As filed with the Securities and Exchange Commission on March 7, 1995
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HUNTINGTON BANCSHARES INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 6711 31-0724920
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
----------------------------------
Huntington Center
41 South High Street
Columbus, Ohio 43287
(614) 480-8300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
----------------------------------
Ralph K. Frasier, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
Huntington Center
41 South High Street
Columbus, Ohio 43287
(614) 480-4647
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------------
Copies of Correspondence to:
Jeffrey T. Hayes, Esq. John P. Greeley, Esq.
Porter, Wright, Morris & Arthur Smith, Mackinnon, Harris, Greeley,
41 South High Street Bowdoin & Edwards, P.A.
Columbus, Ohio 43215 225 Orange Avenue, Suite 800
Orlando, Florida 32801
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Approximate date of commencement of proposed sale of the
securities to the public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and
there is compliance with General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered Registered Per Share* Price* Fee*
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Common stock, without par value..... 1,300,000 $24.18 $8,560,645 $2,952.00
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* Estimated solely for the purpose of calculating the registration fee based on
the book value on December 31, 1994, of the 354,099 shares of common stock of
Reliance Bank of Florida (which includes 6,000 shares which may be issued
upon the exercise of stock options prior to the Merger) to be canceled in the
Merger, in accordance with Rule 457(f)(2).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
CROSS REFERENCE SHEET
Form S-4 Item Prospectus Caption
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page of Registration Statement; Cross Reference
Sheet; Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Table of Contents.
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.................... Introduction; Summary Information; Financial Highlights.
4. Terms of the Transaction......................... The Merger; Effect of the Merger on Shareholders'
Rights; Huntington Bancshares Incorporated - Description
of Huntington Common Stock.
5. Pro Forma Financial Information.................. Not Applicable.
6. Material Contracts with the Company Being
Acquired......................................... The Merger; Huntington Bancshares Incorporated -
Huntington Florida and Affiliates.
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to Be Underwriters............................... Not Applicable.
8. Interests of Named Experts and Counsel........... The Merger - Opinion of Financial Advisor; Experts;
Legal Opinions.
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ..................................... Not Applicable.
10. Information with Respect to S-3 Registrants...... Not Applicable.
11. Incorporation of Certain Information by
Reference........................................ Not applicable.
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable.
13. Incorporation of Certain Information by
Reference........................................ Not Applicable.
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants................ Huntington Bancshares Incorporated; Government
Regulation; Consolidated Financial Statements of
Huntington.
15. Information with Respect to S-3 Companies........ Not Applicable.
16. Information with Respect to S-2 or S-3
Companies........................................ Not Applicable.
17. Information with Respect to Companies
Other than S-3 or S-2 Companies.................. Financial Highlights; Reliance Bank of Florida;
Government Regulation; Financial Statements of Reliance.
Form S-4 Item Prospectus Caption
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18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Introduction; Summary Information - The Special
Meeting and Record Date; The Merger; Huntington
Bancshares Incorporated; Reliance Bank of Florida.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer............................. Not Applicable.
RELIANCE BANK OF FLORIDA
2116 South Babcock Street
Melbourne, Florida 32901
March 17, 1995
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Reliance Bank of Florida ("Reliance"), which will be
held on Monday, March 27, 1995, at 9:00 a.m. local time. The Special Meeting
will be held at the executive offices of Reliance, located at 2116 South Babcock
Street, Melbourne, Florida.
At the Special Meeting, shareholders of Reliance will be asked to
consider and vote on the Agreement and Plan of Merger and related Acquisition
Agreement, each dated as of December 22, 1994, pursuant to which Reliance would
be merged (the "Merger") with either of two affiliates of Huntington Bancshares
Incorporated ("Huntington"). In the Merger, Reliance shareholders will receive
whole shares of Huntington common stock in exchange for the shares of Reliance
common stock held by them. The number of shares of Huntington stock to be
exchanged for each share of Reliance stock will be determined pursuant to a
formula that is based, in part, on a total purchase price of $20 million for all
of the issued and outstanding stock of Reliance, plus all shares of Reliance
stock subject to outstanding stock options as of the time of the consummation of
the Merger. The actual number of shares of Huntington common stock to be
received for each share of Reliance common stock will depend on, among other
things, the average of the closing sale prices for a share of Huntington common
stock for the five trading days immediately preceding the day that is two
business days prior to the effective date of the Merger (the "Average Closing
Sale Price"), subject to certain limitations. Specifically, each share of
Reliance Common Stock will be converted into no more than 3.6381 shares nor
fewer than 2.9766 shares of Huntington Common Stock so long as the Average
Closing Sale Price is between $12.9375 and $21.5625, respectively. If, however,
the Average Closing Sale Price is less than $12.9375 or greater than $21.5625,
Huntington has certain specified options, including terminating the Merger, as
more fully described in the accompanying Proxy Statement/Prospectus. Cash will
be paid for any fractional shares. Please see the attached Proxy
Statement/Prospectus for a complete description of the terms of the Merger and
the formula for converting shares of Reliance common stock into shares of
Huntington common stock in the Merger.
Huntington, headquartered in Columbus, Ohio, is the fourth largest bank
holding company in Ohio in terms of total assets at December 31, 1994.
Huntington, through its affiliates, conducts a full-service commercial and
consumer banking business, provides a variety of trust and fiduciary services,
and engages in mortgage banking, lease financing, discount brokerage activities,
underwriting credit life and disability insurance and issuing commercial paper
guaranteed by Huntington. As of December 31, 1994, Huntington affiliates
operated 344 banking and thrift offices in Ohio, Florida, Illinois, Indiana,
Kentucky, Michigan, Pennsylvania, and West Virginia. Huntington common stock is
actively traded in the over-the-counter market under the symbol "HBAN".
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AS BEING IN
THE BEST INTEREST OF RELIANCE'S SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT AND THE RELATED ACQUISITION
AGREEMENT.
Additional information regarding the Merger and the parties thereto is
set forth in the attached Proxy Statement, which also serves as the Prospectus
regarding the common stock of Huntington to be issued in connection with the
Merger. Please read these materials and carefully consider the information
contained in them.
The affirmative vote of the holders of either two-thirds or a majority
of the outstanding shares of Reliance Common Stock is required to approve the
Merger, depending on which of the two Huntington affiliates is to be merged with
Reliance. Accordingly, your vote is important no matter how large or how small
your holdings may be. Whether or not you plan to attend the Special Meeting, you
are urged to complete, sign, and promptly return the enclosed proxy card to
assure that your shares will be voted at the Special Meeting. If you attend the
Special Meeting, you may vote in person if you wish and your proxy will not be
used.
Very truly yours,
Sam L. Bockman
President and Chief Executive Officer
[THIS PAGE INTENTIONALLY LEFT BLANK]
RELIANCE BANK OF FLORIDA
2116 South Babcock Street
Melbourne, Florida 32901
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 27, 1995
-----------------------------------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Reliance Bank of Florida ("Reliance") has been called by
the Board of Directors and will be held at the executive offices of Reliance,
located at 2116 South Babcock Street, Melbourne, Florida, on Monday, March 27,
1995, at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon the approval of a certain Agreement and Plan of
Merger and related Acquisition Agreement, each dated as of December 22,
1994 (the "Merger Documents"), pursuant to which (i) Reliance would be
merged into The Huntington National Bank of Florida, which will, at the
time of the consummation of the Merger, be a wholly owned subsidiary of
Huntington Bancshares Florida, Inc., which is a wholly owned subsidiary of
Huntington Bancshares Incorporated ("Huntington"), or (ii) under certain
circumstances, Huntington Federal Savings Bank, a wholly owned subsidiary
of Huntington, would be merged into Reliance, and, in either case, the
shareholders of Reliance would receive shares of the common stock of
Huntington in exchange for their shares of the common stock of Reliance, as
more fully described in the accompanying Proxy Statement; and
2. To transact any other business which may properly come before the meeting
or any adjournment or adjournments thereof. (The Board of Directors is not
currently aware of any other business to come before the Special Meeting.)
Only shareholders of record at the close of business on March 1, 1995, the
record date for the Special Meeting, are entitled to vote at the Special Meeting
and any adjournments thereof. Accordingly, only holders of Reliance common stock
of record at the close of business on that date will be entitled to notice of
and to vote at the Special Meeting or any adjournment or adjournments thereof. A
holder of Reliance common stock who dissents from the Merger Documents and who
complies with the provisions of applicable law relating to dissenters' rights
will be entitled to receive payment in cash of the appraised value of only those
shares held by the shareholder (a) which are voted against the approval of the
Merger Documents at the Special Meeting, or (b) with respect to which the holder
thereof has given written notice to Reliance, at or prior to the Special
Meeting, that the shareholder dissents from the Merger Documents. See "THE
MERGER - APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS."
We urge you to execute and return the enclosed proxy as soon as possible in
order to ensure that your shares will be represented at the Special Meeting.
Your proxy may be revoked in the manner described in the accompanying Proxy
Statement at any time before it has been voted at the Special Meeting. If you
attend the Special Meeting, you may vote in person, and your proxy will not be
used.
Dated: March 17, 1995 By Order of the Board of Directors
Sam L. Bockman
President and Chief Executive Officer
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| WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,|
| PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE |
| ACCOMPANYING ENVELOPE. NO POSTAGE NECESSARY |
| IF MAILED IN THE UNITED STATES. PLEASE DO NOT |
| SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. |
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[THIS PAGE INTENTIONALLY LEFT BLANK]
PROSPECTUS
HUNTINGTON BANCSHARES INCORPORATED
COMMON STOCK
(without par value)
This Prospectus relates to up to 1,300,000 shares of common stock,
without par value, of Huntington Bancshares Incorporated ("Huntington"), which
may be issued in connection with the merger (the "Merger") of Reliance Bank of
Florida ("Reliance") with The Huntington National Bank of Florida or, under
certain circumstances, with Huntington Federal Savings Bank, each of which is an
affiliate of Huntington. This Prospectus also serves as the Proxy Statement for
the Special Meeting of Shareholders of Reliance to be held on March 27, 1995,
and a description of the Merger is included herein.
At such time as the Merger becomes effective (the "Effective Time"),
each issued and outstanding share of the common stock, $5.00 par value, of
Reliance ("Reliance Common Stock") will be converted into the right to receive
whole shares of the common stock, without par value, of Huntington ("Huntington
Common Stock"). The number of shares of Huntington Common Stock to be exchanged
for each share of Reliance Common Stock will be determined pursuant to a formula
that is based, in part, on a total purchase price of $20 million for all of the
issued and outstanding shares of Reliance Common Stock, plus all shares of
Reliance Common Stock subject to outstanding stock options as of the Effective
Time. The actual number of shares of Huntington common stock to be received for
each share of Reliance Common Stock will depend on, among other things, the
average of the closing sale prices for a share of Huntington Common Stock as
reported on the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market for the five trading days immediately preceding the
day that is two trading days prior to the effective date of the Merger (the
"Average Closing Sale Price"), subject to certain limitations. Specifically,
each share of Reliance Common Stock will be converted into no more than 3.6381
shares nor fewer than 2.9766 shares of Huntington Common Stock so long as the
Average Closing Sale Price is between $12.9375 and $21.5625, respectively. If,
however, the Average Closing Sale Price is less than $12.9375 or greater than
$21.5625, Huntington has certain specified options, including terminating the
Merger, as more fully described herein. Cash will be paid for any fractional
shares. See "THE MERGER - TERMS OF THE MERGER."
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN
THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HUNTINGTON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF
THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION OR TO ANY PERSON
TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------------
The Date of this Prospectus is March ___, 1995.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION ..................................... 3
RELIANCE BANK OF FLORIDA
PROXY STATEMENT ......................................... 4
INTRODUCTION .............................................. 4
SUMMARY INFORMATION ....................................... 5
Huntington, Huntington Florida, and Affiliates.......... 5
Reliance ............................................... 6
The Special Meeting and Record Date .................... 6
The Merger ............................................. 6
Vote Required .......................................... 7
Appraisal Rights of Dissenting Shareholders ............ 8
Interests of Management ................................ 8
Federal Income Tax Consequences ........................ 8
Accounting Treatment ................................... 8
Regulatory Approvals ................................... 9
Comparative Per Share Information ...................... 9
FINANCIAL HIGHLIGHTS ...................................... 10
Financial Highlights of Huntington ..................... 10
Financial Highlights of Reliance ....................... 11
THE MERGER ................................................ 12
Background of the Merger ............................... 12
Reasons for the Merger ................................. 14
Opinion of Financial Advisor ........................... 14
Effective Date of the Merger ........................... 18
Terms of the Merger .................................... 18
Exchange of Certificates ............................... 19
Fractional Shares ...................................... 20
Terms of the Warrant ................................... 20
Covenants of the Parties ............................... 21
Conditions to Consummation of the Merger ............... 22
Amendment; Termination ................................. 23
Appraisal Rights of Dissenting Shareholders ............ 24
Interests of Management ................................ 26
Federal Income Tax Consequences ........................ 26
Accounting Treatment ................................... 29
Regulatory Approvals ................................... 29
Resales of Huntington Common Stock ..................... 30
EFFECT OF THE MERGER ON
SHAREHOLDERS' RIGHTS..................................... 30
Capital Stock .......................................... 30
Nomination, Election, and Removal of Directors.......... 30
Shareholder Proposals .................................. 31
Special Voting Requirements for Certain Transactions.... 31
Evaluation of Mergers and Consolidations ............... 32
Special Meetings ....................................... 32
Directors' and Shareholders' Right to Adopt,
Alter, or Repeal the Bylaws .......................... 33
Rights of Dissenting Shareholders ...................... 33
Personal Liability of Officers and Directors
to Shareholders ...................................... 33
Rights Plan ............................................ 33
HUNTINGTON BANCSHARES INCORPORATED ........................ 34
General ................................................ 34
Huntington Florida and Affiliates ...................... 34
Huntington Directors ................................... 35
Compensation of Huntington Directors ................... 37
Executive Officers of Huntinton ........................ 39
Compensation of Executive Officers ..................... 41
Transactions with Directors and Officers ............... 46
Ownership of Huntington Common Stock ................... 47
Description of Huntington Common Stock ................. 48
Dividends and Price Range of Huntington
Common Stock ......................................... 49
Properties ............................................. 50
Legal Proceedings ...................................... 51
RELIANCE BANK OF FLORIDA .................................. 51
General ................................................ 51
Lending and Investment Activities ...................... 51
Deposit and Borrowing Activities ....................... 52
Allowance for Credit Losses ............................ 52
Non-Performing Loans ................................... 53
Competition ............................................ 54
Employees .............................................. 54
Description of Property ................................ 54
Legal Proceedings ...................................... 55
Principal and Management Shareholders .................. 55
Market for Reliance Common Stock and
Related Shareholder Matters .......................... 57
GOVERNMENT REGULATION ..................................... 57
General ................................................ 57
Holding Company Structure .............................. 58
Dividend Restrictions .................................. 59
FDIC Insurance ......................................... 59
Capital Requirements ................................... 59
Federal Deposit Insurance Corporation
Improvement Act of 1991 .............................. 61
Recent Developments .................................... 62
EXPERTS ................................................... 63
LEGAL OPINIONS ............................................ 63
OTHER MATTERS ............................................. 63
INDEX TO FINANCIAL INFORMATION ............................ 64
EXHIBITS
Exhibit A - Agreement and Plan of Merger
Exhibit B - Acquisition Agreement
Exhibit C - Opinion of Allen C. Ewing & Co.
Exhibit D - Rights of Dissenting Shareholders - Title 12, Section 215a,
paragraphs (b)-(d), of the United States Code (applicable to the
HNBF Merger); and Section 658.44, Subsections (2)-(9), of the
Florida Statutes (applicable to the HFSB Merger and, to the
extent of the provisions regarding the appraisal of shares, to
the HNBF Merger)
- 2 -
AVAILABLE INFORMATION
Huntington is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Copies of such reports, proxy
statements, and other information filed by Huntington can be inspected and
copied at the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at the public reference facilities of the
regional offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material also can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed
by the rules and regulations of the Commission. This Prospectus does not contain
all of the information set forth in the Registration Statement and exhibits
thereto which Huntington has filed with the Commission under the Securities Act
of 1933, as amended (the "Registration Statement"), and to which reference is
hereby made.
All information contained herein with respect to Huntington and its
subsidiaries, was supplied by Huntington and all information contained herein
with respect to Reliance and Allen C. Ewing & Co., Reliance's financial advisor,
was supplied by Reliance. Although neither Huntington nor Reliance has any
knowledge that would indicate that any statements or information relating to the
other party contained herein is inaccurate or incomplete, neither Huntington nor
Reliance can warrant the accuracy or completeness of such statements or
information as they relate to the other party.
- 3 -
RELIANCE BANK OF FLORIDA
---------------
PROXY STATEMENT
---------------
INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to
the shareholders of Reliance in connection with the solicitation of proxies by
the Board of Directors of Reliance for a Special Meeting of Shareholders (the
"Special Meeting") to be held at 9:00 a.m., local time, on Monday, March 27,
1995, at the executive offices of Reliance, located at 2116 South Babcock
Street, Melbourne, Florida, and any adjournments or postponements thereof, to
consider and vote upon the approval and adoption of the Agreement and Plan of
Merger, dated as of December 22, 1994 (the "HNBF Merger Agreement"), and the
related Acquisition Agreement, dated as of December 22, 1994 (the "Acquisition
Agreement"), pursuant to which Reliance will be merged with one of two
affiliates of Huntington and shareholders of Reliance will become shareholders
of Huntington. The HNBF Merger Agreement and the Acquisition Agreement are
sometimes referred to herein as the "Merger Documents." This Proxy Statement and
accompanying proxy will be first sent or given to the shareholders of Reliance
on or about March 17, 1995.
The shares represented by the accompanying proxy will be voted as
directed if the proxy is properly signed and received by Reliance prior to the
Special Meeting. The proxy will be voted FOR the approval and adoption of the
Merger Documents if no direction is made to the contrary on a duly executed and
returned proxy. The proxy may also be used to grant discretionary authority to
vote on other matters which may arise at the Special Meeting. While management
is presently unaware of any such matters, the person or persons designated to
vote the shares will cast votes according to their best judgment if any such
matters properly come before the Special Meeting. A person giving the enclosed
proxy has the power to revoke it at any time prior to the Special Meeting by
filing with the Secretary of Reliance a written notice of revocation or a
subsequent proxy relating to the same shares, or by attending the Special
Meeting and voting in person (although attendance at the Special Meeting will
not in and of itself constitute revocation of a proxy).
A majority of the outstanding shares of Reliance Common Stock,
represented in person or by proxy, will constitute a quorum at the meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum at the Special Meeting. The affirmative vote of
the holders of either two-thirds or a majority of the outstanding shares of
Reliance Common Stock is required to approve and adopt the Merger Documents,
depending on which of the two Huntington affiliates is to be merged with
Reliance. Because the approval and adoption of the Merger Documents requires the
affirmative vote of a particular percentage of the outstanding shares of
Reliance Common Stock, rather than a percentage of the shares present and voted
at the Special Meeting, an abstention or a broker non-vote with respect to such
matter will have the same effect as a vote against the matter. No approval of
the Merger Documents is required by holders of Huntington Common Stock.
Reliance shareholders of record at the close of business on March 1,
1995 (the "Record Date"), will be entitled to vote at the Special Meeting. At
that date, Reliance had 348,099 shares of Reliance Common Stock outstanding and
entitled to vote on all matters requiring a vote of the shareholders. These
shares were held by approximately 94 holders of record. Each share of Reliance
Common Stock entitles the holder to one vote, exercisable in person or by
properly executed proxy, on each matter that comes before the shareholders at
the Special Meeting.
- 4 -
Reliance will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others, if any, for forwarding
solicitation material to beneficial owners of stock. Representatives of Reliance
may solicit proxies by mail, telegram, telephone, or personal interview.
SUMMARY INFORMATION
The following is a brief summary of certain information with respect to
the Merger. This summary is not intended to be complete and is qualified in its
entirety by reference to, and should be read in conjunction with, the detailed
information and financial statements contained herein and in the exhibits
hereto.
HUNTINGTON, HUNTINGTON FLORIDA, AND AFFILIATES
Huntington, a multi-state bank holding company incorporated under the
laws of the State of Maryland in 1966, is headquartered in Columbus, Ohio. At
December 31, 1994, Huntington had total assets of approximately $17.8 billion
and total deposits of approximately $12.0 billion. Huntington, through its
affiliates, conducts a full service commercial and consumer banking business,
engages in mortgage banking, lease financing, trust services, discount
brokerage services, underwriting credit life and disability insurance, and
issuing commercial paper guaranteed by Huntington, and provides other financial
products and services. At December 31, 1994, Huntington's affiliates operated
185 banking offices in Ohio, 61 banking offices in West Virginia, 40 banking
offices in Michigan, 25 banking offices in Indiana, 18 banking offices in
Northern Kentucky, 5 banking offices in Western Pennsylvania, 8 thrift offices
in Florida (7 of which are offices of Huntington Federal Savings Bank ("HFSB"),
a wholly owned subsidiary of Huntington headquartered in Sebring, Florida), 2
thrift offices in Northern Illinois, and 1 foreign office in the Cayman
Islands. In addition, Huntington's mortgage company affiliate has loan
origination offices throughout the Midwest and East Coast. The principal
executive offices of Huntington are located at Huntington Center, 41 South High
Street, Columbus, Ohio 43287 (telephone number 614-480-8300).
Huntington Bancshares Florida, Inc., an Ohio corporation ("Huntington
Florida"), is a wholly owned subsidiary of Huntington formed for the purpose of
facilitating the acquisition by Huntington of Security National Corporation, a
Delaware corporation ("Security National"), and serving as a holding company for
Huntington's banking operations in Florida. The principal executive offices of
Huntington Florida are located at Huntington Center, 41 South High Street,
Columbus, Ohio 43287 (telephone number 614-480-8300).
Huntington Florida has entered into an Agreement and Plan of Merger,
dated July 12, 1994, with Security National, pursuant to which, upon and subject
to the satisfaction of certain conditions, Security National will be merged with
and into Huntington Florida (the "Security National Merger"). Security National,
a bank holding company incorporated under the laws of the State of Delaware in
1987, is headquartered in Maitland, Florida. At December 31,1994, Security
National had total assets of $191.4 million and total deposits of $167.8
million. Security National owns all of the outstanding stock of Security
National Bank, a national banking association ("Security Bank"), which is also
headquartered in Maitland, Florida. Security National, through Security Bank, is
principally engaged in the commercial banking business, which includes lending,
investment, deposit and borrowing activities. Security National operates six
full-service offices in Orange, Seminole, Volusia, Osceola, and Brevard
Counties, Florida. The principal executive offices of Security National are
located at 253 North Orlando Boulevard, Maitland, Florida 32751 (telephone
number 407-740-6300). Upon the consummation of the Security National Merger, the
name of Security Bank will be changed to "The Huntington National Bank of
Florida," and HFSB will be merged into The Huntington National Bank of Florida
(the "Subsidiary Merger"). The Huntington National Bank of Florida, as the
successor by name change to Security Bank following the consummation of the
Security National Merger, is hereinafter referred to as "HNBF."
- 5 -
RELIANCE
Reliance, a state-chartered bank incorporated under the laws of the
State of Florida in 1985, is headquartered in Melbourne, Florida. At December
31,1994, Reliance had total assets of $95.7 million and total deposits of $84.8
million. Reliance is principally engaged in the commercial banking business
which includes lending, investment, deposit and borrowing activities. Reliance
operates three full-service offices in Brevard County, Florida, and has a fourth
office under construction. The principal executive offices of Reliance are
located at 2116 South Babcock Street, Melbourne, Florida 32901 (telephone number
407-984-1400).
THE SPECIAL MEETING AND RECORD DATE
The Special Meeting will be held at 9:00 a.m., local time, on March 27,
1995, at the executive offices of Reliance, located at 2116 South Babcock
Street, Melbourne, Florida. The close of business on March 1, 1995, has been set
as the record date for determining the shareholders of record of Reliance
entitled to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof (the "Record Date"). The presence, in person or by proxy,
of the holders of a majority of the outstanding shares entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
THE MERGER
Huntington desires to acquire all of the assets and liabilities of
Reliance and to transfer the assets and liabilities so acquired to a subsidiary
financial institution, such acquisition and transfer to be accomplished by a
merger of Reliance with and into HNBF (the "HNBF Merger"), in accordance with
the terms of the HNBF Merger Agreement and the Acquisition Agreement, or, in the
event the Security National Merger is not consummated prior to the consummation
of the Merger, by a merger of HFSB with and into Reliance (the "HFSB Merger"),
in accordance with the terms and conditions of the Acquisition Agreement and of
an Agreement and Plan of Merger to be entered into among HFSB and Reliance (the
"HFSB Merger Agreement"), in the form attached as an exhibit to the Acquisition
Agreement. The HNBF Merger or the HFSB Merger, as applicable, is sometimes
hereinafter referred to as the "Merger," and the HNBF Merger Agreement or the
HFSB Merger Agreement, as applicable, is sometimes hereinafter referred to as
the "Merger Agreement." Huntington, Huntington Florida, and either HNBF or HFSB,
as applicable, are sometimes hereinafter collectively referred to as the
"Huntington Entities."
At the Special Meeting, Reliance shareholders will consider and vote
upon the approval and adoption of the Merger Agreement and the Acquisition
Agreement, which sets forth certain representations, warranties, conditions, and
covenants made by Huntington, Huntington Florida, HNBF or HFSB, as applicable,
and Reliance as an inducement to the other parties to execute and deliver the
Merger Documents and to consummate the Merger. Reliance shareholder approval of
the Acquisition Agreement also will be deemed to be approval of the HFSB Merger
and HFSB Merger Agreement. Under the terms of the Merger Documents, if approved
by the shareholders of Reliance and upon the satisfaction of certain other
conditions, including obtaining various regulatory approvals, (i) if the
Security National Merger has been consummated prior to the consummation of the
Merger, Reliance will be merged with and into HNBF, and (ii) if the Security
National Merger has not been consummated prior to the consummation of the
Merger, HFSB will be merged with and into Reliance. Upon the effectiveness of
the HNBF Merger, Reliance will be merged into HNBF, HNBF will continue to be a
wholly owned subsidiary of Huntington Florida, and the separate existence of
Reliance will cease. Upon the effectiveness of the HFSB Merger, HFSB will be
merged into Reliance, Reliance will change its name to "The Huntington Bank of
Florida" and will become a wholly owned subsidiary of Huntington, and the
separate existence of HFSB will cease. (The Huntington Bank of Florida, as the
successor to Reliance following the consummation of the HFSB Merger, is
sometimes hereinafter referred to as "HBF.") The terms of the HNBF Merger
Agreement and the HFSB Merger Agreement relating to the conversion of the
outstanding shares of Reliance Common Stock into shares of Huntington Common
Stock as well as all other provisions relating to the rights and obligations of
the shareholders of Reliance in the Merger are identical.
- 6 -
In connection with the Merger and in accordance with a certain Warrant
Purchase Agreement, dated as of December 22, 1994, between Reliance and
Huntington (the "Warrant Purchase Agreement"), Reliance granted to Huntington a
warrant (the "Warrant") to purchase up to 24.9% of the outstanding shares of
Reliance Common Stock (after giving effect to the exercise of the Warrant) under
certain specified circumstances, at a price of $56.48 per share. See "THE MERGER
- - TERMS OF THE WARRANT."
At the Effective Time, each share of Reliance Common Stock issued and
outstanding immediately prior to the Effective Time (exclusive of treasury
shares, if any, which shall be canceled, and any shares as to which appraisal
rights are sought) will be converted into the right to receive whole shares of
Huntington Common Stock. The number of shares of Huntington Common Stock to be
exchanged for each share of Reliance Common Stock will be determined pursuant to
a formula that is based, in part, on a total purchase price of $20 million for
all of the issued and outstanding shares of Reliance Common Stock, plus all
shares of Reliance Common Stock subject to outstanding stock options as of the
Effective Time. The actual number of shares of Huntington common stock to be
received for each share of Reliance Common Stock will depend on, among other
things, the Average Closing Sale Price per share of Huntington Common Stock;
provided, however, that if the Average Closing Sale Price is less than $15.525,
then the Average Closing Sale Price of Huntington Common Stock will be deemed to
be $15.525, and if the Average Closing Sale Price is greater than $18.975, then
the Average Closing Sale Price of Huntington Common Stock will be deemed to be
$18.975. Thus, in no event will a share of Reliance Common Stock be converted
into more than 3.6381 shares nor less than 2.9766 shares of Huntington Common
Stock. Cash will be paid for any fractional shares.
Notwithstanding the above, if the Average Closing Sale Price is less
than $12.9375, then Huntington may elect to either (i) consummate the Merger
using an assumed average closing sale price of Huntington Common Stock equal to
1.05 times the Average Closing Sale Price, or (ii) use its best efforts to
renegotiate the pricing terms of the Merger with Reliance. If a mutually
acceptable adjustment to such pricing terms is not agreed to by Huntington and
Reliance by the tenth day after the determination of the Average Closing Sale
Price, the Merger Documents will be terminated and the Merger will be abandoned.
In addition, if the Average Closing Sale Price is more than $21.5625, then
Huntington may elect to either (i) consummate the Merger at a Price Per Share of
Huntington Common Stock equal to 0.95 times the Average Closing Sale Price, or
(ii) terminate the Merger. See "THE MERGER - TERMS OF THE MERGER."
The average closing sale price per share of Huntington Common Stock as
reported on the Nasdaq National Market for the five trading days immediately
preceding the Record Date was $18.525. If the Average Closing Sale Price is
$18.525 at the Effective Date, each shareholder of Reliance would be entitled to
receive 3.0489 shares of Huntington Common Stock for each share of Reliance
Common Stock held by such shareholder (the "Estimated Exchange Ratio").
Shareholders are advised to obtain current market quotations for Huntington
Common Stock. The market price of Huntington Common Stock at the Effective Time,
or on the date on which certificates representing such shares are received, may
be higher or lower than the market price of Huntington Common Stock as of the
Record Date or at the time of the Special Meeting.
Reliance has received an opinion of Allen C. Ewing & Co. ("Ewing &
Co."), Reliance's financial advisor, that the terms of the Merger are fair, from
a financial point of view, to the shareholders of Reliance. See "THE MERGER -
BACKGROUND OF THE MERGER," "- OPINION OF FINANCIAL ADVISOR," and "- CONDITIONS
TO CONSUMMATION OF THE MERGER" and the opinion of Ewing & Co., which is attached
hereto as Exhibit C.
It is contemplated that the Merger will be consummated as soon as
practicable after the satisfaction of various conditions, including the receipt
of required regulatory approvals, but in no event prior to May 1, 1995. See "THE
MERGER - EFFECTIVE DATE OF THE MERGER," and "- CONDITIONS TO CONSUMMATION OF THE
MERGER."
VOTE REQUIRED
A vote of the shareholders of Reliance is required to approve and adopt
the Merger Documents, thereby approving the Merger. Shareholder approval of the
HNBF Merger is governed by federal banking law, while Florida state banking law
controls shareholder approval of the HFSB Merger. Accordingly, under federal
law, the affirmative vote of the holders of two-thirds of the outstanding shares
of Reliance Common Stock is necessary to approve and adopt
- 7 -
the HNBF Merger Agreement, thereby approving the HNBF Merger, while, under
Florida law, the affirmative vote of the holders of a majority of such
outstanding shares is necessary to approve and adopt the HFSB Merger Agreement,
thereby approving the HFSB Merger. A vote in favor of the Merger Documents and
the Merger will constitute a vote in favor of either the HNBF Merger or the HFSB
Merger (and the HFSB Merger Agreement), whichever is applicable. As of the
Record Date, the directors and executive officers of Reliance and their
affiliates beneficially owned 198,814 shares of Reliance Common Stock (excluding
shares subject to stock options), which represent 57.1% of the total issued and
outstanding shares of such stock entitled to vote at the Special Meeting. As an
inducement for Huntington and Huntington Florida to enter into the Merger
Documents, ten directors and executive officers of Reliance, holding in the
aggregate 197,964 shares of Reliance Common Stock as of the Record Date, or
approximately 56.9% of the outstanding shares of such stock entitled to vote at
the Special Meeting, executed certain Shareholder Agreements (the "Shareholder
Agreements"), pursuant to which these shareholders agreed to vote their shares
in favor of the approval of the Merger Documents and the approval of the Merger
and against the approval of any competing acquisition offer or any other
transaction which is inconsistent with the obligation of Reliance to consummate
the Merger.
THE BOARD OF DIRECTORS OF RELIANCE UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF RELIANCE VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
MERGER DOCUMENTS. SEE "THE MERGER - BACKGROUND OF THE MERGER" AND "- REASONS FOR
THE MERGER."
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, holders of Reliance Common Stock who did
not vote in favor of the Merger and who comply with all notice requirements and
other procedures specified under applicable law will have the right to obtain an
appraisal of the value of their shares and to receive payment in cash of such
value in exchange for their shares. See "THE MERGER - APPRAISAL RIGHTS OF
DISSENTING SHAREHOLDERS."
INTERESTS OF MANAGEMENT
Upon consummation of the Merger, it is Huntington's intention to
appoint Sam L. Bockman, the President and Chief Executive Officer of Reliance,
as President of Huntington Bank-Brevard County, and to elect the following
directors of Reliance to the Board of Directors of HNBF: Richard N. Baney, M.D.,
Sam L. Bockman, and Joseph R. DiPrima. Huntington has agreed to assume certain
obligations of Reliance to indemnify and defend the directors and officers of
Reliance in connection with such persons' status or services as directors and
officers of Reliance. See "THE MERGER - INTERESTS OF MANAGEMENT."
FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the Merger will be a tax-free reorganization for
federal income tax purposes and that no gain or loss will be recognized by the
shareholders of Reliance upon conversion of their shares of Reliance Common
Stock into shares of Huntington Common Stock in the Merger, except with respect
to cash received in lieu of the issuance of fractional shares or in connection
with the exercise of appraisal rights under applicable law. See "THE MERGER -
FEDERAL INCOME TAX CONSEQUENCES." All shareholders should consult with their own
tax advisors as to the particular tax consequences of the Merger, including the
applicability and effect of state, local, and foreign tax laws and possible
changes in the tax laws.
ACCOUNTING TREATMENT
Huntington intends to treat the Merger as a pooling of interests for
accounting purposes. See "THE MERGER - ACCOUNTING TREATMENT."
- 8 -
REGULATORY APPROVALS
The HNBF Merger must be approved by the Comptroller of the Currency
(the "OCC"). In addition, the Florida Department of Banking and Finance (the
"Florida Department") must be notified of the acquisition of Reliance by
Huntington. The applications and notices required to be filed with these
agencies were filed on January 23, 1995. In the case of the HFSB Merger, the
approval of the Federal Reserve Board, the FDIC, and the Florida Department
would be required to approve the Merger. No applications have been filed with
these agencies since Huntington anticipates that the Security National Merger
will be consummated prior to the Effective Time. However, if the HNBF Merger
cannot be consummated because the Security National Merger was not consummated
prior to the Effective Time, for whatever reason, the parties would be required
to seek the approvals of these agencies and the closing of the Merger would be
delayed for a period of up to 120 days while such approvals were applied for,
considered, and obtained. See "THE MERGER - REGULATORY APPROVALS."
COMPARATIVE PER SHARE INFORMATION
During 1994, Huntington completed the acquisition of FirstFed Northern
Kentucky Bancorp, Inc., a thrift holding company headquartered in Covington,
Kentucky ("FirstFed"), which was accounted for as a purchase. Huntington expects
to complete the acquisition of Security National, which will be accounted for as
a pooling of interests, in the second quarter of 1995 and prior to the
consummation of the Merger. The following summary presents selected comparative
unaudited per share information for Huntington on a historical basis; for
Reliance on a historical basis; for Huntington, FirstFed, Security National, and
Reliance, on a pro forma combined basis; and for Reliance on a pro forma
equivalent basis.
Although it is intended that the Merger will be accounted for as a
pooling of interests, Huntington expects to restate beginning shareholders'
equity for the year in which the transaction is consummated rather than restate
historical financial statements to show the effects of the Merger as of the
earliest period presented. Accordingly, the pro forma information set forth
below for the years ended December 31, 1993 and 1992, reflects only Huntington
historical information. Reliance equivalent pro forma amounts were computed by
multiplying Huntington's pro forma amounts by the Estimated Exchange Ratio of
3.0489 shares of Huntington Common Stock for each share of Reliance Common
Stock. See "THE MERGER - TERMS OF THE MERGER." The data presented below is based
upon the historical financial statements and related notes thereto, included
herein, of Huntington and Reliance (adjusted for stock splits and stock
dividends, as appropriate), and unaudited pro forma combined financial
statements giving effect to the Merger, the completed acquisition of FirstFed,
and the pending acquisition of Security National by Huntington. Pro forma
amounts are not necessarily indicative of results that would have been or will
be obtained on a combined basis.
HUNTINGTON RELIANCE
------------------------------ --------------------------------
PRO EQUIVALENT
HISTORICAL FORMA(1) HISTORICAL PRO FORMA
-------------- ------------ -------------- --------------
Book Value Per Common Share:
As of December 31, 1994 $10.84 $10.79 $24.59 $32.90
Cash Dividends Declared
Per Common Share:
For the years ended:
December 31, 1994........... $0.72 $0.72 $0.00 $2.20
December 31, 1993........... $0.60 $0.60 $0.00 $1.83
December 31, 1992........... $0.50 $0.50 $0.00 $1.52
- 9 -
Net Income Per Common Share:
For the years ended:
December 31, 1994........... $1.87 $1.85 $4.03 $5.64
December 31, 1993........... $1.85 $1.85 $3.32 $5.64
December 31, 1992........... $1.27 $1.27 $2.59 $3.87
-------------------------------------
(1) Includes Huntington historical data adjusted to reflect the acquisition of FirstFed and Security
National and the consummation of the Merger as if they had occurred at the beginning of 1994.
Huntington Common Stock is traded in the over-the-counter market on the
Nasdaq National Market. The last sale price per share of Huntington Common Stock
on the Nasdaq National Market as of December 21, 1994, the last trading day
prior to the public announcement of the proposed Merger, and as of March 1,
1995, were $17-1/4 and $18-1/2, respectively. There is no active trading market
for Reliance Common Stock, although isolated transactions do occur from time to
time. To the knowledge of Reliance, all transactions in Reliance Common Stock
are negotiated on a private basis and quotations for Reliance Common Stock are
not published.
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS OF HUNTINGTON
The following financial highlights of Huntington for the five years
ended December 31, 1994, have been derived from Huntington's audited financial
statements. This data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information of
Huntington contained elsewhere herein. See "INDEX TO FINANCIAL INFORMATION."
CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Net interest income $756,050 $796,200 $697,440 $548,489 $486,011
Provision for loan losses 15,284 79,294 81,562 62,061 76,434
Net income 242,593 236,912 161,046 133,940 99,765
Per common share(1):
Net income $1.87 $1.85 $1.27 $1.06 $0.79
Cash dividends declared $0.72 $0.60 $0.50 $0.46 $0.41
- 10 -
CONSOLIDATED BALANCE SHEET DATA
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
Average balances during
the period:
Total assets................ $16,750 $16,851 $15,165 $13,613 $13,490
Long-term debt.............. 928 641 300 219 201
Shareholders' equity........ 1,403 1,216 1,074 977 917
Balances at period end:
Total assets................ $17,771 $17,619 $16,247 $14,500 $13,671
Long-term debt.............. 1,214 762 479 261 207
Shareholders' equity........ 1,412 1,325 1,130 1,018 937
Per common share(1):
Shareholders' equity........ $10.84 $10.21 $8.87 $8.10 $7.43
- -------------------------------
(1) Restated for stock dividends and stock splits, as appropriate.
FINANCIAL HIGHLIGHTS OF RELIANCE
The following financial highlights of Reliance for the five years ended
December 31, 1994, have been derived from Reliance's audited financial
statements. This data should be read in conjunction with the Reliance financial
statements, including the notes thereto, contained elsewhere herein. See "INDEX
TO FINANCIAL INFORMATION."
INCOME STATEMENT DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net interest income ........... $4,108 $3,445 $3,010 $2,420 $2,201
Provision for loan losses...... 130 211 180 327 124
Net income..................... 1,303 1,067 824 505 533
Per common share:
Net income.................. $4.03 $3.32 $2.59 $1.60 $1.70
Cash dividends declared..... $0.00 $0.00 $0.00 $0.00 $0.00
- 11 -
BALANCE SHEET DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- --------
Balances at period end:
Total assets............... $95,715 $81,971 $70,214 $64,413 $57,994
Long-term debt............. 0 0 0 5 56
Shareholders' equity....... 8,561 7,257 6,153 5,309 4,784
Per common share:
Shareholders' equity....... $24.59 $22.59 $19.34 $16.80 $15.23
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement and the Acquisition Agreement, is
qualified in its entirety by reference to the Merger Agreement and the
Acquisition Agreement, which are attached hereto and incorporated herein as
Exhibits A and B, respectively.
BACKGROUND OF THE MERGER
In August 1994, Sam L. Bockman, the President and Chief Executive
Officer of Reliance, received a call from one of Reliance's directors inquiring
as to whether Reliance would be interested in talking with Michael W. Sheffey,
the President and Chief Executive Officer of Security National Corporation, of
Maitland, Florida. Security National had announced in July 1994 that it had
entered into an agreement to be acquired by Huntington. On August 31, 1994, Mr.
Bockman met with Mr. Sheffey. They discussed the proposed Security
National/Huntington merger and Huntington's strategy for further expansion in
Florida. Mr. Sheffey inquired as to whether Reliance would have an interest in
being a part of these expansion plans. Mr. Bockman indicated that he would
discuss the issue with the Board of Directors of Reliance at the September 1994
Board meeting.
On September 20, 1994, the Reliance Board met and generally discussed
Huntington and the proposed Security National merger. The Reliance Board had
from time to time previously discussed whether Reliance, as an independent bank,
could continue to sustain quality growth, serve the needs of its customers, and
increase profitability. During prior meetings, the Board also had periodically
discussed how Reliance could offer annuities, mutual funds, trust services, and
other products and services which larger financial institutions offer their
customers, and which Reliance does not provide. The Board's consensus was that
any potential combination of Reliance would have to be on a basis consistent
with providing increased value for Reliance shareholders and also with a
financial institution having the capability of providing additional resources
for product and service expansion and enhancement to Reliance customers. The
Board authorized Mr. Bockman to continue discussions with Huntington, as well as
with two other regional bank holding companies that had previously expressed an
interest in Reliance.
On October 5, 1994, Mr. Bockman met with Mr. Sheffey and Milton D.
Baughman, Senior Vice President of Huntington. The purpose of the meeting was
for Reliance to obtain more information about Huntington and to provide
Huntington with additional information about Reliance. Mr. Baughman explained
Huntington's strategy for expansion in Florida and gave a general overview of
Huntington and its history. Mr. Bockman also provided information on
- 12 -
Reliance and its business. From October 7 to October 11, 1994, Dr. Richard N.
Baney, Chairman of the Board of Reliance, and Messrs. Bockman and Joseph
DiPrima, Vice Chairman of the Board of Reliance, attended the American Bankers
Association convention in New York City. During this time, Mr. Bockman provided
Dr. Baney and Mr. DiPrima a detailed overview of the prior discussion with
Messrs. Baughman and Sheffey. Mr. Bockman also indicated that one of the two
other regional bank holding companies had contacted him expressing an interest
in having further discussions regarding a possible transaction with Reliance.
On October 18, 1994, the Reliance Board met and Mr. Bockman updated the
Board on his prior meeting with Messrs. Baughman and Sheffey and the indication
of interest received from the other regional bank holding company. Mr. Bockman
distributed to the Board financial information on Huntington and the other
holding company. The Board authorized Mr. Bockman to continue further
discussions. On October 25, 1994, and November 3, 1994, Mr. Bockman was
contacted by the two other regional holding companies that had previously
expressed an interest in Reliance, requesting additional financial and other
information on Reliance, which Mr. Bockman provided to each. Mr. Bockman advised
the two companies and Huntington that Reliance desired to have any discussions
regarding any possible combination concluded in 1994. Accordingly, they were
advised that the Reliance Board would like to be in a position to consider any
indications of interest at the Reliance Board meeting to be held in November.
On November 9, 1994, Zuheir Sofia, President and Chief Operating
Officer of Huntington, visited with Mr. Bockman in Melbourne, Florida. Mr. Sofia
indicated that Huntington had a strong interest in Reliance and expressed his
belief that Reliance would complement Huntington's overall strategy for
expansion in Florida. Mr. Sofia expressed a pricing range that he thought
Huntington could provide for an acquisition of Reliance, subject to a
satisfactory due diligence investigation by Huntington. On November 10, 1994,
Mr. Bockman received a telephone call from a representative of one of the other
two regional holding companies that had expressed an interest in Reliance. The
individual expressed an interest in pursuing a transaction with Reliance, but
with a value less than that expressed by Huntington. On November 14, 1994, Mr.
Bockman received a telephone call from a representative of the other regional
holding company that had expressed an interest in Reliance. The representative
indicated that the recent pricing performance for his company's shares precluded
it from providing a meaningful proposal for consideration by the Reliance Board.
On November 15, 1994, the Reliance Board of Directors met and Mr. Bockman
provided an update to the directors on discussions to date, potential pricing
scenarios, and the range of values and responses received from Huntington and
the other regional financial institutions.
On November 28, 1994, Dr. Baney and Messrs. Bockman and Michael
Scafati, a Director of Reliance, met with three of the top four executive
officers of Huntington, including Frank Wobst, Chairman and Chief Executive
Officer of Huntington, in Columbus, Ohio. At the meeting, the Huntington
officers discussed Huntington's approach to banking, its philosophy, its
strategy for Florida and how Reliance might integrate into Huntington's plans.
Additional discussions also took place on a potential range of value for a
proposed combination with Reliance. On November 30, 1994, Mr. Bockman met with
Mr. Sheffey in Maitland, Florida, to discuss generally how Security National and
Reliance could combine and operate as a part of the Huntington organization.
Also on November 30, 1994, Mr. Bockman met with Charles E. Harris, Chief
Executive Officer of Ewing & Co., an investment banking firm located in Orlando,
Florida. Mr. Bockman provided Mr. Harris with an update on the discussions with
Huntington and the other regional financial institutions and solicited a
proposal from Ewing to serve as financial advisor to Reliance.
On December 2, 1994, Mr. Sofia called and expressed a desire to have
Huntington representatives perform additional due diligence on Reliance. They
also discussed issues relating to pricing for a possible Reliance transaction.
During the week of December 5, 1994, Mr. Bockman called the members of the
Reliance Board to update them on the discussion with Mr. Sofia and obtain Board
permission to allow Huntington access to review the books and records of
Reliance on a more extensive basis. The Board authorized Mr. Bockman to allow
such access. On December 10 and 11, 1994, a group of seven individuals from
Huntington visited Reliance for the purpose of performing additional due
diligence.
On December 15, 1994, Huntington forwarded to Mr. Bockman drafts of
agreements relating to a possible transaction with Reliance. On December 16,
1994, Mr. Bockman met with Mr. Harris to engage Ewing & Co. as financial advisor
to Reliance and also to provide an update regarding discussions and negotiations
with Huntington. On December 20, 1994, the Reliance Board met to review the
terms of a possible combination with Huntington. Each
- 13 -
director also was provided with a complete copy of the draft Huntington
agreements. The Board discussed with Mr. Harris and legal counsel the terms of
the proposed Huntington agreements and related issues. After a five hour meeting
and discussion regarding the proposed transaction terms, the Board authorized
proceeding with the negotiation of definitive agreements with Huntington at a
value of $20 million for Reliance, subject to clarification of certain issues.
On December 20, 21, and 22, 1994, discussions regarding the Huntington
agreements were held between Mr. Bockman and representatives of Huntington, and
between attorneys and representatives for Huntington and Reliance.
On December 22, 1994, the Reliance Board met and was provided an update
on discussions with Huntington and reviewed revised drafts of the proposed
Huntington agreements. Legal counsel also participated in a discussion of issues
relating to the proposed transaction and agreements. As a part of that meeting,
a representative of Ewing & Co. advised the Reliance Board that the terms of the
Merger were fair to Reliance shareholders from a financial point of view. After
additional discussion regarding the terms and value of the proposed transaction
with Huntington, the Board of Directors unanimously approved the Merger, the
Merger Documents, the Warrant and the Warrant Purchase Agreement. The Board
authorized Mr. Bockman to execute and deliver on behalf of Reliance the Merger
Documents, the Warrant and the Warrant Purchase Agreement.
REASONS FOR THE MERGER
Reliance's Board of Directors believes that the Merger and the
subsequent affiliation with Huntington will be beneficial to Reliance's
shareholders as well as its present customers and employees and will enhance the
ability of Reliance to meet the financial needs of the communities served by
Reliance. In approving the Merger Documents, Reliance's directors considered a
number of factors. The Reliance Board did not assign any relative or specific
weights to such factors. The factors considered by the Reliance Board in
evaluating and approving the Merger Documents were the value of the
consideration to be received by Reliance shareholders relative to the book value
and earnings per share of Reliance Common Stock; certain information concerning
the financial condition, results of operation and business prospects of
Huntington and Reliance; the marketability of Huntington Common Stock; the
competitive and regulatory environment for financial institutions generally; the
fact that the Merger will enable Reliance shareholders to exchange their shares
of Reliance Common Stock for shares of common stock of a larger and more
diversified entity, the stock of which is more widely held and more actively
traded; the opinion rendered by Ewing & Co. as to the fairness, from a financial
point of view, of the terms of the Merger to the Reliance shareholders; and
other information. The Reliance Board also believes that the Merger will provide
the present customers of Reliance with certain banking products and services not
currently available to such customers and attract new business with the support
of Huntington's greater resources and ability to respond to changes in the
highly competitive banking industry.
THE BOARD OF DIRECTORS OF RELIANCE BELIEVES THAT THE PROPOSED MERGER IS
IN THE BEST INTERESTS OF RELIANCE'S SHAREHOLDERS AND THEREFORE RECOMMENDS THAT
THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER DOCUMENTS.
Huntington considers the Merger advantageous principally because the
acquisition of Reliance will enable Huntington to expand its banking and related
activities in Florida.
OPINION OF FINANCIAL ADVISOR
GENERAL
Reliance retained Ewing & Co. to act as its financial advisor in
connection with the Merger. At the December 22, 1994, meeting of the Board of
Directors of Reliance, Ewing & Co. rendered an oral opinion to the Board of
Directors of Reliance to the effect that the terms of the Merger were fair, from
a financial point of view, to the shareholders of Reliance. Ewing & Co.
delivered a written opinion to the Reliance Board dated as of the date of this
Prospectus/Proxy Statement to the effect that, as of such date, the terms of the
Merger are fair, from a financial point of view, to the shareholders of
Reliance. THE TEXT OF SUCH OPINION IS SET FORTH IN EXHIBIT C TO THIS
PROSPECTUS/PROXY STATEMENT AND SHOULD BE READ IN ITS ENTIRETY BY SHAREHOLDERS OF
RELIANCE.
- 14 -
EWING & CO.'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF RELIANCE
AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED BY THE SHAREHOLDERS OF RELIANCE IN THE MERGER,
BASED ON CONDITIONS AS THEY EXIST AND CAN BE EVALUATED AS OF THE DATE OF THE
OPINION. EWING & CO.'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
RELIANCE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING NOR DOES EWING & CO.'S OPINION ADDRESS THE UNDERLYING BUSINESS DECISION
TO EFFECT THE MERGER.
The consideration to be received by Reliance shareholders in the Merger
was determined by Reliance and Huntington in their negotiations. Ewing & Co. did
not participate directly in the negotiations relating to the Merger and was not
authorized to solicit indications of potential interest from other institutions.
No limitations were imposed by the Board of Directors or management of Reliance
upon Ewing & Co. with respect to the investigations made or the procedures
followed by Ewing & Co. in rendering its opinion.
In connection with its opinion, Ewing & Co. reviewed, analyzed, and
relied upon material relating to the financial and operating condition of
Reliance and Huntington, including, among other things, the following: (i) the
Merger Documents; (ii) a draft of this Prospectus/Proxy Statement; (iii) Annual
Reports to Shareholders for the five years ended December 31, 1993, of Reliance;
(iv) Annual Reports to Shareholders and Annual Reports on Form 10-K for the
three years ended December 31, 1993, of Huntington; (v) Quarterly Reports on
Form 10-Q filed by Huntington for the first three quarters of 1994 and certain
interim reports and other communications to shareholders of Reliance and
Huntington; (vi) certain unaudited financial information of Reliance and
Huntington for the year ended December 31, 1994, and, in the case of Reliance,
for certain interim periods during 1994; (vii) other financial information
concerning the business and operations of Reliance furnished to Ewing & Co. by
Reliance for purposes of its analysis, including certain internal forecasts for
Reliance prepared by the senior management of Reliance; (viii) certain publicly
available information concerning the trading of, and the trading market for, the
Common Stock of Huntington; and (ix) certain publicly available information with
respect to banking companies and the nature and terms of other transactions that
Ewing & Co. considered relevant to its inquiry. In addition, Ewing & Co. held
discussions with senior management of Reliance concerning its past and current
operations, financial condition, and prospects, as well as the results of
regulatory examinations.
Ewing & Co. also considered such other financial, economic, regulatory,
and other factors as it deemed relevant and appropriate under the circumstances,
including among others the following: (i) certain publicly available information
concerning the trading of, and the trading market for, the publicly-traded
common stocks of certain other financial institutions; (ii) the limited market
for the shares of Reliance Common Stock; (iii) certain publicly available
information concerning the financial terms of certain mergers and acquisitions
of other financial institutions in Florida; and (iv) certain recently enacted
legislation that would permit financial institutions in additional states to
acquire financial institutions in Florida beginning in May 1995. Ewing & Co.
also took into account its assessment of general economic, market, and financial
conditions and its experience in other transactions, as well as its experience
in securities valuation and its knowledge of the banking and thrift industry
generally.
In conducting its review and arriving at its opinion, Ewing & Co.
relied upon and assumed the accuracy and completeness of all of the financial
and other information provided to it or publicly available, and Ewing & Co. did
not attempt to verify such information independently. Ewing & Co. relied upon
the management of Reliance as to the reasonableness and achievability of the
financial and operational forecasts and projections (and the assumptions and
bases therefor) provided to it and assumed that such forecasts and projections
reflect the best currently available estimates and judgments of management and
that such forecasts and projections will be realized in the amounts and in the
time periods currently estimated by management. Ewing & Co. also assumed,
without independent verification, that the aggregate allowances for loan and
other losses for Reliance and Huntington are adequate to cover such losses.
Ewing & Co. did not make or obtain any inspections, evaluations, or appraisals
of the properties, assets, or liabilities of Reliance or Huntington, or any
interest rate swaps or other derivative instruments held by Huntington, nor did
Ewing & Co. examine any individual loan or securities files. Ewing & Co. was
informed by Reliance, and assumed for purposes of its opinion, that the Merger
will be recorded as a pooling of interests under generally accepted accounting
principles. Ewing & Co. also assumed that the conditions to the Merger as set
forth in the Merger Agreement would be satisfied and that the Merger would be
consummated on a timely basis as contemplated by the Acquisition Agreement.
- 15 -
VALUATION METHODOLOGIES
In connection with its written opinion with respect to the terms of the
Merger and the presentation of its oral opinion to Reliance's Board of
Directors, Ewing & Co. performed several analyses. Set forth below is a brief
summary of these analyses, as subsequently updated.
Analysis of Terms of the Merger. Ewing & Co. calculated the imputed
value of the Merger to the holders of Reliance Common Stock on a fully-diluted
basis based upon the Conversion Ratio formula contained in the Merger Agreement
and varying assumptions concerning the Average Closing Sale Price of the
Huntington Common Stock at the Effective Date. See "THE MERGER - TERMS OF THE
MERGER." This analysis showed a value of $56.48 per share of Reliance Common
Stock if the Average Closing Sale Price of the Huntington Common Stock is not
less than $15.525 or more than $18.975. The analysis showed a value ranging from
$56.46 to $47.07 per share of Reliance Common Stock if the Average Closing Sale
Price of the Huntington Common Stock is less than $15.525 but not less than
$12.9375, and a value ranging from $56.50 to $64.18 per share of Reliance Common
Stock if the Average Closing Sale Price of the Huntington Common Stock is more
than $18.975 but not more than $21.5625. Under the terms of the Merger
Agreement, if the Average Closing Sale Price of the Huntington Common Stock is
less than $12.9375 or more than $21.5625 Huntington may elect to complete the
Merger at the adjusted price set forth in the Merger Agreement, terminate the
Merger Documents, or (if the Average Closing Sale Price is less than $12.9375)
attempt to renegotiate the pricing terms of the Merger. In such event, Reliance
does not have the right to terminate the Merger Documents but Reliance is not
required to renegotiate the pricing terms of the Merger. See "THE MERGER - TERMS
OF THE MERGER." The analysis of the terms of the Merger completed by Ewing & Co.
showed that if the Average Closing Sale Price of the Huntington Common Stock is
less than $12.9375 or more than $21.5625 and Huntington elects to complete the
Merger at the adjusted price set forth in the Merger Agreement, the imputed
value of the Merger to the holders of Reliance Common Stock would be $53.79 per
share if the Average Closing Sale Price is less than $12.9375 or $59.45 per
share if the Average Closing Sale Price is more than $21.5625, respectively.
Comparable Transaction Analysis. Ewing & Co. performed an analysis
of the premiums paid in comparable acquisition transactions. For such
purposes, Ewing & Co. considered comparable transactions to be acquisitions
announced since January 1, 1992, where the target institution was a bank or
bank holding company located in Florida with total assets of $200 million or
less. In each of the selected transactions, Ewing & Co. calculated the premium
to the target institution's book value, tangible book value, previous four
quarters' earnings, and total assets. Ewing & Co. then compared the ranges of
these premiums to the assumed transactional value of the Merger, using an
Average Closing Sale Price for the Huntington Common Stock of not less than
$15.525 or more than $18.975. This analysis produced the following premium
ranges for the selected comparable transactions in comparison to the assumed
transactional value of the Merger: (i) price offered as a multiple of the
target institution's book value of 0.70 times to 2.46 times, with a mean and a
median of 1.38 times, compared to a premium of 2.39 times for the Merger based
upon Reliance's book value at September 30, 1994; (ii) price offered as a
multiple of the target institution's tangible book value of 0.70 times to 2.46
times, with a mean of 1.39 times and a median of 1.38 times, compared to a
premium of 2.39 times for the Merger based upon Reliance's tangible book value
at September 30, 1994; (iii) price offered as a multiple of the target
institution's previous four quarters' earnings of 8.13 times to 36.46 times,
with a mean of 21.6 times and a median of 19.7 times, compared to a premium of
15.81 times for the Merger; and (iv) price offered to the target institution's
total assets of 2.73% to 23.21%, with a mean of 11.70% and a median of 12.20%,
compared to a premium of 21.58% for the Merger based upon Reliance's total
assets at September 30, 1994. No target institution or transaction used as a
comparison in the analysis described above is identical to Reliance or the
Merger. Accordingly, an analysis of the foregoing necessarily involves complex
considerations and judgments, as well as other factors that affect the
acquisition value of the companies being compared. Moreover, if the Average
Closing Sale Price of the Huntington Common Stock is less than $15.525 or more
than $18.975, the premiums paid in the Merger may be less or greater than the
premiums calculated for the Merger in the foregoing analysis. See "THE MERGER -
TERMS OF THE MERGER."
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Ewing & Co. estimated the present value of the future stream of after-tax cash
flows that Reliance could produce through 1999, under various circumstances,
assuming that Reliance performed in accordance with the earnings projections of
Reliance management at the time Reliance entered into the Acquisition Agreement
with Huntington in December 1994. Ewing & Co. estimated the terminal value of
Reliance at the end of the period by applying multiples of earnings (ranging
from 8.0
- 16 -
times to 10.0 times) and then discounting the cash flow streams and terminal
value using differing discount rates (ranging from 12.0% to 13.0%) chosen to
reflect different assumptions about the required rates of return of Reliance and
the inherent risk surrounding the underlying projections by the management of
Reliance. This discounted cash flow analysis indicated a reference range of
$17.0 million to $22.06 million, or $47.99 to $62.30 per share on a
fully-diluted basis, for Reliance.
Dividend Analysis. Ewing & Co. analyzed the effect of the Merger on the
dividends received by Reliance shareholders. Reliance has not paid a dividend on
shares of Reliance Common Stock since it was organized. Based upon the indicated
annual cash dividends payable on the Huntington Common Stock at September 30,
1994, Ewing & Co. noted that Reliance shareholders would receive $0.80 in annual
cash flow for each share of Huntington Common Stock received in the Merger, or
an estimated annual cash flow of from $2.38 to $2.91 for each share of Reliance
Common Stock converted in the Merger, assuming the Average Closing Sale Price of
the Huntington Common Stock is not less than $12.9375 or more than $21.5625. See
"THE MERGER TERMS OF THE MERGER."
The summary set forth above does not purport to be a complete
description of the analyses performed by Ewing & Co. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. Ewing & Co. believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses
without considering all analyses, or selecting part or all of the above summary
without considering all factors and analyses, would create an incomplete view of
the processes underlying the analyses reflected in Ewing & Co.'s opinion. In
addition, Ewing & Co. may have given various analyses more or less weight than
other analyses and may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Ewing & Co.'s view
of the actual value of Reliance. The fact that any specific analysis has been
referred to in the summary above is not intended to indicate that such analysis
was given greater weight than any other analysis.
In performing its analyses, Ewing & Co. made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Reliance and Huntington.
The analyses performed by Ewing & Co. are not necessarily indicative of actual
values or actual future results which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Ewing & Co.'s analysis of the fairness, from a financial point of view,
of the terms of the Merger to the shareholders of Reliance. The analyses do not
purport to be appraisals or to reflect the prices at which a company actually
might be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, as described above, Ewing &
Co.'s opinion is just one of many factors taken into consideration by the Board
of Directors of Reliance in determining to enter into the Acquisition Agreement.
COMPENSATION OF EWING & CO.
Pursuant to an engagement letter, dated December 16, 1994, between
Reliance and Ewing & Co., Reliance paid Ewing & Co. a fee of $7,500 upon the
execution of the Acquisition Agreement by Reliance and an additional fee of
$7,500 upon the delivery of Ewing & Co.'s written opinion to Reliance. Reliance
has also agreed to pay Ewing & Co. an additional success fee of $85,000, payable
at the closing of the Merger. Reliance also agreed to indemnify and hold
harmless Ewing & Co. and its directors, officers, and employees against certain
liabilities, including liabilities under the federal securities laws, in
connection with its services under the engagement letter, except for liabilities
resulting solely from the bad faith or gross negligence of Ewing & Co.
As a part of its investment banking business, Ewing & Co. is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, underwritings, private placements, trading and market making
activities, and valuations for various other purposes. Reliance's Board of
Directors decided to engage Ewing & Co. based on its experience as a financial
advisor in mergers and acquisitions of financial institutions, particularly
transactions in Florida, and its general investment banking experience in the
financial services industry.
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EFFECTIVE DATE OF THE MERGER
The Merger will be effective at 11:59 p.m., local Ohio time, on the
Effective Date, which will be the date of consummation of the Merger as
certified by the OCC, in the case of the HNBF Merger, or the date of the
issuance of a certificate of merger by the Florida Department, in the case of
the HFSB Merger, which date, in either case, will not precede May 1, 1995, or
the receipt of all applicable regulatory approvals and the expiration of the
last of any waiting periods required in connection with any of such regulatory
approvals. Unless the parties otherwise agree, the Effective Date will be the
last business day of the month in which all conditions to the closing of the
Merger, as set forth in the Acquisition Agreement, have been satisfied. It is
anticipated that, if the shareholders of Reliance approve the Merger at the
Special Meeting and the other conditions to the Merger set forth in the
Acquisition Agreement have been satisfied, the Effective Date will occur on or
about May 16, 1995.
TERMS OF THE MERGER
The HNBF Merger Agreement provides for the merger of Reliance into HNBF
pursuant to the applicable provisions of the laws of the United States and the
State of Florida. Upon the effectiveness of the Merger, HNBF, as the surviving
entity in the Merger, will remain a wholly owned subsidiary of Huntington
Florida and will continue its corporate existence as a national banking
association, and the separate existence of Reliance will cease. The articles of
association and bylaws of the surviving entity will be those of HNBF as in
effect immediately prior to the Merger until amended in accordance with law.
If the Security National Merger has not been consummated prior to the
Effective Time, the HNBF Merger Agreement will become void and the Merger will
be completed pursuant to the HFSB Merger Agreement. Upon the effectiveness of
the HFSB Merger, HFSB will be merged into Reliance, Reliance will change its
name to "The Huntington Bank of Florida" and will become a wholly owned
subsidiary of Huntington, and the separate existence of HFSB will cease. The
articles of incorporation of the surviving entity will be those of Reliance, as
amended by the HFSB Merger Agreement, and the bylaws of the surviving entity
will be those of Reliance, as in effect immediately prior to the Merger, in
either case until amended in accordance with law.
At the Effective Time, the shares of Reliance Common Stock issued and
outstanding immediately prior to the Effective Time (exclusive of treasury
shares, if any, which shall be canceled, and any shares as to which appraisal
rights are sought) will be converted into the right to receive whole shares of
Huntington Common Stock. The number of shares of Huntington Common Stock to be
received for each share of Reliance Common Stock in the Merger (the "Conversion
Ratio") will be determined pursuant to the following formula:
$20,000,000/PHC
Conversion Ratio = ---------------
NRC
where PHC is the Price Per Share of Huntington Common Stock (determined as
described below), and NRC is the number of shares of Reliance Common Stock
issued and outstanding at the Effective Time plus the number of shares of
Reliance Common subject to stock options outstanding at the Effective Time. On
the Record Date, there were 348,099 shares of Reliance Common Stock issued and
outstanding and an additional 6,000 shares subject to outstanding stock options,
for an aggregate of 354,099 shares of Reliance Common Stock for purposes of the
Conversion Ratio formula. This aggregate number of shares of Reliance Common
Stock is not expected to change before the Effective Time.
Except as otherwise described below, the Price Per Share of Huntington
Common Stock will be the Average Closing Sale Price (previously defined as the
average of the closing sale prices per share of Huntington Common Stock on the
five trading days immediately preceding the date that is two trading days prior
to the Effective Date, as reported on the Nasdaq National Market); provided,
however, that if the Average Closing Sale Price is less than $15.525 (subject to
adjustment for stock dividends, splits or similar changes), the Price Per Share
of Huntington Common Stock will be $15.525, and if the Average Closing Sale
Price is greater than $18.975 (subject to adjustment for stock dividends, splits
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or similar changes), then the Price Per Share of Huntington Common Stock will be
$18.975. Cash will be paid for any fractional share of Huntington Common Stock.
See "THE MERGER - FRACTIONAL SHARES."
Notwithstanding the above, if the Average Closing Sale Price is less
than $12.9375 (subject to adjustment for stock dividends, splits or similar
changes), then Huntington may elect to either (i) consummate the Merger at a
Price Per Share of Huntington Common Stock equal to 1.05 times the Average
Closing Sale Price or (ii) use its best efforts to renegotiate the pricing terms
of the Merger with Reliance. If a mutually acceptable adjustment to such pricing
terms is not agreed to by Huntington and Reliance by the 10th day after the
determination of the Average Closing Sale Price, the Merger Documents will be
terminated and the Merger will be abandoned. In addition, if the Average Closing
Sale Price is more than $21.5625 (subject to adjustment for stock dividends,
splits or similar changes), then Huntington may elect to either (i) consummate
the Merger at a Price Per Share of Huntington Common Stock equal to 0.95 times
the Average Closing Sale Price or (ii) terminate the Merger.
The average closing sale price per share of Huntington Common Stock as
reported on the Nasdaq National Market for the five trading days immediately
preceding the Record Date was $18.525. If the Average Closing Sale Price is
$18.525 at the Effective Date, each shareholder of Reliance would be entitled to
receive 3.0489 shares of Huntington Common Stock for each share of Reliance
Common Stock held by such shareholder. Shareholders are advised to obtain
current market quotations for Huntington Common Stock. The market price of
Huntington Common Stock at the Effective Time, or on the date on which
certificates representing such shares are received, may be higher or lower than
the market price of Huntington Common Stock as of the Record Date or at the time
of the Special Meeting.
Each share of Reliance Common Stock held by a person who dissents from
the Merger and demands an appraisal of his or her shares and who complies with
all other procedures specified under applicable law shall not be converted into
or represent a right to receive shares of Huntington Common Stock as described
above, rather, the holder thereof shall be entitled to such appraisal rights as
are granted by applicable law. See "THE MERGER - APPRAISAL RIGHTS OF DISSENTING
SHAREHOLDERS."
