDER THIS ARTICLE IV FOR ANY CONSEQUENTIAL LIABILITY, DAMAGE OR
LOSS THE INDEMNIFIED PARTY MAY SUFFER AS THE RESULT OF ANY DEMAND, CLAIM OR
LAWSUIT.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
NationsBank hereby represents and warrants to Huntington on behalf of itself and
its subsidiaries as follows, which representations and warranties shall survive
the Effective Time for a period of 24 months except Section 5.13 which shall not
survive the Effective Time or as otherwise specifically herein provided:
Section 5.1. Corporate Organization.
- ------------ -----------------------
NationsBank is a bank holding company duly organized, validly existing and in
good standing under the laws of the state of North Carolina. NationsBank has the
corporate power and authority to carry on its business as currently conducted
and to effect the transactions contemplated herein.
Section 5.2. No Violation.
- ------------ -------------
The Banking Centers have been operated in all material respects in accordance
with applicable laws, rules and regulations. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated herein,
will violate or conflict with (a) Sellers charter or bylaws; (b) any material
provision of any material agreement or any other material restriction of any
kind to which Sellers are a party or by which Sellers are bound; (c) any
material statute, law, decree, regulation or order of any governmental
authority; or (d) any material provision which will result in a default under,
or which cause the acceleration of the maturity of any material obligation or
loan to which Sellers are a party.
Section 5.3. Corporate Authority.
- ------------ --------------------
Prior to Closing, the consummation of the transactions contemplated herein will
have been duly authorized by the Board of Directors or the Executive Committee
of each corporate entity conveying assets or liabilities to Purchasers under
this Agreement. No further corporate authorization is necessary for Sellers to
consummate the transactions contemplated hereunder.
Section 5.4. Enforceable Agreement.
- ------------ ----------------------
This Agreement has been duly executed and delivered by NationsBank and is the
legal, valid and binding agreement of NationsBank, enforceable in accordance
with its terms.
Section 5.5. No Brokers.
- ------------ -----------
AU negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by NationsBank and Huntington, and there has been no
participation or intervention by any other person, firm or corporation employed
or engaged by or on behalf of Sellers in such a manner as to give rise to any
valid claim against Sellers or Purchasers for a brokerage commission, finder's
fee or like commission.
21
<PAGE> 26
Section 5.6. Personal Property.
- ------------ ------------------
Sellers own, and will convey to Purchasers at the Closing, all of Sellers'
right, title and interest to all of the Personal Property free and clear of any
mortgages, liens, security interests or pledges. Such items are in generally
good working order other than items that are not material or items that do not,
in the aggregate, exceed $25,000 in value.
Section 5.7. Real Property and the Leased Banking Centers.
- ------------ ---------------------------------------------
Sellers make the following additional representations regarding the Real
Property and the leased Banking Center locations:
(a) Except as specifically set forth herein or disclosed to Purchasers
within 30 days of the identification of the properties set out on
EXHIBITS 1.1(b) and 1.3, Sellers have no knowledge of any condemnation
proceedings pending against the Real Property and the leased Banking
Center locations.
(b) Except as specifically set forth herein or disclosed to Purchasers in
writing within 30 days after the identification of the properties set
out on EXHIBITS 1.1(b) and 1.3, Sellers have not entered into any
agreement regarding the Real Property and the leased Banking Center
locations, and to Seller's knowledge the Real Property and the leased
Banking Center locations are not subject to any claim, demand, suit,
hen, proceeding or litigation of any kind, pending or outstanding,
which would materially affect or limit Purchaser's use and enjoyment of
the Real Property and the leased Banking Center locations or which
would materially &fit or restrict Sellers' right or ability to enter
into this Agreement and consummate the sale and purchase contemplated
hereby.
(c) To Sellers knowledge: (i) no fact or condition exists which would
result in the permanent termination or material impairment of access to
the Real Property and the leased Banking Center locations from
adjoining public streets or highways or in the permanent discontinuance
of necessary utilities services to the Real Property and the leased
Banking Center locations or (ii) all sanitation, plumbing, refuse
disposal and similar facilities servicing the Banking Centers are in
material compliance with applicable governmental regulations.
(d) To Sellers' knowledge, there are no unpaid assessments in connection
with the Real Property and the leased Banking Center locations.
(e) Until the Closing, Purchasers' sole remedy for a breach of the
representations and warranties in this Section 5.7 shall be as provided
in Section 2.10(a).
Section 5.8. Condition of Property.
- ------------ ----------------------
Except as may be otherwise specifically set forth in this Agreement, the Real
Property and the leased Banking Center locations and Personal Property to be
purchased by Purchasers hereunder are sold as is, where is, with no warranties
or representations whatsoever, except as may be expressly represented or
warranted in this Agreement.
22
<PAGE> 27
Section 5.9. Ratios.
- ------------ -------
At the date of this Agreement the aggregate principal amount of Loans is at
least equal to 60% of the aggregate amount of Deposits.
Section 5.10. Employees.
- ------------- ----------
No Employee located in any of the Banking Centers is a party to any collective
bargaining, employment, severance, termination, or change of control agreement
or represented by a labor organization of any type other than Sellers'
established terms of employment and severance policies. Sellers are unaware of
any efforts during the past three years to unionize or organize the employees of
any of the Banking Centers.
Section 5.11. Assumed Contracts.
- ------------- ------------------
Each third party contract assumed is valid and subsisting in full force and
effect and Sellers have performed in all material respects, all obligations
required to be performed thereunder; each lease is valid and subsisting in full
force and effect and Sellers have performed in all material respects all
obligations required to be performed thereunder and no condition exists which
constitutes or, with notice, or lapse of time, would constitute a material
default.
Section 5.12. Loans.
- ------------- ------
(a) Each Loan was made in the ordinary course of business, has been
properly executed by the parties thereto, represents the valid, and
binding obligation of the obligor, enforceable by the holder thereof in
accordance with its terms, is free from any material defenses, contains
customary enforcement provisions such that the rights and remedies of
the holder thereof are adequate for enforcement of the Loans, and,
unless approved by Sellers and documented in their files, no material
provision of a Loan has been waived.
(b) Each Loan (such term to include, for purposes of this paragraph, the
principal documents relating in any way to such Loans, including notes,
mortgages, security instruments and guarantees) complies in all
material respects with all requirements of applicable Federal, state,
and local laws and regulations.
(c) Each Loan that is secured by collateral is secured by a perfected
mortgage or security interest in the collateral in favor of Sellers as
mortgagee or secured party. No collateral has been released from the
hen granted to Sellers, unless approved by Sellers and documented in
their files.
(d) No selection procedures believed to be adverse to Purchasers have been
utilized by Sellers in selecting the Loans.
(e) Purchasers' sole remedy for a breach of the representations and
warranties in this Section 5.12 shall be as provided in Section 4.1(b).
23
<PAGE> 28
Section 5.13. Environmental Matters.
- ------------- ----------------------
Except as previously disclosed to Purchasers in writing, to the actual knowledge
of the Executive Officers of Sellers and without any investigation by such
Executive Officers: (a) each Banking Center is, in all material respects, in
compliance with all applicable Federal, state, local, or municipal statutes,
ordinance, laws, and regulations and all orders, rulings, or other decisions of
any court, administrative agency, or any other governmental authority relating
to the protection of the environment, (b) no Banking Center contains any
asbestos material; and (c) none of the Banking Centers has in the past contained
or presently contains any underground storage tanks.
Section 5.14. Deposit Liabilities.
- ------------- --------------------
The assignment of the Deposit Liabilities is consistent with Sellers'
proprietary transactional-based assignment system and no selection procedures
believed to be adverse to Purchasers have been utilized by Sellers in selecting
the Deposit Liabilities.
Section 5.15. Limitation of Representations and Warranties.
- ------------- ---------------------------------------------
Except as may be expressly represented or warranted in this Agreement, neither
NationsBank nor any other Seller makes any representation or warranty whatsoever
with regard to any asset being transferred to Huntington or any liability or
obligation being assumed by Huntington or as to any other matter or thing.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
--------------------------------------------
Huntington hereby represents and warrants to NationsBank as follows, which
representations and warranties shall survive the Effective Time for a period of
24 months except as otherwise specifically herein provided:
Section 6.1. Corporate Organization.
- ------------ -----------------------
Huntington is a corporation, duly organized, validly existing and in good
standing under the laws of state of Maryland. Huntington has the corporate power
and authority to carry on the business being acquired, to assume the liabilities
being transferred, and to effect the transactions contemplated herein.
Section 6.2. No Violation.
- ------------ -------------
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated herein, will violate or conflict with (a) the
charter or bylaws of Purchasers; (b) any material provision of any material
agreement or any other material restriction of any kind to which Purchasers are
a party or by which Purchasers are bound; (c) any material statute, law, decree,
regulation or order of any governmental authority; or (d) any material provision
which will result in a default under, or cause the acceleration of the maturity
of, any material obligation or loan to which Purchasers are a party.
24
<PAGE> 29
Section 6.3. Corporate Authority.
- ------------ --------------------
Prior to the Closing, the consummation of the transactions contemplated herein
will have been duly authorized by the Board of Directors (or Executive
Committee) of each corporate entity assuming liabilities and purchasing assets
under this Agreement. No further corporate authorization on the part of
Purchasers is necessary to consummate the transactions contemplated hereunder.
Section 6.4. Enforceable Agreement.
- ------------ ----------------------
This Agreement has been duly executed and delivered by Huntington and is the
legal, valid and binding agreement of Huntington enforceable in accordance with
its terms.
Section 6.5. No Brokers.
- ------------ -----------
AN negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by NationsBank and Huntington, and there has been no
participation or intervention by any other person, firm or corporation employed
or engaged by or on behalf of Purchasers in such a manner as to give rise to any
valid claim against Seller or Purchasers for a brokerage commission, finder's
fee or like commission.
ARTICLE VII
-----------
OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE TIME
--------------------------------------------------------
Section 7.1. Full Access.
- ------------ ------------
Sellers shall afford to the officers and authorized representatives of
Huntington, upon prior notice and subject to NationsBank's normal security
requirements, access to the properties, books and records pertaining to the
Banking Centers specifically including but not limited to all books and records
relating to the Deposit Liabilities, the Loans, the Real Property, and the
Personal Property, and copies of the Real Estate Leases, the Tenant Leases, the
Equipment Leases, and the Software Leases in order that Purchasers may have full
opportunity to make reasonable investigations and to engage in operational
planning, at reasonable times without interfering with the normal business and
operations of the Banking Centers, or the affairs of NationsBank relating to the
Banking Centers. Sellers will cooperate with Purchasers to the extent reasonably
requested and legally permissible to provide Purchasers with information about
Employees and a means to meet with Employees. The officers of Sellers shall
furnish Huntington with two standard sets of such additional financial and
operating data and other information as to its business and properties at the
Banking Centers, or where otherwise located, as Huntington may, from time to
time, reasonably request and as shall be available, including without
limitation, information required for inclusion in all governmental applications
necessary to effect this transaction. Any additional copies of such information
shall be produced and provided at Huntington's expense. Nothing in this Section
7.1 shall require NationsBank to breach any obligation of confidentiality or to
reveal any proprietary information, trade secrets or marketing or strategic
plans. Records, including credit information relating to the Loans, will be made
available for review by Purchasers no later than 30 calendar days after the
execution of this Agreement. It is understood that certain of Sellers' records
may be available only in the form of photocopies, film copies or other
non-original and non-paper media.
25
<PAGE> 30
Section 7.2. Delivery of Magnetic Media Records.
- ------------ -----------------------------------
Sellers shall prepare or cause to be prepared at its expense and make available
to Purchasers at Sellers' data processing center or other reasonably convenient
location magnetic media records in Sellers field format as soon as possible and
in any event not later than 60 calendar days after the execution of this
Agreement and further shall make available to Purchasers such records updated
monthly and as of the Closing Date, which records shall contain the information
related to the items described in Subsections 3.2(b)(6), (b)(7) and (b)(8)
above. Such updated records shall be made available at such time after Closing
as agreed to by the parties. At its option, Sellers may provide such reports in
paper format instead of magnetic media format.
Section 7.3. Application for Approval.
- ------------ -------------------------
Within 30 calendar days following the execution of this Agreement, Purchasers
shall prepare and file applications required by law with the appropriate
regulatory authorities for approval to purchase and assume the aforesaid assets
and liabilities, to establish branches at the locations of the Banking Centers,
and to effect in all other respects the transactions contemplated herein. Such
applications should indicate the possibility of the acquisition of alternate or
substitute Banking Centers. Any amendments to such application to reflect
alternate or substitute Banking Centers shall be filed within 10 business days
after a Determination. Purchasers agree to process such applications in a
diligent manner and on a priority basis and to provide NationsBank promptly with
a copy of such applications as filed (except for any confidential portions
thereof) and all material notices, orders, opinions, correspondence and other
documents with respect thereto, and to use its best efforts to obtain all
necessary regulatory approvals. On the date hereof, Huntington knows of no
reason why such applications should not receive all such approvals. Purchasers
shall promptly notify NationsBank upon receipt by Purchasers of notification
that any application provided for hereunder has been accepted or denied. Sellers
shall provide such assistance and information to Purchasers as shall be
reasonably necessary for Purchasers to comply with the requirements of the
applicable regulatory authorities.
Section 7.4. Conduct of Business; Maintenance of Properties.
- ------------ -----------------------------------------------
From the date hereof until the Effective Time, NationsBank covenants that it
will cause Sellers to:
(a) Carry on, or cause to be carried on, the business of the Banking
Centers substantially in the same manner as on the date hereof, use all
reasonable efforts to preserve intact its current business organization
and preserve its business relationships with depositors, customers and
others having business relationships with it and whose accounts will be
retained at the Banking Centers; provided, however, that a Seller need
not, in its sole discretion, advertise or promote new or substantially
new customer services in the principal market area of the Banking
Centers;
(b) Cooperate with and assist Purchasers in assuming the orderly transition
of the business of the Banking Centers to Purchasers from Sellers; and
(c) Maintain the Real Property, the leased Banking Center locations and the
Personal Property in their current condition, ordinary wear and tear
excepted.
26
<PAGE> 31
Section 7.5. No Solicitation by Sellers.
- ------------ ---------------------------
After the execution of this Agreement, Sellers will take reasonable steps to
avoid causing Banking Center customers to transfer all or part of their Deposit
or Loan business from the Banking Centers and for a period of 24 months after
the Closing, Sellers will use their reasonable best efforts to avoid
specifically targeting and soliciting customers assigned to the Banking Centers
utilizing any customer or mailing list which consists primarily of such
customers; provided, however, these restrictions shall not restrict general mass
mailings, telemarketing calls, statement stuffers and other similar
communications directed to all the current customers of Sellers or Sellers'
affiliates, or to the public or newspaper, radio or television advertisements of
a general nature or otherwise prevent Sellers from taking such actions as may be
required to comply with any applicable federal or state laws, rules or
regulations. In addition, these restrictions shall not restrict (a) the
solicitation of (i) customers whose accounts are normally established or
maintained in offices other than the Banking Centers, (ii) any credit or debit
card customer of Sellers with regard to such card products, or (iii) any
customer which has an agreement for merchant services with Sellers or Sellers'
affiliates, including their venture partners (including Unified Merchant
Services) for merchant services; (b) the ability of Sellers to install, operate
and serve customers' needs through automated teller machines at any location; or
(c) the solicitation of customers whose accounts are excluded by either
Purchasers or Sellers from the transactions contemplated by this Agreement. The
obligations of the parties hereunder shall specifically survive the closing for
a period of 24 months.
In order to facilitate Sellers' compliance with the restrictions in this Section
7.5, Purchasers Will give prompt notice to Sellers of any mailing or other form
of marketing that it determines is not consistent with such restrictions.
Section 7.6. Further Actions.
- ------------ ----------------
The parties hereto shall execute and deliver such instruments and take such
other actions as the other party may reasonably require in order to carry out
the intent of this Agreement. Included in such actions shall be the execution
and delivery of additional powers of attorney and such other documents and
instruments as shall be prepared and reasonably requested by Purchasers to
transfer the Loans and all collateral related thereto. Such assistance will be
provided to the Purchasers without costs for Sellers' personnel for a period of
at least 12 months after the Closing Date.
Section 7.7. Fees and Expenses.
- ------------ ------------------
Subject to the provisions of Section 10.3, Purchasers shall be responsible for
the costs of all title examinations, surveys, environmental investigation costs,
their own attorneys' and accountants' fees and expenses, software license and
transfer fees, recording costs, transfer fees, sales and use and other transfer
taxes, regulatory applications and other expenses arising in connection
therewith as well as all costs and expenses associated with the transfer or
perfection of any security interests or liens securing Loans transferred
hereunder. Sellers and Purchasers shall split equally the costs of title
insurance premiums and documentary stamps and similar real estate transfer
charges. Sellers shall be responsible for their own
27
<PAGE> 32
attorneys' and accountants' fees and expenses related to this transaction.
Sellers shall make no charge to the Purchasers for Sellers' personnel assigned
to transition matters hereunder.
Section 7.8. Breaches with Third Parties.
- ------------ ----------------------------
If the assignment of any material claim, contract, license, lease, commitment,
sales order or purchase order (or any material claim or right or any benefit
arising thereunder) without the consent of a third party would constitute a
breach thereof or materially affect the rights of Purchasers or Sellers
thereunder, then such assignment is hereby made subject to such consent or
approval being obtained.
If such consent or approval is not received with respect to the acquisition of a
specific Banking Center lease, then that Banking Center will be excluded and
Sellers will designate, subject to Purchasers' reasonable approval and
regulatory approval, a substitute Banking Center.
Section 7.9. Operations.
- ------------ -----------
Notwithstanding the foregoing, between the date of this Agreement and the
Effective Time, and except as may be otherwise required by regulatory authority,
Sellers shall not, without the prior consent of Purchasers, which consent shall
not be unreasonably withheld:
(a) cause any Banking Center to engage or participate in any
material transaction or incur or sustain any obligation which
is material to its business, condition or operation;
(b) cause any Banking Center to transfer to Sellers' other
operations any material amount of Transferred Assets, except
for (i) supplies, if any, which have unique function in
Sellers' business and ordinarily would not be useful to
Purchasers, (ii) cash and other normal intrabank transfers
which may be transferred in the ordinary course of business in
accordance with normal banking practices and (iii) signs, or
those parts thereof, bearing Sellers name and/or logo;
(c) except in the ordinary course of business at the unsolicited
request of depositors (i) cause the Banking Centers to
transfer to Sellers' other operations any Deposits Liabilities
or (ii) cause any of Sellers' other operations to transfer to
the Banking Centers any Deposits Liabilities;
(d) invest in any fixed assets on behalf of any Banking Center and
for replacements of furniture, furnishing and equipment except
for normal maintenance and refurbishing purchased or made in
the ordinary course of business;
(e) enter into or amend any continuing contract (other than
Deposit Liabilities and Loans) relating to the Banking
Centers, which cannot be terminated without cause
and without payment of any amounts as a penalty, bonus,
premium or other compensation for termination, or which is not
made in the ordinary course of business;
28
<PAGE> 33
(f) undertake any actions which are inconsistent with a program to
use all reasonable efforts to maintain good relations with
customers and with employees employed at the Banking Centers,
unless such actions are required or permitted by this
Agreement;
(g) hire into a Banking Center (other than to replace a departing
employee and/or to bring the number of employees at the
Banking Centers to normal staffing levels), transfer or
reassign any employee of the Banking Centers (other than
within the group of Banking Centers), increase the
compensation of any employee of the Banking Center, or promote
any of the employees, except where any such action is pursuant
to and consistent with customary Sellers' procedures and
policies;
(h) make any material change to its customary policies for setting
rates on deposits offered at the Banking Centers;
(i) amend or modify any of its promotional, deposit account, or
Loan practices at the Banking Centers other than amendments or
modifications in the ordinary course of business in accordance
with amendments or modifications undertaken at Sellers'
branches other than the Banking Centers. Seller s shall
underwrite and administer the Loans at the Banking Centers in
accordance with its past standards and practices and in
accordance with applicable laws and regulations;
(j) enter into any employment, severance, termination, or change
in control contracts or understandings with any Banking Center
employees;
(k) reduce the service charges on any deposit product or fee-based
product (e.g. safe deposit boxes, money orders, cashier's
checks) unless such reduction is implemented generally in
Sellers' other branches;
(l) lease or sublease any space in any of the Banking Centers;
(m) until the Effective Time fail to maintain and update its
general ledger on a basis consistent with its past accounting
practices; or
(n) undertake any actions which would result in a Title Defect or
fail to take any action to remove or cure a Title Defect
caused by the Sellers after the date hereof.
Section 7.10. Destruction and Condemnation.
- ------------- -----------------------------
If a Banking Center is damaged or destroyed or condemned between the date hereof
and the Closing, unless Sellers have repaired or replaced the damage or
destroyed property, Purchasers may elect to either not acquire the Banking
Center and the related assets or, at the discretion of Purchasers, Purchasers
will acquire the Banking Center and Sellers will deliver to Purchasers any
insurance proceeds, condemnation proceeds or other payment with respect to the
Banking Center. If Purchasers elect not to acquire the Banking Center, then
Sellers will have the right to designate, subject to Purchasers' reasonable
approval and regulatory approval, a substitute Banking Center.
29
<PAGE> 34
Section 7.11. Insurance.
- ------------- ----------
As of the Effective Time, NationsBank will discontinue its insurance coverage
maintained in connection with the Banking Centers and the activities conducted
thereon. Huntington shall be responsible for all insurance protection for the
Banking Centers' premises and the activities conducted thereon immediately
following the Effective Time. Pending the Closing, risk of loss shall be the
responsibility of NationsBank.
Section 7.12. Public Announcements.
- ------------- ---------------------
Sellers and Purchasers agree that, from the date hereof, neither shall make any
public announcement or public comment, regarding this Agreement or the
transactions contemplated herein without first consulting with the other party
hereto and reaching an agreement upon the substance and timing of such
announcement or comment. Further, Sellers and Purchasers acknowledge the
sensitivity of this transaction to the Employees and no announcements or
communications with the public or the Employees shall be made without the prior
approval of Sellers until the Effective Time.
Section 7.13. Tax Reporting.
- ------------- --------------
Sellers shall comply with all tax reporting obligations in connection with
transferred assets and liabilities on or before the Effective Time, and
Purchasers shall comply with all tax reporting obligations with respect to the
transferred assets and liabilities after the Effective Time.
Section 7.14. Transitional Matters.
- ------------- ---------------------
Sellers shall use their best efforts to cooperate with Purchasers to assure an
orderly transition of ownership of the Assets and Loans and responsibility for
the liabilities, including the Deposit Liabilities, assumed by Purchaser
hereunder. As soon as practicable following the date of this Agreement, but in
no event later than 30 days after the date of this Agreement, Purchasers shall
provide Sellers with a draft of a detailed transition plan covering operational
aspects of the transition, including methods for the transmission of data and
records. If Sellers do not accept any part or all of such plan, they must notify
Purchasers in writing within 15 days after receiving such draft transition plan
from Purchasers, whereupon the parties agree to use their best efforts to agree
upon a mutually acceptable transition plan as soon as possible, but in no event
later than 60 days after the date of this Agreement. Sellers shall use their
best efforts to cooperate fully with Purchasers in implementing such transition
plan.
ARTICLE VIII
------------
CONDITIONS TO PURCHASERS OBLIGATIONS
------------------------------------
The obligation of Purchasers to complete the transactions contemplated in this
Agreement are conditioned upon fulfillment, on or before the Closing, of each of
the following conditions:
30
<PAGE> 35
Section 8.1. Representations and Warranties True.
- ------------ ------------------------------------
The representations and warranties made by Sellers in this Agreement shall be
true in all material respects on and as of the Effective Time as though such
representations and warranties were made at and as of such time, except for any
changes permitted by the terms hereof or consented to by Purchasers.
Section 8.2. Obligations Performed.
- ------------ ----------------------
Sellers shall (a) deliver or make available to Purchasers those items required
by Section 3.2 hereof, and (b) perform and comply in all material respects with
all obligations and agreements required by this Agreement to be performed or
complied with by it prior to or on the Effective Time.
Section 8.3. No Adverse Litigation.
- ------------ ----------------------
As of the Effective Time, no action, suit or proceeding shall be pending or
threatened against Sellers which is reasonably likely to (a) materially and
adversely affect the business, properties and assets of the Banking Centers, or
(b) materially and adversely affect the transactions contemplated herein.
Section 8.4. Regulatory Approval.
- ------------ --------------------
(a) Purchasers shall have received all necessary regulatory approvals of
the transactions provided in this Agreement, all notice and waiting
periods required by law to pass shall have passed, no proceeding to
enjoin, restrain, prohibit or invalidate such transactions shall have
been instituted or threatened, and any conditions of any regulatory
approval shall have been met.
