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As filed with the Securities and Exchange Commission on March 9, 1995
Registration No. 33-57483
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
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.)
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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)
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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)
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Copies of Correspondence to:
Mary Beth M. Clary, Esq. John P. Greeley, Esq.
Porter, Wright, Morris & Arthur Smith, Mackinnon, Harris, Greeley, Bowdoin & Edwards P.A.
41 South High Street 225 South Orange Avenue, Suite 800
Columbus, Ohio 43215 Orlando, Florida 32801
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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.
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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 HFSB
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................ Financial Highlights; 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.................. Introduction; Financial Highlights; Security National
Corporation; Government Regulation; Consolidated
Financial Statements of Security National and Subsidiary.
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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; Security National Corporation.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer.......................... Not Applicable.
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SECURITY NATIONAL CORPORATION
253 North Orlando Avenue
Maitland, Florida 32751
March 17, 1995
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Security National Corporation ("Security National"),
which will be held on Monday, March 27, 1995, at 10:00 a.m. local time. The
Special Meeting will be held at the executive offices of Security National,
located at 253 North Orlando Avenue, Maitland, Florida.
At the Special Meeting, shareholders of Security National will be asked to
consider and vote on the Agreement and Plan of Merger, dated as of July 12,
1994, as amended by the Amendment to Agreement and Plan of Merger, dated as of
January 26, 1995, and the related Supplemental Agreement, dated as of July 12,
1994, pursuant to which Security National would be merged (the "Merger") into
Huntington Bancshares Florida, Inc., a wholly owned subsidiary of Huntington
Bancshares Incorporated ("Huntington"). The Merger Agreement, as amended,
provides that Security National shareholders will receive whole shares of
Huntington common stock in exchange for their shares of Security National common
stock in an amount determined pursuant to a formula which is based upon 2.1
times the adjusted shareholders' equity of Security National as of December 31,
1994. Cash will be paid for any fractional shares. The exact number of shares of
Huntington common stock to be received for each share of Security National
common stock will depend on, among other things, the average of the closing sale
prices per share of Huntington common stock 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 Security National common stock will be
converted into no more than 1.4802 shares nor less than 1.2111 shares of
Huntington common stock (as adjusted for Huntington's 5 for 4 stock split
effected on July 29, 1994) so long as the Average Closing Sales Price is between
$15.3375 and $25.5625, respectively. If, however, the Average Closing Sale Price
is less than $15.3375 or more than $25.5625, Huntington has certain options,
including terminating the Merger, as more fully described in the accompanying
Proxy Statement.
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 PROPOSED MERGER AS
BEING IN THE BEST INTERESTS OF SECURITY NATIONAL SHAREHOLDERS AND THEREFORE
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT, AS
AMENDED, AND THE SUPPLEMENTAL AGREEMENT.
Additional information regarding the proposed Merger and the parties
thereto is set forth in the attached Proxy Statement, which also serves as the
Prospectus regarding the common stock of Huntington to be issued in connection
with the Merger. Please carefully read these materials and consider the
information contained in them.
The affirmative vote of the holders of a majority of the outstanding shares
of Security National common stock is required to approve the Merger documents.
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,
Michael W. Sheffey
President
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SECURITY NATIONAL CORPORATION
253 North Orlando Avenue
Maitland, Florida 32751
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 27, 1995
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Security National Corporation ("Security National") has been called
by the Board of Directors and will be held at the executive offices of Security
National, located at 253 North Orlando Avenue, Maitland, Florida, on Monday,
March 27, 1995, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon the approval and adoption of the Agreement
and Plan of Merger, dated as of July 12, 1994, as amended by the
Amendment to Agreement and Plan of Merger, dated as of January 26,
1995, and the Supplemental Agreement, dated as of July 12, 1994,
pursuant to which Security National would be merged into Huntington
Bancshares Florida, Inc., a wholly owned subsidiary of Huntington
Bancshares Incorporated ("Huntington), and the shareholders of
Security National would receive whole shares of the common stock of
Huntington, as more fully described in the accompanying Proxy
Statement; and
2. To transact any other business which may properly come before the
meeting or any adjournments or postponements thereof. (The Board of
Directors is not currently aware of any other business to come
before the Special Meeting.)
Only shareholders of record at the close of business on March 1, 1995, the
record date for the Special Meeting, are entitled to notice of and to vote at
the Special Meeting and any adjournments thereof. If the Merger is consummated,
shareholders of Security National who do not vote in favor of the Merger,
deliver to Security National before the vote on the Merger a written demand for
appraisal, and otherwise comply with the requirements of Section 262 of the
Delaware General Corporation Law will have certain appraisal rights under
Delaware law. See "THE MERGER - APPRAISAL RIGHTS OF OBJECTING SHAREHOLDERS" in
the accompanying Proxy Statement for a description of the procedures required to
be followed to perfect these appraisal rights.