Each unexercised option to purchase shares of Reliance Common Stock
held by an employee of Reliance that is outstanding immediately prior to the
Effective Time under Reliance's stock option plan will be converted at the
Effective Time into an option under a Huntington stock option plan exercisable
for a number of shares of Huntington Common Stock equal to the product obtained
by multiplying the number of shares of Reliance Common Stock subject to the
Reliance option by the Conversion Ratio. All fractional shares will be rounded
to the nearest whole share. The exercise price for each share of Huntington
Common Stock subject to an option so substituted will be equal to the exercise
price per share of Reliance Common Stock under the Reliance option divided by
the Conversion Ratio. All incentive stock options will be converted in such a
manner that their status as incentive stock options for federal income tax
purposes will be maintained. Upon such substitution, all rights under the
Reliance stock option plan will be null and void. As of the Record Date, there
were options outstanding for the purchase of 6,000 shares of Reliance Common
Stock.
EXCHANGE OF CERTIFICATES
Under the terms of the Merger Agreement, The Huntington National Bank,
a wholly owned subsidiary of Huntington that is the transfer agent for
Huntington Common Stock, is designated to act as the exchange agent (the
"Exchange Agent") in connection with the Merger. Approval of the Merger
Documents by the shareholders of Reliance will constitute ratification of the
appointment of the Exchange Agent.
As soon as practicable after the Effective Time, Huntington shall cause
the Exchange Agent to prepare and mail to each holder of record on the Effective
Date of any shares of Reliance Common Stock a letter of transmittal containing
instructions for the surrender of the certificates formerly representing shares
of Reliance Common Stock. Upon surrender to the Exchange Agent of the
certificate or certificates which prior to the Effective Time represented shares
of Reliance Common Stock in accordance with the instructions set forth in the
letter of transmittal, each such holder will be entitled to receive in exchange
therefor a certificate or certificates representing the number of whole shares
of
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Huntington Common Stock into which the shares represented by the certificate or
certificates so surrendered will have been converted and, if applicable, a check
payable to such holder in the amount necessary to pay for any fractional shares
of Huntington Common Stock, in each case, without interest.
Neither Huntington, Huntington Florida, nor the Exchange Agent shall be
obligated to deliver certificates for Huntington Common Stock or a check in lieu
of fractional shares to a former shareholder of Reliance until such former
shareholder has either surrendered his certificate or certificates representing
shares of Reliance Common Stock or, if a shareholder is unable to locate such
certificate or certificates, such shareholder has delivered an appropriate
affidavit of loss, indemnity agreement, and bond as may be required by
Huntington. Until so surrendered, each outstanding certificate representing
shares of Reliance Common Stock which have been converted into shares of
Huntington Common Stock shall be deemed for all corporate purposes (except the
payment of dividends or other distributions) to evidence ownership of the number
of whole shares of Huntington Common Stock into which the shares of Reliance
Common Stock represented thereby shall have been converted.
No dividends or other distributions payable to holders of record of
Huntington Common Stock after the Effective Date shall be paid to a holder of
Reliance Common Stock whose shares have been converted into Huntington Common
Stock until such holder surrenders his certificate or certificates formerly
representing shares of Reliance Common Stock. Promptly upon such surrender,
Huntington will pay to the holder of the certificates for Huntington Common
Stock issued in exchange for the certificates for Reliance Common Stock the
amount of dividends and other distributions, if any, which theretofore became
payable with respect to such full shares of Huntington Common Stock, but which
have not theretofore been paid on such stock. No interest shall be payable with
respect to the payment of any dividends or other distributions. All such
dividends or other distributions unclaimed at the end of one year from the
Effective Date shall be repaid by the Exchange Agent to Huntington, and
thereafter the holders of such outstanding certificates for Reliance Common
Stock shall look, subject to applicable escheat, unclaimed funds, and other
laws, as general creditors only to Huntington for payment thereof.
The stock transfer books of Reliance will be closed at the close of
business two business days prior to the Effective Date.
Huntington is empowered to adopt additional reasonable rules and
regulations with respect to the matters referred to above, not inconsistent with
the provisions of the Merger Agreement.
FRACTIONAL SHARES
No fractional shares of Huntington Common Stock will be issued. Each
former shareholder of Reliance who would otherwise be entitled to receive a
fractional share of Huntington Common Stock upon surrender of his certificate or
certificates for shares of Reliance Common Stock will receive from the Exchange
Agent cash in an amount equal to the fractional share interest multiplied by the
Price Per Share of Huntington Common Stock. No interest will be payable with
respect to such cash payment. Immediately after the third anniversary of the
Effective Date, the Exchange Agent shall deliver to HNBF or to HBF, as
applicable, any unclaimed balance of cash owing with respect to fractional
shares and such cash shall be retained by, and become the property of HNBF or
HBF, as applicable, free and clear of any claims whatsoever.
TERMS OF THE WARRANT
On December 22, 1994, pursuant to the terms of the Warrant Purchase
Agreement, Reliance issued the Warrant to Huntington. The Warrant gives
Huntington or a subsequent holder of the Warrant (collectively, the "Holder")
the right to purchase, under certain specified circumstances, a total of up to
115,415 shares of Reliance Common Stock (the "Warrant Stock"), representing
24.9% of the outstanding shares of Reliance Common Stock (after giving effect to
the issuance of the Warrant Stock), at a price of $56.48 per share (the "Warrant
Price").
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The Warrant cannot be exercised by the Holder without the consent of
Reliance except upon the occurrence of any of the following events: (i) any
material breach of the Merger Documents by Reliance which would permit
Huntington to terminate the Merger Documents; (ii) prior to the Special Meeting,
any person or group of persons submits a proposal to Reliance relating to the
possible sale or other disposition of more than 25% of the capital stock or any
class of voting securities, or a majority of the assets, of Reliance, a merger
or consolidation involving Reliance other than a transaction in which Reliance
would be the owner of all of the stock of the surviving corporation, or a merger
or consolidation involving Reliance other than a transaction in which Reliance
would be the surviving corporation and the current shareholders of Reliance
would own the majority of the stock of the surviving corporation (an
"Acquisition Transaction") and, on or before June 22, 1996, Reliance consummates
such Acquisition Transaction; (iii) prior to the Special Meeting, a person or
group of persons commences a tender or exchange offer to acquire equity
securities of Reliance which, after giving effect to such offer, such person or
group would own or have the right to acquire a majority equity interest in
Reliance (a "Tender Offer") and such equity interest is acquired pursuant to
such Tender Offer on or before June 22, 1996; or (iv) Reliance enters into an
agreement with respect to an Acquisition Transaction after December 22, 1994,
and such transaction is consummated on or before June 22, 1996. The Warrant
terminates on the earliest of: (i) six months after the occurrence of the first
to occur of any of the events described in the preceding sentence; (ii) the
Effective Date; or (iii) upon termination of the Merger Documents pursuant to
the terms thereof, unless such termination is the result of any material breach
of the Merger Documents by Reliance which would permit Huntington to terminate
the Merger Documents.
The Warrant and Warrant Purchase Agreement contain anti-dilution
provisions and provisions granting the Holder certain registration and
repurchase rights. In addition, Reliance is required to repurchase the Warrant
from the Holder, at the Holder's option, any time after the Warrant becomes
exercisable and prior to the expiration thereof. The repurchase price is equal
to the difference between the "Market/Offer Price" (defined below) and the
Warrant Price, multiplied by the number of shares for which the Warrant being
surrendered by the Holder may then be exercised, but only if the Market/Offer
Price is greater than the Warrant Price. In addition, at the request of the
owner of Warrant Stock, Reliance shall repurchase all of the shares of the
Warrant Stock at a price equal to the greater of the Warrant Price and the
Market/Offer Price, multiplied by the number of shares so purchased and being
surrendered thereunder. The Market/Offer Price means the highest of the price
per share at which a tender or exchange offer has been made, the price per share
to be paid therefor by any third party pursuant to an agreement with Reliance,
and the highest closing price per share of Reliance Common Stock within the
four-month period immediately preceding the date the Holder gives notice of the
required repurchase of the Warrant or the owner of Warrant Stock gives notice of
the required repurchase of such Warrant Stock.
COVENANTS OF THE PARTIES
The Merger Agreement provides, among other things, that Huntington
Florida or HFSB and Reliance will use their best efforts to take all actions and
to do all things necessary, proper, or advisable under applicable law to
consummate the Merger as soon as reasonably practicable on or after May 1, 1995,
subject to the approval of the Merger Documents by the Reliance shareholders,
the receipt of all required regulatory approvals, and the expiration of all
required regulatory waiting periods.
The Acquisition Agreement provides, among other things, that, from
January 1, 1995, until the Effective Date, Reliance will conduct its operations
only in the ordinary and usual course of business and will use its best efforts
to preserve intact its business organization, assets, prospects, and business
relationships, to keep available the services of its officers and employees, and
to maintain existing relationships with other entities.
In addition, the Acquisition Agreement provides that, Reliance cannot,
directly or indirectly, solicit, encourage, initiate, entertain, consider, or
participate in any negotiations or discussions with respect to any "Acquisition
Proposal" (defined to include any inquiries, offers, or proposals by any other
corporation, firm, association, person, or entity relating to the possible sale
or other disposition of more than 25% of the shares of capital stock or a
majority of the assets of Reliance; a merger or consolidation involving
Reliance, other than a transaction in which Reliance will be the owner of all of
the stock of the surviving corporation; or a merger or consolidation involving
Reliance, other than a transaction in which Reliance will be the surviving
corporation and the current shareholder of Reliance will be the
- 21 -
owners of a majority of the stock of the surviving corporation following the
transaction); will not disclose any information not customarily disclosed to, or
provide access to its properties, books, or records to, or otherwise assist or
encourage, any person or entity in connection with any Acquisition Proposal; and
will give Huntington prompt notice of any such Acquisition Proposals.
Upon consummation of the Merger, it is Huntington's intention to
appoint Sam L. Bockman, the President and Chief Executive Officer of Reliance,
as President of Huntington Bank-Brevard County, and to elect the following
directors of Reliance to the Board of Directors of HNBF: Richard N. Baney, M.D.,
Sam L. Bockman and Joseph R. DiPrima. Huntington has also agreed to assume
certain obligations of Reliance to indemnify and defend the directors and
officers of Reliance in connection with such persons' status or services as
directors and officers of Reliance. See "THE MERGER - INTERESTS OF MANAGEMENT."
The Acquisition Agreement also provides that Huntington and Huntington
Florida will use their reasonable best efforts to coordinate the conversion of
any pension or other employee benefit plans, practices, or policies of Reliance
into similar plans of Huntington, to the extent such plans are maintained by
Huntington, and to give credit to any employee of Reliance who becomes an
employee of HNBF or HBF following the consummation of the Merger for all service
with Reliance prior to the Effective Time for purposes of eligibility, vesting,
and all other purposes (other than for the purpose of benefit accrual under any
plans maintained by Huntington) for which such service is taken into account or
recognized, to the extent feasible and permissible under all applicable laws and
regulations and the applicable terms of Huntington's employee benefit plans.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger will occur only if the Merger Agreement and the Acquisition
Agreement are approved by the affirmative vote of the holders of the appropriate
percentage of the outstanding shares of Reliance Common Stock, i.e., two-thirds
in the case of the HNBF Merger, and a majority in the case of the HFSB Merger.
Consummation of the Merger is subject to the satisfaction of certain other
conditions, including: (i) the receipt of approvals of the Merger by the OCC and
any other governmental authority having jurisdiction, and the expiration of any
applicable waiting periods, with no such approval containing any provision which
would be materially adverse to the business of the Huntington Entities; (ii) the
absence of any lawsuit, governmental investigation, or administrative
proceeding, or threat thereof which materially questions the validity or
legality of the Merger; (iii) the receipt by the Huntington Entities, and
Reliance of certain legal opinions from counsel, including an opinion regarding
certain tax aspects of the Merger; and (iv) the receipt by Reliance of an
opinion from Ewing & Co., dated as of the Effective Date, stating that, from a
financial point of view, the terms of the Merger as provided in the Merger
Agreement are fair to the Reliance shareholders.
The obligation of Reliance to consummate the Merger is further
conditioned on the representations and warranties of the Huntington Entities
contained in the Acquisition Agreement being true and correct in all material
respects on the Effective Date; the obligations of the Huntington Entities to be
performed pursuant to the Merger Documents on or before the Effective Date
having been performed in all material respects; and the receipt by Reliance of a
certificate from an officer of Huntington to the effect that the Registration
Statement has become effective by order of the Commission, the Huntington Common
Stock to be exchanged in the Merger has been qualified or is exempt under all
applicable state securities laws, and there has been no pending or threatened
stop order with respect thereto.
The obligations of the Huntington Entities to consummate the Merger are
subject to fulfillment on or before the Effective Date of the following
additional conditions precedent: (i) the representations and warranties of
Reliance contained in the Acquisition Agreement being true and correct in all
material respects on the Effective Date, and the obligations of Reliance to be
performed pursuant to the Merger Documents on or before the Effective Date
having been performed in all material respects; (ii) the delivery to Huntington
by each director, officer, and other person who is deemed an "affiliate" of
Reliance and their affiliates prior to the Effective Date of a written agreement
providing that such person will not sell, pledge, transfer, or otherwise dispose
of the shares of Huntington Common Stock to be received by such person in
connection with the Merger unless certain conditions are met; (iii) the absence
of any material adverse change in the consolidated results of operations,
financial condition, properties, or business of Reliance since December 31,
1993; (iv) the receipt by Huntington of commitments for owners' and leasehold
title insurance
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policies insuring Reliance's ownership and leasehold interests in and to all
real estate owned or leased by Reliance, together with such endorsements to such
policies as Huntington may reasonably request; (v) the receipt by Huntington of
surveys of certain parcels of real property owned by Reliance; (vi) the total
shareholders' equity of Reliance as of the end of the most recent calendar
quarter preceding the Effective Date and as of the Effective Date being not less
than the total shareholders' equity of Reliance as of November 30, 1994; (vii)
the receipt by Huntington from Reliance of a certificate that all necessary
steps have been taken for the conversion of Reliance stock options held by
employees to Huntington stock options and the termination of all non-employee
stock options and the receipt by Huntington of an agreement signed by each
holder of a Reliance stock option outstanding on the Effective Date with respect
to the conversion of such option to a Huntington stock option; (viii) Reliance
having obtained all consents required for the prevention of any default under
any material contract or license to which it is a party; (ix) the receipt by
Huntington of letters from Reliance's independent certified public accountants,
dated as of the Effective Date, with respect to certain financial information
and from Huntington's independent certified public accountants, dated as of the
Effective Date, to the effect that the Merger will qualify for
pooling-of-interest accounting treatment; and (x) dissenters' rights having not
been asserted with respect to more than five percent of the outstanding shares
of Reliance Common Stock (see "THE MERGER - APPRAISAL RIGHTS OF DISSENTING
SHAREHOLDERS").
The Huntington Entities and Reliance may waive any inaccuracies in the
representations and warranties of the other parties contained in the Merger
Documents or in any document delivered pursuant thereto, and may waive
compliance by the other parties with any of the conditions, covenants, and
agreements contained in the Merger Documents.
AMENDMENT; TERMINATION
The Merger Documents may be amended at any time prior to the Effective
Time, by mutual agreement of the parties authorized by their respective boards
of directors and evidenced by a written agreement, provided that, after the
Reliance shareholders have approved the Merger Agreement, the formula
determining the number of shares of Huntington Common Stock into which shares of
Reliance Common Stock are to be converted may not be changed without the further
approval of the holders of the issued and outstanding shares of Reliance Common
Stock in the same manner required for adoption of the Merger Agreement.
The Merger Documents will terminate on September 30, 1995 (which date
will be extended automatically to December 31, 1995, if the necessary regulatory
approvals of the Merger have not been obtained prior to September 30, 1995),
unless a later date is agreed upon in writing by the parties. The Merger
Documents will also terminate if the Average Closing Sale Price of Huntington
Common Stock is above $21.5625 or below $12.9375 and, in either case, Huntington
elects to terminate the Merger rather than proceed with the Merger at an
adjusted price or renegotiate the pricing terms of the Merger (see "THE MERGER -
TERMS OF THE MERGER").
In addition, the Merger Documents may be terminated and the Merger may
be abandoned at any time prior to the Effective Time as follows: (i) by mutual
consent, evidenced in writing, of the Boards of Directors of the Huntington
Entities and Reliance; (ii) by the Board of Directors of Huntington if any
condition precedent to performance by the Huntington Entities has not been
satisfied or waived, if Reliance has not performed in any material respect its
obligations and agreements under the Merger Documents, or if the representations
of Reliance set forth in the Acquisition Agreement are incorrect in any material
respect when made; (iii) by the Board of Directors of Reliance if any condition
precedent to performance by Reliance has not been satisfied or waived, if any of
the Huntington Entities have not performed in any material respect their
obligations and agreements under the Merger Documents, or if the representations
of any of the Huntington Entities set forth in the Acquisition Agreement are
incorrect in any material respect when made.
The Acquisition Agreement provides that Reliance shall pay to
Huntington a termination fee of $1,500,000 as liquidated damages if (i) an
Acquisition Proposal is submitted to and approved by the shareholders of
Reliance prior to the Effective Time, or (ii) an Acquisition Proposal is
received by Reliance, or Reliance's shareholders prior to the Special Meeting,
and Reliance's Board of Directors fails to recommend to the shareholders
approval of the Merger Documents or withdraws its recommendation previously
made, or Reliance's Board of Directors fails to solicit proxies
- 23 -
of Reliance's shareholders to approve the Merger, and, in any such case, the
shareholders of Reliance fail to approve the Merger Documents at the Special
Meeting. The Acquisition Agreement provides that, upon payment of this
termination fee, Reliance will have no further liability under the Merger
Documents other than with respect to the Warrant and Warrant Purchase Agreement.
Except as otherwise specified in the Merger Documents, all expenses
incurred by or on behalf of the parties in connection with the authorization,
preparation, execution, and consummation of the Merger Documents, including,
without limitation, all fees and expenses of agents, representatives and counsel
employed by the parties and taxes, if any, must be borne solely by the party
which incurred such expenses. In the event of a termination of the Merger, the
Merger Documents will become void and there will be no further obligation or
liability on the part of the Huntington Entities or Reliance, or their
respective shareholders, directors, or officers, except with respect to certain
obligations regarding the confidentiality of certain information relating to the
other party or parties to the Merger and the payment of the termination fee and
certain expenses, as described above.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
The appraisal rights of dissenting shareholders of Reliance in
connection with the HNBF Merger are governed by the provisions of Title 12,
Section 215a of the United States Code ("Section 215a") because HNBF, which is
the surviving entity in the HNBF Merger, is a national bank governed by federal
banking laws. However, the appraisal rights of dissenting shareholders in
relation to the HFSB Merger are governed by Section 658.44 of the Florida
Statutes ("Section 658.44") because Reliance is the surviving entity in the HFSB
Merger and Reliance is a Florida state bank governed by Florida law. At the time
of the Special Meeting, the parties will not know whether the HNBF Merger or the
HFSB Merger will be consummated. Accordingly, any shareholders of Reliance who
wish to dissent from the Merger Documents and to pursue their rights to receive
payment in cash of the appraised fair value of their shares of Reliance Common
Stock must comply with the provisions of both federal and state law in order to
ensure that they have complied with the law that will be applicable to the
Merger. The following description of the statutory rights of dissenting
shareholders and the procedures required for perfecting those rights is
qualified in its entirety by reference to the terms of Section 215a and Section
658.44, copies of which are attached hereto as Exhibit D. EACH STEP MUST BE
TAKEN IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE RESPECTIVE
APPRAISAL RIGHTS STATUTES IN ORDER TO ENSURE THAT A SHAREHOLDER WILL HAVE
PROPERLY PERFECTED HIS OR HER APPRAISAL RIGHTS.
Section 215a, which is applicable in the case of the HNBF Merger,
provides that any holder of Reliance Common Stock who has either (a) voted
against the Merger or (b) given written notice to Sam L. Bockman, President and
Chief Executive Officer of Reliance (as the presiding officer of the Special
Meeting), at or prior to the Special Meeting, that such shareholder dissents
from the Merger Documents, shall be entitled to receive the cash value of the
shares held by him, provided that a written request for payment of the value of
the shares is made to HNBF at any time before 30 days after the Effective Date.
Such written request for payment must be accompanied by the surrender of stock
certificates representing such shares.
Section 658.44, which is applicable to the HFSB Merger, is very similar
in most respects to Section 215a and provides that any holder of Reliance Common
Stock will be entitled to payment in cash of the value of only those shares (a)
which at the Special Meeting are voted against the Merger Documents, or (b) with
respect to which the holder thereof has given written notice to Sam L. Bockman,
President and Chief Executive Officer of Reliance (as the presiding officer of
the Special Meeting), at or prior to the Special Meeting, that the shareholder
dissents from the Merger Documents, provided that the shareholder surrenders his
stock certificates for such shares in accordance with the procedures outlined
below.
Section 215a requires a shareholder to exercise dissenters' rights with
respect to all or none of such shareholder's shares, while Section 658.44 allows
a shareholder to exercise dissenters' rights for fewer than all of the shares
held by such shareholder. Therefore, if the HNBF Merger is consummated and a
shareholder has attempted to exercise dissenters' rights for fewer than all of
the shares held by such shareholder, then the shareholder will not be entitled
to exercise dissenters' rights for any shares held by such shareholder.
- 24 -
Section 215a provides that the valuation of the shares of dissenting
shareholders (the "Dissenting Shares") shall be determined in the manner
prescribed by state law. Accordingly, Section 658.44 will govern the appraisal
of the Dissenting Shares in the case of either the HNBF Merger or the HFSB
Merger. Section 658.44 provides that on or promptly after the Effective Date of
the Merger, Huntington may fix an amount which it considers to be not more than
the fair market value of the shares of Reliance Common Stock and which
Huntington will pay to the holders of Dissenting Shares. If Huntington fixes
such amount, it will offer (the "Cash Offer") to pay such amount to the holders
of all Dissenting Shares. The owners of Dissenting Shares who accept the Cash
Offer will be entitled to receive the amount so offered for such shares in cash
upon surrendering the stock certificates representing such shares at any time
within 30 days after the Effective Date.
The value of Dissenting Shares, the owners of which have not accepted
the Cash Offer for such shares, shall be determined as of the Effective Date by
three appraisers, one to be selected by the owners of at least two-thirds of
such Dissenting Shares, one to be selected by the board of directors of
Reliance, and the third to be selected by the two so chosen. The value agreed
upon by any two of the appraisers shall control and be final and binding on all
parties. If, within 90 days from the Effective Date, for any reason one or more
of the appraisers is not selected as herein described, or the appraisers fail to
determine the value of such Dissenting Shares, the Florida Department of Banking
and Finance shall cause an appraisal of such Dissenting Shares to be made which
will be final and binding on all parties. The owners of Dissenting Shares, the
value of which is to be determined by appraisal, shall be entitled to receive
the value of such shares in cash upon surrender of the stock certificates
representing such shares at any time within 30 days after the value of such
shares has been determined by appraisal made on or after the Effective Date.
The expenses of appraisal shall be paid by Huntington. The amount
payable pursuant to the Cash Offer which is accepted by the holders of
Dissenting Shares, and the amount payable to the holders of Dissenting Shares
pursuant to an appraisal, shall be payable by Huntington but, until paid, will
constitute a debt of HNBF or HBF, as applicable.
IN ORDER TO ENSURE PERFECTION OF THEIR APPRAISAL RIGHTS, SHAREHOLDERS
OF RELIANCE WHO WISH TO DISSENT FROM THE MERGER DOCUMENTS MUST COMPLY WITH BOTH
SECTION 215a AND SECTION 658.44. ACCORDINGLY, EACH RELIANCE SHAREHOLDER ELECTING
TO RECEIVE THE APPRAISED VALUE OF HIS OR HER RELIANCE SHARES IN CASH MUST (1)
EITHER VOTE AGAINST THE MERGER DOCUMENTS OR DELIVER TO SAM L. BOCKMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER OF RELIANCE (AS THE PRESIDING OFFICER OF THE SPECIAL
MEETING), AT OR PRIOR TO THE SPECIAL MEETING, A WRITTEN NOTICE TO THE EFFECT
THAT HE OR SHE DISSENTS FROM THE MERGER DOCUMENTS, AND (2) PROVIDE A SEPARATE
WRITTEN REQUEST FOR PAYMENT OF THE APPRAISED VALUE OF HIS OR HER SHARES TO HNBF
OR HBF (WHICHEVER IS THE SURVIVING ENTITY IN THE MERGER) AT ANY TIME BEFORE 30
DAYS AFTER THE EFFECTIVE DATE, WHICH REQUEST MUST BE ACCOMPANIED BY THE
SURRENDER OF THE STOCK CERTIFICATE OR CERTIFICATES REPRESENTING SUCH SHARES. THE
NOTICE SPECIFIED IN ITEM (1) ABOVE WILL BE DEEMED TO BE SUFFICIENT IF IT
IDENTIFIES THE SHAREHOLDER, INDICATES THAT THE SHAREHOLDER DISSENTS FROM THE
MERGER DOCUMENTS, AND SPECIFIES THE NUMBER OF SHARES AS TO WHICH DISSENTERS'
RIGHTS ARE BEING REQUESTED. THE REQUEST SPECIFIED IN ITEM (2) ABOVE WILL BE
DEEMED TO BE SUFFICIENT IF IT IDENTIFIES THE SHAREHOLDER, INDICATES THAT THE
SHAREHOLDER DEMANDS PAYMENT OF THE APPRAISED VALUE OF HIS OR HER SHARES, AND
SPECIFIES THE NUMBER OF SHARES AS TO PAYMENT OF THE APPRAISED VALUE IS BEING
REQUESTED. PLEASE NOTE THAT A MERE FAILURE TO VOTE, WITHOUT PROVIDING THE
WRITTEN NOTICE OF DISSENT SPECIFIED IN ITEM (1) ABOVE AND THE WRITTEN DEMAND FOR
PAYMENT SPECIFIED IN ITEM (2) ABOVE, WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL.
Upon and after the Effective Date, all shares of Reliance Common Stock,
including Dissenting Shares whether or not surrendered by the holders thereof,
shall be void and deemed to be canceled, and no voting or other rights of any
kind shall pertain thereto or to the holders thereof except only such rights as
may be expressly provided in the Merger Documents or expressly provided by law.
Reliance shareholders who choose to perfect their appraisal rights
under either federal or Florida law and receive cash rather than shares of
Huntington Common Stock in the Merger will recognize gain or loss for federal
income tax purposes (see "THE MERGER - FEDERAL INCOME TAX CONSEQUENCES").
- 25 -
INTERESTS OF MANAGEMENT
Upon the consummation of the Merger, it is Huntington's intention to
elect Sam L. Bockman, the President and Chief Executive Officer of Reliance, to
the Board of Directors of HNBF and to appoint him President of Huntington
Bank-Brevard County. In addition, it is the intention of the Board of Directors
of Huntington to elect Richard N. Baney, M.D., and Joseph R. DiPrima, who are
currently directors of Reliance, to the Board of Directors of HNBF following the
consummation of the Merger. See "HUNTINGTON BANCSHARES INCORPORATED - HUNTINGTON
FLORIDA AFFILIATES."
Under the terms of the Merger Agreement, upon the consummation of the
Merger, all outstanding options to purchase shares of Reliance Common Stock
previously granted to employees of Reliance will be converted into options to
purchase shares of Huntington Common Stock under a Huntington stock option plan.
See "THE MERGER - TERMS OF THE MERGER." Currently five employees of Reliance
hold options to purchase a total of 6,000 shares of Reliance Common Stock, at
the option price of $24.00 per share.
Huntington has acknowledged that, by operation of law, upon
effectiveness of the Merger, either HNBF or HBF, as applicable, will assume all
legally enforceable obligations of Reliance to indemnify and defend the
directors and officers of Reliance to the same extent that Reliance was required
to indemnify and defend such persons immediately prior to the Effective Time in
connection with such persons' status or services as directors and officers of
Reliance.
FEDERAL INCOME TAX CONSEQUENCES
The summary of the federal income tax consequences set forth below is
based on the Internal Revenue Code of 1986, as amended through the date hereof
(the "Code"), is for general information only, and is not intended to be tax
advice to any particular shareholder of Reliance. The specific tax treatment of
each particular shareholder will also depend upon the particular facts and
circumstances applicable to such shareholder. Special tax considerations not
discussed herein may be applicable to particular classes of taxpayers, such as
broker-dealers, or to any shareholder who acquired his Reliance Common Stock
through the exercise of an employee stock option or otherwise as compensation.
All shareholders should consult with their own tax advisors as to
particular tax consequences of the Merger to them, including the applicability
and effect of state, local, and foreign tax laws and possible changes in the tax
law.
Under present federal income tax law, and based upon certain
assumptions and certain representations of the parties, and assuming the Merger
is consummated in the manner set forth in the Merger Agreement and constitutes a
reorganization within the meaning of Section 368 of the Code, the following is a
summary of the federal income tax consequences which will result:
FEDERAL INCOME TAX CONSEQUENCES OF THE HNBF MERGER
(a) The basis of the assets of Reliance acquired by Huntington Florida
will be the same in the hands of Huntington Florida as the basis
of those assets in the hands of Reliance immediately prior to the
Merger.
(b) The holding period of the assets of Reliance received by
Huntington Florida will include the period for which such assets
were held by Reliance.
(c) No gain or loss will be recognized by Huntington or Huntington
Florida upon the acquisition by Huntington Florida of
substantially all of the assets of Reliance in exchange for shares
of Huntington Common Stock, the assumption by Huntington Florida
of the liabilities of Reliance, the payment of cash in lieu of
fractional shares of Huntington Common Stock, and the payment of
cash to dissenting shareholders, if any.
- 26 -
(d) No gain or loss will be recognized by Reliance upon the transfer
of substantially all of its assets to Huntington Florida in
exchange for shares of Huntington Common Stock, the assumption by
Huntington Florida of the liabilities of Reliance, the payment of
cash in lieu of fractional shares of Huntington Common Stock, and
the payment of cash to dissenting shareholders, if any.
(e) No gain or loss will be recognized by the shareholders of Reliance
who exchange their shares of Reliance Common Stock for shares of
Huntington Common Stock except to the extent of any cash received
in lieu of a fractional share of Huntington Common Stock.
(f) The basis of the shares of Huntington Common Stock received by
Reliance shareholders who receive solely shares of Huntington
Common Stock will be the same as the basis of the shares of
Reliance Common Stock surrendered in exchange therefor.
(g) The holding period of the shares of Huntington Common Stock
received by a particular Reliance shareholder will include the
holding period of the shares of Reliance Common Stock surrendered
in exchange therefor, provided that the shares of Reliance Common
Stock were held as a capital asset in the hands of such Reliance
shareholder on the Effective Date.
(h) Where solely cash is received by a shareholder of Reliance in
exchange for such shareholder's Reliance Common Stock pursuant to
the exercise of appraisal rights, the cash will be treated as
having been received by such shareholder as a distribution in
redemption of his Reliance Common Stock, subject to the
provisions and limitations of Section 302 of the Code. Where, as
a result of such distribution, a former shareholder of Reliance
owns no shares of Huntington Common Stock either directly or
through the application of Section 318(a) of the Code, the
redemption will be a complete termination of interest within the
meaning of Section 302(b)(3) of the Code and such cash will be
treated as a distribution in full payment in exchange for such
shareholder's shares of Reliance Common Stock, as provided in
Section 302(a) of the Code. Under Section 1001 of the Code, gain
or (subject to the limitations of Section 267 of the Code) loss
will be realized and recognized to such shareholder in an amount
equal to the difference between the amount of such cash and the
adjusted basis of the shares of Reliance Common Stock
surrendered, as determined under Section 1011 of the Code.
(i) The payment of cash in lieu of fractional share interests of
Huntington Common Stock will be treated for federal income tax
purposes as if the fractional shares were distributed as part of
the exchange and then were redeemed by Huntington. These cash
payments will be treated as having been received as distributions
in full payment in exchange for the Huntington Common Stock
redeemed subject to the conditions and limitations of Section 302
of the Code.
(j) While not free from doubt, holders of options to acquire shares of
Reliance Common Stock that are incentive stock options will not
recognize any gain or loss solely as a result of the conversion of
such options on the Effective Date into options to acquire shares
of Huntington Common Stock.
FEDERAL INCOME TAX CONSEQUENCES OF THE HFSB MERGER
(aa) No gain or loss will be recognized by Huntington, HFSB, or
Reliance upon the acquisition by Reliance of all of the assets
of HFSB and the assumption by Reliance of all of the
liabilities of HFSB pursuant to the merger of HFSB with and
into Reliance.
(bb) The basis of the HFSB property in the hands of Reliance will
be the same as the basis of the property in the hands of HFSB
immediately prior to the transaction.
(cc) The holding period of the HFSB assets received by Reliance in
the exchange will include the period for which the assets were
held by HFSB.
- 27 -
(dd) No gain or loss will be recognized by the shareholders of
Reliance who exchange their Reliance Common Stock solely for
Huntington Common Stock except to the extent of any cash
received in lieu of a fractional share of Huntington Common
Stock.
(ee) The basis of the shares of the Huntington Common Stock
received by the shareholders of Reliance who receive solely
shares of Huntington Common Stock will be the same as the
basis of the Reliance stock surrendered in exchange therefor.
(ff) The holding period of the Huntington Common Stock to be
received by the shareholders of Reliance will include the
holding period of the shares of Reliance Common Stock
surrendered in exchanged therefor, provided that the shares of
Reliance Common Stock were held as a capital asset in the
hands of such Reliance shareholder on the Effective Date.
(gg) Where solely cash is received by a shareholder of
Reliance in exchange for such shareholder's Reliance Common
Stock pursuant to the exercise of appraisal rights, the cash
will be treated as having been received by such shareholder
as a distribution in redemption of his Reliance Common Stock,
subject to the provisions and limitations of Section 302 of
the Code. Where, as a result of such distribution, a former
shareholder of Reliance owns no shares of Huntington Common
Stock either directly or through the application of Section
318(a) of the Code, the redemption will be a complete
termination of interest within the meaning of Section
302(b)(3) of the Code and such cash will be treated as a
distribution in full payment in exchange for such
shareholder's shares of Reliance Common Stock, as provided in
Section 302(a) of the Code. Under Section 1001 of the Code,
gain or (subject to the limitations of Section 267 of the
Code) loss will be realized and recognized to such
shareholder in an amount equal to the difference between the
amount of such cash and the adjusted basis of the shares of
Reliance Common Stock surrendered, as determined under
Section 1011 of the Code.
(hh) The payment of cash in lieu of fractional share interests of
Huntington Common Stock will be treated for federal income tax
purposes as if the fractional shares were distributed as part
of the exchange and then were redeemed by Huntington. These
cash payments will be treated as having been received as
distributions in full payment in exchange for the Huntington
Common Stock redeemed subject to the conditions and
limitations of Section 302 of the Code.
(ii) While not free from doubt, holders of options to acquire
shares of Reliance Common Stock that are incentive stock
options will not recognize any gain or loss solely as a result
of the conversion of such options on the Effective Date into
options to acquire shares of Huntington Common Stock.
Consummation of the Merger is dependent upon receipt by the Huntington
Entities and Reliance of an opinion of Porter, Wright, Morris & Arthur, counsel
to the Huntington Entities, substantially to the effect that, for federal income
tax purposes, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and will result in the tax consequences described
above. Such opinion may be conditioned upon the receipt of an Internal Revenue
Service ("IRS") private letter ruling. An opinion of counsel is not binding upon
the IRS, and there can be no assurance that the IRS will not take a position
contrary to the positions reflected in such opinion or that such opinion will be
upheld by the courts if challenged by the IRS.
Cash payments to holders of Reliance Common Stock (other than certain
exempt entities and persons), whether in the form of cash paid in lieu of
fractional share interests of Huntington Common Stock or cash paid to dissenting
shareholders, will be subject to a 31% backup withholding tax under federal
income tax law unless certain requirements are met. Generally, the Exchange
Agent will be required to deduct and withhold the tax if (i) the shareholder
fails to furnish a taxpayer identification number ("TIN") to the Exchange Agent
or fails to certify under penalty of perjury that such TIN is correct; (ii) the
IRS notifies the Exchange Agent that the TIN furnished by the shareholder is
incorrect; (iii) the IRS notifies the Exchange Agent that the shareholder has
failed to report interest, dividends, or original issue discount in the past; or
(iv) there has been a failure by the shareholder to certify under penalty of
perjury that such shareholder is not subject to backup withholding tax. Any
amounts withheld by the Exchange Agent in collection of
- 28 -
the backup withholding tax will reduce the federal income tax liability of the
shareholder from whom such tax was withheld. The TIN of an individual
shareholder is that shareholder's Social Security number.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests.
REGULATORY APPROVALS
In the case of the HNBF Merger, the only regulatory approval required
is that of the OCC. Approval of the HNBF Merger by the Florida Department will
not be required so long as the Florida Department has previously approved
Huntington's acquisition of Security National. If the Florida Department has
approved such prior acquisition, the Florida Department requests only the filing
of notice of the Merger. In the case of the HFSB Merger, the approval of the
Federal Reserve Board, the FDIC, and the Florida Department would be required to
approve the Merger, and a notice would be required to the Office of Thrift
Supervision ("OTS").
Approval by the OCC of the HNBF Merger is subject to the Bank Merger
Act (12 U.S.C. 1828(c)). The OCC is the responsible federal regulatory agency
for a merger of another depository institution with and into a national bank,
and its prior approval on the basis of Bank Merger Act provisions is required
for such transactions. In conducting its review of any application under the
Bank Merger Act, the OCC is required to consider factors relating to monopoly
and restraint of trade, and to the financial and managerial resources of the
institutions concerned. Mergers approved by the OCC are subject to a 15-day
antitrust waiting period.
The initial acquisition by an out of state bank holding company of a
Florida bank holding company or a national or state bank located entirely in
Florida requires the approval of the Florida Department, pursuant to the Florida
Reciprocal Banking Act. Huntington has applied for such approval in connection
with its pending acquisition of Security Bank, and the Florida Department had
indicated that prior approval will not be required for subsequent Florida Bank
acquisitions. Accordingly, Huntington has not filed a separate additional
application for approval of the Florida Department in connection with the
proposed acquisition of Reliance.
The Bank Merger Act provides for the publication of notice of, and the
opportunity for administrative hearings relating to, the applications for
approval noted and described above. Interested parties may intervene in the
approval proceedings. If an interested party intervenes, such intervention could
substantially delay the regulatory approvals required for consummation of the
Merger.
An application to the OCC was filed, and a notification to the Florida
Department was submitted, on January 23, 1995. No applications have been filed
with the Federal Reserve Board, the FDIC, or the Florida Department for the
approvals that would be necessary in connection the HFSB Merger. Accordingly, if
the HNBF Merger could not be consummated because the Security National Merger
was not consummated prior to the Effective Time, for whatever reason, the
parties would be required to seek such approvals and the closing of the Merger
would be delayed for a period of up to 90 days while such approvals were applied
for, considered, and obtained.
The management of Huntington believes that the Florida Department will
approve its pending application to the Florida Department for approval of its
initial acquisition of a bank located in Florida in connection with its pending
acquisition of Security National. The managements of Huntington and Reliance
believe that the Merger will be approved by the OCC and that the Merger will not
be subject to challenge by the Department of Justice under the antitrust laws.
However, no assurance can be provided that such approvals will be obtained or
that the OCC will concur in this assessment or that the approval by the OCC will
not contain conditions unacceptable to either Huntington or Reliance. See "THE
MERGER - CONDITIONS TO CONSUMMATION OF THE MERGER."
- 29 -
RESALES OF HUNTINGTON COMMON STOCK
Although the Huntington Common Stock to be issued upon consummation of
the Merger has been registered under the Securities Act of 1933, as amended,
certain directors and officers of Reliance and other persons deemed to be
affiliates of Reliance and their affiliates may not resell or otherwise dispose
of the shares of Huntington Common Stock received by them in connection with the
Merger unless such sales are made pursuant to an effective registration under
the Securities Act of 1933, as amended, or pursuant to Rule 145 promulgated by
the Commission or another exemption from registration under such Act.
Huntington, prior to the Effective Date, will obtain from each of such persons a
written undertaking to the effect that no sale, pledge, transfer, or other
disposition will be made of any Huntington Common Stock received in the Merger
except in accordance with the above restrictions.
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
At the Effective Date, the Reliance shareholders (other than those
shareholders who have perfected their appraisal rights - see "THE MERGER -
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS") automatically will become
Huntington shareholders, and their rights as shareholders will be determined by
Maryland General Corporation Law and by Huntington's Charter and Bylaws. The
rights of Reliance shareholders differ in some respects from the rights they
would have as shareholders of Huntington. The following is a brief summary of
the material differences in the rights of Reliance shareholders from the rights
of shareholders of Huntington; however, this summary does not purport to be a
complete description of such differences.
CAPITAL STOCK
Reliance's Certificate of Incorporation authorizes the issuance of
600,000 shares of common stock, par value $5.00 per share ("Reliance Common
Stock").
Huntington's Charter authorizes the issuance of 206,617,808 shares of
capital stock, of which 200,000.000 shares are common stock, without par value,
and 6,617,808 shares are serial Preferred Stock, without par value ("Huntington
Serial Preferred Stock"). Huntington's Board of Directors has the authority to
classify and reclassify any unissued shares of Huntington Serial Preferred Stock
in one or more series with such preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualification, terms or
conditions of redemption, or other rights as may be authorized by the Board of
Directors of Huntington and stated in articles supplementary or other Charter
documents providing for the issuance of such Huntington Serial Preferred Stock.
Huntington Common Stock is subject to all of the terms and provisions of the
Huntington Serial Preferred Stock as fixed by the Board of Directors. There are
currently no shares of Serial Preferred Stock outstanding.
Neither Reliance shareholders nor Huntington shareholders have any
preemptive rights to purchase additional shares of stock upon an offering or
sale for cash or otherwise of such stock.
NOMINATION, ELECTION, AND REMOVAL OF DIRECTORS
Neither Florida law nor Reliance's Articles of Incorporation or Bylaws
set forth specific procedures for the nomination of persons for election to the
Board of Directors of Reliance. Reliance's Bylaws provide that the exact number
of directors will be fixed and determined from time to time by resolution
adopted by the Board of Directors. The Board of Directors has currently set the
number of directors at ten. Florida law permits cumulative voting in elections
of directors if called for in the corporation's articles of incorporation.
Reliance's Articles of Incorporation do not provide for cumulative voting. A
director holds office until the next annual meeting and until a successor is
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification, or removal from office. Under Reliance's Bylaws,
any director or the entire Board of Directors may be removed, with or without
cause, by a vote of
- 30 -
the holders of a majority of the shares then entitled to vote at an election of
directors. Under Florida law, a majority of the directors must be United States
citizens, at least three-fifths of the directors must be residents of the State
of Florida, and at least one director who is not serving as an executive officer
of Reliance must have had at least one year of direct experience as a regulator,
director, or executive officer of a financial institution within the previous
three years.
Huntington's Bylaws provide that, in order for a person to be eligible
for election as a director of Huntington, such person must be nominated by or at
the direction of Huntington's Board of Directors or by a shareholder entitled to
vote for the election of directors in accordance with certain specified
procedures. Shareholder nominations must be made pursuant to timely written
notice to the Secretary of Huntington. In most cases, a shareholder's notice, to
be timely, must be received at the principal executive offices of Huntington not
less than 30 days nor more than 60 days prior to the date of a shareholders'
meeting. The notice must set forth certain specified information about the
shareholder giving the notice and the shareholder's proposed nominee.
Huntington's Charter currently provides for 12 directors, which number
may be altered by resolution of a majority of the entire Board of Directors to
not more than 25 nor fewer than three directors. The Board of Directors has
currently set the number of directors at 12. Huntington's Charter provides for
the division of the Board of Directors into three classes. Each class must
consist, as nearly as possible, of one-third of the total number of directors.
At each annual meeting of shareholders, successors to the class of directors
whose term expires at that annual meeting are elected for a three-year term. If
the number of directors is changed, any increase or decrease must be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible. A director holds office until the annual meeting for
the year in which his term expires and until his successor is elected and
qualified. Neither Huntington's Charter nor its Bylaws provide for cumulative
voting. Under Huntington's Charter, the shareholders of Huntington may remove a
director with cause by the affirmative vote of two-thirds of all shareholders
entitled to vote at the election of directors. No director may be removed by the
shareholders of Huntington without cause.
SHAREHOLDER PROPOSALS
In general, at any meeting of the shareholders of either Huntington or
Reliance, only business that has been properly brought before such meeting may
be acted upon at such meeting. Huntington's Bylaws provide further that, in
order to be properly brought before a meeting of shareholders of Huntington,
business must be brought by or at the direction of the Board of Directors or
otherwise by a shareholder in accordance with certain specified procedures. A
shareholder proposing business must give timely written notice thereof to the
Secretary of Huntington. In most cases, a shareholder's notice, to be timely,
must be received at the principal executive offices of Huntington not less than
30 days nor more than 60 days prior to the date of a shareholders' meeting. The
notice must set forth certain specified information about the shareholder
proposing such business and the shareholder's proposal. Neither the Articles of
Incorporation nor Bylaws of Reliance contain comparable provisions.
SPECIAL VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
In general, Florida law requires the affirmative vote of the holders of
the majority of the shares present in person or represented by proxy and
entitled to vote to effect amendments to the articles of incorporation which
would create dissenters' rights, a merger, sale of assets other than in the
ordinary course of business, or dissolution of the corporation.
Maryland law requires the affirmative vote of the holders of two-thirds
of the outstanding shares of Huntington stock entitled to vote to effect
material amendments to the charter, a merger, consolidation, sale of assets
other than in the ordinary course of business, or dissolution of the
corporation. Maryland law also requires a "super majority" vote, in addition to
any vote otherwise required by law or Huntington's Charter, for certain business
combinations. Unless certain value and other standards are met or an exemption
is available, any business combination between Huntington and any interested
person (defined as a 10% shareholder or an affiliate of such shareholder) must
be recommended by the Board of Directors and approved by the affirmative vote of
at least 80% of the votes entitled to be cast by holders of Huntington voting
stock, voting together as a single class, and two-thirds of the votes entitled
to be cast by holders
- 31 -
of voting stock other than voting stock beneficially owned by an interested
shareholder who is a party to the business combination, voting together as a
single class.
Under Maryland law, unless otherwise exempt, such as in the case of
mergers, any shares that are acquired which are statutorily deemed to be
"control shares" of a corporation will have voting rights only to the extent
such rights are approved by the shareholders of the corporation. Maryland law
further provides that "control shares" are shares which entitle a person to
exercise or direct the exercise of voting power in the election of directors
within specified ranges. Florida law also provides certain limitations with
respect to "control share acquisitions," however, this law does not apply to
Reliance because it has fewer than 100 shareholders.
The super majority vote and control share provisions of Maryland law
may deter or render more difficult attempts by third parties to obtain control
of Huntington if such attempts are not supported by Huntington's Board of
Directors. See also"EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS - RIGHTS PLAN."
Similarly, Florida's control share statute may deter or render more difficult
attempts by third parties to obtain control of Reliance if such attempts are not
supported by Reliance's Board of Directors.
EVALUATION OF MERGERS AND CONSOLIDATIONS
Under Florida law, in discharging any of his duties, a director of
Reliance may consider such factors as the director deems relevant, including the
long-term prospects and interests of Reliance and its shareholders and the
social, economic, legal, or other effects of any action on the employees,
suppliers, and customers of Reliance, the communities in which Reliance
operates, and the economy of the state and the nation.
Article Ninth of Huntington's Charter provides that, in connection with
the exercise of its judgment in determining what is in the best interests of the
corporation, when evaluating a merger or consolidation of Huntington (among
other things), the Board of Directors must, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant: (i) the interests of the shareholders, including the relation of the
consideration offered in the then proposed transaction to the then current
market price of Huntington's stock and also the current value of Huntington in a
freely negotiated transaction and in relation to the Board of Directors' then
estimate of the future value of Huntington as an independent entity or as the
subject of a future merger or consolidation, (ii) the interests of depositors of
banks affiliated with Huntington and of other creditors of Huntington, (iii) any
other factors that the Board of Directors determines to be relevant, including,
among other factors, the social, legal, and economic effects upon employees,
suppliers, customers, and the business of Huntington and on the communities in
which Huntington operates.
SPECIAL MEETINGS
Reliance's Bylaws provide that special meetings of the shareholders
will be held when directed by the Chairman of the Board, the President, or at
least four members of the Board of Directors, or when requested in writing by
the holders of not less than 50% of all the shares entitled to vote at such
meeting. A meeting requested by shareholders must be called for a date not less
than 20 nor more than 70 days after the request is made.
Pursuant to Maryland law and Huntington's Bylaws, a special meeting of
shareholders may be called by the Board of Directors, the Chairman, or the
President of Huntington and must be called by the Secretary upon written request
of the holders of not less than 25% of the outstanding shares entitled to vote
at the meeting. Any shareholder request must state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. The Secretary must
inform such shareholders of the reasonably estimated cost of preparing and
mailing the notice of the meeting, and upon payment to Huntington of such costs,
the Secretary must give notice of such meeting, except that no special meeting
need be called upon the request of the holders of less than a majority of all
votes entitled to be cast at such meeting to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
shareholders held during the preceding twelve months.
- 32 -
DIRECTORS' AND SHAREHOLDERS' RIGHT TO ADOPT, ALTER, OR REPEAL THE BYLAWS
Under Florida law and Reliance's Bylaws, either the Board of Directors
or the shareholders may adopt, amend, or repeal the bylaws of the corporation.
Under Maryland law, the power to adopt, alter, and repeal the bylaws of
a corporation is vested in the shareholders, except to the extent that the
charter or bylaws vest it in the board of directors. Huntington's Charter and
Bylaws provide that Huntington's Bylaws may be adopted, amended, or repealed by
the affirmative vote of two-thirds of the votes entitled to be cast by the
outstanding shares of Huntington's voting stock or by the Board of Directors at
any regular or special meeting.
RIGHTS OF DISSENTING SHAREHOLDERS
Both Florida and Maryland law provide appraisal rights to dissenting
shareholders if certain specific procedures are followed in situations where the
corporation consolidates or merges with, or transfers substantially all of its
assets to, another corporation. Maryland law also provides appraisal rights if
the corporation amends its charter in such a way as to adversely affect the
shareholders' rights. The appraisal rights applicable under Florida law are more
fully described in "THE MERGER - APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS."
PERSONAL LIABILITY OF OFFICERS AND DIRECTORS TO SHAREHOLDERS
Florida law provides that no director will be personally liable to
Reliance or its shareholders for monetary damages unless the director breached
or failed to perform his duties as a director and such breach or failure to
perform constitutes (i) a violation of criminal law (unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful), (ii) a transaction from which such director
derived an improper personal benefit, (iii) an unlawful payment of a dividend or
other distribution, (iv) willful misconduct or a conscious disregard for the
best interest of the corporation in a proceeding by or in the right of the
corporation or a shareholder, or (v) recklessness or an act or omission
committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property in connection
with a proceeding by or in the right of someone other than the corporation or a
shareholder.
Huntington's Charter provides that no director or officer will be
personally liable to the corporation or its shareholders for money damages to
the fullest extent permitted by Maryland statutory or decisional law. The effect
of this Charter provision under Maryland law is that neither Huntington nor its
shareholders will be able to recover money damages against a director or officer
of Huntington unless Huntington or its shareholders is able to prove that (i)
the director or officer actually received an improper benefit in money, property
or services (in which case recovery is limited to the actual amount of such
improper benefit), or (ii) the action, or failure to act, by the director or
officer was the result of active and deliberate dishonesty which was material to
the cause of action adjudicated in the proceeding.
RIGHTS PLAN
In 1990, the Board of Directors of Huntington entered into a Rights
Agreement, dated as of February 22, 1990 (the "Rights Agreement"), between
Huntington and The Huntington Trust Company, National Association, as Rights
Agent. For a description of the Rights Agreement, see "HUNTINGTON BANCSHARES
INCORPORATED DESCRIPTION OF HUNTINGTON COMMON STOCK." Reliance does not have a
plan or agreement similar to the Rights Agreement.
- 33 -
HUNTINGTON BANCSHARES INCORPORATED
GENERAL
Huntington, incorporated in Maryland in 1966, is a multi-state bank
holding company headquartered in Columbus, Ohio. Huntington is the fourth
largest bank holding company in Ohio in terms of total assets at December 31,
1994. At that date, Huntington had total assets of approximately $17.8 billion
and total deposits of approximately $12.0 billion.
Huntington's affiliates conduct a full service commercial and consumer
banking business, engage in mortgage banking, lease financing, trust services,
discount brokerage services, underwriting credit life and disability insurance,
and issuing commercial paper guaranteed by Huntington, and provide other
financial products and services. At December 31, 1994, Huntington's affiliates
had 185 banking offices in Ohio, 61 banking offices in West Virginia, 40 banking
offices in Michigan, 25 banking offices in Indiana, 18 banking offices in
Northern Kentucky, 5 banking offices in Western Pennsylvania, 8 thrift offices
in Florida, 2 thrift offices in Illinois, and 1 foreign office in the Cayman
Islands. 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, 1994, Huntington and its subsidiaries
had 8,152 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. The passage of reciprocal interstate banking
legislation in Ohio in 1985 has resulted in increased competitive pressure. This
legislation opened Ohio to nationwide reciprocal interstate banking in October
1988.
In December 1994, Huntington completed the acquisition of FirstFed
Northern Kentucky Bancorp, Inc. (Covington, Kentucky), a savings and loan
holding company with total assets of approximately $226 million.
HUNTINGTON FLORIDA AND AFFILIATES
Huntington Florida, an Ohio corporation, is a wholly owned subsidiary
of Huntington formed for the purpose of facilitating the Security National
Merger and serving as a holding company for Huntington's banking operations in
Florida. HFSB, a federal savings bank headquartered in Sebring, Florida, is also
a wholly owned subsidiary of Huntington. HFSB has six thrift offices in
Highlands County, Florida, one thrift office in Collier County, Florida, one
thrift office in Sarasota County, Florida, and three mortgage origination
offices - one each in Orange, Brevard, and Palm Beach Counties. In addition,
HFSB has one approved, but as yet unopened, branch in Collier County, Florida.
HFSB also has one wholly owned subsidiary that serves as the contracting vehicle
for HFSB's mutual funds sales arrangements with an independent contractor. This
arrangement will be transferred to The Huntington National Bank of Florida as a
result of the merger of HFSB with and into Security Bank, which is expected to
take place immediately after the consummation of the Security National Merger,
and HFSB's subsidiary will be dissolved thereafter. At December 31, 1994, HFSB
had total assets of approximately $252.6 million and total deposits of
approximately $201.3 million.
Huntington Florida has entered into an Agreement and Plan of Merger,
dated July 12, 1994, with Security National, pursuant to which, upon and subject
to the satisfaction of certain conditions, Security National will be merged with
and into Huntington Florida. Security National, a bank holding company
incorporated under the laws of the State of Delaware in 1987, is headquartered
in Maitland, Florida. At December 31,1994, Security National had total assets of
$191.4 million and total deposits of $167.8 million. Security National owns all
of the outstanding stock of Security Bank, a national banking association, which
is also headquartered in Maitland, Florida. Security National, through Security
Bank, is principally engaged in the commercial banking business, which includes
lending, investment, deposit and borrowing activities. Security National
operates six full-service offices in Orange, Seminole, Volusia, Osceola, and
Brevard Counties, Florida. The principal executive offices of Security National
are located at 253 North Orlando
- 34 -
Boulevard, Maitland, Florida 32751 (telephone number 407-740-6300). Upon the
consummation of the Security National Merger, the name of Security Bank will be
changed to "The Huntington National Bank of Florida," and HFSB will be merged
into HNBF.
On February 1, 1995, Huntington entered into a series of agreements
with First Seminole Bank of Lake Mary, Florida ("First Seminole"), pursuant to
which Huntington Interim National Bank, an interim national bank to be formed as
a wholly owned subsidiary of Huntington Florida, would be merged into First
Seminole, First Seminole would become a wholly owned subsidiary of Huntington
Florida, and all of the shareholders of First Seminole would receive cash for
their shares of the common stock of First Seminole. It is expected that,
immediately following the consummation of this merger, which is subject to the
satisfaction of certain conditions, including obtaining the approval of the
shareholders of First Seminole and the receipt of necessary regulatory
approvals, First Seminole will be merged into HNBF. It is expected that the
acquisition of First Seminole will be completed after the consummation of the
Merger and in the late second quarter or early third quarter of 1995. At
December 31, 1994, First Seminole had total assets of approximately $48.1
million and total deposits of approximately $42.9 million.
The current directors of Huntington Florida are Frank Wobst, Zuheir
Sofia, and John Liebersbach. Messrs. Wobst and Sofia are also directors and
executive officers of Huntington and Mr. Liebersbach is an officer of
Huntington. Upon consummation of the Security National Merger, the number of
directors of Huntington Florida will be expanded to four and Michael W. Sheffey
will be elected to fill the vacancy. Mr. Sheffey currently serves as
President and Chief Executive Officer of Security National and Security Bank.
The current executive officers of Huntington Florida are as follows:
Frank Wobst...................... Chairman
Zuheir Sofia..................... President and Treasurer
John W. Liebersbach.............. Secretary
Upon consummation of the Security National Merger, it is the intention
of the Board of Directors of Huntington Florida to appoint Mr. Sofia as Vice
Chairman and Mr. Sheffey as President, Chief Executive Officer, and Treasurer of
Huntington Florida.
Immediately after the consummation of the Security National Merger, and
effective as of the Effective Date, Security Bank's name will be changed to The
Huntington National Bank of Florida, HFSB will be merged into The Huntington
National Bank of Florida (formerly, Security Bank) under the charter of The
Huntington National Bank of Florida ("HNBF"), HNBF will survive the merger and
will remain a national bank, and the separate existence of HFSB will cease. Upon
consummation of the merger of HFSB into HNBF, it is the intention of Huntington
Florida, as sole shareholder of HNBF, to retain Messrs. Sheffey, Stephen F.
Foreman, John J. Jennings, Mitchel J. Laskey, Bert E. Roper, Jeffrey C. Schenck,
Benjamin P. Sibley, and Phillip L. Tasker, each of whom is currently serving on
the Board of Directors of Security Bank, and to elect Messrs. J. Donald Bates,
J. Thomas Crutchfield, and Lawrence J. Price, each of whom is currently serving
on the Board of Directors of HFSB, to the Board of Directors of HNBF. In
addition, after consummation of the Merger, it is the intention of Huntington to
elect Messrs. Richard N. Baney, M.D., Sam L. Bockman, and Joseph R. DiPrima,
each of whom is currently serving on the Board of Directors of Reliance, to the
Board of Directors of HNBF. After consummation of the Merger and the Security
National Merger, which is also subject to regulatory and shareholder approval,
HNBF will have 17 banking offices with over $520 million in assets in
South/Central Florida.
HUNTINGTON DIRECTORS
Huntington's Charter provides for a classified Board of Directors.
Class I Directors serve for a three-year term expiring at the 1997 Annual
Shareholders Meeting; Class II Directors serve for a three-year term expiring at
the 1995 Annual Shareholders Meeting; and Class III Directors serve for a
three-year term expiring at the 1996 Annual Shareholders Meeting.
- 35 -
CLASS I DIRECTORS
DIRECTORSHIPS HELD IN ANY COMPANY WITH
A CLASS OF SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE SECURITIES
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE EXCHANGE ACT OF 1934
- ------------------------------------------------ --- -------- ----------------------------------------
John B. Gerlach 68 1984 Lancaster Colony Corporation,
Chairman and Chief Executive Officer, Drug Emporium, Inc.,
Lancaster Colony Corporation, manufacturer M/I Schottenstein Homes, Inc.,
of housewares, specialty foods, and Scioto Downs, Inc.,
automotive and truck accessories Worthington Foods, Inc.
W. Lee Hoskins 54 1991
Vice Chairman of Huntington; Chairman,
President, and Chief Executive Officer,
The Huntington National Bank
Zuheir Sofia 50 1984
President, Chief Operating Officer, and
Treasurer of Huntington
66 1985 Centerior Energy Corporation,
William J. Williams Republic Engineered Steel, Inc.,
Retired Chairman, The Huntington National UNR Industries, Inc.
Bank
CLASS II DIRECTORS
DIRECTORSHIPS HELD IN ANY COMPANY WITH
A CLASS OF SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE SECURITIES
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE EXCHANGE ACT OF 1934
- ------------------------------------------------ --- -------- ----------------------------------------
Don Conrad 66 1989
Chairman, Huntington Bancshares Kentucky,
Inc.; Chairman and Chief Executive Officer,
WACO Oil Co., Inc., retail gasoline/
convenience stores, car washes, and self
storage warehouses
Marvin E. White 70 1981
Energy Consultant, Interstate Gas Supply, Inc.,
natural gas marketing and production company
Frank Wobst 61 1974
Chairman and Chief Executive Officer of the
Corporation; Chairman of the Executive
Committee of The Huntington National Bank;
Chairman, The Huntington Trust Company,
National Association
Milton A. Wolf 70 1983 American Greetings Corporation,
United States Ambassador, Retired; Chairman, The Town & Country Trust
Milton A. Wolf Investors, private investments;
Chairman, Zehman-Wolf Management, Inc.,
real estate management and development;
Distinguished Professorial Lecturer in
Economics, Case Western Reserve University
- 36 -
CLASS III DIRECTORS
DIRECTORSHIPS HELD IN ANY COMPANY WITH
A CLASS OF SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE SECURITIES
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE EXCHANGE ACT OF 1934
- ------------------------------------------------ --- -------- ----------------------------------------
Don M. Casto, III 50 1985
Principal, Don M. Casto Organization, real
estate developers
Wm. J. Lhota 55 1990 AEP Generating Company,
Executive Vice President, American Electric Appalachian Power Company,
Power Service Corporation, management, Blackhawk Coal Company,
technical, and professional subsidiary of Columbus Southern Power
American Electric Power Company, Inc., Company, Indiana Michigan
an investor owned electric utility system Power Company, Kentucky Power
Company, Ohio Power Company,
State Auto Financial Corporation
Gerald E. Mayo 62 1990 Borror Corporation,
President, Midland Financial Services; The Columbia Gas System, Inc.,
Chairman, The Midland Life Insurance HBO & Company
Company, life insurance and annuities
Timothy P. Smucker 50 1978 The J. M. Smucker Company,
Chairman, The J. M. Smucker Company, Kellogg Company
manufacturer of jams, jellies, preserves,
and ice cream toppings
- ------------------
(1) Hoskins' business experience is described under "Executive Officers of Huntington" below. Mr. Williams retired from the
position of Chairman of The Huntington National Bank as of September 1, 1993. Each other director has held the various positions
indicated or other executive positions with the same organizations (or predecessor organizations) for at least the past five
years. Messrs. Hoskins, Sofia, and Wobst are also directors of The Huntington National Bank, The Huntington Trust Company,
National Association, and various other entities affiliated with Huntington. Mr. Williams is also a director of The Huntington
National Bank and another affiliated entity.
On April 27, 1995, the day of Huntington's 1995 Annual Meeting of
Shareholders, Marvin E. White and Milton A. Wolf , currently Class II Directors,
will retire as directors of Huntington by virtue of the obligatory retirement
provisions of Huntington's Bylaws. George A. Skestos and Lewis R. Smoot, Sr.
have been nominated by the Huntington Board of Directors for election as Class
II Directors to fill the vacancies created on the Board by the retirement of
Messrs. White and Wolf. Mr. Skestos, currently a consultant, is the retired
Chairman and Chief Executive Officer of Homewood Corporation, a residential
construction and development company. He is 67 years old. Mr. Smoot is the
President and Chief Executive Officer of The Smoot Corporation, a general
construction and construction management company. Mr. Smoot is 61 years old and
also serves on the Board of Directors of M/I Schottenstein Homes, Inc. Messrs.
Skestos and Smoot currently serve as directors of The Huntington National Bank.
Mr. Skestos is also a director of The Huntington Trust Company, National
Association, and The Huntington Financial Services Company.
COMPENSATION OF HUNTINGTON DIRECTORS
Each non-officer director of Huntington receives $1,250 for each Board
or committee meeting of Huntington the director attends. In addition, each
non-officer director of Huntington receives retainer payments at an annual rate
of $20,000. Non-officer chairmen of standing committees of the Board of
Directors of Huntington receive additional retainer payments at an annual rate
of $3,125. All or any portion of the compensation otherwise payable to a
director
- 37 -
may be deferred if such director elects to participate in the Huntington
Bancshares Incorporated Deferred Compensation Plan and Trust for Huntington
Bancshares Incorporated Directors (see below).
DEFERRED COMPENSATION PLAN FOR DIRECTORS
The Huntington Bancshares Incorporated Deferred Compensation Plan and
Trust for Huntington Bancshares Incorporated Directors (the "Directors' Plan"),
adopted in 1991, allows the members of the Board of Directors of Huntington to
elect to defer receipt of all or a portion of the compensation payable to them
in the future for services as directors. Such deferred amounts are not included
in the gross income of the directors until such time as the deferred amounts are
distributed from the Directors' Plan. Huntington transfers cash equal to the
compensation deferred pursuant to the Directors' Plan to a trust fund where it
is allocated to the accounts of the participating directors. The trustee of the
Directors' Plan has broad investment discretion over the trust fund and is
authorized to invest in many forms of securities and other instruments,
including Huntington Common Stock. During 1994, the trustee invested the trust
fund primarily in Huntington Common Stock. The trustee may hold some assets of
the Directors' Plan in the form of cash to the extent necessary. The trustee
maintains a separate account for each participating director. Amounts
contributed to the Directors' Plan are credited to the account of each director
in the ratio that the amount deferred by each director bears to the total amount
deferred by all directors. Distribution of a director's account will be made
either in a lump sum or in equal annual installments over a period of not more
than ten years, as elected by each director. Such distribution will commence
upon the earlier of 30 days after the attainment of an age specified by the
director at the time the deferral election was made, or within 30 days of the
director's termination as a director. All of the assets of the Directors' Plan
are subject to the claims of the creditors of Huntington and the rights of a
director or his beneficiaries to any of the assets of the Directors' Plan are no
greater than the rights of an unsecured general creditor of Huntington.
Directors who are also officers of Huntington do not receive compensation as
directors and, therefore, are ineligible to participate in the Directors' Plan.
RETIREMENT PLAN FOR DIRECTORS
Huntington adopted the Huntington Bancshares Incorporated Retirement
Plan for Outside Directors (the "Directors' Retirement Plan") effective January
1, 1993. The Directors' Retirement Plan provides retirement benefits for
non-employee directors of Huntington who have completed five years of service on
Huntington's Board of Directors and for directors of Huntington who, in
Huntington's discretion, are named eligible to participate. Participation in the
Directors' Retirement Plan, which is voluntary and may be waived, commences
automatically by a director who has met the eligibility requirements. Retirement
benefits are payable annually upon the first to occur of termination of service
to the Board by reason of death, disability, or retirement upon or after
reaching age 70. The initial annual benefit is equal to the participant's annual
retainer, excluding meeting, committee, and other like fees, in effect as of the
date the initial benefit is paid. Subsequent benefit payments are equal to the
annual retainer in effect at the time of payment; provided, however, that at no
time will a participant's annual benefit be reduced. Benefits are payable for
the life of the participant.
In the event a participant dies prior to the commencement of benefit
payments or dies after distribution has commenced, but before the participant
has received ten annual payments, the benefits shall be payable to the
participant's surviving spouse until the surviving spouse dies or the combined
total number of annual payments to the participant and the surviving spouse
equals ten, whichever occurs first. Unless the participant is survived by a
spouse, entitlement to the benefits under the Directors' Retirement Plan
terminates at the death of the participant.
In the event of a change in control of Huntington, each non-employee
director then sitting on the Board shall become eligible, regardless of the
director's number of years of service, to receive the greater of the director's
annual retainer, excluding meeting, committee, and other like fees, then in
effect, or the director's largest annual retainer in effect at any time during
the two-year period immediately preceding the change in control. A participant
with fewer than five years of service will receive benefits annually for up to
ten years; a participant with five or more years of service will receive
benefits annually for life. In the event of a change in control, or in the event
a change in control is likely to occur, as determined by Huntington in its sole
discretion, Huntington may create and fund a grantor trust to provide for
payment of benefits under the Directors' Retirement Plan; otherwise, the
Directors' Retirement Plan is unfunded and no provision will be made with
respect to segregating any assets of Huntington for payment of any
- 38 -
benefits thereunder. The participants and their spouses have only the rights of
general unsecured creditors of Huntington with respect to any rights under the
Directors' Retirement Plan.
The Directors' Retirement Plan may be amended or terminated at
Huntington's discretion, however, no amendment or termination of the Directors'
Retirement Plan will deprive, directly or indirectly, any participant or
beneficiary of any benefit which has commenced prior to the effective date of
the amendment or termination. Under the Comprehensive Thrift and Bank Fraud
Prosecution and Taxpayer Recovery Act of 1990, the Federal Deposit Insurance
Corporation has the authority to limit or prohibit payments contingent upon the
termination of an individual's affiliation with Huntington, including payments
made under the Directors' Retirement Plan, but only if Huntington is insolvent,
has been placed in conservatorship or receivership, or is determined by the
Board of Governors of the Federal Reserve System to be a troubled financial
institution.
EXECUTIVE OFFICERS OF HUNTINGTON
The executive officers of Huntington are listed below. Each listing
includes a statement of the business experience of each executive officer during
at least the last five years. Executive officers are elected annually by the
Board of Directors and serve at the pleasure of the Board.