(b) Such approvals shall not have imposed any condition which is materially
disadvantageous or burdensome to Purchasers.
Section 8.5. Loan to Deposit Ratio.
- ------------ ----------------------
At the date of the Pre-Closing Balance Sheet, the aggregate principal amount of
Loans will be at least equal to 60% of the aggregate amount of the Deposit
Liabilities; provided, however, that for purposes of determining this ratio, the
principal amount of any Loans rejected by Purchasers pursuant to Section
2.4(b)(6) hereof shall be deemed to be included in the aggregate principal
amount of the Loans.
ARTICLE IX
----------
CONDITIONS TO SELLERS OBLIGATIONS
---------------------------------
The obligation of Sellers to complete the transactions contemplated in this
Agreement are conditioned upon fulfillment, on or before the Closing, of each of
the following conditions:
31
<PAGE> 36
Section 9.1. Representations and Warranties True.
- ------------ ------------------------------------
The representations and warranties made by Purchasers in this Agreement shall be
true in all material respects at and as of the Effective Time as though such
representations and warranties were made at and as of such time, except for any
changes permitted by the terms hereof or consented to by Sellers.
Section 9.2. Obligations Performed.
- ------------ ----------------------
Purchasers shall (a) deliver to Sellers those items required by Section 3.2
hereof, and (b) perform and comply in all material respects with all obligations
and agreements required by this Agreement to be performed or complied with by it
prior to or on the Effective Time.
Section 9.3. No Adverse Litigation.
- ------------ ----------------------
As of the Effective Time, no action, suit or proceeding shall be pending or
threatened against Purchasers or Sellers which might materially and adversely
affect the transactions contemplated hereunder.
Section 9.4. Regulatory Approval.
- ------------ --------------------
(a) Sellers shall have received from the appropriate regulatory authorities
approval of the transactions contemplated herein, waiting periods
required by law to pass shall have passed, no proceeding to enjoin,
restrain, prohibit or invalidate such transactions shah have been
instituted or threatened, and any conditions of any regulatory approval
shall have been met.
(b) Such approvals or Purchasers' corresponding regulatory approvals shall
not have imposed any condition which is materially disadvantageous or
burdensome to Sellers and neither such regulatory approvals nor the
provisions of this Agreement will have required any action by
NationsBank or Sellers which would result in the loss of, or
modification to, regulatory approval of the Barnett Transaction.
Section 9.5. Barnett Transaction Closing.
- ------------ ----------------------------
The Barnett Transaction shall have closed without the imposition of regulatory
conditions which would adversely impact the ability of Sellers to close this
Agreement.
ARTICLE X
---------
TERMINATION
-----------
Section 10.1. Methods of Termination.
- ------------- -----------------------
This Agreement may be terminated in any of the following ways:
(a) by either Huntington or NationsBank, in writing five calendar days in
advance of such termination, if the Closing has not occurred by June
30, 1998;
32
<PAGE> 37
(b) at any time on or prior to the Effective Time by the mutual consent in
writing of Huntington and NationsBank;
(c) by Huntington in writing if the conditions set forth in Article VIII of
this Agreement shall not have been met by NationsBank or waived in
writing by Huntington prior to the date fixed for Closing;
(d) by NationsBank in writing if the conditions set forth in Article IX of
this Agreement shall not have been met by Huntington or waived in
writing by NationsBank prior to the date fixed for Closing;
(e) any time prior to the Effective Time, NationsBank or Huntington in
writing if the other shall have been in breach of any representation
and warranty in any material respect (as if such representation and
warranty had been made on and as of the date hereof and on the date of
the notice of breach referred to below), or in breach of any covenant,
undertaking or obligation contained herein, and such breach has not
been cured by the earlier of 30 calendar days after the giving of
notice to the breaching party of such breach or the Effective Time;
provided, however, that there shall be no cure period in connection
with any breach of Section 7.3 hereof, so long as such breach by
Purchasers was not caused by any action or inaction of Sellers, and
NationsBank may terminate this Agreement immediately if regulatory
applications are not filed within 30 calendar days after the date of
this Agreement as provided in that Section;
(f) by NationsBank in writing at any time after any applicable regulatory
authority has denied approval of any application of Purchasers for
approval of the transactions contemplated herein; or
(g) by either Huntington or NationsBank, in writing five calendar days in
advance of such termination, if the Barnett Transaction is terminated
prior to completion.
Section 10.2. Procedure Upon Termination.
- ------------- ---------------------------
In the event of termination pursuant to Section 10.1 hereof, and except as
otherwise stated therein, written notice thereof shall be given to the other
party, and this Agreement shall terminate immediately upon receipt of such
notice unless an extension is consented to by the party having the right to
terminate.
If this Agreement is terminated as provided herein,
(a) each party will return all documents, work papers and other materials
of the other party, including photocopies or other duplications
thereof, relating to this transaction, whether obtained before or after
the execution hereof, to the party furnishing the same;
(b) all information received by either party hereto with respect to the
business of the other party (other than information which is a matter
of public knowledge or which has heretofore been published in any
publication for public distribution or filed as public information with
any governmental authority) shall not at any time be used for any
business purpose by such party or disclosed by such party to third
persons; and
(c) each party will pay its own expenses.
33
<PAGE> 38
Section 10.3. Payment of Expenses.
- ------------- --------------------
Should the transactions contemplated herein not be consummated because of a
party's breach of this Agreement, in addition to such damages as may be
recoverable in law or equity, the other party shall be entitled to recover from
the breaching party upon demand, itemization and documentation, its reasonable
outside legal, accounting, consulting and other out-of-pocket expenses.
ARTICLE XI
----------
MISCELLANEOUS PROVISIONS
------------------------
Section 11.1. Completion of Barnett Transaction.
- ------------- ----------------------------------
Sellers and Purchasers acknowledge that the completion of the transactions
contemplated by this Agreement are contingent and dependent upon the completion
and closing of the Barnett Transaction. In the event that this Agreement is
terminated as provided for in Section 10.1(g), upon such termination neither
party shall be obligated in any way to the other.
Section 11.2. Assignment to Subsidiaries.
- ------------- ---------------------------
At their discretion, both NationsBank and Huntington may cause the obligations
of "Sellers" and "Purchasers" under this Agreement, as the case may be, to be
fulfilled by their respective banking and corporate subsidiaries. Upon
identification by NationsBank and Huntington of the subsidiaries to be
considered a seller or purchaser, NationsBank and Huntington shall cause those
subsidiaries to enter into such agreements as may be necessary to bind those
subsidiaries as additional parties to this Agreement.
Section 11.3. Amendment and Modification.
- ------------- ---------------------------
The parties hereto, by mutual consent may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
Section 11.4. Waiver or Extension.
- ------------- --------------------
Except with respect to required approvals of the applicable governmental
authorities, either party, by written instrument signed by a duly authorized
officer, may extend the time for the performance of any of the obligations or
other acts of the other party and may waive (a) any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (b) compliance with any of the undertakings, obligations,
covenants or other acts contained herein.
Section 11.5. Assignment.
- ------------- -----------
This Agreement and all of the provisions hereof shall be binding upon, and shall
inure to the benefit of, the parties hereto and their permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either of the parties hereto without the prior written
consent of the other.
34
<PAGE> 39
Section 11.6. Confidentiality.
- ------------- ----------------
NationsBank and Huntington agree that any confidentiality agreements between
NationsBank and Huntington shall survive the execution hereof and the
consummation of the transactions contemplated herein.
Section 11.7. Addresses for Notices, Etc.
- ------------- ---------------------------
All notices, consents, waivers and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) deposited in the United
States Mail by registered or certified mail, return receipt requested, (c) sent
by telecopier (with electronic confirmation of receipt), provided that a copy is
mailed by registered or certified mail, return receipt requested, or (d) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
If to Sellers: NationsBank Corporation
Attn.: Frank L. Gentry
100 North Tryon Street
NC1-007-33-02
Charlotte, NC 28255
Fax: (704) 386-6416
with a copy to: NationsBank Corporation
Attn: General Counsel
100 North Tryon Street
NC1-007-20-01
Charlotte, NC 28255
Fax Number: (704) 386-2400
If to Purchasers: Huntington Bancshares Incorporated
Attn: Zuheir Sofia, President
41 South High Street
Columbus, Ohio 43287
Fax Number: (614) 480-5485
with a copy to: Ralph K. Frasier, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Fax Number: (614) 480-5485
35
<PAGE> 40
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section.
Section 11.8. Counterparts.
- ------------- -------------
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Section 11.9. Headings.
- ------------- ---------
The headings of the Sections and Articles of this Agreement are inserted for
convenience only and shall not constitute a part thereof
Section 11.10. Governing Law.
- -------------- --------------
This Agreement shall be governed by, and construed in accordance with, the laws
of the state of Florida.
Section 11.11. Sole Agreement.
- -------------- ---------------
Except for the Confidentiality Agreement, this Agreement and the exhibits and
attachments hereto represent the sole agreement between the parties hereto
respecting the transactions contemplated hereby and all prior or contemporaneous
written or oral proposals, agreements in principle, representations, warranties
and understandings between the parties with respect to such matters are
superseded hereby and merged herein.
Section 11.12. Parties In Interest.
- -------------- --------------------
Nothing in this Agreement, express or implied, expressly including, without
limiting the generality of the foregoing in any way, the provisions of Section
2.6(a) hereof, is intended or shall be construed to confer upon or give to any
person (other than the parties hereto, their successors and permitted assigns)
any rights or remedies under or by reason of this Agreement, or any term,
provision, condition, undertaking, warranty, representation, indemnity, covenant
or agreement contained herein.
36
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers as of the date first written
above.
NATIONSBANK CORPORATION
By: /s/ Frank L. Gentry
-------------------------------------
Name: Frank L. Gentry
------------------------------------
Title: Executive Vice President
----------------------------------
HUNTINGTON BANCSHARES
INCORPORATED
By: /s/ Zuheir Sofia
---------------------------------------
Name: Zuheir Sofia
-------------------------------------
Title: President & Chief Operating Officer
-----------------------------------
37
<PAGE> 42
PURCHASE AND ASSUMPTION AGREEMENT
BETWEEN
NATIONSBANK CORPORATION
AND
HUNTINGTON BANCSHARES INCORPORATED
EXHIBIT LIST
EXHIBIT NO. DESCRIPTION
1.1(b) List of Banking Centers
OMITTED EXHIBITS
2.1(b) List of Excluded Assets
2.40(j) Form of Power of Attorney
2.6(a) Severance Benefits
3.2(b)(1) Form of Special Warranty Deed
3.2(b)(2) Form of Bill of Sale
3.2(b)(3) Form of Assignment and
Assumption Agreement
3.2(b)(4) Form of Assignment and Assumption of Lease
3.2(b)(15) Form of Closing Statement
3.2(b)(19) Form of Title Insurance Affidavit
<PAGE> 43
EXHIBIT 1.1(b)
--------------
PURCHASE AND ASSUMPTION AGREEMENT
BETWEEN
NATIONSBANK CORPORATION
AND
HUNTINGTON BANCSHARES INCORPORATED
LIST OF BANKING CENTERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MARKET BRANCH NAME ADDRESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brevard Downtown Melbourne 1109 E. New Haven Ave., Melbourne
- --------------------------------------------------------------------------------------------------------------------
Brevard Port Malabar 4600 Dixie Highway NE, Palm Bay
- --------------------------------------------------------------------------------------------------------------------
Brevard Rockledge 234 Barton Boulevard, Rockledge
- --------------------------------------------------------------------------------------------------------------------
Brevard Suntree 3303 Suntree Boulevard, Melbourne
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Daytona Countryside 1058 Dunlawton Avenue, Port Orange
- --------------------------------------------------------------------------------------------------------------------
Daytona Flagler Plaza 100 Flagler Plaza Drive, Palm Coast
- --------------------------------------------------------------------------------------------------------------------
Daytona Downtown Daytona 200 South Palmetto Avenue, Daytona Beach
- --------------------------------------------------------------------------------------------------------------------
Daytona North Causeway 111 North Causeway, New Smyma Beach
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers South Fort Myers 12381 South Tamiami Trail, Fort Myers
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers Barnett Centre 2000 South Main Street, Fort Myers
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers North Forty-One 13901 North Cleveland Avenue, Fort Myers
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers Pine Island 9820 Stringfellow Rd., Saint James City
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers San Carlos 18875 South Tamiami Trail, Fort Myers
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers Chiquita 1533 Cape Coral Parkway West, Cape Coral
- --------------------------------------------------------------------------------------------------------------------
Ft. Myers Riverdale 14490 Palm Beach Road, Fort Myers
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- 39 -
<PAGE> 44
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MARKET BRANCH NAME ADDRESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sarasota South Bridge 1670 South Venice Bypass, Venice
- --------------------------------------------------------------------------------------------------------------------
Sarasota Englewood 333 South Indiana Avenue, Englewood
- --------------------------------------------------------------------------------------------------------------------
Sarasota South Gate 3550 South Tamiami Trail, Sarasota
- --------------------------------------------------------------------------------------------------------------------
Sarasota South Venice 2090 South Tamiami Trail, South, Venice
- --------------------------------------------------------------------------------------------------------------------
Sarasota North Trail 3300 North Tamiami Trail, Sarasota
- --------------------------------------------------------------------------------------------------------------------
Sarasota Bradenton/Downtown 1001 3rd Avenue West, Bradenton
- --------------------------------------------------------------------------------------------------------------------
Sarasota DeSoto Square 4303 1st Street, Bradenton
- --------------------------------------------------------------------------------------------------------------------
Sarasota Barnett Bank Center 240 South Pineapple, Sarasota
- --------------------------------------------------------------------------------------------------------------------
Sarasota Sarasota Square 8055 Beneva, Sarasota
- --------------------------------------------------------------------------------------------------------------------
Sarasota Nokomis 1099 North Tamiami Trail, Nokomis
- --------------------------------------------------------------------------------------------------------------------
Sarasota Ellenton 6102 US Highway 301 North, Ellenton
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Tampa East Clearwater 2150 Cleveland Street, Clearwater
- --------------------------------------------------------------------------------------------------------------------
Tampa Central Plaza 3100 Central Avenue, Saint Petersburg
- --------------------------------------------------------------------------------------------------------------------
Tampa North Oakhurst 9130 Oakhurst Road, Seminole
- --------------------------------------------------------------------------------------------------------------------
Tampa Roosevelt 15201 Roosevelt Boulevard, Clearwater
- --------------------------------------------------------------------------------------------------------------------
Tampa East Lake Office 36105 East Lake Road, Palm Harbor
- --------------------------------------------------------------------------------------------------------------------
Tampa Southeast 4250 6th Street South, Saint Petersburg
- --------------------------------------------------------------------------------------------------------------------
Tampa Park Plaza 7694 49th Street, Pinellas Park
- --------------------------------------------------------------------------------------------------------------------
Tampa Clearwater Beach 423 Mandalay Avenue, Clearwater
- --------------------------------------------------------------------------------------------------------------------
Tampa 4th Street North 2116 4th Street North, Saint Petersburg
- --------------------------------------------------------------------------------------------------------------------
Tampa Oldsmar 200 Oakleaf Boulevard, Oldsmar
- --------------------------------------------------------------------------------------------------------------------
Tampa Countryside 26627 US Highway 19 North, Clearwater
- --------------------------------------------------------------------------------------------------------------------
Tampa 56th Street 6925 North 56th Street, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa Fletcher 13502 North Florida Avenue, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa University 2208 East Fowler Avenue, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa Ruskin 502 North US Highway 41, Ruskin
- --------------------------------------------------------------------------------------------------------------------
Tampa West Village Common 5370 Erlich Road, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa South Dale Mabry 4005 South Dale Mabry Highway, Tampa
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- 40 -
<PAGE> 45
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MARKET BRANCH NAME ADDRESS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tampa Sabal Park 9601 Martin Luther King Blvd. E., Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa Broadway 1701 East 7th Avenue, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa Tampa Stadium 4545 North Himes Avenue, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa Spring Hill Plaza 7539 Spring Hill Drive, Spring Hill
- --------------------------------------------------------------------------------------------------------------------
Tampa Brooksville Medical Center 702 South Broad Street, Brooksville
- --------------------------------------------------------------------------------------------------------------------
Tampa Regency Park 10220 US Highway 19, Port Richey
- --------------------------------------------------------------------------------------------------------------------
Tampa Zephyrhills 7344 Gall Boulevard, Zephyrhills
- --------------------------------------------------------------------------------------------------------------------
Tampa Gulf Trace 2865 US Highway 19, Holiday
- --------------------------------------------------------------------------------------------------------------------
Tampa Pasco Square 4041 Rowan Road, New Port Richey
- --------------------------------------------------------------------------------------------------------------------
Tampa Main Street 6128 Highway 19, New Port Richey
- --------------------------------------------------------------------------------------------------------------------
Tampa Tarpon Springs 205 East Tarpon Avenue, Tarpon Springs
- --------------------------------------------------------------------------------------------------------------------
Tampa Hyde Park 601 West Platt Street, Tampa
- --------------------------------------------------------------------------------------------------------------------
Tampa Plant City Downtown 105 South Wheeler Street, Plant City
- --------------------------------------------------------------------------------------------------------------------
Tampa Spring Hill North 7165 Mariner Boulevard, Spring Hill
- --------------------------------------------------------------------------------------------------------------------
Tampa Fivay Road 14207 Fivay Road, Hudson
- --------------------------------------------------------------------------------------------------------------------
Tampa County Road 1 1300 State Road 584, Palm Harbor
- --------------------------------------------------------------------------------------------------------------------
Tampa Seminole 7405 Seminole Blvd. (US Alt. 19), Seminole
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- 41 -
<PAGE> 1
Exhibit 3(ii)
ATTACHMENT I
HUNTINGTON BANCSHARES INCORPORATED
BYLAWS
(AMENDED AND RESTATED NOVEMBER 19, 1997)
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, at such time and on such date during the thirty-one day
period beginning March 30 and ending April 29 as the Board of Directors shall
determine. In the absence of a determination by the Board of Directors, the
annual meeting of stockholders shall be held at 3:00 p.m. on the third Thursday
of April in each year if not a legal holiday, and if a legal holiday, then on
the next secular day following. At the annual meeting, the stockholders shall
elect a Board of Directors and may transact any other business as may be brought
before the annual meeting by the Board of Directors or by any stockholder as set
forth in Section 1.09 of these Bylaws.
SECTION 1.02. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board, the President, a majority of the Board of Directors by
vote at a meeting or in writing (addressed to the Secretary of the Corporation),
or by the stockholders on the written request (addressed to the Secretary of the
Corporation) of stockholders entitled to cast at least a majority of all the
votes entitled to be cast at the meeting.
SECTION 1.03. PLACE OF MEETINGS. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled by statute to notice of the meeting.
The notice shall state the time and place of the meeting and, if the meeting is
a special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally delivered
to him, left at his residence or usual place of business, or mailed to him at
his address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to notice waives notice if he
before or after the meeting signs a waiver of the notice which is filed with the
records of stockholders' meetings, or is present at the meeting in person or by
proxy.
SECTION 1.05. QUORUM; VOTING. Unless statute or the Charter provides
otherwise, at any meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority
1
<PAGE> 2
of all the votes entitled to be cast at the meeting constitutes a quorum, and a
majority of all the votes cast at a meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the meeting, except
that a plurality of all votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
SECTION 1.06. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the presiding officer or by the stockholders
present in person or by proxy by a majority vote. Any business which might have
been transacted at the meeting as originally notified may be deferred and
transacted at any such adjourned meeting at which a quorum shall be present. No
further notice of an adjourned meeting other than by announcement shall be
necessary if held on a date not more than 120 days after the original record
date.
SECTION 1.07. GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. A
stockholder may vote the stock he owns of record either in person or by written
proxy signed by the stockholder or by his duly authorized attorney-in-fact.
Unless a proxy provides otherwise, it is not valid more than 11 months after its
date.
SECTION 1.08. NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF
DIRECTORS. No person shall be appointed, nominated or elected a director of the
Corporation after having attained the age of 75 years. Notwithstanding the
above, no person who has been employed on a full-time basis by this Corporation
or one of its direct or indirect subsidiaries may be appointed, nominated or
elected a director of the Corporation after having attained the age of 65 years
except (i) any such person who, as of the date of these Bylaws, is over the age
of 65 years and is serving as a director and (ii) the Chief Executive Officer of
this Corporation.
Only persons nominated in accordance with the procedures set forth in
this Section 1.08 shall be eligible for election as directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders by or at the direction of the Board of Directors, or
by any stockholder of the Corporation entitled to vote for the election of
directors at such a meeting who complies with the notice procedures set forth in
this Section 1.08. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the date of a stockholder meeting; provided, however, that if less than 40 days'
notice or prior public disclosure of the date of the stockholders' meeting is
given or made to the stockholders, notice by the stockholder to be timely must
be so delivered or received not later than the close of business on the 10th day
following the earlier of (i) the day on which such notice of the date of the
meeting was mailed or (ii) the day on which such public disclosure was made.
2
<PAGE> 3
A stockholder's notice to the Secretary shall set forth (i) as to each
person whom the stockholder proposes to nominate for election as a director, (a)
the name, age, business address and residence address of such person, (b) the
principal occupation or employment of such person during each of the last five
years, (c) the class and number of shares of the Corporation which are
beneficially owned by such person on the date of such stockholder's notice, and
(d) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, or any successor act or regulation (including without
limitation such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (ii) as to the
stockholder giving the notice, (a) the name and address, as they appear on the
Corporation's books, of the stockholder and any other stockholders known by such
stockholder to be supporting such nominees, and (b) the class and number of
shares of the Corporation which are beneficially owned by such stockholder on
the date of such stockholder's notice and by any other stockholders known by
such stockholder to be supporting such nominees on the date of such
stockholder's notice. The Corporation may require any proposed nominee to
furnish such other information as may be reasonably required by the Corporation
to determine the qualifications of such proposed nominee to serve as a director
of the Corporation.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.08. The chairman of the stockholders meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
SECTION 1.09. STOCKHOLDER PROPOSALS. At an annual or special meeting of
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been properly brought before such meeting. To
be properly brought before a meeting of stockholders, business must be (i) in
the case of a special meeting, specified in the notice of the special meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) properly brought before the meeting by or at the direction of
the Board of Directors, or (iii) otherwise properly brought before the meeting
by a stockholder. For business to be properly brought before a meeting of
stockholders by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 60 days prior to the stockholder meeting; provided, however, that if less
than 40 days' notice or prior public disclosure of the date of the meeting is
given or made to the stockholders, notice by the stockholder to be timely must
be so delivered or received not later than the close of business on the 10th day
following the earlier of (i) the day on which such notice of the date of the
meeting was mailed, or (ii) the day on which such public disclosure was made.
A shareholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before a meeting of stockholders, (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the
3
<PAGE> 4
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business and any stockholders known by such stockholder to be
supporting such proposal, (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder on the date of such
stockholder's notice and by any other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder's notice, and (iv)
any material interest of the stockholder in such proposal.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting of stockholders except in accordance with the
procedures set forth in this Section 1.09. The chairman of the stockholder
meeting shall, if the facts warrant, determine and declare to the meeting that
the business was not properly brought before the meeting in accordance with the
procedures prescribed by these Bylaws, and if he should so determine, he shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
SECTION 1.10. CONDUCT OF VOTING. At all meetings of stockholders, unless
the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions relating to the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in person
or by proxy, entitled to cast 10% in number of votes entitled to be cast, or if
ordered by the chairman of the meeting, the vote upon any election or question
shall be taken by ballot and, upon like demand or order, the voting shall be
conducted by two inspectors, in which event the proxies and ballots shall be
received; and all questions relating to the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided,
by such inspectors. Unless so demanded or ordered, no vote need be by ballot and
voting need not be conducted by inspectors. The stockholders at any meeting may
choose an inspector or inspectors to act at such meeting, and in default of such
election, the chairman of the meeting may appoint an inspector or inspectors. No
candidate for election as a director at a meeting shall serve as an inspector.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or these Bylaws.
SECTION 2.02. NUMBER OF DIRECTORS. The Corporation shall have the number
of directors provided by the Charter until changed as provided in this Section
2.02. A majority of the entire Board of Directors may alter the number of
directors set by the Charter to not more than 25 nor less than three directors;
provided that any such action may not affect the tenure of office of any
director.