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
Michael W. Sheffey
President
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY
IF MAILED IN THE UNITED STATES. PLEASE DO NOT
SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
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PROSPECTUS
HUNTINGTON BANCSHARES INCORPORATED
COMMON STOCK
(without par value)
This Prospectus relates to up to 2,500,000 shares of common stock,
without par value, of Huntington Bancshares Incorporated ("Huntington"), which
may be issued in connection with the merger (the "Merger") of Security National
Corporation ("Security National") into Huntington Bancshares Florida, Inc.
("Huntington Florida"), a wholly owned subsidiary of Huntington. This
Prospectus also serves as the Proxy Statement for the Special Meeting of
Shareholders of Security National 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"),
the issued and outstanding shares of common stock, $1.00 par value, of Security
National (the "Security National Common Stock") will be converted into the
right to receive whole shares of common stock, without par value, of Huntington
("Huntington Common Stock") in an amount determined pursuant to a formula which
is based upon 2.1 times the adjusted shareholders' equity of Security National
as of December 31, 1994. Cash will be paid for any fractional shares. The
exact number of shares of Huntington Common Stock to be received by a Security
National shareholder 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 Security National Common Stock will be converted into no more than 1.4802
shares nor less than 1.2111 shares of Huntington Common Stock (as adjusted for
Huntington's 5 for 4 stock split effected on July 29, 1994) so long as the
Average Closing Sales Price is between $15.3375 and $25.5625, respectively.
If, however, the Average Closing Sale Price is less than $15.3375 or greater
than $25.5625, Huntington has certain specified options, including terminating
the Merger, as more fully described herein. See "THE MERGER - TERMS OF THE
MERGER."
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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.
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THE SHARES OF HUNTINGTON COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, THE BANK INSURANCE
FUND, OR ANY OTHER GOVERNMENTAL AGENCY.
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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.
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The Date of this Prospectus is March ____, 1995.
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TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................. 3
SECURITY NATIONAL CORPORATION
PROXY STATEMENT...................................................... 4
INTRODUCTION........................................................... 4
SUMMARY INFORMATION.................................................... 5
Huntington and Huntington Florida.................................... 5
Security National.................................................... 5
The Special Meeting and Record Date.................................. 5
The Merger........................................................... 6
Vote Required........................................................ 7
Appraisal Rights of Objecting Shareholders........................... 7
Interests of Management.............................................. 7
Federal Income Tax Consequences...................................... 8
Accounting Treatment................................................. 8
Regulatory Approvals................................................. 8
Comparative Per Share Information.................................... 8
FINANCIAL HIGHLIGHTS................................................... 10
Financial Highlights of Huntington................................... 10
Financial Highlights of Security National............................ 11
THE MERGER............................................................. 12
Background of the Merger............................................. 12
Reasons for the Merger............................................... 13
Opinion of Financial Advisor......................................... 14
Effective Date of the Merger......................................... 16
Terms of the Merger.................................................. 16
Fractional Shares.................................................... 18
Exchange of Certificates............................................. 18
Terms of the Warrant................................................. 19
The Subsidiary Merger................................................ 20
Covenants of the Parties............................................. 20
Conditions to Consummation of the Merger............................. 21
Amendment; Termination............................................... 22
Appraisal Rights of Objecting Shareholders........................... 23
Interests of Management.............................................. 25
Federal Income Tax Consequences...................................... 26
Accounting Treatment................................................. 28
Regulatory Approvals................................................. 28
Resales of Huntington Common Stock................................... 29
EFFECT OF THE MERGER ON
SHAREHOLDERS' RIGHTS................................................. 29
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.......................................................... 34
HUNTINGTON BANCSHARES INCORPORATED..................................... 34
General.............................................................. 34
Huntington Florida and HFSB.......................................... 34
Huntington Directors................................................. 35
Compensation of Huntington Directors................................. 37
Executive Officers of Huntington..................................... 39
Compensation of Executive Officers................................... 41
Transactions With Directors and Officers............................. 46
Ownership of Huntington Common Stock................................. 46
Description of Huntington Common Stock............................... 48
Dividends and Price Range of Huntington
Common Stock....................................................... 49
Properties........................................................... 50
Legal Proceedings.................................................... 51
SECURITY NATIONAL CORPORATION.......................................... 51
General.............................................................. 51
Lending and Investment Activities.................................... 51
Deposit and Borrowing Activities..................................... 52
Competition.......................................................... 52
Employees............................................................ 53
Description of Property.............................................. 53
Legal Proceedings.................................................... 53
Principal and Management Shareholders................................ 54
Market for Security National Common Stock and
Related Shareholder Matters........................................ 55
GOVERNMENT REGULATION................................................. 56
General.............................................................. 56
Holding Company Structure............................................ 56
Dividend Restrictions................................................ 57
FDIC Insurance....................................................... 58
Capital Requirements................................................. 58
Federal Deposit Insurance Corporation
Improvement Act of 1991............................................ 60
Recent Developments.................................................. 61
EXPERTS................................................................ 61
LEGAL OPINIONS......................................................... 61
OTHER MATTERS.......................................................... 62
INDEX TO FINANCIAL STATEMENTS.......................................... 63
EXHIBITS
Exhibit A - Agreement and Plan of Merger and Amendment to Agreement and Plan
of Merger
Exhibit B - Supplemental Agreement
Exhibit C - Opinion of The Robinson-Humphrey Company, Inc.