MILTON D. BAUGHMAN, age 47, has served as Senior Vice President of
Huntington since November 1993 and as Director of Corporate Development for
Huntington since August 1993. Mr. Baughman also served as President of
Huntington Capital Corp. from January 1993 to July 1994. From April 1989 to
November 1993, Mr. Baughman served as Senior Vice President of The Huntington
National Bank. Prior to joining Huntington, Mr. Baughman served as Managing
Director for Manufacturers Hanover Trust Company from May 1987 to March 1989 and
in various other capacities from June 1971 to April 1987.
RICHARD N. BLYTHE, JR., age 46, has served as President of The
Huntington Investment Company since December 1990 and as Senior Vice President
of Huntington since November 1992. From December 1987 to May 1990, Mr. Blythe
was Senior Vice President of NCNB National Bank, now NationsBankof North
Carolina, N. A., in charge of underwriting and trading in tax-exempt bonds. From
May 1990 to November 1990, Mr. Blythe served as the director of securities sales
for NCNB Capital Markets, Inc., a broker/dealer subsidiary of NCNB Corporation,
which is registered with the National Association of Securities Dealers.
JUDITH D. FISHER, age 49, has served as Executive Vice President of
Huntington since February 1994 and as Executive Vice President and Manager of
the Treasury Group of The Huntington National Bank since January 1991. Ms.
Fisher has also served as President of Huntington Bancshares Financial
Corporation since April 1991. Ms. Fisher served as Senior Vice President and
Manager, Investment and Funds Management, from September 1987 to January 1991.
RALPH K. FRASIER, age 56, Executive Vice President, General Counsel,
Secretary, and Cashier of The Huntington National Bank and General Counsel and
Secretary of Huntington, joined The Huntington National Bank in November 1975 as
Vice President and General Counsel. Mr. Frasier was named Senior Vice President
and General Counsel of The Huntington National Bank and General Counsel of
Huntington in July 1976. Mr. Frasier became Secretary to the Boards of Directors
of both companies in June 1981 and was named Executive Vice President and
Cashier of The Huntington National Bank in March 1983. Mr. Frasier has served as
Secretary and Cashier of The Huntington Trust Company, National Association,
since February 1988.
PETER E. GEIER, age 37, has served as Executive Vice President of
Huntington since November 1994 and Executive Director of Consumer Services since
March 1994. Mr. Geier served as Senior Vice President of Huntington from March
1994 to November 1994. Prior thereto, Mr. Geier served as Senior Vice President
and Manager of Commercial Banking for The Huntington National Bank from November
1989 to March 1994.
DIETER E. HEREN, age 53, has served as Executive Vice President and
Executive Director of Credit Administration of Huntington from November 1994 to
the present. From November 1992 to November 1994, Mr.
- 39 -
Heren served as Senior Vice President and Chief Credit Officer of Huntington.
Prior thereto, Mr. Heren served as Senior Vice President and Manager of Special
Assets of The Huntington National Bank from April 1987 to November 1992 and as
Senior Vice President and Division Executive for the International Department of
The Huntington National Bank from May 1985 to April 1987.
W. LEE HOSKINS, age 54, has served as Chairman of The Huntington
National Bank since September 1993 and as a director, President, and Chief
Executive Officer since joining The Huntington National Bank in November 1991.
Since November 1991, Mr. Hoskins has served as a director and Vice Chairman of
Huntington and as a director of The Huntington Trust Company, National
Association. Prior to joining Huntington, Mr. Hoskins was the President and
Chief Executive Officer of the Federal Reserve Bank of Cleveland from October
1987 to November 1991. From March 1981 to September 1987, Mr. Hoskins served as
Senior Vice President and Chief Economist of PC Financial Corp in Pittsburgh,
Pennsylvania.
NORMAN A. JACOBS, age 57, has served as a director, President, and
Chief Executive Officer of The Huntington Trust Company, National Association,
from May 1988 to the present and a director of The Huntington Trust Company of
Florida, National Association, from October 1988 to the present. Mr. Jacobs has
also served as Senior Trust Officer of The Huntington National Bank since May
1988.
WILLIAM M. RANDLE, age 55, has served as Senior Vice President of
Huntington and Director of Marketing and Strategic Planning from January 1990 to
the present. From October 1986 to January 1990, Mr. Randle was Senior Vice
President of Marketing for First Union National Bank of North Carolina.
LAWRENCE R. SELLERS, age 45, has served as President of The Huntington
Service Company from June 1991 to the present. Mr. Sellers was Senior Vice
President and Director of Information Services of The Huntington National Bank
from July 1985 to April 1987 and of The Huntington Service Company from April
1987 to June 1991.
ZUHEIR SOFIA, age 50, has served as President and a director of
Huntington from October 1984 to the present, as Chief Operating Officer from
September 1986 to the present, and as Treasurer from February 1989 to the
present. In addition, Mr. Sofia has served as a director of The Huntington
National Bank since February 1981 and a director of The Huntington Trust
Company, National Association, since February 1988. Mr. Sofia served as Vice
Chairman of The Huntington National Bank from March 1983 to September 1986, as
Senior Vice President of Huntington from March 1983 to October 1984, as
Executive Vice President of The Huntington National Bank from February 1981 to
March 1983, as Treasurer of Huntington from January 1984 to June 1984, and as
Senior Vice President and Division Executive of the Corporate Banking, Funds
Management, and International Divisions of The Huntington National Bank from
December 1976 to February 1981. From the time he joined Huntington in September
1971 until December 1976, Mr. Sofia served Huntington in various other
capacities.
R. FREDERICK TAYLOR, age 53, has served as President and Chief
Executive Officer of The Huntington Mortgage Company since January 1995. Prior
to joining Huntington, Mr. Taylor served as President and Chief Executive
Officer of Liberty Mortgage Corp., a residential mortgage company, from August
1993 to January 1995, and as President and Chief Executive Officer of First Sun
Mortgage Corp., a residential mortgage company, from June 1986 to August 1993.
JOHN D. VAN FLEET, age 40, has served as Corporate Controller and Chief
Accounting Officer for Huntington since April 1993 and as Senior Vice President
since February 1991. From June 1989 to April 1993, Mr. Van Fleet was the
Director of Accounting for Huntington. Mr. Van Fleet also served as Vice
President of Huntington from June 1989 to February 1991. Mr. Van Fleet joined
Price Waterhouse in June 1977 as a member of the audit staff and subsequently
served in various supervisory capacities prior to joining Huntington in June
1989.
GERALD R. WILLIAMS, age 59, has served as Executive Vice President and
Chief Financial Officer of Huntington from April 1989 to the present. From
January 1987 to April 1989, Mr. Williams was the owner and President of Mattara
Services, Inc., a consulting company to financial institutions and investors in
financial institutions.
FRANK WOBST, age 61, has served as Chairman of the Board and Chief
Executive Officer of Huntington from February 1981 to the present and as
Chairman of The Huntington Trust Company, National Association, from February
- 40 -
1988 to the present. Mr. Wobst has also served as a director of The Huntington
National Bank and Huntington from the time he joined Huntington in 1974 to the
present. Mr. Wobst served as President of Huntington from February 1981 to
October 1984, as President of The Huntington National Bank from July 1974 until
March 1983 and from March 1984 to September 1986 and as Chairman of the Board
and Chief Executive Officer of The Huntington National Bank from February 1981
to September 1986.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by Huntington and
its subsidiaries to Huntington's Chief Executive Officer and each of the four
most highly compensated executive officers for each of the last three fiscal
years ended December 31, 1994.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- ----------------------
AWARDS PAYOUTS
OTHER ---------- -------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING LTIP COMPEN-
SALARY BONUS SATION OPTIONS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($)(2) (#)(3) ($)(4) ($)(5)
- --------------------------- ---- ------ ------ ------- ---------- ------- ---------
FRANK WOBST
Chairman and Chief
Executive Officer 1994 800,000 564,000 83,384 125,000 400,009 36,000
1993 760,000 646,000 59,144 109,998 0 34,200
1992 730,000 376,200 (2) 103,122 281,213 32,850
ZUHEIR SOFIA
President, Chief
Operating Officer, and
Treasurer 1994 467,500 329,588 (2) 62,500 233,764 21,037
1993 445,000 378,250 (2) 61,873 0 20,025
1992 421,667 226,883 (2) 51,559 164,669 18,975
W. LEE HOSKINS
Chairman and CEO, The
Huntington National Bank 1994 467,500 329,588 (2) 62,500 233,759 21,037
1993 445,000 378,250 (2) 51,560 0 20,025
1992 422,500 220,275 (2) 51,559 0 18,910
GERALD R. WILLIAMS
Executive Vice President
and Chief Financial
Officer 1994 254,000 131,070 (2) 18,750 128,509 11,430
1993 245,000 195,755 (2) 15,123 0 11,025
1992 230,000 107,019 (2) 17,184 85,118 10,350
JUDITH D. FISHER
Executive Vice President 1994 220,000 112,200 (2) 25,000 110,011 9,900
1993 192,500 192,610 (2) 27,498 0 8,663
1992 173,333 96,872 (2) 17,184 0 7,800
- ---------------
(1) Includes amounts deferred pursuant to Huntington's Employee Stock Purchase and Supplemental Stock Purchase Plans.
(2) During 1994, Mr. Wobst received other annual compensation, including executive life insurance premiums in the amount of
$44,204. During 1993, Mr. Wobst received other annual compensation, including executive life
- 41 -
insurance premiums in the amount of $44,352. Other annual compensation for Mr. Wobst for 1992, and for each of the other
named executive officers for each year indicated was less than $50,000 and less than 10% of the total of annual salary and
bonus reported for the named executive.
(3) Adjusted for stock dividends and stock splits paid after the date of grant.
(4) Huntington's Long-Term Incentive Compensation Plan is set up in overlapping three-year performance cycles commencing every
other year. Awards were paid for the cycles ended December 31, 1992, and December 31, 1994. Figures indicated represent total
dollar value of the awards. Awards are normally made in shares of Huntington's Common Stock, however, a participant may elect
to receive up to fifty percent of an award in cash. Mr. Hoskins and Ms. Fisher did not participate in the cycle of the Long-
Term Incentive Compensation Plan which ended in 1992.
(5) Figures represent amounts contributed for each named executive officer by Huntington to the Employee Stock Purchase Plan and
the Supplemental Stock Purchase Plan. For 1994, $6,750 was contributed for each of Messrs. Wobst, Sofia, Hoskins, and
Williams and Ms. Fisher, respectively, under the Employee Stock Purchase Plan and $29,250, $14,287, $14,287, $4,680, and
$3,150 were contributed for Messrs. Wobst, Sofia, Hoskins, and Williams and Ms. Fisher, respectively, under the Supplemental
Stock Purchase Plan.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES GRANT DATE
OPTIONS IN EXERCISE PRESENT
GRANTED FISCAL PRICE EXPIRATION VALUE
NAME (#)(1) YEAR ($/SH)(2) DATE ($)(3)
- ---------------------------- ------------------ --------------- --------------- --------------- --------------
Frank Wobst 125,000 20.1% $20.55 5/18/04 824,569
Zuheir Sofia 62,500 10.1 20.55 5/18/04 412,284
W. Lee Hoskins 62,500 10.1 20.55 5/18/04 412,284
Gerald R. Williams 18,750 3.0 20.55 5/18/04 123,685
Judith D. Fisher 25,000 4.0 20.55 5/18/04 164,914
- ---------------
(1) Figures reflect effect of five-for-four stock split paid July 29, 1994. The options granted to each named executive officer
become exercisable in equal increments on each of the first four anniversaries of the date of grant which was May 18, 1994.
Options not yet exercised are cancelled upon a termination of employment for any reason other than death, retirement under one
or more of Huntington's retirement plans, termination following a change in control of Huntington, or a disposition (other than
a change in control) of substantially all of the stock or assets of Huntington, in which case all options become exercisable
immediately as of such termination date and remain exercisable for a specified period following the termination. Generally, the
exercise price of options may be paid for in cash or in shares of Common Stock of Huntington. In addition, any tax which
Huntington is required to withhold in connection with the exercise of any stock option may be satisfied by the optionholder by
electing to have the number of shares to be delivered on the exercise of the option reduced by, or otherwise by delivering to
Huntington, such number of shares of Common Stock having a fair market value equal to the amount of the withholding
requirement.
(2) In all cases, the exercise price was equal to the average of the high and low market price of the underlying shares on the
date of grant. The exercise price has been adjusted to reflect the effect of the five-for-four stock split paid July 29, 1994.
(3) The dollar amounts in this column are the result of calculations made using the Black-Scholes model, a theoretical method for
estimating the present value of stock options based on complex assumptions about the stock's price volatility and dividend rate
as well as interest rates. Because of the unpredictable assumptions required, the Black-Scholes model, or any other valuation
model, is incapable of accurately predicting Huntington's stock price or of placing an accurate present value on options to
purchase its stock. In performing the calculations it was assumed
42
that: the options were exercised at the end of their ten-year terms;
the volatility of the stock price was equal to 26.8%, which was the
volatility calculated on a natural logarithmic basis of Huntington's
stock price for the twelve-month period preceding the date of grant; the
risk-free rate of return was equal to the ten-year United States Treasury
Note Rate effective the week of the grant, to correspond to the term of
the options; and the dividend yield was equal to Huntington's annualized
dividend yield at the end of the first calendar quarter of 1994, which
was 3.48%. No adjustments were made for vesting requirements,
non-transferability, or risk of forfeiture. In spite of any theoretical
value which may be placed on a stock option grant, no increase of the
stock option's value is possible without an increase in the market value
of the underlying stock. Any appreciation in the market value of
Huntington's Common Stock would benefit all shareholders and would be
dependent in part upon the efforts of the named executive officers. The
total of the values indicated in the table for all stock options granted
in 1994 to the named executive officers was $1,937,736, representing
approximately .073% of the value, on the date of grant, of all shares of
Huntington outstanding at the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY(3)
FISCAL YEAR-END OPTIONS AT
SHARES (#)(2) FISCAL YEAR-END($)
ACQUIRED ON VALUE
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#)(1) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- -------------- ------------------
Frank Wobst -0- -0- 462,035/ 2,397,809/
125,000 -0-
Zuheir Sofia 28,000 288,443 173,921/ 691,503/
62,500 -0-
W. Lee Hoskins -0- -0- 146,087/ 438,235/
62,500 -0-
Gerald R. Williams -0- -0- 75,846/ 483,628/
18,750 -0-
Judith D. Fisher 9,277 71,678 47,114/ 111,524/
25,000 -0-
- --------------
(1) The actual number of shares received may be less than indicated in the event
the optionholder elected to have shares withheld for the payment of the
exercise price or withholding tax liability.
(2) Adjusted for stock splits and stock dividends paid after the date of grant.
(3) An option is in-the-money if the fair market value of the underlying Common
Stock exceeds the exercise price of the option.
LONG-TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OR OTHER NON-STOCK PRICE-BASED PLAN(2)
SHARES, UNITS PERIOD UNTIL -------------------------------------
OR OTHER MATURATION
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- ----------------------------------- ------------- ------------ --------- -------- ---------
Frank Wobst (1) (2) $144,000 $200,000 $400,000
Zuheir Sofia (1) (2) 84,150 116,875 233,750
W. Lee Hoskins (1) (2) 84,150 116,875 233,750
Gerald R. Williams (1) (2) 46,260 64,250 128,500
-43-
Judith D. Fisher (1) (2) 39,600 55,000 110,000
- -----------------
(1) Each named executive officer has been selected by the Compensation and
Stock Option Committee of the Board of Directors to participate in the
cycle of the Long-Term Incentive Compensation Plan which began on January
1, 1994. Awards based on a percentage of base salary will be paid at the
end of the cycle if Huntington's performance achieves the established
threshold or higher.
(2) The Long-Term Incentive Compensation Plan measures Huntington's
performance over three-year cycles with a new cycle beginning every other
year. The cycle that began January 1, 1994 will end on December 31, 1996.
This plan is more fully described under the heading "Long-Term Incentive
Awards" in the Board Compensation Committee Report on Executive
Compensation below. The figures in the table are based on base salaries
as of December 31, 1994.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
$200,000 $115,672 $115,672 $115,672 $115,672 $115,672
225,000 131,922 131,922 131,922 131,922 131,922
250,000 148,172 148,172 148,172 148,172 148,172
400,000 245,672 245,672 245,672 245,672 245,672
450,000 278,172 278,172 278,172 278,172 278,172
500,000 310,672 310,672 310,672 310,672 310,672
750,000 473,172 473,172 473,172 473,172 473,172
925,000 586,922 586,922 586,922 586,922 586,922
950,000 603,172 603,172 603,172 603,172 603,172
975,000 619,422 619,422 619,422 619,422 619,422
The table above illustrates the operation of Huntington's Supplemental
Executive Retirement Plan (the "SERP") by showing various annual benefits,
after reduction for Social Security retirement income, assuming various annual
base salaries and years of credited service. Benefit figures shown are computed
on the assumption that participants retire at age 65. For purposes of the
table, it is assumed that each participant is receiving benefits from the
Retirement Plan in the form of a life annuity. Benefits under the SERP are paid
in the form of a life annuity (with 120 months certain).
The SERP ensures that each participating executive officer (who retires
at age 65) receives a level of retirement benefits, without respect to years of
service, equal to at least 65% of the officer's highest consecutive twelve
months' base salary within the previous 60 months. At the time a participating
officer retires, the benefit the participant is entitled to through the SERP is
calculated, and then funds from the following sources are deducted to determine
the amount (if any) of the payment due from Huntington under the SERP: (i)
Social Security benefits payable; (ii) the benefit under the Retirement Plan;
and (iii) any benefits under retirement plans of prior employers. For
purposes of the table, it is assumed that the participant is not receiving
benefits from any prior employers' retirement plans and that Social Security
benefits payable are the maximum Old Age, Survivors and Disability Insurance
benefit payable. If the sum of the payments due from Social Security, the
Retirement Plan, and retirement plans of prior employers exceeds 65% of the
executive officer's highest consecutive twelve months' base salary, then no
payment will be due from Huntington under the SERP. As illustrated by the
table, the SERP generally has the effect of equalizing a participant's combined
retirement benefits for a particular level of covered compensation for all
years of service. Thus, the total annual benefits payable by Huntington
pursuant to the Retirement Plan and the SERP would be the same for an executive
officer with 15 years of service as for an executive officer with 35 years of
service, assuming each had the same level of covered compensation, the only
difference being that the 15 year executive officer, having a smaller benefit
from the Retirement Plan, will receive a greater portion of his or her benefit
from the SERP. Monthly benefits
-44-
received by participants under the SERP may be increased annually, if
indicated, to reflect increases in the United States Bureau of Labor Statistics
Consumer Price Index for Urban Wage Earners and Clerical Workers.
Only those executive officers selected by the Compensation and Stock
Option Committee may participate in the SERP. An employee who has completed
two years of continuous service with Huntington (or an affiliated company) and
whose compensation is in excess of the limitation imposed by the Internal
Revenue Code (the "Code") Section 401(a)(17) is eligible to participate in the
Huntington's Retirement Plan and Supplemental Retirement Income Plan (the
"SRIP"). The SRIP provides benefits according to the same benefit formula as
the Retirement Plan, except that benefits under the SRIP are not limited by
Code Sections 401(a)(17) and 415. Code Section 401(a)(17) limits the annual
amount of compensation that may be taken into account when calculating benefits
under the Retirement Plan. For 1994, this limit was $150,000. Code Section
415 limits the annual benefit amount that a participant may receive under the
Retirement Plan. For 1994, this amount was $118,800. Because the SERP
generally provides a larger benefit than the SRIP, executives participating in
the SERP generally will not receive any payments under the SRIP.
For each of the executive officers named in the Summary Compensation
Table, the compensation covered by the Retirement Plan, the SRIP, and, if
applicable, the SERP is base salary earned in 1994 as indicated in the Summary
Compensation Table. The estimated credited years of service for each of the
executive officers named in the Summary Compensation Table are 20.5 for Mr.
Wobst, 23.33 for Mr. Sofia, 3.17 for Mr. Hoskins, 5.75 for Mr. Williams and
7.33 for Ms. Fisher. Messrs. Hoskins and Williams and Ms. Fisher did not
participate in the SERP in 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Huntington's Compensation and Stock Option Committee is composed of
Don Conrad, John B. Gerlach, Timothy P. Smucker, and Marvin E. White. None of
the members are or have ever been officers of Huntington or its subsidiaries.
Frank Wobst served on the Compensation Committee of the Board of
Directors of The Midland Mutual Life Insurance Company (now known as The
Midland Life Insurance Company) in 1994, during which time Gerald E. Mayo was
Chairman, Chief Executive Officer, and President of that company.
EMPLOYMENT AND EXECUTIVE AGREEMENTS
Messrs. Wobst, Sofia, and Hoskins each have an agreed upon term of
employment. Under Employment Agreements, Mr. Wobst will be employed by
Huntington through November 15, 1996, with automatic five-year renewals until
Mr. Wobst's death, disability or retirement, unless earlier terminated by
either party upon written notice delivered to the other party at least 60 days
prior to the expiration of the initial or any renewal period, at an annual rate
of compensation of not less than $807,950; Messrs. Sofia and Hoskins will each
be employed by Huntington through November 15, 1996, with automatic five-year
renewals until their death, disability, or retirement, unless earlier
terminated by either the officer or Huntington upon written notice delivered to
the other party at least 60 days prior to the expiration of the initial or any
renewal period, at an annual rate of compensation of not less than $474,200.
The Employment Agreements also provide for the officers' continued
participation in Huntington's Incentive Compensation Plans, Stock Purchase and
Tax Savings Plan, Retirement Plans, the 1990 Stock Option Plan, and certain
other benefits afforded to executive officers of Huntington. In the event any
of Messrs. Wobst, Sofia, or Hoskins is terminated for cause, he will be
entitled to receive salary payments for three calendar months following the
date of termination plus any compensation to which he is entitled under the
Incentive Compensation Plans. In the event any of Messrs. Wobst, Sofia, or
Hoskins is terminated without cause, he will be entitled to his full
compensation and benefits under his Employment Agreement until the later of six
months after his termination or the expiration of the then current term of the
Employment Agreement. In the event any of Messrs. Wobst, Sofia, or Hoskins
becomes disabled, which disability continues for more than six months during a
twelve-month period, Huntington may terminate such executive officer's
Employment Agreement, and such executive officer will be entitled to his full
compensation (base salary and payments under the Incentive Compensation Plans)
to the date of termination. Thereafter, the executive officer will be entitled
to two-thirds of his base salary, less disability benefits received from any of
Huntington's disability insurance programs, until he attains age sixty-five or
through termination of the disability, whichever occurs first, with base salary
to be
-45-
reinstated upon return to employment. In the event of the death of either of
Messrs. Wobst, Sofia, or Hoskins, their beneficiaries will receive their base
annual salary for six months plus Incentive Compensation Plan payments.
Huntington also has entered into Executive Agreements with Messrs.
Wobst, Sofia, Hoskins, and G. Williams which are designed to provide these
executive officers with some assurance as to the continuation of their
employment status and responsibilities in the event of a change in control of
Huntington. The Executive Agreements for Messrs. Wobst, Sofia, and Hoskins
each provide that, if a change in control of Huntington occurs and the
executive officer makes a good faith determination that such officer's
employment status or responsibilities has been materially and adversely
affected thereby or if such officer's employment is terminated after a change
in control, the executive officer is entitled to receive an amount equal to the
greater of: (i) his then current annual base salary through November 15, 1996,
plus the amount of any unpaid bonus, incentive compensation, or other benefit
and credit for any accrued vacation to which he is entitled under his
Employment Agreement; or (ii) three times his then current annual base salary.
In either case, the executive officer is also entitled to receive three times
the average bonus or incentive compensation paid to such officer in respect of
the three fiscal years preceding his termination. Huntington will maintain for
the executive officer's benefit, until the earlier of two years from the
officer's termination of employment or the commencement of full-time employment
with a new employer, all health and welfare benefit plans and other specified
benefits which the officer was entitled to participate in or receive prior to
his termination. In the event the payments to be received by Messrs. Wobst,
Sofia, or Hoskins are subject to any federal or state excise tax, Huntington
will pay an additional amount to the executive officer such that the net amount
retained by the officer after payment of any such tax will be equal to the
amount which such officer was entitled to receive before application of such
taxes.
The Executive Agreement for Mr. G. Williams provides that, if a change
in control of Huntington occurs and the executive officer makes a good faith
determination within three years after such change in control that such
officer's employment status or responsibilities has been materially and
adversely affected thereby or if such officer's employment is terminated within
three years after a change in control, the executive officer is entitled to
receive an amount equal to three times his then current annual base salary plus
three times the average bonus or incentive compensation paid to such officer in
respect of the three fiscal years preceding his termination. Adjustments to
these payments will be made if the officer attains his normal retirement date
within three years of the termination of his employment. In addition,
Huntington will maintain for the executive officer's benefit, until the earlier
of two years from the officer's termination of employment, the commencement of
full-time employment with a new employer, or the attainment of such officer's
normal retirement date, all health and welfare benefit plans and other
specified benefits to which the officer was entitled prior to his termination.
Any payment which the officer would otherwise be entitled to receive will be
reduced or eliminated to the extent the payment is determined to be
nondeductible by Huntington for federal income tax purposes under applicable
provisions of the Internal Revenue Code.
The Executive Agreements provide that Huntington will pay the cost of
legal counsel for an executive officer in the event such officer is required to
enforce any of the rights granted under his Executive Agreement through
litigation or other legal action. An Executive Agreement will terminate if the
employment of the executive officer terminates prior to a change in control of
Huntington. Under the Comprehensive Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990, the Federal Deposit Insurance Corporation has
the authority to limit or prohibit payments contingent upon the termination of
an individual's affiliation with Huntington, but only if Huntington is
insolvent, has been placed in conservatorship or receivership, or is determined
by the Board of Governors of the Federal Reserve System to be a troubled
financial institution.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Some of the directors and executive officers of Huntington are
customers of Huntington's affiliated financial and lending institutions and
have transactions with such affiliates in the ordinary course of business.
Directors and executive officers of Huntington also may be affiliated with
entities which are customers of Huntington's affiliated financial and lending
institutions and which enter into transactions with such affiliates in the
ordinary course of business. Transactions with directors, executive officers
and their affiliates have been on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the time for
comparable transactions with others and did not involve more than the normal
risk of collectibility or present other unfavorable features.
-46-
OWNERSHIP OF HUNTINGTON COMMON STOCK
As of December 31, 1994, no person was known by Huntington to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock of
Huntington, except as follows:
SHARES OF
NAME AND ADDRESS COMMON PERCENT OF
OF BENEFICIAL OWNER STOCK OWNED CLASS
----------------------------- ------------- ----------
The Huntington Trust Company,
National Association
Huntington Center
41 South High Street
Columbus, Ohio 43287 12,699,805(1) 9.79%
- --------------------
(1) These shares are held in various fiduciary capacities in the ordinary course
of business under numerous trust relationships by The Huntington Trust
Company, National Association (the "Trust Company") and affiliated financial
institutions. As fiduciary, or by agreement with the affiliated fiduciary,
the Trust Company has the sole or shared power to vote and/or dispose of
most of these shares; with respect to some of the shares, the sole or shared
power to vote and/or dispose may be retained by an affiliated financial
institution as fiduciary. The Trust Company or one of its affiliates has
sole power to dispose of 1,311,868 of these shares, shared power to dispose
of 1,454,559 of these shares, sole power to vote 3,795,134 of these shares,
and shared power to vote 8,781,822 of these shares.
The following table sets forth the beneficial ownership of Huntington's
Common Stock by each of Huntington's directors, director nominees, and five most
highly compensated executive officers, and the directors and executive officers
as a group as of December 31, 1994.
SHARES OF COMMON PERCENT OF
NAME OF BENEFICIAL OWNER STOCK OWNED(1) CLASS
--------------------------------------- ---------------- ----------
Don M. Casto, III . . . . . . . . . . . 110,285 (2) .08%
Don Conrad . . . . . . . . . . . . . . 702,794 (2) .54%
Judith D. Fisher . . . . . . . . . . . 73,259 (2)(3) .06%
John B. Gerlach . . . . . . . . . . . . 1,074,880 (2) .83%
W. Lee Hoskins . . . . . . . . . . . . 167,544 (3) .13%
Wm. J. Lhota . . . . . . . . . . . . . 22,310 (2) .02%
Gerald E. Mayo . . . . . . . . . . . . 80,623 (2) .06%
George A. Skestos . . . . . . . . . . . 6,048 *
Lewis R. Smoot, Sr . . . . . . . . . . 38,027 (4) .03%
Timothy P. Smucker . . . . . . . . . . 38,918 (2) .03%
Zuheir Sofia . . . . . . . . . . . . . 500,822 (2)(3) .38%
Marvin E. White . . . . . . . . . . . . 170,669 .13%
Gerald R. Williams . . . . . . . . . . 111,287 (3) .09%
William J. Williams . . . . . . . . . . 95,559 (2)(3) .07%
Frank Wobst . . . . . . . . . . . . . . 1,127,746 (2)(3) .86%
Milton A. Wolf . . . . . . . . . . . . 761,208 (2) .58%
-47-
Directors and Executive Officers
as a Group (23 in group) . . . . . . 5,507,567 (2)(3) 4.20%
* Less than .01%.
- -------------------
(1) Except as otherwise noted, none of the named individuals shares with another person either voting or investment power as to the
shares reported.
(2) Includes 1,601; 109,113; 1,040; 186,500; 1,472; 2,499; 17,499; 763; 43,203; and 2,500 shares of Common Stock owned by members
of the immediate families of Messrs. Casto, Conrad, Ms. Fisher, Messrs. Gerlach, Mayo, Smucker, Sofia, W. Williams, Wobst, and
Wolf respectively; 9,923 shares of Common Stock owned jointly by Mr. Lhota and his spouse; 33,620 shares of Common Stock owned
by The Midland Life Insurance Company, of which Mr. Mayo is a director and officer; 219,998 shares of Common Stock owned by the
Gerlach Foundation Inc., of which Mr. Gerlach is trustee; 20,713 shares of Common Stock owned by Lehrs, Inc., of which Mr.
Gerlach is a director and officer; 12,771 shares of Common Stock owned by the estate of John J. Gerlach, deceased of which Mr.
Gerlach is executor; 14,898 shares of Common Stock owned by the John J. Gerlach Trust of which Mr. Gerlach is trustee; 6,426
shares of Common Stock owned by the WACO Oil Co., Inc. Pension Plan of which Mr. Conrad is an administrator; and 305,779 shares
of Common Stock reported as owned by individuals included in directors and executive officers as a group, as to which the
respective directors and executive officers have disclaimed beneficial ownership.
(3) Includes 47,144 shares for Ms. Fisher, 146,087 shares for Mr. Hoskins, 173,921 shares for Mr. Sofia, 75,846 shares for Mr.
G. Williams, 6,873 shares for Mr. W. Williams, 462,035 shares for Mr. Wobst and 1,061,934 shares of Common Stock for all
executive officers as a group which could have been acquired under stock options exercisable within 60 days of December 31,
1994.
(4) Includes 1,823 shares of Common Stock owned by members of the immediate family of Mr. Smoot and 13,750 shares of Common Stock
owned by The Smoot Corporation, of which Mr. Smoot is an officer.
DESCRIPTION OF HUNTINGTON COMMON STOCK
The authorized capital stock of Huntington consists of 200,000,000
shares of Common Stock, of which 130,214,765 shares were issued and outstanding
as of December 31, 1994, and 6,617,808 shares of serial preferred stock,
without par value ("Huntington Preferred Stock"), none of which was issued and
outstanding as of December 31, 1994. The Board of Directors of Huntington is
entitled to issue, from time to time, without further shareholder action, the
authorized Huntington Preferred Stock in one or more series and to fix and
determine the relative rights and preferences of each such series of Huntington
Preferred Stock. Such determination may include, with respect to any series,
the dividend rate, the terms and conditions of redemption, liquidation value,
voting powers, conversion rights, and such other relative, participating,
optional, or special rights, qualifications, limitations, or restrictions as
the Board of Directors may determine.
Subject to the rights of holder of Huntington Preferred Stock that may
be issued and outstanding from time to time, holders of Huntington Common Stock
are entitled to receive such dividends as may be declared by the Board of
Directors and to share ratably in the assets available for distribution upon
liquidation. There are no cumulative voting rights, preemptive rights,
conversion rights, redemption provisions, or sinking fund provisions with
respect to Huntington Common Stock. Holders of Huntington Common Stock are
entitled to one vote per share on all matters presented to Huntington's
shareholders. All presently outstanding shares of Huntington Common Stock are,
and all such shares that will be issued in the Merger will be at the Effective
Time, fully paid and non-assessable.
RIGHTS PLAN
In 1990, the Board of Directors of Huntington entered into the Rights
Agreement, pursuant to which each Huntington shareholder received one Right for
each outstanding share of Huntington Common Stock held by that shareholder. In
addition, Huntington has and will continue to issue one Right with each
newly-issued share of Huntington Common Stock so that each outstanding share of
Huntington Common Stock (including the shares of
-48-
Huntington Common Stock to be to issued to Security National shareholders in
connection with the Merger) will have a Right attached.
The Rights currently have no value, are represented by the certificates
evidencing Huntington Common Stock, and until the Distribution Date (as defined
below), trade only with such stock. The Rights will separate from the
Huntington Common Stock and become exercisable only if a person or group
("Acquiror") acquires beneficial ownership of 20% or more of the outstanding
Huntington Common Stock or announces a tender offer that would result in
ownership of 20% or more of the outstanding Huntington Common Stock (the
"Distribution Date"). The Rights Agreement provides that, at the Distribution
Date, each Right will entitle the holder to purchase for $90, as adjusted from
time to time for stock dividends, stock splits, and other changes in
capitalization (the "Exercise Price"), one one-hundredth of a share of Series A
Junior Participating Stock of Huntington (the "Series A Preferred Shares").
Each such fractional Series A Preferred Share is intended to be the practical
equivalent of one share of Huntington Common Stock.
In the event an Acquiror acquires 20% or more of the then outstanding
shares of Huntington Common Stock (the "Triggering Event"), each Right held by
the Acquiror (or any affiliate or associate thereof) will become null and void
and each Right held by all other Huntington shareholders will entitle its
holder to purchase for the Exercise Price that number of Huntington Series A
Preferred Shares having a value (based upon the market value of Huntington
Common Stock at the time of the Triggering Event) equal to twice the Exercise
Price. In the event Huntington is acquired in a merger or other business
combination or a significant portion of its assets are sold, leased, exchanged,
or otherwise transferred to (i) a publicly traded Acquiror, each Right will
entitle its holder to purchase, for the Exercise Price, that number of shares
of the Acquiror which at the time of the transaction would have a market value
of twice the Exercise Price, or alternatively, (ii) an Acquiror that is not a
publicly traded corporation, each Right will entitle its holder to purchase,
for the Exercise Price, at such holder's option, (a) that number of shares of
the Acquiror (or, at such holder's option, of the surviving corporation in such
acquisition, which could be Huntington) which at the time of the transaction
would have a book value of twice the Exercise Price, or (b) if such Acquiror
has an affiliate that has publicly traded common shares, that number of common
shares of such affiliate which at the time of the transaction would have a
market value of twice the Exercise Price.
The number of Series A Preferred Shares or other securities or property
issuable upon exercise of a Right, and the Exercise Price are subject to
adjustment upon the occurrence of certain events including, for example, a
stock dividend or split payable in Huntington Common Stock or Series A
Preferred Shares. The number of Rights may also be adjusted upon the
occurrence of certain events including, for example, a reverse stock split. The
Rights are not exercisable until the Distribution Date and will expire on
December 31, 1999, unless earlier redeemed by Huntington. Huntington may
redeem the Rights for $.01 per Right under certain circumstances.
As with the super majority vote and control share provisions of Maryland
law, the Rights have certain anti-takeover effects. See "EFFECTS OF THE MERGER
ON SHAREHOLDERS' RIGHTS - SPECIAL VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS."
The Rights may cause substantial dilution to a person or group that attempts to
acquire Huntington, except pursuant to an offer conditioned on the Rights being
redeemed or a substantial number of Rights being acquired. The Rights, however,
should not interfere with any merger or other business combination approved by
the Huntington Board of Directors due to the Board's ability to redeem the
Rights. Huntington's Board recognizes that a takeover might in some
circumstances be beneficial to Huntington's shareholders. Neither the Rights
Plan nor the Maryland law provisions described above are designed to preclude an
acquisition of Huntington, but rather will give the Huntington Board of
Directors adequate opportunity to evaluate whether an acquisition offer is in
the best interest of Huntington and to protect its shareholders from coercive
acquisition methods.
DIVIDENDS AND PRICE RANGE OF HUNTINGTON COMMON STOCK
Huntington Common Stock is traded on the Nasdaq National Market under
the symbol "HBAN". As of December 31, 1994, Huntington had 29,810 shareholders
of record. The following table sets forth the cash dividends declared and the
high and low last sale prices for Huntington Common Stock on the Nasdaq
National Market during
-49-
the periods indicated. The dividends and price ranges have been adjusted to
reflect the Huntington 5 for 4 Stock Split and other stock dividends and stock
splits, as appropriate.
PRICE RANGE
DIVIDENDS --------------------------
PER SHARE HIGH LOW
--------- --------------------------
1993:
First Quarter............ $0.13 $19-1/8 $15-5/8
Second Quarter........... 0.15 20-1/4 17-3/8
Third Quarter............ 0.16 22 19-5/8
Fourth Quarter........... 0.16 21-3/8 16-1/4
1994:
First Quarter............ $0.16 $19-1/4 $17-3/4
Second Quarter........... 0.16 22-1/4 17-7/8
Third Quarter............ 0.20 21-5/8 18-1/8
Fourth Quarter........... 0.20 18-7/8 16-5/8
1995:
First Quarter (through
March 1, 1995)......... $0.20 $18-3/4 $17
On December 21, 1994, the last trading day prior to the public
announcement of the proposed Merger, the high and low sales prices per share of
Huntington Common Stock on the Nasdaq National Market were $17-1/2 and $17-1/8,
respectively. On March 1, 1995, such prices were $18-3/4 and $18-1/2,
respectively.
On February 21, 1995, a cash dividend of $0.20 per share was declared
for Huntington shareholders of record on March 17, 1995, payable on April 3,
1995. Huntington has declared regular cash dividends on Huntington Common
Stock in each quarter since Huntington was organized in 1966. The Board of
Directors of Huntington presently intends to continue to consider the payment
of regular quarterly cash dividends on Huntington Common Stock. The amount and
timing of any future dividends will depend upon the earnings of Huntington and
its subsidiaries, their financial condition, need for funds, and other relevant
factors. See "GOVERNMENT REGULATION - DIVIDEND RESTRICTIONS" and NOTES 9 AND
21 OF HUNTINGTON'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PROPERTIES
The headquarters of Huntington and its lead subsidiary, The Huntington
National Bank, are located in the Huntington Center, a 37 story office building
located in Columbus, Ohio. Of the building's total office space available,
Huntington occupies approximately 30 percent. The original lease term is 25
years, expiring in 2009, with renewal options for up to 50 years. There is no
purchase option. The Huntington National Bank is a limited partner in the
entity that owns the building. In addition to these headquarters, Huntington's
other major properties consist of a 13 story and a 12 story office building,
both of which are located adjacent to the Huntington Center; a 21 story office
building, known as the Huntington Building, located in Cleveland, Ohio; The
Huntington Mortgage Company's building, located in the greater Columbus area;
an office complex located in Troy, Michigan; and several data processing and
operations centers located throughout Ohio. Of these properties, Huntington
owns the 12 story and 13 story office buildings, The Huntington Mortgage
Company building, the building in Troy, Michigan, and the operations centers
located in Cleveland and Columbus, Ohio. All of the other major properties are
held under long-term leases.
-50-
LEGAL PROCEEDINGS
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. The aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
Huntington's consolidated financial position.
RELIANCE BANK OF FLORIDA
GENERAL
Reliance, a state-chartered bank incorporated under the laws of
the State of Florida in 1985, is headquartered in Melbourne, Florida. At
December 31,1994, Reliance had total assets of $95.7 million and total deposits
of $84.8 million. Reliance is principally engaged in the commercial banking
business which includes lending, investment, deposit and borrowing activities.
Reliance operates three full-service offices in Brevard County, Florida, and
has a fourth office, also in Brevard County, currently under construction. The
principal executive offices of Reliance are located at 2116 South Babcock
Street, Melbourne, Florida 32901 (telephone number 407-984-1400). Reliance's
deposits are insured to the extent permitted by law by the Federal Deposit
Insurance Corporation (the "FDIC") through the Bank Insurance Fund (the "BIF").
See "GOVERNMENT REGULATION".
Reliance's primary focus is to engage in commercial banking, serving
small to middle sized businesses, professionals, business entrepreneurs, and
high net worth individuals. Reliance's customers are primarily in the Central
Florida area and are served through the three offices of Reliance located in
Brevard County. While Reliance does not actively solicit the broad-based
retail banking market, consumer banking services are offered. Reliance had no
customer deposit relationship that averaged more than 5% of total deposits
during 1994. Reliance believes that there is no single customer whose loss
would have a material adverse effect on Reliance.
All of Reliance's revenues and expenses are derived from banking
operations associated with lending and investment activities, and deposit and
borrowing activities.
LENDING AND INVESTMENT ACTIVITIES
General. Reliance makes secured and unsecured commercial loans, real
estate loans, and consumer loans. Reliance also issues letters of credit on
behalf of its customers and maintains an investment portfolio of marketable
U.S. government securities and municipal debt obligations. All lending and
investment activities are governed by established policies approved by
Reliance's Board of Directors.
Lending Area. Although Reliance is legally authorized to make loans
throughout the State of Florida, the majority of its loans originate from
borrowers located in Brevard County.
Loan Approval Authorities. Reliance's Board of Directors has prescribed
procedures for the review and approval of loan applications which vary with the
nature and size of the loans. Generally, secured loans up to $500,000 may be
approved by designated officers without prior approval of the Loan Committee.
Loans in excess of this amount must be approved by the Loan Committee, a
majority of whose members are outside directors. The approval authorities are
based upon borrower's aggregate lending relationship with Reliance.
Loan Originations, Purchases, and Sales. Reliance originates loans for
its own portfolio. Reliance has periodically purchased participation interests
in loans originated by other lenders, generally involving credits to Reliance's
borrowers where the participating bank wanted to be the lead lender for the
loan. From time-to-time Reliance sells participation interests in its loans to
correspondent banks. Generally these sales arise on larger credits where the
-51-
total loan amount exceeds lending limitations. Such sales are generally done
at par with no gain or loss recognized on the sale transaction.
Fee Income From Lending. Reliance realizes both interest income and
fee income from its lending activities. Loan origination fees are calculated
as a percentage of the principal amount of the loan and are charged to the
borrower by Reliance for making the loan. In addition, as part of the loan
application, the borrower generally pays Reliance for its out-of-pocket costs
related to the application (such as credit investigation, recording fees and
appraisal fees). Reliance also receives loan fees and service charges on
certain existing loans including late charges and assumption fees. Reliance's
treatment of loan fees has followed generally accepted accounting principles
("GAAP"). Since Reliance opened in 1985, it has adopted Statement of Financial
Accounting Standards No. 91, "Accounting for Non-Refundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases". This statement requires that loan fees, net of direct loan
origination costs, be recognized into income over the life of each loan as a
yield adjustment.
Investments. Reliance maintains an investment portfolio of high grade
marketable securities as a means of maintaining liquidity and maximizing
earnings. Reliance's investment policy limits the purchase of securities to
those obligations issued or fully guaranteed by the United States Government,
certain federal agency obligations, time deposits and certificates of deposit
issued by insured financial institutions, and other specified "investment
grade" securities. Reliance's Board of Directors has defined investment grade
securities as securities rated in one of the three highest categories. Reliance
purchases investment securities that are suitable to be held to maturity.
Reliance has not established a trading account and does not engage in trading
activities. Reliance has the ability to hold its securities until maturity and
management's policy has been to hold such securities on a long-term basis or
until maturity. Conditions that may require the sale of investment securities
include a deterioration of investment quality, the need to change the maturity
structure of the investment portfolio, or the need to raise cash for liquidity
purposes.
DEPOSIT AND BORROWING ACTIVITIES
General. Deposits are the primary source of Reliance's funds for use in
lending and for other purposes. In addition to deposits, Reliance derives funds
from loan repayments and from other borrowings, generally Treasury Tax and Loan
note account balances and Federal Funds purchased. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Deposits. Reliance offers demand interest bearing and non-interest
bearing accounts, money market accounts, and time deposits (certificates of
deposit) of varying terms and interest rates.
Other Services. In addition to deposit accounts, Reliance offers other
services related to deposit and borrowing activities. These include cash
management services, night depository, travelers' checks, cashiers' checks,
savings bonds, automated teller machines, banking by mail, domestic collections,
and wire transfers. Reliance is a member of the HONOR ATM network which allows
its customers to utilize the convenience of larger ATM networks. Reliance does
not offer trust services.
ALLOWANCE FOR CREDIT LOSSES
In originating loans, Reliance recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan, as well as general economic conditions. It is the
policy of Reliance management to attempt to maintain an adequate allowance for
credit losses based on, among other things, Reliance's historical loan loss
experience, evaluation of economic conditions and regular reviews of any
delinquencies and loan portfolio quality. Specific allowances are provided for
individual loans when ultimate collection is considered questionable by
management after reviewing the current status of loans which are contractually
past due and considering the net realizable value of the collateral for the
loan.
-52-
Management of Reliance monitors asset quality and charges-off loans
against the allowance for credit losses when appropriate or provides specific
loss allowances when necessary. Although management believes it uses the best
information available to make determinations with respect to the allowance for
credit losses, future adjustments may be necessary if economic conditions
differ from the economic conditions and the assumptions used in making the
initial determinations. During 1993, Reliance management determined that
growth in the loan portfolio, and the deterioration in the quality of certain
specific loans, required additional contributions to the reserve. Reliance
reduced the provision charged to expense in 1994 as a result of an improvement
in credit loss experience and an evaluation of the adequacy of the allowance
for loan losses. Management performs periodic reviews of the loan portfolio by
individual loan. These reviews result in the assignment of grades to each loan
in the portfolio, similar to the ratings assigned by regulatory examiners.
Loans which receive grades of the equivalent of Other Loans Especially
Mentioned or more serious, are individually assigned specific allocations based
upon management's assessment of potential loss. These specific reserves as of
December 31, 1994, were $161,357. The remainder of the allowance is based upon
risk associated with the types of loans in the portfolio.
The following table sets forth information with respect to activity in
Reliance's allowance for credit losses during 1993 and 1994.
1994 1993
----------- -----------
Balance at beginning of period................ $ 660,193 $ 564,757
Charge-offs:
Commercial................................... 75,575 117,745
Real Estate:
Construction................................ 0 0
Mortgage, 1-4 family........................ 0 0
Other....................................... 0 0
Consumer 0 0
----------- -----------
Total Charge-offs:......................... 75,575 117,745
Recoveries:
Commercial................................... 0 2,181
Real Estate:
Construction................................ 0 0
Mortgage, 1-4 family........................ 3,838 0
Other....................................... 4,660 0
----------- -----------
Consumer..................................... 0 0
----------- -----------
Total Recoveries:.......................... 8,498 2,181
----------- -----------
Net Charge-offs:.............................. 67,077 115,564
----------- -----------
Additions charged to operations............... 130,000 211,000
----------- -----------
Balance at end of period...................... 723,116 660,193
=========== ===========
Net charge-offs as a percentage of average
loans outstanding during period.............. 0.13% 0.26%
Allowance for credit losses as a percentage of
period-end loans............................. 1.33% 1.39%
Ratio of allowance for credit losses
to nonperforming loans ..................... 1.61 1.45
Average loans outstanding, net................ 50,438,206 43,307,958
Period-end total loans........................ 54,215,310 47,590,099
NON-PERFORMING LOANS
Generally, interest on loans is accrued and credited to income by
Reliance based on the principal balance outstanding. It is the policy of
Reliance's management to discontinue the accrual of interest income and to
classify a loan as nonaccrual when principal or interest is past due 90 days or
more and the loan is not adequately collateralized, or when, in the opinion of
management, principal or interest is not likely to be paid in accordance with
the terms of the obligation. Loans will not be returned to accrual status
until principal and interest payments are brought current and
- 53 -
future payments appear reasonably certain. Interest accrued and unpaid at the
time the loan is placed on nonaccrual status is charged against interest
income. Subsequent payments received are applied to the outstanding principal
balance.
The following table sets forth certain information on nonaccrual
loans, the ratio of such loans and real estate owned to total assets as of the
dates indicated, and certain other related information for 1993 and 1994.
1994 1993
----------- -----------
Total Loans Outstanding....................... $54,215,310 $47,590,099
Total Reserve for Loan Losses................. 723,116 660,193
Nonaccrual Loans: (1)
Commercial................................... 427,315 424,305
Real Estate:
Construction................................ 0 0
Mortgage, 1-4 family........................ 0 0
Other....................................... 0 0
Consumer..................................... 0 0
----------- -----------
Total nonaccrual loans....................... 427,315 424,305
Restructured Loans............................ 20,503 30,099
Accruing Loans past-due 90 days or more....... 0 0
----------- -----------
Total nonperforming loans..................... 447,818 454,404
Other Real Estate............................. 98,546 0
----------- -----------
Total Nonperforming assets.................... $ 546,364 $ 454,404
=========== ===========
Total nonperforming loans to total loans...... 0.83% 0.95%
Total nonperforming loans to total assets..... 0.47% 0.55%
Total nonperforming loans and real estate
owned to total assets........................ 0.57% 0.55%
- --------------------
(1) The nonaccrual loans above reflect loans to the same borrower in both
periods. Although the loans are classified as nonaccrual because receipt
of payment is not certain, cash payments, which are reflected in both
periods, have been received on the same basis as originally agreed upon.
COMPETITION
Reliance faces vigorous competition from a number of sources, including
other commercial banks, thrift institutions, other financial institutions and
financial intermediaries. Regional interstate banking laws and other federal
and state laws have resulted in increased competition from both conventional
banking institutions and other businesses offering financial services and
products. Many of the financial institutions operating in Florida are engaged
in local, regional, national, and international operations and have
significantly more assets, capital, and personnel than Reliance.
To compete, Reliance relies upon specialized services, responsive handling
of customer needs, and personal contacts by its officers, directors, and staff.
The large multi-branch banks compete primarily by rate and location of branches
and smaller independent financial institutions tend to compete primarily by
rate.
EMPLOYEES
As of December 31, 1994, Reliance had 29 full-time equivalent employees.
Management considers its relations with its employees to be very good.
Reliance's employees are not represented by any collective bargaining group.
DESCRIPTION OF PROPERTY
- 54 -
Reliance owns the real estate properties occupied by its branches.
Reliance's executive offices are located in the 2116 South Babcock Street,
Melbourne, Florida, facility. Reliance's real estate holdings had a net
tangible book value of $2.0 million at December 31, 1994. The real estate
holdings consist of the following:
ADDRESS YEAR OPENED DESCRIPTION
- --------------------------------- ----------- ---------------------------------------------
Melbourne Office:
2116 South Babcock Street
Melbourne, Florida 32901 1985 4,800 square-foot, one-story bank building
Cocoa Beach Office:
505 North Orlando Avenue
Suite One 5,000 square-foot, first floor of seven-story
Cocoa Beach, Florida 32931 1986 condominium office building
Eau Gallie Office:
325 East Eau Gallie Boulevard
Melbourne, Florida 32937 1993 3,300 square-foot, one-story bank building
Viera Site:
Northeast Corner of
Wickham and Murrell Roads 10,000 square-foot, two-story bank building,
Melbourne, Florida 32940 under construction
LEGAL PROCEEDINGS
Reliance is not a party to any pending legal proceedings, other than
routine litigation incidental to its business activities.
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth (i) the name and address of the only
person known by Reliance to beneficially own more than 5% of the outstanding
shares of Reliance Common Stock and the name of each of Reliance's directors
and the only officer whose cash compensation exceeds $100,000; (ii) the number
and percent of shares of Reliance Common Stock owned by each such person and by
all directors and executive officers of Reliance as a group as of December 31,
1994; and (iii) the estimated number of shares of Huntington Common Stock each
such person or group is expected to receive as a result of the Merger (assuming
that such persons do not exercise their appraisal rights), calculated by
multiplying the number of shares of Reliance Common Stock beneficially owned by
such person or group by the Estimated Exchange Ratio of 3.0489 shares of
Huntington Common Stock for each share of Reliance Common Stock.
RELIANCE COMMON STOCK HUNTINGTON
--------------------------------- COMMON STOCK
SHARES BENEFICIALLY PERCENT EXPECTED TO BE
NAME OF BENEFICIAL OWNER OWNED(1) OWNED BENEFICIALLY OWNED
- ------------------------------ ------------------- ------- ------------------
Richard N. Baney, M.D.
Chairman of the Board
2045 A1A Highway
Box 3845
Indialantic, Florida 32903 39,827(2) 11.4% 121,428
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Jim G. Bockman
Principal Shareholder
11483 Front Beach Road #101
Panama City Beach, Florida 32407 30,600 8.8% 93,296
Sam L. Bockman
President, Chief Executive Officer, and
Director
880 Peregrine
Indialantic, Flordia 32903 40,700(3) 11.7% 124,090
Joel E. Boyd
Director 10,938(4) 3.1% 33,348
Ernest M. Briel
Director 300(5) 0.1% 914
Joseph R. DiPrima
Director 15,077(6) 4.3% 45,968
Joseph Flammio
Director 17,077(7) 4.9% 52,066
Michael V. Gatto
Director 11,927(8) 3.4% 36,364
James H. Nance
Director
150 Poinciana Drive
Indian Harbor Beach Florida 32937 17,638 5.1% 53,776
Michael Scafati
Director
c/o A .G. Edwards & Sons
One North Jefferson
St. Louis, Missouri 63103 32,442(9) 9.3% 98,912
Joseph Von Thron, M.D.
Director 9,338(10) 2.7% 28,470
All Directors and Executive Officers
as a group (12 in group) 201,814(1) 57.5% 615,310
- ------------------------------------
(1) Under applicable SEC regulations, shares are considered to be beneficially owned by a person as of a particular date if such
person either (i) directly or indirectly has or shares the power to vote or dispose of the shares, whether or not such person
has any economic interest in the shares, or (ii) has the right to acquire such shares within 60 days of the particular date.
Unless otherwise indicated, the named beneficial owner has sole voting and dispositive power with respect to the shares
reported.
(2) Includes 1,000 shares held by Dr. Baney's spouse and 17,250 shares held by his retirement plans.
(3) Includes 15,700 shares held by Mr. Bockman's spouse.
(4) Consists of shares held in trust as to which Mr. Boyd has sole investment and voting powers.
(5) Consists of shares held jointly with Mr. Briel's spouse.
(6) Consists of shares held in trust as to which Mr. DiPrima has sole investment and voting powers.
(7) Consists of shares held in trust as to which Mr. Flammio has sole investment and voting powers.
-56-
(8) Consists of shares held jointly with Mr. Gatto's spouse.
(9) Includes 2,000 shares held by Mr. Scafati's spouse and 635 shares held by
his child.
(10) Includes 700 shares held by Dr. Von Thron's spouse and 8,538 shares held
jointly with his spouse.
(11) Includes 3,000 shares which can be acquired upon the exercise of stock
options.
MARKET FOR RELIANCE COMMON STOCK AND RELATED SHAREHOLDER MATTERS
There is no active trading market for Reliance Common Stock, although
transactions do occur from time to time. To the knowledge of Reliance
management, all transactions in Reliance Common Stock are negotiated on a
private basis and quotations for such stock are not published.
No cash dividends have been declared or paid on shares of Reliance
Common Stock. The holders of Reliance Common Stock are entitled to dividends
when, as, and if declared by the Board of Directors of Reliance out of funds
legally available therefor. Reliance's ability to pay dividends is subject to,
among other things, Florida law and Reliance's income. The payment of dividends
by Reliance is subject to various regulatory restrictions. See "GOVERNMENT
REGULATION - DIVIDEND RESTRICTIONS".
GOVERNMENT REGULATION
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to such
statutory or regulatory provisions.
GENERAL
As a registered bank holding company, Huntington is subject to the
supervision of 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. Huntington is also
subject to examination by the Federal Reserve Board and required to obtain
Federal Reserve Board approval prior to acquiring, directly or indirectly,
ownership or control of voting shares of any bank, if, after such acquisition,
it would own or control more than 5% of any class of the voting stock of such
bank. (The Federal Reserve Board does not require an application for prior
approval in the case of a subsidiary bank merger that is subject to approval by
another federal regulator pursuant to the Bank Merger Act, as is the case with
the present Merger.) 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.
Prior to engaging in most new business activities, Huntington must obtain
approval from the Federal Reserve Board. Because of its ownership of thrift
institutions, Huntington is also regulated as a savings and loan holding
company by the OTS.
The bank subsidiaries of Huntington have deposits insured by the BIF
of the FDIC, and are subject to supervision, examination, and regulation by the
OCC, if a national bank, or by state banking authorities and either the FDIC or
the Federal Reserve Board, if a state-chartered bank. Certain deposits of
certain of Huntington's bank subsidiaries were acquired from savings
associations and are insured by the Savings Association Insurance Fund
("SAIF"). Huntington's thrift subsidiaries, including HFSB, are regulated
primarily by the OTS. 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. Reliance has
deposits insured by the BIF of the FDIC and is subject to supervision,
examination and regulation by the FDIC and by the Florida Department. In
addition to the impact of federal and state supervision and regulation,
Huntington and Reliance are affected significantly by the actions of the
-57-
Federal Reserve Board as it attempts to control the money supply and credit
availability in order to influence the economy.
HOLDING COMPANY STRUCTURE
The depository institution subsidiaries of Huntington are subject to
affiliate transaction restrictions under federal law which limit the transfer
of funds by the subsidiary banks and thrifts to their respective parents and
any nonbank subsidiaries of the parent, whether in the form of loans,
extensions of credit, investments or asset purchases. Such transfers by any
subsidiary bank or thrift to its parent corporation or to any nonbank
subsidiary of the parent are limited in amount to 10% of the institution's
capital and surplus and, with respect to such parent and all such nonbank
subsidiaries of the parent, to an aggregate of 20% of any such institution's
capital and surplus. Furthermore, such loans and extensions of credit are
required to be secured in specified amounts. In addition, all affiliate
transactions must be conducted on terms and under circumstances that are
substantially the same as such transactions with unaffiliated entities. Under
applicable regulations, at December 31, 1994, approximately $161.8 million was
available for loans to Huntington from its subsidiary banks and thrifts.
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 any of 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 or thrift holding company's bankruptcy, any commitment
by such holding company to a federal bank or thrift regulatory agency to
maintain the capital of a subsidiary bank or thrift will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
In 1989, the United States Congress passed comprehensive financial
institutions legislation known as the Financial Institutions Reform, Recovery,
and Enforcement Act ("FIRREA"). Among other things, FIRREA established a new
principle of liability on the part of depository institutions insured by the
FDIC for any losses incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. Accordingly, in the event that any
insured bank or thrift subsidiary of Huntington causes a loss to the FDIC,
other bank and thrift subsidiaries of Huntington could be required to
compensate the FDIC by reimbursing to it the amount of such loss, and such
reimbursement could cause a loss of Huntington's investments in such
subsidiaries. These provisions do not affect Reliance.
Federal law permits the OCC to order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. This statute also provides for the enforcement of any such pro rata
assessment of shareholders of such national bank to cover such impairment of
capital stock by sale, to the extent necessary, of the capital stock of any
assessed shareholder failing to pay the assessment. Similarly, the laws of
certain states provide for such assessment and sale with respect to the
subsidiary banks chartered by such states. Huntington, as the sole shareholder
of its subsidiary banks, is subject to such provisions. Moreover, under
legislation that became effective August 10, 1993, the claims of a receiver of
an insured depository institution for administrative expenses and the claims of
holders of deposit liabilities of such an institution are accorded priority
over the claims of general unsecured creditors of such an institution in the
event of liquidation or other resolution of such institution. As a result of
such legislation, claims of a receiver for administrative expenses and claims
of holders of deposit liabilities of Huntington's depository subsidiaries
(including the FDIC, as subrogee of such holders) would receive priority over
the holders of notes and other senior debt of such subsidiaries in the event of
liquidation or other resolution, and over the interests of Huntington as sole
shareholder of its subsidiaries.
-58-
DIVIDEND RESTRICTIONS
Dividends from subsidiary banks and thrifts are a significant source
of funds for payment of dividends to Huntington's shareholders. There are,
however, statutory limits on the amount of dividends a depository institution
subsidiary can pay to its parent without regulatory approval.
National banks may not pay a dividend in an amount greater than such
bank's undivided profits. In addition, the prior approval of the OCC is
required for the payment of a dividend by a national bank if the total of all
dividends declared by the bank in a calendar year would exceed the total of its
net income for the year combined with its retained net income for the two
preceding years. The OTS also imposes limits on capital distributions by
thrift institutions that generally allow dividends up to the amount of an
institution's current net income during a calendar year and up to one-half of
its capital in excess of its regulatory requirements, depending upon the
institution's level of capital compliance. Under these provisions and in
accordance with the above-described formulas, Huntington's subsidiary banks and
thrifts could, without regulatory approval, declare dividends to Huntington in
1995 of approximately $224 million plus an additional amount equal to their net
income during 1995. Under applicable guidelines, Reliance could, without
regulatory approval, declare dividends in 1995 of approximately $2.4 million
plus an additional amount equal to its net income during 1995.
If, in the opinion of the applicable regulatory authority, a bank or
thrift 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 or
thrift, 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, the OCC, and the FDIC have issued policy statements
which provide that insured banks and bank holding companies should generally
only pay dividends out of current operating earnings.
FDIC INSURANCE
The level of deposit insurance premiums affects the profitability of
subsidiary banks and thrifts and thus the potential flow of dividends to parent
companies. The FDIC has the authority to raise the insurance premiums for
institutions in the BIF or the SAIF to a level necessary to achieve a target
reserve level of 1.25% of insured deposits within not more than 15 years.
Changes in the fundamental features of the system of assessing insurance
premiums are also possible. In October 1994, the FDIC issued an advance notice
of proposed rule making seeking public comment on a possible redefinition of
the base on which insurance premiums are calculated. Such redefinition could
have a significant effect on individual institutions. In addition, the FDIC
has the authority to impose special assessments in certain circumstances. See
"GOVERNMENT REGULATION - DIVIDEND RESTRICTIONS."
Under the risk-based insurance assessment system that became
effective January 1, 1994, the FDIC places each insured depository institution
in one of nine risk categories based on its level of capital and other relevant
information (such as supervisory evaluations). See "GOVERNMENT REGULATION -
CAPITAL REQUIREMENTS." Assessment rates for deposit insurance premiums
currently range from 0.23% to 0.31%, depending on the assessment category into
which the insured institution is placed. The FDIC proposed in February 1995 to
widen the range for BIF insured institutions to 0.04% for banks in the best
risk classification to 0.31% for banks in the riskiest classification,
effective at a point, expected to be early in the second half of 1995, when the
1.25 percent target reserve level for the BIF is attained. The FDIC also
proposed to maintain the current range of assessment rates for the SAIF. The
insured depository subsidiaries of Huntington and Huntington Florida, and
Reliance, are all subject to the risk-based assessment system.
CAPITAL REQUIREMENTS
The Federal Reserve Board has issued risk-based capital ratio and
leverage ratio guidelines for bank holding companies such as Huntington. All
of Huntington's depository institution subsidiaries are subject to
substantially similar capital requirements adopted by applicable regulatory
agencies. The risk-based capital ratio guidelines establish a
-59-
systematic analytical framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among financial institutions, 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, banks, and
thrifts must maintain capital sufficient to meet both a risk-based asset ratio
test and leverage ratio test on a consolidated basis. The risk-based ratio is
determined by allocating assets and specified off-balance sheet commitments
into four weighted categories, with higher weighting being assigned to
categories perceived as representing greater risk. A financial institution's
capital 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.
Generally, under the applicable guidelines, the financial
institution's capital is divided into two tiers. "Tier 1", or core capital,
includes common equity, noncumulative perpetual preferred stock (excluding
auction rate issues) and minority interests in equity accounts of consolidated
subsidiaries, less goodwill and, with certain limited exceptions, all other
intangible assets. Bank holding companies, however, may include cumulative
perpetual preferred stock in their Tier 1 capital, up to a limit of 25% of such
Tier 1 capital. "Tier 2", or supplementary capital, includes, among other
things, cumulative and limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt,
and the allowance for loan losses, subject to certain limitations. "Total
capital" is the sum of Tier 1 and Tier 2 capital.
The Federal Reserve Board and the other federal banking regulators
require that all intangible assets, with certain exceptions, be deducted from
Tier 1 capital. Under the Federal Reserve Board's rules, the only types of
intangible assets that may be included in (i.e., not deducted from) a bank
holding company's capital are readily marketable purchased mortgage servicing
rights ("PMSRs") and purchased credit card relationships ("PCCRs"), provided
that, in the aggregate, the total amount of PMSRs and PCCRs included in capital
does not exceed 50% of Tier 1 capital. PCCRs are subject to a separate
sublimit of 25% of Tier 1 capital. The amount of PMSRs and PCCRs that a bank
holding company may include in its capital is limited to the lesser of (i) 90%
of such assets' fair market value (as determined under the guidelines), or (ii)
100% of such assets' book value, each determined quarterly. Identifiable
intangible assets (i.e., intangible assets other than goodwill) other than
PMSRs and PCCRs, including core deposit intangibles, acquired on or before
February 19, 1992 (the date the Federal Reserve Board issued its original
proposal for public comment), generally will not be deducted from capital for
supervisory purposes, although they will continue to be deducted for purposes
of evaluating applications filed by bank holding companies.
Under the risk-based guidelines, financial institutions are required
to maintain a risk-based ratio of 8%, of which 4% must be Tier 1 capital. The
appropriate regulatory authority may set higher capital requirements when an
institution's particular circumstances warrant.
Under the leverage guidelines, financial institutions that meet
certain specified criteria, including excellent asset quality, high liquidity,
low interest rate exposure, and the highest regulatory rating, are required to
maintain a minimum leverage ratio of 3%. Financial institutions not meeting
these criteria are required to maintain a leverage ratio which exceeds 3% by a
cushion of at least 100 to 200 basis points.
The guidelines also provide that financial institutions experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels.
Furthermore, the Federal Reserve Board's guidelines indicate that the Federal
Reserve Board will continue to consider a "tangible Tier 1 leverage ratio" in
evaluating proposals for expansion or new activities. The tangible Tier 1
leverage ratio is the ratio of an institution's Tier 1 capital, less all
intangibles, to total assets, less all intangibles.
Failure to meet applicable capital guidelines could subject the
financial institution to a variety of enforcement remedies available to the
federal regulatory authorities, including limitations on the ability to pay
dividends, the issuance by the regulatory authority of a capital directive to
increase capital, and the termination of deposit insurance by the FDIC, as well
as to the measures described under "FEDERAL DEPOSIT INSURANCE CORPORATION
IMPROVEMENT ACT OF 1991" as applicable to undercapitalized institutions.
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As of December 31, 1994, the Tier 1 risk-based ratio, total risk-based
ratio and total assets leverage ratio for Huntington and Reliance were as
follows:
HUNTINGTON
--------------------------
PRO
REQUIREMENT HISTORICAL FORMA (1) RELIANCE
----------- ---------- --------- --------
Tier 1 Risk-Based Ratio . . . . . . 4.00% 9.55% 9.65% 10.92%
Total Risk-Based Ratio . . . . . . 8.00% 13.57% 13.62% 11.78%
Tier 1 Leverage Ratio . . . . . . . 3.00% 7.99% 8.04% 10.27%
- ------------------
(1) Includes Huntington, Security National and Reliance on a pro forma combined
basis.
As of December 31, 1994, all of Huntington's bank and thrift
subsidiaries and Reliance had capital in excess of all applicable requirements.
The Federal Reserve Board, the OCC, and the FDIC proposed in September
1993 to revise their risk-based capital requirements to ensure that such
requirements provide for explicit consideration by commercial banks of interest
rate risk. It is anticipated that the regulatory agencies will issue a revised
proposed rule for further public comment. Pending such revised proposal,
Huntington's management cannot determine what effect, if any, an interest rate
risk component would have on the capital of its subsidiary commercial banks,
nor can Reliance's management make such a determination.
The OTS has adopted an amendment to its risk-based capital requirements
that, effective July l, 1994, requires savings institutions with more than a
normal level of interest rate risk to maintain additional total capital.
Huntington has determined that its thrift subsidiaries would not be deemed to
have more than normal level of interest rate risk as defined under the OTS rule
and believes that the rule will not require any of such institutions to increase
total capital.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised the
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 established five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized."
The various 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 1 leverage ratio of 5% or
greater and is not subject to a regulatory order, agreement, or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of
4% or greater, and, generally, a Tier 1 leverage ratio of 4% or greater and the
institution does not meet the definition of a "well capitalized" institution.
An institution that does not meet one or more of the "adequately capitalized"
tests is deemed to be "undercapitalized". If the institution has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital
ratio that is less than 3%, or a 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%.