4
<PAGE> 5
SECTION 2.03. ELECTION AND TENURE OF DIRECTORS. Beginning with the
election of directors in 1987, the Board of Directors shall be divided into
three classes, Class 1, Class II and Class III. Each such class shall consist,
as nearly as possible, of one-third of the total number of directors, and any
remaining directors shall be included within such class or classes as the Board
of Directors shall designate. At the annual meeting of stockholders in 1987,
Class I directors shall be elected for a one-year term, Class II directors for a
two-year term, and Class III directors for a three-year term. Except as provided
in Section 2.04 of this Article II, at each succeeding annual meeting of
stockholders beginning in 1988, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible. Any director who has been employed on a full-time
basis by the Corporation and who has attained the age of 65 years, or any other
director who has attained the age of 75 years, shall retire effective on the
date of the next annual meeting of stockholders. Notwithstanding the foregoing,
any director who has been employed on a full-time basis by the Corporation and
(i) who, as of the date of these Bylaws has attained the age of 65 years or (ii)
is the Chief Executive Officer of this Corporation, shall retire effective on
the date of next annual meeting of stockholders after such director attains the
age of 75 years. A director may otherwise be removed from office for cause only
and, subject to such removal, death, resignation, retirement or
disqualification, shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and qualify.
SECTION 2.04. VACANCY ON BOARD. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from the retirement or
removal of a director. A director elected by the stockholders to fill such a
vacancy serves for the balance of the term of the retired or removed director. A
majority of the remaining directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors and a majority of the entire
Board of Directors may fill a vacancy which results from an increase in the
number of directors. A director elected by the Board of Directors to fill a
vacancy serves until the next annual meeting of stockholders and until his
successor is elected and qualifies.
SECTION 2.05. REGULAR MEETINGS. After each annual meeting of
stockholders at which directors shall have been elected, the Board of Directors
shall meet as soon as practicable for the purpose of organization and the
transaction of other business. Such first regular meeting shall be held at any
place as may be designated by the Chairman, President or Board of Directors for
such first regular meeting, or in default of such designation at the place of
the holding of the immediately preceding meeting of stockholders. Any other
regular meeting of the Board of Directors shall be held on such date and at any
place as may be designated from time to time by the Chairman of the Board. No
notice of such regular meetings shall be necessary if held as hereinabove
provided.
SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the President
or by a majority of the then-acting directors by vote at a meeting or in
writing, or by a majority of the members of the executive committee, if one
5
<PAGE> 6
be constituted, by vote at a meeting or in writing. A special meeting of the
Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors. In the absence of such
designation, such meeting shall be held at such place as may be designated in
the call.
SECTION 2.07. NOTICE OF MEETING. Except as provided in Section 2.05, the
Secretary shall give notice or cause to be given to each director of each
regular and special meeting of the Board of Directors. The notice shall state
the time and place of the meeting. Notice is given to a director when it is
delivered personally to him, left at his residence or usual place of business,
or sent by telegraph or telephone, at least 48 hours before the time of the
meeting or, in the alternative, by mail to his address as it shall appear on the
records of the Corporation, at least 72 hours before the time of the meeting;
provided, however, that notice of a special meeting which is called by the
Chairman or the President is given to a director when it is delivered personally
to him or sent by telegraph or telephone at least one hour before the time of
the meeting. Unless these Bylaws or a resolution of the Board of Directors
provides otherwise, the notice need not state the business to be transacted at
or the purposes of any regular or special meeting of the Board of Directors. No
notice of any meeting of the Board of Directors need be given to any director
who attends, or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Any regular or special meeting of the Board of Directors may adjourn
from time to time to reconvene at the same or some other place, and no notice
need be given of any such adjourned meeting other than by announcement.
SECTION 2.08. ACTION BY DIRECTORS. Unless statute, the Charter or these
Bylaws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is the action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present, by majority vote and without notice other than by announcement, may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if an unanimous written consent
which sets forth the action is signed by each member of the Board of Directors
and filed with the minutes of the proceedings of the Board of Directors.
SECTION 2.09. MEETING BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.10. COMPENSATION. The Board of Directors shall have the
authority to fix the compensation of the Directors. The directors may be paid
their expenses, if any, of attendance at each regular and special meeting of the
Board of Directors or committees thereof. In addition, by resolution of the
Board of Directors, a stated annual retainer and/or a fixed sum for attendance
at
6
<PAGE> 7
each regular or special meeting of the Board of Directors or committees thereof,
and other compensation for their services as such, may be paid to directors. A
director who serves the Corporation in any other capacity also may receive
compensation for such other services.
ARTICLE III.
COMMITTEES
SECTION 3.01. COMMITTEES. The Board of Directors may appoint from among
its members an Executive Committee and other committees composed of two or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend these Bylaws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board of Directors,
in accordance with a general formula or method specified by the Board of
Directors by resolution or by adoption of a stock option or other plan, may fix
the terms of stock subject to classification or reclassification and the terms
on which any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
SECTION 3.02. COMMITTEE PROCEDURE. The Board of Directors shall have the
power to prescribe the manner in which proceedings of each committee shall be
held. Unless the Board of Directors shall otherwise provide, the actions of each
committee shall be governed by the following rules of procedure. A majority of
the members of a committee shall constitute a quorum for the transaction of
business and the act of a majority of those present at a meeting at which a
quorum is present shall be the act of the committee. The members of a committee
present at any meeting, whether or not they constitute a quorum, may appoint a
director to act in the place of an absent member. Any action required or
permitted to be taken at a meeting of a committee may be taken without a
meeting, if an unanimous written consent which sets forth the action is signed
by each member of the committee and filed with the minutes of the committee. The
members of a committee may conduct any meeting thereof by conference telephone
or similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting. In the absence of any prescription
by the Board of Directors or any applicable provision of these Bylaws, each
committee may prescribe the manner in which its proceedings shall be conducted.
SECTION 3.03. DELEGATION. The Board of Directors may delegate to
officers, employees or agents, the performance of duties not specifically
required by law or these Bylaws to be performed by the Board of Directors.
7
<PAGE> 8
ARTICLE IV.
OFFICERS
SECTION 4.01. EXECUTIVE AND OTHER OFFICERS. The Corporation shall have a
President, a Secretary, and a Treasurer and may also have a Chairman of the
Board, which officers shall be the executive officers of the Corporation. The
Board of Directors may designate who shall serve as Chief Executive Officer,
having general supervision of the business and affairs of the Corporation, and
as Chief Operating Officer, having supervision of the operations of the
Corporation. In the absence of designation the Chairman shall serve as Chief
Executive Officer. The Corporation may also have one or more Vice Presidents
(which may be designated Executive Vice President, Senior Vice President or Vice
President), assistant officers and such other officers as may be established by
the Board of Directors. A person may hold more than one office in the
Corporation but may not serve concurrently as both President and Vice President
of the Corporation. The Chairman of the Board and President shall be directors.
The other officers may be directors.
SECTION 4.02. ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board of
Directors shall elect the officers or may from time to time authorize any
committee or officer to appoint assistant and subordinate officers. The officers
shall be appointed to hold their respective offices during the pleasure of the
Board of Directors. The Board of Directors or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board of
Directors, may remove an officer at any time. The removal of an officer does not
prejudice any of his contractual rights. The Board of Directors or, as to any
assistant or subordinate officer, any committee or officer authorized by the
Board of Directors, may fill a vacancy which occurs in any office.
SECTION 4.03. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; he may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments of every description. In general, he shall perform all such duties
as are from time to time assigned to him by the Board of Directors.
SECTION 4.04. PRESIDENT. The President, in the absence of the Chairman
of the Board, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; he may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments of every description. In general, he shall perform all duties
usually performed by a president of a corporation and such other duties as are
from time to time assigned to him by the Board of Directors or the Chief
Executive Officer of the Corporation.
SECTION 4.05. VICE PRESIDENTS. The Vice President or Vice Presidents, at
the request of the Chief Executive Officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice President, the Board of
Directors may determine which one or more of the Vice Presidents shall perform
any of such duties or exercise any
8
<PAGE> 9
of such functions, or if such determination is not made by the Board of
Directors, the Chief Executive Officer, or the President may make such
determination; otherwise any of the Vice Presidents may perform any of such
duties or exercise any of such functions. The Vice President or Vice Presidents
shall have such other powers and perform such other duties, and have such
additional descriptive designations in their titles, if any, as are from time to
time assigned to them by the Board of Directors, the Chief Executive Officer, or
the President.
SECTION 4.06. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders and the Board of Directors in books provided for
such purpose; he shall see that all notices are duly given in accordance with
the provision of these Bylaws or as required by law; he shall be custodian of
the records of the Corporation; he may witness any document on behalf of the
Corporation, the execution of which is duly authorized, see that the corporate
seal is affixed where such document is required or desired to be under its seal,
and, when so affixed, may attest the same; and, in general, he shall perform all
duties incident to the office of a secretary of a corporation, and such other
duties as are from time to time assigned to him by the Board of Directors, the
Chief Executive Officer, or the President.
SECTION 4.07. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the executive
officers. He shall render to the Chief Executive Officer, the President and the
Board of Directors, whenever requested, an account of the financial condition of
the Corporation; and, in general, he shall perform all the duties incident to
the office of a treasurer of a corporation, and such other duties as are from
time to time assigned to him by the Board of Directors, the Chief Executive
Officer, or the President.
SECTION 4.08. ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the Chief Executive Officer, the President or any committee or
officer authorized by the Board of Directors to appoint any such assistant and
subordinate officers.
ARTICLE V.
STOCK
SECTION 5.01. CERTIFICATES FOR STOCK. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
Corporation, the name of the stockholder or other person to whom it is issued,
and the class of stock and number of shares it represents. The certificate shall
be in such form, not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a Vice
President, and
9
<PAGE> 10
countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an
Assistant Treasurer. Each certificate may be sealed with the actual corporate
seal or a facsimile of it or in any other form and the signatures may be either
manual or facsimile signatures. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer when it is issued.
SECTION 5.02. TRANSFER. The Board of Directors shall have the power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to the stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed and may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 5.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the executive offices of the
Corporation.
SECTION 5.05. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have, been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall be signed by such agents as may be designated from
time to time by the Board of Directors or authorized officers of the
Corporation.
10
<PAGE> 11
SECTION 6.02. ANNUAL STATEMENT OF AFFAIRS. The Chairman, President, a
Vice President or the Treasurer shall prepare or cause to be prepared annually a
full and correct statement of the affairs of the Corporation, including a
balance sheet and a financial statement of operations for the preceding fiscal
year.
SECTION 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares. of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.01. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of these Bylaws
shall be kept at the principal office of the Corporation.
SECTION 7.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 7.03. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.04. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of other
corporations or associations which is registered in the name of, or beneficially
owned by, the Corporation, or which the Corporation is entitled to vote or
direct the voting of in its fiduciary capacity or otherwise, may be voted by the
Chairman, the President, any Vice President, or a proxy appointed by any of
them.
11
<PAGE> 12
The Board of Directors, however, may by resolution appoint some other person to
vote such shares, in which case such person shall be entitled to vote such
shares upon the production of a certified copy of such resolution.
SECTION 7.05. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.06. AMENDMENTS. The Board of Directors shall have the power,
at any regular or special meeting thereof, to amend, alter or repeal the Bylaws
of the Corporation, or to make and adopt new bylaws. These Bylaws may be
amended, altered or repealed and new bylaws may be adopted by the stockholders
of the Corporation to the extent and as provided in the Charter of the
Corporation.
12
<PAGE> 1
Exhibit 10(h)
Schedule Identifying Material Details of
Executive Agreements Substantially
Similar to Exhibit 10(g)
Effective
Name Date
---- ---------
Judith D. Fisher January 22, 1997
Ralph K. Frasier January 22, 1997
Peter E. Geier January 22, 1997
Ronald J. Seiffert January 22, 1997
Gerald R. Williams January 22, 1997
<PAGE> 1
Exhibit 10(k)(2)
THIRD AMENDMENT TO THE
HUNTINGTON BANCSHARES INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Pursuant to the authority granted under section 7.07 of the Huntington
Bancshares Incorporated Supplemental Executive Retirement Plan (the "Plan"),
Huntington Bancshares Incorporated hereby amends the Plan as follows effective
November 19, 1997.
1. Section 8.02 is hereby deleted in its entirety.
2. In all other respects, the Plan shall remain in full force and
effect.
HUNTINGTON BANCSHARES INCORPORATED
By /s/ Ralph Frasier
----------------------------------
<PAGE> 1
Exhibit 10(o)(2)
FIRST AMENDMENT
TO THE
HUNTINGTON SUPPLEMENTAL
STOCK PURCHASE AND TAX SAVINGS PLAN AND TRUST
Pursuant to the authority granted under Section 8.1 of the Huntington
Supplemental Stock Purchase and Tax Savings Plan and Trust (the "Plan"),
Huntington Bancshares Incorporated hereby amends the Plan as follows effective
as stated herein.
Effective January 1, 1998:
1. Section 1.2 of the Plan is hereby deleted in its entirety and
substituted in lieu and in place thereof is the following new
Section 1.2.
"SECTION 1.2. PURPOSE OF THE PLAN. The purpose of
this Plan is to provide a supplemental savings
program for Eligible Employees of Huntington
Bancshares Incorporated and its related companies who
are unable to make important contributions to the
Huntington Stock Purchase and Tax Savings Plan
because the Employees have made the maximum elective
deferrals under Internal Revenue Code Section 402(g)
or the maximum elective contributions under the terms
of the Huntington Stock Purchase and Tax Savings
Plan."
2. Section 2.3 of the Plan is hereby deleted in its entirety and
substituted in lieu and in place thereof is the following new
Section 2.3:
"SECTION 2.3 ELIGIBLE EMPLOYEE shall mean, for any
Plan year, a person employed by an Employer who is a
Participant in the Qualified Plan and who is
determined by the Compensation and Stock Option
Committee of the Company's Board of Directors to be a
member of a select group of management or highly
compensated employees and who is designated by the
Compensation and Stock Option Committee of the
Company's Board of Directors to be an Eligible
Employee under the Plan. Any Employee who was a
Participant on November 19, 1997, is not an Eligible
Employee unless nominated by the Compensation and
Stock Option Committee of the Company's Board of
Directors. The accounts of such former Eligible
Employees shall remain in the Plan and be
administered in accordance with the Plan.
Prior to the beginning of the Plan year for which
their participation shall be effective, the Company
shall notify those individuals, if any,
<PAGE> 2
who will (for the first time) become Eligible
Employees effective as of the first day of the Plan
Year following their election by the Compensation and
Stock Option Committee of the Company's Board of
Directors. Once the Compensation and Stock Option
Committee of the Company's Board of Directors
determines that an individual is an Eligible
Employee, that person shall remain an Eligible
Employee for all following Plan Years unless or until
the Compensation and Stock Option Committee of the
Company's Board of Directors determines that he is no
longer an Eligible Employee, in which case the
person's participation in the Plan shall cease
effective as of the first day of the Plan Year
following his removal."
3. Section 2.9 of the Plan is hereby deleted in its entirety and
substituted in lieu and in place thereof is the following new
Section 2.9:
"SECTION 2.9 SUPPLEMENTAL PRE-TAX CONTRIBUTIONS shall
mean the contributions made by a Participant pursuant
to Section 3.1. The Trustee shall hold the
Supplemental Pre-Tax Contributions of each
Participant in a Supplemental Account."
4. Section 3.1 of the Plan is hereby deleted in its entirety and
substituted in lieu and in place thereof is the following new
Section 3.1:
"SECTION 3.1 SUPPLEMENTAL PRE-TAX CONTRIBUTIONS. Each
Eligible Employee may elect to have all or any
portion of the Pre-Tax Contributions (matched or
unmatched) that he elected to defer under the
Qualified Plan, but which cannot be allocated to his
Pre-Tax Contribution account under such plan for the
Plan Year because the Employee has made the maximum
elective deferrals under Internal Revenue Code
Section 402(g) or the maximum elective contributions
under the terms of the Qualified Plan, allocated to
his Supplemental Account under this Plan.
An election pursuant to this section must be made
prior to the calendar year in which the Compensation
to which such election applies is earned; except as
to the year in which an employee first becomes an
Eligible Employee. With respect to the year in which
an employee first becomes an Eligible Employee, the
election must be made prior to the pay period in
which Compensation subject to an election is earned.
For purposes of the 1998 Plan Year only, and in
conjunction with the amendment and restatement of the
Qualified Plan effective as if April 1, 1998, all
Eligible Employees shall include in their election
for the 1998 Plan Year, the percentage of pre-April
-2-
<PAGE> 3
1, 1998 and post-April 1, 1998 contribution
deferrals. An election shall remain in full force and
effect for subsequent calendar years unless revoked
or modified by written instrument delivered to the
Plan Administrator prior to the first day of the
calendar year for which such revocation is to be
effective.
Supplemental Pre-Tax Contributions shall be paid to
the Trustee by the Employer within a reasonable time
after the payroll period with respect to which the
reduction in an Employee's Compensation pertains, but
in no event later than the end of the succeeding
month."
Effective April 1, 1998:
5. Section 2.12 is hereby deleted in its entirety and substituted
in lieu and in place there of is the following new Section
2.12:
"SECTION 2.12. VALUATION DATE shall mean each
business day of the Plan Year that the New York Stock
Exchange is open for trading or such other date or
dates deemed necessary or appropriate by the
Administrator."
6. Section 3.2 of the Plan is hereby deleted in its entirety and
substituted in lieu and in place thereof is the following new
Section 3.2:
"SECTION 3.2 SUPPLEMENTAL MATCHING CONTRIBUTIONS. The
Employer shall make Supplemental Matching
Contributions to the Plan equal to one hundred
percent (100%) of the Supplemental Pre-Tax
Contributions made by a Participant pursuant to
Section 3.01 of the Plan. Provided, however, such
Supplemental Matching Contribution shall not be made
on elective deferrals which exceed three percent (3%)
of the Participant's Compensation.
The Employer shall make additional Supplemental
Matching Contributions to the Plan equal to fifty
percent (50%) of the Supplemental Matching
Contributions made by a Participant pursuant to
Section 3.1 to the extent that such elective
deferrals exceed three percent (3%) but do not exceed
five percent (5%) of the Participant's Compensation.
Such Supplemental Matching Contributions shall be
fully vested and nonforfeitable at all times.
-3-
<PAGE> 4
Supplemental Matching Contributions may be made by
the Employer concurrently with payments to the
Trustee of the Participant's Supplemental Pre-Tax
Contributions under Section 3.1, provided, however,
such Supplemental Matching Contributions shall be
made no later than the time prescribed by law for
filing the Employer's Federal income tax return
(including extensions) for the taxable year with
respect to which the Supplemental Matching
Contributions are made. Supplemental Matching
Contributions may be made in the form of cash or
Common Stock, or a combination thereof."
Effective December 1, 1997:
7. Section 7.2 of the Plan is hereby deleted in its entirety and
substituted in lieu and in place thereof is the following new
Section 7.2:
"SECTION 7.2 GENERAL POWERS OF ADMINISTRATION. All
provisions set forth in the Qualified Plan with
respect to the administrative powers and duties of
Huntington Bancshares Incorporated, when relevant,
including the appointment of a Plan Administrative
Committee to act as the agent of the Company in
performing these duties, shall apply to this Plan.
The Company shall be entitled to rely conclusively
upon all tables, valuations, certificates, opinions
and reports furnished by any actuary, accountant,
controller, counsel or other person employed or
engaged by Huntington Bancshares Incorporated with
respect to the Plan. The Trustee is specifically
authorized to adopt unit accounting so that the
administration of this Plan can be done on the basis
of daily valuations."
8. In all other respects, the provisions of the Plan shall remain
in full force and effect.
HUNTINGTON BANCSHARES INCORPORATED
(COMPANY)
Date: November 19, 1997 By: /s/ Brenda K. Warne
----------------------------------
Its: Vice President
----------------------------------
-4-
<PAGE> 5
THE HUNTINGTON NATIONAL BANK
(TRUSTEE)
Date: November 19, 1997 By: /s/ Norman Jacobs
----------------------------------
Its: President, Trust Division
----------------------------------
-5-
<PAGE> 1
Exhibit 13
MANAGEMENT'S DISCUSSION and
Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Table 1
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Total interest income................. $1,981,473 $1,775,734 $1,709,627 $1,418,610 $1,410,401 $ 1,379,949
Total interest expense................ 954,243 880,648 856,860 546,880 514,812 588,591
Net interest income................... 1,027,230 895,086 852,767 871,730 895,589 791,358
Securities gains...................... 7,978 17,620 9,380 2,297 27,316 36,551
Provision for loan losses............. 107,797 76,371 36,712 21,954 84,682 88,213
Net income............................ 292,663 304,269 281,801 276,320 266,925 187,143
PER COMMON SHARE (1)
Net income
Basic.............................. 1.53 1.58 1.42 1.40 1.37 .97
Diluted............................ 1.52 1.57 1.41 1.39 1.35 .96
Cash dividends declared............... .76 .68 .62 .56 .46 .40
Book value at year-end................ 10.56 9.46 9.19 8.29 7.79 6.80
BALANCE SHEET HIGHLIGHTS
Total assets at year-end.............. 26,730,540 24,371,946 23,495,337 20,688,505 20,214,835 18,653,621
Total long-term debt at year-end...... 2,686,039 1,665,531 2,122,202 1,222,114 772,205 489,741
Average long-term debt................ 2,070,667 1,858,372 1,432,280 937,143 651,255 311,507
Average shareholders' equity.......... 1,893,788 1,776,151 1,742,826 1,621,443 1,415,839 1,254,383
Average total assets ................. $25,150,659 $23,374,490 $22,098,785 $19,498,530 $19,340,577 $17,464,877
- ----------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
MARGIN ANALYSIS--AS A % OF AVERAGE EARNING ASSETS (2)
Interest income......................... 8.52% 8.26% 8.43% 7.99% 8.02% 8.75%
Interest expense........................ 4.08 4.07 4.19 3.04 2.88 3.67
---- ---- ---- ---- ---- ----
NET INTEREST MARGIN........................ 4.44% 4.19% 4.24% 4.95% 5.14% 5.08%
==== ==== ==== ==== ==== ====
RETURN ON
Average total assets.................... 1.16% 1.30% 1.28% 1.42% 1.38% 1.07%
Average earning assets.................. 1.25 1.40 1.38 1.54 1.50 1.17
Average shareholders' equity............ 15.44 17.13 16.17 17.04 18.85 14.92
Dividend payout ratio...................... 49.67 42.22 43.82 38.50 32.47 38.99
Average shareholders' equity to
average total assets.................... 7.53 7.60 7.89 8.32 7.32 7.18
Tier I risk-based capital ratio............ 8.83 8.11 8.66 9.67 9.78 9.50
Total risk-based capital ratio............. 11.68 11.29 12.01 13.32 13.81 12.39
Tier I leverage ratio...................... 7.77% 6.80% 6.99% 7.95% 7.12% 6.84%
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Full-time equivalent employees............. 9,485 9,467 9,083 9,642 9,820 9,437
Banking offices............................ 454 429 406 420 423 416
<FN>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate in years
1993 through 1997 and a 34% tax rate in 1992.
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION and
Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
INTRODUCTION
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Reform Act of 1995 to
encourage corporations to provide investors with information about the
company's anticipated future financial performance, goals, and strategies. The
act provides a safe harbor for such disclosure, or in other words, protection
from unwarranted litigation if actual results are not the same as management
expectations.
Huntington Bancshares Incorporated (Huntington) desires to provide its
shareholders with sound information about past performance and future trends.
Consequently, this Annual Report, including the Letter to Shareholders and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements that are subject to numerous
assumptions, risks, and uncertainties. Actual results could diVer materially
from those contained in or implied by The Huntington's statements for a variety
of factors including:
- - changes in economic conditions
- - movements in interest rates
- - competitive pressures on product pricing and services
- - success and timing of business strategies
- - the nature and extent of governmental actions and reforms
- - extended disruption of vital infrastructure.
The management of Huntington encourages readers of this report to understand
forward-looking statements to be strategic objectives rather than absolute
targets of future performance.