Exhibit D - Section 262 of the Delaware General Corporation Law - Appraisal
Rights of Objecting Shareholders
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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
Huntington Florida, was supplied by Huntington and all information contained
herein with respect to Security National and The Robinson-Humphrey Company,
Inc., Security National's financial advisor, was supplied by Security National.
Although neither Huntington nor Security National 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 Security
National can warrant the accuracy or completeness of such statements or
information as they relate to the other party.
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SECURITY NATIONAL CORPORATION
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PROXY STATEMENT
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INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to
the shareholders of Security National in connection with the solicitation of
proxies by the Board of Directors of Security National for a Special Meeting of
Shareholders (the "Special Meeting") to be held at 10:00 a.m., local time, on
Monday, March 27, 1995, at the executive offices of Security National, located
at 253 North Orlando Avenue, Maitland, 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 July 12, 1994, as amended by the
Amendment to Agreement and Plan of Merger, dated as of January 26, 1995
(collectively, the "Merger Agreement"), and the Supplemental Agreement, dated
as of July 12, 1994 (the "Supplemental Agreement"), pursuant to which Security
National will be merged into Huntington Florida and shareholders of Security
National will become shareholders of Huntington. The Merger Agreement and the
Supplemental 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 Security National 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 Security National
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 Security National 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 Security National Common
Stock, represented in person or by proxy, will constitute a quorum at the
meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum at the Special Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Security National Common Stock is required to approve and adopt the Merger
Documents. Because the approval and adoption of the Merger Documents requires
the affirmative vote of a particular percentage of the outstanding shares of
Security National Common Stock, an abstention or a broker non-vote with respect
to such matter will have the same effect as a vote against the matter. No
approval of the Merger Documents is required by holders of Huntington Common
Stock.
Security National 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, Security National had 1,511,181 shares of Security
National Common Stock outstanding and entitled to vote on all matters requiring
a vote of the shareholders. These shares were held by approximately 220
holders of record. Each share of Security National 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.
Security National 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 Security National may solicit proxies by mail, telegram, telephone, or
personal interview.
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SUMMARY INFORMATION
The following is a brief summary of certain information with respect
to the Merger. This summary is not intended to be complete and is qualified in
its entirety by reference to, and should be read in conjunction with, the
detailed information and financial statements contained herein and in the
exhibits hereto.
HUNTINGTON AND HUNTINGTON FLORIDA
Huntington, a multi-state bank holding company incorporated under the
laws of the State of Maryland in 1966, is headquartered in Columbus, Ohio. At
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 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 (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 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 Florida, an Ohio corporation, is a wholly owned subsidiary
of Huntington formed for the purpose of facilitating the Merger 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).
SECURITY NATIONAL
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 Avenue,
Maitland, Florida 32751 (telephone number 407-740-6300).
THE SPECIAL MEETING AND RECORD DATE
The Special Meeting will be held at 10:00 a.m., local time, on Monday,
March 27, 1995, at the executive offices of Security National, located at 253
North Orlando Avenue, Maitland, Florida. The close of business on March 1,
1995, has been set as the record date for determining the shareholders of
record of Security National 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.
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THE MERGER
At the Special Meeting, Security National shareholders will consider
and vote upon the approval and adoption of (i) the Merger Agreement, which, if
approved by the shareholders of Security National and upon the satisfaction of
certain other conditions, including obtaining various regulatory approvals,
would effectuate the merger of Security National into Huntington Florida, and
(ii) the Supplemental Agreement, which sets forth certain representations,
warranties, conditions, and covenants made by Huntington, Security National,
and Huntington Florida as an inducement to the other parties to execute and
deliver the Merger Documents and to consummate the Merger. Upon effectiveness
of the Merger, Security National will be merged into Huntington Florida,
Huntington Florida will continue to be a wholly owned subsidiary of Huntington,
and the separate existence of Security National will cease.
In connection with the Merger and in accordance with a certain Warrant
Purchase Agreement, dated as of July 12, 1994, between Security National and
Huntington (the "Warrant Purchase Agreement"), Security National granted to
Huntington a warrant (the "Warrant") to purchase up to 24.9% of the outstanding
shares of Security National Common Stock (after giving effect to the exercise
of the Warrant) under certain specified circumstances, at a price of $25.56 per
share. See "THE MERGER - TERMS OF THE WARRANT."
At the Effective Time, the shares of Security National 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 being sought) will be converted into the right to receive
a number of whole shares of Huntington Common Stock determined pursuant to a
formula that is based upon 2.1 times the adjusted shareholders' equity of
Security National as of December 31, 1994. Cash will be paid for any
fractional shares of Huntington Common Stock. The exact number of shares of
Huntington Common Stock to be received by a Security National shareholder 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 $18.4050 (as adjusted for the Huntington 5 for 4 Stock
Split), then the Average Closing Sale Price of Huntington Common Stock will be
deemed to be $18.4050, and if the Average Closing Sale Price is greater than
$22.4950 (as adjusted for the Huntington 5 for 4 Stock Split), then the Average
Closing Sale Price of Huntington Common Stock will be deemed to be $22.4950.