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FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a cash dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized institutions are subject to
growth limitations and are required to submit a capital restoration plan. If
any depository institution subsidiary is required to submit a capital
restoration plan, its parent company would be required to provide a limited
guarantee regarding compliance with the plan as a condition of approval of such
plan by the appropriate federal banking agency. If an undercapitalized
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. Significantly undercapitalized institutions
may be subject to a number of requirements and restrictions, including orders
to sell sufficient voting stock to become adequately capitalized, requirements
to reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions may not, beginning 60 days
after becoming critically undercapitalized, make any payment of principal or
interest on their subordinated debt. In addition, critically undercapitalized
institutions are subject to appointment of a receiver or conservator within 90
days of becoming critically undercapitalized.
Under FDICIA, a depository institution that is not well capitalized is
generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market. Huntington
expects that the FDIC's brokered deposit rule will not adversely affect the
ability of its depository institution subsidiaries to accept brokered deposits.
Under the regulatory definition of brokered deposits, as of December 31, 1994,
Huntington's bank subsidiaries had brokered deposits of $56.7 million, compared
to $34.3 million as of December 31, 1993. Reliance does not have brokered
deposits.
FDICIA, as amended, directs that each federal banking regulatory agency
prescribe standards, by regulation or guideline, for depository institutions
relating to internal controls, information systems, internal 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 other federal banking regulatory agencies are expected to
adopt identical regulations shortly. Huntington believes that the regulations
and guidelines will not have a material effect on the operations of its
depository institution subsidiaries.
RECENT DEVELOPMENTS
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
enacted in September 1994, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state will be
permissible one year after enactment. Interstate branching and consolidations
of existing bank subsidiaries in different states will be permissible beginning
June 1, 1997. The permissibility of consolidations and branching may be
accelerated by "opt-ins" by individual states. A state may also, until June 1,
1997, adopt legislation to "opt-out" of interstate branching and
consolidations, but in that event the state's own banks become ineligible to
branch into, or consolidate their operations, in other states.
The Riegle Community Development and Regulatory Improvement Act of 1994,
also enacted in September 1994, made several changes in existing law affecting
bank holding companies, including a reduction in the minimum post-approval
antitrust review waiting period for depository institution mergers and
acquisitions, and the substitution of a notice for an application when a bank
holding company proposes to engage in, or acquire a company to engage in,
nonbank activities.
-62-
EXPERTS
The consolidated financial statements of Huntington at December 31, 1994
and 1993, and for each of the three years in the period ended December 31, 1994,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Reliance Bank of Florida as of December 31,
1994 and 1993 and for the years then ended have been included in this Proxy
Statement and elsewhere in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent public accountants, whose report
thereon appears elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1994 financial statements refers to a change in the
method of accounting for certain investments in debt and equity securities.
LEGAL OPINIONS
The validity of the Huntington Common Stock to be issued to Reliance
shareholders pursuant to the Merger and certain other legal matters in
connection with the Merger will be passed upon for Huntington by Porter,
Wright, Morris & Arthur, Columbus, Ohio. As of December 31, 1994, members of
such firm participating in the representation of Huntington on this matter
beneficially owned an aggregate of 16,298 shares of Huntington Common Stock.
Certain legal matters in connection with the Merger will be passed on for
Reliance by Smith, Mackinnon, Harris, Greeley, Bowdoin & Edwards P.A., Orlando,
Florida.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, management of
Reliance knows of no business other than that described in this Proxy
Statement/Prospectus that will come before the Special Meeting. Should any
other matters properly come before the Special Meeting, the proxy in the
enclosed form confers upon the person or persons designated to vote the shares
discretionary authority to vote the same with respect to any such other matter
in accordance with their judgment.
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INDEX TO FINANCIAL INFORMATION
Page
CONSOLIDATED FINANCIAL STATEMENTS OF HUNTINGTON
Report of Ernst & Young LLP Independent Auditors.................................................... F-1
Consolidated Balance Sheets as of December 31, 1994 and 1993........................................ F-2
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993, and 1992................................................................ F-3
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1994, 1993, and 1992.................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992................................................................ F-5
Notes to Consolidated Financial Statements.......................................................... F-6
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................ F-19
Consolidated Average Balances and Interest Rates.................................................... F-35
FINANCIAL STATEMENTS OF RELIANCE
Independent Auditors Report ........................................................................ F-37
Balance Sheets as of December 31, 1994 and 1993..................................................... F-38
Statements of Income for the Years Ended
December 31, 1994 and 1993....................................................................... F-39
Statements of Shareholders' Equity for the Years Ended
December 31, 1994 and 1993....................................................................... F-40
Statements of Cash Flows for the Years Ended
December 31, 1994 and 1993....................................................................... F-41
Notes to Financial Statements........................................................................ F-43
-64-
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, 1994 and 1993, 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,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntington
Bancshares Incorporated and Subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
January 11, 1995
F-1
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Huntington
Bancshares
Incorporated
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1994 1993
------------ ------------
ASSETS
Cash and due from banks ...................................................... $ 885,327 $ 704,007
Interest bearing deposits in banks ........................................... 3,059 12,610
Trading account securities ................................................... 9,427 21,964
Federal funds sold and securities purchased under resale agreements .......... 5,329 41,072
Mortgages held for sale ...................................................... 138,997 1,032,338
Securities available for sale -- at fair value in 1994; fair value in
1993 of $3,947,751 ......................................................... 3,304,493 3,840,064
Investment securities -- fair value $474,147 and $373,567, respectively ...... 475,692 359,345
Total loans .................................................................. 12,264,436 10,953,928
Less allowance for loan losses ............................................. 200,492 211,835
------------ ------------
Net loans .................................................................... 12,063,944 10,742,093
------------ ------------
Premises and equipment ....................................................... 288,793 290,218
Customers' acceptance liability .............................................. 53,883 48,603
Accrued income and other assets .............................................. 541,696 526,393
------------ ------------
TOTAL ASSETS ................................................................. $ 17,770,640 $ 17,618,707
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing ....................................................... $ 2,169,095 $ 2,068,515
Interest bearing ........................................................... 2,646,785 2,808,951
Savings deposits ............................................................. 2,227,406 2,716,553
Certificates of deposit of $100,000 or more .................................. 605,763 674,349
Other domestic time deposits ................................................. 3,909,061 3,412,685
Foreign time deposits ........................................................ 406,957 363,637
------------ ------------
Total deposits ............................................................. 11,965,067 12,044,690
------------ ------------
Short-term borrowings ........................................................ 2,898,201 3,195,463
Bank acceptances outstanding ................................................. 53,883 48,603
Long-term debt ............................................................... 1,214,052 762,310
Accrued expenses and other liabilities ....................................... 227,617 243,004
------------ ------------
Total Liabilities .......................................................... 16,358,820 16,294,070
------------ ------------
Shareholders' equity
Preferred stock -- authorized 6,617,808 shares; none outstanding
Common stock -- without par value; authorized 200,000,000 shares;
issued and outstanding -- 131,119,504 and 104,410,737 shares, respectively 912,318 902,107
Less 904,739 and 608,032 treasury shares, respectively ..................... (16,577) (15,290)
Capital surplus ............................................................ 215,084 216,168
Net unrealized losses on securities available for sale ..................... (63,289) --
Retained earnings .......................................................... 364,284 221,652
------------ ------------
Total Shareholders' Equity ................................................. 1,411,820 1,324,637
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................... $ 17,770,640 $ 17,618,707
============ ============
See notes to consolidated financial statements.
F-2
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Huntington
Banchsares
Incorporated
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
Interest and fee income
Loans ............................................. $ 975,604 $ 896,932 $ 872,308
Investment securities
Taxable ......................................... 17,849 173,247 233,676
Tax-exempt ...................................... 13,663 20,268 20,155
Securities available for sale ..................... 180,745 81,548 11,043
Mortgages held for sale ........................... 25,886 60,188 55,076
Trading account ................................... 716 413 1,137
Other ............................................. 5,258 3,715 8,891
------------ ------------ ------------
TOTAL INTEREST INCOME ........................... 1,219,721 1,236,311 1,202,286
------------ ------------ ------------
Interest expense
Deposits .......................................... 294,780 317,545 409,798
Short-term borrowings ............................. 106,646 89,444 72,967
Long-term debt .................................... 62,245 33,122 22,081
------------ ------------ ------------
TOTAL INTEREST EXPENSE ............................ 463,671 440,111 504,846
------------ ------------ ------------
NET INTEREST INCOME ............................... 756,050 796,200 697,440
------------ ------------ ------------
Provision for loan losses ........................... 15,284 79,294 81,562
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 740,766 716,906 615,878
------------ ------------ ------------
Total non-interest income ........................... 235,360 305,778 250,139
Total non-interest expense .......................... 609,652 658,893 632,582
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE .................. 366,474 363,791 233,435
Provision for income taxes .......................... 123,881 126,879 72,389
------------ ------------ ------------
NET INCOME ........................................ $ 242,593 $ 236,912 $ 161,046
============ ============ ============
PER COMMON SHARE(1)
Net income ........................................ $ 1.87 $ 1.85 $ 1.27
Cash dividends .................................... $ .72 $ .60 $ .50
AVERAGE COMMON SHARES OUTSTANDING ................... 129,723,581 128,313,640 126,425,920
See notes to consolidated financial statements.
(1) Restated for the five-for-four stock split distributed in July 1994.
F-3
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Huntington
Bancshares
Incorporated
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NET UNREALIZED
COMMON COMMON TREASURY TREASURY CAPITAL GAINS (LOSSES) RETAINED
SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE -- JANUARY 1, 1992 ............. 77,197 $ 634,031 (509) $ (9,018) $ 203,062 $ 190,235 $1,018,310
Net income ............................. 161,046 161,046
Cash dividends declared
($.50 per share) ..................... (52,423) (52,423)
Stock options exercised ................ 280 4,957 (1,655) (1,078) 2,224
Five-for-four stock split .............. 15,497 (72) (115) (115)
Treasury shares purchased .............. (900) (19,149) (19,149)
Treasury shares sold:
Shareholder dividend
reinvestment plan .................. 357 6,830 483 (31) 7,282
Employee stock purchase plan ......... 541 10,311 1,144 11,455
Change in valuation allowance
for marketable equity securities ..... 141 141
Pre-merger transactions of pooled
banks ................................ 1,046 732 9,569 (9,403) 898
------- ---------- ------ ---------- ---------- ---------- ---------- ----------
BALANCE -- DECEMBER 31, 1992 ............ 93,740 634,763 (303) (6,069) 212,603 -- 288,372 1,129,669
------- ---------- ------ ---------- ---------- ---------- ---------- ----------
Stock issued for acquisitions .......... 1,972 42,052 42,052
Net income ............................. 236,912 236,912
Cash dividends declared ($.60 per
share) ............................... (68,064) (68,064)
Stock options exercised ................ 336 8,278 1,049 (6,897) 2,430
10% stock dividend ..................... 8,479 224,544 (18) (224,747) (203)
Treasury shares purchased .............. (1,447) (36,795) (36,795)
Treasury shares sold:
Shareholder dividend reinvestment
plan ............................... 408 9,561 353 (59) 9,855
Employee stock purchase plan ......... 416 9,735 691 (117) 10,309
Conversion of convertible notes ........ 36 346 346
Change in valuation allowance
for marketable equity securities ..... 1,098 1,098
Pre-merger transactions of pooled
banks ............................... 184 402 1,472 (4,846) (2,972)
------- ---------- ------ ---------- ---------- ---------- ---------- ----------
BALANCE -- DECEMBER 31, 1993 ............104,411 902,107 (608) (15,290) 216,168 -- 221,652 1,324,637
------- ---------- ------ ---------- ---------- ---------- ---------- ----------
Change in accounting method
for securities ....................... $ 65,548 1,624 67,172
Stock issued for acquisition ........... 573 9,842 1,318 24,984 (2,026) 32,800
Net income ............................. 242,593 242,593
Cash dividends declared
($.72 per share) ..................... (93,176) (93,176)
Stock options exercised ................ 290 6,625 775 (5,669) 1,731
Five-for-four stock split .............. 26,088 (160)
Treasury shares purchased .............. (3,537) (73,634) (73,634)
Treasury shares sold:
Shareholder dividend reinvestment
plan ............................... 1,159 26,635 30 (2,151) 24,514
Employee stock purchase plan ......... 633 14,103 137 (589) 13,651
Conversion of convertible notes ........ 48 369 369
Change in net unrealized gains (losses)
on securities available for sale ..... (128,837) (128,837)
------- ---------- ------ ---------- ---------- ---------- ---------- ----------
BALANCE -- DECEMBER 31, 1994 ............131,120 $ 912,318 (905) $ (16,577) $ 215,084 $ (63,289) $ 364,284 $1,411,820
======= ========== ====== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF
CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
Huntington
Bancshares
Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) YEAR ENDED DECEMBER 31, 1994 1993 1992
------------ ------------ ------------
OPERATING ACTIVITIES
Net Income ............................................. $ 242,593 $ 236,912 $ 161,046
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ............................ 15,284 79,294 81,562
Provision for other real estate ...................... (4,999) 1,051 52,253
Provision for depreciation and amortization .......... 84,215 127,459 76,856
Deferred income tax expense(benefit) ................. 57,329 (30,412) (26,014)
Decrease(increase) in trading account securities ..... 12,537 (20,681) 2,670
Decrease(increase) in mortgages held for sale ........ 893,341 (288,296) (99,768)
Net gains on sales of securities available for sale .. (2,481) (22,973) (19,174)
Net gains on calls and sales of investment securities (113) (4,216) (17,158)
(Increase)decrease in accrued income receivable ..... (247) 3,924 (13,817)
Net increase in other assets ......................... (54,963) (68,255) (67,016)
Decrease in accrued expenses ......................... (22,033) (8,775) (8,801)
Net (decrease)increase in other liabilities ......... (41,018) 54,532 13,612
Other ................................................ 565 3,413 1,893
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 1,180,010 62,977 138,144
----------- ----------- -----------
INVESTING ACTIVITIES
Decrease(increase) in interest bearing deposits in banks 9,551 152,077 (103,504)
Proceeds from:
Maturities of investment securities .................. 32,923 308,654 615,928
Maturities of securities available for sale .......... 317,031 542,062 24,500
Calls of investment securities ....................... 53,104 -- --
Sales of investment securities ....................... -- 252,590 918,517
Sales and calls of securities available for sale ..... 2,316,843 2,306,111 991,360
Purchases of:
Investment securities ................................ (230,676) (239,164) (3,363,276)
Securities available for sale ........................ (2,146,362) (2,956,527) --
Net loan originations .................................. (1,187,428) (959,314) (736,814)
Proceeds from disposal of premises and equipment ....... 1,200 13,035 1,360
Purchases of premises and equipment .................... (25,938) (56,820) (22,986)
Proceeds from sales of other real estate ............... 44,484 24,169 23,698
Net cash received(paid) from purchase/sale of subsidiary 2,670 (10,201) 17,346
----------- ----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES ............... (812,598) (623,328) (1,633,871)
----------- ----------- -----------
FINANCING ACTIVITIES
(Decrease)increase in total deposits ................... (240,219) (300,206) 471,758
(Decrease)increase in short-term borrowings ............ (303,287) 517,008 911,969
Net proceeds from issuance of long-term debt ........... 475,000 560,961 332,417
Payment of long-term debt .............................. (26,415) (278,611) (114,578)
Dividends on common stock .............................. (68,662) (58,412) (45,256)
Acquisition of treasury stock .......................... (73,634) (36,795) (19,149)
Sales of treasury stock ................................ 13,651 10,309 11,455
Proceeds from exercise of stock options ................ 1,731 2,430 2,224
Pre-merger transactions of pooled banks ................ -- (2,972) (5,544)
----------- ----------- -----------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (221,835) 413,712 1,545,296
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ................ 145,577 (146,639) 49,569
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..... 745,079 891,718 842,149
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........... $ 890,656 $ 745,079 $ 891,718
=========== =========== ===========
NOTE: Huntington made interest payments of $451,694,000, $430,701,000, and
$510,830,000 in 1994, 1993, and 1992, respectively. Federal income tax
payments were $97,775,000 in 1994, $155,457,000 in 1993, and
$93,717,000 in 1992.
See notes to consolidated financial statements.
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Accounting Policies
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Huntington Bancshares Incorporated (Huntington) and its
subsidiaries and are presented on the basis of generally accepted accounting
principles. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1994 presentation. The reclassifications had
no effect on net income.
SECURITIES: Effective January 1, 1994, Huntington adopted Statement of
Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities". Debt securities that Huntington has
both the positive intent and ability to hold to maturity are classified as
investments and are carried at amortized cost. Securities purchased with the
intention of recognizing short-term profits are placed in the trading account
and carried at fair value. Securities not classified as investments or trading
are designated available-for-sale and carried at fair value. Unrealized gains
and losses on securities classified as available-for-sale are carried as a
separate component of shareholders' equity. Unrealized gains and losses on
securities classified as trading are reported in earnings. The amortized cost
of specific securities sold is used to compute the realized gain or loss at the
date of sale.
Prior to the adoption of FAS 115, if Huntington had the intent and the
ability at the time of purchase to hold securities until maturity or on a
long-term basis, they were classified as investment securities and reported at
amortized cost. Securities to be held for indefinite periods of time and not
intended to be held to maturity or on a long-term basis were considered held
for sale and carried at the lower of aggregate cost or market value, with
net unrealized losses reflected in earnings. Marketable equity securities were
also reported at the lower of aggregate cost or market value, with net
unrealized losses reflected as a reduction of shareholders' equity.
LOANS: Loans are stated at the principal amount outstanding, net of
unearned discount. Interest on loans is recognized primarily on the accrual
basis using the "simple interest" method. The accrual of interest income is
discontinued when the collection of principal, interest, or both is doubtful.
When interest accruals are suspended, interest income accrued in the current
period is reversed.
Huntington principally uses the financing method of accounting for lease
contracts. Under this method, a receivable is recorded for the total amount of
lease payments due; lease income, represented by the excess of the total
contract receivable plus estimated residual value of the leased asset over the
asset cost is recognized in decreasing amounts over the term of the contract,
resulting in a level rate of return on the outstanding principal.
Significant nonrefundable loan fees and certain loan origination costs are
being amortized over the commitment period and/or the term of the loan as an
adjustment to the yield.
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 portfolio. This judgment is based on a review
of individual loans, historical loss experience, economic conditions,
portfolio trends, and other factors. The allowance is increased by provisions
charged to earnings and reduced by charge-offs, net of recoveries.
OTHER REAL ESTATE: Other real estate, acquired through partial or total
satisfaction of loans, is included in other assets and carried at the lower of
cost or fair value. At the date of acquisition, any losses are charged to the
allowance for loan losses. Subsequent declines in fair value which are
considered permanent or realized losses from disposition of the property are
charged to the reserve for other real estate.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives employed are on average 30 years for premises and 3 to
10 years for equipment.
INCOME TAXES: The amounts provided for income taxes are based on the
amounts of current and deferred taxes payable (or refundable) at the date of
the consolidated financial statements. A deferred tax liability (or asset) is
recognized for temporary differences that will result in net taxable or
deductible amounts in future years when the temporary differences reverse.
MORTGAGE BANKING ACTIVITIES: Mortgages held for sale are valued at the
lower of cost or aggregate market value as determined by outstanding
commitments from investors. The cost of purchased mortgage servicing rights is
capitalized and amortized over the period of, and in proportion to, the related
net servicing income to be generated from the various servicing portfolios
acquired.
Huntington performs evaluations of capitalized servicing rights, including
excess servicing receivables arising from loans sold in the secondary market,
comparing amortized cost to the estimated value of the discounted future net
revenues on an aggregate basis. Adjustments to reduce amortized cost to
estimated fair value are recorded as direct reductions in carrying value and
are included in non-interest income or non-interest expense, as appropriate.
PURCHASE BUSINESS COMBINATIONS: Net assets of entities acquired in
transactions accounted for under the purchase method of accounting are recorded
at estimated fair value at the date of acquisition. The excess of cost over the
fair value of net assets acquired (goodwill) is being amortized over periods
ranging from 15 to 25 years. Core deposits and other identifiable acquired
intangible assets are amortized on an accelerated basis over their estimated
useful lives.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Off-balance sheet financial
instruments used for trading purposes are recorded in the balance sheet at fair
value as of the reporting date. Realized and unrealized changes in fair value
are recognized in net trading income in the period in which the changes occur.
Amounts receivable or payable under interest rate swap, interest rate
cap/floor and forward delivery agreements used in connection with Huntington's
asset/liability management activities are recognized as income or expense
according to the nature of the designated on-balance sheet financial assets and
liabilities. With the exception of
F-6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
forward delivery contracts, amounts accrued under these agreements are included
as a component of interest income or expense. Amounts receivable or payable on
forward delivery contracts, which are used exclusively to manage interest rate
risk on loans to be originated for resale in the secondary market, are included
in non-interest income along with related mortgage banking activities. Gains
and losses on qualifying hedges, consisting principally of interest rate
futures, are deferred and recognized in income or expense in the period the
hedged transaction occurs. Gains and losses from the early termination of
interest rate swaps and other asset/liability management positions for which
Huntington applies accrual accounting are also deferred and are amortized over
the remaining term of the original contracts.
CASH EQUIVALENTS: Cash equivalents are defined as "Cash and due from banks"
and "Federal funds sold and securities purchased under resale agreements."
EARNINGS PER SHARE: Per common share amounts have been calculated based
upon the weighted average number of common shares outstanding in each period,
as adjusted for the five-for-four stock split distributed in July 1994. The
dilutive effects of unexercised stock options are not significant.
- --------------------------------------------------------------------------------
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The bank and thrift subsidiaries of Huntington are required to maintain
reserve balances with the Federal Reserve Bank. During 1994, the average
balances were $133,012,738.
- --------------------------------------------------------------------------------
3. SECURITIES AVAILABLE FOR SALE
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Huntington adopted the provisions of the new
standard for investments held as of or acquired after January 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. The opening balance of
shareholders' equity was increased by $67,172,000 (net of $36,170,000 in
deferred income taxes) to reflect the net unrealized holding gains on
securities classified as available-for-sale previously carried at the lower of
amortized cost or market value.
Amortized cost, unrealized gains and losses, and fair values of securities
available for sale as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
---------------------
AMORTIZED GROSS GROSS FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1994
U.S. Treasury .............................................. $ 854,414 $ 475 $ 38,798 $ 816,091
Federal Agencies
Mortgage-backed securities ............................... 501,530 1,473 13,246 489,757
Other agencies ........................................... 1,744,122 805 44,498 1,700,429
---------- ---------- ---------- ----------
Total U.S. Treasury and agencies ......................... 3,100,066 2,753 96,542 3,006,277
---------- ---------- ---------- ----------
Other debt securities ...................................... 293,686 -- 1,894 291,792
Marketable equity securities ............................... 8,359 -- 1,935 6,424
---------- ---------- ---------- ----------
Total securities available for sale ................ $3,402,111 $ 2,753 $ 100,371 $3,304,493
========== ========== ========== ==========
UNREALIZED
--------------------------
AMORTIZED GROSS GROSS FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993
U.S. Treasury .............................................. $1,988,945 $ 95,027 $ 6,348 $2,077,624
Federal Agencies
Mortgage-backed securities ............................... 146,055 8,096 4,958 149,193
Other agencies ........................................... 1,556,190 13,915 11 1,570,094
---------- ---------- ---------- ----------
Total U.S. Treasury and agencies ......................... 3,691,190 117,038 11,317 3,796,911
---------- ---------- ---------- ----------
Other debt securities ...................................... 140,506 2,084 122 142,468
Marketable equity securities ............................... 8,368 4 -- 8,372
---------- ---------- ---------- ----------
Total securities available for sale ................ $3,840,064 $ 119,126 $ 11,439 $3,947,751
========== ========== ========== ==========
Amortized cost and fair values by contractual maturity at December 31, 1994
and 1993 were:
- ---------------------------------------------------------------------------------
AMORTIZED FAIR
(IN THOUSANDS OF DOLLARS) COST VALUE
- ---------------------------------------------------------------------------------
AT DECEMBER 31, 1994
Under 1 year ............................... $ 556,481 $ 551,937
1-5 years .................................. 1,281,983 1,254,657
6-10 years ................................. 1,084,241 1,043,878
Over 10 years .............................. 471,047 447,597
Marketable equity securities ............... 8,359 6,424
---------- ----------
Total ................................. $3,402,111 $3,304,493
========== ==========
AT DECEMBER 31, 1993
Under 1 year ............................... $ 130,828 $ 132,853
1-5 years .................................. 2,160,439 2,264,122
6-10 years ................................. 592,213 591,796
Over 10 years .............................. 948,216 950,608
Marketable equity securities ............... 8,368 8,372
---------- ----------
Total ................................. $3,840,064 $3,947,751
========== ==========
Proceeds from sales of securities available for sale were $2,316,843,000,
$2,306,111,000, and $991,360,000 during 1994, 1993, and 1992, respectively.
Gross gains of $15,194,000, $25,894,000, and $19,284,000 were realized in 1994,
1993, and 1992, respectively. Gross losses totaled $12,713,000 in 1994,
$2,921,000 in 1993, and $110,000 in 1992.
- --------------------------------------------------------------------------------
4. INVESTMENT SECURITIES
Amortized cost, unrealized gains and losses, and fair values of investment
securities as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------------
UNREALIZED
----------------
AMORTIZED GROSS GROSS FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------
AT DECEMBER 31, 1994
U.S. Treasury ...................... $ 150 $ 150
Federal Agencies
Mortgage-backed securities ....... 8,313 $ 23 $ 53 8,283
Other agencies ................... 309,250 97 4,193 305,154
-------- -------- -------- --------
Total U.S. Treasury and agencies . 317,713 120 4,246 313,587
-------- -------- -------- --------
States and political subdivisions .. 153,649 3,996 1,335 156,310
Other securities ................... 4,330 -- 80 4,250
-------- -------- -------- --------
Total investment securities ...... $475,692 $ 4,116 $ 5,661 $474,147
======== ======== ======== ========
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. INVESTMENT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
UNREALIZED
----------------
AMORTIZED GROSS GROSS FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1993
U.S. Treasury ...................... $ 150 -- -- $ 150
Federal Agencies
Mortgage-backed securities ....... 12,868 $ 576 -- 13,444
Other agencies ................... 81,448 1 -- 81,449
-------- -------- -------- --------
Total U.S. Treasury and agencies . 94,466 577 -- 95,043
-------- -------- -------- --------
States and political subdivisions .. 232,721 13,600 $ 137 246,184
Other securities ................... 32,158 195 13 32,340
-------- -------- -------- --------
Total investment securities ... $359,345 $ 14,372 $ 150 $373,567
======== ======== ======== ========
Amortized cost and fair values by contractual maturity at December 31, 1994
and 1993 were:
- ---------------------------------------------------------------------------------
AMORTIZED FAIR
(IN THOUSANDS OF DOLLARS) COST VALUE
- ---------------------------------------------------------------------------------
AT DECEMBER 31, 1994
Under 1 year ............................. $ 58,019 $ 58,738
1-5 years ................................ 174,962 174,770
6-10 years ............................... 231,792 229,647
Over 10 years ............................ 10,919 10,992
-------- --------
Total .............................. $475,692 $474,147
======== ========
AT DECEMBER 31, 1993
Under 1 year ............................. $ 71,522 $ 73,097
1-5 years ................................ 130,909 140,526
6-10 years ............................... 111,007 112,887
Over 10 years ............................ 45,907 47,057
-------- --------
Total ............................... $359,345 $373,567
======== ========
There were no sales of investment securities in 1994. Proceeds from sales
of investment securities were $252,590,000 and $918,517,000 during 1993 and
1992, respectively. Gross gains of $5,612,000, and $18,829,000 were realized in
1993 and 1992, respectively. Gross losses totaled $1,396,000 in 1993 and
$1,671,000 in 1992.
- --------------------------------------------------------------------------------
5. LOANS
At December 31, 1994 and 1993, loans were comprised of the following:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Commercial ....................................... $ 3,610,892 $ 3,434,738
Tax-free ......................................... 58,006 71,525
Real estate
Construction ................................... 304,769 337,585
Commercial ..................................... 1,378,398 1,214,575
Residential .................................... 1,624,367 1,470,242
Consumer (net of $11,651 and $15,858 unearned
discount, respectively) ........................ 4,641,946 3,943,666
Lease financing .................................. 646,058 481,597
----------- -----------
Total loans ................................. $12,264,436 $10,953,928
=========== ===========
Huntington's subsidiaries have granted loans to its officers, directors,
and their associates. Such loans were made in the ordinary course of
business at the banking subsidiaries' normal credit terms, including interest
rate and collateralization, and do not represent more than the normal risk of
collection. These loans to related parties are summarized as follows:
- ---------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------------
Balance, beginning of year ................... $ 100,856 $ 108,594
Loans made ................................. 14,069 52,903
Repayments ................................. (21,066) (36,221)
Changes due to status of executive
officers and directors .................... 4,366 (24,420)
--------- --------
Balance, end of year ......................... $ 98,225 $ 100,856
========= =========
- --------------------------------------------------------------------------------
6. ALLOWANCE FOR LOAN LOSSES
A summary of the transactions in the allowance for loan losses for the
three years ended December 31 follows:
- ---------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------------------
Balance, beginning of year ........... $ 211,835 $ 153,654 $ 134,770
Allowance of assets acquired ......... 1,393 11,241 513
Loan losses .......................... (46,122) (45,592) (75,655)
Recoveries of loans previously
charged off ......................... 18,102 13,238 12,464
Provision for loan losses ............ 15,284 79,294 81,562
--------- --------- ---------
Balance, end of year ................. $ 200,492 $ 211,835 $ 153,654
========= ========= =========
In May 1993, the FASB issued Statement No. 114, "Accounting by Creditors
for Impairment of a Loan". This Statement applies to financial statements for
fiscal years beginning after December 15, 1994. It requires that impaired loans
be measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. The adoption of this Statement, which will occur
in the first quarter of 1995, is not expected to have a material effect on
Huntington's consolidated financial statements.
- --------------------------------------------------------------------------------
7. PREMISES AND EQUIPMENT
At December 31, 1994 and 1993, premises and equipment stated at cost were
comprised of the following:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Land ........................................... $ 44,445 $ 43,614
Buildings ...................................... 215,708 197,071
Leasehold improvements ......................... 79,350 82,979
Equipment ...................................... 250,049 234,728
-------- --------
Total premises and equipment .............. 589,552 558,392
Less accumulated depreciation
and amortization ............................. 300,759 268,174
-------- --------
Net premises and equipment ..................... $288,793 $290,218
======== ========
Depreciation and amortization charged to expense and rental income credited
to occupancy expense were as follows:
- ---------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------------
Occupancy expense .................... $11,382 $10,720 $10,011
Equipment expense .................... 16,588 16,399 14,052
------- ------- -------
Total depreciation
and amortization ................. $27,970 $27,119 $24,063
======= ======= =======
Rental income credited to
occupancy expense .................. $11,798 $12,264 $14,490
======= ======= =======
F-8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. SHORT-TERM BORROWINGS
At December 31, 1994 and 1993, short-term borrowings were comprised of the
following:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Federal funds purchased and securities
sold under agreements to repurchase .......... $1,442,138 $2,164,752
Medium-term bank notes with original
maturities of less than one year ............. 624,000 --
Short-term bank notes .......................... 640,000 860,000
Commercial paper ............................... 50,987 97,392
Other .......................................... 141,076 73,319
---------- ----------
Total short-term borrowings .................... $2,898,201 $3,195,463
========== ==========
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
$200,000,000 to support commercial paper borrowings or other short-term working
capital needs. Under the terms of agreement, a quarterly fee must be paid and
there are no compensating balances required. The line is cancelable, by
Huntington, upon written notice and terminates September 30, 1997. There were
no borrowings under the line in 1994 and 1993.
Securities pledged to secure public or trust deposits, repurchase
agreements, and for other purposes were $1,696,674,000 and $1,628,248,000 at
December 31, 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
9. LONG-TERM DEBT
At December 31, 1994 and 1993, long-term debt was comprised of the
following:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Notes, 7 5/8%, maturing in 2003, face value
$150,000,000 at December 31, 1994 and
1993, net of discount .......................... $ 149,450 $ 149,382
Notes, 7 7/8%, maturing in 2002, face value
$150,000,000 at December 31, 1994 and
1993, net of discount .......................... 148,994 148,866
Notes, 6 3/4%, maturing in 2003, face value
$100,000,000 at December 31, 1994 and
1993, net of discount .......................... 99,720 99,687
Debentures, 7 7/8%, retired in 1994 ............... -- 10,519
Debentures, 7 7/8%, retired in 1994 ............... -- 9,368
Medium Term Bank Notes, 4.13% to 6.55%
maturing in 1995 to 1997 ....................... 616,600 191,600
Medium Term Notes, 5.50% and 5.67%,
maturing in 1995 ............................... 50,000 --
Federal Home Loan Bank Notes, 4.23%
to 7.30%, maturing in 1995 to 1997 ............. 148,500 150,500
Other ............................................ 788 2,388
---------- ----------
Total long-term debt ............................. $1,214,052 $ 762,310
========== ==========
HOLDING COMPANY OBLIGATIONS:
The 7 7/8% Notes are not redeemable prior to maturity in 2002 and do not
provide for any sinking fund.
The 7 7/8% Debentures due in 1997 and 1998 were redeemed at face value on
May 23, 1994 at the option of Huntington.
The Medium Term Notes were issued by Huntington in 1994 and are not
redeemable prior to their maturity in 1995.
SUBSIDIARY OBLIGATIONS:
The 7 5/8% Notes and the 6 3/4% Notes were both issued by The Huntington
National Bank in 1993. These Notes are not redeemable prior to maturity in 2003,
and do not provide for any sinking fund.
The Medium Term Bank Notes were issued by The Huntington National Bank in
1993 and 1994. These Notes are not redeemable prior to their maturity in 1995
through 1997.
The Federal Home Loan Bank Notes mature serially over the period beginning
February 1995 through November 1997. These advances cannot be prepaid without
penalty.
The terms of Huntington's long-term debt obligations contain various
restrictive covenants including limitations on the acquisition of additional
debt in excess of specified levels, dividend payments, and the disposition of
subsidiaries. As of December 31, 1994, Huntington was in compliance with all
such covenants.
The following table summarizes the maturities of Huntington's long-term
debt (excluding discounts).
- --------------------------------------------------------------------------------
YEAR (IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
1995 ................................................. $ 191,166
1996 ................................................. 567,362
1997 ................................................. 57,361
1998 ................................................. --
1999 ................................................. --
2000 and thereafter .................................. 400,000
-----------
1,215,889
Discount ............................................. (1,837)
-----------
Total ................................................ $ 1,214,052
===========
- --------------------------------------------------------------------------------
10. OPERATING LEASES
At December 31, 1994, 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.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. OPERATING LEASES (CONTINUED)
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, 1994.
- ------------------------------------------------------------------------
YEAR (IN THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------
1995 ..................................................... $ 22,156
1996 ..................................................... 18,860
1997 ..................................................... 15,285
1998 ..................................................... 13,491
1999 ..................................................... 13,107
2000 and thereafter ...................................... 137,741
--------
Total Minimum Payments ................................... $220,640
========
Total minimum lease payments have not been reduced by minimum sublease
rentals of $69,531,000 due in the future under noncancelable subleases. The
rental expense for all operating leases, except those with terms of a month or
less, was $23,797,000 for 1994 compared with $22,141,000 in 1993 and $19,476,000
in 1992.
- --------------------------------------------------------------------------------
11. 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, futures, and caps/floors as well
as forward delivery contracts 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 and
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, 1994,
Huntington's credit risk from these off-balance sheet arrangements, including
trading activities, was approximately $62.4 million.
The contract or notional amount of financial instruments with off-balance
sheet risk at December 31, 1994 and 1993, is presented in the following table:
- --------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
CONTRACT AMOUNT REPRESENTS CREDIT RISK
Commitments to extend credit
Commercial ....................................... $2,672 $2,080
Consumer ......................................... 2,169 2,512
Other ............................................ 218 171
Standby letters of credit .......................... 416 360
Commercial letters of credit ....................... 137 148
NOTIONAL AMOUNT EXCEEDS CREDIT RISK
Asset/liability management activities
Interest rate swaps .............................. 6,840 6,902
Interest rate futures ............................ 16 503
Purchased interest rate caps ..................... 560 1,250
Purchased interest rate floors ................... 570 570
Forward delivery contracts ....................... 76 1,292
Trading activities
Interest rate swaps .............................. 303 323
Interest rate collars ............................ 217 41
Interest rate caps ............................... 114 147
Interest rate floors ............................. 66 61
Commitments to extend credit generally have short-term, fixed expiration
dates, are variable rate, and contain clauses which 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
60% of standby letters of credit are collateralized, and approximately 85% are
expected to expire without being drawn upon.
Commercial letters of credit represent short-term, self-liquidating
instruments which facilitate customer trade transactions and have maturities of
no longer than ninety days. These instruments are normally secured by the
merchandise or cargo being traded.
Interest rate swaps are agreements between two parties to exchange periodic
interest payments that are calculated on a notional principal amount.
Huntington enters into swaps to synthetically alter 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.
F-10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 1994, $3.9 billion of the swaps related to asset/liability
management activities provide for Huntington to receive a fixed rate of interest
and pay a variable rate based on the London inter-bank offered rate (LIBOR). For
approximately 38% of the receive fixed swaps, the notional amounts amortize
according to movements in market interest rates, principally Constant Maturity
U.S. Treasury Yields and LIBOR. Generally, as the applicable interest rate
indices increase, as they did throughout much of 1994, amortization of the
notional amounts occurs at a slower rate. Notional values of the remaining
receive fixed swaps and the entire $1.9 billion portfolio of pay fixed swaps,
for which Huntington receives LIBOR and pays a fixed rate of interest, do not
change during the lives of the contracts. Huntington also has basis swaps of $1
billion outstanding at December 31, 1994, which provide for both parties to
receive floating rates of interest according to different indices. These
contracts are used to protect against a potential narrowing in the spread
between the variable rates paid on certain interest rate swaps and the variable
rates of on-balance sheet financial instruments to which the swaps were
designated.
Interest rate futures and forward contracts 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. During the latter part of 1994, Huntington initiated a
program to sell futures contracts on Eurodollar deposits to hedge the risks of
certain LIBOR-based funding. Futures contracts were used for this purpose due to
their liquidity and credit risk advantages over swaps. Forward delivery
contracts, which are used by Huntington in connection with its mortgage banking
activities to reduce the exposure of fixed rate loan commitments to changing
interest rates, settle in cash at a specified future date based on the
differential between agreed interest rates applied to a notional amount. Forward
contracts generally have a greater degree of credit risk than futures as daily
cash settlements are not required.
Huntington also uses interest rate caps/floors to manage fluctuating
interest rates. Premiums paid for interest rate caps/floors 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. The purchased caps outstanding
at December 31, 1994, have an average remaining term of approximately two years.
The interest rate floors, which were purchased in September 1993 to protect
against mortgage loan prepayments, expired on January 1, 1995.
For more detailed information concerning off-balance sheet transactions,
refer to the "Interest Rate Risk Management" section of Management's Discussion
and Analysis.
- --------------------------------------------------------------------------------
12. LEGAL CONTINGENCIES
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. The aggregate liabilities, if
any, arising from such proceedings would not have a material adverse effect on
Huntington's consolidated financial position.
13. STOCK OPTION PLANS
Huntington has non-qualified and incentive stock option plans covering key
employees. Most recently, shareholders approved The Huntington Bancshares
Incorporated 1994 Stock Option Plan in April, 1994. Under this plan, as adjusted
for the five-for-four stock split distributed in July, 1994, a maximum of
7,500,000 shares of common stock may be optioned at prices not less than the
fair market value of the common stock at the date of grant. At December 31, 1994
and 1993, total options available for future grants under all stock option plans
were 8,313,741 and 1,411,359, respectively.
Huntington recognizes stock options when exercised by crediting
shareholders' equity for the cash option price paid by the optionee. No amounts
are charged or credited to income in connection with the stock option plans. All
outstanding options are considered common stock equivalents for purposes of
computing primary and fully-diluted earnings per share.
Activity in the plans for 1994 and 1993 is summarized as follows:
SHARES
UNDER
OPTION PRICE RANGE
- --------------------------------------------------------------------------------
Outstanding at January 1, 1993 ............ 2,760,758 $ 2.75-$14.14
Granted ................................... 671,040 $ 9.73-$20.65
Exercised ................................. (846,739) $ 2.70-$14.14
Cancelled ................................. (9,205) $ 2.75-$20.65
--------- -------------
Outstanding at December 31, 1993 .......... 2,575,854 $ 2.70-$20.65
- --------------------------------------------------------------------------------
Exercisable at December 31, 1993 .......... 1,901,890 $ 2.70-$17.32
- --------------------------------------------------------------------------------
Outstanding at January 1, 1994 ............ 2,575,854 $ 2.70-$20.65
Granted ................................... 635,861 $20.55-$21.13
Exercised ................................. (532,931) $ 2.70-$17.32
Cancelled ................................. (41,590) $ 7.41-$21.13
--------- -------------
Outstanding at December 31, 1994 .......... 2,637,194 $ 2.75-$21.13
- --------------------------------------------------------------------------------
Exercisable at December 31, 1994 .......... 1,995,643 $ 2.75-$20.65
- --------------------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan
covering substantially all employees of Huntington and its subsidiaries. This
plan provides benefits based upon a percent of final average salary for each
year of service. 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 marketable mutual funds.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following tables show the funded status of the plan at December 31,
1994 and 1993, the components of pension cost recognized in 1994, 1993, and
1992, and a summary of the key assumptions underlying the actuarial valuations.
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation ........................ $ 64,496 $ 63,790
========= =========
Accumulated benefit obligation ................... $ 70,172 $ 69,714
========= =========
Projected benefit obligation ....................... $ 104,381 $ 113,305
Plan assets, at fair value ......................... 97,105 101,372
--------- ---------
Projected benefit obligation in excess
of plan assets ................................... 7,276 11,933
Unrecognized transition asset,
net of amortization .............................. 3,480 4,044
Unrecognized net gain .............................. 14,090 695
Unrecognized prior service cost .................... (1,776) (1,917)
--------- ---------
Accrued pension cost ............................... $ 23,070 $ 14,755
========= =========
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- --------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE
FOLLOWING COMPONENTS
Service cost-benefits earned
during the period ............. $ 10,604 $ 7,485 $ 6,937
Interest cost on projected
benefit obligation ............ 7,923 7,060 6,656
Net amortization and deferral ... (12,111) (1,292) 3,213
Actual loss (return) on
plan assets ................... 1,899 (7,448) (11,512)
-------- -------- --------
Net pension expense ............... $ 8,315 $ 5,805 $ 5,294
======== ======== ========
ACTUARIAL ASSUMPTIONS
Discount rate ................... 8.00% 7.00% 8.25%
Rate of salary increases ........ 5.00% 5.00% 6.00%
Long-term rate of return
on assets ..................... 8.75% 8.75% 8.75%
Huntington also sponsors an unfunded Supplemental Executive Retirement
Plan, a non-qualified plan that provides certain key officers of Huntington and
its subsidiaries with defined pension benefits in excess of limits imposed by
federal tax law. At December 31, 1994, the projected benefit obligation for this
plan totaled $10,958,000, of which $3,974,000 was subject to later amortization.
The remaining $6,984,000 is included in other liabilities. At December 31, 1993,
the projected benefit obligation for this plan totaled $7,416,000 of which
$1,554,000 was subject to later amortization. The remaining $5,862,000 is
included in other liabilities. Pension costs for this plan were $1,188,000 in
1994, $971,000 in 1993, and $980,000 in 1992.
In addition to providing pension benefits, Huntington and its subsidiaries
provide 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 employees' number of months of service and is limited to the
actual cost of coverage.
Effective January 1, 1993, Huntington adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions." The Statement requires that the expected cost of
providing post-retirement benefits be recognized in the financial statements
during the employees' active service period.
The post-retirement benefit plan is unfunded. Net periodic post-retirement
benefit cost for 1994 and 1993 included the following components:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Service cost ......................................... $1,458 $ 782
Interest cost ........................................ 2,853 2,095
Amortization of transition obligation ................ 1,261 1,261
Net amortization and deferral ........................ 722 --
------ ------
Net periodic post-retirement benefit cost ............ $6,294 $4,138
====== ======
The following table sets forth the amounts recorded in the consolidated
balance sheets at December 31, 1994 and 1993:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation:
Retirees ......................................... $ 20,426 $ 16,031
Fully eligible active plan participants .......... 7,045 6,187
Other active plan participants ................... 9,805 9,515
-------- --------
Total accumulated post-retirement
benefit obligation ........................... 37,276 31,733
Unrecognized net loss ............................ (1,352) (5,328)
Unrecognized prior service cost .................. (6,320)
Unrecognized transition obligation ............... (22,693) (23,954)
-------- --------
Accrued post-retirement benefit cost ........... $ 6,911 $ 2,451
======== ========
The transition obligation totaled $25.2 million at January 1, 1993 and is
being amortized over 20 years. Prior to 1993, Huntington recognized the cost of
providing these benefits as incurred. Post-retirement health care benefits
charged to expense were $1,080,000 in 1992.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 8.0% in 1994 and 7.0% in 1993. The 1994
health care trend rate was projected to be 11.5% for pre-65 participants and
9.5% for post-65 participants compared to 12.25% and 10.0% in 1993. These rates
are assumed to decrease gradually until they reach 5.5% in the year 2004 and
remain at that level thereafter. Increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 1994, by $2.9 million and
the aggregate of the service and interest components of net periodic
post-retirement benefit cost for 1994 by $418,000.
Also in 1993, Huntington adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Post-employment Benefits." This
Statement requires the recognition of the cost to provide post-employment
benefits, such as long-term disability and unemployment benefits, on an accrual
basis. The accrued post-employment benefit obligation totaled $3.6 million at
December 31, 1994 and $3.5 million at December 31, 1993.
F-12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Huntington has a contributory employee stock purchase plan available to
eligible employees. Employee contributions of up to 6% of eligible compensation
are matched 75% by Huntington. Huntington may also make additional matching
contributions up to an additional 25% of employee contributions, at the
discretion of the Board of Directors. Eligible employees may contribute in
excess of 6% up to an additional 10% on an after tax basis. These additional
contributions are not matched by Huntington. The cost of providing this plan was
$8.2 million in 1994, $6.7 million in 1993, and $5.4 million in 1992.
The Huntington Supplemental Stock Purchase and Tax Savings Plan was adopted
in 1989. The plan is a non-qualified plan created to allow senior officers,
whose contributions to the stock purchase plan are limited by federal tax law,
to defer compensation on terms similar to those provided by the stock purchase
plan.
- --------------------------------------------------------------------------------
15. ACQUISITIONS
On December 16, 1994, Huntington acquired FirstFed Northern Kentucky
Bancorp, Inc. (FirstFed), a $226 million savings and loan holding company, for
approximately 1.9 million shares of Huntington common stock. The acquisition was
accounted for as a purchase. Accordingly, results of operations of FirstFed have
been included in the consolidated results of Huntington from the date of
acquisition.Proforma results of operations relative to the acquisition have not
been presented due to the immaterial impact on Huntington's consolidated
financial statements.
Also in 1994, Huntington signed a definitive merger agreement with
Security National Corporation of Maitland, Florida, a $180 million bank holding
company, and Reliance Bank of Florida, a $93 million privately-owned bank. Both
mergers will be accounted for as a pooling-of-interests and are expected to be
completed during the second quarter of 1995.
- --------------------------------------------------------------------------------
16. INCOME TAXES
The following is a summary of the provision for income taxes:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- --------------------------------------------------------------------------------
Currently payable
Federal ............................. $ 62,648 $ 151,204 $ 94,430
State ............................... 3,904 6,087 3,973
--------- --------- ---------
Total current ..................... 66,552 157,291 98,403
Deferred tax expense(benefit)
Federal ............................. 56,624 (29,107) (25,973)
State ............................... 705 (1,305) (41)
--------- --------- ---------
Total deferred .................... 57,329 (30,412) (26,014)
--------- --------- ---------
Total provision for income taxes .... $ 123,881 $ 126,879 $ 72,389
========= ========= =========
Tax expense associated with securities transactions included in the above
amounts was $908,000 in 1994, $9,516,000 in 1993, and $12,353,000 in 1992.
The following is a reconcilement of income tax expense to the amount
computed at the statutory rate of 35% in 1994 and 1993, respectively, and 34% in
1992.
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- --------------------------------------------------------------------------------
Pre-tax income computed
at the statutory rate ........... $ 128,266 $ 127,327 $ 79,369
Increases (decreases):
Tax-exempt interest income ...... (6,077) (8,236) (10,191)
State income taxes .............. 2,996 3,109 2,595
Other-net ....................... (1,304) 4,679 616
--------- --------- ---------
Provision for income taxes ...... $ 123,881 $ 126,879 $ 72,389
========= ========= =========
The significant components of Huntington's deferred tax assets and
liabilities at December 31, 1994 and 1993 are as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses ...................... $ 63,380 $ 65,894
Allowance for other real estate losses ......... 13,791 19,346
Financial instruments .......................... -- 16,202
Securities ..................................... 33,711 --
Pension and other employee benefits ............ 18,158 11,503
Deferred expenses .............................. 5,509 7,615
Other .......................................... 6,297 8,724
-------- --------
Total deferred tax assets .................... 140,846 129,284
Deferred tax liabilities:
Financial instruments .......................... 25,811 --
Lease financing transactions ................... 67,099 53,261
Premises and equipment ......................... 7,790 10,047
Revalued liabilities-net ....................... 7,779 7,971
Other .......................................... 8,081 7,450
-------- --------
Total deferred tax liabilities ............... 116,560 78,729
-------- --------
Net deferred tax asset ....................... $ 24,286 $ 50,555
======== ========
The components of the provision for deferred income taxes for the year
ended December 31, 1992 are as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1992
- --------------------------------------------------------------------------------
Provision for loan losses ................................... $ (7,476)
Provision for other real estate ............................. (16,694)
Lease financing ............................................. 2,785
Depreciation on premises and equipment ...................... 228
Pension and other employee benefits ......................... (1,648)
Other-net ................................................... (3,209)
--------
Total ..................................................... $(26,014)
========
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17. NON-INTEREST INCOME
A summary of the components in non-interest income for the three years
ended December 31 follows:
- ---------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- ----------------------------------------- -------- -------- ---------
Service charges on deposit accounts ..... $ 76,836 $ 73,172 $ 64,471
Mortgage banking ........................ 50,367 99,185 63,297
Credit card fees ........................ 34,045 31,794 27,037
Trust services .......................... 28,448 27,948 25,129
Investment product sales ................ 6,624 9,016 5,193
Net gains on sales of securities
available for sale .................... 2,481 22,973 19,174
Net investment securities gains ......... 113 4,216 17,158
Other ................................... 36,446 37,474 28,680
-------- -------- --------
TOTAL NON-INTEREST INCOME .......... $235,360 $305,778 $250,139
======== ======== ========
- --------------------------------------------------------------------------------
18. NON-INTEREST EXPENSE
A summary of the components in non-interest expense for the three years
ended December 31 follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- -------------------------------------- -------- -------- --------
Salaries ............................. $226,668 $226,405 $206,429
Commissions .......................... 10,775 20,992 18,310
Employee benefits .................... 58,158 55,259 46,596
Net occupancy ........................ 40,291 39,955 36,272
Equipment ............................ 38,792 37,230 34,184
Credit card .......................... 26,539 24,248 20,474
FDIC insurance ....................... 25,271 25,322 25,500
Advertising .......................... 15,320 13,259 13,308
Printing and supplies ................ 14,821 14,721 13,588
Legal and loan collection ............ 8,298 11,361 13,109
Other ................................ 144,719 190,141 204,812
-------- -------- --------
TOTAL NON-INTEREST EXPENSE ...... $609,652 $658,893 $632,582
======== ======== ========
F-14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1994 and 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) I Q II Q III Q IV Q
- ------------------------------------------------------------------------------------------------------------------------------------
1994
Interest income .................................. $ 301,637 $ 297,485 $ 301,724 $ 318,875
Interest expense ................................. 98,470 105,403 118,173 141,625
--------- --------- --------- ---------
Net interest income .............................. 203,167 192,082 183,551 177,250
--------- --------- --------- ---------
Provision for loan losses ........................ 8,464 3,219 1,113 2,488
Gains (losses) on sales of
securities available for sale .................. 1,748 62 735 (64)
Net investment securities gains (losses) ......... 50 141 (87) 9
Non-interest income .............................. 59,455 61,781 56,750 54,780
Non-interest expense ............................. 154,025 150,195 154,961 150,471
--------- --------- --------- ---------
Income before income taxes ....................... 101,931 100,652 84,875 79,016
Provision for income taxes ....................... 35,189 33,199 28,973 26,520
--------- --------- --------- ---------
Net income ....................................... $ 66,742 $ 67,453 $ 55,902 $ 52,496
========= ========= ========= =========
Net income per common share(1) ................... $ .51 $ .52 $ .43 $ .41
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) I Q II Q III Q IV Q
- ------------------------------------------------------------------------------------------------------------------------------------
1993
Interest income .................................. $ 299,749 $ 313,259 $ 308,934 $ 314,369
Interest expense ................................. 111,009 113,416 110,230 105,456
--------- --------- --------- ---------
Net interest income .............................. 188,740 199,843 198,704 208,913
--------- --------- --------- ---------
Provision for loan losses ........................ 23,479 25,170 15,280 15,365
Gains on sales of securities
available for sale ............................. 4,735 1,505 16,168 565
Net investment securities gains .................. 1,504 1,598 778 336
Non-interest income .............................. 57,374 66,316 73,775 81,124
Non-interest expense ............................. 147,799 157,735 181,268 172,091
--------- --------- --------- ---------
Income before income taxes ....................... 81,075 86,357 92,877 103,482
Provision for income taxes ....................... 26,527 28,086 32,142 40,124
--------- --------- --------- ---------
Net income ....................................... $ 54,548 $ 58,271 $ 60,735 $ 63,358
========= ========= ========= =========
Net income per common share(1) ................... $ .43 $ .46 $ .47 $ .49
(1) Restated for the five-for-four stock split distributed in July 1994.
- --------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington's
financial instruments are presented in the following table. Certain assets,
the most significant being premises and equipment, do not meet the definition
of a financial instrument and are excluded from this disclosure. Similarly,
intangible assets such as mortgage servicing rights, deposit base intangibles,
and other customer relationships 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.
AT DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR
(IN THOUSANDS OF DOLLARS) AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING INSTRUMENTS
Securities ....................................................................... $ 9,427 $ 9,427
Interest rate swaps and other off-balance sheet agreements
Assets ......................................................................... 12,643 12,643
Liabilities .................................................................... (12,351) (12,351)
NONTRADING INSTRUMENTS
Asset
Cash and short-term assets ....................................................... 893,715 893,715
Mortgages held for sale .......................................................... 138,997 138,997
Securities ....................................................................... 3,780,185 3,778,640
Related off-balance sheet liabilities .......................................... -- (22,031)
Loans ............................................................................ 12,063,944 11,855,952
Related off-balance sheet assets ............................................... 4,768 6,172
Related off-balance sheet liabilities .......................................... -- (169,483)
Customers' acceptance liability .................................................. 53,883 53,883
Liabilities
Deposits ......................................................................... (11,965,067) (11,925,464)
Related off-balance sheet liabilities .......................................... -- (59,938)
Short-term borrowings ............................................................ (2,898,201) (2,898,201)
Related off-balance sheet assets ............................................... -- 14,647
Related off-balance sheet liabilities .......................................... -- (4,343)
Bank acceptances ................................................................. (53,883) (53,883)
Long-term debt ................................................................... (1,214,052) (1,183,634)
Related off-balance sheet assets ............................................... -- 17,210
Related off-balance sheet liabilities .......................................... -- (44,934)
- ------------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR
(IN THOUSANDS OF DOLLARS) AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING INSTRUMENTS
Securities ....................................................................... $ 21,964 $ 21,964
Interest rate swaps and other off-balance sheet agreements
Assets ......................................................................... 5,301 5,301
Liabilities .................................................................... (4,952) (4,952)
NONTRADING INSTRUMENTS
Asset
Cash and short-term assets ....................................................... 757,689 757,689
Mortgages held for sale .......................................................... 1,032,338 1,032,338
Securities ....................................................................... 4,199,409 4,321,318
Related off-balance sheet liabilities .......................................... -- (275)
Loans ............................................................................ 10,742,093 10,799,391
Related off-balance sheet assets ............................................... -- 11,032
Related off-balance sheet liabilities .......................................... -- (22,535)
Customers' acceptance liability .................................................. 48,603 48,603
Other off-balance sheet financial instruments .................................... 1,438 604
Liabilities
Deposits ......................................................................... (12,044,690) (12,083,511)
Related off-balance sheet assets ............................................... -- 5,453
Related off-balance sheet liabilities .......................................... -- (5,332)
Short-term borrowings ............................................................ (3,195,463) (3,195,463)
Related off-balance sheet assets ............................................... -- 1,221
Related off-balance sheet liabilities .......................................... -- (64)
Bank acceptances ................................................................. (48,603) (48,603)
Long-term debt ................................................................... (762,310) (795,777)
Related off-balance sheet assets ............................................... -- 28,181
Related off-balance sheet liabilities .......................................... -- (3,580)
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
As indicated in Note 11, loan commitments and letters of credit generally have
short-term, variable rate features and contain clauses which limit Huntington's
exposure to changes in customer credit quality. Accordingly, their carrying
values, which are immaterial at the respective balance sheet dates, are
reasonable estimates of fair value. The following methods and assumptions were
used by Huntington to estimate the fair value of the remaining classes of
financial instruments:
Mortgages held for sale are valued at the lower of aggregate
cost or market as determined using outstanding commitments
from investors. Accordingly, the carrying amount of mortgages
held for sale approximates fair value.
Fair values of securities available for sale and investment
securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
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.
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 long-term debt are based
substantially upon quoted market prices.
The fair values of interest rate swap agreements and other
off-balance sheet financial instruments used for asset/liability
management and trading purposes are based upon quoted
market prices or prices of similar instruments, when available,
or calculated with pricing models using current rate assumptions.
- --------------------------------------------------------------------------------
21. REGULATORY RESTRICTIONS
Payment of dividends to Huntington by the subsidiary banks and thrifts are
subject to various regulatory restrictions. The regulatory agencies must
approve the declaration of any dividends in excess of available retained
earnings and in excess of the sum of net income for that year and retained net
income for the preceding two years, less any required transfers to surplus.
Under this formula, subsidiary banks and thrifts could, without such approval,
declare dividends in 1995 of approximately $223,984,000 plus an additional
amount equal to their net income through the date of declaration.
The subsidiary banks and thrifts are also restricted by federal regulation
as to the amount and type of loans they may make to Huntington. At December 31,
1994, the subsidiary banks and thrifts could lend to Huntington $161,764,000,
subject to the qualifying collateral requirements defined in the regulations.
F-16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (IN THOUSANDS OF DOLLARS) DECEMBER 31, 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents ................................................................ $ 69,767 $ 73,962
Securities available for sale ............................................................ 6,424 7,195
Due from non-bank subsidiaries ........................................................... 102,751 7,783
Investment in subsidiaries on the equity method
Bank subsidiaries ...................................................................... 1,426,888 1,371,406
Non-bank subsidiaries .................................................................. 48,195 47,716
Excess of cost of investment in subsidiaries over net assets acquired .................... 25,159 26,391
Other assets ............................................................................. 15,760 10,864
---------- ----------
TOTAL ASSETS ........................................................................... $1,694,944 $1,545,317
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings .................................................................... $ 25,000 --
Long-term debt ........................................................................... 198,994 $ 168,753
Dividends payable ........................................................................ 25,908 20,278
Accrued expenses and other liabilities ................................................... 33,222 31,649
---------- ----------
Total Liabilities ...................................................................... 283,124 220,680
Shareholders' Equity ..................................................................... 1,411,820 1,324,637
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................. $1,694,944 $1,545,317
========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS) YEAR ENDED DECEMBER 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from
Bank subsidiaries ................................................................. $ 167,729 $ 127,414 $ 58,750
Non-bank subsidiaries ............................................................. 5,245 5,356 4,214
Interest from
Bank subsidiaries ................................................................. 2,876 3,759 1,370
Non-bank subsidiaries ............................................................. 2,601 6 --
Other ............................................................................... 407 824 1,703
--------- --------- ---------
TOTAL INCOME .................................................................... 178,858 137,359 66,037
--------- --------- ---------
EXPENSE
Interest on long-term debt .......................................................... 15,056 13,292 12,020
Other ............................................................................... 12,075 15,303 15,347
--------- --------- ---------
TOTAL EXPENSE ................................................................... 27,131 28,595 27,367
--------- --------- ---------
Income before income taxes and equity in undistributed net income of subsidiaries ..... 151,727 108,764 38,670
Income tax benefit .................................................................... (8,007) (8,324) (7,826)
--------- --------- ---------
Income before equity in undistributed net income of subsidiaries ...................... 159,734 117,088 46,496
--------- --------- ---------
Equity in undistributed net income of
Bank subsidiaries ................................................................... 80,004 117,177 112,921
Non-bank subsidiaries ............................................................... 2,855 2,647 1,629
--------- --------- ---------
NET INCOME ...................................................................... $ 242,593 $ 236,912 $ 161,046
========= ========= =========
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22. HUNTINGTON BANCSHARES INCORPORATED (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) YEAR ENDED DECEMBER 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income ....................................................................... $ 242,593 $ 236,912 $ 161,046
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries ............................. (82,859) (119,824) (114,550)
Amortization ................................................................... 4,974 2,400 1,559
Losses (gains) on sales of securities .......................................... 25 21 (930)
Increase in other assets ....................................................... (4,909) (5,400) (2,422)
Increase in other liabilities .................................................. 5,926 4,003 8,371
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 165,750 118,112 53,074
--------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sales of investment securities ..................................... 173 329 4,390
(Advances to) repayments from subsidiaries ....................................... (94,968) 94,485 (100,282)
Acquisitions and additional capitalization of subsidiaries ....................... (10) (31,944) (5,000)
--------- --------- ---------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES ........................... (94,805) 62,870 (100,892)
--------- --------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt ..................................... 49,958 -- 147,747
Payment of long-term debt ........................................................ (23,184) (100,246) (6,648)
Increase in short-term borrowings ................................................ 25,000 -- --
Dividends on common stock ........................................................ (68,662) (58,412) (45,256)
Acquisition of treasury stock .................................................... (73,634) (36,795) (19,149)
Sales of treasury stock .......................................................... 13,651 10,309 11,455
Proceeds from exercise of stock options .......................................... 1,731 2,430 2,224
--------- --------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES ........................... (75,140) (182,714) 90,373
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS ............................................ (4,195) (1,732) 42,555
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................. 73,962 75,694 33,139
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................................... $ 69,767 $ 73,962 $ 75,694
========= ========= =========
F-18
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 1
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS) 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Total interest income .................. $ 1,219,721 $ 1,236,311 $ 1,202,286 $ 1,208,407 $ 1,266,770 $ 1,177,754
Total interest expense ................. 463,671 440,111 504,846 659,918 780,759 730,386
Net interest income .................... 756,050 796,200 697,440 548,489 486,011 447,368
Securities gains ....................... 2,594 27,189 36,332 16,951 579 302
Provision for loan losses .............. 15,284 79,294 81,562 62,061 76,434 43,739
Net income ............................. 242,593 236,912 161,046 133,940 99,765 122,829
PER COMMON SHARE(1)
Net income ............................. 1.87 1.85 1.27 1.06 .79 1.02
Cash dividends declared ................ .72 .60 .50 .46 .41 .35
Book value at year end ................. 10.84 10.21 8.87 8.10 7.43 7.06
BALANCE SHEET HIGHLIGHTS
Total assets at year-end ............... 17,770,640 17,618,707 16,246,526 14,500,477 13,671,182 13,353,001
Total long-term debt at year-end ....... 1,214,052 762,310 478,872 261,168 206,578 209,808
Average long-term debt ................... 927,797 640,976 299,905 218,645 200,939 206,356
Average shareholders' equity ............. 1,403,314 1,216,470 1,074,159 977,073 917,474 815,270
Average total assets ..................... $16,749,850 $16,850,719 $15,165,151 $13,612,543 $13,489,939 $12,247,488
- ------------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
MARGIN ANALYSIS - AS A %
OF AVERAGE EARNING ASSETS(2)
Interest income ........................ 7.97% 8.03% 8.75% 9.85% 10.51% 10.85%
Interest expense ....................... 3.01 2.83 3.63 5.30 6.37 6.59
----- ----- ----- ----- ----- -----
Net interest margin ...................... 4.96% 5.20% 5.12% 4.55% 4.14% 4.26%
===== ===== ===== ===== ===== =====
RETURN ON
Average total assets ................... 1.45% 1.41% 1.06% .98% .74% 1.00%
Average earning assets ................. 1.57% 1.53% 1.16% 1.08% .81% 1.11%
Average shareholders' equity ........... 17.29% 19.48% 14.99% 13.71% 10.87% 15.07%
Dividend payout ratio .................... 38.50% 32.47% 38.99% 42.86% 51.52% 34.65%
Average shareholders' equity to
average total assets ................... 8.38% 7.22% 7.08% 7.18% 6.80% 6.66%
Tier I risk-based capital ratio .......... 9.55% 9.60% 9.39% 9.07% 8.68% 8.69%
Total risk-based capital ratio ........... 13.57% 14.02% 12.56% 11.27% 11.19% 11.16%
Tier I leverage ratio .................... 7.99% 7.03% 6.72% 7.00% 6.54% 6.34%
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
Full-time equivalent employees 8,152 8,395 8,039 7,562 7,074 6,884
Banking and thrift offices 344 352 346 334 318 304
(1) Restated for the five-for-four stock split distributed in July 1994.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate in 1994
and 1993 and a 34% tax rate in years 1989 through 1992.
F-19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OVERVIEW
Huntington reported net income of $242.6 million in 1994, compared with
$236.9 million and $161.0 million in 1993 and 1992, respectively. On a per share
basis, net income increased to $1.87 in 1994, up from $1.85 and $1.27 in the
preceding two years. Huntington's earnings were stronger in the first half of
1994 than in the final six months. Although earnings were higher in 1994,
adverse changes in market conditions such as rising interest rates caused
compression in the margin and reduced fee-based income from mortgage banking
activities and investment management and sales, particularly in the last half of
the year. Per share amounts for all prior periods have been restated to reflect
the five-for-four stock split distributed to shareholders in July 1994.
Huntington's returns on average assets (ROA) and average equity (ROE)
during 1994 were 1.45% and 17.29%, respectively, which compare favorably with
industry averages and the performance of its peer group. In the prior two years,
ROA was 1.41% and 1.06%, and ROE was 19.48% and 14.99%.
Total assets were $17.8 billion at December 31, 1994, representing a slight
increase from December 31 of last year. The most significant growth in the
balance sheet has been in the area of loans, particularly in the consumer
component of the portfolio, which is indicative of Huntington's continued
penetration into new and existing markets and a general improvement in economic
conditions. Average total loans of $11.5 billion for the year ended December 31,
1994, increased 13.7% from the average balance of $10.1 billion reported for
1993. Conversely, mortgages held for sale dropped significantly from an average
balance of $827 million in 1993 to $367 million in the year just ended. This
resulted as a rapid rise in interest rates precipitated a substantial
curtailment of residential loan originations. The average balance of securities
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 2
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN EARNINGS PER SHARE(1) 1994/1993 1993/1992
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per share for 1993 and 1992, respectively ................................... $ 1.85 $ 1.27
Increase (decrease) attributable to:
Net interest income .................................................................. (.31) .77
Provision for loan losses ............................................................ .49 .01
Mortgage banking income .............................................................. (.38) .28
Service charges on deposit accounts .................................................. .03 .07
Securities transactions .............................................................. (.19) (.07)
Other income ......................................................................... (.01) .16
Salaries ............................................................................. -- (.15)
Commissions .......................................................................... .08 (.02)
Employee benefits .................................................................... (.02) (.06)
Provision for other real estate ...................................................... .05 .40
Other expense ........................................................................ .28 (.36)
Income taxes ......................................................................... .02 (.43)
Additional shares outstanding ........................................................ (.02) (.02)
------ ------
Net change ..................................................................... .02 .58
------ ------
Net income per share for 1994 and 1993, respectively ................................... $ 1.87 $ 1.85
====== ======
(1) Restated for the five-for-four stock split distributed in July 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1994 1993 1992
----------------- ------------------ -------------------
CONTRI- % OF CONTRI- % OF CONTRI- % OF
(IN MILLIONS) BUTION TOTAL BUTION TOTAL BUTION TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
BANKING SUBSIDIARIES
NET INCOME:
Ohio ............................................... $179.1 73.8% $162.1 68.4% $ 99.6 61.9%
West Virginia ...................................... 34.0 14.0 33.1 14.0 26.4 16.4
Michigan ........................................... 27.5 11.3 23.2 9.8 20.0 12.4
Indiana ............................................ 14.2 5.9 7.4 3.1 10.1 6.3
Kentucky ........................................... 6.7 2.8 5.9 2.5 5.1 3.2
Florida ............................................ 2.9 1.2 3.3 1.4 1.3 .8
------ ----- ------ ----- ------ -----
Total Banking Subsidiaries ................... 264.4 109.0 235.0 99.2 162.5 101.0
NON-BANKING SUBSIDIARIES
NET INCOME(LOSS)
Huntington Mortgage Company ........................ (11.2) (4.6) 15.0 6.3 10.5 6.5
Trust Services ..................................... 4.0 1.6 3.2 1.4 2.1 1.3
Other Non-banking .................................. 1.7 .7 .8 .3 2.3 1.4
Parent Company, debt service, and other
supporting operations ............................ (16.3) (6.7) (17.1) (7.2) (16.4) (10.2)
------ ----- ------ ----- ------ -----
NET INCOME ........................................... $242.6 100.0% $236.9 100.0% $161.0 100.0%
====== ===== ====== ===== ====== =====
F-20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
available for sale also declined in 1994, as management repositioned the balance
sheet during the first half of the year to reduce the portfolio's exposure to
rising rates. The timing of this repositioning was such that Huntington was able
to achieve a lower level of interest rate risk without incurring significant
losses from securities sales. Total deposits have declined slightly from the
prior year amount, in large part because of an expected decrease in time
deposits of $100,000 or more and foreign time deposits, as well as a lower
amount of funds held in escrow in connection with Huntington's mortgage banking
activities. The decline in large domestic and foreign time deposits reflects
management's decision to utilize alternative sources to raise national market
liabilities. In doing so, Huntington was able to reduce its FDIC insurance
premiums without impeding balance sheet liquidity. As more fully discussed in
the liquidity section, Huntington's core deposit base has been its most
significant source of funding. Management recognizes the continued importance of
core deposits and anticipates that they will remain the primary source of
funding in the future.