POOLING OF INTERESTS
On September 30, 1997, Huntington completed the acquisition of First Michigan
Bank Corporation (First Michigan), a $3.6 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for all of the outstanding common stock
of First Michigan in a pooling-of-interests transaction. First Michigan had
total loans and deposits
<TABLE>
<CAPTION>
TABLE 2
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES (1)
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
From Previous From Previous
Fully Tax Equivalent Basis (2) Year Due To: Year Due To:
-------------------------------------------------------------------------------------
(in millions of dollars) Volume Yield/Rate Total Volume Yield/Rate Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in banks..... $ (0.3) $ 0.0 $ (0.3) $ (0.7) $ (0.1) $(0.8)
Trading account securities............. (0.4) 0.1 (0.3) (0.4) (0.3) (0.7)
Federal funds sold and securities
purchased under resale agreements... (1.3) (0.1) (1.4) (1.5) (0.3) (1.8)
Mortgages held for sale................ 1.4 0.0 1.4 (1.5) 0.2 (1.3)
Taxable securities..................... 10.0 (3.9) 6.1 33.3 (10.3) 23.0
Tax-exempt securities.................. (2.6) 0.0 (2.6) (4.9) (0.4) (5.3)
Total loans............................ 145.6 56.7 202.3 71.3 (20.6) 50.7
------- ------ ------ ------ ------ -----
TOTAL EARNING ASSETS................ 152.4 52.8 205.2 95.6 (31.8) 63.8
------- ------ ------ ------ ------ -----
Interest bearing demand deposits....... 3.6 0.6 4.2 6.4 5.2 11.6
Savings deposits....................... 7.0 7.1 14.1 5.1 3.3 8.4
Other domestic time deposits........... 22.2 (2.8) 19.4 4.6 5.4 10.0
Certificates of deposit of $100,000 or more 22.6 1.3 23.9 14.5 (3.8) 10.7
Foreign time deposits.................. 4.5 (0.7) 3.8 2.7 (1.3) 1.4
Short-term borrowings.................. (4.3) (6.6) (10.9) (14.3) (20.0) (34.3)
Long-term debt, including capital securities 24.0 (5.0) 19.0 27.5 (11.5) 16.0
------- ------ ------ ------ ------ -----
TOTAL INTEREST BEARING LIABILITIES.. 79.6 (6.1) 73.5 46.5 (22.7) 23.8
------- ------ ------ ------ ------ -----
NET INTEREST INCOME. ............... $ 72.8 $ 58.9 $131.7 $ 49.1 $ (9.1) $40.0
======= ====== ====== ====== ====== =====
<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>
<PAGE> 3
- --------------------------------------------------------------------------------
of $2.7 billion and $3.1 billion, respectively, and total equity of $285.8
million at the date of acquisition. In connection with the transaction,
Huntington reported a $35.0 million restructuring charge consisting primarily of
personnel, facilities, and systems costs and incurred $12.2 million of
professional fees and other costs to effect the merger (reported on a combined
basis as "Special Charges"). Other one-time costs related to the First Michigan
acquisition were an additional loan loss provision of $4.8 million and
non-interest expenses of $4.0 million. All financial information appearing in
this report, except dividends per share, has been restated for the pooling of
interests with First Michigan. "Operating" results, as used below, refers to
Huntington's financial performance before the impact of the restructuring and
other merger-related charges.
OVERVIEW
On an operating basis, Huntington's net income was a record $338.9 million in
1997, compared with $304.3 million and $281.8 million in 1996 and 1995,
respectively. Basic (operating) earnings per share were $1.78 in 1997, versus
$1.58 in 1996 and $1.42 in 1995. Reported net income for the year just ended,
including the special charges, was $292.7 million, or $1.53 per share. Per share
amounts for all prior periods have been restated to reflect the ten percent
stock dividend distributed to shareholders in July 1997.
<TABLE>
<CAPTION>
TABLE 3
- --------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION December 31,
- --------------------------------------------------------------------------------
(in millions of dollars) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial............ $ 5,271 $ 5,130 $ 4,869 $ 4,285 $ 4,047
Real Estate
Construction....... 864 699 524 414 425
Mortgage........... 3,598 3,623 3,552 3,736 3,334
Consumer
Loans.............. 6,463 6,123 5,741 5,214 4,410
Leases............. 1,542 1,183 784 572 411
-------- ------- ------- ------- --------
TOTAL LOANS ..... $ 17,738 $16,758 $15,470 $14,221 $ 12,627
======== ======= ======= ======= ========
</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 4
- --------------------------------------------------------------------------------
MATURITY SCHEDULE OF SELECTED LOANS
- --------------------------------------------------------------------------------
(in thousands of dollars) December 31, 1997
- --------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial................ $3,021,111 $1,551,162 $698,387 $5,270,660
Real estate -- construction 442,124 316,184 105,327 863,635
---------- ---------- -------- ----------
Total.................. $3,463,235 $1,867,346 $803,714 $6,134,295
========== ========== ======== ==========
Variable interest rates... $1,211,854 $596,453
========== ========
Fixed interest rates...... $ 655,492 $207,261
========== ========
</TABLE>
Performance ratios were also strong on an operating basis with return on
average equity (ROE) at 17.88% for 1997, up from 17.13% and 16.18% in the
preceding two years. Return on average assets (ROA) improved to 1.35%, versus
1.30% and 1.28%, respectively, in 1996 and 1995.
Total assets were $26.7 billion at December 31, 1997, up 9.7% from year-end
1996. This growth was largely attributable to an increase in loans, as all major
categories but residential real estate showed higher outstanding balances at the
end of the recent twelve months. The smaller residential mortgage portfolio was
primarily the result of sales in 1997 of adjustable-rate loans that were
expected to experience significant prepayments. Temporary investments
(overnight federal funds sold) and Other assets were also up from last year.
Total deposits grew 9.6% from December 31, 1996, fueled by a 7.4% increase in
core deposits. Core deposits represent Huntington's most significant source of
funding; when combined with other core funding sources, they provide
approximately 70% of Huntington's funding needs.
Huntington's wholesale liability mix changed somewhat during the recent year,
as certain short-term borrowings were replaced upon maturity with floating rate
medium term notes having a contractual term greater than one year (a component
of long-term debt). Huntington also issued $200 million of capital securities in
January 1997 through a special-purpose subsidiary. The capital securities were a
cost-effective means of strengthening Huntington's regulatory capital position.
Shareholders' equity increased 13.4% from one year ago, primarily because of
retained earnings and the common stock issued by Huntington in its acquisition
of Citi-Bancshares, Inc., a $548 million one-bank holding company headquartered
in Leesburg, Florida.
<PAGE> 4
- -------------------------------------------------------------------------------
LINES OF BUSINESS
For internal reporting and planning purposes, Huntington segments its
operations into five distinct lines of business: Retail Banking, Corporate
Banking, Dealer Sales, Private Financial Group and Treasury/Other. Line of
business results are determined based upon Huntington's business profitability
reporting system which assigns balance sheet and income statement items to each
of the business segments identified above. This is a dynamic process that
attempts to mirror Huntington's organizational and management structure.
Accordingly, the results are not necessarily comparable with similar information
published by other financial institutions which may define business segments
differently. In addition, methodologies used to assign certain balance sheet,
income statement and overhead items may change as Huntington continues to
refine the data and its allocation assumptions used to present segment data.
A description of each line of business is discussed below:
RETAIL BANKING
Retail banking provides products and services to retail and community
banking business customers. This line of business includes credit cards, equity
loans, mortgage loans, installment loans, and deposit products. These products
and associated services are offered through Huntington's traditional branches,
in-store branches, Access Offices, Direct Bank, and Web Bank.
CORPORATE BANKING
Customers in this segment represent the small, middle-market, and large
corporate banking relationships which use a variety of banking products and
services including commercial loans, asset-based financing, international trade
services, and cash management services. Huntington's capital markets division
also provides alternative financing solutions for larger business clients.
These would include private placement debt and syndicated commercial lending.
EARNINGS CONTRIBUTION
- ---------------------
[PIE CHART]
<TABLE>
<S> <C>
Retail banking 50%
Corporate banking 22%
Dealer sales 16%
Private financial group 7%
Treasury/Other 5%
</TABLE>
DEALER SALES
Dealer sales product offerings relate predominantly to the automotive sector
and include floor plan financing, indirect loans, and leases. The largest
portion of the business associated with this segment comes from customers who
finance through the dealership via Huntington's loan and leasing products.
PRIVATE FINANCIAL GROUP
Huntington's Private Financial Group (PFG) provides an array of products and
services designed to meet the needs of Huntington's higher wealth banking
customers. Revenue is derived through personal trust, asset management,
investment advisory, and other wealth management services. In conjunction with
these services, PFG offers not only Huntington's traditional banking products
but also investment and insurance alternatives. Huntington's Private Financial
Group provides customers with "one-stop shopping" for all their financial
needs.
TREASURY/OTHER
Huntington uses a match-funded transfer pricing system to allocate interest
income and interest expense to its business segments. This approach consolidates
Huntington's interest rate risk management into its Treasury operations. As part
of its overall interest rate risk and liquidity strategy, the Treasury Group
manages a $6 billion investment portfolio. Revenue and expense associated with
these activities are reported in this business unit. Additionally, the
Treasury/Other group also absorbs unassigned equity which may be used to fund
acquisitions or other internal growth initiatives. Costs associated with
intangibles that have not been allocated to the major business lines are housed
here.
EARNINGS CONTRIBUTED BY
BUSINESS SEGMENT
Retail banking provided 50% of Huntington's operating earnings for 1997.
While this group represents only 35% of Huntington's outstanding loan portfolio,
it also generates retail deposits which help to fund the total balance sheet.
The retail banking group earns a "deposit credit" for generating these favorably
priced liabilities. This credit favorably impacts the earnings contribution of
the retail banking operation. Corporate banking includes a lending portfolio
which represents approximately 29% of Huntington's total loans and was
responsible for 22% of operating earnings. Dealer sales contributed 16% to 1997
operating earnings and represents 33% of the loans outstanding. PFG, a very
profitable and growing business segment, generated 7% of the annual operating
earnings mostly driven by its fee-based services. Treasury/Other includes
approximately $8 million of securities gains in 1997 as well as the earnings
stream associated with the Huntington's securities portfolio.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $1,027.2 million in 1997, compared
with $895.1 million and $852.8 million, respectively, in 1996 and 1995. Interest
rate swaps and other off-balance sheet financial instruments used for
asset/liability management purposes provided a benefit of $6.0 million in the
recent year
<PAGE> 5
- --------------------------------------------------------------------------------
versus reductions of $52.1 million in 1996 and $55.8 million in 1995. A 10%
increase in average loan volumes also contributed to the increase in net
interest income. The net interest margin, on a fully tax equivalent basis, was
4.44% during the recent twelve months, versus 4.19% and 4.24% in the two
preceding years. The latter percentages were negatively impacted by off-balance
sheet interest rate contracts that reduced the margin by 24 basis points and 27
basis points, respectively, a significant component of which was amortization of
net losses from closed positions. At December 31, 1997, deferred gains and
losses remaining to be amortized were immaterial.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses, including the additional provision of $4.8
million from the First Michigan acquisition, was $107.8 million in 1997, up from
$76.4 million in 1996 and $36.7 million in 1995. Net charge-offs as a percent of
average total loans were .50% and .44%, respectively, in the two most recent
years, compared with .30% in 1995. The higher losses were principally related to
the consumer portfolio, indicative of general market trends.
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, 1997 allocation is not
necessarily indicative of the trend of future loan losses in any particular loan
category.
At the recent year end, the ALL of $258.2 million represented 1.46% of total
loans and covered non-performing loans 3.6 times. When combined with the
allowance for other real estate, it was 294% 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 $342.8 million in 1997, versus $314.1 million and
$275.1 million, respectively, in 1996 and 1995. Excluding securities
transactions, non-interest income increased 13.0% offer last year. Substantially
all major categories showed increases, with particularly strong results in
mortgage banking, electronic banking, and investment product sales. Included
within mortgage banking income is $12.2 million of gains from the aforementioned
sale of residential mortgages.
Huntington also achieved broad-based growth in non-interest income from 1995
to 1996. The "Other" component of non-interest income was higher in 1995 because
of an $8.9 million gain on the sale of Huntington's Pennsylvania bank.
NON-INTEREST EXPENSE
Non-interest expense totaled $803.1 million in the year just ended. On an
operating basis, non-interest expense was $751.9 million, compared with $675.5
million and $662.1 million in the two preceding years. The efficiency ratio for
the recent twelve months improved to 54.9%, versus 56.6% in 1996 and 59.2% in
1995.
Personnel costs (salaries, commissions, and benefits) were up approximately
8.9% from 1996, which is indicative of more full-time equivalent employees and
normal salary adjustments. The increase in the commissions component of
personnel costs represents a change in the way in which Huntington compensates
employees as a result of its proactive selling emphasis. Advertising and
marketing expenses were higher in 1997, as Huntington undertook a major campaign
to promote and solidify brand awareness in its markets. Volume driven expenses,
acquisitions, and new business initiatives also contributed to an increase in
various other components of non-interest expense.
Among the other expenses that showed increases during the recent twelve
months was contract programming, which rose in connection with Huntington's
company-wide commitment to prepare all of its computer systems for the year
2000. The "Year 2000" issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Professional
fees for outside services (primarily programming) as well as internal staff
costs have been, and will continue to be, incurred to alter programs that have
time-sensitive software which may recognize a "00" date as the year 1900 versus
2000. Huntington anticipates substantially all reprogramming will be completed
by December 31, 1998, allowing the opportunity in 1999 to fully test the systems
and make any further refinements that are needed. The failure of certain third
parties to adequately address Year 2000 could adversely impact Huntington.
Consequently, Huntington is communicating with customers, suppliers, and others
to identify any potential problems. During 1997, Huntington expensed as incurred
$3.1 million of contract programming costs for the Year 2000 project. An
additional $10.0 million of these costs is expected to be incurred in the future
to get Huntington's systems fully compliant. However, none of these costs is
expected to materially impact Huntington's results of operations in any one
period.
In 1996, non-interest expense increased only 2.0% when comparing results with
the immediately preceding year. Two Florida banks acquired under the purchase
method of accounting represented $11.1 million of the overall increase.
Excluding this amount, non-interest expense would have been flat between the two
periods. FDIC insurance was down significantly, as Huntington benefited from the
reduction in assessment rates on bank deposits that occurred in the latter part
of 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes was $166.5 million in 1997, compared with
$153.0 million in 1996 and $147.3 million in 1995. Huntington's effective tax
rate increased to 36.3%, versus 33.5% and 34.3% in the two preceding years. The
higher rate in 1997 was primarily a result of various nondeductible expenses
incurred in connection with the First Michigan and other bank acquisitions.
<PAGE> 6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 5
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR ...... $ 230,778 $ 222,487 $ 225,225 $ 233,123 $ 173,241 $ 153,038
LOAN LOSSES
Commercial ..................................... (23,276) (23,904) (15,947) (11,450) (21,643) (30,165)
Real estate
Construction ................................ (375) -- (392) (5,957) (432) (14,001)
Mortgage .................................... (2,663) (2,768) (5,086) (5,840) (3,642) (8,253)
Consumer
Loans ....................................... (74,761) (59,843) (39,000) (27,283) (24,036) (29,156)
Leases ...................................... (9,648) (4,492) (1,989) (962) (1,084) (872)
--------- --------- --------- --------- --------- ---------
Total loan losses .............................. (110,723) (91,007) (62,414) (51,492) (50,837) (82,447)
--------- --------- --------- --------- --------- ---------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial ..................................... 4,373 4,884 3,696 8,204 3,922 4,077
Real estate
Construction ................................ 111 556 5 1 6 --
Mortgage .................................... 619 1,402 977 859 407 286
Consumer
Loans ....................................... 16,382 13,457 11,156 10,830 10,216 9,339
Leases ...................................... 1,057 721 303 353 245 222
--------- --------- --------- --------- --------- ---------
Total recoveries of loans previously charged off 22,542 21,020 16,137 20,247 14,796 13,924
--------- --------- --------- --------- --------- ---------
NET LOAN LOSSES ................................... (88,181) (69,987) (46,277) (31,245) (36,041) (68,523)
--------- --------- --------- --------- --------- ---------
PROVISION FOR LOAN LOSSES ......................... 107,797 76,371 36,712 21,954 84,682 88,213
ALLOWANCE ACQUIRED/OTHER .......................... 7,777 1,907 6,827 1,393 11,241 513
--------- --------- --------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR ............ $ 258,171 $ 230,778 $ 222,487 $ 225,225 $ 233,123 $ 173,241
========= ========= ========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses ................................ 0.50% 0.44% 0.30% 0.23% 0.31% 0.65%
Provision for loan losses ...................... 0.61% 0.48% 0.24% 0.16% 0.72% 0.83%
Allowance for loan losses as a %
of total loans (end of period) ................. 1.46% 1.38% 1.44% 1.58% 1.85% 1.57%
Net loan loss coverage (1) ........................ 6.43X 7.62x 10.07x 13.86x 13.52x 5.18x
<FN>
(1) Income before income taxes and the provision for loan losses to net loan
losses.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 6
- ----------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
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............ $ 86,439 29.7% $113,555 30.6% $119,200 31.5% $133,542 30.1% $148,804 32.0%
Real estate
Construction....... 8,140 4.9 2,033 4.2 2,258 3.4 1,454 2.9 2,059 3.4
Mortgage........... 38,598 20.3 18,987 21.6 18,179 23.0 20,601 26.3 21,128 26.4
Consumer..............
Loans.............. 75,405 36.4 54,564 36.5 43,880 37.1 36,315 36.7 31,905 34.9
Leases............. 6,631 8.7 3,457 7.1 3,651 5.0 2,632 4.0 1,800 3.3
Unallocated........... 42,958 -- 38,182 -- 35,319 -- 30,681 -- 27,427 --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total................. $258,171 100.0% $230,778 100.0% $222,487 100.0% $225,225 100.0% $233,123 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 7
- ----------------------------------------------------------------------------------
INVESTMENT SECURITIES December 31,
- ----------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S Treasury and Federal Agencies......... $ 656 $111,559 $ 168,819
States and political subdivisions......... 32,354 233,458 245,482
Other..................................... -- 118 2,530
------- -------- ---------
Total Investment Securities............... $33,010 $345,135 $ 416,831
======= ======== =========
- ----------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1997
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- ----------------------------------------------------------------------------------
U.S Treasury and Federal Agencies
1-5 years.............................. $ 656 $ 656 6.57%
------- --------
Total................................ 656 656
------- --------
States and political subdivisions
Under 1 year........................... 6,311 6,310 9.10
1-5 years.............................. 13,592 13,719 7.89
6-10 years............................. 9,605 9,788 7.91
offer 10 years.......................... 2,846 2,910 9.10
------- --------
Total................................ 32,354 32,727
------- --------
Total Investment Securities............... $33,010 $ 33,383
======= ========
<FN>
(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.
</TABLE>
INTEREST RATE RISK AND LIQUIDITY MANAGEMENT
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income and net
income while managing volatility arising from shifts in interest rates. The
Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty settlement, and market risks.
On and off-balance sheet strategies and tactics are reviewed and monitored
regularly by ALCO to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing the business
flows onto the balance sheet, wholesale investment and funding, and the changing
market and business environment. Effective management of interest rate risk
begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses
a variety of global markets -- money, bond, futures, and options -- as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process. A key
element in this process is Huntington's estimation of the amount that net
interest income will change offer a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet financial
instruments, accounting for significant variables that are believed to be
affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, cash flows of loans and deposits, principal
amortization on revolving credit instruments, and balance sheet growth
assumptions. The model also captures embedded options, e.g. interest rate
caps/floors or call options, and accounts for changes in rate relationships as
various rate indices lead or lag changes in market rates. While these
assumptions are inherently uncertain, management assigns probabilities and,
therefore, believes that, at any point in time, the model provides a reasonably
accurate estimate of Huntington's interest rate risk exposure. Management
reporting of this information is regularly shared with the Board of Directors.
At December 31, 1997, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be relatively unchanged by a
100 basis points increase or a 100-200 basis points decrease in the federal
funds rate (assuming the change occurs evenly offer the next year and that
corresponding changes in other market rates occur as forecasted). Net interest
income would be expected to decrease 1.6% if rates rose 200 basis points.
Active interest rate risk management necessitates the use of various types of
off-balance sheet financial instruments, primarily interest rate swaps. Risk
that is created by different indices on products, by unequal terms to maturity
of assets and liabilities, and by products that are appealing to customers but
incompatible with current risk limits can be eliminated or decreased in a cost
efficient manner by utilizing interest rate swaps. Often, the swap strategy has
enabled Huntington to lower the overall cost of raising wholesale funds.
Similarly, financial futures, interest rate caps and floors, options, and
forward rate agreements are used to control financial risk effectively.
off-balance sheet instruments are often preferable to similar cash instruments
because, though performing identically, they require less capital while
preserving access to the marketplace.
Table 9, on page 22 of the 1997 Annual Report, 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. As
is the case with cash securities, the market value of interest rate swaps is
largely a function of the financial market's expectations regarding the future
direction of interest rates. Accordingly, current market values are not
necessarily indicative
<PAGE> 8
- ------------------------------------------------------------------------------
of the future impact of the swaps on net interest income. This will depend, in
large part, on the shape of the yield curve as well as interest rate levels.
With respect to the variable rate information and the indexed amortizing swap
maturities presented in Table 9, management made no assumptions regarding future
changes in interest rates.
The pay rates on Huntington's receive-fixed swaps vary based on movements in
the applicable London interbank offered rate (LIBOR). Receive-fixed asset
conversion swaps and receive-fixed liability conversion swaps with notional
values of $200 million and $300 million, respectively, have embedded written
LIBOR-based call options. Also, receive-fixed liability conversion swaps with a
notional value of $150 million have embedded written LIBOR-based caps. The
portfolio of amortizing swaps consists primarily of contracts that are indexed
to the prepayment experience of a specified pool of mortgage loans. As market
interest rates change, the amortization of the notional value of the swap will
also change, generally slowing as rates increase and accelerating when rates
fall. Basis swaps are contracts which provide for both parties to receive
interest payments according to different rate indices and are used to protect
against changes in spreads between market rates. The receive and pay amounts
applicable to Huntington's basis swaps are based predominantly on LIBOR.
The notional values of the swap portfolio represent contractual amounts on
which interest payments to be exchanged are based. These notional values do not
represent direct credit exposures. At December 31, 1997, Huntington's credit
risk from interest rate swaps used for asset/liability management purposes was
$66.5 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 $179 million at December 31, 1997. Total credit
exposure from such contracts is not material. These separate activities, which
are accounted for at fair value, are not a significant part of
<TABLE>
<CAPTION>
TABLE 8
- -------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
- -------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and Federal Agencies ... $5,001,034 $4,714,821 $4,519,310
Other Securities ..................... 708,780 494,572 531,522
---------- ---------- ----------
Total Securities Available for Sale $5,709,814 $5,209,393 $5,050,832
========== ========== ==========
- -------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1997
(in thousands of dollars) Amortized Cost Fair Value Yield(1)
- -------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year ...................... $ 1,001 $ 1,012 7.13%
1-5 years ......................... 409,364 407,936 5.60
6-10 years ........................ 320,497 320,726 5.77
---------- ----------
Total ........................... 730,862 729,674
---------- ----------
Federal Agencies
Mortgage-backed securities
Under 1 year .................... 2,223 2,216 6.68
1-5 years ....................... 169,877 170,177 6.54
6-10 years ...................... 497,496 494,016 6.28
offer 10 years .................. 698,906 705,031 6.70
---------- ----------
Total ......................... 1,368,502 1,371,440
---------- ----------
Other agencies
Under 1 year .................... 984 992 8.29
1-5 years ....................... 1,590,592 1,594,409 6.26
6-10 years ...................... 787,682 792,359 6.63
offer 10 years .................. 509,713 512,160 6.67
---------- ----------
Total ......................... 2,888,971 2,899,920
---------- ----------
Total U.S. Treasury and
Federal Agencies .................. 4,988,335 5,001,034
---------- ----------
Other Securities
Under 1 year ...................... 13,940 13,925 9.78
1-5 years ......................... 211,943 214,772 7.30
6-10 years ........................ 199,849 205,771 8.15
offer 10 years .................... 210,688 213,183 5.53
Marketable equity securities ...... 62,164 61,129 5.61
---------- ----------
Total ........................... 698,584 708,780
---------- ----------
Total Securities Available for Sale .. $5,686,919 $5,709,814
========== ==========
</TABLE>
At December 31, 1997, Huntington had no concentrations of securities by a single
issuer in excess of 10% of shareholders' equity.
(1) Weighted average yields were calculated on the basis of amortized cost.
<PAGE> 9
- --------------------------------------------------------------------------------
Huntington's operations. Accordingly, they have been excluded from the above
discussion of off-balance sheet financial instruments and the related table.
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The
objective of ALCO in this regard is to maintain an optimum balance of maturities
among Huntington's assets and liabilities such that sufficient cash, or access
to cash, is available at all times to meet the needs of borrowers, depositors,
and creditors, as well as to fund corporate expansion and other activities.