Thus, a share of Security National Common Stock will be converted into no more
than 1.4802 shares and no fewer than 1.2111 shares of Huntington Common Stock
(as adjusted for the Huntington 5 for 4 Stock Split).
Notwithstanding the above, if the Average Closing Sale Price is less
than $15.3375 (as adjusted for the Huntington 5 for 4 Stock Split), 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 Security National. If a mutually acceptable
adjustment to such pricing terms is not agreed to by Huntington and Security
National 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
$25.5625 (as adjusted for the Huntington 5 for 4 Stock Split), 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 Security National would be
entitled to receive 1.4706 shares of Huntington Common Stock for each share of
Security National 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.
Immediately after the consummation of the Merger, and effective as of
the Effective Date, the name of Security Bank will be changed to The Huntington
National Bank of Florida and HFSB, Huntington's wholly owned subsidiary
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headquartered in Sebring, Florida, will be merged into The Huntington National
Bank of Florida (formerly Security Bank) under the charter of The Huntington
National Bank of Florida (the "Subsidiary Merger").
Security National has received an opinion of The Robinson-Humphrey
Company, Inc. ("Robinson-Humphrey"), Security National's financial advisor,
that, from a financial point of view, the terms of the Merger as provided in
the Merger Agreement are fair to the shareholders of Security National. See
"THE MERGER - BACKGROUND OF THE MERGER," "- OPINION OF FINANCIAL ADVISOR," and
"- CONDITIONS TO CONSUMMATION OF THE MERGER" and the opinion of
Robinson-Humphrey, 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
The affirmative vote of the holders of a majority of the outstanding
shares of Security National Common Stock is necessary to approve and adopt the
Merger Documents, thereby approving the Merger. As of the Record Date, the
directors and executive officers of Security National and their affiliates
beneficially owned 318,521 shares of Security National Common Stock (excluding
shares subject to stock options), which represent 21.1% 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 Security National, holding
in the aggregate 316,188 shares of Security National Common Stock as of the
Record Date, or 20.9% of the outstanding shares of such stock entitled to vote
at the Special Meeting, executed certain Shareholder Agreements, each dated as
of July 12, 1994 (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 Security National to consummate the Merger.
THE BOARD OF DIRECTORS OF SECURITY NATIONAL UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS OF SECURITY NATIONAL 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 OBJECTING SHAREHOLDERS
If the Merger is consummated, holders of Security National Common
Stock who did not vote in favor of the Merger and have complied with all
applicable notice requirements and other procedures specified under Delaware
law have the right to obtain an appraisal by the Delaware Court of Chancery of
the fair value of their shares (exclusive of any element of value arising from
the accomplishment or expectation of the Merger). See "THE MERGER - APPRAISAL
RIGHTS OF OBJECTING SHAREHOLDERS."
INTERESTS OF MANAGEMENT
Huntington has agreed that, upon consummation of the Merger, the
existing employment agreement of Michael W. Sheffey, President and Chief
Executive Officer of Security National and Security Bank, will remain in effect
until terminated in accordance with the provisions of the agreement. Upon
consummation of the Merger, it is Huntington's intention to elect Mr. Sheffey
to the Board of Directors of Huntington Florida and to appoint him President,
Chief Executive Officer, and Treasurer of Huntington Florida. Huntington has
also agreed to assume certain obligations of Security National to indemnify and
defend the directors and officers of Security National in connection with such
persons' status or services as directors and officers of Security National.
See "THE MERGER - INTERESTS OF MANAGEMENT."
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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 Security National upon conversion of their shares of
Security National 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
Delaware 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."
REGULATORY APPROVALS
The Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") or its delegate and the Comptroller of the Currency (the "OCC")
must approve the Merger and the Subsidiary Merger, respectively. In addition,
the Office of Thrift Supervision (the "OTS") must be provided with notice
concerning the Subsidiary Merger. At the state level, the Florida Department
of Banking and Finance (the "Florida Department") must approve the acquisition
by Huntington of Security National and Security Bank. The applications and
notice required to be filed with these agencies were submitted for filing on
January 3, 1995. On the basis of indications from the three banking regulators
whose approvals are required, the last approval needed is expected to be
received on or before April 15, 1995. 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. After
consummation of the Merger, it is the intention of Huntington to complete its
acquisition of Reliance Bank of Florida ("Reliance Bank"), a bank headquartered
in Melbourne, Florida, which will be accounted for as a pooling of interests,
in the second quarter of 1995. The following summary presents selected
comparative unaudited per share information for Huntington on a historical
basis; for Security National on a historical basis; for Huntington, FirstFed,
Security National, and Reliance on a pro forma combined basis; and for Security
National 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. Security National equivalent pro forma amounts were
computed by multiplying Huntington's pro forma amounts by the Estimated
Exchange Ratio of 1.4706 shares of Huntington Common Stock for each share of
Security National 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 Security National
(adjusted for the Huntington 5 for 4 Stock Split and other 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 Reliance by Huntington. Pro forma amounts are
not necessarily indicative of results that would have been or will be obtained
on a combined basis.