Shareholders' equity was $1.4 billion at December 31, 1994, an increase of
6.6% from one year ago. Huntington's regulatory capital ratios, including those
of its banking and thrift subsidiaries, show continued strength and exceed the
minimum levels established for well-capitalized institutions. In addition,
Huntington and its subsidiaries meet all other requirements to be considered
well-capitalized.
UNIT PROFITABILITY
Net income at all of Huntington's banking and thrift subsidiaries increased
during each of the past two years, with the exception of its Indiana operations
which reported a decrease from 1992 to 1993 as a result of certain nonrecurring
acquisition costs, and its Florida location which reported lower net income in
the most recent year principally because of a lower contribution from its
mortgage banking activities. In terms of the non-banking results over these same
periods, The Huntington Mortgage Company reported a net loss of $11.2 million
during 1994, compared with net income of $15.0 million and $10.5 million,
respectively, in the two preceding years. Huntington's mortgage banking
activities are more fully discussed in the sections which follow.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Huntington reported net interest income of $756.1 million in 1994, compared
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 3
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES(1)
- ------------------------------------------------------------------------------------------------------------------------------------
FULLY TAX EQUIVALENT BASIS(2) 1994 1993
---------------------------------- ----------------------------------
(IN MILLIONS OF DOLLARS) INCREASE (DECREASE) INCREASE (DECREASE)
FROM PREVIOUS FROM PREVIOUS
YEAR DUE TO: YEAR DUE TO:
---------------------------------- ----------------------------------
VOLUME YIELD/RATE TOTAL VOLUME YIELD/RATE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits in banks ................... $ (1.3) $ .4 $ (.9) $ (2.7) $ (.2) $ (2.9)
Trading account securities ........................... .2 .2 .4 (.6) (.1) (.7)
Federal funds sold and securities
purchased under resale agreements ................... 1.5 .9 2.4 (1.7) (.6) (2.3)
Mortgages held for sale .............................. (32.5) (1.8) (34.3) 11.0 (5.9) 5.1
Taxable securities ................................... (69.9) 13.7 (56.2) 39.4 (29.4) 10.0
Tax-exempt securities ................................ (7.6) (1.0) (8.6) (7.9) 5.3 (2.6)
Total loans .......................................... 119.1 (40.7) 78.4 90.4 (66.1) 24.3
------ ------ ------ ------ ------ ------
TOTAL EARNING ASSETS ............................ 9.5 (28.3) (18.8) 127.9 (97.0) 30.9
------ ------ ------ ------ ------ ------
Interest bearing demand deposits ..................... 1.2 (5.0) (3.8) 4.3 (17.1) (12.8)
Savings deposits ..................................... 1.3 (9.8) (8.5) 14.4 (21.0) (6.6)
Certificates of deposit of
$100,000 or more ................................... (9.1) 3.6 (5.5) (16.9) (8.7) (25.6)
Other domestic time deposits ......................... (2.1) (.1) (2.2) (23.3) (33.2) (56.5)
Foreign time deposits ................................ (6.5) 3.6 (2.9) 10.0 (.7) 9.3
Short-term borrowings ................................ (6.5) 23.8 17.3 24.8 (8.3) 16.5
Long-term debt ....................................... 17.6 11.6 29.2 19.1 (8.1) 11.0
------ ------ ------ ------ ------ ------
TOTAL INTEREST BEARING LIABILITIES .............. (4.1) 27.7 23.6 32.4 (97.1) (64.7)
------ ------ ------ ------ ------ ------
NET INTEREST INCOME ............................. $ 13.6 $(56.0) $(42.4) $ 95.5 $ .1 $ 95.6
====== ====== ====== ====== ====== ======
(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.
F-21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 4
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF YEAR ..... $ 211,835 $ 153,654 $ 134,770 $ 123,622 $ 91,039 $ 79,110
Loan losses
Commercial ..................................... (10,404) (20,289) (26,634) (26,610) (17,524) (13,180)
Real estate
Construction ................................. (5,957) (422) (14,001) (34) (850) (4,077)
Mortgage ..................................... (5,428) (2,060) (6,665) (6,859) (8,115) (1,825)
Consumer ....................................... (23,356) (21,492) (25,621) (28,773) (26,276) (23,585)
Lease financing ................................ (977) (1,329) (2,734) (1,338) (1,255) (1,048)
---------- ---------- ---------- ---------- ---------- ----------
Total loan losses .............................. (46,122) (45,592) (75,655) (63,614) (54,020) (43,715)
---------- ---------- ---------- ---------- ---------- ----------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF
Commercial ..................................... 7,724 3,564 3,607 2,589 3,527 4,235
Real estate
Construction ................................. 1 1 -- 400 -- --
Mortgage ..................................... 506 352 120 736 179 155
Consumer ....................................... 9,503 9,058 8,313 6,781 6,229 5,166
Lease financing ................................ 368 263 424 230 197 214
---------- ---------- ---------- ---------- ---------- ----------
Total recoveries of loans previously charged off 18,102 13,238 12,464 10,736 10,132 9,770
---------- ---------- ---------- ---------- ---------- ----------
NET LOAN LOSSES .................................. (28,020) (32,354) (63,191) (52,878) (43,888) (33,945)
---------- ---------- ---------- ---------- ---------- ----------
PROVISION FOR LOAN LOSSES ........................ 15,284 79,294 81,562 62,061 76,434 43,739
ALLOWANCE OF ASSETS ACQUIRED ..................... 1,393 11,241 513 1,965 37 2,135
---------- ---------- ---------- ---------- ---------- ----------
ALLOWANCE FOR LOAN LOSSES, END OF YEAR ........... $ 200,492 $ 211,835 $ 153,654 $ 134,770 $ 123,622 $ 91,039
========== ========== ========== ========== ========== ==========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses ................................ .24% .32% .69% .61% .52% .44%
Provision for loan losses ...................... .13% .78% .89% .72% .91% .57%
Allowance for loan losses as a %
of total loans (end of period) ................. 1.63% 1.93% 1.61% 1.52% 1.42% 1.12%
Net loan loss coverage (1) ....................... 13.62x 13.69x 4.98x 4.77x 4.82x 6.08x
(1) Income before income taxes and the provision for loan losses to net
loan losses.
- --------------------------------------------------------------------------------
with $796.2 million and $697.4 million, respectively, in 1993 and 1992. The net
interest margin, on a fully tax equivalent basis, was 4.96% during the most
recent twelve months, a decrease from 5.20% in 1993 and 5.12% in 1992. Rising
interest rates put downward pressure on the net interest margin and further
compression is expected in 1995. The drop in 1994 reflects the impact of the
increase in short-term interest rates (e.g. a 250 basis point increase occurred
in the federal funds rate) which increased Huntington's funding costs more
rapidly than its yields on earning assets. The lower margin and reduced level of
net interest income also were due to the decrease in mortgages held for sale,
competitive pricing pressures on new loans, and actions taken to reposition the
balance sheet to reduce Huntington's exposure to increases in interest rates.
The competitive pressures on loan pricing existed throughout the entire
portfolio and were particularly evident in terms of indirect automobile lending,
a significant component of Huntington's consumer business.
PROVISION AND ALLOWANCE FOR LOAN
LOSSES
The provision for loan losses was $15.3 million in 1994, $79.3 million in
1993 and $81.6 million in 1992. The decrease from prior years is directly
related to a significant improvement in credit quality, as total nonperforming
loans decreased $32.7 million, or 42.4%, over the last twelve months. Moreover,
Huntington's net charge-offs decreased 13.4% from 1993, a significant
achievement given the loan growth during 1994 and the sharp drop in net
charge-offs from 1992 to 1993 of $30.8 million, or 48.8%.
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 which
F-22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 5
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial ........... $ 31,682 29.3% $ 33,156 31.4% $ 51,764 32.8% $ 55,778 32.4% $ 48,309 35.2%
Tax-free ............. -- .5 -- .7 47 .7 10 .9 15 1.0
Real estate
Construction ....... 908 2.5 1,636 3.1 1,329 4.0 6,672 4.9 19,046 5.8
Mortgage ........... 16,677 24.5 18,008 24.5 12,274 23.7 10,545 23.6 7,833 20.8
Consumer ............. 28,672 37.9 24,901 35.9 23,604 34.9 23,836 34.6 22,407 33.5
Lease financing ...... 2,972 5.3 2,107 4.4 1,943 3.9 1,565 3.6 1,381 3.7
Unallocated .......... 119,581 -- 132,027 -- 62,693 -- 36,364 -- 24,631 --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total ........ $200,492 100.0% $211,835 100.0% $153,654 100.0% $134,770 100.0% $123,622 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
- ------------------------------------------------------------------------------------------------------------------------------------
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 and accordingly, the December 31,
1994 allocation is not necessarily indicative of the trend of future loan losses
in any particular loan category.
At year end 1994, the ALL of $200.5 million represented 1.63% of total
loans, compared with ratios of 1.93% and 1.61%, respectively, at December 31,
1993 and 1992. Huntington believes this decrease from one year ago is
appropriate based on the trend in nonperforming loans, as evidenced by the
coverage ratio improving from 274.4% at the end of last year to 450.8% as of
December 31, 1994. Additional information regarding the ALL and asset quality
appears in the section "CREDIT RISK".
NON-INTEREST INCOME
Non-interest income totaled $235.4 million in 1994, down from $305.8
million in 1993, and $250.1 million in 1992. Excluding securities transactions,
the respective amounts were $232.8 million, $278.6 million, and $213.8 million.
A significant downturn in mortgage banking operations was the predominant
reason for the decrease in fee-based income from prior years. In 1993, mortgage
loan originations increased substantially in response to mortgage interest rates
which had reached their lowest level in several years. This trend began to level
off at the beginning of 1994, and Huntington's mortgage loan production
decreased dramatically throughout the year from a total volume of $6.1 billion
in 1993 to $2.2 billion in 1994. Moreover, the decline in residential mortgage
loan production, coupled with sales of servicing rights, resulted in a decline
in the volume of mortgage loans serviced by Huntington from $9.6 billion,
including loans subject to temporary subservicing agreements of $2.6 billion, to
$5.4 billion at year end 1994. Given the current market conditions, and
Huntington's outlook for mortgage interest rates in the coming months, this
trend of decreasing fees from mortgage loan originations and other mortgage
banking activities is expected to continue into 1995.
A comparative analysis of the major components of mortgage banking income
follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992
- --------------------------------------------------------------------------------
Net servicing fees ............. $21,586 $15,105 $16,777
Fee income ..................... 13,428 38,639 33,734
Gain on sale of
servicing rights ............. 11,583 31,765 1,539
Other income ................... 3,770 13,676 11,247
------- ------- -------
Total ........................ $50,367 $99,185 $63,297
======= ======= =======
- --------------------------------------------------------------------------------
Net servicing fees for 1993 were significantly affected by accelerated
amortization of excess mortgage servicing rights (EMSRs) during the year. As the
refinancing volume which fueled the accelerated amortization last year declined
dramatically in 1994, amortization of EMSRs decreased $18.1 million, from $21.2
million in 1993, to $3.1 million in the most recent twelve months.
Servicing rights sold by Huntington for each of the last two years were
related to loans totaling $2.2 billion in 1994 and $3.8 billion in 1993. Gains
on such sales were the primary reason for the increase in mortgage banking
income of 56.7% from 1992 to 1993, as no significant servicing sales occurred
during 1992. At the end of the most recent year, the servicing portfolio had an
average contractual maturity of approximately 22 years, which was comparable to
a year ago, and an average coupon rate of 8.12%, versus 7.92% in 1993. The
decrease between years in other mortgage banking income is a reflection
F-23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 6
- ------------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) PERCENT
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1994/93 1993/92
- ------------------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts ................ $ 76,836 $ 73,172 $ 64,471 5.0% 13.5%
Mortgage banking ................................... 50,367 99,185 63,297 (49.2) 56.7
Credit card fees ................................... 34,045 31,794 27,037 7.1 17.6
Trust services ..................................... 28,448 27,948 25,129 1.8 11.2
Investment product sales ........................... 6,624 9,016 5,193 (26.5) 73.6
Net gains on sales of securities
available for sale ............................... 2,481 22,973 19,174 (89.2) 19.8
Net investment securities gains .................... 113 4,216 17,158 (97.3) (75.4)
Other .............................................. 36,446 37,474 28,680 (2.7) 30.7
-------- -------- --------
TOTAL NON-INTEREST INCOME .......................... $235,360 $305,778 $250,139 (23.0)% 22.2%
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 7
- ------------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) PERCENT
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1994/93 1993/92
- ------------------------------------------------------------------------------------------------------------------------------------
Salaries ...................................... $226,668 $226,405 $206,429 .1% 9.7%
Commissions ................................... 10,775 20,992 18,310 (48.7) 14.6
Employee benefits ............................. 58,158 55,259 46,596 5.2 18.6
Net occupancy ................................. 40,291 39,955 36,272 .8 10.2
Equipment ..................................... 38,792 37,230 34,184 4.2 8.9
Credit card ................................... 26,539 24,248 20,474 9.4 18.4
FDIC insurance ................................ 25,271 25,322 25,500 (.2) (.7)
Advertising ................................... 15,320 13,259 13,308 15.5 (.4)
Printing and supplies ......................... 14,821 14,721 13,588 .7 8.3
Legal and loan collection ..................... 8,298 11,361 13,109 (27.0) (13.3)
Other ......................................... 144,719 190,141 204,812 (23.9) (7.2)
-------- -------- --------
TOTAL NON-INTEREST EXPENSE .................... $609,652 $658,893 $632,582 (7.5)% 4.2%
======== ======== ========
of general market conditions which resulted in lower gains from the sale of
loans during 1994.
Huntington realized gains from securities transactions of $2.6 million in
1994, $27.2 million in 1993, and $36.3 million in 1992. These gains resulted
principally from different programs in each of the years. In the most recent
year, management initiated a program to sell certain fixed rate securities in
anticipation of increased market interest rates, while the more significant
sales of 1993 were the result of a program to change the earning asset mix,
which was effected by deploying proceeds from securities sales into loans.
Finally, expectations of accelerated prepayments of mortgage-backed securities
were the primary reason for the 1992 sales.
The remaining components of non-interest income were, in the aggregate,
relatively flat when comparing 1994 results with 1993. Service charges on
deposits and credit card fees represented the largest increases and were
mostly volume related, while income from investment product sales showed the
most significant decrease. Many of these components showed more significant
increases from 1992 to 1993 as a result of changes in the pricing of service
charges on various corporate and retail products, and market conditions which
benefitted fee-based activities such as trust services and investment product
sales.
NON-INTEREST EXPENSE
Non-interest expense decreased $49.2 million, or 7.5%, when comparing 1994
results with the prior year, while the 1993
F-24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
total exceeded the corresponding amount for 1992 by $26.3 million, or 4.2%.
In 1993, Huntington experienced unsurpassed levels of mortgage refinancings
resulting in significant prepayments of the mortgage servicing portfolio. As
discussed previously, the upward trend in mortgage interest rates which began in
early 1994 considerably slowed the pace of refinancings during the year.
Accordingly, amortization of purchased mortgage servicing rights (PMSRs), which
is included in other non-interest expense, decreased from $37.2 million in the
prior year to $5.8 million in the year just ended. PMSR amortization in 1993
exceeded the 1992 total by $22.2 million.
Huntington has seen reductions in various components of other non-interest
expense in each of the past two years from continued improvements in asset
quality, particularly in terms of costs associated with other real estate owned
and loan collection. Salaries increased only slightly
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 8
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal agencies ............................ $ 317,713 $ 94,466 $3,420,855
States and political subdivisions ............................. 153,649 232,721 282,426
Other ......................................................... 4,330 32,158 228,626
---------- ---------- ----------
Total ................................................. $ 475,692 $ 359,345 $3,931,907
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1994
(IN THOUSANDS OF DOLLARS) AMORTIZED COST FAIR VALUE YIELD(1)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S Treasury
Under 1 year ...................................................... $ 150 $ 150 8.63%
-------- --------
Total ....................................................... 150 150
-------- --------
Federal agencies
Mortgage-backed securities
1-5 years ......................................................... 371 344 4.90
6-10 years ........................................................ 4,812 4,806 8.54
Over 10 years ..................................................... 3,130 3,133 8.94
-------- --------
Total ....................................................... 8,313 8,283
-------- --------
Other agencies
1-5 years ......................................................... 101,774 99,446 6.23
6-10 years ........................................................ 207,043 205,358 6.12
Over 10 years ..................................................... 433 350 5.60
-------- --------
Total ....................................................... 309,250 305,154
-------- --------
Total U.S. Treasury and Federal agencies ............................ 317,713 313,587
-------- --------
States and political subdivisions
Under 1 year ...................................................... 56,361 57,080 10.99
1-5 years ......................................................... 72,812 74,975 10.18
6-10 years ........................................................ 18,433 18,059 8.14
Over 10 years ..................................................... 6,043 6,196 10.08
-------- --------
Total ....................................................... 153,649 156,310
-------- --------
Other
Under 1 year ...................................................... 1,508 1,508 9.82
1-5 years ......................................................... 5 5 5.50
6-10 years ........................................................ 1,504 1,424 9.74
Over 10 years ..................................................... 1,313 1,313 9.14
-------- --------
Total ....................................................... 4,330 4,250
-------- --------
Total Investment Securities ......................................... $475,692 $474,147
======== ========
(1) Weighted average yields are calculated on the basis of book value. Such
yields have been adjusted to a fully tax equivalent basis, assuming a 35%
tax rate.
At December 31, 1994, Huntington had no concentrations of securities by a
single issuer in excess of 10% of shareholders' equity.
F-25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
during 1994, as the effects of merit raises were largely negated by reductions
in staff at Huntington's mortgage subsidiary. Employee benefits were up 5.2%
from the prior year, as a result of the change made at the end of 1993 to an
actuarial assumption associated with the defined benefit pension plan and other
general cost increases. Commissions expense decreased significantly during 1994,
principally because of reduced mortgage loan originations. Advertising costs
increased 15.5% during the most recent year in connection with several new
initiatives undertaken by Huntington such as Huntington Direct, the National
Clearinghouse Association, and Direct Bill Pay.
Huntington's expanded mortgage banking activities and, to a lesser extent,
two purchase business combinations consummated during 1993 were significant
reasons for the increase in non-interest expense from 1992 to 1993. Salaries
were 9.7% higher in 1993 than 1992 primarily
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 9
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Federal agencies ............................ $3,006,277 $3,691,190 $ 393,535
States and political subdivisions ............................. -- -- 5,686
Other ......................................................... 298,216 148,874 --
---------- ---------- ----------
Total ................................................. $3,304,493 $3,840,064 $ 399,221
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST AND FAIR VALUES BY MATURITY AT DECEMBER 31, 1994
(IN THOUSANDS OF DOLLARS) AMORTIZED COST FAIR VALUE YIELD(1)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S Treasury
Under 1 year ................................................... $ 25,399 $ 25,320 6.12%
1-5 years ...................................................... 662,106 643,100 6.27
6-10 years ..................................................... 166,909 147,671 5.60
---------- ----------
Total .................................................... 854,414 816,091
---------- ----------
Federal agencies
Mortgage-backed securities
1-5 years ...................................................... 17,727 16,922 6.65
6-10 years ..................................................... 369,061 362,716 7.72
Over 10 years .................................................. 114,742 110,119 6.21
---------- ----------
Total .................................................... 501,530 489,757
---------- ----------
Other agencies
Under 1 year ................................................... 531,082 526,617 5.78
1-5 years ...................................................... 506,740 499,748 7.01
6-10 years ..................................................... 382,849 369,404 6.16
Over 10 years .................................................. 323,451 304,660 6.52
---------- ----------
Total .................................................... 1,744,122 1,700,429
---------- ----------
Total U.S. Treasury and Federal agencies ......................... 3,100,066 3,006,277
---------- ----------
Other
1-5 years ...................................................... 95,410 94,887 5.78
6-10 years ..................................................... 165,422 164,087 6.13
Over 10 years .................................................. 32,854 32,818 6.57
Marketable equity securities ................................... 8,359 6,424 4.95
---------- ----------
Total .................................................... 302,045 298,216
---------- ----------
Total Securities Available for Sale .............................. $3,402,111 $3,304,493
========== ==========
(1) Weighted average yields are calculated on the basis of book value.
Such yields have been adjusted to a fully tax equivalent basis,
assuming a 35% tax rate.
At December 31, 1994, Huntington had no concentrations of securities by a
single issuer in excess of 10% of shareholders' equity.
F-26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
as a result of an increased workforce at Huntington's mortgage subsidiary and
normal merit increases, while related employee benefits were up 18.6% due to the
additional personnel and increased costs of providing post-retirement,
post-employment, and employee stock purchase plan benefits. The remaining
components of non-interest expense also generally increased at a greater rate
from 1992 to 1993 than was experienced during the most recent year. These
increases were the result of higher volumes of mortgage originations and credit
card transactions, as well as corporate expansion.
PROVISION FOR INCOME TAXES
The provision for income taxes was $123.9 million in 1994, compared with
$126.9 million in 1993 and $72.4 million in 1992. Huntington's effective tax
rate decreased slightly during the most recent twelve months, principally as a
result of a one-time charge recorded in 1993 of $4.0 million related to the
conversion of an acquired thrift to a bank charter. In each of the three years,
the major difference in the statutory and effective tax rates is tax-exempt
interest income. A change in the federal income tax rate from 34% to 35% in
1993 also contributed to the higher effective rate when comparing the
immediately preceding year to 1992.
On January 1, 1993, Huntington prospectively adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Adoption of this standard did not materially impact the consolidated
financial statements.
INTEREST RATE RISK AND
LIQUIDITY MANAGEMENT
INTEREST RATE RISK MANAGEMENT
The principal objective of asset/liability management is to maximize
shareholder value in a manner consistent with prudent balance sheet management.
Through its asset/liability management process, Huntington seeks to achieve
consistent growth in both net interest income and net income while managing
volatility arising from shifts in interest rates. This is accomplished with the
oversight of the Asset/Liability Management Committee (ALCO), which is comprised
of key members of executive management. ALCO establishes policies and operating
limits that govern the management of both interest rate and market risk as well
as ensure maintenance of adequate liquidity. Both on- and off-balance sheet
tactics and strategies are regularly reviewed and monitored by ALCO to confirm
their consistency with Huntington's operating objectives as well as to evaluate
their appropriateness and effectiveness in light of changing market and business
conditions.
Huntington monitors its interest rate risk exposure by measuring the amount
that net interest income will change over a twelve to twenty-four month period
given a directional shift in interest rates. The net interest income-at-risk
estimation is determined using multiple interest rate and balance sheet
scenarios to provide management a framework for evaluating its risk tolerance
under various market conditions.
Actively and effectively managing interest rate risk requires the use of a
variety of financial instruments and funding sources. On-balance sheet
investment and funding vehicles, along with off-balance sheet financial
instruments such as interest rate swaps, interest rate caps/floors, and
financial futures, represent the primary means by which Huntington responds to
the balance sheet mismatches created by customer loan and deposit preferences
and to changing market conditions. These activities are closely monitored by
ALCO.
Over the past year, Huntington has undertaken several strategies to protect
earnings against rising rates. These have included the sale of approximately
$2.1 billion of fixed rate securities designated as available for sale, the
issuance of term fixed-rate retail deposits and wholesale liabilities, and the
adjustment of interest rate swap and other off-balance sheet positions. These
initiatives reduced Huntington's interest rate risk exposure during 1994 and
have better positioned the company in light of expectations for further rate
increases in 1995.
At December 31, 1994, the results of Huntington's internal interest
sensitivity analysis indicate that a 100 basis point increase in the federal
funds rate from the current 5.50% level (assuming a 25 basis point increase per
quarter) and corresponding changes in other market rates, reflected in
Huntington's interest rate forecast, would result in a decrease in annual net
interest income of 0% to 0.9%. This represents a significant decrease from the
end of 1993, at which time Huntington's equivalent exposure was a 4-5% decline
in net interest income. Assuming a gradual 200 basis point increase in rates,
the sensitivity analysis indicates a decrease in net interest income ranging
between 0.1% and 1.8%. Huntington uses a range in measuring its "at-risk"
position because of varying assumptions regarding the volume and rate behaviors
of certain loans and core deposits under the rising rate scenarios.
Interest rate swaps are the principal off-balance sheet vehicles used by
Huntington for asset/liability management. In addition to the transactional
efficiencies afforded by a swap structure, which is less costly to execute than
a comparable cash instrument, the overall swap strategy has enabled Huntington
to lower the costs of raising wholesale funds and has allowed management to
synthetically alter, or customize, the repricing characteristics of selected
on-balance sheet financial instruments. Financial futures and interest rate
caps/floors, as well as forward delivery contracts purchased in connection with
Huntington's mortgage banking activities, are also integral to asset/liability
management. These off-balance sheet financial instruments are often more
attractive than the use of cash securities or other on-balance sheet
alternatives because, though they provide similar protection against interest
rate movements, they require less capital and may not impede liquidity.
F-27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The notional amounts of off-balance sheet positions used by Huntington for
purposes other than interest rate risk management, consisting principally of
transactions entered into on behalf of customers for which the related interest
rate risk is countered by offsetting third party contracts, were $700 million
and $572 million, respectively, at the end of 1994 and 1993. Total credit
exposure from such contracts was $12.6 million at December 31, 1994. These
separate activities, which are accounted for at fair value, are not a
significant part of Huntington's operations. Accordingly, they have been
excluded from the discussion of off-balance sheet financial instruments and the
related tables which follow.
The contributions to net interest income from swaps and other off-balance
sheet financial instruments used for asset/liability management purposes,
including amortization of $21.6 million in 1994 and $12.2 million in 1993
attributable to deferred net gains from previously terminated contracts, are
presented below.
- --------------------------------------------------------------------------------
(IN MILLIONS) 1994 1993 1992
- --------------------------------------------------------------------------------
Interest income ...................... $29.0 $61.0 $42.1
Interest expense ..................... 5.6 30.0 22.7
----- ----- -----
Net interest income .................. $34.6 $91.0 $64.8
===== ===== =====
Expressed in terms of the net interest margin, the contribution was 22
basis points in 1994, compared with 59 basis points and 55 basis points,
respectively, in the two preceding years. The following table illustrates the
estimated maturities and weighted average rates of the interest rate swaps used
by Huntington in its interest rate risk management program. In preparing the
information presented below, management has made no assumptions with respect to
future changes in interest rates. Accordingly, as interest rates change, both
the maturity and variable rate information below are subject to change.
The portfolio of amortizing swaps consists of contracts with notional
values that are indexed to certain market interest rates, primarily the London
inter-bank offered rate (LIBOR) or Constant Maturity U.S. Treasury yields (CMT).
To a much lesser degree, other contracts are amortized based upon the prepayment
experience of a specified pool of mortgage loans. As market interest rates
increase, amortization of the notional values will change, generally slowing.
Basis swaps are contracts which provide for both parties to receive floating
rates of interest according to different indices. All receive and pay amounts
applicable to Huntington's basis swaps are determined by LIBOR, the prime rate,
or other indices common to the banking industry. Certain basis swaps, with a
notional value of $700 million at December 31, 1994, have embedded written
periodic caps and, in some cases, purchased periodic floors. Also, embedded in
the receive fixed-generic swaps is $250 million of written caps.
- -----------------------------------------------------------------------------------------------------------------------------------
EXPIRING OR AMORTIZING IN
- ------------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1996 1997 1998 1999 THEREAFTER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
Receive fixed-generic swaps
Notional value $134 $434 $600 -- $850 $400 $2,418
Weighted average receive rate 4.50% 4.22% 4.70% -- 7.76% 7.22% 6.10%
Weighted average pay rate 5.75% 5.94% 5.94% -- 5.98% 7.79% 6.25%
Receive fixed-amortizing swaps
Notional value $389 $216 $213 $198 $295 $178 $1,489
Weighted average receive rate 4.93% 4.93% 4.95% 5.19% 5.74% 5.66% 5.22%
Weighted average pay rate 5.70% 6.00% 5.98% 6.51% 5.97% 5.98% 5.98%
Pay fixed-generic swaps
Notional value $325 $1,608 -- -- -- -- $1,933
Weighted average receive rate 5.57% 5.91% -- -- -- -- 5.85%
Weighted average pay rate 5.19% 6.82% -- -- -- -- 6.54%
Basis swaps
Notional value $750 -- -- -- $250 -- $1,000
Weighted average receive rate 5.99% -- -- -- 6.19% -- 6.04%
Weighted average pay rate 6.08% -- -- -- 5.73% -- 5.99%
F-28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 31, 1994, interest rate swaps were designated to the assets
and liabilities presented below.
The notional values of the swap portfolio represent contractually
determined amounts on which calculations of interest payments to be exchanged
are based. These notional values do not represent direct credit exposures. At
the end of the most recent twelve months, Huntington's credit risk from interest
rate swaps and other off-balance sheet financial instruments used for
asset/liability management purposes was $49.7 million, which is significantly
less than the notional value of the contracts, and represents the sum of the
aggregate fair value of positions that have become favorable to Huntington and
any accrued interest receivable due from counterparties. In order to minimize
the risk that a swap counterparty will not satisfy its interest payment
obligation under the terms of the contract, Huntington performs credit reviews
on all counterparties, restricts the number of counterparties used to a select
group of high quality institutions, obtains collateral, and enters into formal
netting arrangements. Huntington has never experienced any past due amounts from
a swap counterparty and does not anticipate non-performance in the future by any
such counterparties.
The second table on this page summarizes activity in the interest rate
swap portfolio and other off-balance sheet financial instruments used for
asset/liability management purposes during each of the last three years.
Terminations reflect the decisions made by ALCO to modify, refine, or
change balance sheet management strategies, as a result of either a change in
overall interest rate risk tolerances or changes in balance sheet composition.
During 1993, Huntington entered into basis swaps to protect a portion of its
prime based loan portfolio against an expected narrowing in the prime/LIBOR
spread. Based upon the market conditions over the past year
DESIGNATED ASSETS/LIABILITIES
- ---------------------------------------------------------------------------------------------
SHORT-TERM LONG-TERM
(IN MILLIONS) SECURITIES LOANS DEPOSITS BORROWINGS DEBT TOTAL
- ---------------------------------------------------------------------------------------------
Receive fixed-generic $ 233 $1,350 $ 200 $ 135 $ 500 $2,418
Receive fixed-amortizing 198 727 549 -- 15 1,489
Pay fixed-generic -- -- -- 1,008 925 1,933
Basis -- 250 -- 750 -- 1,000
------ ------ ------ ------ ------ ------
Total $ 431 $2,327 $ 749 $1,893 $1,440 $6,840
====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------
PURCHASED
INTEREST RATE FORWARD
INTEREST INTEREST CAPS, COLLARS, DELIVERY
(IN MILLIONS) RATE SWAPS RATE FUTURES AND FLOORS CONTRACTS
- ---------------------------------------------------------------------------------------------
Balance December 31, 1991 $ 2,380 $ 138 $ 300 $ 669
Additions 3,677 1,775 2,525 4,963
Maturities/Amortization (505) (121) (100) (4,749)
Terminations (1,125) (535) (300) --
------- ------- -------- -------
Balance December 31, 1992 4,427 1,257 2,425 883
------- ------- -------- -------
Additions 6,585 1,556 2,320 7,064
Maturities/Amortization (1,210) (1,187) (2,625) (6,655)
Terminations (2,900) (1,123) (300) --
------- ------- -------- -------
Balance December 31, 1993 6,902 503 1,820 1,292
------- ------- -------- -------
Additions 3,492 5,802 860 1,065
Maturities/Amortization (904) (275) (1,250) (2,281)
Terminations (2,650) (6,014) (300) --
------- ------- -------- -------
Balance December 31, 1994 $ 6,840 $ 16 $ 1,130 $ 76
======= ======= ======== =======
and Huntington's current interest rate forecast, a significant narrowing of the
spread between these indices is not expected in the foreseeable future.
Accordingly, basis swaps with a notional value of $1.5 billion were terminated
in December 1994. The realized loss of approximately $69.5 million is being
amortized over the 2.5 year remaining life of the original contracts.
Unrealized gains and losses on interest rate swaps are presented in the
table below. The combined net unrealized loss of $268.9 million at December 31,
1994, compares unfavorably with a net unrealized gain of $14.1 million at the
end of 1993. Short-term interest rate increases during 1994 have significantly
changed the fair value of the swap portfolio during the year. The unrealized
gains and losses on forward delivery contracts and other off-balance sheet
financial instruments used for asset/liability management purposes were not
significant at either period end.
- -----------------------------------------------------------------------------------------
NOTIONAL UNREALIZED UNREALIZED NET UNREALIZED
(IN MILLIONS) VALUE GAINS LOSSES GAINS(LOSSES)
- -----------------------------------------------------------------------------------------
DECEMBER 31, 1994:
Receive fixed-generic swaps $2,418 $ -- $119.9 $(119.9)
Receive fixed-amortizing swaps 1,489 -- 123.0 (123.0)
------ ------ ------ -------
Total receive fixed swaps 3,907 -- 242.9 (242.9)
Less: Pay fixed-generic swaps 1,933 31.8 -- 31.8
------ ------ ------ -------
Net receive fixed position $1,974 $ 31.8 $242.9 $(211.1)
====== ====== ====== =======
Basis swaps $1,000 $ -- $ 57.8 $ (57.8)
====== ====== ====== =======
F-29
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 10
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Balance at year-end ................................................. $1,442,138 $2,164,752 $2,547,972
Weighted average interest rate at year-end .......................... 4.82% 2.62% 3.07%
Maximum amount outstanding at month-end during the year ............. $1,798,524 $2,361,306 $2,808,686
Average amount outstanding during the year .......................... $1,374,741 $1,964,282 $1,941,199
Weighted average interest rate during the year ...................... 3.58% 2.89% 3.39%
SHORT-TERM BANK NOTES
Balance at year-end ................................................. $ 640,000 $ 860,000 $ 20,000
Weighted average interest rate at year-end .......................... 5.55% 3.49% 3.25%
Maximum amount outstanding at month-end during the year ............. $ 785,000 $1,000,000 $ 40,000
Average amount outstanding during the year .......................... $ 637,055 $ 719,767 $ 9,508
Weighted average interest rate during the year ...................... 4.28% 3.55% 3.23%
MEDIUM-TERM BANK NOTES WITH ORIGINAL MATURITIES OF LESS THAN ONE YEAR
Balance at year-end ................................................. $ 624,000
Weighted average interest rate at year-end .......................... 5.55%
Maximum amount outstanding at month-end during the year ............. $ 724,000
Average amount outstanding during the year .......................... $ 501,225
Weighted average interest rate during the year ...................... 4.73%
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 11
- ------------------------------------------------------------------------------------------------------------------------------------
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT GREATER THAN $100,000 AS OF DECEMBER 31, 1994 (IN THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months or less .............................................................................. $380,569
Over three through six months ..................................................................... 85,569
Over six through twelve months .................................................................... 62,088
Over twelve months ................................................................................ 77,537
--------
Total ............................................................................................. $605,763
========
NOTE: All foreign time deposits are denominated in amounts greater than $100,000.
- ------------------------------------------------------------------------------------------------------------------------------------
The valuation of interest rate swap contracts is largely a function of the
financial market's expectations regarding the future direction of interest
rates. The recent high degree of market uncertainty surrounding short-term
interest rates has significantly contributed to the drop in the fair value of
Huntington's swap portfolio. However, current market values are not necessarily
indicative of the future impact of the swaps on net interest income. This will
depend, in large part, on the shape of the yield curve as well as interest rate
levels.
Including the effects of the basis swap terminations, Huntington had
deferred approximately $(74.1) million and $45.7 million, respectively, at
December 31, 1994 and 1993, of net realized (losses) gains from interest rate
swaps. The net losses as of the most recent year end are to be amortized as
yield adjustments over the remaining term of the original contracts, as
presented below. Deferred realized gains and losses on other off-balance sheet
financial instruments used for asset/liability management purposes were not
significant at either period end.
- -------------------------------------------------------------
AMORTIZING IN
- -------------------------------------------------------------
(IN MILLIONS) 1995 1996 1997 TOTAL
- -------------------------------------------------------------
DECEMBER 31, 1994:
- -------------------------------------------------------------
Deferred gains $ 16.3 $ 7.4 $ 1.3 $ 25.0
Deferred losses (41.3) (41.3) (16.5) (99.1)
------ ------ ------ ------
Net losses $(25.0) $(33.9) $(15.2) $(74.1)
====== ====== ====== ======
LIQUIDITY MANAGEMENT
Liquidity management is also a significant responsibility of ALCO. The goal
of ALCO in this regard is to maintain an optimum balance of maturities among
Huntington's assets and liabilities such that sufficient cash, or access to
cash, is available at all times to meet the needs of borrowers, depositors, and
creditors, as well as to fund corporate expansion and other activities. A chief
source of Huntington's liquidity is derived from the large retail deposit base
accessible by its extensive network of geographically dispersed banking
offices. Retail deposits and other core funding sources provided a
F-30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 12
- ------------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 1994 1993 1992 1991 1990 1989
Non-accrual loans ................................ $ 41,929 $ 75,933 $ 87,541 $139,024 $100,899 $ 81,356
Renegotiated loans ............................... 2,550 1,254 2,508 5,491 9,447 3,969
-------- -------- -------- -------- -------- --------
Total Non-Performing Loans ....................... 44,479 77,187 90,049 144,515 110,346 85,325
-------- -------- -------- -------- -------- --------
Other real estate, net ........................... 51,909 62,446 73,130 99,646 57,467 17,897
-------- -------- -------- -------- -------- --------
Total Non-Performing Assets ...................... $ 96,388 $139,633 $163,179 $244,161 $167,813 $103,222
======== ======== ======== ======== ======== ========
Non-performing loans as a % of total loans ....... .36% .70% .95% 1.63% 1.27% 1.05%
Non-performing assets as a % of total loans and
other real estate ................................ .78% 1.27% 1.70% 2.72% 1.91% 1.27%
Allowance for loan losses as a % of non-performing
loans ........................................... 450.76% 274.44% 170.63% 93.26% 112.03% 106.70%
Allowance for loan losses and other real estate as
a % of non-performing assets ..................... 193.13% 143.41% 95.22% 56.53% 74.36% 88.20%
Accruing loans past due 90 days or more .......... $ 20,877 $ 25,550 $ 24,298 $ 36,270 $ 30,169 $ 32,169
======== ======== ======== ======== ======== ========
Accruing loans past due 90 days or more to total
loans ............................................ .17% .23% .26% .41% .35% .40%
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: For 1994, the amount of interest income which would have been recorded
under the original terms for total loans classified as non-accrual or
renegotiated was $5.6 million. Amounts actually collected and recorded
as interest income for these loans totalled $1.7 million.
minimum of 70% of all funding needs in both 1994 and 1993. This core funding is
supplemented by Huntington's demonstrated ability to raise funds in capital
markets and to access national funds. During 1993, Huntington, through its lead
subsidiary, The Huntington National Bank, initiated a bank note program which
provides short and medium term funding. Significant additional funds were
generated under the bank note program over the most recent twelve months, and a
total of $1.9 billion was outstanding at year end. A similar program was begun
at the parent company in 1994 to fund certain non-banking activities, of which
$75 million was outstanding at year end. Huntington also has a fully available
$200 million line of credit which supports commercial paper borrowings and other
short-term working capital needs.
In addition, Huntington has significant asset liquidity from its sizeable
portfolio of securities available for sale, loans which may be securitized and
sold, and maturing investments. ALCO regularly monitors the liquidity position
and ensures that various alternative strategies exist to cover unanticipated
reductions in presently available funding sources. At December 31, 1994,
Huntington's liquidity was within all key parameters established by ALCO.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
underwriting standards which emphasize "in-market" lending to established
borrowers. Highly leveraged transactions and industry or other concentrations
are avoided. The credit administration function also employs extensive
monitoring procedures to ensure problem loans are promptly identified and
adherence with corporate compliance policies. These procedures provide executive
management with information necessary to implement appropriate change and take
corrective action as needed.
Asset quality continues to improve. Net charge-offs as a percentage of
average total loans were .24% in 1994, compared with .32% in 1993 and .69% in
1992. Non-performing assets, which include loans that are no longer accruing
interest, loans that have been renegotiated based upon financial difficulties of
the borrower, and real estate acquired through foreclosure, have trended
significantly downward and are at their lowest level since 1989. The most
substantial decrease in non-performing loans occurred in the construction and
commercial real estate segments, which showed a combined reduction from 1993 of
$28.9 million, largely as a result of additional principal paydowns. An analysis
of the activity in other real estate (ORE) during the past three years follows:
- ------------------------------------------------------------------
(IN MILLIONS) 1994 1993 1992
- ------------------------------------------------------------------
Beginning balance $89.1 $109.2 $107.1
Additions 29.3 15.9 50.0
Write-downs (6.6) (11.8) (24.3)
Sales (44.5) (24.2) (23.6)
----- ------ ------
Total ORE 67.3 89.1 109.2
ORE reserve (15.4) (26.7) (36.1)
----- ------ ------
Ending balance, net $51.9 $ 62.4 $ 73.1
===== ====== ======
F-31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 13
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial .................................... $ 3,611 $ 3,435 $ 3,121 $ 2,879 $ 2,941
Tax-free ...................................... 58 72 70 81 87
Real estate
Construction ................................ 305 337 379 439 492
Mortgage .................................... 3,002 2,685 2,252 2,097 2,059
Consumer ...................................... 4,642 3,944 3,325 3,061 2,821
Lease financing ............................... 646 481 368 321 311
------- ------- ------- ------- -------
Total loans ............................... $12,264 $10,954 $ 9,515 $ 8,878 $ 8,711
======= ======= ======= ======= =======
NOTE: There are no loans outstanding which would be considered a
concentration of lending in any particular industry or group of
industries.
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 14
- ------------------------------------------------------------------------------------------------------------------------------------
MATURITY SCHEDULE OF SELECTED LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
---------- ---------- ---------- ----------
Commercial and tax-free ........................ $2,222,656 $1,136,707 $ 309,535 $3,668,898
Real estate - construction ..................... 140,663 126,685 37,421 304,769
---------- ---------- ---------- ----------
Total ..................................... $2,363,319 $1,263,392 $ 346,956 $3,973,667
========== ========== ========== ==========
Variable interest rates ........................ $ 993,707 $ 229,717
========== ==========
Fixed interest rates ........................... $ 269,685 $ 117,239
========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Huntington's management continues to aggressively pursue the sale of its
ORE to further reduce non-performing assets.
Huntington also has certain loans which are past due ninety days or more
but have not been placed on nonaccrual status. These loans, which total $20.9
million at year end 1994, are primarily consumer and residential real estate
loans that are considered well-secured and in the process of collection. There
were also loans outstanding of $51.5 million and $84.5 million, respectively, at
December 31, 1994 and 1993, that Huntington considers to be potential problem
credits and monitors closely for any further deterioration in borrower
performance.
All significant loan categories, except construction, experienced growth
during 1994, the most significant occurring in the consumer and leasing segments
of the portfolio which were up, in terms of average balances outstanding, 20.8%
and 31.1%, respectively. Huntington has enjoyed success in the installment
lending business for more than thirty years, and continues to increase its
market share through higher volumes from traditional banking offices,
complemented significantly by the additional market opportunities afforded by
The Huntington Acceptance Company, an indirect auto lending affiliate.
Huntington has achieved this growth without compromising credit quality, as its
indirect lending function uses sophisticated credit scoring systems, applies
consistent underwriting standards, and has a well-designed portfolio tracking
system. Over the past two years, net losses resulting from this segment of the
portfolio were only .21% and .20%, respectively, of related average loans.
Average commercial real estate loans as a percent of average total loans
increased only slightly from 11.2% in 1993 to 11.5% in 1994. This increase
represents additional extensions of credit to borrowers within the small to
middle markets for which the underlying collateral is typically owner-occupied
properties with a demonstrated trend of positive cash flows.
CAPITAL AND DIVIDENDS
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances the ability to capitalize on
business growth and acquisition opportunities. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
Shareholders' equity at December 31, 1994 was approximately $1.4 billion,
up 6.6% from one year ago. Huntington's ratio of average equity to average
assets increased significantly over the last twelve months to 8.38%, compared
with 7.22% and 7.08%, respectively, in the two preceding years. In addition to
the increase in the ratio of average equity to average assets during 1994,
Huntington continues to show strength in each of the key regulatory capital
ratios. At December 31, 1994, the Tier 1 and total risk-based capital ratios
were 9.55% and 13.57%, respectively, and exceeded the corresponding minimum
levels to be considered "well capitalized" of 6% and 10%, respectively. These
same ratios one year ago were 9.60% and 14.02%, respectively. The year end Tier
1 leverage ratio of 7.99% also exceeded the minimum regulatory requirement of
5%, and compares favorably with the ratio at the end of 1993 of 7.03%.
Huntington increased its cash dividends to shareholders during 1994 to $.72
a share, which was 20% higher than the corresponding amount in 1993 of $.60 per
share. That increase, which resulted in a pay-out ratio during the most recent
year of 38.5%, was accompanied by the distribution of a five-for-four stock
split in July 1994.
Huntington also announced a con-
F-32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
tinuation of its common stock repurchase program during 1994, upon receiving
Board of Directors' authorization in July to acquire up to 5.0 million shares
(as adjusted for the July 1994 stock split) through open market purchases and
privately negotiated transactions. Approximately 1.3 million of the shares
repurchased pursuant to the 1994 authorization were reissued prior to year end
in connection with the acquisition of a thrift holding company. Certain shares
have also been reissued in connection with Huntington's dividend reinvestment,
stock purchase, stock option, and other benefit plans. The treasury stock on
hand at year end and all other shares to be repurchased pursuant to the 1994
authorization, of which 3.0 million shares remains available at December 31,
1994, are expected to be reissued as required by the terms and provisions of
these benefit plans.
NEW ACCOUNTING STANDARDS
On January 1, 1994, Huntington adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 requires entities to classify debt and
equity securities as either held to maturity, available for sale, or trading
securities. Held to maturity securities are recorded at amortized cost, whereas
available for sale securities and trading securities are carried at fair value.
The statement further requires that unrealized gains and losses on available for
sale securities be reported, net of tax, as a separate component of
shareholders' equity. At the date of adoption, the unrealized gain on available
for sale securities, net of applicable income taxes, increased Huntington's
equity by $67.2 million. During 1994, as market interest rates rose, the
available for sale portfolio depreciated in value, resulting in a year end
reduction of shareholders' equity of $63.3 million. In the latter part of 1993,
in anticipation of adopting SFAS No. 115, Huntington transferred the majority of
its securities to the available for sale category. Adoption of the new
accounting standard had no effect on earnings.
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan", which applies to
financial statements for fiscal years beginning after December 15, 1994. SFAS
No. 114 requires that "impaired loans" be measured based upon the present value
of expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The adoption of
SFAS No. 114, which will occur in the first quarter of 1995, is not expected to
have a material effect on Huntington's consolidated financial statements.
The FASB has also issued an Exposure Draft (ED) dated June 1994,
"Accounting for Mortgage Servicing Rights and Excess Servicing Receivables and
for Securitization of Mortgage Loans", that would amend certain provisions of
SFAS No. 65, which currently governs the accounting for mortgage banking
activities. The most significant change proposed in the ED involves the
recognition of rights to service loans for others as separate assets, regardless
of whether purchased or originated. A final statement from the FASB is expected
in the first half of 1995, the provisions of which are expected to be applied
prospectively to transactions subsequent to the date of adoption. Because a
final pronouncement has not yet been issued, Huntington is unable to determine
the potential effects of the accounting change.
FOURTH QUARTER RESULTS
Net income for the fourth quarter of 1994 was $52.5 million, or $.41 per
share, compared with $63.4 million, or $.49 per share, in the same period last
year. ROA and ROE for the most recent quarter were 1.22% and 14.78%,
respectively, versus 1.44% and 19.60% in the final quarter of 1993.
Net interest income was $177.3 million in the final quarter of 1994, down
$31.7 million from the corresponding period of the prior year. Similarly, a
decrease occurred in the net interest margin, which was 4.54% and 5.24% in the
respective quarters. The downward pressures on net interest income which began
in the second quarter of 1994 continued into the fourth quarter of the year,
most notably in terms of reduced spreads in the rising rate environment and the
effects of initiatives undertaken by Huntington to reduce exposure to further
increases in interest rates.
The provision for loan losses was $2.5 million in the final quarter of the
year versus $15.3 million in the same period of 1993. The significant factors
which were noted earlier as contributing to the decrease on an annual basis are
also the principal considerations when comparing the quarterly results, as net
loan losses were only .31% of average loans in the three months ended December
31, 1994, and period end asset quality was strong.
Non-interest income was $54.7 million and $82.0 million, respectively, for
the quarters ended December 31, 1994 and 1993. Securities transactions were not
significant in either period. The sharp drop in fee income from mortgage banking
activities during the most recent year was most pronounced when comparing the
fourth quarter 1994 results with the corresponding amounts for 1993. For the
F-33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
quarter just ended, mortgage banking income was $8.6 million versus the record
level in the same quarter one year ago of $36.0 million. A $13.6 million
decrease in gains on the sale of servicing rights, coupled with a $9.4 million
decrease in origination fees, was the primary reason for this downturn. Income
from certain other fee-based activities such as investment management and sales
was also down when comparing these two quarters as a result of rising interest
rates.
Non-interest expenses of $150.5 million in the fourth quarter of 1994 were
12.6% less than the total for the corresponding period last year of $181.3
million. Personnel costs, including commissions, declined $10.5 million, or
13.2% largely because of lower loan production at Huntington's mortgage banking
subsidiary which resulted in staff reductions and decreased volume-based
compensation. Costs associated with ORE were down from the final quarter of
1993, as were legal and loan collection expenses, due to the continued
improvement in asset quality.
The provision for income taxes decreased considerably when comparing the
last three months of 1994 to the same period a year ago, principally because of
a drop in pre-tax earnings. A non-recurring charge of $4.0 million in the final
quarter of 1993 related to the conversion of an acquired thrift to a bank
charter was also a significant reason for the lower provision.
FOREIGN ACTIVITIES
Huntington has very limited foreign activities, consisting principally of
deposits accepted by its Cayman Islands branch. At December 31, 1994, Huntington
had no investments in foreign assets.
INFLATION
Huntington's assets and liabilities are principally monetary in nature.
Accordingly, its financial condition is affected by changes in interest rates to
a much greater degree than by inflation. Although interest rates are determined
in large measure by changes in the general level of inflation, they do not
change at the same rate or in the same magnitude, but rather react in
correlation with changes in the expected rate of inflation and changes to
monetary and fiscal policy. A financial institution's ability to react to
changes in interest rates is a better indicator of its ability to perform. More
information regarding the effects of changing interest rates appears in the
section "Interest Rate Risk and Liquidity Management".
F-34
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES
(ANNUAL DATA)
- --------------------------------------------------------------------------------
Huntington
Bancshares
Incorporated
- --------------------------------------------------------------------------------
FULLY TAX EQUIVALENT BASIS(1) 1994 1993
(IN MILLIONS OF DOLLARS) ---------------------------------- ---------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------------------------------- ---------------------------------
ASSETS
Interest bearing deposits in banks-foreign ............ -- -- -- $ 10 $ .5 4.38%
Interest bearing deposits in banks-domestic ........... $ 4 $ .3 7.57% 16 .6 4.02
Trading account securities ............................ 14 .9 6.16 10 .5 5.04
Federal funds sold and securities purchased
under resale agreements ............................. 115 5.0 4.32 78 2.6 3.36
Mortgages held for sale ............................... 367 25.9 7.06 827 60.2 7.28
Securities available for sale ......................... 2,944 180.7 6.14 1,359 81.6 6.00
Investment securities
U.S. Treasury and Federal agencies .................. 257 17.0 6.60 2,669 164.4 6.16
States and political subdivisions ................... 190 20.5 10.80 260 29.1 11.22
Other ............................................... 16 .9 5.71 171 8.9 5.21
------- -------- ------- --------
Total investment securities ...................... 463 38.4 8.29 3,100 202.4 6.53
------- -------- ------- --------
Loans
Commercial .......................................... 3,501 295.8 8.45 3,216 274.0 8.52
Tax-free ............................................ 64 6.4 9.92 77 7.3 9.41
Real estate
Construction ...................................... 298 23.1 7.75 368 26.1 7.09
Mortgage .......................................... 2,786 220.3 7.91 2,473 203.6 8.24
Consumer ............................................ 4,316 354.2 8.21 3,575 323.8 9.06
Lease financing ..................................... 556 40.8 7.34 424 34.4 8.11
------- -------- ------- --------
Total loans ....................................... 11,521 940.6 8.16 10,133 869.2 8.58
Allowance for loan losses/loan fees ............... 212 37.4 194 30.4
------- -------- ------- --------
Net Loans ......................................... 11,309 978.0 8.49 9,939 899.6 8.88
------- -------- ------- --------
Total earning assets .............................. 15,428 $1,229.2 7.97% 15,533 $1,248.0 8.03%
------- -------- ------- --------
Cash and due from banks ............................... 741 693
All other assets ...................................... 793 819
------- -------
TOTAL ASSETS .......................................... $16,750 $16,851
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing ................................ $ 2,116 $ 2,141
Interest bearing .................................... 2,713 $ 59.9 2.21% 2,662 $ 63.7 2.39%
Savings deposits ...................................... 2,281 49.0 2.15 2,229 57.5 2.58
Certificates of deposit of $100,000 or more ........... 607 25.6 4.22 831 31.1 3.74
Other domestic time deposits .......................... 3,523 148.1 4.20 3,572 150.3 4.21
Foreign time deposits ................................. 286 12.2 4.25 455 15.0 3.30
------- -------- ------- --------
Total deposits ...................................... 11,526 294.8 3.13 11,890 317.6 3.26
------- -------- ------- --------
Short-term borrowings ................................. 2,629 106.7 4.06 2,825 89.4 3.17
Long-term debt ........................................ 928 62.2 6.71 640 33.1 5.18
------- -------- ------- --------
Interest bearing liabilities ........................ 12,967 $ 463.7 3.58% 13,214 $ 440.1 3.33%
------- -------- ------- --------
All other liabilities ................................. 264 280
Shareholders' equity .................................. 1,403 1,216
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $16,750 $16,851
======= =======
Net interest rate spread .............................. 4.39% 4.70%
Impact of non-interest bearing funds on margin ........ .57% .50%
NET INTEREST INCOME/MARGIN ............................ $ 765.5 4.96% $ 807.9 5.20%
======== ========
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate in
1994 and 1993 and a 34% tax rate in years 1989 through 1992.
Average loan balances include non-accruing loans. Loan income includes cash
received on non-accruing loans.
F-35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1992 1991 1990 1989
------------------------------- ------------------------------ ---------------------------- ---------------------------
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
------------------------------ ------------------------------ ---------------------------- ----------------------------
$ 54 $ 2.6 4.74% $ 10 $ .7 6.71% $ 3 $ .2 6.91% $ 33 $ 3.3 9.75%
27 1.4 5.15 42 3.1 7.47 60 5.2 8.80 72 6.6 9.29
22 1.2 5.43 27 1.8 6.83 9 .8 8.69 10 1.0 9.66
126 4.9 3.90 152 8.8 5.76 231 18.4 7.94 243 21.7 8.93
681 55.1 8.09 386 34.0 8.80 274 27.0 9.86 111 10.9 9.79
142 11.0 7.79 21 2.0 9.34 -- -- -- -- -- --
3,163 220.3 6.96 2,459 209.0 8.50 2,563 227.8 8.89 1,921 169.9 8.85
336 31.7 9.43 396 41.6 10.51 458 47.9 10.47 509 52.5 10.30
205 13.6 6.65 281 24.5 8.75 239 21.1 8.80 445 37.0 8.32
------- -------- ------- -------- ------- -------- ------ -------
3,704 265.6 7.17 3,136 275.1 8.77 3,260 296.8 9.10 2,875 259.4 9.02
------- -------- ------- -------- ------- -------- ------ -------
2,993 249.4 8.34 2,878 264.2 9.18 2,810 294.5 10.48 2,669 300.4 11.25
83 8.2 9.84 89 10.1 11.32 111 13.4 12.04 147 18.5 12.60
393 26.4 6.71 457 38.2 8.37 547 57.4 10.49 522 59.0 11.31
2,145 191.2 8.92 2,036 202.9 9.96 1,947 203.1 10.44 1,703 178.3 10.47
3,190 340.7 10.68 2,904 336.6 11.59 2,710 324.1 11.96 2,427 300.4 12.38
342 30.8 9.00 314 30.0 9.57 298 29.1 9.75 267 26.7 10.00
------- -------- ------- -------- ------- -------- ------- --------
9,146 846.7 9.26 8,678 882.0 10.16 8,423 921.6 10.94 7,735 883.3 11.42
144 28.6 131 19.2 100 18.1 84 16.1
------- -------- ------- -------- ------- -------- ------- --------
9,002 875.3 9.57 8,547 901.2 10.38 8,323 939.7 11.16 7,651 899.4 11.63
------- -------- ------- -------- ------- -------- ------- --------
13,902 $1,217.1 8.75% 12,452 $1,226.7 9.85% 12,260 $1,288.1 10.51% 11,079 $1,202.3 10.85%
------- -------- ------- -------- ------- -------- ------- --------
636 567 670 680
771 725 660 572
------- ------- ------- -------
$15,165 $13,613 $13,490 $12,247
======= ======= ======= =======
$ 1,749 1,401 $ 1,393 $ 1,365
2,513 $ 76.5 3.05% 2,210 $ 103.3 4.68% 2,070 $ 112.1 5.42% 2,017 $ 109.5 5.43%
1,770 64.1 3.62 1,326 64.9 4.89 1,228 61.3 4.99 1,198 60.1 5.01
1,251 56.7 4.53 1,523 100.1 6.57 1,714 142.8 8.34 1,648 149.2 9.06
4,066 206.8 5.09 4,223 288.5 6.83 3,894 307.1 7.89 3,244 265.4 8.18
153 5.7 3.73 69 3.8 5.56 40 3.2 7.85 34 3.2 9.45
------- -------- ------- -------- ------- --------- ------- --------
11,502 409.8 4.20 10,752 560.6 5.99 10,339 626.5 7.00 9,506 587.4 6.29
------- -------- ------- -------- ------- --------- ------- --------
2,062 72.9 3.54 1,406 81.2 5.77 1,731 136.5 7.89 1,431 124.7 8.72
300 22.1 7.36 219 18.4 8.41 201 17.8 8.88 204 18.3 8.95
------- -------- ------- -------- ------- --------- ------- --------
12,115 $ 504.8 4.17% 10,976 $ 660.2 6.01% 10,878 $ 780.8 7.18% 9,776 $ 730.4 7.47%
------- -------- ------- -------- ------- --------- ------- --------
227 259 302 291
1,074 977 917 815
------- ------- ------- -------
$15,165 $13,613 $13,490 $12,247
======= ======= ======= =======
4.58% 3.84% 3.33% 3.38%
.54% .71% .81% .88%
$ 712.3 5.12% $ 566.5 4.55% $ 507.3 4.14% $ 471.9 4.26%
======== ======== ========= ========
F-36
KPMG PEAT MARWICK LLP
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Reliance Bank of Florida:
We have audited the accompanying balance sheets of Reliance Bank of Florida as
of December 31, 1994 and 1993 and the related statements of income,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reliance Bank of Florida at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in note 1 to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1994.
KPMG Peat Marwick LLP
February 15, 1995
F-37
RELIANCE BANK OF FLORIDA
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
----- ---- ----
Cash and due from banks (note 2) $ 3,730,122 3,526,959
Federal funds sold 4,050,000 4,980,000
------------ ------------
Cash and cash equivalents 7,780,122 8,506,959
Investment securities available for sale (note 3) 17,950,904 --
Investment securities held to maturity (estimated market value
of $12,081,730 in 1994 and $24,286,750 in 1993) (note 3) 13,240,557 23,934,179
Loans, less allowance for loan losses of $723,116
in 1994 and $660,193 in 1993 (note 4) 53,248,389 46,725,643
Premises and equipment, net (note 5) 2,181,909 2,140,723
Accrued interest receivable 604,062 431,921
Prepaid expenses and other assets 97,965 88,827
Other real estate owned 98,546 --
Deferred income taxes (note 9) 513,000 143,188
------------ ------------
Total assets $ 95,715,454 81,971,440
============ ============
LIABILITIES
-----------
Deposits (note 6):
Noninterest bearing 13,319,531 9,849,155
Interest bearing 71,504,406 63,903,745
------------ ------------
Total deposits 84,823,937 73,752,900
Securities sold under agreement to repurchase (note 3) 2,190,599 845,398
Accrued interest payable 132,607 106,391
Accounts payable and other liabilities 7,666 3,724
Income taxes payable (note 9) -- 5,838
------------ ------------
Total liabilities 87,154,809 74,714,251
------------ ------------
SHAREHOLDERS' EQUITY
--------------------
Common stock, $5 par value, 600,000 authorized shares,
348,099 and 321,200 shares issued and outstanding at
December 31, 1994 and 1993, respectively 1,740,495 1,606,000
Additional paid-in capital 2,053,989 1,635,625
Retained earnings 5,318,206 4,015,564
Unrealized loss on investments available for sale, net (552,045) --
------------ ------------
Total shareholders' equity (notes 8 and 10) 8,560,645 7,257,189
Commitments (notes 4 and 11)
------------ ------------
Total liabilities and shareholders' equity $ 95,715,454 81,971,440
============ ============
See accompanying notes to the financial statements.
F-38
RELIANCE BANK OF FLORIDA
STATEMENTS OF INCOME
For the years ended December 31, 1994 and 1993
1994 1993
--------- ---------
Interest income and fees:
Loans $ 4,807,269 3,909,159
Investment securities and mortgage-backed securities 1,718,019 1,455,104
Federal funds sold 165,903 104,260
--------- ---------
Total interest income and fees 6,691,191 5,468,523
Interest expense:
Deposits and other borrowed money (note 6) 2,583,071 2,024,001
--------- ---------
Net interest income 4,108,120 3,444,522
Provision for loan losses (note 4) 130,000 211,000
--------- ---------
Net interest income after provision for loan losses 3,978,120 3,233,522
--------- ---------
Other income:
Service charges 260,771 261,648
Gains on sales of investment securities available (note 3) 17,832 101,778
Other 7,627 1,993
--------- ---------
Total other income 286,230 365,419
--------- ---------
Other expenses:
Salaries and employee benefits (note 12) 1,212,542 1,044,112
Occupancy expense 234,912 187,127
Stationery and supplies 91,739 104,416
Data processing services 76,076 56,528
Marketing and community relations 45,673 50,502
FDIC and other insurance 198,388 166,636
Legal and professional fees 86,108 75,494
Other expenses 327,270 317,965
--------- ---------
Total other expenses 2,272,708 2,002,780
--------- ---------
Income before income taxes and cumulative effect
of accounting change 1,991,642 1,596,161
Income tax expense (note 9) 689,000 555,000
--------- ---------
Income before cumulative effect of accounting change 1,302,642 1,041,161
Cumulative effect of accounting change (note 9) -- 25,443
--------- ---------
Net income $ 1,302,642 1,066,604
========= =========
See accompanying notes to the financial statements.
F-39
RELIANCE BANK OF FLORIDA
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1994 and 1993
UNREALIZED LOSS
COMMON STOCK OR INVESTMENTS TOTAL
--------------------------- PAID-IN RETAINED AVAILABLE FOR SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SALE, NET EQUITY
--------- --------- ---------- ---------- ----------- --------------
Balances, December 31, 1992 318,100 $ 1,590,500 1,613,250 2,948,960 -- 6,152,710
Stock options exercised
exercised 3,100 15,500 22,375 -- -- 37,875
Net income -- -- -- 1,066,604 -- 1,066,604
--------- --------- ---------- ---------- ----------- ----------
Balances, December 31, 1993 321,200 1,606,000 1,635,625 4,015,564 -- 7,257,189
Stock options exercised
(note 8) 26,899 134,495 310,364 -- -- 444,859
Tax effect of non-qualified
stock options exercised -- -- 108,000 -- -- 108,000
Net income -- -- -- 1,302,642 -- 1,302,642
Unrealized loss on investments
available for sale, net -- -- -- -- (552,045) (552,045)
--------- --------- ---------- ---------- ----------- ----------
Balances, December 31, 1994 348,099 $1,740,495 2,053,989 5,318,206 (552,045) 8,560,645
========= ========== ========== ========== =========== ==========
See accompanying notes to the financial statements.
F-40
RELIANCE BANK OF FLORIDA
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994 and 1993
1994 1993
---- ----
Cash flows from operating activities:
Net income $ 1,302,642 1,066,604
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 130,000 211,000
Deferred loan origination fees 39,542 85,007
Depreciation on premises and equipment 103,253 80,648
Net accretion of discounts and amortization of premiums
on investment securities held to maturity 22,880 44,996
Loss on sale of other real estate owned -- 38,000
Gain on sale of investment securities available for sale (17,832) (101,778)
Cash provided by (used in) changes in:
Accrued interest receivable (172,141) 58,403
Prepaid expenses and other assets (9,138) (31,536)
Deferred income taxes (72,557) (117,394)
Accrued interest payable 26,216 134
Accounts payable and other liabilities 3,942 (18,302)
Income taxes payable (5,838) (201,247)
------------ ------------
Net cash provided by operating activities 1,350,969 1,114,535
------------ ------------
Cash flows provided by (used in) investing activities:
Proceeds from sales of investment securities available for sale 542,026 5,404,478
Proceeds from maturities of investment securities held to
maturity 2,500,000 4,500,000
Purchases of investment securities held to maturity (4,260,811) (18,549,378)
Purchases of investment securities available for sale (10,469,683) --
Loans (net of collections) (6,790,834) (7,269,297)
Principal collected on mortgage-backed securities 3,576,838 4,712,632
Proceeds from sale of other real estate owned -- 184,098
Purchases of premises and equipment (144,439) (525,667)
------------ ------------
Net cash used in investing activities (15,046,903) (11,543,134)
------------ ------------
(Continued)
F-41
RELIANCE BANK OF FLORIDA
STATEMENTS OF CASH FLOWS, CONTINUED
1994 1993
---- ----
Cash flows provided by financing activities:
Proceeds from exercise of stock options, net of taxes 552,859 37,875
Deposits (net of withdrawals) made by customers 11,071,037 11,152,606
Increase (decrease) in repurchase agreements 1,345,201 (280,423)
------------ ------------
Net cash provided by financing activities 12,969,097 10,910,058
------------ ------------
Net increase (decrease) in cash and cash equivalents (726,837) 481,459
Cash and cash equivalents at beginning of year 8,506,959 8,025,500
------------ ------------
Cash and cash equivalents at end of year $ 7,780,122 8,506,959
============ ============
Cash paid during the year for:
Interest $ 2,556,855 2,023,867
============ ============
Income taxes $ 598,176 848,198
============ ============
Supplemental disclosure of noncash activities:
Transfer of loans to other real estate owned $ 98,546 --
============ ============
Transfer of investment securities held to maturity to
investment securities available for sale upon adoption
of FAS No. 115 $ 8,854,715 --
============ ============
Market value adjustment - investment securities available for sale:
Market value adjustment - investments 849,300 --
Deferred income tax asset 297,255 --
------------ ------------
Unrealized loss on investment securities available
for sale $ 552,045 --
============ ============
See accompanying notes to the financial statements.
F-42
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Reliance Bank of Florida (the "Bank") was incorporated as a Florida state
chartered bank on July 22, 1985. The Bank received approval for a
charter from the Comptroller of Florida on October 25, 1985 and commenced
operations on that same date. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation.