A chief source of Huntington's liquidity is derived from the large retail
deposit base accessible by its network of geographically dispersed banking
Offices. This core funding is supplemented by Huntington's demonstrated ability
to raise funds in capital markets and to access funds nationwide. Huntington's
$6.75 billion domestic note and $2 billion European note programs are
significant sources of wholesale funding. Under these programs, unsecured senior
and subordinated notes are issuable with maturities ranging from one month to
thirty years. At year-end 1997, $6.8 billion of notes were available to fund
Huntington's future activities. As mentioned previously, Huntington raised $200
million in 1997 through the sale of capital securities by its wholly-owned
subsidiary, Huntington Capital I. A $200 million line of credit is also
available to support commercial paper borrowings and other short-term working
capital needs.
While liability sources are many, significant liquidity is also available
from Huntington's investment and loan portfolios. ALCO regularly monitors the
overall liquidity position of the business and ensures that various alternative
strategies exist to coffer unanticipated events. At December 31, 1997,
sufficient liquidity was available to meet estimated short-term and long-term
funding needs.
<TABLE>
<CAPTION>
TABLE 9
- -----------------------------------------------------------------------------------
INTEREST RATE SWAP PORTFOLIO
- -----------------------------------------------------------------------------------
(in millions of dollars) December 31, 1997
- -----------------------------------------------------------------------------------
Average
Notional Maturity Market Average Rate
Value (years) Value Receive Pay
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSET CONVERSION SWAPS
Receive fixed................. $ 450 1.60 $(0.3) 6.13% 5.84%
Receive fixed-amortizing...... 92 0.25 (0.1) 5.27 5.84
------ -----
TOTAL ASSET CONVERSION SWAPS.. $ 542 1.37 $(0.4) 5.98% 5.84%
====== =====
LIABILITY CONVERSION SWAPS
Receive fixed................. $1,580 2.01 $25.1 6.41% 5.86%
Receive fixed-amortizing...... 187 1.50 (0.7) 5.63 5.97
Pay fixed..................... 150 1.64 (0.1) 5.86 5.56
------ -----
TOTAL LIABILITY CONVERSION SWAPS $1,917 1.93 $24.3 6.29% 5.85%
====== =====
BASIS PROTECTION SWAPS........ $ 735 1.17 $(0.1) 5.89% 5.77%
====== =====
</TABLE>
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of consistent
underwriting standards that emphasize "in-market" lending to established
borrowers. Highly leveraged transactions and excessive industry or other
concentrations are avoided. The credit administration function also employs
extensive monitoring procedures to ensure problem loans are promptly identified
and that loans adhere to corporate policy. These procedures provide executive
management with the information necessary to implement appropriate change and
take corrective action as needed.
Asset quality continues to compare favorably with Huntington's peers in the
banking industry. Non-performing assets, consisting of loans that are no longer
accruing interest, loans that have been renegotiated based upon financial
difficulties of the borrower, and real estate acquired through foreclosure,
totaled $87.2 million at the most recent year end. As of this same date,
non-performing loans represented .40% of total loans and non-performing assets
as a percent of total loans and other real estate were only .49%. Loans past due
ninety days or more but continuing to accrue interest (primarily consumer and
residential real estate) were $49.6 million.
There were also loans outstanding of $54.2 million and $50.7 million,
respectively, at December 31, 1997, and 1996, that were current as to principal
and interest which Huntington considered to be potential problem credits. These
loans are closely monitored for any further deterioration in borrower
performance.
CAPITAL AND DIVIDENDS
Huntington places significant emphasis on the maintenance of strong capital,
which promotes investor confidence, provides access to the national markets
under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing excess
capital and continually strives to maintain an appropriate balance between
capital adequacy and returns to shareholders. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
<PAGE> 10
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TABLE 10
- ----------------------------------------------------------------------------------------------------------------------------
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 OR MORE AS OF DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Three months or less...................................................................................... $ 932,440
offer three through six months............................................................................. 380,370
offer six through twelve months............................................................................ 438,106
offer twelve months........................................................................................ 152,741
-----------
Total..................................................................................................... $ 1,903,657
===========
</TABLE>
<TABLE>
<CAPTION>
TABLE 11
- -------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end.................................... $3,064,344 $3,309,445 $2,962,252
Weighted average interest rate at year-end............. 5.26% 5.21% 5.06%
Maximum amount outstanding at
month-end during the year........................... $3,387,690 $3,309,445 $2,968,772
Average amount outstanding during the year............. $2,733,764 $2,766,185 $2,264,330
Weighted average interest rate during the year......... 5.15% 5.16% 5.68%
</TABLE>
<TABLE>
<CAPTION>
TABLE 12
- ----------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS December 31,
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans........................ $ 65,981 $ 55,040 $ 55,423 $ 47,524 $ 81,310 $ 95,842
Renegotiated loans....................... 5,822 4,422 5,320 3,768 3,080 3,500
--------- -------- -------- ---------- ---------- ----------
TOTAL NON-PERFORMING LOANS............... 71,803 59,462 60,743 51,292 84,390 99,342
--------- -------- -------- ---------- ---------- ----------
Other real estate, net................... 15,343 17,208 23,598 54,153 66,578 75,266
--------- -------- -------- ---------- ---------- ----------
TOTAL NON-PERFORMING ASSETS.............. $ 87,146 $ 76,670 $ 84,341 $ 105,445 $ 150,968 $ 174,608
========= ======== ======== ========== ========== ==========
NON-PERFORMING LOANS AS A % OF TOTAL LOANS 0.40% 0.35% 0.39% 0.36% 0.67% 0.90%
NON-PERFORMING ASSETS AS A % OF TOTAL LOANS
AND OTHER REAL ESTATE................. 0.49% 0.46% 0.54% 0.74% 1.19% 1.58%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS.................. 359.55% 388.11% 366.28% 439.10% 276.24% 174.39%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 294.32% 297.12% 250.06% 199.12% 146.25% 99.35%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE.. $ 49,608 $ 39,267 $ 30,937 $ 23,753 $ 28,623 $ 29,567
========= ======== ======== ========== ========== ==========
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
TO TOTAL LOANS........................ 0.28% 0.23% 0.20% 0.17% 0.23% 0.27%
</TABLE>
NOTE: For 1997, the amount of interest income which would have been recorded
under the original terms for total loans classified as non-accrual or
renegotiated was $7.8 million. Amounts actually collected and recorded as
interest income for these loans totaled $0.8 million.
<PAGE> 11
- --------------------------------------------------------------------------------
Huntington's ratio of average equity to average assets offer the last twelve
months was 7.53%, compared with 7.60% and 7.88%, respectively, in the two
preceding years. Largely as a result of the sale of capital securities by its
special-purpose subsidiary, Huntington showed improvement during the recent
year in each of the key regulatory capital ratios. In addition, its bank
subsidiaries had regulatory capital ratios in excess of the levels established
for "well-capitalized" institutions.
Cash dividends declared were $.76 per share in 1997, up 11.8% from the
corresponding amount in 1996 of $.68 per share. A 10% stock dividend was also
distributed to shareholders in the year just ended, marking the twenty-fourth
consecutive year in which Huntington has issued a stock split or stock dividend.
On February 21, 1996, the Board of Directors authorized Huntington to
repurchase up to 12.1 million additional shares of its common stock (as adjusted
for subsequent stock dividends) through open market purchases and privately
negotiated transactions. The authorization represents a continuation of the
common stock repurchase program begun in August 1987 and provides that the
shares will be reserved for reissue in connection with Huntington's dividend
reinvestment and employee benefit plans as well as for other corporate purposes.
Huntington purchased 1.9 million shares in 1997 at an aggregate cost of $56.2
million, leaving 2.6 million shares available for repurchase. Upon announcement
of the merger with First Michigan, Huntington suspended its common stock
repurchase program. The program was temporarily reactivated for the limited
purpose of acquiring shares for reissue in the purchase business combination
with The Bank of Winter Park, a $90 million institution headquartered in Winter
Park, Florida. With the closing of the Winter Park acquisition in October 1997,
the common stock repurchase program was again suspended.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1997 was a record $90.6 million,
compared with $79.1 million in the same period last year. Basic earnings per
share were $.47, versus $.42 per share one year ago. ROE and ROA for the most
recent quarter were 18.23% and 1.41%, respectively, up from 17.69% and 1.32% in
the final three months of 1996.
Net interest income was $259.6 million in the recent quarter, an increase of
13.3% offer the corresponding period of the prior year. An improved margin,
coupled with growth in average earning assets (principally loans), drove the
increase.
The provision for loan losses was $26.2 million in the last quarter of the
year, compared with $25.0 million in the same period of 1996. Net charge-offs
(annualized) were .61% of average loans in the recent three months, virtually
unchanged from .60% in the final quarter one year ago.
Non-interest income, excluding securities gains, was $87.5 million for the
three months ended December 31, 1997, an increase of 18.3% from the fourth
quarter of the preceding year. Similar to the full year results, improvements
occurred across most of the major categories.
Non-interest expense totaled $188.5 million in the most recent three months,
versus $165.0 million in the final quarter of 1996. The increase was primarily
attributable to the same items referred to above in the discussion of annual
results.
PENDING ACQUISITION
In December 1997, Huntington announced that it was the successful bidder for
60 banking Offices in Florida to be sold by NationsBank Corporation in
connection with the merger of NationsBank and Barnett Banks Inc. These Offices
are in what Huntington believes to be very good markets and complement nicely
its existing presence in central and west coast Florida. In addition to its
assumption of $2.6 billion of low cost core deposits, Huntington is purchasing
approximately $1.6 billion of high quality loans. The deposit premium, which is
subject to final determination based on the deposit levels at the closing of the
transaction, is projected to be $523 million, using the latest information
available from NationsBank. To preserve its strong capital base, Huntington
expects to issue $300 million of common stock and another $250 million of
capital securities on or before the closing of the branch purchase in mid-1998.
The new capital amounts are estimates only and could change based on
Huntington's asset growth, the ultimate deposit premium paid, and other
developments offer the next few months.
<PAGE> 12
Selected ANNUAL INCOME STATEMENT Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
except per share amounts) 1997 1996 1995 1994 1993 1992
- --------------------------------------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME.................. $1,981,473 $1,775,734 $ 1,709,627 $1,418,610 $1,410,401 $1,379,949
TOTAL INTEREST EXPENSE................. 954,243 880,648 856,860 546,880 514,812 588,591
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME.................... 1,027,230 895,086 852,767 871,730 895,589 791,358
Provision for loan losses.............. 107,797 76,371 36,712 21,954 84,682 88,213
---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........... 919,433 818,715 816,055 849,776 810,907 703,145
---------- ---------- ---------- ---------- ---------- ----------
Service charges on deposit accounts.... 117,852 107,669 97,505 88,457 83,570 73,503
Mortgage banking....................... 55,715 43,942 39,309 47,194 63,964 53,227
Trust services......................... 48,102 42,237 37,627 35,278 33,879 30,269
Electronic banking fees................ 22,656 12,013 6,190 3,405 2,078 1,634
Credit card fees....................... 20,374 23,093 18,757 18,589 18,084 16,587
Investment product sales............... 19,024 13,950 9,704 8,058 10,616 6,420
Securities gains....................... 7,978 17,620 9,380 2,297 27,316 36,551
Other.................................. 51,138 53,539 56,618 41,436 41,693 32,030
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME.............. 342,839 314,063 275,090 244,714 281,200 250,221
---------- ---------- ---------- ---------- ---------- ----------
Salaries............................... 297,415 273,316 263,552 265,336 262,755 240,321
Commissions............................ 21,398 14,587 10,347 11,463 21,510 18,810
Employee benefits...................... 70,030 69,289 69,059 68,955 65,021 54,966
Equipment.............................. 57,867 50,887 44,646 44,806 43,012 39,396
Net occupancy.......................... 49,509 49,676 47,824 46,304 45,496 41,387
Advertising............................ 24,662 14,947 13,757 17,570 15,141 15,114
Printing and supplies.................. 21,584 19,602 18,103 18,379 18,405 17,489
Credit card and electronic banking..... 14,171 16,355 14,076 13,951 12,170 11,028
Legal and loan collection.............. 13,418 11,106 9,658 9,098 12,378 14,142
Special charges........................ 47,163 -- -- -- -- --
FDIC insurance......................... 2,774 1,261 17,974 30,451 30,042 29,900
Other.................................. 183,117 154,484 153,065 157,207 163,521 204,370
---------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE............. 803,108 675,510 662,061 683,520 689,451 686,923
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES............. 459,164 457,268 429,084 410,970 402,656 266,443
Provision for income taxes............. 166,501 152,999 147,283 134,650 135,731 79,300
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME............................. $ 292,663 $ 304,269 $ 281,801 $ 276,320 $ 266,925 $ 187,143
========== ========== ========== ========== ========== ==========
PER COMMON SHARE (1)
Net income
Basic............................... $1.53 $1.58 $1.42 $1.40 $1.37 $ .97
Diluted............................. $1.52 $1.57 $1.41 $1.39 $1.35 $ .96
Cash dividends declared................ $ .76 $ .68 $ .62 $ .56 $ .46 $ .40
FULLY TAX EQUIVALENT MARGIN
Net Interest Income.................... $1,027,230 $ 895,086 $ 852,767 $ 871,730 $ 895,589 $ 791,358
Tax Equivalent Adjustment (2) ......... 11,864 12,363 14,602 18,405 21,072 23,376
---------- --------- ---------- ---------- ---------- ----------
Tax Equivalent Net Interest Income..... $1,039,094 $ 907,449 $ 867,369 $ 890,135 $ 916,661 $ 814,734
========== ========= ========== ========== ========== ==========
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate in years 1993 through 1997 and a 34% tax
rate in 1992.
</TABLE>
<PAGE> 13
Consolidated AVERAGE
BALANCES AND INTEREST RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
INTEREST Interest
Fully Tax Equivalent Basis (1) AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(in millions of dollars) BALANCE EXPENSE RATE Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in banks........................... $ 9 $ .5 5.47% $ 14 $ .8 5.85%
Trading account securities................................... 11 .6 5.70 16 .9 5.66
Federal funds sold and securities purchased under resale
agreements................................................. 44 2.4 5.50 67 3.8 6.03
Mortgages held for sale...................................... 131 10.1 7.75 113 8.7 7.74
Securities:
Taxable................................................... 5,351 339.8 6.35 5,194 333.7 6.42
Tax exempt................................................ 264 25.3 9.55 291 27.9 9.59
------- -------- ------- -------
Total Securities....................................... 5,615 365.1 6.50 5,485 361.6 6.59
------- -------- ------- -------
Loans
Commercial................................................ 5,302 456.6 8.61 4,955 396.9 8.01
Real Estate
Construction........................................... 813 73.8 8.85 580 50.7 8.75
Mortgage............................................... 3,761 326.9 8.71 3,614 312.3 8.64
Consumer
Loans.................................................. 6,299 574.8 9.12 5,880 528.4 8.99
Leases................................................. 1,406 106.7 7.59 950 74.8 7.87
------- -------- ------- -------
Total Loans............................................ 17,581 1,538.8 8.75 15,979 1,363.1 8.53
Allowance for loan losses/loan fees.................... 253 75.8 231 49.2
------- -------- ------- --------
Net loans.............................................. 17,328 1,614.6 9.18 15,748 1,412.3 8.84
------- -------- ------- -------
Total earning assets................................... 23,391 1,993.3 8.52% 21,674 1,788.1 8.26%
------- -------- ------- -------
Cash and due from banks...................................... 910 901
All other assets............................................. 1,103 1,031
------- -------
TOTAL ASSETS ................................................ $25,151 $23,375
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits............................... $ 2,774 $ 2,664
Interest bearing demand deposits............................. 3,204 84.4 2.64% 3,068 80.2 2.61%
Savings deposits............................................. 3,056 100.4 3.28 2,836 86.3 3.04
Other domestic time deposits................................. 5,857 329.7 5.63 5,463 310.3 5.68
------- -------- ------- -------
Total core deposits....................................... 14,891 514.5 4.25 14,031 476.8 4.19
------- -------- ------- -------
Certificates of deposit of $100,000 or more.................. 1,922 109.4 5.70 1,525 85.5 5.61
Foreign time deposits........................................ 382 22.2 5.81 305 18.4 6.03
------- -------- ------- -------
Total deposits............................................ 17,195 646.1 4.48 15,861 580.7 4.40
------- -------- ------- -------
Short-term borrowings........................................ 3,294 172.7 5.24 3,375 183.6 5.44
Long-term debt, including capital securities................. 2,254 135.4 6.01 1,858 116.4 6.26
------- -------- ------- -------
Total interest bearing liabilities........................ 19,969 954.2 4.78% 18,430 880.7 4.78%
------- -------- ------- -------
All other liabilities........................................ 514 505
Shareholders' equity......................................... 1,894 1,776
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $25,151 $23,375
======= =======
Net interest rate spread..................................... 3.74% 3.48%
Impact of non-interest bearing funds on margin............... .70% .71%
NET INTEREST INCOME/MARGIN................................... $1,039.1 4.44% $ 907.4 4.19%
======== =======
<FN>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate in 1993
through 1997 and a 34% tax rate in 1992.
Average loan balances include non-accruing loans. Loan income includes
cash received on non-accruing loans.
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
1995 1994 1993 1992
- ----------------------------- --------------------------- -------------------------- ---------------------------
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 $ 1.6 5.99% $ 8 $ .5 6.23% $ 30 $ 1.3 4.27% $ 88 $ 4.7 5.29%
23 1.6 7.29 14 .9 6.16 10 .5 5.04 22 1.2 5.43
93 5.6 6.10 134 5.8 4.30 103 3.3 3.22 157 5.9 3.77
133 10.0 7.58 367 25.9 7.06 827 60.2 7.28 681 55.0 8.09
4,679 310.7 6.64 3,713 226.5 6.10 4,703 284.5 6.05 3,965 276.9 6.99
342 33.2 9.73 419 42.0 10.03 464 49.6 10.70 520 50.6 9.73
------- -------- -------- -------- ------- -------- ------- -------
5,021 343.9 6.85 4,132 268.5 6.50 5,167 334.1 6.47 4,485 327.5 7.30
------- -------- -------- -------- ------- -------- ------- -------
4,703 403.3 8.58 4,140 350.1 8.46 3,823 321.5 8.41 3,602 300.0 8.33
473 41.6 8.79 396 30.6 7.73 445 31.1 6.99 456 30.7 6.73
3,834 328.1 8.56 3,474 278.3 8.01 3,084 253.9 8.24 2,698 241.7 8.96
5,508 494.2 8.97 4,837 401.6 8.31 4,008 364.6 9.10 3,585 381.4 10.64
657 51.0 7.76 485 34.7 7.15 349 27.8 7.97 263 23.3 8.86
------- -------- -------- -------- ------- -------- ------- -------
15,175 1,318.2 8.69 13,332 1,095.3 8.21 11,709 998.9 8.53 10,604 977.1 9.22
227 43.4 235 40.1 215 33.2 163 31.7
------- -------- -------- -------- ------- -------- ------- -------
14,948 1,361.6 8.97 13,097 1,135.4 8.52 11,494 1,032.1 8.82 10,441 1,008.8 9.51
------- -------- -------- -------- ------- -------- ------- -------
20,471 1,724.3 8.43% 17,987 1,437.0 7.99% 17,846 1,431.5 8.02% 16,037 1,403.1 8.75%
------- -------- -------- -------- ------- -------- ------- -------
883 841 787 723
972 906 923 868
------- -------- ------- -------
$22,099 $ 19,499 $19,341 $17,465
======= ======== ======= =======
$ 2,477 $ 2,390 $ 2,384 $ 1,964
2,815 68.6 2.44% 2,984 65.9 2.21% 2,908 70.2 2.41% 2,710 82.9 3.06%
2,666 77.9 2.92 2,935 68.0 2.32 2,863 75.4 2.63 2,351 83.9 3.57
5,382 300.3 5.58 4,383 187.3 4.27 4,376 187.6 4.29 4,846 250.2 5.17
------- -------- -------- -------- ------- -------- ------- -------
13,340 446.8 4.11 12,692 321.2 3.12 12,531 333.2 3.28 11,871 417.0 4.21
------- -------- -------- -------- ------- -------- ------- -------
1,269 74.8 5.89 914 39.3 4.30 1,049 39.8 3.79 1,463 66.7 4.56
262 17.0 6.50 286 12.2 4.25 455 15.0 3.30 153 5.7 3.73
------- -------- -------- -------- ------- -------- ------- -------
14,871 538.6 4.34 13,892 372.7 3.24 14,035 388.0 3.33 13,487 489.4 4.25
------- -------- -------- -------- ------- -------- ------- -------
3,622 217.9 6.02 2,763 111.1 4.02 2,943 92.8 3.16 2,166 76.3 3.53
1,432 100.4 7.01 937 63.1 6.74 651 34.0 5.24 312 22.7 7.27
------- -------- -------- -------- ------- -------- ------- -------
17,448 856.9 4.91% 15,202 546.9 3.60% 15,245 514.8 3.38% 14,001 588.4 4.21%
------- -------- -------- -------- ------- -------- ------- -------
432 286 297 246
1,742 1,621 1,415 1,254
------- -------- ------- -------
$22,099 $ 19,499 $19,341 $17,465
======= ======== ======= =======
3.52% 4.39% 4.64% 4.54%
.72% .56% .50% .54%
$ 867.4 4.24% $ 890.1 4.95% $ 916.7 5.14% $ 814.7 5.08%
======== ======== ======== =======
</TABLE>
<PAGE> 15
MARKET PRICES, KEY RATIOS AND
STATISTICS, NON-PERFORMING ASSETS
(Quarterly Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK SUMMARY (1) 1997 1996
- ----------------------------------------- ----------------------------------------------------------------------------------------
IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
--- ---- --- -- --- ---- --- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High..................................... $ 38 7/8 $ 37 3/4 $ 27 1/4 $ 28 7/8 $ 26 1/4 $ 21 3/8 $ 20 7/8 $ 20 1/8
Low...................................... 31 1/2 27 1/4 23 5/8 22 3/4 20 13/16 19 5/16 19 9/16 18 5/8
Close.................................... 36 36 1/16 26 3/4 23 7/8 24 20 15/16 19 3/4 19 3/4
Cash dividends declared.................. $.20 $.20 $.18 $.18 $.18 $.18 $.16 $.16
<FN>
(1) Restated for the ten percent stock dividend distributed July 31, 1997.
Note: Stock price quotations were obtained from NASDAQ
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEY RATIOS AND STATISTICS
MARGIN ANALYSIS--AS A %
OF AVERAGE EARNING ASSETS (1) 1997 1996
- ------------------------------------------ -------------------------------------- --------------------------------------
IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
--- ---- --- -- --- ---- --- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income.......................... 8.48% 8.53% 8.61% 8.42% 8.16% 8.25% 8.28% 8.24%
Interest Expense......................... 4.04 4.12 4.07 4.03 3.97 4.00 4.04 4.12
---- ---- ---- ---- ---- ---- ---- ----
Net Interest Margin................... 4.44% 4.41% 4.54% 4.39% 4.19% 4.25% 4.24% 4.12%
==== ==== ==== ==== ==== ==== ==== ====
RETURN ON
Average total assets.................. 1.41% 0.65% 1.33% 1.27% 1.32% 1.33% 1.31% 1.26%
Average earning assets................ 1.53% 0.69% 1.43% 1.37% 1.42% 1.42% 1.41% 1.36%
Average shareholders' equity.......... 18.23% 8.41% 18.07% 17.42% 17.69% 17.75% 17.30% 15.94%
<FN>
(1) Presented on a fully tax equivalent basis assuming a 35% tax rate.