- 8 -
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HUNTINGTON SECURITY NATIONAL
-------------------------------- -------------------------------
PRO EQUIVALENT
HISTORICAL(1) FORMA(1)(2) HISTORICAL PRO FORMA
------------- ----------- ---------- ----------
Book Value Per Common Share:
As of December 31, 1994 . . $10.84 $10.79 $13.61 $15.87
Cash Dividends Declared
Per Common Share:
For the year ended:
December 31, 1994 . . . . $0.72 $0.72 $0.50 $1.06
December 31, 1993 . . . . 0.60 0.60 0.20 0.88
December 31, 1992 . . . . 0.50 0.50 0.10 0.74
Net Income Per Common Share:
For the year ended:
December 31, 1994 . . . . $1.87 $1.85 $1.47 $2.72
December 31, 1993 . . . . 1.85 1.85 0.85 2.72
December 31, 1992 . . . . 1.27 1.27 0.60 1.87
(1) Adjusted for the Huntington 5 for 4 Stock Split.
(2) Includes Huntington historical data adjusted to reflect the consummation of
the Merger and the acquisition of FirstFed and Reliance 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 (adjusted for the Huntington 5 for 4 Stock
Split) as of July 11, 1994, the last trading day prior to the public
announcement of the proposed Merger, and as of March 1, 1995, were $20.60 and
$18.50, respectively. There is no active trading market for Security National
Common Stock, although isolated transactions do occur from time to time. To
the knowledge of Security National, all transactions in Security National
Common Stock are negotiated on a private basis and quotations for Security
National Common Stock are not published.
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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 STATEMENTS."
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
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 the Huntington 5 for 4 Stock Split and for other stock
dividends and stock splits, as appropriate.
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FINANCIAL HIGHLIGHTS OF SECURITY NATIONAL
The following financial highlights of Security National for the
five-year period ended December 31, 1994, have been derived from Security
National's audited financial statements. This data should be read in
conjunction with the consolidated financial statements, including the notes
thereto, contained elsewhere herein. See "INDEX TO FINANCIAL STATEMENTS."
CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net interest income.......... $7,426 $6,508 $5,483 $4,994 $4,467
Provision for loan losses.... 0 60 271 357 414
Net income................... 2,224 1,345 991 760 350
Per common share:
Net income................ $1.47 $0.85 $0.60 $0.46 $0.34
Cash dividends declared... $0.50 $0.20 $0.10 $0.00 $0.00
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Average balances during
the period:
Total assets.............. $181,089 $171,782 $136,896 $122,638 $106,813
Long-term debt............ 0 0 0 0 0
Shareholders' equity...... 19,725 19,635 19,472 18,712 18,214
Balances at period end:
Total assets.............. $191,419 $186,810 $160,237 $139,362 $118,324
Long-term debt............ 0 0 0 0 0
Shareholders' equity...... 20,568 20,117 20,015 19,189 18,429
Per common share:
Shareholders' equity...... $13.61 $12.90 $12.12 $11.62 $11.16
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement and the Supplemental Agreement, is
qualified in its entirety by reference to the Merger Agreement and the
Supplemental Agreement, which are attached hereto and incorporated herein as
Exhibits A and B, respectively.
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BACKGROUND OF THE MERGER
In early 1994, the Florida Legislature was considering a bill allowing
financial institutions nationwide to acquire Florida financial institutions on
a reciprocal basis. In early March 1994, Michael W. Sheffey, President and
Chief Executive Officer of Security National, and Bert E. Roper, Chairman of
the Board of Security National, discussed the possible implications of the
passage of such a bill. Certain industry analysts and lobbyists, including the
Florida Bankers Association, considered passage of the bill likely. Messrs.
Sheffey and Roper were concerned that the entry of additional large
out-of-state financial institutions in Florida, particularly in the Central
Florida market, would further intensify the competition for banking business in
the marketplace and also would reduce the ability of Security National to
consummate acquisitions of other financial institutions (which Security
National had considered from time to time as a means of expanding its
operations and opportunities). Messrs. Sheffey and Roper believed that the
increased competition and reduced ability to consummate acquisitions could
limit Security National's growth potential and future earnings prospects.