The Bank's primary market area is Central Florida.
(A) CASH EQUIVALENTS
----------------
For purposes of the statement of cash flows, the Bank considers
cash and due from banks, federal funds sold and non-interest
bearing deposits in other banks due within three months to be
cash equivalents.
(B) INVESTMENT SECURITIES HELD TO MATURITY AND INVESTMENTS AVAILABLE
----------------------------------------------------------------
FOR SALE
--------
On January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards ("FAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." FAS 115 requires the
reporting of certain securities at fair value except for those
securities which the Bank has the positive intent and ability to
hold to maturity. Investments to be held for indefinite periods
of time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized
holding losses are included in shareholdersG equity net of the
effect of income taxes.
Securities that management has the intent and the Bank has the
ability at the time of purchase or origination to hold until
maturity are classified as investment securities held to
maturity. Securities in this category are carried at amortized
cost adjusted for accretion of discounts and amortization of
premiums using the level yield method over the estimated life of
the securities. If a security has a decline in fair value below
its amortized cost that is other than temporary, then the
security will be written down to its new cost basis by recording
a loss in the statements of income.
(C) NONACCRUAL LOANS
----------------
Loans are placed on nonaccrual status when the loan becomes 90
days past due as to interest or principal, unless the loan is
both well secured and in the process of collection, or when the
full timely collection of interest or principal become uncertain.
When a loan is placed on nonaccrual status, the loan is accounted
for on the cash or cost recovery method thereafter, until
qualifying for return to accrual status.
(D) LOAN ORIGINATION FEES
---------------------
Loan fees and incremental direct underwriting costs on home
equity loans are deferred and recognized as income over the
contractual life of the loans, adjusted for estimated prepayment
based on the Bank's historical prepayment experience. The Bank
does not defer incremental direct underwriting costs, exept for
such costs on home equity loans, as management considers these
costs to be immaterial.
(Continued)
F-43
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(1), CONTINUED
(E) ALLOWANCE FOR LOAN LOSSES
-------------------------
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance when management believes that the collectibility of
the principal is unlikely. The allowance is an estimated amount
that management believes will be adequate to absorb losses
inherent in the loan portfolio and commitments to extend credit,
based on evaluations of its collectibility. The evaluations take
into consideration such factors as changes in the nature and
volume of the portfolio, overall portfolio quality, specific
problem loans and commitments, and current and anticipated
economic conditions that may affect the borrower's ability to
pay. While management uses the best information available to
recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions.
Regulatory examiners may require the Bank to recognize additions
to the allowance based upon their judgment about the information
available to them at the time of their examination.
(F) PREMISES AND EQUIPMENT
----------------------
Premises and equipment are stated at cost less accumulated
depreciation which is computed on the straight-line method over
the estimated useful lives of the assets which range from 5 to
31.5 years.
(G) OTHER REAL ESTATE OWNED
-----------------------
Real estate acquired in the settlement of loans is initially
recorded at the lower of cost (principal balance of the former
loan plus costs of obtaining title and possession) or estimated
fair value at the date of acquisition. Subsequently, such real
estate acquired is carried at the lower of cost or estimated net
realizable value. Costs relating to development and improvement
of the property are capitalized, whereas those relating to
holding the property are charged to operations.
(H) INCOME TAXES
------------
Effective January 1, 1993, the Bank adopted Financial Accounting
Standards Board issued Statement Number 109 ("FAS 109"),
"Accounting for Income Taxes." Under the asset and liability
method of FAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under FAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that included the enactment date.
(Continued)
F-44
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(1), CONTINUED
(H), CONTINUED
The Bank reported the cumulative effect of that change in the
method of accounting for income taxes in the 1993 statement of
income.
(I) RECLASSIFICATION
----------------
Certain amounts in the 1993 financial statements have been
reclassified to conform to the 1994 presentation.
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
---------------------------------------
The Bank is required to maintain reserve balances in accordance with
Federal Reserve Bank requirements. At December 31, 1994 and 1993, these
reserve balances were $405,000 and $353,000, respectively.
(3) INVESTMENT SECURITIES HELD TO MATURITY AND INVESTMENT SECURITIES
----------------------------------------------------------------
AVAILABLE FOR SALE
------------------
The amortized cost and estimated market values of investment securities
at December 31, 1994 and 1993 are as follows:
INVESTMENT SECURITIES HELD TO MATURITY:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------ ------------ ------------ ------------
1994:
U.S. Treasury securities $ 4,010,418 -- (252,957) 3,757,461
Municipals 3,267,420 2,942 (161,561) 3,108,801
Mortgage-backed
securities and CMO's 5,962,719 -- (747,251) 5,215,468
------------ ------------ ------------ ------------
$13,240,557 2,942 (1,161,769) 12,081,730
============ ============ ============ ============
F-45
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(3), CONTINUED
INVESTMENT SECURITIES HELD TO MATURITY, CONTINUED:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------ ------------ ------------ ------------
1993:
U.S. Treasury securities $ 2,008,187 97,465 -- 2,105,652
Municipals 3,018,729 63,813 -- 3,082,542
Obligations of U.S.
government agencies 1,998,031 34,464 -- 2,032,495
Mortgage-backed
securities and CMO's 16,909,232 166,113 (9,284) 17,066,061
------------ ------------ ------------ ------------
$ 23,934,179 361,855 (9,284) 24,286,750
============ ============ ============ ============
INVESTMENT SECURITIES AVAILABLE FOR SALE:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------ ------------ ------------ ------------
1994:
U.S. Treasury securities $ 7,048,696 10,449 (108,940) 6,950,205
Mortgage-backed
securities and CMO's 11,751,508 3,937 (754,746) 11,000,699
------------ ------------ ------------ ------------
$ 18,800,204 14,386 (863,686) 17,950,904
============ ============ ============ ============
F-46
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(3), CONTINUED
The amortized cost and estimated market value of investment securities
held to maturity at December 31, 1994 and 1993, by contractual maturity,
are below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
1994 1993
--------------------------------- ---------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
-------------- -------------- -------------- --------------
Due in one year or less $ -- -- 2,498,035 2,535,591
Due after one year
through five years 4,695,418 4,425,564 2,486,950 2,606,700
Due after five years
through ten years 4,447,615 4,081,035 2,011,387 2,055,807
Due after ten years 4,097,524 3,575,131 16,937,807 17,088,652
----------- ----------- ----------- -----------
$ 13,240,557 12,081,730 23,934,179 24,286,750
=========== =========== =========== ===========
The amortized cost and market value of investment securities available for
sale at December 31, 1994, by contractual maturity, are below:
ESTIMATED
AMORTIZED COST MARKET VALUE
---------------- ----------------
Due in one year or less $ 1,003,125 1,009,749
Due after one year through five years 6,045,571 5,940,456
Due after five years through ten years 221,092 225,029
Due after ten years 11,530,416 10,775,670
---------- ----------
$ 18,800,204 17,950,904
========== ==========
Proceeds from sales of investment securities available for sale during 1994
and 1993 were $542,026 and $5,404,478, respectively, which resulted in gross
gains of $17,832 and $101,778, respectively.
F-47
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(3), CONTINUED
Included in the investment securities are securities sold under
agreements to repurchase. The following is a summary of securities sold
under agreement to repurchase as of December 31, 1994:
WEIGHTED AVERAGE
U.S. TREASURY SECURITIES TOTAL INTEREST RATE
------------------------ ---------- ----------------
Carrying value $4,487,284 5.0%
Market value 4,258,438 5.0%
Borrowings 2,190,599 3.0%
Repurchase agreements mature within one business day.
The Bank enters into sales of securities under agreements to repurchase
(Agreements). Fixed-coupon Agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in
the balance sheet. The dollar amount of securities underlying the
Agreements remain in the asset accounts. At December 31, 1994,
$2,190,599 of the Agreements were to repurchase identical securities.
The assets underlying the Agreements were held in safekeeping by a third
party. For the year ended December 31, 1994, Agreements outstanding
average approximately $2,108,494 and the maximum amount outstanding was
$2,768,494.
The Bank has pledged mortgage-backed securities with carrying amounts of
approximately $434,127 and $783,294 as of December 31, 1994 and 1993,
respectively, as collateral on public fund deposits. In addition, the
Bank has pledged a U.S. Treasury note with a carrying amount of
$1,022,148 as of December 31, 1994 as collateral on treasury tax and
loan deposits.
F-48
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(4) LOANS
-----
Major categories of loans included in the loan portfolio at December 31,
1994 and 1993 are:
1994 1993
---------- ----------
Commercial $ 12,303,257 11,386,473
Real estate - commercial 31,675,764 26,352,775
Real estate - residential 8,588,458 8,481,009
Consumer 1,607,182 1,369,349
Overdrafts 40,649 493
---------- ----------
54,215,310 47,590,099
Less:
Allowance for loan losses (723,116) (660,193)
Deferred loan origination fees (243,805) (204,263)
---------- ----------
Net loans $ 53,248,389 46,725,643
========== ==========
In the ordinary course of business, the Bank is a party to financial
instruments with off-balance sheet risk to meet the financing needs of
its customers. These financial instruments include commitments to extend
credit at both fixed and variable rates and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized, if any, in the accompanying balance
sheet. The Bank's exposure to credit loss for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's credit worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
A summary of commitments to extend credit and standby letters of credit
written at December 31, 1994 and 1993 is as follows:
1994 1993
---- ----
Standby letters of credit $ 257,113 215,000
Available lines of credit 11,817,037 11,597,248
F-49
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(4), CONTINUED
Certain principal stockholders, directors and employees were indebted to
the Bank as summarized below:
1994 1993
----------- -----------
Balance, beginning of year $ 2,563,210 2,067,656
Additional new loans 1,399,556 2,231,605
Repayments on outstanding loans (544,528) (1,736,051)
----------- -----------
Balance, end of year $ 3,418,238 2,563,210
=========== ===========
All such loans were made in the ordinary course of business. At
December 31, 1994 and 1993, principal stockholders, directors and
employees of the Bank had $1,233,020 and $1,274,954, respectively,
available in lines of credit.
Changes in the allowance for loan losses were as follows:
1994 1993
----------- -----------
Balance, beginning of year $ 660,193 564,757
Provision charged to operations 130,000 211,000
Loans charged-off (75,575) (117,745)
Recoveries 8,498 2,181
----------- -----------
Balance, end of year $ 723,116 660,193
=========== ===========
At December 31, 1994 and 1993, nonaccrual loans were $427,315 and
$424,305, respectively.
The Bank originates real estate, consumer and commercial loans primarily
in its Central Florida market area. Although the Bank has a diversified
loan portfolio, a substantial portion of its borrowers' ability to repay
their loans is dependent upon economic conditions in the Bank's market
area.
F-50
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(5) PREMISES AND EQUIPMENT
----------------------
A summary of premises, furniture, fixtures and equipment at December 31,
1994 and 1993:
1994 1993
-------- ---------
Land $ 1,083,053 1,069,630
Building 1,121,372 1,121,372
Furniture, fixtures and equipment 694,949 669,448
Construction in progress 105,515 --
--------- ---------
3,004,889 2,860,450
Less accumulated depreciation 822,980 719,727
--------- ---------
$ 2,181,909 2,140,723
========= =========
(6) DEPOSITS
--------
A detail of deposits at December 31, 1994 and 1993 follows:
1994 1993
---------- ----------
Noninterest-bearing demand deposits $ 13,319,531 9,849,155
Interest bearing:
Interest-bearing demand deposits 23,871,271 24,116,972
Savings deposits 10,076,579 10,795,754
Time deposits less than $100,000 30,803,519 21,407,940
Time deposits of $100,000 or greater 6,753,037 7,583,079
---------- ----------
$ 84,823,937 73,752,900
========== ==========
Included in interest-bearing deposits are certificates of deposit issued
in amounts of $100,000 or more which have remaining maturities at
December 31, 1994 and 1993 as follows:
1994 1993
---------- ----------
Three months or less $ 711,625 1,963,245
Three through six months 1,547,924 1,728,034
Six through twelve months 2,486,061 2,122,064
Thereafter 2,007,427 1,769,736
---------- ----------
$ 6,753,037 7,583,079
========== ==========
F-51
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(6), CONTINUED
A summary of interest expense on deposits and other borrowed money for
the years ended December 31, 1994 and 1993 is as follows:
1994 1993
--------- ---------
Interest on federal funds and other borrowings $ -- 1,127
Interest-bearing demand deposits 599,054 519,755
Savings deposits 467,065 442,664
Time deposits less than $100,000 1,118,691 757,897
Time deposits of $100,000 or greater 340,659 276,284
Repurchase agreements 57,602 26,274
--------- ---------
$ 2,583,071 2,024,001
========= ==========
The Bank had deposits from directors, officers and employees of
approximately $5,935,316 and $4,250,190 at December 31, 1994 and 1993,
respectively.
(7) FEDERAL FUNDS PURCHASED
-----------------------
The Bank had $2,500,000 available in line of credit commitments to
purchase federal funds from its correspondent banks as of December 31,
1994. There were no outstanding borrowings against these lines at
December 31, 1994.
(8) SHAREHOLDERS' EQUITY
--------------------
The Bank has stock option plans for certain officers, key employees and
members of the Board of Directors.
The employee stock option plan provides for stock options to certain
officers and key employees at an option price at least equal to the fair
market value of such shares on the date the option is granted. Under
the terms of the employee stock option plan, 25,000 shares of authorized
common stock of the Bank were reserved for issuance. Options granted
under the plan are exercisable for a term no longer than five years. All
options have been granted. During 1994 and 1993, 6,900 and 3,100 shares
were exercised resulting in proceeds of $119,859 and $37,875,
respectively. At December 31, 1994, 6,000 options were outstanding and
may be exercised at a price of $24.00 per share.
The Board of Directors and the shareholders of the Bank approved a stock
option plan in 1992 for members of the Board of Directors. Under this
plan, the Board of Directors have been granted options to purchase a
total of 20,000 shares at an exercise price of $16.25 per share which
was the estimated fair market value at the date the options were
granted. All options were exercised during 1994 resulting in proceeds
of $325,000. No options remain outstanding at December 31, 1994.
F-52
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(9) INCOME TAXES
------------
The provision for income taxes for 1994 and 1993 consist of the following:
CURRENT DEFERRED TOTAL
------- -------- -------
Year ended December 31, 1994:
Federal $ 660,930 (61,954) 598,976
State 100,627 (10,603) 90,024
------- ------- -------
$ 761,557 (72,557) 689,000
======= ======= =======
Year ended December 31, 1993:
Federal 572,110 (78,511) 493,599
State 74,841 (13,440) 61,401
------- ------- -------
$ 646,951 (91,951) 555,000
======= ======= =======
F-53
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(9), CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below.
1994 1993
---------- ----------
Deferred tax assets:
Unrealized loss on investment securities available
for sale $ 297,255 --
Allowance for loan losses 209,813 183,184
Premises and equipment, due to differences in
depreciation methods and useful lives 42,547 35,957
Other 374 --
---------- ----------
Total deferred tax assets 549,989 219,141
Less valuation allowance -- --
---------- ----------
Net deferred tax assets 549,989 219,141
---------- ----------
Deferred tax liabilities:
Cash to accrual conversions (36,989) (73,978)
Deferred loan fees -- (1,975)
---------- ----------
Total deferred tax liabilities (36,989) 75,953
---------- ----------
Net deferred tax asset $ 513,000 143,188
========== ==========
The Bank believes that it has paid sufficient taxes in prior carryback
years which will enable it to recover the net deferred tax asset, and
therefore, no valuation allowance as defined by Statement 109 is required
at December 31, 1994 and 1993.
A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. Federal corporate tax rate of 34%
to net income before income taxes) is as follows:
1994 1993
--------- ---------
"Expected" tax expense $ 677,158 542,695
State income tax expense, net of federal benefit 48,905 40,525
Other, net 9,183 (28,924)
Nondeductible meals and entertainment 1,682 1,211
Tax exempt interest (47,928) (507)
--------- ---------
Total income tax expense $ 689,000 555,000
========= =========
F-54
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(10) REGULATORY CAPITAL (UNAUDITED)
------------------------------
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA became
effective on December 19, 1992. In addition to the prompt corrective
action requirements, FDICIA includes significant changes to the legal
and regulatory environment for insured depository institutions,
including reductions in insurance coverage for certain kinds of
deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions,
including the requirement to file a capital plan with its primary Federal
regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory
monitoring, among other things. Other restrictions may be imposed on the
institution by the FDIC, including requirements to raise additional
capital, sell assets, or sell the entire institution. Once an
institution becomes "critically undercapitalized" it must generally be
placed in receivership or conservatorship within 90 days.
The following table summarizes the capital thresholds for each prompt
corrective action capital categories. An institution's capital category
is based on whether it meets the threshold for all three capital ratios
within the category.
TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
CATEGORIES RATIO RATIO RATIO
-------- ------- -------- --------
"Well capitalized" 5% or higher 6% or higher 10% or higher
"Adequately capitalized" 4% or higher 4% or higher 8% or higher
"Undercapitalized" less than 4% less than 4% less than 8%
"Significantly undercapitalized" less than 3% less than 3% less than 6%
"Critically undercapitalized" An institution is considered "critically under capitalized"
if its ratio of tangible equity to total assets is 2% or less.
At December 31, 1994, the Bank's total leverage capital ratio was 9%, Tier
1 risk-based ratio was 11%, and total risk-based ratio was 12%. At December
31, 1994, management believes the Bank is in the "well capitalized" category.
F-55
(Continued)
RELIANCE BANK OF FLORIDA
NOTES TO THE FINANCIAL STATEMENTS
(11) COMMITMENTS
-----------
During 1988, the Bank made a pledge of $50,000 to a local college for a
scholarship endowment. The pledge is revocable at any time at the
discretion of the Board of Directors. The balance of the pledge is
payable as follows:
1995 $ 5,000
1996 and later years 15,000
--------
Total $ 20,000
========
(12) EMPLOYEE BENEFIT PLAN
---------------------
During 1989 the Bank adopted the Reliance Bank of Florida Savings and
Retirement Plan (the "Plan"). The Plan is a defined contribution plan
which is composed of a profit-sharing plan and self-directed salary
savings plan for the benefit of the Bank's employees. The Plan was
effective as of January 1, 1989 and received contributions from the Bank
totaling $47,709 and $30,515 during 1994 and 1993, respectively. The
contributions made by the Bank are at the discretion of the Board of
Directors.
(13) BRANCH OPENING
--------------
The Bank has received approval from the regulatory authorities to open a
new branch. It is the Bank's intent to open the branch during 1995.
Prior to December 31, 1994, the Bank entered into a construction
contract in the amount of $768,000 to build the new branch.
(14) SUBSEQUENT EVENT
----------------
In December of 1994, the Bank entered into a definitive agreement with
Huntington Bancshares, Incorporated to acquire the Bank. Huntington
will exchange its common stock for common stock of the Bank. This
transaction is subject to regulatory and shareholder approval. The
expected effective date of the proposed acquisition is May 1995.
F-56
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of
December 22, 1994, between HUNTINGTON BANCSHARES FLORIDA, INC., an Ohio
corporation ("Huntington Florida"), SECURITY NATIONAL BANK, a banking
association organized and existing under the laws of the United States ("SNB"),
with its principal office located at 253 North Orlando Avenue, Maitland,
Florida, and RELIANCE BANK OF FLORIDA, a bank organized and existing under the
laws of the State of Florida, with its principal office located at 2116 South
Babcock Street, Melbourne, Florida ("Reliance"), each acting pursuant to a
resolution of its board of directors adopted by a vote of a majority of its
directors, pursuant to the authority given by and in accordance with the
provisions of the Act of November 7, 1918, as amended (12 U.S.C. Section 215a
and 12 U.S.C. Section 5156A). (SNB and Reliance are sometimes hereinafter
collectively referred to as the "Constituent Associations" or separately as a
"Constituent Association.")
RECITALS:
--------
A. Huntington Florida is a wholly owned subsidiary of Huntington
Bancshares Incorporated, a Maryland corporation ("Huntington").
B. SNB is a wholly owned subsidiary of Security National
Corporation, a Delaware corporation ("Security National").
C. Huntington Florida and Security National have entered into an
Agreement and Plan of Merger, dated July 12, 1994, pursuant to which, upon and
subject to the satisfaction of certain conditions, Security National will be
merged with and into Huntington Florida (the "Security National Merger"),
whereupon the name of SNB will be changed to "The Huntington National Bank of
Florida." (The Huntington National Bank of Florida, as successor by name
change to SNB following the consummation of the Security National Merger, is
hereinafter referred to as "HNBF.")
D. As of September 30, 1994, SNB had total capital of
$15,781,844, divided into 1,000,000 shares of common stock, par value $6.00 per
share, surplus of $6,000,000, and undivided profits, including capital
reserves, of $3,781,844.
E. Reliance is authorized to issue 600,000 shares of common
stock, $5.00 par value per share ("Reliance Common"), of which 348,099 shares
are issued and outstanding as of the date hereof, exclusive of treasury shares,
with an additional 6,000 shares being subject to outstanding stock options
previously granted (collectively, the "Reliance Stock Options" and
individually, a "Reliance Stock Option") under the Reliance Bank of Florida
1986 Stock Option Plan (the "Reliance Stock Option Plan").
AGREEMENT:
---------
In consideration of the foregoing Recitals, which shall constitute a
part of this Agreement, and the mutual promises contained herein, the parties
agree as follows:
SECTION 1. MERGER. Subject to the terms and conditions
hereof, and the terms and conditions contained in a certain Acquisition
Agreement among Huntington, Huntington Florida, SNB, and Reliance, of even date
herewith (the "Acquisition Agreement"), which is incorporated herein by
reference, and provided that the Security National Merger has been consummated
prior to the "Effective Time" (as such term is defined in Section 2 hereof), at
the Effective Time, Reliance shall be merged with and into HNBF (the "Merger").
HNBF shall be the receiving association
A-1
in the Merger (the "Surviving Association") and shall continue its existence
under the laws of the United States and the separate corporate existence of
Reliance shall cease.
SECTION 2. EFFECTIVE TIME; EFFECTIVE DATE. The Merger shall
be effective at 11:59 p.m., local Ohio time (the "Effective Time") on the date
of consummation of the Merger as certified by the Comptroller of the Currency,
which date shall not precede May 1, 1995, or the receipt of approvals of the
Merger by all applicable regulatory agencies and the expiration of the last of
any waiting periods required in connection with any of such regulatory
approvals (the "Effective Date"). Unless the parties otherwise agree, the
Effective Date shall be the Closing Date specified in Section 10 of the
Acquisition Agreement.
SECTION 3. NAME. The name of the Surviving Association shall
be "The Huntington National Bank of Florida."
SECTION 4. ARTICLES OF ASSOCIATION AND BYLAWS. The Articles
of Association and Bylaws of HNBF in effect at the Effective Time shall be the
articles of association and bylaws of the Surviving Association, until amended
in accordance with law.
SECTION 5. CONVERSION OF SHARES.
(a) All shares of HNBF Common that are issued and
outstanding immediately prior to the Effective Time shall continue to be issued
and outstanding shares of HNBF Common at and after the Effective Time and
Huntington Florida, as the sole shareholder of HNBF, shall continue to own all
of such shares at and after the Effective Time.
(b) At the Effective Time, the shares of Reliance Common
issued and outstanding immediately prior to the Effective Time (exclusive of
treasury shares, if any, which shall be cancelled, and any shares as to which
statutory dissenters' rights are properly sought) shall be converted, by
virtue of the Merger and without further action on the part of the holders
thereof, into the right to receive shares of the common stock, without par
value, of Huntington ("Huntington Common"), as follows:
(i) Each outstanding share of Reliance Common
shall be converted into the right to receive the number of whole shares
of Huntington Common determined according to the following formula:
NHC/RC = (TPP / PHC)
-----------
NRC
where:
NHC/RC = the number of shares of Huntington Common to be
received for each share of Reliance Common (the
"Conversion Ratio");
TPP = $20,000,000 (the "Total Purchase Price");
PHC = the price per share of Huntington Common determined
in accordance with subsection 5(b)(ii), (iii), or
(iv) below, as applicable (the "Price Per Share of
Huntington Common"); and
NRC = the number of shares of Reliance Common issued and
outstanding at the Effective Time plus the number of
shares of Reliance Common subject to stock options
outstanding at the Effective Time.
A-2
(ii) For purposes of the formula set forth in
subsection 5(b)(i) above and except as otherwise provided in subsections
5(b)(iii) and (iv) below, the Price Per Share of Huntington Common
shall be the average of the closing sale prices for a share of
Huntington Common on the five trading days immediately preceding the
date that is two trading days prior to the Effective Date, as reported
on the Nasdaq National Market (the "Average Closing Sale Price");
provided, however, that if the Average Closing Sale Price is less than
$15.525, then the Price Per Share of Huntington Common shall be
$15.525, and if the Average Closing Sale Price is greater than $18.975,
then the Price Per Share of Huntington Common shall be $18.975. The
minimum and maximum Prices Per Share of Huntington Common set forth in
the preceding sentence shall be adjusted to reflect any stock splits
or stock dividends on Huntington Common occurring after the date hereof
and prior to the Effective Time by multiplying such amounts by a
fraction, the numerator of which is the total number of shares of
Huntington Common outstanding immediately prior to the effective time
of the stock dividend or stock split, as the case may be, and the
denominator of which is the total number of shares of Huntington Common
outstanding immediately following the effective time of the stock
dividend or stock split, as the case may be.
(iii) If the Average Closing Sale Price is less
than $12.9375 (as adjusted for stock dividends and stock splits), then
the Price Per Share of Huntington Common shall not be determined in
accordance with subsection 5(b)(ii) above, but, rather, Huntington may
elect either to consummate the Merger on the originally scheduled
Effective Date at a Price Per Share of Huntington Common equal to 1.05
times the Average Closing Sale Price or to use its best efforts to
renegotiate the pricing terms of the Merger with Reliance and to delay
the Effective Date until such time as the parties shall have been able
to agree on a mutually acceptable adjustment to such pricing terms, but
in no event later than ten days after the originally scheduled
Effective Date. If the parties have been unable to agree on a mutually
acceptable adjustment to the pricing terms of the Merger within ten
days after the originally scheduled Effective Date, this Agreement
shall terminate in accordance with Section 12.01 of the Acquisition
Agreement.
(iv) If the Average Closing Sale Price is more
than $21.5625 (as adjusted for stock dividends and stock splits), then
Huntington may elect to consummate the Merger on the originally
scheduled Effective Date at a Price Per Share of Huntington Common
equal to 0.95 times the Average Closing Sale Price or to terminate the
Merger in accordance with Section 12.01 of the Acquisition Agreement.
(v) No fractional shares of Huntington Common
shall be issued. Each holder of Reliance Common who would otherwise be
entitled to receive a fractional part of a share of Huntington Common
shall instead be entitled to receive cash in an amount equal to the
product resulting from multiplying such fraction by the Price Per Share
of Huntington Common as determined pursuant to subsection 5(b)(ii),
(iii), or (iv) above, as applicable. No interest shall be payable with
respect to such cash payment.
(c) Each outstanding share of Reliance Common held by a
person who has demanded and perfected a right to relief as a dissenting
shareholder under Section 658.44 of the Florida Statutes (the "Dissenters'
Rights Law") and who has not effectively withdrawn or lost such right
("Dissenting Shares") shall not be converted into or represent a right to
receive shares of Huntington Common pursuant to subsection 5(b) hereof, but the
holder thereof shall be entitled only to such rights as are granted by the
Dissenters' Rights Law. Each holder of Dissenting Shares who becomes entitled
to relief as a dissenting shareholder under the Dissenters' Rights Law with
respect to such holder's shares of Reliance Common shall receive payment
therefor from Huntington in accordance with the provisions of the Dissenters'
Rights Law. If any holder of Reliance Common who demands relief as a
dissenting shareholder under the Dissenters' Rights Law with respect to such
holder's shares of Reliance Common shall effectively withdraw or lose (through
failure to perfect or otherwise), the right to such relief, each share of
Reliance Common held by such holder shall automatically be converted into the
right to receive shares of Huntington Common pursuant to subsection 5(b)
hereof.
A-3
(d) Each unexercised Reliance Stock Option that is
outstanding immediately prior to the Effective Time shall be converted
automatically at the Effective Time into an option to purchase shares of
Huntington Common under the Huntington 1994 Stock Option Plan or similar
Huntington plan (a "Huntington Stock Option"), with the number of shares of
Huntington Common to be subject to a particular Huntington Stock Option to be
determined by converting the number of shares of Reliance Common subject to the
Reliance Stock Option into a number of Huntington Common shares in accordance
with the procedure for converting outstanding Reliance Common shares into
Huntington Common shares as set forth in subsection 5(b) hereof, except that
all fractional shares will be rounded to the nearest whole share, and with the
exercise price for each share of Huntington Common subject to a particular
Huntington Stock Option to be equal to the exercise price per Reliance Common
share under the Reliance Stock Option divided by the Conversion Ratio
determined in accordance with subsection 5(b)(i) above; provided, however,
that, in the case of any Reliance Stock Option to which Section 421 of the
Internal Revenue Code of 1986, as amended (the "Code"), applies by reason of
its qualification under Section 422 of the Code, the terms of the Huntington
Stock Option into which such Reliance Stock Option is to be converted,
including the option price, the number of shares of Huntington Common
purchasable pursuant to such option, and the terms and conditions of exercise
of such option, shall be determined so as to comply with Section 424(a) of the
Code. Upon such conversion, all rights under any and all stock options and
stock option plans previously granted or adopted by Reliance shall terminate.
SECTION 6. EXCHANGE OF CERTIFICATES; PAYMENT FOR FRACTIONAL
SHARES.
(a) On the Effective Date, Huntington shall deliver to
The Huntington National Bank (the "Exchange Agent") the amount of cash
necessary to pay for all fractional shares of Huntington Common in accordance
with subsection 5(b)(v) hereof.
(b) As promptly as practicable after the Effective Date,
Huntington shall cause the Exchange Agent to prepare and mail to each holder of
record on the Effective Date of any shares of Reliance Common a letter of
transmittal containing instructions for the surrender of all certificates for
shares of Reliance Common. Upon the surrender by such holder of a certificate
or certificates for shares of Reliance Common standing in such holder's name to
the Exchange Agent in accordance with the instructions set forth in the letter
of transmittal, such holder shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Huntington Common into
which the shares represented by the certificate or certificates so surrendered
shall have been converted and, if applicable, a check payable to such holder in
the amount necessary to pay for any fractional shares of Huntington Common
which such holder would otherwise have been entitled to receive, in accordance
with subsection 5(b)(v) hereof. No interest shall be payable with respect to
either the whole shares of Huntington Common or the cash payable in lieu of
fractional shares. Immediately after the third anniversary of the Effective
Date, the Exchange Agent shall deliver to the Surviving Association any
unclaimed balance of cash owing with respect to fractional shares and such
cash shall be retained by, and become the property of the Surviving
Association, free and clear of any claims whatsoever.
(c) Neither Huntington, the Surviving Association, nor
the Exchange Agent, shall be obligated to deliver a certificate for Huntington
Common or a check for cash in lieu of fractional shares to a former shareholder
of Reliance until such former shareholder surrenders the certificate or
certificates representing shares of Reliance Common standing in such former
shareholder's name or, if such former shareholder is unable to locate such
certificate or certificates, an appropriate affidavit of loss and indemnity
agreement and bond as may be required by Huntington. Until so surrendered,
each outstanding certificate for shares of Reliance Common shall be deemed for
all corporate purposes (except the payment of dividends) to evidence ownership
of the number of whole shares of Huntington Common into which the shares of
Reliance Common represented thereby shall have been converted.
(d) After the Effective Date and until the outstanding
certificates formerly representing shares of Reliance Common are so
surrendered, no dividends or distributions payable to holders of record of
Huntington Common shall be paid to the holders of such outstanding Reliance
certificates in respect thereof. Promptly upon surrender of such outstanding
certificates there shall be paid to the holders of the certificates for
Huntington Common issued in exchange therefor the amount of dividends and other
distributions, if any, which theretofore became payable with respect to such
full shares of Huntington Common, but which have not theretofore been paid on
such stock. No interest shall be payable with respect to the payment of any
dividends or other distributions. All such dividends or other
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distributions unclaimed at the end of one year from the Effective Date shall,
to the extent such dividends have been previously paid to the Exchange Agent,
be repaid by the Exchange Agent to Huntington, and thereafter the holders of
such outstanding certificates for Reliance Common shall look, subject to
applicable escheat, unclaimed funds, and other laws, only to Huntington as
general creditors for payment thereof.
(e) The stock transfer books of Reliance shall be closed
as of the close of business on the day that is two business days prior to the
Effective Date.
(f) Huntington is empowered to adopt additional
reasonable rules and regulations with respect to the matters referred to in
this Section 6 not inconsistent with the provisions of this Agreement.
(g) Adoption of this Agreement by the shareholders of
Reliance shall constitute ratification of the appointment of the Exchange
Agent.
SECTION 7. CAPITAL. Upon the consummation of the Merger, the
amount of capital stock of the Surviving Association shall be $6,000,000,
divided into 1,000,000 shares of common stock, par value $6.00 per share. At
the Effective Time, the Surviving Association shall have a surplus of not less
than $19,528,000 and undivided profits, including capital reserves, which, when
combined with the capital and surplus, will not be less than the combined
capital structures of the merging depository institutions as stated in the
Recitals to this Agreement, adjusted, however, for normal earnings and
expenses, for certain dividends permitted by the Acquisition Agreement, and for
accounting adjustments between the date of the latest available quarterly
statements of condition of the Constituent Associations and the Effective Time
of the Merger.
SECTION 8. EFFECT OF THE MERGER. Upon the consummation of the
Merger, all assets of both Constituent Associations as they exist at the
Effective Time shall pass to and vest in the Surviving Association without any
conveyance or other transfer. The Surviving Association shall be responsible
for all of the liabilities of every kind and description, including liabilities
arising from the operation of a trust department, of each of the Constituent
Associations existing as of the Effective Time. The statement of condition of
each Constituent Association as of the last quarterly date preceding the
Effective Time shall fairly present its financial condition and between such
date and the Effective Time there shall have been no material adverse change in
the financial condition or business of either Constituent Association.
SECTION 9. ASSETS.
(a) Reliance shall contribute to the Surviving
Association acceptable assets having a book value, over and above its
liabilities to its creditors, of at least $7,296,000, and having an estimated
fair value over and above its liabilities to creditors, of at least $7,296,000,
or 100% of the estimated fair value of excess acceptable assets, over and above
liabilities to creditors of the Surviving Association, adjusted, however, for
normal earnings and expenses between the date of its last quarterly statement
of condition preceding the Effective Time and such Effective Time, and for
allowances for cash payments, if any, permitted under the terms of this
Agreement and the Acquisition Agreement.
(b) At the Effective Time, HNBF shall have on hand
acceptable assets having a book value of at least $38,984,000 over and above
its liabilities to its creditors, and having a fair value, over and above its
liabilities to creditors, of at least $38,984,000, or 100% of the estimated
fair value of excess acceptable assets, over and above liabilities to creditors
of the Association, adjusted, however, for normal earnings and expenses between
the date of its last quarterly statement of condition preceding the Effective
Time and such Effective Time.
SECTION 10. DIVIDENDS. Neither of the Constituent Associations
shall declare or pay any dividend to its shareholder or shareholders between
the date of this Agreement and the Effective Time except as permitted under the
terms of the Acquisition Agreement and neither Constituent Association shall
dispose of any of its assets in any other manner except in the normal and
ordinary course of business and for adequate value.
SECTION 11. DIRECTORS. At the Effective Time, the directors of
the Surviving Association, who will serve until such time as their successors
are duly elected and qualified, shall be determined by the mutual agreement of
the
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parties within 30 days after the date hereof and shall be set forth on a
written Addendum to this Agreement, which shall be executed by the parties and
appended hereto, whereupon it shall become a part of this Agreement.
SECTION 12. BUSINESS. The business of the Surviving
Association shall be that of a national banking association. This business
will be conducted by the Surviving Association at its main office, which shall
be located at 253 North Orlando Avenue, Maitland, Florida, and at its legally
established branches.
SECTION 13. SHAREHOLDER APPROVAL. This Agreement shall be
submitted to the shareholders of Reliance for approval as soon as reasonably
practicable following the execution of this Agreement.
SECTION 14. ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions provided in this
Agreement and the Acquisition Agreement, the parties hereto shall use their
reasonable best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective, as soon as
reasonably practicable, the transactions contemplated by this Agreement,
subject, however, to the adoption of this Agreement by the shareholders of
Reliance, the receipt of all required regulatory approvals, and the occurrence
of the "Permissible Date," as such term is defined in the Acquisition
Agreement.
(b) Reliance shall issue a warrant or warrants to
Huntington, pursuant to the terms of a certain Warrant Purchase Agreement
entered into or to be entered into between Huntington and Reliance in
accordance with the terms of the Acquisition Agreement, granting to Huntington
or its nominee the right to purchase certain shares of Reliance Common upon and
subject to certain conditions.
(c) From time to time, as and when requested by the
Surviving Association or by its successors, the officers and directors of
Reliance in office at the Effective Time shall execute and deliver such
instruments and shall take or cause to be taken such further or other action as
shall be necessary in order to vest or perfect in the Surviving Association, or
to confirm of record or otherwise, title to, and possession of, all the assets,
property, interests, rights, privileges, immunities, powers, franchises, and
authority of Reliance and otherwise to carry out the purposes of this
Agreement.
SECTION 15. AMENDMENTS. At any time prior to the Effective
Time, the parties hereto may amend, modify, or supplement this Agreement by
mutual agreement authorized by their respective boards of directors, whether
before or after the shareholders of Reliance have adopted this Agreement,
provided that the number of shares of Huntington Common into which shares of
Reliance Common are to be converted as determined in Section 5 hereof shall not
be changed after the shareholders of Reliance have adopted this Agreement
without the approval of such shareholders in the same manner as required for
the adoption of this Agreement; and provided, further, that this Agreement may
not be amended, modified, or supplemented, except by an instrument in writing
executed and delivered by each of the parties hereto.
SECTION 16. TERMINATION. Unless extended by the mutual
agreement of the parties hereto, this Agreement may be terminated,
notwithstanding the adoption thereof by the shareholders of Reliance, in the
manner and under the circumstances set forth in the Acquisition Agreement.
SECTION 17. ENTIRE AGREEMENT. This Agreement, the Acquisition
Agreement, and any exhibits hereto or thereto constitute the entire agreement
among the parties with respect to the subject matter thereof and supersede all
prior agreements and understandings, oral or written, among the parties with
respect to such subject matter and no party shall be liable or bound to the
others in any manner by any covenants, representations, or warranties except as
specifically set forth herein or therein.
SECTION 18. TITLES AND SUBTITLES. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
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SECTION 19. ASSIGNMENT. Neither this Agreement nor any rights,
interests, or obligations hereunder shall be assigned or transferred by
operation of law or otherwise by any of the parties hereto without the prior
written consent of the other parties.
SECTION 20. BENEFIT. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
hereto and their successors in interest any rights or remedies under or by
reason of this Agreement.
SECTION 21. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original for all
purposes, but such counterparts taken together shall constitute one and the
same instrument.
SECTION 22. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with the laws of the State of Ohio without regard to
its conflict of laws principles, except to the extent that federal law may be
applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Attest: HUNTINGTON BANCSHARES FLORIDA, INC.
/s/ John W. Liebersbach By: /s/ Zuheir Sofia
- --------------------------------------------- -------------------------------------------------------
John W. Liebersbach, Secretary Zuheir Sofia, President
Attest: SECURITY NATIONAL BANK
/s/ Phillip L. Tasker By: /s/ Michael W. Sheffey
- --------------------------------------------- -------------------------------------------------------
Phillip L. Tasker, Executive Vice President Michael W. Sheffey, President
Attest: RELIANCE BANK OF FLORIDA
/s/ Jeffrey S. Dick By: /s/ Sam L. Bockman
- --------------------------------------------- -------------------------------------------------------
Jeffrey S. Dick, Senior Vice President and Sam L. Bockman, President and Chief Executive Officer
Cashier
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EXHIBIT B
A C Q U I S I T I O N A G R E E M E N T
------------------------------------------
THIS ACQUISITION AGREEMENT (this "Agreement") is made as of December
22, 1994, among HUNTINGTON BANCSHARES INCORPORATED, a Maryland corporation
("Huntington"), HUNTINGTON BANCSHARES FLORIDA, INC., an Ohio corporation
("Huntington Florida"), SECURITY NATIONAL BANK, a national bank ("SNB"), and
RELIANCE BANK OF FLORIDA, a Florida state-chartered bank ("Reliance").
RECITALS:
--------
A. Huntington is a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Huntington owns all of the
outstanding capital stock of Huntington Federal Savings Bank, a federal savings
and loan association ("HFSB").
B. Huntington Florida is a wholly owned subsidiary of Huntington.
C. Huntington Florida has entered into an Agreement and Plan of
Merger, dated July 12, 1994, with Security National Corporation, a Delaware
corporation ("Security National"), pursuant to which, upon and subject to the
satisfaction of certain conditions, Security National will be merged with and
into Huntington Florida (the "Security National Merger"). Upon the
consummation of the Security National Merger, Huntington Florida will become a
bank holding company under the BHCA.
D. SNB is a national banking association and is a wholly owned
subsidiary of Security National. Upon the consummation of the Security
National Merger, the name of SNB will be changed to "The Huntington National
Bank of Florida." (The Huntington National Bank of Florida, as the successor
by name change to SNB following the consummation of the Security National
Merger, is hereinafter referred to as "HNBF.")
E. Huntington Florida desires to acquire all of the assets and
liabilities of Reliance and to transfer the assets and liabilities so acquired
to HNBF (or, under certain circumstances, as described in Section 2(b) hereof,
to HFSB), such acquisition and transfer to be accomplished by a merger of
Reliance with and into HNBF (the "HNBF Merger"), in accordance with the terms
of this Agreement and of a certain Agreement and Plan of Merger, of even date
herewith, among Huntington Florida, SNB, and Reliance (the "HNBF Merger
Agreement") (or, under certain circumstances, as described in Section 2(b)
hereof, by a merger of HFSB with and into Reliance (the "HFSB Merger"), in
accordance with the terms and conditions of this Agreement and of an Agreement
and Plan of Merger to be entered into among HFSB and Reliance pursuant to
Section 2(b) hereof, a copy of which is attached as Exhibit A hereto (the "HFSB
Merger Agreement")). (The HNBF Merger or the HSFB Merger, as applicable, is
sometimes hereinafter referred to as the "Merger," and the HNBF Merger
Agreement or the HFSB Merger Agreement, as applicable, is sometimes hereinafter
referred to as the "Merger Agreement.")
F. The parties hereto desire to enter into this Agreement for the
purpose of setting forth the terms and conditions of the agreement between them
relating to the Merger, as well as certain representations, warranties, and
covenants made by each party as an inducement to the other parties to execute
and deliver the Merger Agreement and to consummate the Merger.
AGREEMENT:
---------
In consideration of the foregoing Recitals, which shall constitute a
part of this Agreement, and of the mutual promises contained herein, the
parties agree as follows:
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SECTION 1. DEFINITIONS
1.01 DEFINITIONS CONTAINED ELSEWHERE IN THIS AGREEMENT. For the
purposes of this Agreement, the following terms shall have the meanings
assigned to them in the preamble and Recitals of this Agreement:
(a) this "Agreement";
(b) the "BHCA";
(c) "HFSB";
(d) the "HFSB Merger";
(e) the "HFSB Merger Agreement";
(f) "HNBF";
(g) the "HNBF Merger";
(h) the "HNBF Merger Agreement";
(i) "Huntington";
(j) "Huntington Florida";
(k) the "Merger";
(l) the "Merger Agreement";
(m) "Reliance";
(n) "Security National";
(o) the "Security National Merger"; and
(p) "SNB."
1.02 DEFINITIONS CONTAINED IN THE MERGER AGREEMENT. For the
purposes of this Agreement, the following terms shall have the meanings
assigned to them in the Merger Agreement:
(a) the "Constituent Associations" and a "Constituent
Association";
(b) the "Code";
(c) the "Dissenters' Rights Law";
(d) the "Effective Date";
(e) the "Effective Time";
(f) the "Exchange Agent";
(g) "Huntington Common";
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(h) the "Huntington Stock Option Plan";
(i) the "Huntington Stock Options" or a "Huntington Stock
Option";
(j) the "Non-Surviving Association";
(k) "Reliance Common";
(l) the "Reliance Stock Option Plan";
(m) the "Reliance Stock Options" or a "Reliance Stock
Option"; and
(n) the "Surviving Association."
1.03 OTHER DEFINITIONS. For the purposes of this Agreement,
certain other terms shall be defined as follows:
(a) the "Accord" means the Legal Opinion Accord of the
American Bar Association Section of Business Law (1991);
(b) an "Acquisition Proposal" means an inquiry received
from, or an offer or proposal made by or on behalf of, any other corporation,
firm, association, person, or other entity relating to (i) the possible sale or
other disposition of more than 25 percent of the shares of the capital stock or
any other class of voting securities of Reliance, including, but not limited
to, an exchange or tender offer therefor, (ii) the possible sale or other
disposition of a majority of the assets of Reliance, (iii) a merger or
consolidation involving Reliance, other than a transaction in which Reliance
will be the owner of all of the stock of the surviving corporation following
the transaction, or (iv) a merger or consolidation involving Reliance, other
than a transaction in which Reliance will be the surviving corporation and the
current shareholders of Reliance will be the owners of a majority of the stock
of the surviving corporation following the transaction;
(c) an "Affiliate" of a party means a subsidiary,
Principal Shareholder, director, or executive officer of such party;
(d) the "Audited Financial Statements" means the
financial statements of Reliance, consisting of balance sheets as of December
31, 1993 and 1992 statements of income, cash flows, and changes in
shareholders' equity for the fiscal years ended or ending December 31, 1993,
1992, and 1991, with the report thereon of KPMG Peat Marwick;
(e) "BIF" means the Bank Insurance Fund of the FDIC (as
defined in paragraph (n) below);
(f) "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended;
(g) the "Closing Date" means the last business day of the
month in which the conditions specified in Sections 7.01 and 7.02 hereof have
been satisfied, or such other day as the parties shall mutually agree.
(h) "CRA" means the Community Reinvestment Act of 1977,
as amended;
(i) "Confidential Information" of or relating to a party
means any and all information received from or on behalf of such party or their
Affiliates concerning the Merger, the terms of this Agreement or the Merger
Agreement, or the assets, business, operations, or financial condition of such
party or their Affiliates, unless and to the extent that any such information
is in the public domain;
(j) the "Disclosure Memorandum" means the Disclosure
Memorandum which is to be delivered by Reliance to Huntington pursuant to
Section 3.01 hereof;
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(k) "Employee Benefit Plans" means any and all "employee
benefit plans," as defined in ERISA;
(l) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended;
(m) "Environmental Law" means CERCLA, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the Federal Water Pollution Control Act, the
Clean Water Act, the Clean Air Act, regulations promulgated thereunder, and any
other federal, state, county, municipal, local, foreign, provincial, or other
statute, law, ordinance, or regulation which may relate to or deal with human
health or the environment, all as may be amended from time to time;
(n) "Ewing" means Allen C. Ewing & Co.;
(o) "FAS 115" means Financial Accounting Standard No. 115;
(p) "FDIC" means the Federal Deposit Insurance
Corporation;
(q) the "Federal Reserve Board" means the Board of
Governors of the Federal Reserve System, or its delegate;
(r) "Hazardous Substances" means (i) any "hazardous
substance" as defined in Section 101(14) of CERCLA or regulations promulgated
thereunder; (ii) any "solid waste," "hazardous waste," or "infectious waste,"
as such terms are defined in any other Environmental Law; (iii) asbestos,
urea-formaldehyde, polychlorinated biphenyls (PCBs), nuclear fuel or material,
chemical waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products, and other dangerous, toxic, or hazardous pollutants,
contaminants, chemicals, materials, or substances listed or identified in, or
regulated by, any Environmental Law; and (iv) any other substances or materials
which are classified or considered to be hazardous or toxic under any
Environmental Law;
(s) the "Huntington Entities" means Huntington,
Huntington Florida, and either HNBF or HFSB, as applicable, collectively, and a
"Huntington Entity" means any one of such entities, individually;
(t) the "Interim Financial Statements" mean the unaudited
financial statements of Reliance, consisting of balance sheets as of March 31,
1994 and 1993, June 30, 1994 and 1993, and September 30, 1994 and 1993, and
statements of income, cash flows, and changes in shareholders' equity for the
three-month, six-month, and nine-month periods ended or ending on March 31,
1994 and 1993, June 30, 1994 and 1993, and September 30, 1994 and 1993,
respectively, prepared in accordance with generally accepted accounting
principles applied on a consistent basis;
(u) the "1934 Act" means the Securities Exchange Act of
1934, as amended;
(v) the "1933 Act" means the Securities Act of 1933, as
amended;
(w) the "OCC" means the Office of the Comptroller of the
Currency;
(x) the "Permitted Application Date" means January 1,
1995;
(y) a "Principal Shareholder" of a party means a person
who owns five percent or more of the outstanding shares of any class of the
capital stock of such party;
(z) the "Real Property" means any and all real property
owned or leased by Reliance as of the date of this Agreement or acquired at any
time after the date of this Agreement and prior to the Effective Time, together
with any and all improvements thereon;
(aa) the "Registration Statement" means the registration
statement on the appropriate form filed or to be filed by Huntington with the
SEC under the provisions of the 1933 Act for the purpose of registering the
shares
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of Huntington Common to be issued by Huntington in the Merger pursuant to the
terms of the Merger Agreement, including, but not limited to, the prospectus
and proxy statement to be included therein as a part thereof;
(bb) the "SEC" means the Securities and Exchange
Commission;
(cc) the "Warrant" means the warrant to purchase certain
shares of Reliance Common issued or to be issued by Reliance to Huntington
pursuant to Section 9.13 of this Agreement.
SECTION 2. AGREEMENT TO MERGE
Subject to the terms and conditions hereof and the terms and
conditions contained in the Merger Agreement:
(a) If the Security National Merger has been consummated
prior to the Effective Time, the HNBF Merger shall be consummated in accordance
with the terms of the HNBF Merger Agreement; or
(b) If the Security National Merger has not been
consummated prior to the Effective Time, (i) the HNBF Merger Agreement shall
thereupon become void and shall have no further force or effect, (ii) Reliance
shall execute the HFSB Merger Agreement at or prior to the Effective Time,
(iii) Huntington shall cause HFSB to execute the HFSB Merger Agreement at or
prior to the Effective Time, and (iv) the HFSB Merger shall be consummated in
accordance with the terms of the HFSB Merger Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF RELIANCE
Reliance represents and warrants to Huntington and Huntington Florida
that, except as set forth in the Disclosure Memorandum which shall be delivered
by Reliance to Huntington on or before January 20, 1995:
3.01 ORGANIZATION AND AUTHORITY. Reliance is a bank duly
organized, validly existing, and in good standing under the laws of the State
of Florida, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified, and has the corporate power and
authority to own its properties and assets, to carry on its business as it is
presently being conducted, and, subject to the approval of its shareholders, to
enter into and carry out its obligations under this Agreement and under the
Merger Agreement. Reliance's deposits are insured by the BIF in accordance
with the provisions of the Federal Deposit Insurance Act.
3.02 CAPITALIZATION. The authorized capital stock of Reliance
consists of 600,000 shares of Reliance Common, of which 348,099 shares were
issued and outstanding as of the date of this Agreement, exclusive of treasury
shares. All of the outstanding shares of Reliance Common are duly and validly
authorized, issued, and outstanding and are fully paid and nonassessable.
There are no existing options, warrants, or commitments of any kind which might
require the issuance by Reliance of any additional shares of Reliance Common or
other equity securities of Reliance except the Reliance Stock Options and the
Warrant. The Disclosure Memorandum will include a true and correct copy of the
Reliance Stock Option Plan and a list of all option holders under such plan,
the number of shares subject to options held by each, the exercise price or
prices of such options, and the dates each option was granted, becomes
exercisable, and terminates.
3.03 SUBSIDIARIES. The Disclosure Memorandum will list all
corporations in which Reliance owns, directly or indirectly, five percent or
more of any class of capital stock as of the date of this Agreement, and
indicate, with respect to the equity securities of each such corporation as of
such date, the number of shares of each class authorized, the number of shares
outstanding, and the number of shares owned or controlled directly or
indirectly by Reliance. Reliance does not own, directly or indirectly, more
than 50 percent of the capital stock of any other corporation.
3.04 DIRECTORS, OFFICERS, AND PRINCIPAL SHAREHOLDERS. The
Disclosure Memorandum will contain a true and complete list of all directors,
executive officers, and Principal Shareholders of Reliance.
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3.05 AUTHORIZATION. The execution, delivery, and performance of
this Agreement and the Merger Agreement by Reliance, and the consummation of
the transactions contemplated hereby and thereby have been duly approved by the
Board of Directors of Reliance, subject to the adoption of the Merger Agreement
and this Agreement by the shareholders of Reliance.
3.06 ABSENCE OF DEFAULTS. Neither the execution and delivery of
this Agreement or the Merger Agreement, nor the consummation of the Merger, nor
compliance by Reliance with any provisions hereof or thereof will conflict with
or result in a breach of any provisions of the articles of incorporation,
regulations, bylaws, or other charter documents of Reliance or result in a
material breach or termination of, or accelerate the performance required by,
any note, bond, mortgage, lease, agreement, or other instrument to which
Reliance is a party or by which Reliance may be bound.
3.07 FINANCIAL STATEMENTS. Reliance has delivered the Audited
Financial Statements and the Interim Financial Statements to Huntington. The
Audited Financial Statements and the Interim Financial Statements present,
fairly and accurately, the financial position and results of operations of
Reliance on a consolidated basis separately at the dates shown and for the
periods indicated in accordance with generally accepted accounting principles
applied on a consistent basis. There are no obligations or liabilities,
whether absolute, accrued, or contingent (including, without limiting the
generality of the foregoing, liabilities for taxes), of Reliance which are
required in accordance with generally accepted accounting principles to be
reflected or disclosed in the Audited Financial Statements or the Interim
Financial Statements which have not been so reflected or disclosed.
3.08 TITLE TO PROPERTIES.
(a) The Disclosure Memorandum will set forth a complete and
correct list of all of the Real Property. Reliance has good and marketable
title to all of the Real Property listed as owned by it in the Disclosure
Memorandum and valid leasehold interests in all of the Real Property listed as
leased by it in the Disclosure Memorandum, free and clear of any liens and
encumbrances except taxes and assessments not delinquent and utility and other
easements that do not interfere with the use of the property for the business
being conducted thereon. The Real Property and the present use thereof by
Reliance do not violate any local zoning or similar land use laws, any
governmental regulations, or any restrictive covenants. To the knowledge of
Reliance, after reasonable investigation, (i) the Real Property and the use
thereof by Reliance do not encroach upon any property owned by any other
person, and (ii) no property owned by any other person encroaches upon any of
the Real Property.
(b) Concurrently with its delivery of the Disclosure
Memorandum, Reliance will deliver to Huntington complete and correct copies of
all deeds and leases relating to the Real Property listed in the Disclosure
Memorandum.
(c) Each item of the personal property owned by Reliance,
including without limitation all contractual rights and assets reflected in the
Audited Financial Statements or acquired after December 31, 1993 (except for
assets sold or otherwise disposed of in the ordinary course of business since
such date or assets which, either individually or in the aggregate, are not
material to the operations or financial condition of Reliance), is owned by
Reliance free and clear of any lien or encumbrance.
3.09 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against on the Audited Financial Statements, Reliance has
no liabilities, whether absolute, accrued, contingent, or otherwise, due or to
become due, including without limitation any liabilities as guarantor under any
guaranty or liabilities for taxes, except liabilities and taxes incurred in the
ordinary course of business, which have had or will have a material adverse
effect on the business, financial condition, or results of operations of
Reliance.
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3.10 ABSENCE OF CERTAIN CHANGES. Since December 31, 1993, Reliance
has not:
(a) made or permitted to be made any changes in its capital
or corporate structure, certificate or articles of incorporation, regulations,
bylaws, or other charter documents;
(b) merged with any other corporation or bank, or permitted
any other corporation or bank to merge into or consolidate with it; acquired
control over any other firm, bank, corporation, or organization; or created any
subsidiaries;
(c) issued, sold, delivered, or agreed to issue, sell, or
deliver any additional shares of its capital stock or any options, warrants, or
rights to acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock, except for the Warrant and except for
capital stock issued pursuant to the exercise of stock options previously
issued, in accordance with their respective terms;
(d) purchased, sold, transferred, or otherwise acquired or
disposed of, or agreed to purchase, sell, transfer, acquire, or dispose of, any
capital stock or other securities of any kind, or options or other rights to
acquire any such securities, of any other entity other than in the ordinary
course of business;
(e) incurred any indebtedness, obligations, or liabilities,
whether absolute, accrued, contingent, or otherwise, including, without
limitation, liabilities as guarantor under any guaranty, other than
indebtedness, obligations, and liabilities incurred in the ordinary course of
its business or incurred under the contracts and commitments referred to in
Section 3.18 hereof;
(f) issued as borrower any promissory notes, guarantees, or
other evidences of indebtedness, other than in the ordinary course of business;
(g) forgiven or cancelled any indebtedness or contractual
obligation, other than in the ordinary course of business;
(h) mortgaged, pledged, or subjected to any lien or lease
any of its assets, tangible or intangible, or permitted or suffered any such
asset to be subjected to any lien or lease, other than in the ordinary course
of business;
(i) purchased, sold, transferred, liquidated, or otherwise
acquired or disposed of any assets or properties, or entered into any contract
for any such purchase, sale, transfer, liquidation, acquisition, or
disposition, other than in the ordinary course of business;
(j) entered into any lease of real or personal property
other than in the ordinary course of business;
(k) declared, paid, made, or set apart any sum or property
for, any dividend or other distribution, or otherwise paid or transferred any
funds or property to its shareholders;
(l) increased the wages, salaries, compensation, pension or
other fringe benefits, or perquisites payable to any executive officer by more
than eight percent of the amount thereof in effect as of December 31, 1993, or
granted any severance or termination pay, or entered into any contract to make
or grant any severance or termination pay, or entered into any employment or
consulting contract which is not terminable by Reliance, without cause and
without penalty or severance obligation, upon notice of 30 days or less;
(m) made any loans or loan commitments, other than in the
ordinary course of business, to any Affiliate of Reliance (or any person or
business entity controlled by or affiliated with such Affiliate);
(n) modified, altered, amended, terminated, or withdrawn
from participation in any Employee Benefit Plan or any other plan or benefit
provided to one or more employees, or paid or distributed any sum from any such
plan except to participants in the ordinary course of the operation of the
plan, or made any payment or contribution
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to any such plan except as required by the terms of such plan or consistent
with past practices, but, in any event, not to exceed eight percent of eligible
salaries, in the aggregate, on an annual basis;
(o) entered into any transaction involving the expenditure
of more than $50,000, other than in the ordinary course of business, except
pursuant to and in accordance with the terms of the contracts and commitments
referred to in Section 3.18 hereof;
(p) adopted any change in any accounting policy or method
except for the adoption of FAS 115;
(q) revalued any asset or adjusted any reserve other than in
the ordinary course of business;
(r) failed to keep in full force and effect insurance and
bonds at least equal in amount and scope of coverage to the insurance and bonds
carried on December 31, 1993;
(s) suffered any material adverse change in its business,
financial condition, income, assets, or liabilities (excluding any effects of
FAS 115);
(t) suffered any damage, destruction, or loss (whether or
not covered by insurance) which has had a material adverse effect, in any case
or in the aggregate, on its business, financial condition, operations,
projects, properties, or assets;
(u) suffered any strike, work stoppage, slow-down, or other
labor disturbance; or
(v) suffered any loss of employees or customers which has
had a material adverse effect on its business, operations, or prospects.
3.11 TAXES. Reliance has filed or caused to be filed all federal
and other tax returns which are required to be filed and have paid or made
provision for payment of all taxes shown as due on such returns. No
deficiencies for any tax, assessment, or governmental charge have been
proposed, asserted, or assessed against Reliance that have not been settled and
paid. The federal income tax returns of Reliance have been examined by the
Internal Revenue Service for the tax years through 1990.
3.12 LABOR MATTERS. Reliance is not a party to any collective
bargaining or other union agreement with any of its employees, nor is it
involved in any labor dispute.
3.13 LITIGATION. There is no action, suit, proceeding, or claim by
any governmental agency or other person or entity nor any investigation by any
governmental agency pending or, to the knowledge of Reliance, threatened
against (i) Reliance, (ii) the assets, business, or goodwill of Reliance, or
(iii) any Affiliate of Reliance, in relation to the business of Reliance or any
such person's capacity as a director, officer, or Principal Shareholder of
Reliance. Reliance knows of no basis or grounds for any such action, suit,
proceeding, claim, or investigation. Reliance is not subject to any
supervisory agreement, consent order or decree, cease and desist order, or
other restriction on the business or assets of Reliance.
3.14 ENVIRONMENTAL MATTERS.
(a) Reliance is and has been at all times in substantial
compliance with all applicable Environmental Laws and has not engaged in any
activity resulting in a material violation of any applicable Environmental Law.
No investigations, inquiries, orders, hearings, actions, or other proceedings
by or before any court or governmental agency are pending or, to the knowledge
of Reliance, threatened in connection with any alleged violation of any
applicable Environmental Law by Reliance or in relation to any part of the Real
Property. No claims have been made or, to the knowledge of Reliance,
threatened at any time by any third party against Reliance relating to damage,
contribution, cost recovery, compensation, loss, or injury resulting from any
Hazardous Substance. Reliance has not caused or permitted any Hazardous
Substance to be integrated into the Real Property or any component thereof in
such manner or quantity as may reasonably be expected to or in fact would pose
a threat to human health or the value
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of the Real Property. None of the Real Property has been used by Reliance for
the storage or disposal of Hazardous Substances nor is any of the Real Property
contaminated by any Hazardous Substance. None of the Real Property has in the
past contained or presently contains any underground storage tanks. Reliance
has no interest, direct or indirect, in any property owned by a third party
which has been contaminated by Hazardous Substances (excluding any property as
to which the sole interest of Reliance is that of a lien holder or mortgagee,
but including any property as to which title has been taken by Reliance
pursuant to mortgage foreclosure or similar proceeding and any property as to
which Reliance has participated in the financial management to a degree
sufficient to influence the property's treatment of Hazardous Substances).
(b) To the knowledge of Reliance, the representations set
forth in paragraph (a) above are also true and correct in relation to any and
all real property owned or leased by it at any time prior to the date of this
Agreement, together with any improvements located thereon.
3.15 COMMUNITY REINVESTMENT ACT COMPLIANCE. Reliance is in
compliance with the applicable provisions of the CRA and the regulations
promulgated thereunder, and Reliance has received a CRA rating of satisfactory
or better from the FDIC. Reliance knows of no fact or circumstance or set of
facts or circumstances which would cause Reliance to fail to comply with such
provisions or to cause the CRA rating of Reliance to fall below satisfactory.
3.16 COMPLIANCE WITH LAWS. Reliance holds all permits, licenses,
certificates of authority, orders, and approvals of, and have made all filings,
applications, and registrations with, all governmental or regulatory bodies
that are required in order to permit it to carry on its respective businesses
as they are presently conducted. Reliance has conducted its businesses so as
to comply in all material respects with all applicable statutes, regulations,
rules, and orders.
3.17 INFORMATION PROVIDED BY RELIANCE. None of the information
supplied or to be supplied by Reliance for inclusion in the Registration
Statement, the application for approval, or any other document to be filed with
the Federal Reserve Board, the SEC, the Florida Department of Banking and
Finance, or any other federal or state regulatory authority in connection with
the transactions contemplated herein or in the Merger Agreement is or will be
false or misleading with respect to any material fact, or omits or will omit
any material fact necessary in order to make the statements therein not
misleading.
3.18 MATERIAL CONTRACTS.
(a) The Disclosure Memorandum will contain a complete and
correct list of all written or oral agreements, leases, and other obligations
and commitments of the following types, to which Reliance is a party, by which
either Reliance or any of its property is bound, or which has been authorized
by Reliance:
(i) promissory notes, guaranties, mortgages, security
agreements, or other evidences of indebtedness of Reliance;
(ii) partnership or joint venture agreements;
(iii) employment, bonus, compensation, severance, or
consulting agreements;
(iv) collective bargaining agreements;
(v) Employee Benefit Plans and any other plans,
benefits, programs of benefits, or deferred compensation arrangements
for the benefit of directors, employees, or former or retired
employees;
(vi) agreements or commitments for sale (otherwise than
in the ordinary course of business) of assets exceeding $50,000 in the
aggregate;
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(vii) agreements or commitments for capital expenditures
in excess of $50,000 in the aggregate;
(viii) agreements or other documents creating liens or
security interests relating to any real or personal property owned,
rented, or leased by Reliance and used in connection with its
business;
(ix) leases of, commitments to lease, and other
agreements relating to the lease or rental of, real or personal
property by Reliance and used in connection with its business;
(x) all policies of insurance and fidelity bonds of
Reliance;
(xi) all direct or indirect loans or guaranties of
loans to any director, officer, or Principal Shareholder of Reliance
or any director or officer above the rank of Vice President of
Reliance or their spouses or children or any partnership, corporation,
or other entity in which any such director, officer, or Principal
Shareholder or their spouses or children, have a significant (ten
percent or more) interest; and
(xii) all other contracts and commitments not made in
the ordinary course of business.
(b) Concurrently with its delivery of the Disclosure
Memorandum, Reliance will deliver to Huntington complete and correct copies of
all written agreements, leases and commitments, together with all amendments
thereto, listed in the Disclosure Memorandum and a complete and correct written
description of all oral agreements listed in the Disclosure Memorandum.
(c) As of and through the date of this Agreement: (i) each
agreement, lease, and commitment of Reliance is valid and subsisting and in
full force and effect in all material respects; (ii) Reliance has in all
material respects performed all obligations required to be performed by it to
date under such agreements, leases, and commitments; and (iii) no event or
condition exists which constitutes or, after notice or lapse of time, would
constitute, a material default on the part of Reliance under any agreement,
lease, or commitment.
3.19 EMPLOYEE BENEFIT PLANS.
(a) As of the date hereof:
(i) all Employee Benefit Plans maintained by
Reliance comply in all material respects with the requirements of
ERISA and the Code and all such Employee Benefit Plans have been
administered to date in compliance with the requirements of ERISA, the
Code and any other legislation regulating employee benefit plans;
(ii) each Employee Benefit Plan that is an employee
pension benefit plan (as defined in Section 3(2) of ERISA) that is
intended to be a qualified plan under Section 401(a) of the Code has
been amended to comply in all material respects with the current law
and Reliance has obtained favorable determination letters with respect
to all such plans or the remedial amendment period for such amendment
under Section 401(b) of the Code has not expired;
(iii) all reporting and disclosure requirements of ERISA
and the Code have been met in all material respects by all such Plans;
(iv) Reliance has no liability on account of any
accumulated funding deficiency (as defined in Section 412 of the Code)
or on account of any failure to make contributions to or pay benefits
under any such plan nor is Reliance aware of any claim pending or
threatened to be brought by any party regarding such matters;
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(v) no prohibited transaction has occurred with
respect to any of the Employee Benefit Plans that would result,
directly or indirectly,in the imposition of any excise tax under ERISA
or the Code;
(vi) no reportable event under ERISA has occurred with
respect to any of the Employee Benefit Plans;
(vii) Reliance is not a defendant in any lawsuit or
criminal action concerning its conduct as a fiduciary, party-in-
interest, or disqualified person with respect to any plans;
(viii) Reliance is not engaged in litigation or a
continuing controversy with or, to the knowledge of Reliance, under
investigation or examination by, the Department of Labor, Internal
Revenue Service, Justice Department, or Pension Benefit Guaranty
Corporation involving compliance with ERISA or the provisions of the
Code relating to Employee Benefit Plans; and
(ix) Reliance is not required to contribute to an
Employee Benefit Plan that is a "multi-employer plan" within the
meaning of Section 3(37) of ERISA.
(b) The Disclosure Memorandum lists all Employee Benefit
Plans and any and all other benefit plans or programs currently in effect for
employees, former employees, and retired employees of Reliance including,
without limitation, those providing any form of medical, health, and dental
insurance, severance pay and benefits continuation, relocation assistance,
vacation pay, tuition aid, and matching gifts for charitable contributions to
educational or cultural institutions, whether or not subject to ERISA. The
Disclosure Memorandum includes complete and correct copies of all such plans or
programs, including each trust or other agreement under which any trustee or
custodian holds funds or property of the plans, all current financial and
actuarial reports, all current reporting and disclosure documents and filings,
and currently effective Internal Revenue Service rulings or determination
letters in respect thereof.
(c) If any Employee Benefit Plans listed in the Disclosure
Memorandum has not been amended to comply with the Tax Reform Act of 1986,
Reliance agrees to amend and restate such Plans to comply with the Tax Reform
Act of 1986 prior to the earlier of (i) the last day of the Employee Benefit
Plan's plan year beginning in 1994 or (ii) the Effective Date, and to deliver
such information and documentation as Huntington shall request to demonstrate
such Plans' compliance with ERISA and the Code in operation during the
remedial amendment period.