</TABLE>
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
(QUARTER-END)
(in thousands of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
--------- ------- -------- --------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans........................... $ 65,981 $72,385 $ 61,105 $ 64,764 $55,040 $ 57,346 $58,311 $63,540
Renegotiated loans.......................... 5,822 6,069 4,449 4,490 4,422 5,725 6,726 6,334
--------- ------- -------- --------- ------- -------- ------- -------
TOTAL NON-PERFORMING LOANS.................. 71,803 78,454 65,554 69,254 59,462 63,071 65,037 69,874
--------- ------- -------- --------- ------- -------- ------- -------
Other real estate, net...................... 15,343 13,762 14,434 20,300 17,208 16,321 23,213 22,219
--------- ------- -------- --------- ------- -------- ------- -------
TOTAL NON-PERFORMING ASSETS................. $ 87,146 $92,216 $ 79,988 $ 89,554 $76,670 $ 79,392 $88,250 $92,093
========= ======= ======== ========= ======= ======== ======= =======
NON-PERFORMING LOANS AS A % OF TOTAL LOANS.. 0.40% 0.44% 0.37% 0.40% 0.35% 0.39% 0.41% 0.45%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE... 0.49% 0.52% 0.45% 0.51% 0.46% 0.48% 0.55% 0.59%
ALLOWANCE FOR LOAN LOSSES AS A
% OF NON-PERFORMING LOANS............... 359.55% 328.71% 378.11% 348.93% 388.11% 366.24% 348.52% 324.34%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS... 294.32% 277.31% 306.51% 266.89% 297.12% 282.47% 246.01% 234.94%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE..... $ 49,608 $43,120 $ 40,967 $ 42,023 $39,267 $ 40,301 $35,094 $30,345
========= ======= ======== ========= ======= ======== ======= =======
</TABLE>
<PAGE> 16
Selected QUARTERLY INCOME
STATEMENT Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands of dollars, 1997 1996
--------------------------------------- ---------------------------------------
except per share amounts) IVQ IIIQ IIQ IQ IVQ IIIQ IIQ IQ
- ----------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ................... $499,760 $502,821 $503,018 $475,874 $452,716 $445,453 $439,514 $438,051
TOTAL INTEREST EXPENSE................... 240,197 245,663 240,060 228,323 223,664 219,217 216,822 220,945
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME...................... 259,563 257,158 262,958 247,551 229,052 226,236 222,692 217,106
-------- -------- -------- -------- -------- -------- -------- --------
Provision for loan losses................ 26,235 28,351 30,831 22,38 25,038 22,978 14,160 14,195
-------- -------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES............. 233,328 228,807 232,127 225,171 204,014 203,258 208,532 202,911
-------- -------- -------- -------- -------- -------- -------- --------
Service charges on deposit accounts ..... 31,035 30,382 28,841 27,594 27,434 27,262 26,971 26,002
Mortgage banking ........................ 15,889 20,672 10,157 8,997 10,420 11,897 10,684 10,941
Trust services .......................... 12,019 12,124 11,814 12,145 10,724 10,381 10,320 10,812
Electronic banking fees.................. 6,153 5,947 6,192 4,364 3,999 3,452 2,558 2,004
Credit card fees......................... 6,583 5,073 4,523 4,195 5,235 4,255 8,696 4,907
Investment product sales ................ 4,703 4,987 4,315 5,019 3,487 3,054 3,653 3,756
Securities gains......................... 1,034 1,242 3,604 2,098 4,240 6,172 102 7,106
Other ................................... 11,094 15,670 12,055 12,319 12,631 14,911 13,787 12,210
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............... 88,510 96,097 81,501 76,731 78,170 81,384 76,771 77,738
-------- -------- -------- -------- -------- -------- -------- --------
Salaries ................................ 74,390 76,068 74,769 72,188 70,041 69,480 67,287 66,508
Commissions ............................. 6,111 6,139 4,437 4,711 3,581 3,407 3,737 3,862
Employee benefits ....................... 15,286 18,259 16,813 19,672 13,668 17,129 18,042 20,450
Equipment ............................... 16,004 14,503 14,173 13,187 14,152 12,854 12,312 11,569
Net occupancy............................ 11,755 12,772 11,650 13,332 12,002 12,351 12,607 12,716
Advertising.............................. 5,356 6,139 5,830 7,337 3,236 3,495 4,689 3,527
Printing and supplies ................... 6,239 5,384 5,035 4,926 5,216 4,771 5,133 4,482
Credit card and electronic banking....... 3,738 3,581 3,965 2,887 3,875 4,490 4,226 3,764
Legal and loan collection................ 3,975 3,541 3,186 2,716 4,004 2,235 2,714 2,153
Special charges.......................... -- 47,163 -- -- -- -- -- --
Other ................................... 45,678 51,361 45,947 42,905 35,233 38,261 41,270 40,981
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE .............. 188,532 244,910 185,805 183,861 165,008 168,473 172,017 170,012
-------- -------- -------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES .............. 133,306 79,994 127,823 118,041 117,176 116,169 113,286 110,637
Provision for income taxes .............. 42,657 38,762 44,220 40,862 38,044 38,725 37,997 38,233
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME............................... $ 90,649 $ 41,232 $ 83,603 $ 77,179 $ 79,132 $ 77,444 $ 75,289 $72,404
======== ======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Basic................................. $.47 $.22 $.44 $.41 $.42 $.40 $.39 $.37
Diluted............................... $.47 $.21 $.43 $.40 $.41 $.40 $.39 $.37
Cash dividends declared ................. $.20 $.20 $.18 $.18 $.18 $.18 $.16 $.16
FULLY TAX EQUIVALENT MARGIN
Net Interest Income...................... $259,563 $257,158 $262,958 $247,551 $229,052 $226,236 $222,692 $217,106
Tax Equivalent Adjustment (2) ........... 2,754 3,115 2,948 3,047 3,018 3,026 3,123 3,196
-------- -------- -------- -------- -------- -------- -------- --------
Tax Equivalent Net Interest Income....... $262,317 $260,273 $265,906 $250,598 $232,070 $229,262 $225,815 $220,302
======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate.
</TABLE>
<PAGE> 17
Report of MANAGEMENT
- --------------------------------------------------------------------------------
The integrity of the financial statements and other financial information
contained in this Annual Report is the responsibility of the management of
Huntington. Such financial information has been prepared in accordance with
generally accepted accounting principles, based on the best estimates and
judgment of management.
Huntington maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are executed and recorded in
accordance with management's authorization and that the assets of Huntington are
properly safeguarded. This system includes the careful selection and training of
staff, the communication of policies and procedures consistent with the highest
standards of business conduct, and the maintenance of an internal audit
function.
The Audit Committee of the Board of Directors is composed entirely of outside
directors and it meets periodically with both internal and independent auditors
to review the results and recommendations of their audits. This Committee
selects the independent auditor with the approval of shareholders.
The accounting firm of Ernst & Young LLP has been engaged by Huntington to
audit its financial statements, and their report appears below.
/s/ Frank Wobst /s/ Gerald R. Williams
Frank Wobst Gerald R. Williams
Chairman and Executive Vice President
Chief Executive Officer and Chief Financial Officer
Report of ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
Huntington Bancshares Incorporated
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and Subsidiaries as of December 31, 1997 and 1996, 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,
1997. 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. The consolidated financial statements give
retroactive effect to the merger of Huntington Bancshares Incorporated and First
Michigan Bank Corporation (First Michigan), which has been accounted for using
the pooling of interests accounting method as described in Note 2 to the
consolidated financial statements. We did not audit the 1996 and 1995 financial
statements of First Michigan, which statements reflect total assets constituting
14% for 1996 and net income constituting 14% for 1996 and 13% for 1995 of the
related consolidated financial statement totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts for First Michigan, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, and for 1996 and 1995, the report of
other auditors, 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
January 14, 1998
<PAGE> 18
Consolidated
BALANCE SHEEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- ----------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks....................................................... $ 1,142,450 $ 1,071,361
Interest bearing deposits in banks............................................ 39,618 3,418
Trading account securities.................................................... 7,082 1,873
Federal funds sold and securities purchased under resale agreements........... 509,119 21,066
Mortgages held for sale....................................................... 192,948 121,422
Securities available for sale-- at fair value................................. 5,709,814 5,209,393
Investment securities-- fair value $33,383 and $354,702, respectively......... 33,010 345,135
Total loans................................................................... 17,738,248 16,758,155
Less allowance for loan losses............................................. 258,171 230,778
------------- -----------
Net loans..................................................................... 17,480,077 16,527,377
------------- -----------
Premises and equipment........................................................ 389,481 380,460
Customers' acceptance liability............................................... 27,818 56,248
Accrued income and other assets............................................... 1,199,123 634,193
------------- -----------
TOTAL ASSETS.................................................................. $ 26,730,540 $24,371,946
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing....................................................... $ 2,549,518 $ 2,825,586
Interest bearing........................................................... 3,762,862 3,181,512
Savings deposits.............................................................. 3,133,014 3,040,719
Certificates of deposit of $100,000 or more................................... 1,903,657 1,506,914
Other domestic time deposits.................................................. 6,115,534 5,437,131
Foreign time deposits......................................................... 519,133 410,450
------------- -----------
Total deposits............................................................. 17,983,718 16,402,312
------------- -----------
Short-term borrowings......................................................... 3,286,671 4,028,255
Bank acceptances outstanding.................................................. 27,818 56,248
Long-term debt................................................................ 2,686,039 1,665,531
Company-obligated mandatorily redeemable capital securities
of Huntington Capital I.................................................... 200,000 --
Accrued expenses and other liabilities........................................ 520,903 433,942
------------- -----------
Total Liabilities.......................................................... 24,705,149 22,586,288
------------- -----------
Shareholders' Equity
Preferred stock -- authorized 6,617,808 shares; none outstanding
Common stock -- without par value; authorized 300,000,000 shares; issued
and outstanding-- 193,279,797 and 182,265,457 shares, respectively...... 1,528,768 1,290,968
Less 1,543,371 and 9,284,844 treasury shares, respectively................. (36,791) (204,634)
Capital surplus............................................................ 404,235 401,176
Net unrealized gains (losses) on securities available for sale............. 14,800 (13,931)
Retained earnings.......................................................... 114,379 312,079
------------- -----------
Total Shareholders' Equity.................................................... 2,025,391 1,785,658
------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $26,730,540 $24,371,946
============= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 19
Consolidated
STATEMEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(in thousands of dollars, except per share amounts) 1997 1996 1995
- ------------------------------------------------------- ---------- ---------- ----------
Interest and fee income
<S> <C> <C> <C>
Loans............................................... $1,611,541 $1,411,551 $1,357,975
Securities.......................................... 356,388 349,937 332,932
Other............................................... 13,544 14,246 18,720
---------- ---------- ----------
TOTAL INTEREST INCOME............................ 1,981,473 1,775,734 1,709,627
---------- ---------- ----------
Interest Expense
Deposits............................................ 646,121 580,686 538,668
Short-term borrowings............................... 172,745 183,584 217,818
Long-term debt...................................... 135,377 116,378 100,374
---------- ---------- ----------
TOTAL INTEREST EXPENSE........................... 954,243 880,648 856,860
---------- ---------- ----------
NET INTEREST INCOME.............................. 1,027,230 895,086 852,767
---------- ---------- ----------
Provision for loan losses.............................. 107,797 76,371 36,712
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................................. 919,433 818,715 816,055
---------- ---------- ----------
Total non-interest income ............................. 342,839 314,063 275,090
Total non-interest expense ............................ 803,108 675,510 662,061
---------- ---------- ----------
INCOME BEFORE INCOME TAXES.......................... 459,164 457,268 429,084
Provision for income taxes....................... 166,501 152,999 147,283
---------- ---------- ----------
NET INCOME ........................................ $ 292,663 $ 304,269 $ 281,801
========== ========== ==========
PER COMMON SHARE (1)
Net income
Basic............................................ $1.53 $1.58 $1.42
Diluted.......................................... $1.52 $1.57 $1.41
Cash dividends declared............................. $ .76 $ .68 $ .62
AVERAGE COMMON SHARES OUTSTANDING (1) ................ 190,804,039 192,491,596 198,429,594
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
</TABLE>
See notes to consolidated financial statements.
<PAGE> 20
Consolidated Statements of
CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON COMMON TREASURY TREASURY CAPITAL GAINS (LOSSES) RETAINED
(in thousands, except per share amounts) SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE-- JANUARY 1, 1995................ 151,720 $930,154 (905) $(16,577) $339,695 $(66,224) $448,223 $ 1,635,271
Stock issued for acquisitions............ 3,510 3,434 20,061 (985) 8,474 30,984
Net income............................... 281,801 281,801
Cash dividends declared ($.62 per share). (106,493) (106,493)
5% stock dividend........................ 6,732 140,146 (45) (140,272) (126)
Stock options exercised.................. 231 4,155 7 (2,809) 1,353
Treasury shares purchased................ (9,625) (204,645) (204,645)
Treasury shares sold:
Shareholder dividend reinvestment plan 1,553 28,609 437 (1,114) 27,932
Employee benefit plans................ 439 7,826 213 (45) 7,994
Conversion of convertible notes.......... 41 311 311
Change in net unrealized gains (losses)
on securities available for sale... 105,246 105,246
Pre-merger transactions of pooled subsidiary 1,169 1,012 22,319 4,753 (35,019) (6,935)
------- ---------- ------ -------- -------- ------- --------- -----------
BALANCE-- DECEMBER 31, 1995.............. 163,172 1,075,057 (8,352) (180,632) 382,732 42,790 452,746 1,772,693
------- ---------- ------ -------- -------- ------- --------- -----------
Stock issued for acquisitions............ 4,733 102,760 5,037 107,797
Net income............................... 304,269 304,269
Cash dividends declared ($.68 per share). (111,120) (111,120)
Stock options exercised ................. 284 5,385 (4,318) 1,067
10% stock dividend....................... 10,431 208,110 2,837 78,030 2,444 (288,790) (206)
Treasury shares purchased................ (10,419) (246,341) (2,819) (249,160)
Treasury shares sold:
Shareholder dividend reinvestment plan 1,405 31,189 805 31,994
Employee benefit plans................ 227 4,975 397 5,372
Conversion of convertible notes.......... 50 345 345
Change in net unrealized gains (losses)
on securities available for sale... (56,721) (56,721)
Pre-merger transactions of pooled subsidiary 8,612 7,456 16,898 (45,026) (20,672)
------- ---------- ------ -------- -------- ------- --------- -----------
BALANCE-- DECEMBER 31, 1996.............. 182,265 1,290,968 (9,285) (204,634) 401,176 (13,931) 312,079 1,785,658
------- ---------- ------ -------- -------- ------- --------- -----------
Stock issued for acquisitions............ 3,244 73,775 16,463 90,238
Net income............................... 292,663 292,663
Cash dividends declared ($.76 per share). (128,013) (128,013)
Stock options exercised.................. 461 7,000 (3,641) 3,359
10% stock dividend....................... 9,181 236,214 5,274 124,920 (51,488) (309,846) (200)
Treasury shares purchased................ (1,930) (53,427) (2,748) (56,175)
Treasury shares sold:
Shareholder dividend reinvestment plan 534 11,968 2,345 14,313
Employee benefit plans................ 159 3,607 1,110 4,717
Change in net unrealized gains (losses)
on securities available for sale...... 28,731 28,731
Pre-merger transactions of pooled subsidiary 1,833 1,586 41,018 (52,504) (9,900)
------- ---------- ------ -------- -------- ------- --------- -----------
BALANCE-- DECEMBER 31, 1997.............. 193,279 $1,528,768 (1,543) $(36,791) $404,235 $14,800 $ 114,379 $ 2,025,391
======= ========== ====== ======== ======== ======= ========= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 21
Consolidated Statements
of CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------- ------------ ----------- -------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income ..................................................................... $ 292,663 $ 304,269 $ 281,801
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses ................................................... 107,797 76,371 36,712
Provision for depreciation and amortization ................................. 63,383 91,903 76,488
Deferred income tax expense ................................................. 47,687 29,703 25,841
(Increase) decrease in trading account securities ........................... (5,209) 11,051 (3,497)
(Increase) decrease in mortgages held for sale .............................. (71,526) 46,909 (27,218)
Gain on sale of subsidiary .................................................. - - (8,939)
Net gains on sales of securities ............................................ (7,978) (17,620) (9,380)
Net gains on sales of loans ................................................. (12,200) (1,382) (1,274)
(Increase) decrease in accrued income receivable ............................ (7,003) 6,319 (24,849)
Net increase in other assets ................................................ (111,259) (53,471) (35,704)
Increase (decrease) in accrued expenses ..................................... 15,993 (20,029) 116,927
Net increase in other liabilities ........................................... 11,228 5,111 3,862
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 323,576 479,134 430,770
----------- ----------- -----------
INVESTING ACTIVITIES
(Increase) decrease in interest bearing deposits in banks...................... (36,185) 286,537 (282,730)
Proceeds from:
Maturities and calls of investment securities ............................... 90,287 104,180 213,753
Maturities and calls of securities available for sale ....................... 787,788 477,462 246,839
Sales of securities ......................................................... 2,297,166 2,743,036 2,659,785
Purchases of:
Investment securities ....................................................... (2,962) (19,247) (9,111)
Securities available for sale ............................................... (2,958,135) (3,111,606) (3,823,767)
Proceeds from sales of loans ................................................... 357,396 110,737 306,105
Net loan originations, excluding sales ......................................... (1,209,015) (1,354,362) (1,521,898)
Proceeds from disposal of premises and equipment ............................... 8,243 1,664 2,902
Purchases of premises and equipment ............................................ (45,849) (51,617) (44,723)
Proceeds from sales of other real estate ....................................... 17,441 18,627 30,133
Purchase of corporate-owned life insurance ..................................... (400,000) - -
Net cash (paid) received from purchase of subsidiaries ......................... (2,294) 631 165,803
----------- ----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES ................................... (1,096,119) (793,958) (2,056,909)
----------- ----------- -----------
FINANCING ACTIVITIES
Increase in total deposits ..................................................... 1,025,005 521,255 723,427
(Decrease) increase in short-term borrowings ................................... (751,930) 469,785 581,914
Proceeds from issuance of long-term debt ....................................... 1,742,651 870,698 1,095,220
Payment of long-term debt ...................................................... (722,372) (1,418,421) (208,550)
Proceeds from issuance of capital securities ................................... 200,000 - -
Dividends paid on common stock, including pre-merger
dividends of pooled subsidiary .............................................. (132,760) (125,379) (118,906)
Repurchase of common stock ..................................................... (56,175) (258,415) (206,556)
Proceeds from issuance of common stock ......................................... 27,266 43,971 41,557
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................ 1,331,685 103,494 1,908,106
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ...................................... 559,142 (211,330) 281,967
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 1,092,427 1,303,757 1,021,790
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 1,651,569 $ 1,092,427 $ 1,303,757
=========== =========== ===========
</TABLE>
NOTE: Huntington made interest payments of $964,203, $886,020, and $783,275 in
1997, 1996, and 1995, respectively. Federal income tax payments were $114,755 in
1997, $120,645 in 1996, and $112,598 in 1995.
See notes to consolidated financial statements.
<PAGE> 22
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.
On January 1, 1997, Huntington adopted Financial Accounting Standards Board
(FASB) Statement No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (FAS 125). The Statement is effective
for transactions occurring after December 31, 1996. However, transactions such
as securities lending, repurchase agreements, dollar rolls, and similar secured
financing arrangements are not subject to the provisions of FAS 125 until
January 1, 1998. 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 adoption of FAS 125 did not have a material impact on
Huntington's consolidated financial statements. The impact of the delayed
provisions is also not expected to be material.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
(FAS 128). FAS 128 replaced the calculation of primary and fully diluted
earnings per share (EPS) with basic and diluted EPS. Unlike primary EPS, basic
EPS excludes any dilutive effects of options, warrants, and convertible
securities. Diluted EPS is very similar to fully diluted EPS. All EPS amounts
presented have been restated, as applicable, to conform with the new
requirements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). Each of the new statements is
effective for periods beginning after December 15, 1997, and requires that
certain additional information be reported in the financial statements and
related notes. Huntington will adopt FAS 130 in the first quarter of 1998 and
expects to provide the segment disclosures required by FAS 131 in its 1998
Annual Report to Shareholders.
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 available for sale are carried as a separate component of
shareholders' equity. Unrealized gains and losses on securities classified as
trading are reported in earnings. The amortized cost of specific securities
sold is used to compute realized gains and losses.
LOANS: Loans are stated at the principal amount outstanding, net of unearned
discount. Interest income on loans is primarily accrued based on principal
amounts outstanding. Income from lease financing is recognized on a basis to
achieve a constant periodic rate of return on the outstanding investment. The
accrual of interest income is discontinued when the collection of principal,
interest, or both is doubtful. When interest accruals are suspended, interest
income accrued in the current period is generally reversed. Huntington uses the
cost recovery method in accounting for cash received on non-accrual loans. Under
this method, cash receipts are applied entirely against principal until the loan
has been collected in full, after which time any additional cash receipts are
recognized as interest income.
Net direct loan origination costs/fees, when material, are deferred and
amortized over the term of the loan as a yield adjustment.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses reflects
management's judgment as to the level considered appropriate to absorb potential
losses inherent in the loan portfolio. This judgment is based on a review of
individual loans, historical loss experience, economic conditions, portfolio
trends, and other factors. The allowance is increased by provisions charged to
earnings and reduced by charge-offs, net of recoveries.
The portion of the allowance for loan losses related to impaired loans
(non-accruing and restructured credits, exclusive of smaller, homogeneous loans)
is based on discounted cash flows using the loans' initial effective interest
rate or the fair value of the collateral for collateral-dependent loans.
OTHER REAL ESTATE: Other real estate, acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower of
cost or fair value less estimated costs of disposition. At the date of
acquisition, any losses are charged to the allowance for loan losses. Subsequent
write-downs are included in non-interest expense. Realized losses from
disposition of the property and declines in fair value that are considered
permanent are charged to the reserve for other real estate, as applicable.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for premises and 3 to 10
years for equipment.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are reported at the
lower of cost or aggregate market value primarily as determined by outstanding
commitments from investors.
Capitalized mortgage servicing rights are evaluated for impairment based on
the fair value of those rights, using a disaggregated approach. Mortgage
servicing rights are amortized on an accelerated basis over the estimated period
of net servicing revenue.
<PAGE> 23
1. ACCOUNTING POLICIES (Continued)
PURCHASE BUSINESS COMBINATIONS: Net assets of entities acquired, for which
the purchase method of accounting was used by Huntington, were recorded at their
estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
generally up to 25 years. Core deposits and other identifiable acquired
intangible assets are amortized over their estimated useful lives.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Huntington uses certain off-balance
sheet financial instruments, principally interest rate swaps, in connection
with its asset/liability management activities. Purchased interest rate options
(including caps and floors), futures, and forwards are also used to manage
interest rate risk. Provided these instruments meet specific criteria, they
are considered hedges and accounted for under the accrual or deferral methods,
as more fully discussed below. Off-balance sheet financial instruments that do
not meet the required criteria are carried on the balance sheet at fair value
with realized and unrealized changes in that value recognized in earnings.
Similarly, if the hedged item is sold or its outstanding balance otherwise
declines below that of the related hedging instrument, the off-balance sheet
product (or applicable excess portion thereof) is marked-to-market and the
resulting gain or loss is included in earnings.
Accrual accounting is used when the cash flows attributable to the
hedging instrument satisfy the objectives of the asset/liability management
strategy. Huntington uses the accrual method for substantially all of its
interest rate swaps as well as for interest rate options. Amounts receivable or
payable under these agreements are recognized as an adjustment to the interest
income or expense of the hedged item. There is no recognition on the balance
sheet for changes in the fair value of the hedging instrument, except for
interest rate swaps designated as hedges of securities available for sale, for
which changes in fair values are reported in shareholders' equity. Premiums paid
for interest rate options are deferred as a component of other assets and
amortized to interest income or expense over the contract term. Gains and losses
on terminated hedging instruments are also deferred and amortized to interest
income or expense generally over the remaining life of the hedged item.
Huntington employs deferral accounting when the market value of the hedging
instrument meets the objectives of the asset/liability management strategy and
the hedged item is reported at other than fair value. In such cases, gains and
losses associated with futures and forwards are deferred as an adjustment to the
carrying value of the related asset or liability and are recognized in the
corresponding interest income or expense accounts over the remaining life of the
hedged item.
The FASB has issued a draft statement, "Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities." A final statement is
expected to be issued in the second quarter of 1998, the provisions of which
must be adopted by Huntington no later than January 1, 2000. Upon the FASB's
issuance of a final standard, Huntington intends to complete its analysis of
the financial statement impact of adopting the new rules.
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."
2. MERGERS AND ACQUISITIONS
On September 30, 1997, Huntington acquired First
Michigan Bank Corporation, a $3.6 billion bank holding company headquartered in
Holland, Michigan. Huntington issued approximately 32.2 million shares of its
common stock to the shareholders of First Michigan based upon an exchange ratio
of 1.155 shares of Huntington common stock for each outstanding share of First
Michigan common stock in a transaction accounted for as a pooling of interests.
All financial information previously reported by Huntington, except dividends
per share, has been restated for the First Michigan acquisition.