Mr. Roper directed Mr. Sheffey to contact investment banking firms
that had discussions with Security National at various times in the past when
Security National was exploring potential acquisitions to obtain their
assessment of the impact of passage of the pending legislation. Mr. Sheffey
also discussed the situation with several of Security National's larger
shareholders, one of whom recommended that Security National also include
Robinson-Humphrey on its list of contacts. Mr. Sheffey arranged an initial
meeting with Robinson-Humphrey on March 9, 1994. During that initial meeting,
Mr. Sheffey and representatives of Robinson-Humphrey discussed the
ramifications of increased competition on Security National and its
shareholders. Robinson-Humphrey offered to review Security National's status
and make a presentation of its recommendations. On March 17, 1994, the
Security National Board of Directors authorized Mr. Sheffey to proceed to
engage Robinson-Humphrey and, on March 18, 1994, Robinson-Humphrey presented
its evaluation of Security National and its recommendations, which included
determining what interest there might be in acquiring Security National among
regional financial institutions. In late March 1994, the Florida Legislature
approved passage of the Florida Reciprocal Banking Act, which would allow
acquisitions of Florida banks and bank holding companies by out-of-state bank
holding companies on a reciprocal basis commencing May 1, 1995.
Security National provided Robinson-Humphrey with financial and other
information concerning Security National and Security Bank. Robinson-Humphrey
contacted potential interested parties during the next month on a confidential
basis. The highest level of interest was from Huntington. On April 21, 1994,
the Security National Board of Directors reviewed the status of Robinson-
Humphrey's activities, including the strong expression of interest by
Huntington. A representative from Huntington visited with representatives of
Robinson-Humphrey and Security National management on May 11, 1994, and
discussions were held regarding a possible merger.
On May 26, 1994, the Security National Board of Directors reviewed
Huntington's financial information. Management also provided an update on the
May 11, 1994, visit by the Huntington representative and informed the Board
that a second visit was scheduled for June 6, 1994.
On June 6, 1994, Zuheir Sofia, President and Chief Operating Officer
of Huntington, visited with Mr. Sheffey in Maitland, Florida. As a part of
these discussions, Mr. Sofia proposed a merger of Security National with
pricing in the two times book value range, subject to a satisfactory due
diligence investigation. On June 9, 1994, the Board of Directors met and
reviewed the Huntington proposal and authorized Messrs. Roper and Sheffey, and
Phillip L. Tasker, Executive Vice President of Security National, to provide
such information as Huntington may need to complete its due diligence
investigation and to proceed with further discussions.
On June 22 and 23, 1994, representatives of Huntington performed an
initial due diligence investigation of Security National. On June 28, 1994,
Messrs. Roper, Sheffey, and Tasker met with Mr. Sofia and other Huntington
representatives in Columbus, Ohio, and continued discussions and negotiations.
Negotiations continued during the first week of July 1994. On July 7,
1994, copies of drafts of the proposed Merger Documents, Warrant, and Warrant
Purchase Agreement were distributed to and reviewed by the Board of Directors
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of Security National and the Board discussed the proposed merger transaction at
length. A meeting was scheduled for July 12, 1994, to consider and vote upon
the proposed merger. On July 12, 1994, the Security National Board of
Directors met to further review and consider the proposed Merger and the
related agreements. A representative of Robinson-Humphrey advised the Board
that, from a financial point of view, the terms of the Merger were fair to
Security National's shareholders. Legal counsel also was present to discuss
issues relating to the proposed Merger and related agreements. After
discussion, the Board unanimously approved the Merger and authorized the
execution of the Merger Documents, Warrant and Warrant Purchase Agreement.
After the Security National Board meeting, Security National,
Huntington, and Huntington Florida executed the Merger Documents and Security
National and Huntington entered into the Warrant Purchase Agreement, pursuant
to which Security National issued the Warrants to Huntington. In addition, as
an inducement for Huntington and Huntington Florida to enter into the Merger
Documents, and in satisfaction of a condition to the consummation of the
Merger, the following directors and/or executive officers of Security National,
holding in the aggregate 20.9% of the outstanding shares of Security National
Common Stock entitled to vote at the Special Meeting as of the Record Date,
executed the Shareholder Agreements, pursuant to which each such director
and/or executive officer agreed to vote his or her shares of Security National
Common Stock in favor of the adoption of the Merger Documents and the approval
of the Merger and against any competing acquisition offer or any other
transaction which is inconsistent with the obligation of Security National to
consummate the Merger: Lee Chira, Mary Demetree, Stephen F. Foreman, John J.
Jennings, Mitchel J. Laskey, Fred L. Macleod, Gerald R. McGratty, Jr., Bert E.
Roper, Jeffrey C. Schenck, and Benjamin P. Sibley.
On January 26, 1995, the Agreement and Plan of Merger was amended in
order to clarify the treatment of expired or cancelled Security National stock
options for purposes of the conversion ratio.
REASONS FOR THE MERGER
Security National's Board of Directors believes that the Merger and
the subsequent affiliation with Huntington will be beneficial to Security
National's shareholders as well as its present customers and employees and will
enhance the ability of Security National to meet the financial needs of the
communities served by Security National. In approving the Merger Documents,
Security National's directors considered a number of factors. The Security
National Board did not assign any relative or specific weights to such factors.