3.20 INSURANCE POLICIES. The Disclosure Memorandum will contain a
complete and correct list of the insurance policies and fidelity bonds
currently maintained by Reliance. Concurrently with its delivery of the
Disclosure Memorandum, Reliance will deliver to Huntington complete and correct
copies of all such policies and bonds currently in effect together with all
riders and amendments thereto. All premiums due thereon have been paid and
Reliance has complied in all respects with the provisions of such policies and
bonds. Reliance has not failed to give any notice or present any claim under
any insurance policy or fidelity bond in due and timely fashion.
3.21 CAPITAL REQUIREMENTS. Reliance is in compliance with all
currently applicable capital requirements and guidelines prescribed by all
appropriate federal or state regulatory agencies.
3.22 LOAN LOSS RESERVES. Since December 31, 1993, Reliance has not
incurred any unusual or extraordinary loan losses. The allowance for loan
losses reflected on the financial statements of Reliance has been determined in
accordance with generally accepted accounting principles and in accordance
with all applicable regulations of all appropriate regulatory agencies and is
adequate in all respects. Reliance has no knowledge of any potential losses
that have not been considered in establishing the current allowance for loan
losses.
3.23 BROKERS; CERTAIN FEES. Neither Reliance nor any of its
respective officers, directors, or employees, has employed any broker or finder
or incurred any liability for any financial advisory fees, brokerage fees,
commissions, or finder's fees in connection with this Agreement or the Merger
Agreement, or the transactions contemplated herein or therein except for Ewing.
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3.24 MATERIAL FACTS. Neither this Agreement, the Merger Agreement,
the Disclosure Memorandum, nor any list, schedule, or certificate furnished to
Huntington by or on behalf of Reliance contains any untrue statement of a
material fact or omits a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances in
which made; provided, however, that the scope of this representation does not
extend to any information relating to or furnished by any of the Huntington
Entities.
3.25 TAX TREATMENT OF THE MERGER. The following representations
are provided herein and intended solely to provide a partial basis for the
rendering of the opinion described in Section 7.04 of this Agreement, and are
not intended as additional covenants notwithstanding language contained
therein.
(a) There is no plan or intention by the shareholders of
Reliance who own five percent or more of the outstanding shares of Reliance
Common, and, to the knowledge of the management of Reliance, there is no plan
or intention on the part of the remaining shareholders of Reliance, to sell,
exchange, transfer by gift, or otherwise dispose of a number of shares of
Huntington Common to be received in the Merger that would reduce the ownership
of Huntington Common by the former shareholders of Reliance to a number of
shares having a value on the Effective Date of the Merger of less than 50
percent of the value of all of the formerly outstanding shares of Reliance
Common as of the same date. For purposes of this representation, shares of
Reliance Common surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Huntington Common will be treated as outstanding shares of
Reliance Common on the Effective Date. Moreover, shares of Reliance Common and
shares of Huntington Common held by Reliance shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger have been considered
in making this representation.
(b) Reliance will pay its own expenses, if any, incurred in
connection with the Merger and will not pay any expenses of any of the
Huntington Entities or of any shareholders of Reliance.
(c) All liabilities to which the assets of Reliance are
subject and all other liabilities of Reliance to be transferred in the Merger
were incurred by Reliance in the ordinary and usual course of its business.
(d) Reliance is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(e) Both the adjusted basis and the fair market value of the
assets of Reliance to be transferred in the Merger will equal or exceed the sum
of the liabilities to be assumed by HNBF in the Merger, plus the amount of
liabilities, if any, to which the assets to be transferred in the Merger are
subject.
(f) No material dividends or distributions have been or will
be made with respect to the Reliance Common or by Reliance prior to the Merger.
(g) Reliance is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(h) There is no indebtedness existing between Reliance on
the one hand and any of the Huntington Entities on the other hand that was
issued, acquired, or will be settled at a discount.
(i) The fair market value of the shares of Huntington Common
and other consideration to be received by each Reliance shareholder in the
Merger will be approximately equal to the fair market value of the Reliance
Common surrendered in exchange therefor.
(j) Huntington Florida (or, in the case of the HFSB Merger,
Huntington) will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
held by Reliance immediately prior to the Merger. For purposes of this
representation, amounts paid by Reliance to dissenters, amounts paid by
Reliance to shareholders who receive cash or other property, assets of Reliance
used to pay its reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Reliance immediately preceding
the transfer, will be included as assets of Reliance held immediately prior to
the Merger.
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(k) The payment of cash in lieu of fractional shares
pursuant to the terms of the Merger Agreement does not represent separately
bargained for consideration.
(l) None of the compensation received by any
shareholder-employees of Reliance will be separate consideration for, or
allocable to, any of their shares of Reliance Common; none of the shares of
Huntington Common received by any shareholder-employees of Reliance will be
separate consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of Reliance will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(m) In the case of an incentive stock option to acquire
shares of Reliance Common granted under the Reliance Stock Option Plan, a
holder of such option will not receive any additional benefits from Reliance as
a result of the conversion of the option in the Merger.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF HUNTINGTON
Huntington represents and warrants to Reliance as follows:
4.01 ORGANIZATION AND AUTHORITY OF HUNTINGTON. Huntington is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland, is duly qualified to do business and is in good
standing in all jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified, and has the corporate
power and authority to own its properties and assets, to carry on its business
as it is presently being conducted, and to enter into and carry out its
obligations under this Agreement.
4.02 ORGANIZATION AND AUTHORITY OF HUNTINGTON FLORIDA. Huntington
Florida is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Ohio, is duly qualified to do business and is in
good standing in all jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so qualified, and has the
corporate power and authority to own its properties and assets, to carry on its
business as it is presently being conducted, and to enter into and carry out
its obligations under this Agreement and the Merger Agreement.
4.03 ORGANIZATION AND AUTHORITY OF HNBF OR HFSB. As of the
Effective Time, if the HNBF Merger is to be consummated, HNBF will be a
national banking association duly organized, validly existing and in good
standing under the laws of the United States or, if the HFSB Merger is to be
consummated, HFSB will be a federal savings bank duly organized, validly
existing, and in good standing under the laws of the United States, and either
of such entities, as applicable, will be duly qualified to do business and in
good standing in all jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so qualified, and will have
the corporate power and authority to own its properties and assets, to carry on
its business as it is then being conducted, and to enter into and carry out its
obligations under this Agreement and the Merger Agreement.
4.04 CAPITALIZATION. The authorized capital stock of Huntington
consists of (i) 200,000,000 shares of common stock, without par value, of which
131,670,638 shares were issued and outstanding as of September 30, 1994
(including treasury shares), and (ii) 6,617,808 shares of serial preferred
stock, without par value, of which there are no shares issued and outstanding
as of the date hereof. All the outstanding shares of Huntington Common are
duly and validly authorized, issued, and outstanding and are fully paid and
nonassessable. All of the shares of Huntington Common to be issued pursuant to
the Merger Agreement will, when so issued, be duly and validly authorized,
issued, and outstanding, fully paid and nonassessable, and the issuance of such
shares will not be subject to any preemptive or similar rights.
4.05 AUTHORIZATION OF HUNTINGTON. The Merger has been duly
approved by the Board of Directors of Huntington. The execution, delivery, and
performance of this Agreement and the Merger Agreement by Huntington, and the
consummation of the transactions contemplated hereby and thereby, will have
been duly approved by the Board of Directors of Huntington prior to the
Effective Time. The approval or adoption of this Agreement by the shareholders
of Huntington is not required under Maryland law or under the charter or bylaws
of Huntington.
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4.06 AUTHORIZATION OF HUNTINGTON FLORIDA. The Merger has been
approved by the Board of Directors of Huntington Florida. The execution,
delivery, and performance of this Agreement and the Merger Agreement by
Huntington Florida, and the consummation of the transactions contemplated
hereby and thereby, will have been duly approved by the Board of Directors of
Huntington Florida prior to the Effective Time. The approval or adoption of
this Agreement by the shareholder of Huntington Florida is not required under
Ohio law or under the articles of incorporation or regulations of Huntington
Florida.
4.07 AUTHORIZATION OF HNBF OR HFSB. The execution, delivery, and
performance of this Agreement and the Merger Agreement by HNBF or HFSB, as
applicable, and the consummation of the transactions contemplated hereby and
thereby, will have been duly approved by the Board of Directors and sole
shareholder of such entity prior to the Effective Time.
4.08 AUTHORIZATION OF SNB. The execution, delivery, and
performance of this Agreement and the Merger Agreement by SNB, and the
consummation of the transactions contemplated hereby and thereby, will have
been duly approved by the Board of Directors and sole shareholder of SNB prior
to the Effective Time.
4.09 ABSENCE OF DEFAULTS. Neither the execution and delivery of
this Agreement, nor the consummation of the Merger, nor compliance by any of
the Huntington Entities with any of the provisions hereof or of the Merger
Agreement will conflict with or result in a breach of any provision of the
charter, articles of incorporation or association, or bylaws of any of the
Huntington Entities or result in a material breach or termination of, or
accelerate the performance required by, any material note, bond, mortgage,
lease, agreement, or other instrument to which any of the Huntington Entities
is a party or to which any of the Huntington Entities may be bound.
4.10 INFORMATION PROVIDED BY THE HUNTINGTON ENTITIES. None of the
information supplied or to be supplied by any of the Huntington Entities for
inclusion in the Registration Statement, application for approval, or any other
document to be filed with the Federal Reserve Board, the OCC, the FDIC, the
SEC, the Florida Department of Banking and Finance, or any other federal or
state regulatory authority in connection with the transactions contemplated
herein or in the Merger Agreement is or will be false or misleading with
respect to any material fact, or omits or will omit any material fact necessary
in order to make the statements therein not misleading.
4.11 MATERIAL FACTS. Neither this Agreement nor the Merger
Agreement contains any untrue statement of a material fact or omits a material
fact necessary in order to make the statements contained therein not misleading
in light of the circumstances in which made; provided, however, that the scope
of this representation does not extend to any information relating to or
furnished by Reliance.
4.12 FILING OF REPORTS. Huntington Common is registered pursuant
to Section 12 of the 1934 Act. Huntington has been subject to the reporting
requirements of Section 13 of the 1934 Act for a period of at least 90 days
prior to the date hereof and has filed all reports required to be filed
thereunder during the twelve months preceding the date hereof. Since January
1, 1992, Huntington has filed with the SEC all documents and reports (including
all amendments, exhibits, and schedules thereto and documents incorporated by
reference therein) required to be filed by Huntington under the 1934 Act and
the 1933 Act, and the rules and regulations promulgated by the SEC thereunder.
None of such documents or reports, as of their respective dates and as amended
through the date hereof, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in view of the circumstances under which they were
made, not misleading.
SECTION 5. COVENANTS OF RELIANCE
Reliance covenants and agrees as follows:
5.01 APPLICATIONS FOR REGULATORY APPROVALS; REGISTRATION STATEMENT.
Reliance will cooperate, and will cause its directors, officers, employees,
agents, and advisers to cooperate, to the extent reasonably necessary, with
Huntington and its advisers in connection with the preparation of the
Registration Statement and the applications for regulatory approvals described
in Section 7.02 hereof.
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5.02 SHAREHOLDERS' MEETING. As soon as practicable and, in any
event, within ten business days after the SEC has declared the Registration
Statement effective, Reliance will call and mail notice of a meeting of its
shareholders for the purpose of adopting the Merger Agreement and this
Agreement, which meeting shall be held not more than 45 days from the date the
notice is mailed, and the Board of Directors of Reliance will recommend to the
shareholders that they vote their shares in favor of the Merger.
5.03 CONDUCT OF BUSINESS AFTER PERMITTED APPLICATION DATE. From
the Permitted Application Date until the Effective Time, except as provided
herein or as consented to by Huntington in writing, Reliance will conduct its
operations only, and shall not take any action except in the ordinary and
usual course of business, and Reliance will use its best efforts to preserve
intact its business organizations, assets, prospects, and business
relationships, to keep available the services of its officers and employees,
and to maintain existing relationships with other entities. Without limiting
the generality of the foregoing, subject to the exceptions stated above, during
such period, Reliance will not:
(a) enter into any agreement or commitment of the character
referred to in subsection 3.18(a) hereof; or
(b) take or permit to be taken any action of a character
which is listed in Section 3.10 hereof.
5.04 ACCESS TO INFORMATION. Reliance shall give representatives of
Huntington full access, during normal business hours and upon reasonable
notice, to all assets, properties, books, records, agreements, and commitments
of Reliance, provided that such access shall not unreasonably interfere with
the operations of Reliance, and shall furnish to representatives of Huntington
all such information concerning its affairs as Huntington may reasonably
request.
5.05 PRESS RELEASES. Reliance shall consult in advance with
Huntington as to the form and substance of any press release, written
communication with its shareholders, or other public disclosure of matters
related to the Merger Agreement, this Agreement, or the Merger, and shall not
issue any such press release, written communication, or public disclosure
without the prior written consent of Huntington; provided, however, that
nothing contained herein shall prohibit Reliance from making any disclosure
(after consultation with Huntington with respect thereto) which its counsel
deems necessary under applicable law.
5.06 BEST EFFORTS. Reliance shall use its best efforts to take or
cause to be taken all actions necessary, proper, or advisable to consummate
the Merger, including such actions as Huntington may reasonably request in
writing, subsequent to the Permitted Application Date.
5.07 ACQUISITION PROPOSALS. Unless and until this Agreement shall
have been terminated by either party pursuant to Section 12 hereof, Reliance
shall not (i) directly or indirectly, through any of its Affiliates, solicit,
encourage, initiate, entertain, consider, or participate in any negotiations or
discussions with respect to any Acquisition Proposal, or (ii) disclose any
information not customarily disclosed to any person or entity or provide access
to its properties, books, or records or otherwise assist or encourage any
person or entity in connection with any Acquisition Proposal.
5.08 ADVICE OF CHANGES. Between the date hereof and the Effective
Date, Reliance shall advise Huntington promptly, in writing, of any fact which,
if existing or known on the date hereof, would have been required to be set
forth or disclosed in or pursuant to this Agreement and any fact which, if
existing or known on the date hereof, would have made any of the
representations contained herein untrue. Prior to the Effective Date, Reliance
shall deliver to Huntington a supplement to the Disclosure Memorandum, which
shall contain a description of any and all such matters.
5.09 TITLE INSURANCE. For each parcel of the Real Property
described in the Disclosure Memorandum as being owned by Reliance and for each
lease for any parcel of the Real Property described in the Disclosure
Memorandum as being leased by Reliance as to which Huntington may specifically
request, Reliance shall deliver to Huntington Florida, no later than 30 days
after the Permitted Application Date, a title insurance commitment (ALTA 1966
form or its equivalent) for a fee owner's title insurance policy or leasehold
owner's title insurance policy, as appropriate, each in an amount equal to the
carrying cost of the premises or leasehold interest to be insured (including
all improvements thereon), on the books of Reliance as of December 31, 1994.
Each title insurance commitment shall
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show that marketable fee simple title to the owned premises or that valid
leasehold title to the leased premises, as appropriate, is in the name of
Reliance, and that the owned premises are free and clear of any liens and
encumbrances except taxes and assessments not delinquent and utility and other
easements that do not interfere with the use of the property for the business
being conducted thereon. Each such commitment shall provide that such fee
owner's policy committed for therein shall be an ALTA 1970 form, revised in
1984, and each leasehold owner's policy shall be an ALTA 1975 form, or other
form acceptable to Huntington and Huntington Florida.
5.10 SURVEY. Within 30 days after the Permitted Application Date,
Reliance shall provide to Huntington and Huntington Florida, at Reliance's
cost, current land surveys of those parcels of the Real Property specifically
designated by Huntington. Each survey shall be conducted and prepared by a
duly licensed land surveyor approved by Huntington and Huntington Florida and,
unless otherwise agreed by Huntington and Huntington Florida in writing, shall
be a duly certified ALTA/ACSM field survey, which shall comply with the
requirements set forth in Exhibit B attached hereto and shall confirm that the
Real Property is not subject to any easements, restrictions, set backs,
encroachments, or other limitations except utility and other easements that do
not interfere with the use of the Real Property for the business then being
conducted thereon, and that the Real Property is not located in any flood
hazard area.
5.11 CONFIDENTIALITY. From and after the date of this Agreement,
Reliance shall, and shall cause its respective Affiliates to, treat all
Confidential Information of Huntington and Huntington Florida as confidential,
and Reliance shall, and shall cause its Affiliates to, not use any such
Confidential Information for any purpose except in furtherance of the
transactions contemplated hereby. In the event this Agreement is terminated
pursuant to Section 12 hereof, Reliance shall, and shall cause its Affiliates
to, promptly return to Huntington all documents and work papers, and all copies
thereof, containing any such Confidential Information of any of the Huntington
Entities. The covenants of Reliance contained in this Section 5.12 are of the
essence and shall survive any termination of this Agreement and the closing of
the transactions contemplated hereby.
5.12 TAX REPRESENTATIONS. Reliance will furnish a letter to
Porter, Wright, Morris & Arthur, as counsel for the Huntington Entities, in
such form as may be reasonably requested by such counsel, containing, to the
extent the same are true, the representations set forth in Section 3.25 hereof
in order to enable such counsel to render the tax opinions referred to in
Section 7.04 hereof.
SECTION 6. COVENANTS OF THE HUNTINGTON ENTITIES
The Huntington Entities covenant and agree as follows:
6.01 ISSUANCE OF HUNTINGTON COMMON; PAYMENT FOR FRACTIONAL SHARES.
At the Effective Time, Huntington shall (i) issue all of the shares of
Huntington Common into which shares of Reliance Common are to be converted in
the Merger and will deliver the certificates for such shares, or cause the same
to be delivered, to the Exchange Agent; and (ii) deliver to the Exchange Agent
the amount of cash to be paid in lieu of issuing fractional shares of
Huntington Common in accordance with subsections 5(b)(v) and 6(a) of the Merger
Agreement. The provisions of this Section 6.01 shall survive the Effective
Time and the Closing Date.
6.02 APPLICATIONS FOR REGULATORY APPROVALS. As soon as reasonably
practicable after the Permitted Application Date, Huntington shall file such
applications with the Federal Reserve Board, the OCC, the FDIC, the Florida
Department of Banking and Finance, and any other regulatory authorities having
jurisdiction as may be required to secure all necessary regulatory approvals of
the Merger and shall use its best efforts to secure such approvals. Huntington
shall deliver a draft or drafts of such regulatory applications to Reliance and
provide Reliance a reasonable opportunity to review such draft or drafts prior
to filing the same.
6.03 REGISTRATION STATEMENT. As soon as reasonably practicable
after the Permitted Application Date, Huntington shall prepare and file the
Registration Statement with the SEC, shall use its best efforts to cause the
Registration Statement to become effective, and shall take such action as may
be required to register or qualify for exemption such shares under the
securities laws of the states where registration or an exemption from
registration may
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be required. Huntington shall deliver a draft or drafts of the Registration
Statement to Reliance and provide Reliance a reasonable opportunity to review
such draft or drafts prior to filing the same.
6.04 PRESS RELEASES. Huntington shall consult in advance with
Reliance as to the form and substance of any press release, written
communication with its shareholders, or other public disclosure of matters
related to this Agreement, the Merger Agreement, or the Merger.
6.05 BEST EFFORTS. The Huntington Entities will use their best
efforts to take or cause to be taken all actions necessary, proper, or
advisable to consummate the Merger.
6.06 CONFIDENTIALITY. From and after the date of this Agreement,
the Huntington Entities shall, and shall cause their respective Affiliates to,
treat all Confidential Information of Reliance as confidential, and Huntington
and Huntington Florida shall, and shall cause their respective Affiliates to,
not use any such Confidential Information for any purpose except in furtherance
of the transactions contemplated hereby. In the event this Agreement is
terminated pursuant to Section 12 hereof, the Huntington Entities shall, and
shall cause their respective Affiliates to, promptly return to Reliance all
documents and work papers, and all copies thereof, containing any such
Confidential Information of Reliance. The covenants of the Huntington Entities
contained in this Section 6.06 are of the essence and shall survive any
termination of this Agreement, but shall terminate as of the closing of the
transactions contemplated hereby.
6.07 INDEMNIFICATION OF DIRECTORS AND OFFICERS. Huntington Florida
acknowledges that, by operation of law, at the Effective Time of the HNBF
Merger (or, if applicable, the HFSB Merger), HNBF (or, if the HFSB Merger is
closed, HFSB) will assume any and all legally enforceable obligations of
Reliance to indemnify and defend the directors and officers of Reliance
pursuant to, to the extent of, and in accordance with the terms and conditions
of any such obligations that Reliance had to indemnify and defend such persons
in effect immediately prior to the Effective Time, in connection with such
persons' status or services as directors and officers of Reliance, whether by
contractual right or by any provision of the articles of incorporation or
bylaws of Reliance, with respect to any claim asserted or made prior to or at
any time after the Effective Time. All such rights to indemnification with
respect to any such claim shall continue until the final disposition of such
claim regardless of when such claim was made or asserted; provided, however,
that nothing contained herein shall increase or lengthen the duration of HNBF's
(or, if the HFSB Merger is closed, HFSB's) obligations with respect to such
indemnification over that to which Reliance would have been subject had the
Merger not been consummated. The provisions of this Section 6.07 shall survive
the Effective Time and the Closing Date.
6.08 EMPLOYEE BENEFIT PLANS. Huntington and Huntington Florida
agree to use their best efforts (i) to coordinate the conversion of any
Employee Benefit Plans, practices, or policies of Reliance into similar plans
of Huntington, to the extent similar plans are maintained by Huntington, and
(ii) to give credit for purposes of eligibility, vesting and such other
purposes (other than for the purpose of benefit accrual under any plans
maintained by Huntington) for which such service is taken into account or
recognized, to the extent feasible and permissible under all applicable laws
and regulations and the applicable terms of Huntington's Employee Benefit Plans
and other plans to any and all employees of Reliance who become employees of
HNBF or any other Affiliate of Huntington following the consummation of the
Merger for all service with Reliance prior to the Effective Time. The
provisions of this Section 6.08 shall survive the Effective Time and the
Closing Date.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
The obligations of each of the parties hereto to consummate the Merger
are subject to the fulfillment, on or before the Effective Time, of the
following conditions precedent:
7.01 SHAREHOLDER APPROVAL. The Merger shall have been approved by
the affirmative vote of the holders of at least a majority of the issued and
outstanding shares of Reliance Common.
7.02 REGULATORY APPROVALS. The Merger shall have been approved by
the Federal Reserve Board, the OCC, the FDIC, the Florida Department of Banking
and Finance, and any other governmental authority having jurisdiction,
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and any applicable waiting periods shall have expired, with no such approval
or authorization containing any provision which would be materially adverse to
the business of Huntington, Huntington Florida, or HNBF or HFSB, as applicable.
7.03 LITIGATION. No suit, action, investigation by any
governmental body, or legal or administrative proceeding shall have been
brought or threatened which materially questions the validity or legality of
the transactions contemplated hereunder or under the Merger Agreement.
7.04 TAX OPINION. The Huntington Entities and Reliance shall have
received an opinion of Porter, Wright, Morris & Arthur substantially to the
effect that:
(a) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code;
(b) the basis of the assets acquired or retained by the
Surviving Association in the Merger will be the same in the hands of the
Surviving Association as the basis of those assets in the hands of the
respective Constituent Associations immediately prior to the Merger;
(c) the holding period of the assets of each of the
Constituent Associations received by the Surviving Association will, in each
instance, include the period for which such assets were held by such
Constituent Association;
(d) no gain or loss will be recognized by any of the
Huntington Entities upon the acquisition by Huntington Florida (or, in the case
of the HFSB Merger, by Huntington) of substantially all of the assets of
Reliance in exchange for shares of Huntington Common, the payment of cash to
dissenters, if any, the payment of cash in lieu of fractional shares of
Huntington Common, and the assumption of the liabilities of Reliance;
(f) no gain or loss will be recognized by Reliance upon the
transfer of substantially all of its assets to Huntington Florida (or, in the
case of the HFSB Merger, to Huntington) in exchange for shares of Huntington
Common, the payment of cash to dissenting shareholders of Reliance, if any, the
payment of cash in lieu of fractional shares of Huntington Common, and the
assumption of the liabilities of Reliance;
(g) no gain or loss will be recognized by the shareholders
of Reliance who exchange their shares of Reliance Common for shares of
Huntington Common in the Merger, except to the extent of any cash received in
lieu of a fractional share of Huntington Common;
(h) the basis of the shares of Huntington Common to be
received by shareholders of Reliance who receive solely shares of Huntington
Common in the Merger will be the same as the basis of the shares of Reliance
Common surrendered in exchange therefor;
(i) the holding period of the shares of Huntington Common
received by shareholders of Reliance in the Merger will include the holding
period of the shares of Reliance Common surrendered in exchange therefor,
provided that the Reliance Common was held as a capital asset in the hands of
the shareholders of Reliance on the Effective Date;
(j) where solely cash is received by a shareholder of
Reliance in exchange for his or her shares of Reliance Common pursuant to the
exercise of dissenters' rights, the cash will be treated as having been
received by such shareholder as a distribution in redemption of his Reliance
Common shares, subject to the provisions and limitations of Section 302 of the
Code, and where, as a result of such distribution, a shareholder owns no shares
of Huntington Common either directly or through the application of Section
318(a) of the Code, the redemption will be a complete termination of interest
within the meaning of Section 302(b)(3) of the Code and such cash will be
treated as a distribution in full payment in exchange for his or her shares of
Reliance Common, as provided in Section 302(a) of the Code; and under Section
1001 of the Code, gain or (subject to the limitations of Section 267 of the
Code) loss will be realized and recognized to such shareholders in an amount
equal to the difference between the amount of such cash and the adjusted basis
of the Reliance Common shares surrendered, as determined under Section 1011 of
the Code;
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(k) the payment of cash in lieu of fractional shares of
Huntington Common will be treated for federal income tax purposes as if the
fractional shares were distributed as part of the exchange and then were
redeemed by Huntington; such cash payments will be treated as having been
received as distributions in full payment in exchange for the stock redeemed
subject to the conditions and limitations of Section 302 of the Code; and
(l) while not free from doubt, holders of the Reliance Stock
Options which are incentive stock options will not recognize any gain or loss
solely as a result of the conversion of such options into Huntington Stock
Options pursuant to subsection 5(d) of the Merger Agreement.
Porter, Wright, Morris & Arthur's opinion may be subject to
receipt of a favorable Internal Revenue Service private letter ruling with
respect to certain federal income tax consequences of the Merger and to receipt
of any additional representations required to obtain such ruling.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF RELIANCE
The obligations of Reliance to consummate the Merger are subject to
the fulfillment on or before the Effective Date of the following additional
conditions precedent:
8.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Huntington Entities herein shall be true and correct in
all material respects on the Effective Date with the same force and effect as
though such representations and warranties had been made on and as of such
date; the Huntington Entities shall have performed in all material respects
their obligations hereunder and under the Merger Agreement to be performed on
or before the Effective Date; and an executive officer of Huntington shall have
executed and delivered to Reliance a certificate or certificates, dated as of
the Effective Date, in respect of the foregoing matters and in respect of such
other matters as Reliance shall reasonably request.
8.02 OPINION OF COUNSEL. Reliance shall have received a favorable
opinion dated as of the Effective Date from Porter, Wright, Morris & Arthur,
counsel for Huntington, to the effect that:
(a) the Huntington Entities are duly organized, validly
existing, and in good standing under the laws of the States of Maryland, Ohio,
and the United States, respectively; each of the Huntington Entities has the
corporate power and authority to own all of its properties and assets and to
carry on its business as presently conducted in all jurisdictions in which such
ownership exists or such business is conducted; and either HNBF or HFSB, as
applicable, has the corporate power and authority to merge with Reliance
pursuant to this Agreement and the Merger Agreement;
(b) the execution and delivery of this Agreement and the
Merger Agreement did not, and the consummation of the Merger will not, conflict
with any provision of the charter, articles of incorporation or association,
regulations, bylaws, or other charter documents of any of the Huntington
Entities;
(c) the execution and delivery of this Agreement and the
Merger Agreement and the consummation of the Merger have been authorized by all
necessary corporate action of each of the Huntington Entities; and this
Agreement is a valid and binding agreement of Huntington and Huntington
Florida, and the Merger Agreement is a valid and binding agreement of either
HNBF or HFSB, as applicable, in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, or other similar laws affecting
enforcement of creditors' rights generally and except that the enforceability
of the obligations of each of the Huntington Entities is subject to general
principles of equity; and
(d) the shares of Huntington Common to be issued by
Huntington in the Merger have been authorized and, upon issuance, will be fully
paid and nonassessable and will not be subject to the preemptive rights of any
shareholder of Huntington.
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Such opinion may be governed by the Accord. In giving such opinion,
such counsel may rely as to matters of fact, without independent investigation,
to the extent such counsel deems such reliance to be customary, reasonable, and
appropriate, on certificates of federal, state, or local government officials
and on certificates of officers and directors of the Huntington Entities. Such
counsel may expressly exclude any opinions as to choice of law matters and
antitrust matters and may add such other qualifications and explanations of the
basis of its opinions as are consistent with the Accord.
8.03 EFFECTIVENESS OF THE REGISTRATION STATEMENT; NASD LISTING.
Reliance shall have received a certificate from a duly authorized officer of
Huntington to the effect that the Registration Statement has become effective
by an order of the SEC, the Huntington Common to be exchanged in the Merger has
been qualified or is exempt under all applicable state securities laws, and
there has been no stop order issued or threatened by the SEC that suspends or
would suspend the effectiveness of the Registration Statement, and no
proceeding has been commenced or overtly threatened for such purpose. The
shares of Huntington Common to be issued to Reliance shareholders pursuant to
the Merger Agreement shall have been authorized for listing on the Nasdaq
National Market upon official notice of issuance.
8.04 FAIRNESS OPINION. Reliance shall have received a fairness
opinion from Ewing, dated as of the date of the proxy statement relating to the
Merger and also as of the Effective Date, stating that the terms of the Merger
are fair to the shareholders of Reliance from a financial point of view.
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE HUNTINGTON ENTITIES
The obligations of the Huntington Entities to consummate the Merger
are subject to the fulfillment on or before the Effective Date of the following
additional conditions precedent:
9.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Reliance herein shall be true and correct in all material
respects on the Effective Date with the same force and effect as though such
representations and warranties had been made on and as of such date; Reliance
shall have performed in all material respects its obligations hereunder and
under the Merger Agreement to be performed on or before the Effective Date; and
the Chief Executive Officer and Chief Financial Officer of Reliance shall have
executed and delivered to Huntington certificates, dated as of the Effective
Date, in respect of the foregoing matters and in respect of such other matters
as Huntington shall reasonably request.
9.02 OPINION OF COUNSEL. Huntington shall have received a
favorable opinion dated as of the Effective Date from Smith, Mackinnon, Harris,
Greeley, Bowdoin & Edwards, P.A., as counsel for Reliance, reasonably
acceptable to Huntington, to the effect that:
(a) Reliance is a state-chartered bank, duly organized,
validly existing, and in good standing under the laws of the State of Florida;
all eligible accounts of deposit in Reliance are insured by the BIF to the
fullest extent permitted by law; all corporate action required to be taken by
the directors and shareholders of Reliance to authorize the transactions
contemplated by this Agreement and the Merger Agreement have been taken; and
Reliance has the corporate power to effect the Merger in accordance with the
terms of this Agreement and the Merger Agreement;
(b) the execution and delivery of this Agreement and the
Merger Agreement did not, and the consummation of the Merger will not, conflict
with any provision of the articles of incorporation, bylaws, or other charter
documents of Reliance;
(c) the execution and delivery of this Agreement and the
Merger Agreement and the consummation of the Merger have been authorized by all
necessary corporate action of Reliance; and this Agreement and the Merger
Agreement are valid and binding agreements of Reliance in accordance with their
terms, except as may be limited by bankruptcy, insolvency, reorganization, or
similar laws affecting enforcement of creditors' rights generally and except
that the enforceability of the obligations of Reliance may be subject to
general principles of equity;
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(d) Reliance has the corporate power and authority to own
all of its properties and assets and to carry on its businesses as presently
conducted in all jurisdictions in which such ownership exists or such business
is conducted; Reliance is not required to be qualified to do business in any
jurisdiction other than Florida; and
(e) such counsel knows of no pending or threatened
litigation, proceeding, or investigation which might result in any material
adverse change in the business, properties, or financial condition of Reliance.
Such opinion may be governed by the Accord. In giving such opinion,
such counsel may rely as to matters of fact, without independent investigation,
to the extent such counsel deems such reliance to be customary, reasonable, and
appropriate, on certificates of federal, state, or local government officials
and on certificates of officers and directors of Reliance. Such counsel may
expressly exclude any opinions as to choice of law matters and antitrust
matters and may add such other qualifications and explanations of the basis of
its opinions as are consistent with the Accord.
9.03 ACCOUNTANTS' LETTERS.
(a) Huntington shall have received from Reliance's
independent Certified Public Accountants letters dated (i) not more than three
days prior to the date of mailing of the proxy statement to Reliance's
shareholders for the meeting of shareholders to approve the Merger and (ii) as
of the Effective Date, with respect to certain financial information regarding
Reliance, in such form and substance as is customary in transactions of the
nature contemplated in this Agreement, and generally in accordance with SAS 72.
(b) Huntington shall have received a letter from its
independent Certified Public Accountants to the effect that the Merger will
qualify for pooling-of-interests accounting treatment if consummated in
accordance with this Agreement and the Merger Agreement.
9.04 AGREEMENTS OF AFFILIATES. Each director, officer, and other
person who is an "affiliate," and their "affiliates," for purposes of Rule 145
under the 1933 Act, shall deliver to Huntington prior to the Effective Date a
written agreement, in form satisfactory to counsel for Huntington, providing
that such person will not sell, pledge, transfer, or otherwise dispose of the
shares of Huntington Common to be received by such person in the Merger unless
such sales are pursuant to an effective registration statement under the 1933
Act or pursuant to Rule 145 of the SEC or another exemption from the
registration requirements under the 1933 Act.
9.05 DISSENTING SHAREHOLDERS. The total number of shares of
Reliance Common, if any, as to which the right to dissent has been asserted
shall not exceed five percent of the total number of outstanding shares of
Reliance Common.
9.06 MATERIAL ADVERSE CHANGE. Since December 31, 1993, there shall
not have occurred any material adverse change in the consolidated results of
operations, financial condition, properties, or business of Reliance,
including, but not limited to, any such material adverse change which may be
stated or disclosed in the audited financial statements of Reliance as of
December 31, 1994, and for the year then ending, other than any such change
attributable to or resulting from (i) changes in law, regulation, or generally
accepted accounting principles of general application to the banking or thrift
industries, (ii) the effects of FAS 115, (iii) changes in economic conditions
that affect the banking and thrift industries generally, including changes in
the general level of interest rates, or (iv) any matter or matters relating to
Reliance which have been disclosed in the Disclosure Memorandum.
9.07 TITLE TO REAL PROPERTY. Reliance shall have delivered to
Huntington copies of all fee owner's and leasehold owner's title insurance
commitments for policies in accordance with the requirements of Section 5.09
hereof, together with such updating endorsements and other endorsements as
Huntington or Huntington Florida may reasonably require. All updating
endorsements shall show no change in the record title since the preceding
effective dates of the respective commitments.
9.08 SURVEY. Reliance shall have delivered to Huntington the
surveys in accordance with the requirements of Section 5.10 hereof.
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9.09 CONSENTS AND APPROVALS. Reliance shall have obtained any and
all consents or approvals that may be required under the terms of (i) any
contract, agreement, lease, or other obligation or commitment, including, but
not limited to, the types described in Section 3.18 hereof, to which either
Reliance is a party or by which either Reliance, or any of their property or
assets is bound, or (ii) any license or permit of Reliance, in order to avoid
the occurrence of any breach or default which may result from the consummation
of the Merger and which, if not obtained, is reasonably likely to have,
individually or in the aggregate, a material adverse effect on Reliance or any
of the Huntington Entities.
9.10 AGREEMENT TO VOTE. Huntington shall have received from each
of ten persons to be selected by Huntington from among Reliance's directors and
executive officers, an agreement, substantially in the form attached hereto as
Exhibit C, to vote all shares of Reliance Common owned by them or over which
they have the power to vote in favor of the approval of the Merger Agreement
and this Agreement.
9.11 SHAREHOLDER EQUITY. The total shareholder equity of Reliance
as of the end of the most recent calendar quarter preceding the Effective Date
and as of the Effective Date (and, as of each such date, excluding the effects
of FAS 115) shall not be less than the total shareholder equity of Reliance as
of December 31, 1993, or as of November 30, 1994, whichever is greater.
9.12 CONVERSION OF STOCK OPTIONS.
(a) All outstanding Reliance Stock Options held by persons
who are not employees of Reliance on the Effective Date, including, but not
limited to, non-employee directors of Reliance, shall have been either
exercised or terminated prior to the Effective Date.
(b) All holders of outstanding Reliance Stock Options who
are employees of Reliance on the Effective Date shall have entered into
agreements with Huntington, substantially in the form attached hereto as
Exhibit D, providing for the conversion on the Effective Date of all Reliance
Stock Options held by them to Huntington Stock Options in accordance with
Section 5(d) of the Merger Agreement.
(c) Reliance shall have certified to Huntington as of the
Effective Date that the actions described in paragraph (a) and (b) of this
Section 9.12 have been taken.
9.13 WARRANT. Reliance shall have executed and delivered to
Huntington a Warrant Purchase Agreement substantially in the form attached
hereto as Exhibit E and a Warrant substantially in the form attached as
Attachment A to such Warrant Purchase Agreement.
9.14 DUE DILIGENCE. Huntington shall have completed its due
diligence review of all aspects of the organization, administration, business,
operations, assets, liabilities, and financial condition of Reliance and shall
have performed such other due diligence procedures as it may deem to be
necessary or appropriate, and shall be satisfied, in its sole discretion, that
such review has not disclosed any material, adverse facts, problems, or
conditions. This condition shall be deemed to have been satisfied on the close
of business on the day which is 30 days after the date hereof unless, prior to
such time, Huntington has notified Reliance that it is not satisfied with the
results of its due diligence review because such review disclosed one or more
material, adverse facts, problems, or conditions. If Huntington so notifies
Reliance, Reliance shall have an additional period of five business days to
permit it to cure the defect or defects to the satisfaction of Huntington. If
Reliance cures the defect or defects within such cure period and Huntington
gives written notice to Reliance of its satisfaction with such cure, or if
Huntington is willing to waive such defect or defects and gives Reliance
written notice of such waiver, this condition shall be deemed to have been
satisfied. If Huntington has not given such written notice of either
satisfaction or waiver within ten business days after the expiration of such
cure period, then Huntington shall have the right to terminate this Agreement
pursuant to Section 12.01(b)(ii)(A) hereof.
9.15 DISCLOSURE MEMORANDUM. Huntington shall have reviewed the
Disclosure Memorandum and all contracts, commitments, leases, deeds,
agreements, and other documents relating to the information set forth therein
or herein and shall be satisfied, in its sole discretion, that such Disclosure
Memorandum and related documents do not disclose any material, adverse facts,
problems, or conditions. This condition shall be deemed to have been satisfied
on
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the close of business on the day which is 30 days after receipt by Huntington
of the Disclosure Memorandum unless, prior to such time, Huntington has
notified Reliance that it is not satisfied with the Disclosure Memorandum or
related documents because such materials disclose one or more material, adverse
facts, problems, or conditions. If Huntington so notifies Reliance, Reliance
shall have an additional period of five business days to permit it to cure the
defect or defects to the satisfaction of Huntington. If Reliance cures the
defect or defects within such cure period and Huntington gives written notice
to Reliance of its satisfaction with such cure, or if Huntington is willing to
waive such defect or defects and gives Reliance written notice of such waiver,
this condition shall be deemed to have been satisfied. If Huntington has not
given such written notice of either satisfaction or waiver within ten business
days after the expiration of such cure period, then Huntington shall have the
right to terminate this Agreement pursuant to Section 12.01(b)(ii)(A) hereof.
SECTION 10. CLOSING
Unless the parties otherwise agree, the closing of the transactions
contemplated by this Agreement and the Merger Agreement shall be held at 11:00
a.m. at the offices of Porter, Wright, Morris & Arthur in Columbus, Ohio, on
the Closing Date.
SECTION 11. AMENDMENT
At any time prior to the Effective Date, the parties may modify,
amend, or supplement this Agreement by mutual agreement authorized by their
respective boards of directors and evidenced by an instrument in writing
executed and delivered by the parties hereto, whether before or after the
shareholders of Reliance have adopted this Agreement.
SECTION 12. TERMINATION
12.01 TERMINATION.
(a) This Agreement and the Merger Agreement shall terminate
and the Merger shall thereupon be abandoned (i) on September 30, 1995 (which
date shall be extended automatically to December 31, 1995, if the necessary
regulatory approvals of the Merger have not been obtained prior to September
30, 1995), unless a later date is agreed upon in writing by the parties, (ii)
if the parties are unable to renegotiate the pricing terms of the Merger in
accordance with subsection 5(b)(iii) of the Merger Agreement, or (iii) if
Huntington makes the election to terminate in accordance with subsection
5(b)(iv) of the Merger Agreement.
(b) This Agreement and the Merger Agreement may also be
terminated and the Merger may thereupon be abandoned at any time prior to the
Effective Time as follows:
(i) by the mutual consent, evidenced in writing, of
the boards of directors of Reliance and each of the Huntington
Entities and, to the extent required by law, of the board of directors
of SNB;
(ii) by the board of directors of Huntington, by
giving written notice thereof to Reliance, which notice shall specify
in reasonable detail the grounds therefor: (A) if any condition
precedent to performance by any of the Huntington Entities has not
been satisfied or waived; (B) if Reliance has not fully performed its
obligations and agreements hereunder and under the Merger Agreement;
or (C) if any of the representations of Reliance set forth herein are
untrue or incorrect in any material respect; or
(iii) by the board of directors of Reliance, by giving
written notice thereof to Huntington, which notice shall specify in
reasonable detail the grounds therefor: (A) if any condition
precedent to performance by Reliance has not been satisfied or waived;
(B) if any of the Huntington
B-23
Entities has not fully performed its obligations and agreements
hereunder and under the Merger Agreement; or (C) if any of the
representations of any of the Huntington Entities set forth herein are
untrue or incorrect in any material respect.
12.02 SURVIVAL OF CERTAIN PROVISIONS UPON TERMINATION. Upon a
termination of this Agreement as provided herein, this Agreement and the Merger
Agreement shall become void and there shall be no further obligation or
liability on the part of any party hereto (except for any liability of any
party then in breach in respect of said breach) or their respective
shareholders, directors, or officers, except pursuant to Sections 5.12, 6.06,
12.03, and 13 hereof, which shall survive a termination of this Agreement in
accordance with the express terms of such Sections.
12.03 TERMINATION FEE. During the term of this Agreement, if:
(a) an Acquisition Proposal is submitted to and approved by
the shareholders of Reliance at any time prior to the Effective Time; or
(b) (i) an Acquisition Proposal is received by Reliance or
is made directly to the shareholders of Reliance at any time prior to the
holding of the meeting of the shareholders of Reliance to be called pursuant to
Section 5.02 hereof, (ii) the board of directors of Reliance (A) fails to
recommend to the shareholders of Reliance that they vote their shares of
Reliance Common in favor of the approval of the Merger Agreement and this
Agreement, (B) withdraws such recommendation previously made, or (C) fails to
solicit proxies of shareholders of Reliance to approve the Merger Agreement and
this Agreement, and (iii) the Merger Agreement and this Agreement are rejected
by the vote of the shareholders of Reliance at such meeting;
then, in either such event, Reliance shall pay to Huntington, within five
business days after a termination of the Merger Agreement and this Agreement
following such an event, a termination fee in the amount of $1,500,000 as
liquidated damages, and not as a penalty, and, upon the payment in full
thereof, Reliance shall have no further liability or obligations under this
Agreement or the Merger Agreement other than under Section 12.02 hereof or
pursuant to the Warrant Purchase Agreement and the Warrant. The obligations of
Reliance under this Section 11.03 shall survive a termination of this
Agreement.
SECTION 13. EXPENSES
Except as otherwise expressly provided herein, all expenses incurred
by or on behalf of the parties hereto in connection with the authorization,
preparation, execution, and consummation of this Agreement and the Merger
Agreement, including, without limitation, all fees and expenses of agents,
representatives, printers, and counsel employed by the parties hereto, and
taxes, if any, shall be borne solely by the party which has or shall have
incurred the same. The covenants of the parties contained in this Section 12
shall survive a termination of this Agreement for any reason.
SECTION 14. NOTICES
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by facsimile and confirmed by first-class, certified mail,
postage prepaid, addressed as indicated below, or at such other address as such
party may designate in writing to the other parties:
B-24
(a) If to Reliance, to:
Sam L. Bockman
President and Chief Executive Officer
Reliance Bank of Florida
2116 South Babcock Street
Melbourne, Florida 32901
Facsimile number: (407) 725-0278
with a copy to:
John P. Greeley, Esq.
Smith Mackinnon, Harris, Greeley, Bowdoin & Edwards, P.A.
255 South Orange Avenue
Firstate Tower, Suite 800
Post Office Box 2254
Orlando, Florida 32802-2254
Facsimile number: (407) 843-2248
(b) If to a Huntington Entity, to:
Zuheir Sofia
President
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Facsimile number: (614) 480-5485
with copies to:
Ralph K. Frasier, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Facsimile number: (614) 480-5485
and:
Michael T. Radcliffe, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Facsimile number: (614) 227-2100
SECTION 15. GENERAL PROVISIONS
15.01 ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement and the documents referred to or incorporated herein or therein,
reflects the entire agreement among the parties with respect to the subject
matter thereof and supersede all prior agreements and understandings, oral or
written, among the parties with respect to such subject matter, and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, or covenants except as specifically set forth
herein or therein.
B-25
15.02 WAIVER. At any time on or prior to the Effective Date, any
party hereto may (i) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement and the Merger
Agreement or in any document delivered pursuant hereto or thereto, or (ii)
waive compliance by the other parties with any of the conditions, covenants,
and agreements contained in this Agreement or the Merger Agreement.
15.03 ASSIGNMENT. Neither this Agreement nor any rights, interests,
or obligations hereunder shall be assigned or transferred by operation of law
or otherwise by any of the parties hereto without the prior written consent of
the other party.
15.04 BENEFIT. Nothing in this Agreement, express or implied, is
intended to confer upon any person or entity other than the parties hereto and
their successors in interest any rights or remedies under or by reason of this
Agreement.
15.05 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original for all purposes, but
such counterparts taken together shall constitute one and the same instrument.
15.06 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Ohio without regard to its
conflicts of laws principles, except to the extent that federal law may apply.
15.07 INCORPORATION BY REFERENCE. The Merger Agreement, the
Disclosure Memorandum, and all Exhibits attached hereto are hereby incorporated
by reference herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HUNTINGTON BANCSHARES INCORPORATED
By: /s/ Zuheir Sofia
-----------------------------------------------
Zuheir Sofia, President
HUNTINGTON BANCSHARES FLORIDA, INC.
By: /s/ Zuheir Sofia
-----------------------------------------------
Zuheir Sofia, President
RELIANCE BANK OF FLORIDA
By: /s/ Sam L. Bockman
-----------------------------------------------
Sam L. Bockman, President and Chief Executive
Officer
SECURITY NATIONAL BANK
By: /s/ Michael W. Sheffey
-----------------------------------------------
Michael W. Sheffey, President and Chief
Executive Officer
B-26
EXHIBIT A TO ACQUISITION AGREEMENT
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of
________________________, 1995, between HUNTINGTON FEDERAL SAVINGS BANK, a
savings and loan association organized and existing under the laws of the
United States ("HFSB") with its principal office located at 126 West Center
Avenue, Sebring, Florida, and RELIANCE BANK OF FLORIDA, a bank organized and
existing under the laws of the State of Florida with its principal office
located at 2116 South Babcock Street, Melbourne, Florida ("Reliance"). (HFSB
and Reliance are sometimes hereinafter collectively referred to as the
"Constituent Associations" or separately as a "Constituent Association.")
RECITALS:
--------
A. HFSB is a wholly owned subsidiary of Huntington Bancshares
Incorporated, a Maryland corporation ("Huntington").
B. Huntington Bancshares Florida, Inc., an Ohio corporation
("Huntington Florida") is a wholly owned subsidiary of Huntington.
C. As of ___________, 1994, HFSB had total capital of
$25,602,097, divided into 1,426,475 shares of common stock, $1.00 par value per
share, surplus of $_________, and undivided profits of $________. All of the
authorized shares of common stock of HFSB are issued and outstanding and are
owned by Huntington.
D. Reliance is authorized to issue: (1) 600,000 shares of common
stock, $5.00 par value per share ("Reliance Common"), of which 348,099 shares
are issued and outstanding as of the date hereof, exclusive of treasury shares,
with an additional 6,000 shares being subject to outstanding stock options
previously granted (collectively, the "Reliance Stock Options" and
individually, a "Reliance Stock Option") under the Reliance Bank of Florida
1986 Stock Option Plan (the "Reliance Stock Option Plan").
E. Huntington, Huntington Florida, Security National Bank, a
national bank, and Reliance have entered into an Acquisition Agreement, dated
December 22, 1994 (the "Acquisition Agreement"), pursuant to which the parties
agreed that, under certain circumstances and upon and subject to the terms and
conditions contained in the Acquisition Agreement and this Agreement, HFSB will
be merged with and into Reliance.
F. The respective boards of directors of HFSB and Reliance, and
Huntington, as the sole shareholder of HFSB, have approved the merger of HFSB
with Reliance substantially on the terms and conditions contained in this
Agreement.
AGREEMENT:
---------
In consideration of the foregoing Recitals, which shall constitute a
part of this Agreement, and the mutual promises contained herein, the parties
agree as follows:
SECTION 1. MERGER. Subject to the terms and conditions
hereof, and the terms and conditions contained in the Acquisition Agreement,
which is incorporated herein by reference, at the "Effective Time" (as such
term is defined in Section 2 hereof), HFSB shall be merged with and into
Reliance (the "Merger"). Reliance shall be the resulting state bank in the
Merger (the "Surviving Association") and shall continue its existence under the
laws of the State of Florida following the consummation of the Merger. At the
Effective Time, the separate corporate existence of HFSB shall cease.
B-27
SECTION 2. EFFECTIVE TIME; EFFECTIVE DATE. The Merger shall
be effective at 11:59 p.m., local Ohio time (the "Effective Time") on the date
of the issuance of a certificate of merger by the Florida Department of Banking
and Finance, which date shall not precede May 1, 1995, or the receipt of
approvals of the Merger by all applicable regulatory agencies and the
expiration of the last of any waiting periods required in connection with any
of such regulatory approvals (the "Effective Date"). Unless the parties
otherwise agree, the Effective Date shall be the Closing Date specified in
Section 10 of the Acquisition Agreement.
SECTION 3. NAME. The name of the Surviving Association shall
be "The Huntington Bank of Florida."
SECTION 4. ARTICLES OF ASSOCIATION; BYLAWS; AND CAPITAL STOCK.
The Articles of Incorporation attached as Attachment A hereto and incorporated
by reference herein shall be the articles of incorporation of the Surviving
Association, until amended in accordance with law, and the Bylaws of Reliance
in effect at the Effective Time shall be the Bylaws of the Surviving
Association, until amended in accordance with law. The name, number, rights,
preferences, limitations, and other terms of the capital stock of the Surviving
Association shall be as set forth in the Articles of Incorporation attached as
Attachment A hereto.
SECTION 5. CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and
without further action on the part of Huntington, as the sole holder thereof,
the shares of HFSB Common issued and outstanding immediately prior to the
Effective Time shall be converted into a total of ___________ shares of new
common stock of the Surviving Association, par value $1.00 per share, all of
which shall be owned by Huntington.
(b) At the Effective Time, by virtue of the Merger and
without further action on the part of the holders thereof, the shares of
Reliance Common issued and outstanding immediately prior to the Effective Time
(exclusive of treasury shares, if any, which shall be cancelled, and any shares
as to which statutory dissenters' rights are properly sought) shall be
converted into the right to receive shares of the common stock, without par
value, of Huntington ("Huntington Common"), as follows:
(i) Each outstanding share of Reliance Common
shall be converted into the right to receive the number of whole
shares of Huntington Common determined according to the following
formula:
NHC/RC = (TPP / PHC)
-----------
NRC
where:
NHC/RC = the number of shares of Huntington Common to be
received for each share of Reliance Common (the
"Conversion Ratio");
TPP = $20,000,000 (the "Total Purchase Price");
PHC = the price per share of Huntington Common determined
in accordance with subsection 5(b)(ii), (iii), or
(iv) below, as applicable (the "Price Per Share of
Huntington Common"); and
NRC = the number of shares of Reliance Common issued and
outstanding at the Effective Time plus the number of
shares of Reliance Common subject to stock options
outstanding at the Effective Time.
(ii) For purposes of the formula set forth in
subsection 5(b)(i) above and except as otherwise provided in
subsections 5(b)(iii) and (iv) below, the Price Per Share of
B-28
Huntington Common shall be the average of the closing sale prices for
a share of Huntington Common on the five trading days immediately
preceding the date that is two trading days prior to the Effective
Date, as reported on the Nasdaq National Market (the "Average Closing
Sale Price"); provided, however, that if the Average Closing Sale
Price is less than $15.525, then the Price Per Share of Huntington
Common shall be $15.525, and if the Average Closing Sale Price is
greater than $18.975, then the Price Per Share of Huntington Common
shall be $18.975. The minimum and maximum Prices Per Share of
Huntington Common set forth in the preceding sentence shall be
adjusted to reflect any stock splits or stock dividends on Huntington
Common occurring after the date hereof and prior to the Effective Time
by multiplying such amounts by a fraction, the numerator of which is
the total number of shares of Huntington Common outstanding
immediately prior to the effective time of the stock dividend or stock
split, as the case may be, and the denominator of which is the total
number of shares of Huntington Common outstanding immediately
following the effective time of the stock dividend or stock split, as
the case may be.
(iii) If the Average Closing Sale Price is less than
$12.9375 (as adjusted for stock dividends and stock splits), then the
Price Per Share of Huntington Common shall not be determined in
accordance with subsection 5(b)(ii) above, but, rather, Huntington may
elect either to consummate the Merger on the originally scheduled
Effective Date at a Price Per Share of Huntington Common equal to 1.05
times the Average Closing Sale Price or to use its best efforts to
renegotiate the pricing terms of the Merger with Reliance and to delay
the Effective Date until such time as the parties shall have been able
to agree on a mutually acceptable adjustment to such pricing terms,
but in no event later than ten days after the originally scheduled
Effective Date. If the parties have been unable to agree on a
mutually acceptable adjustment to the pricing terms of the Merger
within ten days after the originally scheduled Effective Date, this
Agreement shall terminate in accordance with Section 12.01 of the
Acquisition Agreement.
(iv) If the Average Closing Sale Price is more than
$21.5625 (as adjusted for stock dividends and stock splits), then
Huntington may elect to consummate the Merger on the originally
scheduled Effective Date at a Price Per Share of Huntington Common
equal to 0.95 times the Average Closing Sale Price or to terminate the
Merger in accordance with Section 12.01 of the Acquisition Agreement.
(v) No fractional shares of Huntington
Common shall be issued. Each holder of Reliance Common who would
otherwise be entitled to receive a fractional part of a share of
Huntington Common shall instead be entitled to receive cash in an
amount equal to the product resulting from multiplying such fraction
by the Price Per Share of Huntington Common as determined pursuant to
subsection 5(b)(ii), (iii), or (iv) above, as applicable. No
interest shall be payable with respect to such cash payment.
(c) Each outstanding share of Reliance Common held by a
person who has demanded and perfected a right to relief as a dissenting
shareholder under Section 658.44 of the Florida Statutes (the "Dissenters'
Rights Law") and who has not effectively withdrawn or lost such right
("Dissenting Shares") shall not be converted into or represent a right to
receive shares of Huntington Common pursuant to subsection 5(b) hereof, but the
holder thereof shall be entitled only to such rights as are granted by the
Dissenters' Rights Law. Each holder of Dissenting Shares who becomes entitled
to relief as a dissenting shareholder under the Dissenters' Rights Law with
respect to such holder's shares of Reliance Common shall receive payment
therefor from Huntington in accordance with the provisions of the Dissenters'
Rights Law. If any holder of Reliance Common who demands relief as a
dissenting shareholder under the Dissenters' Rights Law with respect to such
holder's shares of Reliance Common shall effectively withdraw or lose (through
failure to perfect or otherwise), the right to such relief, each share of
Reliance Common held by such holder shall automatically be converted into the
right to receive shares of Huntington Common pursuant to subsection 5(b)
hereof.
(d) Each unexercised Reliance Stock Option that is
outstanding immediately prior to the Effective Time shall be converted
automatically at the Effective Time into an option to purchase shares of
Huntington
B-29
Common under the Huntington 1994 Stock Option Plan or similar Huntington plan
(a "Huntington Stock Option"), with the number of shares of Huntington Common
to be subject to a particular Huntington Stock Option to be determined by
converting the number of shares of Reliance Common subject to the Reliance
Stock Option into a number of Huntington Common shares in accordance with the
procedure for converting outstanding Reliance Common shares for Huntington
Common shares as set forth in subsection 5(b) hereof, except that all
fractional shares will be rounded to the nearest whole share, and with the
exercise price for each share of Huntington Common subject to a particular
Huntington Stock Option to be equal to the exercise price per Reliance Common
share under the Reliance Stock Option divided by the Conversion Ratio
determined in accordance with subsection 5(b)(i) above; provided, however,
that, in the case of any Reliance Stock Option to which Section 421 of the
Internal Revenue Code of 1986, as amended (the "Code"), applies by reason of
its qualification under Section 422 of the Code, the terms of the Huntington
Stock Option into which such Reliance Stock Option is to be converted,
including the option price, the number of shares of Huntington Common
purchasable pursuant to such option, and the terms and conditions of exercise
of such option, shall be determined so as to comply with Section 424(a) of the
Code. Upon such conversion, all rights under any and all stock options and
stock option plans previously granted or adopted by Reliance shall terminate.
SECTION 6. EXCHANGE OF CERTIFICATES; PAYMENT FOR FRACTIONAL
SHARES.
(a) On the Effective Date, Huntington shall deliver to
The Huntington National Bank (the "Exchange Agent") the amount of cash
necessary to pay for all fractional shares of Huntington Common in accordance
with subsection 5(b)(v) hereof.
(b) As promptly as practicable after the Effective Date,
Huntington shall cause the Exchange Agent to prepare and mail to each holder of
record on the Effective Date of any shares of Reliance Common a letter of
transmittal containing instructions for the surrender of all certificates for
shares of Reliance Common. Upon the surrender by such holder of a certificate
or certificates for shares of Reliance Common standing in such holder's name to
the Exchange Agent in accordance with the instructions set forth in the letter
of transmittal, such holder shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Huntington Common into
which the shares represented by the certificate or certificates so surrendered
shall have been converted and, if applicable, a check payable to such holder in
the amount necessary to pay for any fractional shares of Huntington Common
which such holder would otherwise have been entitled to receive, in accordance
with subsection 5(b)(v) hereof. No interest shall be payable with respect to
either the whole shares of Huntington Common or the cash payable in lieu of
fractional shares. Immediately after the third anniversary of the Effective
Date, the Exchange Agent shall deliver to the Surviving Association any
unclaimed balance of cash owing with respect to fractional shares and such
cash shall be retained by, and become the property of the Surviving
Association, free and clear of any claims whatsoever.
(c) Neither Huntington, the Surviving Association, nor
the Exchange Agent, shall be obligated to deliver a certificate for Huntington
Common or a check for cash in lieu of fractional shares to a former shareholder
of Reliance until such former shareholder surrenders the certificate or
certificates representing shares of Reliance Common standing in such former
shareholder's name or, if such former shareholder is unable to locate such
certificate or certificates, an appropriate affidavit of loss and indemnity
agreement and bond as may be required by Huntington. Until so surrendered,
each outstanding certificate for shares of Reliance Common shall be deemed for
all corporate purposes (except the payment of dividends) to evidence ownership
of the number of whole shares of Huntington Common into which the shares of
Reliance Common represented thereby shall have been converted.
(d) After the Effective Date and until the outstanding
certificates formerly representing shares of Reliance Common are so
surrendered, no dividends or distributions payable to holders of record of
Huntington Common shall be paid to the holders of such outstanding Reliance
certificates in respect thereof. Promptly upon surrender of such outstanding
certificates there shall be paid to the holders of the certificates for
Huntington Common issued in exchange therefor the amount of dividends and other
distributions, if any, which theretofore became payable with respect to such
full shares of Huntington Common, but which have not theretofore been paid on
such stock. No interest shall be payable with respect to the payment of any
dividends or other distributions. All such dividends or other distributions
unclaimed at the end of one year from the Effective Date shall, to the extent
such dividends have been previously paid to the Exchange Agent, be repaid by
the Exchange Agent to Huntington, and thereafter the holders of
B-30
such outstanding certificates for Reliance Common shall look, subject to
applicable escheat, unclaimed funds, and other laws, only to Huntington as
general creditors for payment thereof.
(e) The stock transfer books of Reliance shall be closed
as of the close of business on the day that is two business days prior to the
Effective Date.
(f) Huntington is empowered to adopt additional
reasonable rules and regulations with respect to the matters referred to in
this Section 6 not inconsistent with the provisions of this Agreement.
(g) Adoption of this Agreement by the shareholders of
Reliance shall constitute ratification of the appointment of the Exchange
Agent.
SECTION 7. EFFECT OF THE MERGER.
(a) At the Effective Time, the effect of the Merger shall
be as provided by the applicable provisions of the laws of Florida. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, the separate existence of HFSB shall cease; all assets and property
(real, personal, and mixed, tangible and intangible, choses in action, rights,
and credits) then owned by each Constituent Association, or which would inure
to either of them, shall immediately, by operation of law and without any
conveyance, transfer, or further action, become the assets and property of the
Surviving Association. All rights and obligations of the Constituent
Associations shall remain unimpaired and the Surviving Association shall
succeed to all such rights and obligations.
(b) From time to time, as and when requested by the
Surviving Association or by its successors, the officers and directors of HFSB
in office at the Effective Time shall execute and deliver such instruments and
shall take or cause to be taken such further or other action as shall be
necessary in order to vest or perfect in the Surviving Association, or to
confirm of record or otherwise, title to, and possession of, all the assets,
property, interests, rights, privileges, immunities, powers, franchises, and
authority of HFSB and otherwise to carry out the purposes of this Agreement.
SECTION 8. CAPITAL. At the Effective Time, the Surviving
Association shall have a surplus of not less than $________ and undivided
profits, including capital reserves, of not less than $_________.
SECTION 9. OFFICES. A list of the location of the main office
of the Surviving Association and all of its branch offices is set forth on
Attachment B attached hereto and incorporated by reference herein.
SECTION 10. DIRECTORS. The names and addresses of the
directors of the Surviving Association who will serve until the time of the
next meeting of the stockholders at which directors are elected are as follows:
Name Address
---- -------
SECTION 11. EXECUTIVE OFFICERS. The names and addresses of the
directors of the Surviving Association who will serve until their successors
are duly elected and qualified in accordance with the Bylaws of the Surviving
Association and applicable law are as follows:
Name Address
---- -------
SECTION 12. SHAREHOLDER APPROVAL. This Agreement shall be
submitted to the shareholders of Reliance for approval as soon as reasonably
practicable following the execution of this Agreement.
B-31
SECTION 13. ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions provided in this
Agreement and the Acquisition Agreement, the parties hereto shall use their
reasonable best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective, as soon as
reasonably practicable, the transactions contemplated by this Agreement,
subject, however, to the adoption of this Agreement by the shareholders of
Reliance, the receipt of all required regulatory approvals, and the occurrence
of the "Permissible Date," as such term is defined in the Acquisition
Agreement.
(b) Reliance shall issue a warrant or warrants to
Huntington, pursuant to the terms of a certain Warrant Purchase Agreement
entered into or to be entered into between Huntington and Reliance in
accordance with the terms of the Acquisition Agreement, granting to Huntington
or its nominee the right to purchase certain shares of Reliance Common upon and
subject to certain conditions.
(c) From time to time, as and when requested by the
Surviving Association or by its successors, the officers and directors of
Reliance in office at the Effective Time shall execute and deliver such
instruments and shall take or cause to be taken such further or other action as
shall be necessary in order to vest or perfect in the Surviving Association, or
to confirm of record or otherwise, title to, and possession of, all the assets,
property, interests, rights, privileges, immunities, powers, franchises, and
authority of Reliance and otherwise to carry out the purposes of this
Agreement.
SECTION 14. AMENDMENTS. At any time prior to the Effective
Time, the parties hereto may amend, modify, or supplement this Agreement by
mutual agreement authorized by their respective boards of directors, whether
before or after the shareholders of Reliance have adopted this Agreement,
provided that the number of shares of Huntington Common into which shares of
Reliance Common are to be converted as determined in Section 5 hereof shall not
be changed after the shareholders of Reliance have adopted this Agreement
without the approval of such shareholders in the same manner as required for
the adoption of this Agreement; and provided, further, that this Agreement may
not be amended, modified, or supplemented, except by an instrument in writing
executed and delivered by each of the parties hereto.
SECTION 15. TERMINATION. Unless extended by the mutual
agreement of the parties hereto, this Agreement may be terminated,
notwithstanding the adoption thereof by the shareholders of Reliance, in the
manner and under the circumstances set forth in the Acquisition Agreement.
SECTION 16. ENTIRE AGREEMENT. This Agreement, the Acquisition
Agreement, and any exhibits hereto or thereto constitute the entire agreement
among the parties with respect to the subject matter thereof and supersede all
prior agreements and understandings, oral or written, among the parties with
respect to such subject matter and no party shall be liable or bound to the
others in any manner by any covenants, representations, or warranties except as
specifically set forth herein or therein.
SECTION 17. TITLES AND SUBTITLES. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
SECTION 18. ASSIGNMENT. Neither this Agreement nor any rights,
interests, or obligations hereunder shall be assigned or transferred by
operation of law or otherwise by any of the parties hereto without the prior
written consent of the other parties.
SECTION 19. BENEFIT. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
hereto and their successors in interest any rights or remedies under or by
reason of this Agreement.
SECTION 20. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original for all
purposes, but such counterparts taken together shall constitute one and the
same instrument.
B-32
SECTION 21. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with the laws of the State of Florida, without
regard to its conflict of laws principles, except to the extent that federal
law may be applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Attest: HUNTINGTON FEDERAL SAVINGS BANK
By:
- ------------------------------ ----------------------------------
Attest: RELIANCE BANK OF FLORIDA
By:
- ------------------------------ ----------------------------------
B-33
EXHIBIT B TO ACQUISITION AGREEMENT
SURVEY REQUIREMENTS
-------------------
1. The survey shall be performed by a registered land surveyor,
who shall execute a certificate, in form reasonably satisfactory to Huntington,
certifying the survey to Huntington Bancshares Incorporated, Huntington
Bancshares Florida, Inc., the title insurance company, and The Huntington
National Bank of Florida (or, under certain circumstances, Huntington Federal
Savings Bank). The survey shall have the surveyor's original signature and
seal affixed and shall reflect a current date. Older surveys are acceptable if
updated and recertified.
2. The survey must show the North arrow.
3. The survey must show the full legal description and street
address. The legal description must conform to the record legal description
and must be identical to that contained in the title insurance commitment or
any discrepancies explained. If the premises are described as being on a filed
plat or map, the survey must contain a legend relating the parcel to the map on
which it is shown, and the surveyor must certify that any land which has been
platted or mapped is the same as that described on the survey.
4. If the property consists of more than one parcel, the survey
must show interior property lines and certify that the parcels are contiguous
along their common lines. If only a portion of a parcel is being surveyed, the
balance of the parcel must be indicated.
5. All perimeter property lines must be specifically identified.
The survey must show the location by courses and distances of the subject
property; clearly designate the point of beginning and the relation (by courses
and distances) of the point of beginning for the property to the monument (i.e.
nearest street intersection) from which it is fixed; show and label all
servient easements; show all building lines, whether established by subdivision
plat, recorded restrictions, or zoning or building ordinance; show and label
all easements appurtenant to said parcel; show all driveways and alleys on or
crossing the property; and show the right of way lines of the street or streets
abutting the parcel, the names and width of said streets, whether the streets
are dedicated, whether there are limitations on access, all curb cuts from the
property to such street or streets, and the distance from the nearest
intersecting street.
6. The number of square feet or acres contained in the parcel
must be specifically stated.
7. All easements, set-back lines, and other exceptions in the
title insurance commitment (except liens) must (a) be plotted, (b) if not
plottable, identified on the face of the survey as not plottable with an
explanation as to why they are not plottable, or (c) if inapplicable, certified
as not affecting the property.
8. All utility lines that service the property and improvements
(sewer, water, gas, electric, and telephone) must be located and identified.
The survey must indicate whether the utility lines are above or below grade and
show the sizes of the respective services.
9. The survey must show and describe all encroachments or state
that there are no encroachments.