Separate results of operations for Huntington and First Michigan for periods
preceding the merger were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
NINE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
(in thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Net interest income
Huntington ........... $655,364 $758,824 $724,563
First Michigan ....... 112,303 136,262 128,204
-------- -------- --------
Combined ............. $767,667 $895,086 $852,767
======== ======== ========
Net income (loss)
Huntington ........... $214,717 $262,101 $244,489
First Michigan ....... (12,703) 42,168 37,312
-------- -------- --------
Combined ............. $202,014 $304,269 $281,801
======== ======== ========
Earnings (loss) per share
Basic
Huntington ......... $1.36 $1.63 $1.47
First Michigan ..... (0.46) 1.52 1.35
Combined ........... $1.06 $1.58 $1.42
Diluted
Huntington ......... $1.34 $1.62 $1.46
First Michigan ..... (0.45) 1.51 1.33
Combined ........... $1.04 $1.57 $1.41
</TABLE>
In connection with the acquisition of First Michigan, Huntington reported a
restructuring charge of $35.0 million consisting primarily of personnel,
facilities, and systems costs, and incurred $12.2 million of professional fees
and other costs to effect the merger (reported on a combined basis as "Special
charges"). Other one-time costs related to the acquisition were an additional
loan loss provision of $4.8 million and non-interest expenses of $4.0 million.
It is anticipated that the $23.1 million restructuring charge accrual
(predominantly consisting of personnel-related costs) remaining at December 31,
1997 will be used during 1998.
Also in 1997, Huntington consummated two acquisitions which were accounted
for as purchases. On February 28, 1997, Huntington acquired Citi-Bancshares,
Inc. (Citi-Bancshares), a $548 million one-bank holding company headquartered in
Leesburg, Florida. The purchase price was distributed to Citi-Bancshares
shareholders in the form of $47.7 million in cash and 2.9 million shares of
Huntington common stock. On October 31,
<PAGE> 24
1997, Huntington acquired The Bank of Winter Park (Winter Park), a $90 million
bank headquartered in Winter Park, Florida, for approximately 364 thousand
shares of Huntington common stock. Results of operations include these acquired
businesses from the date of acquisition only. Pro forma results of operations of
Citi-Bancshares and Winter Park have been excluded due to the immaterial impact
on Huntington's consolidated earnings.
In December 1997, Huntington announced the acquisition of sixty banking
offices in Florida to be sold by NationsBank Corporation in connection with the
merger of NationsBank and Barnett Banks Inc. The branch acquisition is expected
to add $1.6 billion in loans and $2.6 billion in deposits. The deposit premium,
which is subject to final determination based on the deposit levels at the
closing of the transaction, is projected to be $523 million. Huntington intends
to raise $300 million of common equity and will sell an additional $250 million
of trust preferred (capital) securities in connection with the transaction. The
new capital amounts are estimates only and could change based on Huntington's
asset growth, the ultimate deposit premium paid, and other developments over the
next few months. The acquisition is expected to close in the second quarter of
1998.
- --------------------------------------------------------------------------------
3. SECURITIES AVAILABLE FOR SALE
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1997, and 1996 were:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
---------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
U.S. Treasury ............ $ 730,862 $ 4,501 $ 5,689 $ 729,674
Federal Agencies
Mortgage-backed
securities .......... 1,368,502 8,031 5,093 1,371,440
Other agencies ........ 2,888,971 16,049 5,100 2,899,920
---------- ---------- ---------- ----------
Total U.S. Treasury and
Federal Agencies .... 4,988,335 28,581 15,882 5,001,034
Other Securities ......... 698,584 11,953 1,757 708,780
---------- ---------- ---------- ----------
Total securities
available for sale .. $5,686,919 $ 40,534 $ 17,639 $5,709,814
========== ========== ========== ==========
AT DECEMBER 31, 1996
U.S. Treasury ............ $ 801,671 $ 2,374 $ 14,618 $ 789,427
Federal Agencies
Mortgage-backed
securities .......... 1,354,565 4,399 13,161 1,345,803
Other agencies ........ 2,581,768 10,951 13,128 2,579,591
---------- ---------- ---------- ----------
Total U.S. Treasury and
Federal Agencies .... 4,738,004 17,724 40,907 4,714,821
Other Securities ......... 493,322 4,000 2,750 494,572
---------- ---------- ---------- ----------
Total securities
available for sale .. $5,231,326 $ 21,724 $ 43,657 $5,209,393
========== ========== ========== ==========
</TABLE>
Amortized cost and fair values by contractual maturity at December 31, 1997,
and 1996 were:
- --------------------------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
AT DECEMBER 31, 1997
Under 1 year ........................... $ 18,148 $ 18,145
1-D5 years ............................. 2,381,776 2,387,294
6-D10 years ............................ 1,805,524 1,812,872
Over 10 years .......................... 1,419,307 1,430,374
Marketable equity securities ........... 62,164 61,129
---------- ----------
Total ............................... $5,686,919 $5,709,814
========== ==========
AT DECEMBER 31, 1996
Under 1 year ........................... $ 254,248 $ 254,758
1-D5 years ............................. 2,725,307 2,723,809
6-D10 years ............................ 1,359,097 1,340,908
Over 10 years .......................... 871,974 870,469
Marketable equity securities ........... 20,700 19,449
---------- ----------
Total ............................... $5,231,326 $5,209,393
========== ==========
</TABLE>
Gross gains from sales of securities of $12.3 million, $24.7 million, and
$12.8 million were realized in 1997, 1996 and 1995, respectively. Gross losses
totaled $4.3 million in 1997, $7.1 million in 1996, and $3.5 million in 1995.
In 1997, Huntington securitized and transferred to securities available for
sale $115.1 million of residential mortgage loans.
- --------------------------------------------------------------------------------
4. INVESTMENT SECURITIES
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1997, and 1996 were:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
---------------------
AMORTIZED GROSS GROSS FAIR
(in thousands of dollars) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
U.S. Treasury and
Federal Agencies ...... $ 656 $ - $ - $ 656
States and political
subdivisions .......... 32,354 471 98 32,727
-------- -------- -------- --------
Total investment
securities ......... $ 33,010 $ 471 $ 98 $ 33,383
======== ======== ======== ========
AT DECEMBER 31, 1996
U.S. Treasury ............ $ 27,317 $ 159 $ 64 $ 27,412
Federal Agencies
Mortgage-backed
securities .......... 62,539 466 177 62,828
Other agencies ........ 21,703 22 46 21,679
-------- -------- -------- --------
Total U.S. Treasury and
Federal Agencies .... 111,559 647 287 111,919
States and political
subdivisions .......... 233,458 9,932 725 242,665
Other Securities ......... 118 - - 118
-------- -------- -------- --------
Total investment
securities .......... $345,135 $ 10,579 $ 1,012 $354,702
======== ======== ======== ========
</TABLE>
<PAGE> 25
- --------------------------------------------------------------------------------
4. INVESTMENT SECURITIES (Continued)
Amortized cost and fair values by contractual maturity at December 31, 1997,
and 1996 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
AMORTIZED FAIR
(in thousands of dollars) COST VALUE
- ----------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1997
Under 1 year ...................... $ 6,311 $ 6,310
1-D5 years ........................ 14,248 14,375
6-D10 years ....................... 9,605 9,788
Over 10 years ..................... 2,846 2,910
-------- --------
Total .......................... $ 33,010 $ 33,383
======== ========
AT DECEMBER 31, 1996
Under 1 year ...................... $ 96,886 $ 97,336
1-D5 years ........................ 160,128 165,925
6-D10 years ....................... 80,894 84,141
Over 10 years ..................... 7,227 7,300
-------- --------
Total .......................... $345,135 $354,702
======== ========
</TABLE>
The portfolio of investment securities acquired in the First Michigan
acquisition was sold and/or transferred to the available for sale category to
maintain Huntington's existing interest rate risk position. At the date of
sale/transfer, amortized cost and fair value were $225.3 million and $233.5
million, respectively.
- --------------------------------------------------------------------------------
5. LOANS
At December 31, 1997, and 1996, loans were comprised of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(in thousands of dollars) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Commercial ................... $ 5,270,660 $ 5,129,836
Real estate
Construction .............. 863,635 699,013
Commercial ................ 2,370,652 2,138,361
Residential ............... 1,228,446 1,485,568
Consumer
Loans ..................... 6,462,716 6,122,730
Leases .................... 1,542,139 1,182,647
----------- -----------
Total loans ............. $17,738,248 $16,758,155
=========== ===========
</TABLE>
Huntington's subsidiaries have granted loans to its executive offcers,
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) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year . $ 173,491 $ 174,435
Loans made .............. 126,503 55,170
Repayments .............. (46,828) (48,312)
Changes due to status of
executive offcers
and directors ......... (46,195) (7,802)
--------- ---------
Balance, end of year ....... $ 206,971 $ 173,491
========= =========
</TABLE>
6. 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) 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 230,778 $ 222,487 $ 225,225
Allowance acquired/other . 7,777 1,907 6,827
Loan losses .............. (110,723) (91,007) (62,414)
Recoveries of loans
previously charged off 22,542 21,020 16,137
Provision for loan losses 107,797 76,371 36,712
--------- --------- ---------
Balance, end of year ..... $ 258,171 $ 230,778 $ 222,487
========= ========= =========
</TABLE>
Approximately $34.8 million and $29.3 million of non-performing loans
presented in Table 12 of Management's Discussion and Analysis are considered
impaired (as defined in FASB Statement No. 114) at December 31, 1997, and
1996, respectively. Included in these amounts are $20.6 million and $11.8
million of impaired loans for which the related allowance for loan losses was
$6.4 million and $4.8 million at December 31, 1997, and 1996. Principally as a
result of write-downs, $14.2 million and $17.5 million of impaired loans do not
have an allowance for loan losses. The average recorded investment in impaired
loans during the years ended December 31, 1997, and 1996, was approximately
$34.0 million and $31.5 million, respectively.
- --------------------------------------------------------------------------------
7. PREMISES AND EQUIPMENT
At December 31, 1997, and 1996, premises and equipment stated at cost were
comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Land ........................................... $ 58,909 $ 56,343
Buildings ...................................... 298,724 291,873
Leasehold improvements ......................... 93,485 86,776
Equipment ...................................... 355,668 331,107
-------- --------
Total premises and equipment ................ 806,786 766,099
Less accumulated depreciation and amortization . 417,305 385,639
-------- --------
Net premises and equipment ..................... $389,481 $380,460
======== ========
</TABLE>
Depreciation and amortization charged to expense and rental income credited
to occupancy expense were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Occupancy expense ................. $15,243 $14,491 $13,372
Equipment expense ................. 26,140 25,001 21,620
------- ------- -------
Total depreciation and amortization $41,383 $39,492 $34,992
======= ======= =======
Rental income credited to
occupancy expense .............. $14,842 $11,966 $11,497
======= ======= =======
</TABLE>
<PAGE> 26
- --------------------------------------------------------------------------------
8. SHORT-TERM BORROWINGS
At December 31, 1997, and 1996, short-term borrowings were comprised of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase .... $3,064,344 $3,309,445
Medium-term notes with original
maturities less than one year
Parent company ......................... 40,000 140,000
Subsidiary bank ........................ 105,000 505,300
Commercial paper .......................... 40,050 37,418
Other ..................................... 37,277 36,092
---------- ----------
Total short-term borrowings ............... $3,286,671 $4,028,255
========== ==========
</TABLE>
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Average balance during the year .......... $1,253,724 $1,200,065
Average interest rate during the year ..... 4.58% 4.41%
Maximum month-end
balance during the year ................ $1,356,785 $1,382,433
</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 the agreement, a quarterly fee must be paid
and there are no compensating balances required. The line is cancelable, by
Huntington, upon written notice and terminates August 23, 2000. There were no
borrowings under the line in 1997 or 1996.
Securities pledged to secure public or trust deposits, repurchase agreements,
and for other purposes were $2.1 billion and $2.0 billion at December 31, 1997,
and 1996, respectively.
- --------------------------------------------------------------------------------
9. CAPITAL SECURITIES
In January 1997, Huntington Capital I, a Delaware statutory business trust
(the "Trust") owned by Huntington, issued $200 million of company-obligated
mandatorily redeemable capital securities (the "Capital Securities"). All of the
common securities of Huntington Capital I are owned by Huntington. The proceeds
from the issuance of the Capital Securities ($200 million) and common securities
($6.2 million) were used by Huntington Capital I to purchase from Huntington
$206.2 million of Floating Rate Junior Subordinated Debentures. The subordinated
debentures are the sole assets of the trust, bear interest at a variable annual
rate equal to LIBOR plus .70%, and mature on February 1, 2027. Interest payments
made on the capital securities are reported as a component of interest expense
on long-term debt.
Huntington has fully and unconditionally guaranteed, on a subordinated basis
(the "Guarantee"), payment of: (i) any accumulated and unpaid distributions
required to be paid on the Capital Securities; (ii) the redemption price with
respect to any Capital Securities called for redemption by the Trust; or, (iii)
amounts due upon the voluntary or involuntary dissolution or liquidation of the
Trust, as set forth in the Guarantee. The Guarantee will apply to the payment of
distributions only to the extent that the Trust has suffcient funds available to
make such payments.
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT
At December 31, 1997, and 1996, long-term debt was comprised of the
following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Subordinated notes, 7 5/8%, maturing in 2003,
face value $150,000 at December 31, 1997,
and 1996, net of discount ................... $ 149,657 $ 149,587
Subordinated notes, 7 7/8%, maturing in 2002,
face value $150,000 at December 31, 1997,
and 1996, net of discount ................... 149,376 149,249
Subordinated notes, 6 3/4%, maturing in 2003,
face value $100,000 at December 31, 1997,
and 1996, net of discount ................... 99,819 99,786
Medium-term notes with original maturities
greater than one year
Parent company (maturing through 2002) ...... 180,000 205,000
Subsidiary bank (maturing through 2007) ..... 2,007,150 935,000
Federal Home Loan Bank notes
maturing through 1999 ....................... 95,500 121,668
Other .......................................... 4,537 5,241
---------- ----------
Total long-term debt ........................... $2,686,039 $1,665,531
========== ==========
</TABLE>
PARENT COMPANY OBLIGATIONS
The 77U8% Notes are not redeemable prior to maturity in 2002, and do not
provide for any sinking fund. Interest rate swaps were used by Huntington to
convert the Notes to a variable interest rate. At December 31, 1997, the
effective interest rate on the synthetically altered Notes was 6.37%.
The Medium-term notes had weighted average interest rates of 5.99% and 5.92%
at December 31, 1997, and 1996, respectively.
SUBSIDIARY OBLIGATIONS
The 75U8% Notes and the 63U4% Notes were issued by The Huntington National
Bank in 1993. Adjusted for the effects of interest rate swaps, the rates were
5.91% and 6.16% at December 31, 1997. 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 5.98% and
5.57% at December 31, 1997, and 1996, respectively. The stated interest rates on
certain notes have also been modified by interest rate swaps. At December 31,
1997, the weighted average effective interest rate on the synthetically altered
Medium-term bank notes was 5.83%.
The Federal Home Loan Bank notes mature serially from February 1998 through
December 1999, and had a weighted average interest rate of 6.12% and 5.84% at
December 31, 1997, and 1996, respectively. These advances cannot be prepaid
without penalty.
<PAGE> 27
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT (Continued)
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, 1997, Huntington was in compliance with all
such covenants.
The following table summarizes the maturities of Huntington's long-term debt:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
YEAR (in thousands of dollars)
- --------------------------------------------------------------
<S> <C> <C>
1998.......................... $1,015,500
1999.......................... 590,000
2000.......................... 205,000
2001.......................... 279,536
2002.......................... 242,150
2003 and thereafter........... 355,000
----------
2,687,186
Discount...................... (1,147)
----------
Total......................... $2,686,039
==========
</TABLE>
- --------------------------------------------------------------------------------
11. OPERATING LEASES
At December 31, 1997, 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, 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
YEAR (in thousands of dollars)
- -----------------------------------------------------------------
<S> <C> <C>
1998 .............................. $ 20,115
1999 .............................. 18,354
2000 .............................. 18,684
2001 .............................. 17,750
2002 .............................. 16,359
2003 and thereafter................ 90,969
--------
Total minimum payments ............ $182,231
========
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $61.8 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 $25.2 million for 1997 compared with $23.0 million in 1996 and $23.6
million in 1995.
12. OFF-BALANCE SHEET TRANSACTIONS
In the normal course of business, Huntington is party to financial
instruments with varying degrees of credit and market risk in excess of the
amounts reflected as assets and liabilities in the consolidated balance
sheet. Loan commitments and letters of credit are commonly used to meet the
financing needs of customers, while interest rate swaps, purchased options,
futures, and forwards are an integral part of Huntington's asset/liability
management activities. To a much lesser extent, various financial instrument
agreements are entered into to assist customers in managing their exposure to
interest rate fluctuations. These customer agreements, for which Huntington
counters interest rate risk through offsetting third party contracts, are
considered trading activities.
The credit risk arising from loan commitments and letters of credit,
represented by their contract amounts, is essentially the same as that involved
in extending loans to customers, and both arrangements are subject to
Huntington's standard credit policies and procedures. Collateral is obtained
based on management's credit assessment of the customer and, for commercial
transactions, may consist of accounts receivable, inventory, income-producing
properties, and other assets. Residential properties are the principal form of
collateral for consumer commitments.
Notional values of interest rate swaps and other off-balance sheet
financial instruments significantly exceed the credit risk associated with
these instruments and represent contractual balances on which calculations of
amounts to be exchanged are based. Credit exposure is limited to the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. Potential
credit losses are minimized through careful evaluation of counterparty credit
standing, selection of counterparties from a limited group of high quality
institutions, collateral agreements, and other contract provisions. At December
31, 1997, Huntington's credit risk from these off-balance sheet arrangements,
including trading activities, was approximately $73.2 million.
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1997, and 1996, is presented in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(in millions of dollars) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial ........................ $4,058 $3,540
Consumer .......................... 2,992 2,913
Other ............................. 314 334
Standby letters of credit ........... 677 657
Commercial letters of credit ........ 132 92
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps ............... 3,194 2,868
Purchased interest rate options ... 679 635
Interest rate forwards and futures 267 179
Trading activities
Interest rate swaps ............... 126 298
Interest rate options ............. 53 153
Interest rate futures ............. - 50
</TABLE>
<PAGE> 28
- --------------------------------------------------------------------------------
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 46% of standby letters of
credit are collateralized, and approximately 86% are expected to expire without
being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments which facilitate customer trade transactions and have maturities of
no longer than ninety days. These instruments are normally secured by the
merchandise or cargo being traded.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount. Huntington
enters into swaps to synthetically alter the repricing characteristics of
designated earning assets and interest bearing liabilities and, on a much more
limited basis, as an intermediary for customers. Because only interest payments
are exchanged, cash requirements of swaps are significantly less than the
notional amounts.
Interest rate futures are commitments to either purchase or sell a
financial instrument at a future date for a specified price or yield and
may be settled in cash or through delivery of the underlying financial
instrument. Forward contracts, used primarily by Huntington in connection with
its mortgage banking activities, settle in cash at a specified future date
based on the differential between agreed interest rates applied to a notional
amount. Huntington also purchases interest rate options (e.g. caps and
floors) to manage fluctuating interest rates. Premiums paid for interest
rate options grant Huntington the right to receive at specified future dates
the amount, if any, by which a specified market interest rate exceeds the
fixed cap rate or falls below the fixed floor rate, applied to a
notional amount. Exposure to loss from interest rate contracts changes as
interest rates fluctuate.
For more detailed information concerning off-balance sheet transactions,
refer to the "Interest Rate Risk Management" section of Management's Discussion
and Analysis.
- --------------------------------------------------------------------------------
13. 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.
- --------------------------------------------------------------------------------
14. 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 table reconciles the funded status of the pension plan at the
applicable September 30 measurement dates with the amounts recognized in the
consolidated balance sheet at December 31, 1997, and 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEfiT OBLIGATIONS
Vested benefit obligation ................. $ 132,605 $ 107,235
========= =========
Accumulated benefit obligation$ ........... 143,682 $ 114,271
========= =========
Projected benefit obligation.................. $ 178,325 $ 163,113
Plan assets, at fair value ................... 194,336 158,903
--------- ---------
Projected benefit obligation (less)
greater than plan assets .................. (16,011) 4,210
Unrecognized transition asset,
net of amortization ....................... 1,986 2,459
Unrecognized net gain ........................ 26,920 20,251
Unrecognized prior service cost .............. 14,905 517
--------- ---------
Accrued pension cost ...................... $ 27,800 $ 27,437
========= =========
</TABLE>
The following table shows the components of pension cost recognized in 1997,
1996, and 1995, and the assumptions used in determining the benefit
liabilities and costs.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
NET PENSION COST INCLUDED
THE FOLLOWING COMPONENTS
Service cost-benefits earned
during the period ................. $ 10,698 $ 11,243 $ 10,934
Interest cost on projected
benefit obligation ................ 12,502 11,731 10,394
Net amortization and deferral ....... 21,021 (3,508) 15,941
Actual return on plan assets ........ (36,313) (9,099) (26,586)
-------- -------- --------
Net pension expense ............... $ 7,908 $ 10,367 $ 10,683
======== ======== ========
</TABLE>
<PAGE> 29
- --------------------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The discount rate used for benefit obligations was 7.50% in 1997, 7.75% in
1996, and 7.50% in 1995. The rate of salary increases was 5.0% in each of the
three years. The expected long-term rate of return on plan assets was 8.75% for
the same periods.
Huntington also sponsors an unfunded Supplemental Executive Retirement Plan,
a non-qualified plan that provides certain key offcers of Huntington and its
subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1997, and 1996, the accrued pension cost for
this plan totaled $10.5 million and $9.4 million, respectively. Pension expense
for this plan was $1.3 million in 1997, 1996, and 1995.
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) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost ....................... $ 959 $ 1,214 $ 986
Interest cost ...................... 2,386 2,832 2,594
Amortization of
transition obligation ........... 1,331 1,331 1,331
Net amortization and deferral ...... (64) 506 363
------- ------- -------
Net periodic post-retirement
benefit cost .................... $ 4,612 $ 5,883 $ 5,274
======= ======= =======
</TABLE>
The following table sets forth the status of the post-retirement benefit
obligation at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION
Retirees ........................................... $ 21,622 $ 19,038
Fully eligible active plan participants ............ 5,796 5,299
Other active plan participants ..................... 11,723 8,992
Total accumulated post-retirement -------- --------
benefit obligation .............................. 39,141 33,329
Unrecognized net gain ........................... 5,281 8,977
Unrecognized prior service cost ................. (6,474) (5,003)
Unrecognized transition obligation ............. (19,679) (21,009)
Benefits paid in fourth quarter .................... (628) (491)
-------- --------
Accrued post-retirement benefit cost .......... $ 17,641 $ 15,803
======== ========
</TABLE>
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligations was 7.50% in 1997, 7.75% in 1996, and
7.50% in 1995. The 1998 health care cost trend rate was projected to be 9.25%
for pre-65 participants and 8.00% for post-65 participants compared with
estimates of 10.00% and 8.50% in 1997. These rates are assumed to decrease
gradually until they reach 5.25% 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, 1997, by $1.2 million and the aggregate
of the service and interest components of net periodic post-retirement
benefit cost for 1997 by $171,000.
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,
together with the defined contribution plan sponsored by First Michigan prior
to the acquisition, was $9.7 million in 1997, $9.0 million in 1996, and $7.4
million in 1995.
- --------------------------------------------------------------------------------
15. INCOME TAXES
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal................... $ 115,197 $ 114,183 $ 116,415
State..................... 3,617 3,076 4,556
----------- ----------- ---------
Total current .......... 118,814 117,259 120,971
----------- ----------- ---------
Deferred tax expense (benefit)
Federal................... 46,088 34,378 26,484
State..................... 1,599 1,362 (172)
----------- ----------- ---------
Total deferred.......... 47,687 35,740 26,312
----------- ----------- ---------
Total provision for income taxes $ 166,501 $ 152,999 $ 147,283
=========== =========== =========
</TABLE>
Included in the above amounts was tax expense associated with securities
transactions totaling $2.9 million in 1997, $6.2 million in 1996, and $3.3
million in 1995.
The following is a reconcilement of income tax expense to the amount computed
at the statutory rate of 35%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income computed
at the statutory rate ........... $ 160,708 $ 160,043 $ 150,179
Increases (decreases):
Tax-exempt interest income ...... (7,101) (7,623) (8,909)
State income taxes .............. 3,391 2,885 2,849
Other-net ....................... 9,503 (2,306) 3,164
--------- --------- ---------
Provision for income taxes ......... $ 166,501 $ 152,999 $ 147,283
========= ========= =========
</TABLE>
<PAGE> 30
- --------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities at
December 31, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(in thousands of dollars) 1997 1996
- ------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses ......... $ 85,873 $ 72,494
Securities ........................ - 7,499
Pension and other employee benefits 28,131 24,138
Other ............................. 12,535 10,705
-------- --------
Total deferred tax assets ....... 126,539 114,836
-------- --------
Deferred tax liabilities:
Financial instruments ............. 3,736 5,359
Leasefinancing .................... 181,987 120,708
Mortgage servicing rights ......... 14,094 8,575
Premises and equipment ............ 12,201 15,148
Revalued liabilities N net ........ 4,774 5,061
Securities ........................ 8,192 -
Other ............................. 14,547 11,908
-------- --------
Total deferred tax liabilities .. 239,531 166,759
-------- --------
Net deferred tax liability ...... $112,992 $ 51,923
======== ========
</TABLE>
- --------------------------------------------------------------------------------
16. EARNINGS PER SHARE
Basic earnings per share is the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. Diluted
earnings per share is the amount of earnings available to each share of common
stock outstanding during the reporting period adjusted for the potential
issuance of common shares for stock options and the conversion impact of
convertible equity instruments.