The factors considered by the Security National Board in evaluating and
approving the Merger Documents were the value of the consideration to be
received by Security National shareholders relative to the book value and
earnings per share of Security National Common Stock; certain information
concerning the financial condition, results of operation, and business
prospects of Huntington and Security National; the marketability of Huntington
Common Stock; the competitive and regulatory environment for financial
institutions generally; the fact that the Merger will enable Security National
shareholders to exchange their shares of Security National 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
Robinson-Humphrey as to the fairness, from a financial point of view, of the
terms of the Merger to the Security National shareholders; and other
information. The Security National Board also believes that the Merger will
provide the present customers of Security National with certain banking
products and services not currently available to such customers and is expected
to 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 SECURITY NATIONAL BELIEVES THAT THE PROPOSED
MERGER IS IN THE BEST INTERESTS OF SECURITY NATIONAL'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 Security National and the related Subsidiary Merger will enable
Huntington to expand its banking and related activities in Florida under the
charter of a national bank rather than that of a thrift institution.
OPINION OF FINANCIAL ADVISOR
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21
General
Security National retained Robinson-Humphrey to act as its financial
advisor in connection with the Merger. Robinson-Humphrey has rendered an
opinion to Security National's Board of Directors that, based on the matters
set forth therein, the terms of the Merger are fair, from a financial point of
view, to the Security National shareholders. 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 SECURITY NATIONAL.
The consideration to be received by Security National shareholders in
the Merger was determined by Security National and Huntington in their
negotiations. No limitations were imposed by the Board of Directors or
management of Security National upon Robinson-Humphrey with respect to the
investigations made or the procedures followed by Robinson-Humphrey in
rendering its opinion.
In connection with rendering its opinion to Security National's Board
of Directors, Robinson-Humphrey performed a variety of financial analyses.
However, the preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description.
Robinson-Humphrey, in conducting its analysis and in arriving at its opinion,
did not conduct a physical inspection of any of the properties, assets, or
liabilities of Security National. Robinson-Humphrey assumed and relied upon
the accuracy and completeness of the financial and other information that was
provided to it by Security National or that was publicly available.
Robinson-Humphrey's opinion is necessarily based on economic, market, and other
conditions as in effect on, and the information made available to it as of the
date of, its analyses.
Valuation Methodologies
In connection with its opinion on the Merger and the presentation of
that opinion to Security National's Board of Directors, Robinson-Humphrey
performed two valuation analyses with respect to Security National: (i) an
analysis of comparable prices and terms of recent transactions involving
financial institutions buying banks; and (ii) a discounted cash flow analysis.
For purposes of the comparable company and comparable transaction analyses,
Huntington Common Stock was valued at $20.60 per share. Both of these
methodologies are discussed briefly below.
Comparable Transaction Analysis. Robinson-Humphrey performed three
analyses of premiums paid for selected banks with comparable
characteristics to Security National. Comparable transactions were
considered to be (i) transactions since January 1, 1994, where the
seller was a financial institution located in the Southeast with total
assets of less than $300 million, and (ii) transactions since January
1, 1993, where the seller was a financial institution located in
Florida.
(i) Based on the first of the foregoing sets of transactions (i.e.,
financial institutions buying financial institutions in the
Southeast with total assets of less than $300 million during
1994), the analysis yielded a range of transaction values to book
value of 115.31% to 303.77%, with a mean of 183.83% and a median
of 186.65%. These compare to a transaction value for the Merger
of approximately 210.00% of Security National's book value at
December 31, 1994.
The analysis yielded a range of transaction values as a percentage
of tangible book value for the comparable transactions ranging
from 115.31% to 303.77%, with a mean of 188.90% and a median of
186.65%. These compare to a transaction value to tangible book
value at December 31, 1994, of approximately 210.00% for the
Merger.
The analysis yielded a range of transaction values as a multiple
of trailing twelve month earnings per share. These values ranged
from 7.98 times to 30.52 times, with a mean of 16.51 times and a
median of 15.94 times. These compare to a transaction value to
the December 31, 1994, trailing twelve month earnings per share of
19.59 times for the Merger.
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Lastly, the analysis yielded a range of transaction values as a
percentage of total assets for the comparable transactions ranging
from 6.65% to 28.01%, with a mean of 16.52% and a median of
16.77%. These compare to a transaction value to total assets at
December 31, 1994, of approximately 23.54% for the Merger.
(ii) Based on transactions since January 1, 1993, where the seller was
a financial institution located in Florida, the analysis yielded a
range of transaction values to book value of 69.58% to 257.80%,
with a mean of 164.60% and a median of 160.67%. These compare to
a transaction value for the Merger of approximately 210.00% of
Security National's book value as of December 31, 1994.
The analysis yielded a range of transaction values as a percentage
of tangible book value for the comparable transactions ranging
from 69.58% to 257.80%, with a mean of 169.29% and a median of
171.50%. These compare to a transaction value to tangible book
value at December 31, 1994, of approximately 210.00% for the
Merger.
The analysis yielded a range of transaction values as a multiple
of trailing twelve month earnings per share. These values ranged
from 8.13 times to 36.46 times, with a mean of 18.70 times and a
median of 18.41 times. These compare to a transaction value to
the December 31, 1994, trailing twelve months earnings per share
of 19.59 times for the Merger.