10. The survey must state whether or not the property appears on
any U.S. Department of H.U.D. Flood Insurance Boundary Map or any special flood
hazard area map published by the Federal Emergency Management Agency and, if
so, further state the map number and whether or not the property appears in the
"Flood Hazard Area" shown on the map.
11. The survey must state the zoning classification of the
property.
12. The survey must show the location of any underground tanks and
of any railroad tracks and sidings.
13. The survey must show the location of any rubbish fills,
sloughs, springs, filled in wells or cisterns, and seep holes that are present
on the property.
B-34
14. The survey must show all structures and improvements,
including sidewalks, stoops, overhangs, and parking areas. The square footage
of all structures must be listed. All structures and improvements on the
property must be shown with horizontal lengths of all sides and the relations
thereof by distances to (i) all boundary lines of the parcel, (ii) servient
easements, (iii) established building lines, and (iv) street lines.
15. The survey must show all parking and paved areas and identify
the number of vehicles that may be parked in each parking area.
B-35
EXHIBIT C TO ACQUISITION AGREEMENT
SHAREHOLDER AGREEMENT
---------------------
THIS AGREEMENT is made between HUNTINGTON BANCSHARES INCORPORATED, a
Maryland corporation ("Huntington"), and the undersigned shareholder of
RELIANCE BANK OF FLORIDA, a bank organized under the laws of the State of
Florida ("Reliance") (the "Shareholder"), to be effective as of the date it is
signed by the Shareholder, as indicated below.
RECITALS:
--------
A. The Shareholder owns or has the power to vote, either
exclusive or shared, ____________ shares of the common stock, $5.00 par value
per share, of Reliance (together with all shares of such stock which the
Shareholder subsequently acquires or obtains the power to vote, the "Shares").
B. Reliance has entered into (i) a certain Acquisition Agreement
with Huntington, Huntington Bancshares Florida, Inc., an Ohio corporation
("Huntington Florida"), and Security National Bank, a national bank ("SNB"),
dated December 22, 1994 (the "Acquisition Agreement"), and (ii) a certain
Agreement and Plan of Merger with Huntington Florida and SNB, dated December
22, 1994 (together with the Acquisition Agreement, collectively, the "Merger
Documents"), pursuant to which Reliance is to be merged with Huntington
National Bank of Florida, as the successor by name change to SNB ("HNFB") (or,
under certain circumstances, with Huntington Federal Savings Bank, a federal
savings and loan association "HFSB")) (in either case, the "Merger").
C. Under the terms of the MergerDocuments, Reliance has agreed to
call a meeting of its shareholders for the purpose of voting upon the approval
of the Merger (together with any adjournments thereof, the "Shareholders'
Meeting").
D. It is a condition to the obligations of Huntington, Huntington
Florida, and HNFB (or HFSB) under the Merger Documents that certain
shareholders of Reliance, including the Shareholder, shall have agreed to vote
their shares of Reliance stock in favor of the Merger.
AGREEMENT:
---------
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. AGREEMENT TO VOTE. The Shareholder agrees to vote
the Shares as follows:
(a) in favor of the adoption of the Merger Documents and
the approval of the Merger at the Shareholders' Meeting;
(b) against the approval of any proposal relating to a
competing merger or business combination involving an acquisition of Reliance
or the purchase of all or a substantial portion of the assets of Reliance by
any person or entity other than Huntington, Huntington Florida, or another
affiliate of Huntington; and
(c) against any other transaction which is inconsistent
with the obligation of Reliance to consummate the Merger in accordance with the
Merger Documents.
SECTION 2. LIMITATION ON VOTING POWER. It is expressly
understood and acknowledged that nothing contained herein is intended to
restrict the Shareholder from voting on any matter, or otherwise from acting,
in the Shareholder's capacity as a director or officer of Reliance with respect
to any matter, including but not limited to, the management or operation of
Reliance. The obligation to vote as provided in Section 1(a) hereof is subject
to the filing
B-36
of a registration statement as required by Section 6.03 of the Acquisition
Agreement and the declaration of effectiveness of such registration statement.
SECTION 3. TERMINATION. This Agreement shall terminate on the
earlier of (a) the first anniversary of this Agreement, (b) the date on which
the Merger Documents are terminated in accordance with Section 12 of the
Acquisition Agreement, (c) the date on which the Merger is consummated, or (d)
the death of the Shareholder.
SECTION 4. REPRESENTATIONS, WARRANTIES, AND ADDITIONAL COVENANTS
OF THE SHAREHOLDER. The Shareholder hereby represents and warrants to
Huntington that the Shareholder has the capacity and all necessary power and
authority to vote the Shares and that this Agreement constitutes a legal,
valid, and binding obligation of the Shareholder, enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency, or similar
laws affecting enforcement of creditors rights generally. The Shareholder
further agrees that, during the term of this Agreement, the Shareholder will
not sell or otherwise voluntarily dispose of any of the Shares which are owned
by the Shareholder or take any other voluntary action which would have the
effect of removing the Shareholder's power to vote the Shares or which would be
inconsistent with this Agreement.
SECTION 5. REPRESENTATION AND WARRANTY OF HUNTINGTON.
Huntington hereby represents and warrants to the Shareholder that the shares of
Huntington Common to be received by the Shareholder in the Merger in exchange
for the Shares will not be "restricted securities" within the meaning of Rule
144 of the Securities Act of 1933 or become subject to the requirements of such
rule, to the extent that the Shareholder does not become an "affiliate" of
Huntington within the meaning of such Rule following the consummation of the
Merger.
SECTION 6. SPECIFIC PERFORMANCE. The undersigned hereby
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the Shareholder
hereunder shall be specifically enforceable and that Huntington shall be
entitled to injunctive or other equitable relief upon such a breach by the
Shareholder. The Shareholder further agrees to waive any bond in connection
with the obtaining of any such injunctive or equitable relief. This provision
is without prejudice to any other rights that Huntington may have against the
Shareholder for any failure to perform his obligations under this Agreement.
SECTION 7. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with the laws of the State of Ohio, without regard
to its conflicts of laws principles.
IN WITNESS WHEREOF, the undersigned have executed this Shareholder
Agreement as of the date set forth in the Acknowledgment below.
HUNTINGTON BANCSHARES THE SHAREHOLDER:
INCORPORATED ---------------
----------------------------------------
By: Signature
-----------------------------
Name:
---------------------------
----------------------------------------
Title: Print Name
--------------------------
B-37
ACKNOWLEDGMENT
--------------
STATE OF FLORIDA
COUNTY OF _____________________________________
The foregoing instrument was acknowledged before me this __________ day
of __________________________, 199___, by _____________________________________.
________________________________________
Notary Public
My Commission expires _________________.
B-38
EXHIBIT D TO ACQUISITION AGREEMENT
STOCK OPTION CONVERSION AGREEMENT
---------------------------------
THIS AGREEMENT is entered into this ________ day of__________________,
1994, by and among ______________________________________ (the "Optionholder"),
HUNTINGTON BANCSHARES INCORPORATED, a Maryland corporation ("Huntington"),
HUNTINGTON BANCSHARES FLORIDA, INC., an Ohio corporation ("Huntington
Florida"), and RELIANCE BANK OF FLORIDA, a Florida banking corporation
("Reliance").
RECITALS:
--------
A. Huntington Florida is a wholly owned subsidiary of Huntington.
B. Huntington, Huntington Florida, Security National Bank, a
national bank ("SNB"), and Reliance have entered into a certain Acquisition
Agreement, dated December 22, 1994 (the "Acquisition Agreement"), and SNB and
Reliance have entered into a certain Agreement and Plan of Merger, dated
December 22, 1994 (together with the Acquisition Agreement, collectively, the
"Merger Documents"), pursuant to which Reliance is to be merged with The
Huntington National Bank of Florida ("HNBF") (or, under certain circumstances,
with Huntington Federal Savings Bank ("HFSB")) (in either case, the "Merger").
(All capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Merger Documents.)
C. The Optionholder is currently an employee of Reliance.
D. The Optionholder is also currently the holder of a Reliance
Stock Option (the "Reliance Option") to purchase certain shares of Reliance
Common, pursuant to the Reliance Stock Option Plan and a certain agreement
executed by the Optionholder and Reliance pursuant to such plan (the "Reliance
Stock Option Agreement"). The total number of shares subject to the Reliance
Option as of the date of this Agreement, the exercise price for the shares
which may be purchased under such option (the "Reliance Exercise Price"), the
dates on or after which such option is exercisable, and the number of shares as
to which such option is exercisable after each particular exercise date are set
forth on Attachment A which is attached hereto and incorporated by reference
herein.
E. The Reliance Stock Option Agreement provides that it shall be
binding upon the successors of Reliance.
F. Huntington has previously established and adopted the
Huntington Stock Option Plan, a copy of which is attached as Attachment B
hereto and incorporated by reference herein. The terms and conditions
contained in the Huntington Stock Option Plan relating to (among other things)
the exercise of options granted under that plan are different from those
contained in the Reliance Stock Option Plan.
G. Pursuant to the terms of the Merger Agreement, upon the
consummation of the Merger, all shares of Reliance Common are to be converted
into shares of Huntington Common and all options granted under the Reliance
Stock Option Plan are to be converted into options to purchase Huntington
Common subject to the terms of the Huntington Stock Option Plan.
AGREEMENT:
---------
In consideration of the foregoing and of the mutual promises contained
herein, the parties agree as follows:
1. Upon the consummation of the Merger, and effective as of the
Effective Time, the Reliance Option shall be converted into a Huntington Stock
Option subject to all of the terms and conditions of the Huntington Stock
B-39
Option Plan (the "Huntington Option"), and all further rights of the
Optionholder and obligations of Reliance under the Reliance Stock Option Plan
and the Reliance Stock Option Agreement shall be extinguished.
(a) The number of shares of Huntington Common to be
subject to the Huntington Option shall be equal to the number of shares of
Reliance Common subject to the Reliance Option as of the Effective Time
multiplied by the Conversion Ratio, rounded to the nearest whole number of
shares of Huntington Common.
(b) The exercise price to be payable upon an exercise of
the Huntington Option shall be equal to the Reliance Exercise Price divided by
the Conversion Ratio.
(c) The date or dates after which the Huntington Option
shall be exercisable, in whole or in part, shall be the same as those provided
under the Reliance Option; and the number of shares of Huntington Common as to
which the Huntington Option shall be exercisable after each particular exercise
date shall be in the same ratio to the total number of shares subject to the
Huntington Option as the number of shares of Reliance Common exercisable after
such exercise date is to the total number of shares of Reliance Common subject
to the Reliance Option, rounded up to the nearest whole number of shares of
Huntington Common for the earliest exercise date and successive exercise dates
until the total of all fractional shares are subject to exercisable options.
(d) Under the terms of the Huntington Stock Option Plan,
the Huntington Option will be cancelled upon a termination of the
Optionholder's employment with Huntington or an affiliate of Huntington for any
reason other than death, retirement under one of Huntington's plans, or a
termination following a change of control of Huntington or the disposition of
substantially all of Huntington's stock or assets.
(i) Employees of Huntington or its affiliates who
are eligible to participate in the Huntington Transition Pay Plan and
who are placed on "transition status" under such plan are not deemed
to be terminated employees until the end of their respective
"transition periods" under such plan. Accordingly, if the
Optionholder is or becomes eligible for participation in the
Transition Pay Plan and is placed on "transition status" under such
plan, the Huntington Option shall remain exercisable during the period
in which the Optionholder is "in transition" under such plan.
(ii) If the Optionholder is excluded from
participation in the Huntington Transition Pay Plan because the
Optionholder has an employment agreement with Huntington or an
affiliate of Huntington, and if circumstances arise in which the
Optionholder would be or would have become eligible for participation
in the Transition Pay Plan and would have been placed on "transition
status" under such plan were it not for the existence of such
employment agreement, the Huntington Option shall remain exercisable
for the period during which the Optionholder would have been on
"transition status" under the Transition Pay Plan were it not for the
existence of such employment agreement.
(e) The Huntington Option shall be evidenced by and
subject to the terms of a Stock Option Agreement to be executed by Huntington
and the Optionholder pursuant to the terms of the Huntington Stock Option Plan
at or after the Effective Time, which shall be effective as of the Effective
Time.
(f) The Optionholder acknowledges and agrees that, for
the purposes of Section 424 of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder, he or she will not receive any
"additional benefits" (as that term is defined in said Section 424 and the
regulations promulgated thereunder) as a result of the conversion of the
Reliance Option into the Huntington Option hereunder, and hereby disclaims and
agrees to return any such additional benefits that he or she may receive.
2. Reliance shall notify Huntington promptly if the
Optionholder's employment with Reliance is terminated at any time prior to the
Effective Time, and shall furnish to Huntington at the Effective Time a
certificate, signed by an officer of Reliance, stating (if it is true) that the
Optionholder is an employee of Reliance as of that date and listing the number
of shares of Reliance Common subject to the Reliance Option as of that date.
Any notice given pursuant to this Section shall be given in accordance with the
provisions of Section 13 of the Acquisition Agreement.
B-40
3. This Agreement shall terminate automatically upon a
termination of the Merger Agreement at any time prior to the consummation of
the Merger, whereupon this Agreement shall become null and void and no party
shall have any further rights or obligations hereunder.
4. The rights of the Optionholder under this Agreement may not be
transferred or assigned to any person other than the Optionholder, except by
will or the laws of descent and distribution.
5. This Agreement shall be construed and enforced in accordance
with the laws of the State of Ohio without regard to its conflict of laws
principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE OPTIONHOLDER: HUNTINGTON BANCSHARES INCORPORATED
- ----------------
By:
- ------------------------------------ ---------------------------------
Signature
Name:
-------------------------------
- ------------------------------------
Name (please type or print) Title:
------------------------------
RELIANCE BANK OF FLORIDA HUNTINGTON BANCSHARES FLORIDA, INC.
By: By:
-------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
B-41
EXHIBIT E TO ACQUISITION AGREEMENT
WARRANT PURCHASE AGREEMENT
--------------------------
THIS WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of
December 22, 1994, between HUNTINGTON BANCSHARES INCORPORATED, a Maryland
corporation ("Huntington"), and RELIANCE BANK OF FLORIDA, a Florida banking
corporation ("Reliance").
RECITALS:
--------
A. Concurrently herewith, Huntington, Huntington Bancshares
Florida, Inc., a wholly owned subsidiary of Huntington ("Huntington Florida"),
Security National Bank, a national bank ("SNB"), and Reliance have entered into
Acquisition Agreement, dated as of the date hereof (the "Acquisition
Agreement"), and Huntington Florida, SNB, and Reliance have entered into a
certain Agreement and Plan of Merger, dated as of the date hereof (together
with the Acquisition, collectively, the "Merger Documents"), which provide for
the merger of Reliance into The Huntington National Bank of Florida, as
successor by name change to SNB ("HNBF"), which will be a wholly owned
subsidiary of Huntington Florida (or, under certain circumstances, the merger
of Huntington Federal Savings Bank, a wholly owned subsidiary of Huntington,
into Reliance) (in either case, the "Merger"). All capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to
them in the Merger Documents.
B. As a condition to Huntington's and Huntington Florida's
entering into the Merger Documents and in consideration therefor, Reliance has
agreed to issue to Huntington a warrant or warrants entitling Huntington to
purchase up to a total of 115,415 shares of Reliance Common, on the terms and
conditions set forth herein.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1. ISSUANCE AND EXERCISE OF THE WARRANT. Concurrently
with the execution of the Merger Documents and this Agreement, Reliance shall
issue to Huntington a warrant in the form attached as Attachment A hereto (the
"Warrant") to purchase up to a total of 115,415 shares of Reliance Common at a
purchase price equal to $56.48 per share (the "Exercise Price"), subject to
adjustments as provided in the Warrant. (The holder of the Warrant from time
to time is hereinafter referred to as the "Holder.") The Warrant shall be
exercisable in accordance with the terms and conditions set forth therein.
SECTION 2. REGISTRATION RIGHTS. If, at any time after the
Warrant becomes exercisable in accordance with its terms, Reliance shall
receive a written request therefor from the Holder, Reliance shall prepare and
file a registration statement under the 1933 Act covering such number of shares
of Reliance Common as the Holder shall specify in the request and shall use its
best efforts to cause such registration statement to become effective;
provided, however, that the Holder shall only have the right to request three
such registrations. Without the written consent of the Holder, neither
Reliance nor any other holder of securities of Reliance may include securities
in such registration.
SECTION 3. "PIGGYBACK" RIGHTS. If, at any time after the
Warrant becomes exercisable in accordance with its terms, Reliance shall
determine to proceed with the preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and sale for
money of any of its securities (other than in connection with a dividend
reinvestment, employee stock purchase, stock option, or similar plan or a
registration statement on Form S-4) by it or any of its security holders,
Reliance shall give written notice thereof to the Holder. Upon the written
request of the Holder given within ten days after receipt of any such notice
from Reliance, Reliance shall, except as herein provided, cause all shares of
Reliance Common which the Holder shall request be included in such registration
statement to be so included; provided, however, that nothing herein shall
prevent Reliance from abandoning or delaying any
B-42
registration at any time; and provided, further, that if Reliance decides not
to proceed with a registration after the registration statement has been filed
with the SEC and Reliance's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by Reliance,
Reliance shall promptly complete the registration for the benefit of the Holder
if the Holder agrees to bear all additional and incremental expenses incurred
by Reliance as the result of such registration after Reliance has decided not
to proceed. If any registration pursuant to this Section shall be underwritten
in whole or in part, the Holder may require that any shares of Reliance Common
requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. In the event that the shares of Reliance Common
requested for inclusion pursuant to this Section would constitute more than 25
percent of the total number of shares to be included in a proposed underwritten
public offering, and if in the good faith judgment of the managing underwriter
of such public offering the inclusion of all of such shares would interfere
with the successful marketing of the shares of being offered by Reliance, the
number of shares otherwise to be included in the underwritten public offering
hereunder may be reduced; provided, however, that after any such required
reduction, the shares of Reliance Common to be included in such offering for
the account of the Holder shall constitute at least 25 percent of the total
number of shares to be included in such offering.
SECTION 4. OBLIGATIONS OF RELIANCE IN CONNECTION WITH A
REGISTRATION. If and whenever Reliance is required by the provisions of
Sections 2 or 3 hereof to effect the registration of any shares of Reliance
Common under the 1933 Act, Reliance shall:
(a) prepare and file with the SEC a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to
exceed nine months;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed nine months;
(c) furnish to the Holder and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, amendments thereto, preliminary prospectus, final
prospectus, and such other documents as the Holder or such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(d) use its best efforts to register or qualify the
securities covered by such registration statement under such state securities
or blue sky laws of such jurisdictions as the Holder or such underwriters may
reasonably request; provided that Reliance shall not be required by virtue
hereof to submit to the general jurisdiction of any state;
(e) notify the Holder, promptly after Reliance shall
receive notice thereof, of the time when such registration statement or any
post-effective amendment thereof has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify the Holder promptly of any request by the SEC
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(g) prepare and file with the SEC, promptly upon the
request of the Holder, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for the Holder (and
concurred in by counsel for Reliance), is required under the 1933 Act or the
rules and regulations promulgated thereunder in connection with the
distribution of the shares of Reliance Common by the Holder;
(h) prepare and promptly file with the SEC such amendment
or supplement to such registration statement or prospectus as may be necessary
to correct any statements or omissions if, at the time when a prospectus is
required to be delivered under the 1933 Act, any event shall have occurred as
the result of which such prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading;
B-43
(i) advise the Holder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(j) at the request of the Holder, furnish on the date or
dates provided for in the underwriting agreement: (i) an opinion or opinions
of the counsel representing Reliance for the purposes of such registration,
addressed to the underwriters and to the Holder, covering such matters as such
underwriters and the Holder may reasonably request and as are customarily
covered by issuer's counsel at that time; and (ii) a letter or letters from the
independent certified public accountants of Reliance, addressed to the
underwriters and to the Holder, covering such matters as such underwriters or
the Holder may reasonably request, in which letters such accountants shall
state (without limiting the generality of the foregoing) that they are
independent certified public accountants within the meaning of the 1933 Act and
that, in the opinion of such accountants, the financial statements and other
financial data of Reliance included in the registration statement or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the 1933 Act.
SECTION 5. EXPENSES OF REGISTRATION. With respect to a
registration requested pursuant to Section 2 hereof and with respect to each
inclusion of shares of Reliance Common in a registration statement pursuant to
Section 3 hereof, Reliance shall bear the following fees, costs, and expenses:
all registration, stock exchange listing, and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for Reliance, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if Reliance and/or the Holder are required to bear such fees and
disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. Fees and
disbursements of counsel and accountants for the Holder, underwriting
discounts and commissions and transfer taxes relating to the Reliance Common
being sold for the Holder, and any other expenses incurred by the Holder not
expressly included above shall be borne by the Holder.
SECTION 6. INDEMNIFICATION.
(a) Reliance shall indemnify and hold harmless the
Holder, any underwriter (as defined in the 1933 Act) for the Holder, and each
person, if any, who controls the Holder or such underwriter within the meaning
of the 1933 Act, from and against any and all loss, damage, liability, cost,
and expense to which the Holder or any such underwriter or controlling person
may become subject under the 1933 Act or otherwise, insofar as such losses,
damages, liabilities, costs, or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement filed pursuant to Section 4 hereof, any prospectus or preliminary
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading;
provided, however, that Reliance will not be liable in any such case to the
extent that any such loss, damage, liability, cost, or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by the
Holder, such underwriter, or such controlling persons in writing specifically
for use in the preparation thereof.
(b) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (a) of this Section 6 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim thereof is to be
made against Reliance pursuant to the provision of such paragraph (a), promptly
notify Reliance of the commencement thereof; but the omission to so notify
Reliance will not relieve it from any liability which it may have to any
indemnified party otherwise hereunder. In case such action is brought against
any indemnified party and such indemnified party notifies Reliance of the
commencement thereof, Reliance shall have the right to participate in and, to
the extent that it may wish to do so, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and Reliance and
there is a conflict of interest which would prevent counsel for Reliance from
also representing the indemnified party, the indemnified party or parties
shall have the right to select one separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties. After
notice from Reliance to such indemnified party of its election so to assume the
defense of any such action, the indemnified party shall have
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the right to participate in such action and to retain its own counsel, but
Reliance shall not be required to indemnify and hold harmless the indemnified
party pursuant to the provisions of such paragraph (a) for any legal fees or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation, unless
(i) the indemnified party shall have employed separate counsel in accordance
with the provisions of the preceding sentence of this paragraph (b), (ii)
Reliance shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after the notice of
the commencement of the action, or (iii) Reliance has authorized the employment
of counsel for the indemnified party at the expense of Reliance.
(c) If recovery is not available under the foregoing
indemnification provisions, for any reason other than as specified therein, the
parties entitled to indemnification by the terms thereof shall be entitled to
contribution to liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the 1933 Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the parties' relative knowledge and access
to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission, and
any other equitable considerations appropriate under the circumstances.
SECTION 7. REPURCHASE RIGHTS.
(a) At any time after the Warrant becomes exercisable and
prior to the expiration of the Warrant, in accordance with the terms thereof:
(i) Reliance may, and upon the written request of
the Holder, Reliance shall, repurchase the Warrant from the Holder at
a price (the "Warrant Repurchase Price") equal to the difference
between the "Market/Offer Price" (as defined in paragraph (b) below)
and the Exercise Price, multiplied by the number of shares for which
the Warrant may then be exercised, in the aggregate, but only if the
Market/Offer Price is greater than the Exercise Price;
(ii) Reliance may, and upon the written request of
the owner (the "Owner") of any shares of Reliance Common purchased
pursuant to an exercise of the Warrant ("Warrant Stock"), Reliance
shall, repurchase all of the shares of Warrant Stock held by such
Owner at a price (the "Warrant Stock Repurchase Price") equal to the
number of shares to be repurchased hereunder multiplied by the greater
of the Exercise Price and the Market/Offer Price; and
(iii) If any repurchase pursuant to clauses (i) and
(ii) of this Section 7 occurs, Reliance shall, upon the written
request of Huntington, pay to Huntington all of Huntington's
out-of-pocket expenses actually incurred and paid or payable to third
parties in connection with the transactions contemplated by the
Acquisition Agreement for legal, accounting, and investment banking
fees and expenses.
(b) For purposes of paragraph (a) of this Section 7, the
"Market/Offer Price" shall mean the highest of (i) the price per share at which
a tender offer or exchange offer for shares of Reliance Common has been made,
(ii) the price per share of Reliance Common to be paid by any third party
pursuant to an agreement with Reliance, and (iii) the highest closing price for
shares of Reliance Common within the 4-month period immediately preceding the
date the Holder gives notice of the required repurchase of the Warrant or the
Owner gives notice of the required repurchase of Warrant Stock, as appropriate.
In the event that an exchange offer is made or an agreement is entered into for
a merger or consolidation involving consideration other than cash, the value of
the securities or other property issuable or deliverable in exchange for
Reliance Common shall be determined by a nationally recognized investment
banking firm mutually acceptable to the parties hereto.
(c) The Holder and the Owner may exercise their
respective rights to require Reliance to repurchase the Warrant or the Warrant
Stock pursuant to this Section 7 by surrendering for such purpose to Reliance,
at its principal office, the Warrant or certificates for shares of Warrant
Stock, as the case may be, free and clear of any liens, claims, encumbrances,
or rights of third parties of any kind, accompanied by a written notice or
notices stating
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that the Holder or the Owner, as the case may be, requests Reliance to
repurchase such Warrant or Warrant Stock in accordance with the provisions of
this Section 7. Subject to the last proviso of paragraph 7(d) below, as
promptly as practicable, and in any event within five business days after the
surrender of the Warrant or certificates representing shares of Warrant Stock
and the receipt of such notice or notices relating thereto, Reliance shall
deliver or cause to be delivered to the Holder or Owner the Warrant Repurchase
Price or the Warrant Stock Repurchase Price therefor, as applicable, or the
portion thereof which Reliance is not then prohibited under applicable law and
regulation from so delivering.
(d) To the extent that Reliance is prohibited under
applicable law or regulation, or as a result of administrative or judicial
action, from repurchasing the Warrant and/or the Warrant Stock in full at any
time that it may be required to do so hereunder, Reliance shall immediately so
notify the Holder and/or the Owner and thereafter deliver or cause to be
delivered, from time to time, to the Holder and/or the Owner, as appropriate,
the portion of the Warrant Repurchase Price and the Warrant Stock Repurchase
Price, respectively, which it is no longer prohibited from delivering, within
five business days after the date on which Reliance is no longer so prohibited.
Upon receipt of such notice from Reliance and for a period of 15 days
thereafter, the Holder and/or Owner may revoke its notice of repurchase of the
Warrant and/or Warrant Stock by written notice to Reliance at its principal
office stating that the Holder and/or the Owner elects to revoke its election
to exercise its right to require Reliance to repurchase the Warrant and/or
Warrant Stock, whereupon Reliance will promptly deliver to the Holder and/or
Owner the Warrant and/or certificates representing shares of Warrant Stock
surrendered to Reliance for purposes of such repurchase. Whether or not such
election is revoked, Reliance hereby agrees to use its best efforts to obtain
all required legal and regulatory approvals necessary to permit Reliance to
repurchase the Warrant and/or the Warrant Stock as promptly as practicable.
SECTION 8. ASSUMPTION OF OBLIGATIONS UNDER THIS AGREEMENT.
Reliance will not enter into any transaction described in paragraph 5(a) of the
Warrant unless the "Acquiring Corporation" (as that term is defined in the
Warrant) assumes in writing all the obligations of Reliance hereunder.
SECTION 9. REMEDIES. Without limiting the foregoing or any
remedies available to the Holder, Reliance specifically acknowledges that
neither Huntington nor any successor holder of the Warrant would have an
adequate remedy at law for any breach of this Warrant Purchase Agreement and
Reliance hereby agrees that Huntington and any successor holder of the Warrant
shall be entitled to specific performance of the obligations of Reliance
hereunder and injunctive relief against actual or threatened violations of the
provisions hereof.
SECTION 10. TERMINATION. This Agreement will terminate upon a
termination of the Warrant in accordance with Section 9 thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Purchase Agreement as of the day and year first above written.
HUNTINGTON BANCSHARES INCORPORATED
By:
-----------------------------------
RELIANCE BANK OF FLORIDA
By:
-----------------------------------
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ATTACHMENT A TO WARRANT PURCHASE AGREEMENT
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT BEING SO REGISTERED OR QUALIFIED UNLESS AN EXEMPTION OR
EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE.
WARRANT
-------
TO PURCHASE 115,415 SHARES OF THE COMMON STOCK
OF
RELIANCE BANK OF FLORIDA
This is to certify that, for value received, HUNTINGTON BANCSHARES
INCORPORATED, a Maryland corporation ("Huntington"), is entitled to purchase
from RELIANCE BANK OF FLORIDA, a Florida banking corporation ("Reliance"), at
any time on or after the date hereof, an aggregate of up to 115,415 shares of
the common stock, $5.00 par value per share, of Reliance ("Reliance Common"),
at a price of $56.48 per share (the "Exercise Price"), subject to the terms and
conditions of this Warrant and a certain Warrant Purchase Agreement, of even
date herewith, between Huntington and Reliance (the "Warrant Purchase
Agreement"). The number of shares of Reliance Common which may be received
upon the exercise of this Warrant and the Exercise Price are subject to
adjustment from time to time as hereinafter set forth. The terms and
conditions set forth in this Warrant and the Warrant Purchase Agreement shall
be binding upon the respective successors and assigns of both of the parties
hereto. This Warrant is issued in connection with a certain Acquisition
Agreement, dated as of the date hereof (the "Acquisition Agreement"), among
Huntington, Huntington Bancshares Florida, Inc. ("Huntington Florida"),
Security National Bank, a national bank ("SNB"), and Reliance, and a certain
Agreement and Plan of Merger, dated as of the date hereof, among Huntington
Florida, SNB, and Reliance (together with the Acquisition Agreement,
collectively, the "Merger Documents"), which provide for the merger of Reliance
into The Huntington National Bank of Florida, as successor by name change to
SNB ("HNBF"), which will be a wholly owned subsidiary of Huntington Florida
(or, under certain circumstances, the merger of Huntington Federal Savings
Bank, a wholly owned subsidiary of Huntington, into Reliance) (in either case,
the "Merger"). The term "Holder" shall mean and refer to Huntington or any
successor holder of this Warrant.
SECTION 1. EXERCISE OF THE WARRANT.
(a) The Holder will not exercise this Warrant unless it
has obtained all required approvals, if any, of appropriate regulatory
authorities having jurisdiction, including the Federal Reserve Board, pursuant
to all applicable laws and regulations. Further, subject to the terms and
conditions set forth in this Warrant and in the Warrant Purchase Agreement and
the provisions of applicable law, the Holder will not exercise this Warrant
without the written consent of Reliance, except upon the occurrence of any of
the following events:
(i) any material breach of the Merger Documents
by Reliance which would permit Huntington to terminate the Merger
Documents;
(ii) prior to the meeting of the Reliance
shareholders duly called and held for the purpose of approving the
Merger in accordance with the terms of the Merger Documents (the
"Shareholders' Meeting"), any person or group of persons (an
"Offeror") submits a proposal to Reliance relating to (1) the possible
sale or other disposition of more than 25 percent of the shares of the
capital stock or any other class of voting securities of Reliance,
including, but not limited to, an exchange or tender offer therefor,
(2) the possible sale or other disposition of a majority of the assets
of Reliance, or (3) a merger or consolidation involving Reliance,
other than a transaction pursuant to which Reliance will be the
surviving corporation and the current shareholders of Reliance will be
the
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owners of a majority of the stock of the surviving corporation
following the transaction (an "Acquisition Proposal") and, within 18
months after the date hereof, Reliance enters into an agreement
pursuant to such Acquisition Proposal with the Offeror and such
transaction is consummated within such 18-month period;
(iii) prior to the Shareholders' Meeting, any
person or group of persons commences a tender or exchange offer to
acquire equity securities of Reliance if, after giving effect to such
offer, such person or group would own or have the right to acquire a
majority equity interest in Reliance (a "Tender Offer"), and such
equity interest is acquired pursuant to such Tender Offer within 18
months after the date hereof; or
(iv) Reliance enters into an agreement with
respect to an Acquisition Proposal after the date hereof and such
transaction is consummated within 18 months after the date hereof.
(b) As used in this Section 1, "person" or "group of
persons" shall have the meanings assigned to such terms by Section 13(d) of the
1934 Act. For purposes of this Section 1, a Tender Offer which is contingent
upon the expiration of the Warrant is deemed to commence when it is announced.
(c) This Warrant shall be exercised by presentation and
surrender hereof to Reliance at its principal office accompanied by (i) a
written notice of exercise for a specified number of shares of Reliance Common,
(ii) payment to Reliance, for the account of Reliance, of the Exercise Price
for the number of shares specified in such notice, and (iii) a certificate of
the Holder stating the event or events that have occurred which entitle the
Holder to exercise this Warrant. The Exercise Price for the number of shares
of Reliance Common specified in the notice shall be payable in immediately
available funds.
(d) Upon such presentation and surrender, Reliance shall
issue promptly (and within one business day if requested by the Holder) to the
Holder, or any assignee, transferee, or designee permitted by subparagraph (f)
of this Section 1, the shares to which the Holder is entitled hereunder.
(e) If this Warrant should be exercised in part only,
Reliance shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder. Upon receipt by Reliance of
this Warrant, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Reliance Common issuable upon such exercise,
notwithstanding that the stock transfer books of Reliance shall then be closed
or that certificates representing such shares of Reliance Common shall not then
be actually delivered to the Holder. Reliance shall pay all expenses, and any
and all federal, state, and local taxes and other charges that may be payable
in connection with the preparation, issue and delivery of stock certificates
under this Section 1 in the name of the Holder or of any assignee, transferee,
or designee permitted by subparagraph (f) of this Section 1.
(f) This Warrant, once exercisable, or any warrant shares
acquired by the Holder by its exercise, may be sold or transferred in whole or
in part to any person, subject to the receipt by such person of approvals of
appropriate regulatory authorities having jurisdiction, including the Federal
Reserve Board, pursuant to all applicable laws and regulations, to the extent
required.
SECTION 2. CERTAIN COVENANTS AND REPRESENTATIONS OF RELIANCE.
(a) Reliance shall at all times maintain sufficient
authorized but unissued shares of Reliance Common so that this Warrant may be
exercised without additional authorization of the holders of Reliance Common,
after giving effect to all other options, warrants, convertible securities, and
other rights to purchase Reliance Common.
(b) Reliance represents and warrants to the Holder that
the shares of Reliance Common issued upon an exercise of this Warrant will be
duly authorized, fully paid, non-assessable, and subject to no preemptive
rights.
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(c) Reliance agrees (i) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations, or conditions to be
observed or performed hereunder by Reliance; (ii) promptly to take all action
as may from time to time be required, including, without limitation (A)
complying with all pre-merger notification, reporting, and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder, and (B) in the event, under the Bank Holding Company Act of 1956,
as amended (the "Bank Holding Company Act"), or the Change in Bank Control Act
of 1978, or other statute, the prior approval of the Board of Governors of the
Federal Reserve System or other regulatory agency (collectively, the
"Agencies"), is necessary before the Warrant may be exercised or transferred,
cooperate fully with the Holder in preparing such applications and providing
such information to the Agencies as the Agencies may require in order to permit
the Holder to exercise or transfer this Warrant and Reliance duly and
effectively to issue shares pursuant to the exercise hereof; and (iii) promptly
to take all action provided herein to protect the rights of the Holder against
dilution.
SECTION 3. FRACTIONAL SHARES. Reliance shall not be required
to issue fractional shares of Reliance Common upon an exercise of this Warrant
but shall pay for such fraction of a share in cash or by certified or official
bank check at the Exercise Price.
SECTION 4. EXCHANGE OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof at the principal office of Reliance for other Warrants of
different denominations entitling the Holder thereof to purchase in the
aggregate the same number of shares of Reliance Common purchasable hereunder.
The term "Warrant" as used herein includes any warrants for which this Warrant
may be exchanged. Upon receipt by Reliance of evidence reasonably satisfactory
to it of the loss, theft, destruction, or mutilation of this Warrant, and (in
the case of loss, theft, or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, Reliance will execute and deliver a new Warrant of like tenor and
date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of Reliance, whether or not the
Warrant so lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.
SECTION 5. CERTAIN TRANSACTIONS.
(a) In case Reliance shall (i) consolidate with or merge
into any Person, other than Huntington or one of its Affiliates, and shall not
be the continuing or surviving corporation of such consolidation or merger,
(ii) permit any Person, other than Huntington or one of its Affiliates, to
merge into Reliance and Reliance shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares
of Reliance Common shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (iii) sell or
otherwise transfer all or substantially all of its assets to any Person, other
than Huntington or one of its Affiliates, then, and in any such case, the
agreement governing such transaction shall make proper provision so that this
Warrant shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, a
warrant, at the option of the Holder, of either (A) the Acquiring Corporation
(as hereinafter defined), (B) any company which controls the Acquiring
Corporation, or (C) in the case of a merger described in clause (a)(ii) above,
Reliance, in which case such warrant shall be a newly issued warrant (in any
such case, the "Substitute Warrant").
(b) For purposes of this Section 5, the following terms
have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the
continuing or surviving corporation of a consolidation or merger with
Reliance (if other than Reliance), (B) the corporation merging into
Reliance in a merger in which Reliance is the continuing or surviving
person and in connection with which the then outstanding shares of
Reliance Common are changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (C)
the transferee of all or substantially all of Reliance's assets;
(ii) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Warrant;
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(iii) "Assigned Value" shall mean the Market/Offer
Price as determined pursuant to paragraph 7(b) of the Warrant Purchase
Agreement; provided, however, that in the event of a sale of all or
substantially all of Reliance's assets, the Assigned Value shall be
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Reliance as determined by a
recognized investment banking firm selected by the Holder, divided by
the number of shares of Reliance Common outstanding at the time of
such sale;
(iv) "Average Price" shall mean the average
closing price of a share of Substitute Common Stock for the one year
immediately preceding the consolidation, merger, or sale in question,
but in no event higher than the closing price of the shares of
Substitute Common Stock on the day preceding such consolidation,
merger, or sale; provided that if Reliance is the issuer of the
Substitute Warrant, the Average Price shall be computed with respect
to a share of the common stock issued by the Person merging into
Reliance or by any company which controls such Person, as the Holder
may elect;
(v) A "Person" shall mean any individual, firm,
corporation or other entity and include as well any syndicate or group
deemed to be a "person" by Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended; and
(vi) "Affiliate" shall have the meaning ascribed
to such term in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
(c) The Substitute Warrant shall have the same terms as
this Warrant provided that if the terms of the Substitute Warrant cannot, for
legal reasons, be the same as this Warrant, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Warrant shall also enter into an agreement with the then Holder of
the Substitute Warrant in substantially the same form as the Warrant Purchase
Agreement, which shall be applicable to the Substitute Warrant.
(d) The Substitute Warrant shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Reliance Common for which this Warrant is
then exercisable, divided by the Average Price. The exercise price of the
Substitute Warrant per share of Substitute Common Stock shall be equal to the
Exercise Price multiplied by a fraction in which the numerator is the number of
shares of Reliance Common for which this Warrant is then exercisable and the
denominator is the number of shares of Substitute Common Stock for which the
Substitute Warrant is exercisable.
SECTION 6. RIGHTS OF THE HOLDER; REMEDIES.
(a) The Holder shall not, by virtue hereof, be entitled
to any rights of a holder of Reliance Common.
(b) Without limiting the foregoing or any remedies
available to the Holder, Reliance specifically acknowledges that neither
Huntington nor any successor Holder of this Warrant would have an adequate
remedy at law for any breach of this Warrant and Reliance hereby agrees that
Huntington and any successor Holder shall be entitled to specific performance
of the obligations of Reliance hereunder and injunctive relief against actual
or threatened violations of the provisions hereof.
SECTION 7. ANTIDILUTION PROVISIONS. The number of shares of
Reliance Common purchasable upon the exercise hereof shall be subject to
adjustment from time to time as provided in this Section 7.
(a) In the event that Reliance issues any additional
shares of Reliance Common at any time after the date hereof (including pursuant
to stock option plans), the number of shares of Reliance Common which can be
purchased pursuant to this Warrant shall be increased by an amount equal to
24.9 percent of the additional shares so issued.
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(b) (i) In the event that, after the date hereof,
Reliance pays or makes a dividend or other distribution of any
class of capital stock of Reliance in Reliance Common, the
number of shares of Reliance Common purchasable upon exercise
hereof shall be increased by multiplying such number of shares
by a fraction of which the denominator shall be the number of
shares of Reliance Common outstanding at the close of business
on the day immediately preceding the date of such distribution
and the numerator shall be the sum of such number of shares
and the total number of shares constituting such dividend or
other distribution, such increase to become effective
immediately after the opening of business on the day following
such distribution.
(ii) In the event that, after the date hereof,
outstanding shares of Reliance Common are subdivided into a
greater number of shares of Reliance Common, the number of
shares of Reliance Common purchasable upon exercise hereof at
the opening of business on the day following the day upon
which such subdivision becomes effective shall be
proportionately increased, and, conversely, in the event that,
after the date hereof, outstanding shares of Reliance Common
are combined into a smaller number of shares of Reliance
Common, the number of shares of Reliance Common purchasable
upon exercise hereof at the opening of business on the day
following the day upon which such combination becomes
effective shall be proportionately decreased, such increase or
decrease, as the case may be, to become effective immediately
after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(iii) The reclassification (including any
reclassification upon a merger in which Reliance is the
continuing corporation) of Reliance Common into securities
including other than Reliance Common shall be deemed to
involve a subdivision or combination, as the case may be, of
the number of shares of Reliance Common outstanding
immediately prior to such reclassification into the number of
shares of Reliance Common outstanding immediately thereafter
and the effective date of such reclassification shall be
deemed to be the day upon which such subdivision or
combination becomes effective, as the case may be, within the
meaning of clause (ii) above.
(iv) Reliance may make such increases in the
number of shares of Reliance Common purchasable upon exercise
hereof, in addition to those required by this paragraph (b),
as shall be determined by its Board of Directors to be
advisable in order to avoid taxation so far as practicable of
any dividend of stock or stock rights or any event treated as
such for Federal income tax purposes to the recipients.
(c) Whenever the number of shares of Reliance Common
purchasable upon exercise hereof is adjusted pursuant to paragraph (b) above,
the Exercise Price shall be adjusted by multiplying the Exercise Price by a
fraction the numerator of which is equal to the number of shares of Reliance
Common purchasable prior to the adjustment and the denominator of which is
equal to the number of shares of Reliance Common purchasable after the
adjustment.
(d) For the purpose of this Section 7, the term "Reliance
Common" shall include any shares of Reliance of any class or series which has
no preference or priority in the payment of dividends or in the distribution of
assets upon any voluntary or involuntary liquidation, dissolution, or winding
up of Reliance and which is not subject to redemption by Reliance.
SECTION 8. NOTICE.
(a) Whenever the number of shares of Reliance Common for
which this Warrant is exercisable is adjusted as provided in Section 7 hereof,
Reliance shall promptly compute such adjustment and mail to the Holder a
certificate, signed by a principal financial officer of Reliance, setting forth
the number of shares of Reliance Common for which this Warrant is exercisable
and the adjusted Exercise Price as a result of such adjustment, a brief
statement of the facts requiring such adjustment, the computation thereof, and
when such adjustment will become effective.
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(b) Upon the occurrence of an event which results in this
Warrant and/or the "Warrant Stock" (as such term is defined in the Warrant
Purchase Agreement) becoming repurchasable as provided in Section 7 of the
Warrant Purchase Agreement, Reliance shall (i) promptly notify the Holder
and/or the "Owner" (as that term is defined in the Warrant Purchase Agreement)
of such event, (ii) promptly compute the "Warrant Repurchase Price" and the
"Warrant Stock Repurchase Price" (as such terms are defined in the Warrant
Purchase Agreement), and (iii) furnish to the Holder and/or the Owner a
certificate, signed by the chief financial officer of Reliance, setting forth
the Warrant Repurchase Price and/or the Warrant Stock Repurchase Price and the
basis and computation thereof.
(c) Upon the occurrence of an event which results in this
Warrant becoming convertible into, or exchangeable for, the Substitute Warrant,
as provided in Section 5 hereof, Reliance and the Acquiring Corporation shall
promptly notify the Holder of such event; and, upon receipt from the Holder of
its choice as to the issuer of the Substitute Warrant, the Acquiring
Corporation shall promptly compute the number of shares of Substitute Common
Stock for which the Substitute Warrant is exercisable and furnish to the Holder
a certificate, signed by a principal financial officer of the Acquiring
Corporation, setting forth the number of shares of Substitute Common Stock for
which the Substitute Warrant is exercisable, the Substitute Warrant exercise
price, a computation thereof, and when such adjustment will become effective.
SECTION 9. TERMINATION. This Warrant and the rights conferred
hereby shall terminate upon the earliest of (i) six months after the occurrence
of the first to occur of any of the events described in paragraph 1(a) of this
Warrant, (ii) the Effective Date of the Merger, or (iii) upon termination of
the Merger Documents in accordance with the terms of Section 12.01(a), (b)(i),
(b)(ii)(A) (except to the extent that the condition set forth in Section 9.01
of the Acquisition Agreement has not been satisfied or waived), or (b)(iii) of
the Acquisition Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
this 22nd day of December, 1994.
ATTEST: RELIANCE BANK OF FLORIDA
By: By:
------------------------------- --------------------------------
B-52
EXHIBIT C
FORM OF OPINION OF FINANCIAL ADVISOR
------------------------------------
[For Allen C. Ewing & Co. Letterhead]
____________________________, 1995
The Board of Directors
Reliance Bank of Florida
P. O. Box 2590
Melbourne, FL 32902
Members of the Board:
Reliance Bank of Florida ("Reliance") and Huntington Bancshares
Incorporated ("Huntington") have entered into a definitive Acquisition
Agreement dated as of December 22, 1994, and certain related documents
(collectively, the "Agreements") providing for Reliance to be acquired by
Huntington (the "Merger") on the terms and subject to the conditions described
in the Agreements. The Agreements provide, among other things, that each share
of outstanding common stock, par value $5.00 per share, of Reliance ("Reliance
Common Stock"), will be converted in the Merger into the right to receive no
more than 3.6381 shares and no less than 2.9766 shares of common stock, without
par value, of Huntington ("Huntington Common Stock") so long as the Average
Closing Sale Price of the Huntington Common Stock (as defined in the
Agreements) is not less than $12.9375 or more than $21.5625 and that, if such
Average Closing Sale price is less than $12.9375 or more than $21.5625,
Huntington has certain other options, including terminating the Merger, as
described in the Agreements. Reference should be made to the Agreements for a
more complete description of the terms and conditions of the Merger.
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, of the terms of the Merger to the
shareholders of Reliance.
Allen C. Ewing & Co., as part of its investment banking business, is
regularly engaged in the valuation of securities of banking and thrift
companies in connection with mergers and acquisitions, underwritings, private
placements, trading and market making activities, and valuations for various
other purposes.
Allen C. Ewing & Co. was engaged as the financial advisor to Reliance
in connection with the Merger pursuant to an engagement letter dated December
16, 1994, and will receive compensation thereunder from Reliance upon
delivering this opinion to Reliance and upon consummation of the Merger. In
the ordinary course of its business as a broker-dealer, Allen C. Ewing & Co.
may, from time to time, purchase securities from, and sell securities to,
banking and thrift companies and as a market maker in securities may from time
to time have a long or short position in, and buy or sell, debt or equity
securities of banking and thrift companies for its own account and for the
accounts of its customers. Allen C. Ewing & Co. has no such position in the
securities of Reliance or Huntington as of the date of this opinion.
In arriving at the opinion expressed in this letter, we have reviewed,
analyzed, and relied upon information and material bearing upon the Merger and
the financial and operating condition of Reliance and Huntington, including,
among other things, the following: (i) the Agreements; (ii) a draft of the
Prospectus/Proxy Statement to be provided to the shareholders of Reliance in
connection with the Merger; (iii) Annual Reports to Shareholders for the five
years ended December 31, 1993, of Reliance; (iv) Annual Reports to Shareholders
and Annual Reports on Form 1 O-K for the three years ended December 31, 1993,
of Huntington; (v) Quarterly Reports on Form 10-Q filed by Huntington for the
first three quarters of 1994 and certain interim reports and other
communications to shareholders of Reliance and Huntington; (vi) certain
unaudited financial information of Reliance and Huntington for the year ended
December 31, 1994 and, in the case of Reliance, for certain interim periods
during 1994; (vii) other financial information concerning the business and
operations of Reliance furnished to us by Reliance for purposes of our
analysis, including certain internal forecasts
C-1
for Reliance prepared by the senior management of Reliance; (viii) certain
publicly available information concerning the trading of, and the trading
market for, the Huntington Common Stock; and (ix) certain publicly available
information with respect to other banking companies that we considered relevant
to our inquiry. We have also held discussions with the senior management of
Reliance concerning its past and current operations, financial condition, and
prospects, as well as the results of regulatory examinations.
We have also considered such further financial, economic, regulatory,
and other factors as we have deemed relevant and appropriate under the
circumstances, including among others the following: (i) certain publicly
available information concerning the trading of, and the trading market for,
the publicly-traded common stocks of certain other financial institutions; (ii)
the limited market for the shares of Reliance Common Stock; (iii) certain
publicly available information concerning the financial terms of certain
mergers and acquisitions of other financial institutions in Florida; and (iv)
certain recently enacted legislation that would permit financial institutions
in additional states to acquire financial institutions in Florida beginning in
1995. We have also taken into account our assessment of general economic,
market, and financial conditions and our experience in other transactions, as
well as our experience in securities valuation and our knowledge of the banking
and thrift industry generally.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of all of the financial and
other information provided to us or publicly available, including that referred
to above, and we have not attempted independently to verify such information.
We have relied upon the management of Reliance as to the reasonableness and
achievability of the financial and operational forecasts and projections (and
the assumptions and basis therefor) provided to us, and we have assumed that
such forecasts and projections reflect the best currently available estimates
and judgments of management and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by
management. We have also assumed, without independent verification, that the
allowances for loan and other losses for Reliance and Huntington are adequate
to cover any such losses. We have not made or obtained any inspections,
evaluations, or appraisals of any of the properties, assets, or liabilities of
Reliance or Huntington, or any interest rate swaps or other derivative
instruments held by Huntington, nor have we examined any individual loan or
securities files.
Based upon and subject to the foregoing, we are of the opinion that
the terms of the Merger are fair, from a financial point of view, to the
shareholders of Reliance. This opinion is necessarily based upon conditions as
they exist and can be evaluated on the date of this letter and the information
made available to us through such date.
This letter and the opinion expressed herein are submitted in
accordance with the terms and conditions of our engagement letter with
Reliance, and may be used and distributed only in accordance with the
provisions of that letter.
Very truly yours,
ALLEN C. EWING & CO.
By:
-----------------------------------
Charles E. Harris
Chief Executive Officer
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EXHIBIT D
RIGHTS OF DISSENTING SHAREHOLDERS
---------------------------------
1. TITLE 12, SECTION 215A, PARAGRAPHS (B)-(D), OF THE UNITED STATES CODE
(applicable to the HNBF Merger):
Section 215A MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
. . . .
(B) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares
so held by him when such merger shall be approved by the Comptroller upon
written request made to the receiving association at any time before thirty
days after the date of consummation of the merger, accompanied by the surrender
of his stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(D) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS: APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF
SHARES; STATE APPRAISAL AND MERGER LAW
If, within ninety days after the date of consummation of the merger, for
any reason one or more of the appraisers is not selected as herein provided, or
the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be
made which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the receiving association. The value of the shares
ascertained shall be promptly paid to the dissenting shareholders by the
receiving association. The shares of stock of the receiving association which
would have been delivered to such dissenting shareholders had they not
requested payment shall be sold by the receiving association at an advertising
public auction, and the receiving association shall have the right to purchase
any of such shares at such public auction, if it is the highest bidder
therefor, for the purpose of reselling such shares within thirty days
thereafter to such person or persons and at such price not less than par as its
board of directors by resolution may determine. If the shares are sold at
public auction at a price greater than the amount paid to the dissenting
shareholders, the excess in such sale price shall be paid to such dissenting
shareholders. The appraisal of such shares of stock in any State bank shall be
determined in the manner prescribed by the law of the State in such cases,
rather than as provided in this section, if such provision is made in the State
law; and no such merger shall be in contravention of the law of the State under
which such bank is incorporated. The provisions of this subsection shall apply
only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
. . . .
D-1
2. SECTION 658.44, SUBSECTIONS (2)-(7), OF THE FLORIDA STATUTES
(applicable to the HFSB Merger and, to the extent of the provisions
regarding the appraisal of shares, to the HNBF Merger):
658.44. APPROVAL BY STOCKHOLDERS; RIGHTS OF DISSENTERS; PREEMPTIVE RIGHTS
. . . .
(2) Written notice of the meeting of, or proposed written consent
action by, the stockholders of each constituent state bank or state trust
company shall be given to each stockholder of record, whether or not entitled
to vote, and whether the meeting is an annual or a special meeting or whether
the vote is to be by written consent pursuant to Section 607.0704, and the
notice shall state that the purpose or one of the purposes of the meeting, or
of the proposed action by the stockholders without a meeting, is to consider
the proposed plan of merger and merger agreement. Except to the extent
provided otherwise with respect to stockholders of a resulting bank or trust
company pursuant to subsection (7), the notice shall also state that dissenting
stockholders will be entitled to payment in cash of the value of only those
shares held by the stockholders:
(a) Which at a meeting of the stockholders are voted against the
approval of the plan of merger and merger agreement;
(b) As to which, if the proposed action is to be by written
consent of stockholders pursuant to Section 607.0704, such written consent is
not given by the holder thereof; or
(c) With respect to which the holder thereof has given written
notice to the constituent state bank or trust company, at or prior to the
meeting of the stockholders or on or prior to the date specified for action by
the stockholders without a meeting pursuant to Section 607.0704 in the notice
of such proposed action, that the stockholder dissents from the plan of merger
and merger agreement.
Hereinafter in this section, the term "dissenting shares" means and includes
only those shares, which may be all or less than all the shares of any class
owned by a stockholder, described in paragraphs (a), (b), and (c).
(3) On or promptly after the effective date of the merger, the
resulting state bank or trust company, or a bank holding company which, as set
out in the plan of merger or merger agreement, is offering shares, rights,
obligations, or other securities or property in exchange for shares of the
constituent banks or trust companies, may fix an amount which it considers to
be not more than the fair market value of the shares of a constituent bank or
trust company and which it will pay to the holders of dissenting shares of that
constituent bank or trust company and, if it fixes such amount, shall offer to
pay such amount to the holders of all dissenting shares of that constituent
bank or trust company. The amount payable pursuant to any such offer which is
accepted by the holders of dissenting shares, and the amount payable to the
holders of dissenting shares pursuant to an appraisal, shall constitute a debt
of the resulting state bank or state trust company.
(4) The owners of dissenting shares who have accepted an offer made
pursuant to subsection (3) shall be entitled to receive the amount so offered
for such shares in cash upon surrendering the stock certificates representing
such shares at any time within 30 days after the effective date of the merger,
and the owners of dissenting shares, the value of which is to be determined by
appraisal, shall be entitled to receive the value of such shares in cash upon
surrender of the stock certificates representing such shares at any time within
30 days after the value of such shares has been determined by appraisal made on
or after the effective date of the merger.
(5) The value of dissenting shares of each constituent state bank or
state trust company, the owners of which have not accepted an offer for such
shares made pursuant to subsection (3), shall be determined as of the effective
date of the merger by three appraisers, one to be selected by the owners of at
least two-thirds of such dissenting shares, one to be selected by the board of
directors of the resulting state bank, and the third to be selected by the two
so chosen. The value agreed upon by any two of the appraisers shall control
and be final and binding on all parties. If, within 90 days from the effective
date of the merger, for any reason one or more of the appraisers is not
selected as herein provided, or the appraisers fail to determine the value of
such dissenting shares, the department shall cause an appraisal
D-2
of such dissenting shares to be made which will be final and binding on all
parties. The expenses of appraisal shall be paid by the resulting state bank
or trust company.
(6) Upon the effective date of the merger, all the shares of stock of
every class of each constituent bank or trust company, whether or not
surrendered by the holders thereof, shall be void and deemed to be canceled,
and no voting or other rights of any kind shall pertain thereto or to the
holders thereof except only such rights as may be expressly provided in the
plan of merger and merger agreement or expressly provided by law.
(7) The provisions of subsection (6) and, unless agreed by all the
constituent banks and trust companies and expressly provided in the plan of
merger and merger agreement, subsections (3), (4), and (5) are not applicable
to a resulting bank or trust company or to the shares or holders of shares of a
resulting bank or trust company the cash, shares, rights, obligations, or other
securities or property of which, in whole or in part, is provided in the plan
of merger or merger agreement to be exchanged for the shares of the other
constituent banks or trust companies.
. . . .
D-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation, as amended, provide that
it shall indemnify its directors to the full extent of the general laws of the
State of Maryland now or hereafter in force, including the advance of expenses
to directors subject to procedures provided by such laws; its officers to the
same extent it shall indemnify its directors; and its officers who are not
directors to such further extent as shall be authorized by the Board of
Directors and be consistent with law.
Section 2-418 of the Maryland general corporation law provides, in
substance, that a corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by the director in
connection with the proceeding, unless it is proved that the act or omission of
the director was material to the cause of action adjudicated in the proceeding
and was committed in bad faith or was the result of active and deliberate
dishonesty; or the director actually received an improper personal benefit in
money, property or services; or, in the case of any criminal proceeding, the
director had reasonable cause to believe that the act or omission was unlawful.
Notwithstanding the above, a director may not be indemnified in respect of any
proceeding, by or in the right of the corporation, in which such director shall
have been adjudged liable to the corporation or in respect of any pr oceeding
charging improper receipt of a personal benefit.
Termination of any proceeding by judgment, order or settlement does
not create a presumption that the director did not meet the requisite standard
of conduct. Termination of any proceeding by conviction, or plea of nolo
contendere or its equivalent, or entry of an order of probation prior to
judgment, creates a rebuttable presumption that the director did not meet the
requisite standard of conduct. Indemnification is not permitted unless
authorized for a specific proceeding, after a determination that
indemnification is permissible because the requisite standard of conduct has
been met (1) by a majority of a quorum of directors not at the time parties to
the proceeding (or a majority of a committee of two or more such directors
designated by the full board); (2) by special legal counsel selected by the
board of directors; or (3) by the stockholders.
The reasonable expenses incurred by a director who is a party to a
proceeding may be paid or reimbursed by the corporation in advance of the final
disposition of the proceeding upon receipt by the corporation of both a written
affirmation by the director of his good faith belief that the standard of
conduct necessary for indemnification by the corporation has been met, and a
written undertaking by or on behalf of the director to repay the amount if it
shall be ultimately determined that the standard of conduct has not been met.
The indemnification and advancement of expenses provided or
authorized by Section 2-418 are not exclusive of any other rights to which a
director may be entitled both as to action in his official capacity and as to
action in another capacity while holding such office.
Pursuant to Section 2-418, a corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or who, while serving in such capacity, is or was
at the request of the corporation serving as a director, officer, partner,
trustee, employee or agent of another corporation or legal entity or of an
employee benefit plan, against liability asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether
or not the corporation would have the power to indemnify against liability
under Section 2-418. A corporation may provide similar protection, including a
trust fund, letter of credit or surety bond, which is not inconsistent with
Section 2-418. A subsidiary or an affiliate of the corporation may provide the
insurance or similar protection.
Subject to certain exceptions, the directors and officers of the
Registrant and its affiliates are insured to the extent of 100% of loss up to a
maximum of $25,000,000 (subject to certain deductibles) in each policy year
because of any claim or claims made against them by reason of their wrongful
acts while acting in their capacities as such directors or officers and up to a
maximum of $10,000,000 (subject to certain deductibles) in each policy year
because of any claim or claims made against them by reason of their wrongful
acts while acting in their capacities as fiduciaries in the administration of
certain of the Registrant's employee benefit programs. The Registrant is
insured, subject to certain retentions and exceptions, to the extent it shall
have indemnified the directors and officers for such loss.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
2(a) Agreement and Plan of Merger, dated as of
December 22, 1994, among Huntington
Bancshares Florida, Inc., Security National
Bank and Reliance Bank of Florida (Attached
as Exhibit A to the Prospectus filed
herewith)
2(b) Acquisition Agreement, dated as of December
22, 1994, among Huntington Bancshares
Incorporated, Huntington Bancshares Florida,
Inc., Security National Bank and Reliance
Bank of Florida (Attached as Exhibit B to
the Prospectus filed herewith).
2(c) * Warrant Purchase Agreement, dated as of
December 22, 1994, between Huntington
Bancshares Incorporated and Reliance Bank of
Florida.
2(d) * Warrant to purchase 115,415 shares of common
stock, dated as of December 22, 1994, issued
by Reliance Bank of Florida in favor of
Huntington Bancshares Incorporated.
3(i) Articles of Restatement of Charter, Articles
of Amendment to Articles of Restatement of
Charter, and Articles Supplementary --
previously filed as Exhibit 3(i) to Annual
Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein
by reference.
3(ii) Bylaws -- previously filed as Exhibit 3(b)
to Annual Report on Form 10-K for the year
ended December 31, 1987, and incorporated
herein by reference.
4(a) Instruments defining the Rights of Security
Holders -- reference is made to Articles V,
VIII and X of Articles of Restatement of
Charter, as amended and supplemented.
Instruments defining the rights of holders
of long-term debt will be furnished to the
Securities and Exchange Commission upon
request.
4(b) Rights Plan, dated February 22, 1990,
between Huntington Bancshares Incorporated
and The Huntington Trust Company, National
Association, -- previously filed as Exhibit
1 to Registration Statement on Form 8-A,
filed with the Securities and Exchange
Commission on February 22, 1990, and
incorporated herein by reference.
5 * Opinion of Porter, Wright, Morris & Arthur
regarding legality.
8 * Opinion of Porter, Wright, Morris & Arthur
regarding tax matters.
10(a) * Schedule identifying material details of
Shareholder Agreements substantially
identical to Exhibit C to Exhibit 2(b)
above.
II-2
10(b) Employment Agreement, dated September 16,
1991, between Huntington Bancshares
Incorporated and Frank Wobst -- previously
filed as Exhibit 10(a) to Annual Report on
Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
10(c) Employment Agreement, dated September 16,
1991, between Huntington Bancshares
Incorporated and Zuheir Sofia -- previously
filed as Exhibit 10(b) to Annual Report on
Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
10(d) Employment Agreement, dated September 16,
1991, between Huntington Bancshares
Incorporated and W. Lee Hoskins -- previously
filed as Exhibit 10(c) to Annual Report on
Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
10(e) Executive Agreement, dated September 16,
1991, between Huntington Bancshares
Incorporated and Frank Wobst -- previously
filed as Exhibit 10(f) to Annual Report on
Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
10(f) Executive Agreement, dated September 16,
1991, between Huntington Bancshares
Incorporated and Zuheir Sofia -- previously
filed as Exhibit 10(g) to Annual Report on
Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
10(g) Executive Agreement, dated September 16,
1991, between Huntington Bancshares
Incorporated and W. Lee Hoskins -- previously
filed as Exhibit 10(h) to Annual Report on
Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
10(h) Form of Executive Agreement for certain
executive officers -- previously filed as
Exhibit 10(g) to Annual Report on Form 10-K
for the year ended December 31, 1991, and
incorporated herein by reference.
10(i) Schedule identifying material details of
Executive Agreements, substantially similar
to 10(h) -- previously filed as Exhibit
10(h) to Annual Report on Form 10-K for the
year ended December 31, 1994, and
incorporated herein by reference.
10(j) Incentive Compensation Plan -- previously
filed as Exhibit 10(i) to Annual Report on
Form 10-K for the year ended December 31,
1993, and incorporated herein by reference.
10(k) Long-Term Incentive Compensation Plan, as
amended and effective for performance cycles
beginning on or after January 1, 1992 --
previously filed as Exhibit 10(j) to Annual
Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by
reference.
10(l) Supplemental Executive Retirement Plan --
previously filed as Exhibit 10(g) to Annual
Report on Form 10-K for the year ended
December 31, 1987, and incorporated herein by
reference.
10(m) Deferred Compensation Plan and Trust for
Directors -- reference is made to Exhibit
4(a) of Post-Effective Amendment No. 2 to
Registration Statement on Form S-8,
Registration No. 33-10546, filed with the
Securities and Exchange Commission on January
28, 1991, and incorporated herein by
reference.
10(n)(1) 1983 Stock Option Plan -- reference is made
to Exhibit 4A of Registration Statement on
Form S-8, Registration No. 2-89672, filed
with the Securities and Exchange Commission
on February 27, 1984, and incorporated herein
by reference.
10(n)(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.
II-3
10(n)(3) 1983 Stock Option Plan -- Third Amendment --
previously filed as Exhibit 10(j)(3) to
Annual Report on Form 10-K for the year
ended December 31, 1987, and incorporated
herein by reference.
10(n)(4) 1983 Stock Option Plan -- Fourth Amendment
-- previously filed as Exhibit 10(m)(4) to
Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated
herein by reference.
10(o)(1) 1990 Stock Option Plan -- reference is made
to Exhibit 4(a) of Registration Statement on
Form S-8, Registration No. 33-37373, filed
with the Securities and Exchange Commission
on October 18, 1990, and incorporated herein
by reference.
10(o)(2) First Amendment to the Huntington Bancshares
Incorporated 1990 Stock Option Plan --
previously filed as Exhibit 10(q)(2) to
Annual Report on Form 10-K for the year
ended December 31, 1991, and incorporated
herein by reference.
10(p) The Huntington Supplemental Stock Purchase
and Tax Savings Plan and Trust (as amended
and restated as of February 9, 1990) --
previously filed as Exhibit 4(a) to
Registration Statement on Form S-8,
Registration No. 33-44208, filed with the
Securities and Exchange Commission on
November 26, 1991, and incorporated herein by
reference.
10(q) Deferred Compensation Plan and Trust for
Huntington Bancshares Incorporated Directors
-- reference is made to Exhibit 4(a) of
Registration Statement on Form S-8,
Registration No. 33-41774, filed with the
Securities and Exchange Commission on July
19, 1991, and incorporated herein by
reference.
10(r) Huntington Bancshares Incorporated Retirement
Plan For Outside Directors -- previously
filed as Exhibit 10(t) to Annual Report on
Form 10-K for the year ended December 31,
1992, and incorporated herein by reference.
10(s) 1994 Stock Option Plan -- reference is made
to Exhibit 4(a) of Registration Statement on
Form S-8, Registration No. 33-52553, filed
with the Securities and Exchange Commission
on March 8, 1994, and incorporated herein by
reference.
21 Subsidiaries of the Registrant -- previously
filed as Exhibit 21 to Annual Report on Form
10-K for the year ended December 31, 1994,
and incorporated herein by reference.
23(a) Consent of Porter, Wright, Morris & Arthur
(included in Exhibits 5 and 8 filed
herewith).
23(b) * Consent of Ernst & Young LLP re: financial
statements of Huntington Bancshares
Incorporated.
23(c) * Consent of KPMG Peat Marwick re: financial
statements of Reliance Bank of Florida.
23(d) * Consent of Allen C. Ewing & Co.
24 * Powers of Attorney.
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* Filed herewith
II-4
(B) FINANCIAL STATEMENT SCHEDULES
None.
II-5
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Registration Statement, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Columbus,
State of Ohio, on March 3, 1995.
HUNTINGTON BANCSHARES INCORPORATED
By: /s/ Ralph K. Frasier
-----------------------------
Ralph K. Frasier
Secretary and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
*Frank Wobst Chairman and Chief Executive Officer )
------------------ (principal executive officer) )
Frank Wobst )
)
*W. Lee Hoskins Vice Chairman )
------------------ )
W. Lee Hoskins )
)
*Zuheir Sofia President, Chief Operating Officer )
------------------ Treasurer and Director )
Zuheir Sofia )
)
*Gerald R. Williams Executive Vice President )
------------------ Chief Financial Officer ) March 3, 1995
Gerald R. Williams (principal financial officer) )
)
*John D. Van Fleet Senior Vice President )
------------------ Corporate Controller )
John D. Van Fleet (principal accounting officer) )
)
*Don M. Casto, III Director )
------------------ )
Don M. Casto, III )
)
*Don Conrad Director )
------------------ )
Don Conrad )
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*John B. Gerlach Director )
-------------------- )
John B. Gerlach )
)
)
*Wm. J. Lhota Director )
-------------------- )
Wm. J. Lhota )
)
)
Director )
-------------------- )
Gerald E. Mayo )
)
)
*Timothy P. Smucker Director ) March 3, 1995
-------------------- )
Timothy P. Smucker )
)
)
*Marvin E. White Director )
-------------------- )
Marvin E. White )
)
)
*William J. Williams Director )
-------------------- )
William J. Williams )
)
)
*Milton A. Wolf Director )
-------------------- )
Milton A. Wolf )
*By: /s/ Ralph K. Frasier
---------------------------------------------
Ralph K. Frasier, Secretary, Huntington
Bancshares Incorporated, attorney-in-fact for
each of the persons indicated
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