The calculation of basic and diluted earnings per share for each of the three
years ended December 31 is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(in thousands, except per share) 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net income ............... $292,663 $304,269 $281,801
Impact of convertible debt - 13 41
-------- -------- --------
Diluted net income .... $292,663 $304,282 $281,842
======== ======== ========
Average common
shares outstanding .... 190,804 192,492 198,430
Dilutive effect of:
Stock options ......... 2,330 1,810 1,490
Convertible debt ...... - 30 93
-------- -------- --------
Diluted common
shares outstanding 193,134 194,332 200,013
======== ======== ========
Earnings per share
Basic ................. $ 1.53 $ 1.58 $ 1.42
Diluted ............... $ 1.52 $ 1.57 $ 1.41
</TABLE>
Average common shares outstanding and the dilutive effect of stock options
and convertible debt have been adjusted for subsequent stock dividends and stock
splits, as applicable.
- --------------------------------------------------------------------------------
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1997, and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) IQ IIQ IIIQ IVQ
- --------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
Interest income ......... $475,874 $503,018 $502,821 $499,760
Interest expense ........ 228,323 240,060 245,663 240,197
-------- -------- -------- --------
Net interest income ..... 247,551 262,958 257,158 259,563
-------- -------- -------- --------
Provision for loan losses 22,380 30,831 28,351 26,235
Securities gains ........ 2,098 3,604 1,242 1,034
Non-interest income ..... 74,633 77,897 94,855 87,476
Non-interest expense .... 183,861 185,805 244,910 188,532
-------- -------- -------- --------
Income before
income taxes ......... 118,041 127,823 79,994 133,306
Provision for
income taxes ......... 40,862 44,220 38,762 42,657
-------- -------- -------- --------
Net income .............. $ 77,179 $ 83,603 $ 41,232 $ 90,649
======== ======== ======== ========
Net income per common share (1)
Basic............. $.41 $.44 $.22 $.47
Diluted........... $.40 $.43 $.21 $.47
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(in thousands of dollars,
except per share data) IQ IIQ IIIQ IVQ
- -----------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
Interest income ............... $438,051 $439,514 $445,453 $452,716
Interest expense .............. 220,945 216,822 219,217 223,664
-------- -------- -------- --------
Net interest income ........... 217,106 222,692 226,236 229,052
-------- -------- -------- --------
Provision for loan losses ..... 14,195 14,160 22,978 25,038
Securities gains .............. 7,106 102 6,172 4,240
Non-interest income ........... 70,632 76,669 75,212 73,930
Non-interest expense .......... 170,012 172,017 168,473 165,008
-------- -------- -------- --------
Income before
income taxes ............... 110,637 113,286 116,169 117,176
Provision for
income taxes ............... 38,233 37,997 38,725 38,044
-------- -------- -------- --------
Net income .................... $ 72,404 $ 75,289 $ 77,444 $ 79,132
======== ======== ======== ========
Net income per common share (1)
Basic ...................... $ .37 $ .39 $ .40 $ .42
Diluted .................... $ .37 $ .39 $ .40 $ .41
<FN>
(1) Adjusted for stock dividends and stock splits, as applicable.
</FN>
</TABLE>
<PAGE> 31
- --------------------------------------------------------------------------------
18. NON-INTEREST INCOME
A summary of the components of non-interest income for the three years ended
December 31 follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Service charges on
deposit accounts .... $117,852 $107,669 $ 97,505
Mortgage banking ....... 55,715 43,942 39,309
Trust services ......... 48,102 42,237 37,627
Electronic banking fees 22,656 12,013 6,190
Credit card fees ....... 20,374 23,093 18,757
Investment product sales 19,024 13,950 9,704
Securities gains ....... 7,978 17,620 9,380
Other .................. 51,138 53,539 56,618
-------- -------- --------
TOTAL NON-INTEREST
INCOME ............ $342,839 $314,063 $275,090
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
19. NON-INTEREST EXPENSE
A summary of the components of non-interest expense for the three years ended
December 31 follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(in thousands of dollars) 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Salaries ................ $297,415 $273,316 $263,552
Commissions ............. 21,398 14,587 10,347
Employee benefits ....... 70,030 69,289 69,059
Equipment ............... 57,867 50,887 44,646
Net occupancy ........... 49,509 49,676 47,824
Special charges ......... 47,163 - N
Advertising ............. 24,662 14,947 13,757
Printing and supplies ... 21,584 19,602 18,103
Credit card and
electronic banking ... 14,171 16,355 14,076
Legal and loan collection 13,418 11,106 9,658
FDIC insurance .......... 2,774 1,261 17,974
Other ................... 183,117 154,484 153,065
-------- -------- --------
TOTAL NON-INTEREST
EXPENSE ............ $803,108 $675,510 $662,061
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
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
corporate-owned life insurance and 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, 1997
- --------------------------------------------------------------------------
CARRYING FAIR
(in thousands of dollars) AMOUNT VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term assets .... $ 1,691,187 $ 1,691,187
Trading account securities .... 7,082 7,082
Mortgages held for sale ....... 192,948 192,948
Securities .................... 5,742,824 5,743,197
Loans ......................... 17,480,077 17,777,451
Customers' acceptance liability 27,818 27,818
Interest rate contracts:
Asset/liability management .. 17,557 42,547
Customer accommodation ...... 2,606 2,606
FINANCIAL LIABILITIES:
Deposits ...................... (17,983,718) (18,012,315)
Short-term borrowings ......... (3,286,671) (3,286,671)
Bank acceptances outstanding .. (27,818) (27,818)
Long-term debt ................ (2,686,039) (2,713,831)
Capital securities ............ (200,000) (192,726)
Interest rate contracts:
Asset/liability management .. - (2,554)
Customer accommodation ...... (1,859) (1,859)
</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.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
- --------------------------------------------------------------------------
CARRYING FAIR
(in thousands of dollars) AMOUNT VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term assets .... $ 1,095,845 $ 1,095,845
Trading account securities .... 1,873 1,873
Mortgages held for sale ....... 121,422 121,422
Securities .................... 5,554,528 5,564,094
Loans ......................... 16,527,377 16,679,749
Customers' acceptance liability 56,248 56,248
Interest rate contracts:
Asset/liability management .. 4,898 27,403
Customer accommodation ...... 4,239 4,239
FINANCIAL LIABILITIES:
Deposits ...................... (16,402,312) (16,227,820)
Short-term borrowings ......... (4,028,255) (4,028,255)
Bank acceptances outstanding .. (56,248) (56,248)
Long-term debt ................ (1,665,531) (1,678,498)
Interest rate contracts:
Asset/liability management .. (8) (11,291)
Customer accommodation ...... (3,493) (3,493)
</TABLE>
<PAGE> 32
- --------------------------------------------------------------------------------
The following methods and assumptions were used by Huntington to estimate the
fair value of the remaining classes of financial instruments:
Mortgages held for sale are valued at the lower of aggregate cost or market
value primarily as determined using outstanding commitments from investors. Fair
values of securities available for sale and investment securities are based on
quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying amount and fair value of
securities exclude the fair value of asset/liability management interest rate
contracts designated as hedges of securities available for sale.
For variable rate loans that reprice frequently, fair values are based on
carrying amounts, as adjusted for estimated credit losses. The fair values for
other loans are estimated using discounted cash flow analyses and employ
interest rates currently being offered for loans with similar terms. The rates
take into account the position of the yield curve, as well as an adjustment for
prepayment risk, operating costs, and profit. This value is also reduced by
an estimate of losses inherent in the loan portfolio. Although not considered
financial instruments, lease financing receivables have been included in
the loan totals at their carrying amounts.
The fair values of demand deposits, savings accounts, and money market
deposits are, by definition, equal to the amount payable on demand. The fair
values of fixed rate time deposits are estimated by discounting cash
flows using interest rates currently being offered on certificates with
similar maturities.
The fair values of Huntington's fixed rate long-term debt are based upon
quoted market prices or, in the absence of quoted market prices, discounted cash
flows using rates for similar debt with the same maturities. The carrying
amount of variable rate notes approximates fair value.
The fair values of interest rate swap agreements and other off-balance sheet
interest rate contracts are based upon quoted market prices or prices of similar
instruments, when available, or calculated with pricing models using current
rate assumptions.
- --------------------------------------------------------------------------------
21. STOCK OPTIONS
Huntington sponsors non-qualified and incentive stock option plans
covering key employees. Approximately 18.0 million shares have been authorized
under the plans, 6.9 million of which were available at December 31, 1997, for
future grants. All options granted have a maximum term of ten years. Options
granted on or after May 18, 1994, vest ratably over four years; all grants
preceding this date became fully exercisable after one year.
Huntington has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees' (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of Huntington's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Huntington's stock option activity and related information for the three
years ended December 31, is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(in thousands, except per share) OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ------------------------------------------------------------ ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period ........... 4,688 $13.70 4,624 $11.95 4,558 $10.40
Granted ...................................... 1,203 27.65 1,036 19.38 1,035 15.24
Exercised .................................... (810) 14.80 (917) 11.15 (913) 7.66
Forfeited/Expired ............................ (156) 17.26 (55) 16.23 (56) 15.98
----- ----- -----
Outstanding at end of period ................. 4,925 $16.81 4,688 $13.70 4,624 $11.95
===== ===== =====
Exercisable at end of period ................. 2,947 $12.77 2,834 $10.96 2,723 $ 9.95
===== ===== =====
Weighted average fair value of options granted
during the year ......................... $ 7.63 $ 5.52 $ 3.94
</TABLE>
Exercise prices for options outstanding as of December 31, 1997, ranged from
$3.71 to $32.75. The weighted average remaining contractual life of these
options is 6.7 years.
The fair value of the options presented above was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1997, 1996, and 1995, respectively: risk-free interest
rates of 6.44%, 6.78%, and 6.24%; dividend yields of 2.86%, 3.41%, and 4.11%;
volatility factors of the expected market price of Huntington's common stock of
.262, .280, and .294; and a weighted average expected option life of 6 years.
Because the effect of applying the fair value method to Huntington's stock
options results in net income and earnings per share that are not materially
different from amounts reported in the consolidated statements of income, pro
forma information has not been provided.
<PAGE> 33
- --------------------------------------------------------------------------------
22. REGULATORY MATTERS
The bank subsidiaries of Huntington are required to maintain reserve balances
with the Federal Reserve Bank. During 1997, the average balances were $104.0
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 1998 of approximately $48.8 million plus an additional amount equal
to their net income through the date of declaration.
The subsidiary banks are also restricted as to the amount and type of loans
they may make to Huntington. At December 31, 1997, the subsidiary banks could
lend to Huntington $172.5 million, subject to the qualifying collateral
requirements defined in the regulations.
Huntington and its bank subsidiaries are subject to various regulatory
capital requirements administered by federal and state banking agencies. Failure
to meet minimum capital requirements can initiate certain actions by regulators
that, if undertaken, could have a material effect on Huntington's and its bank
subsidiaries' financial statements. Capital adequacy guidelines require
minimum ratios of 4.00% for Tier I risk-based capital, 8.00% for total
risk-based capital, and 3.00% for Tier I leverage. To be considered well
capitalized under the regulatory framework for prompt corrective action, the
ratios are 6.00%, 10.00%, and 5.00%, respectively.
Capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings of assets and
certain off-balance sheet items, and other factors. Management believes, as of
December 31, 1997, that Huntington met all capital adequacy requirements. In
addition, each bank subsidiary had regulatory capital ratios in excess of the
levels established for well capitalized institutions.
Presented in the table below are the capital ratios of Huntington and its
lead subsidiary, The Huntington National Bank as well as a comparison of the
period-end capital balances with the related amounts established by the
regulators.
<TABLE>
<CAPTION>
CAPITAL AMOUNTS
---------------------------------------------------------
(in millions of dollars) RATIOS ACTUAL MINIMUM WELL CAPITALIZED
- ------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997:
<S> <C> <C> <C> <C>
Tier I Risk-Based Capital
Huntington Bancshares Incorporated ........ 8.83% $1,954 $ 885 $1,328
The Huntington National Bank .............. 6.62 1,456 880 1,321
Total Risk-Based Capital
Huntington Bancshares Incorporated ........ 11.68 2,584 1,770 2,213
The Huntington National Bank .............. 11.10 2,443 1,761 2,201
Tier I Leverage
Huntington Bancshares Incorporated ........ 7.77 1,954 755 1,258
The Huntington National Bank .............. 5.70 1,456 766 1,276
AS OF DECEMBER 31, 1996:
Tier I Risk-Based Capital
Huntington Bancshares Incorporated ........ 8.11% $1,615 $ 797 $1,195
The Huntington National Bank .............. 7.93 1,546 780 1,170
Total Risk-Based Capital
Huntington Bancshares Incorporated ........ 11.29 2,248 1,594 1,992
The Huntington National Bank .............. 11.40 2,223 1,559 1,949
Tier I Leverage
Huntington Bancshares Incorporated ........ 6.80 1,615 713 1,188
The Huntington National Bank .............. 6.65 1,546 698 1,163
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 34
<TABLE>
<CAPTION>
23. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (in thousands of dollars) DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................... $ 285,926 $ 64,129
Securities available for sale ................................................ 7,635 7,229
Due from subsidiaries
Bank subsidiaries ......................................................... 600,578 200,000
Non-bank subsidiaries ..................................................... 10,297 286,936
Investment in subsidiaries on the equity method
Bank subsidiaries ......................................................... 1,721,789 1,675,982
Non-bank subsidiaries ..................................................... 29,411 44,357
Excess of cost of investment in subsidiaries over net assets acquired ........ 12,155 28,731
Other assets ................................................................. 89,321 91,415
---------- ----------
TOTAL ASSETS ........................................................... $2,757,112 $2,398,779
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings ........................................................ $ 80,525 $ 140,011
Long-term debt
Subsidiary trust .......................................................... 206,186 --
Unaffliated companies ..................................................... 333,914 358,786
Dividends payable ............................................................ 38,591 28,899
Accrued expenses and other liabilities ....................................... 72,505 85,425
---------- ----------
Total Liabilities ......................................................... 731,721 613,121
Shareholders' Equity ......................................................... 2,025,391 1,785,658
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $2,757,112 $2,398,779
========== ==========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (in thousands of dollars) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from
Bank subsidiaries ...................................................... $ 228,892 $ 348,516 $ 234,676
Non-bank subsidiaries .................................................. 2,961 6,385 7,855
Interest from
Bank subsidiaries ...................................................... 18,227 3,482 2,879
Non-bank subsidiaries .................................................. 19,032 11,787 7,577
Other ..................................................................... 1,537 813 826
--------- --------- ---------
TOTAL INCOME ........................................................ 270,649 370,983 253,813
--------- --------- ---------
EXPENSE
Interest on debt .......................................................... 36,128 23,716 15,806
Other ..................................................................... 30,020 18,295 19,052
--------- --------- ---------
TOTAL EXPENSE ....................................................... 66,148 42,011 34,858
--------- --------- ---------
Income before income taxes and equity in undistributed
net income of subsidiaries .............................................. 204,501 328,972 218,955
Income tax benefit ........................................................... (8,630) (13,986) (10,161)
--------- --------- ---------
Income before equity in undistributed net income of subsidiaries ............. 213,131 342,958 229,116
--------- --------- ---------
Equity in undistributed net income of
Bank subsidiaries ...................................................... 80,523 (48,616) 47,555
Non-bank subsidiaries .................................................. (991) 9,927 5,130
--------- --------- ---------
NET INCOME .......................................................... $ 292,663 $ 304,269 $ 281,801
========= ========= =========
</TABLE>
<PAGE> 35
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
23. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income ..................................................................... $ 292,663 $ 304,269 $ 281,801
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries .......................... (79,532) 38,689 (52,685)
Amortization ................................................................ 3,460 5,285 4,085
Increase in other assets .................................................... (4,961) (26,139) (5,888)
Decrease in other liabilities ............................................... (13,942) (18,340) (10,357)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 197,688 303,764 216,956
--------- --------- ---------
INVESTING ACTIVITIES
(Advances to) repayments from subsidiaries ..................................... (71,485) (167,289) 16,539
Decrease (increase) in investments in subsidiaries ............................. 197,263 (1,433) (9,697)
Other .......................................................................... (15,000) (4,775) (2,801)
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES...................... 110,778 (173,497) 4,041
--------- --------- ---------
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings ................................... (100,000) 75,000 55,000
Proceeds from issuance of long-term debt ....................................... 200,000 85,000 95,000
Payment of long-term debt ...................................................... (25,000) (346) (50,598)
Dividends paid on common stock ................................................. (132,760) (125,379) (118,906)
Acquisition of treasury stock .................................................. (56,175) (258,415) (206,556)
Proceeds from issuance of treasury stock ....................................... 27,266 43,971 41,557
--------- --------- ---------
NET CASH USED FOR FINANCING ACTIVITIES ................................... (86,669) (180,169) (184,503)
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS ...................................... 221,797 (49,902) 36,494
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................... 64,129 114,031 77,537
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................. $ 285,926 $ 64,129 $ 114,031
========= ========= =========
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HUNTINGTON BANCSHARES INCORPORATED
--------------------------------------------------
The subsidiaries of Huntington Bancshares Incorporated are listed below. The
state or jurisdiction of incorporation or organization of each subsidiary
(unless otherwise noted) is Ohio.
The Huntington National Bank (United States) and its direct and indirect
subsidiaries, 41 South High Ltd., The Huntington Leasing Company, The Huntington
Mortgage Company, Huntington Residential Mortgage Securities, Inc., The
Huntington Investment Company, Forty-One Corporation, First Sunset Development,
Inc., SFA Holding, Inc., East Sound Realty, Inc., Lodestone Realty Management,
Inc., WS Realty, Inc., Fourteen Corporation, Airbase Realty Company, HNB
Clearing, Inc., National Returns Clearinghouse, Ltd., The Check Exchange System
Co., Thirty-Seven Corporation, Vehicle Reliance Company, Huntington Trade
Services, Inc., Huntington Trade Services, Asia, Limited (Hong Kong), Cybermark
L.L.C., FMB Insurance Agency, Inc. (Michigan), Huntington Insurance Agency, Inc.
(Florida), Huntington Insurance Agency, Inc. (Kentucky), Winter Park Mortgage
Company, FMB Title Services, Inc., and Huntington Merchant Services L.L.C.
CB&T Capital Investment Company, Inc. (West Virginia)
Huntington Capital Corp.
Huntington Bancshares Financial Corporation
The Huntington National Life Insurance Company (Arizona)
Huntington Bancshares Ohio, Inc.
Huntington Bancshares Florida, Inc.
The Huntington State Bank and its direct and indirect subsidiaries, Huntington
Insurance Agency Services, Inc., Huntington Insurance Agency, Inc. (Michigan),
Huntington Property and Casualty Insurance Agency, Inc., and Huntington Life
Insurance Agency, Inc.
The Huntington Service Company
The Huntington Community Development Corporation
Security First Network Bank, FSB (United States) and its direct subsidiary,
Security First Technologies, Inc. (Kentucky).*
Money Station, Inc.
Heritage Service Corporation
Huntington Capital I
Superior Financial Corporation
First Michigan Life Insurance Company (Arizona)
* - Huntington owns less than a 5% voting interest in Security First Network
Bank, FSB, which owns 100% of Security First Technologies, Inc.; however,
Huntington is deemed by the Federal Reserve Board to have a controlling interest
in Security First Technologies, Inc.
<PAGE> 1
Exhibit 23(a)
-------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 33-59068 dated March 12, 1993, Registration
Statement No. 33-46327 dated March 11, 1992, Registration Statement No. 33-44208
dated November 26, 1991, Registration Statement No. 33-41774 dated July 19,
1991, Registration Statement No. 33-38784 dated January 28, 1991, Post-Effective
Amendment No. 2 to Registration Statement No. 33-10546 dated January 28, 1991,
Registration Statement No. 33-37373 dated October 18, 1990, Registration
Statement No. 2-89672 dated February 27, 1984, and Registration Statement No.
33-52553 dated March 8, 1994, all on Form S-8, Post-Effective Amendment No. 1 to
Registration Statement No. 33-52569 dated October 25, 1996, and Registration
Statement No. 33-63175 dated October 3, 1995, both on Form S-3, and Registration
Statement No. 333-30461-01 dated June 30, 1997 on Form S-4 of our report dated
January 14, 1998, with respect to the consolidated financial statements of
Huntington Bancshares Incorporated incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
February 20, 1998
<PAGE> 1
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated January 16, 1997, appearing in this
Form 10-K of Huntington Bancshares Incorporated, related to the consolidated
balance sheet of First Michigan Bank Corporation as of December 31, 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for the two years then ended (not presented herein).
/s/ BDO Seidman, LLP
BDO Seidman, LLP
February 20, 1998
Grand Rapids, Michigan
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
HUNTINGTON BANCSHARES INCORPORATED'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 1,142,450 1,071,361 989,126
<INT-BEARING-DEPOSITS> 39,618 3,418 289,754
<FED-FUNDS-SOLD> 509,119 21,066 314,631
<TRADING-ASSETS> 7,082 1,873 12,924
<INVESTMENTS-HELD-FOR-SALE> 5,709,814 5,209,393 5,050,832
<INVESTMENTS-CARRYING> 33,010 345,135 416,831
<INVESTMENTS-MARKET> 33,383 354,702 431,894
<LOANS> 17,738,248 16,758,155 15,469,988
<ALLOWANCE> 258,171 230,778 222,487
<TOTAL-ASSETS> 26,730,540 24,371,946 23,495,337
<DEPOSITS> 17,983,718 16,402,312 15,450,273
<SHORT-TERM> 3,286,671 4,028,255 3,635,596
<LIABILITIES-OTHER> 520,903 433,942 457,647
<LONG-TERM> 2,686,039 1,665,531 2,122,202
200,000 0 0
0 0 0
<COMMON> 1,528,768 1,290,968 1,075,057
<OTHER-SE> 496,623 494,690 697,636
<TOTAL-LIABILITIES-AND-EQUITY> 26,730,540 24,371,946 23,495,337
<INTEREST-LOAN> 1,611,541 1,411,551 1,357,975
<INTEREST-INVEST> 356,388 349,937 332,932
<INTEREST-OTHER> 13,544 14,246 18,720
<INTEREST-TOTAL> 1,981,473 1,775,734 1,709,627
<INTEREST-DEPOSIT> 646,121 580,686 538,668
<INTEREST-EXPENSE> 954,243 880,648 856,860
<INTEREST-INCOME-NET> 1,027,230 895,086 852,767
<LOAN-LOSSES> 107,797 76,371 36,712
<SECURITIES-GAINS> 7,978 17,620 9,380
<EXPENSE-OTHER> 803,108 675,510 662,061
<INCOME-PRETAX> 459,164 457,268 429,084
<INCOME-PRE-EXTRAORDINARY> 459,164 457,268 429,084
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 292,663 304,269 281,801
<EPS-PRIMARY> 1.53 1.58 1.42
<EPS-DILUTED> 1.52 1.57 1.41
<YIELD-ACTUAL> 4.44 4.19 4.24
<LOANS-NON> 65,981 55,040 55,423
<LOANS-PAST> 49,608 39,267 30,937
<LOANS-TROUBLED> 5,822 4,422 5,320
<LOANS-PROBLEM> 54,201 50,691 49,045
<ALLOWANCE-OPEN> 230,778 222,487 225,225
<CHARGE-OFFS> 110,723 91,007 62,414
<RECOVERIES> 22,542 21,020 16,137
<ALLOWANCE-CLOSE> 258,171 230,778 222,487
<ALLOWANCE-DOMESTIC> 215,213 192,596 187,168
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 42,958 38,182 35,319
</TABLE>
<PAGE> 1
Exhibit 99
INDEPENDENT AUDITORS' REPORT
First Michigan Bank Corporation
Holland, Michigan
We have audited the accompanying consolidated balance sheet of First
Michigan Bank Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of FMB'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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material aspects, the financial position of First
Michigan Bank Corporation and subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
January 16, 1997
Grand Rapids, Michigan