Lastly, the analysis yielded a range of transaction values as a
percentage of total assets for the comparable transactions ranging
from 2.73% to 26.96%, with a mean of 13.25% and a median of
12.66%. These compare to a transaction value to total assets at
December 31, 1994, of approximately 23.54% for the Merger.
No company or transaction used in the comparable transaction
analyses is identical to Security National. Accordingly, an analysis
of the foregoing necessarily involves complex considerations and
judgments, as well as other factors that affect the public trading
value or the acquisition value of the company to which it is being
compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Robinson-Humphrey estimated the present value of the future stream of
after-tax cash flows that Security National could produce through
1998, under various circumstances, assuming that Security National
performed in accordance with the earnings/return projections of
management at the time that Security National entered into acquisition
discussions in April 1994. Robinson-Humphrey estimated the terminal
value for Security National at the end of the period by applying
multiples of earnings (ranging from 9.0 times to 11.0 times and then
discounting the cash flow streams, dividends paid to shareholders, and
terminal value using differing discount rates ranging from 11.0% to
13.0%) chosen to reflect different assumptions regarding the required
rates of return of Security National and the inherent risk surrounding
the underlying projections. This discounted cash flow analysis
indicated a reference range of $35.7 million to $43.9 million, or
$22.88 to $28.16 per share, for Security National.
Compensation of Robinson-Humphrey
Pursuant to an engagement letter, dated March 25, 1994, between
Security National and Robinson-Humphrey, Security National agreed to pay a
$75,000 fairness opinion fee at the time of rendering the opinion and an
incremental success fee (to be paid at closing) equal to 1.25% of the total
consideration received by shareholders less the fairness opinion fee. Security
National also agreed to indemnify and hold harmless Robinson-Humphrey and its
officers and employees against certain liabilities in connection with its
services under the engagement letter, except for liabilities resulting from the
gross negligence of Robinson-Humphrey.
As a part of its investment banking business, Robinson-Humphrey is
regularly engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Security National's Board of Directors decided to retain
Robinson-Humphrey based on its experience as a financial advisor in mergers and
acquisitions of financial institutions, particularly transactions in the
southeastern region of the U.S., and its knowledge of financial institutions
and Security National in particular.
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EFFECTIVE DATE OF THE MERGER
The Merger will be effective as of 11:59 p.m., local Ohio time, on the
Effective Date, which will be (i) the day on which the certificate of merger
has been filed in accordance with the laws of the States of Ohio and Delaware,
or (ii) such later date as may be specified in such certificate of merger;
provided, however, that the Effective Date will not be earlier than the
"Permissible Date," which will be the later of May 1, 1995, or the date of the
expiration of the last required waiting period following receipt of the last
regulatory approval required for the Merger. It is anticipated that, if the
shareholders of Security National approve the Merger at the Special Meeting and
the other conditions to the Merger set forth in the Supplemental Agreement have
been satisfied, the Effective Date will occur on or about May 1, 1995.
TERMS OF THE MERGER
The Merger Agreement provides for the merger of Security National into
Huntington Florida pursuant to the applicable provisions of the laws of the
States of Delaware and Ohio. Upon the effectiveness of the Merger, Huntington
Florida, the surviving corporation, will remain a wholly owned subsidiary of
Huntington and will continue its corporate existence under the laws of the
State of Ohio, and the separate existence of Security National will cease. The
articles of incorporation and regulations of the surviving corporation will be
those of Huntington Florida as in effect immediately prior to the Merger until
amended in accordance with law.
At the Effective Time, the shares of Security National Common Stock
issued and outstanding immediately prior to the Effective Time (exclusive of
treasury shares, if any, which will be canceled) will be converted into the
right to receive whole shares of Huntington Common Stock, plus cash in lieu of
fractional shares. See "THE MERGER - FRACTIONAL SHARES." The number of shares
of Huntington Common Stock to be received for each share of Security National
Common Stock in the Merger (the "Conversion Ratio") will be determined pursuant
to the following formula:
(TPP + NSO)/PHC ($43,362,043 + $1,731,288)/PHC
Conversion Ratio = --------------- = ------------------------------
NSC NSC
where TPP is the Total Purchase Price determined by multiplying Security
National Equity (defined below) by 2.10; NSO is the sum of the products
resulting from multiplying the number of shares subject to each Security
National stock option outstanding at the Effective Time by the exercise price
for such Security National stock option, plus the sum of the products resulting
from multiplying the number of shares subject to each Security National stock
option exercised between June 30, 1994, and the Effective Time by the exercise
price for such Security National stock option; PHC is the Price Per Share of
Huntington Common Stock (determined as described below); and NSC is the number
of shares of Security National Common Stock issued and outstanding at the
Effective Time plus the number of shares of Security National Common Stock
subject to stock options outstanding at the Effective Time. On the Record
Date, there were 1,511,181 shares of Security National Common Stock issued and
outstanding and an additional 144,000 shares subject to outstanding stock
options, for an aggregate of 1,655,181 shares of Security National Common Stock
for purposes of the Conversion Ratio formula. This aggregate number of shares
of Security National Common Stock is not expected to change before the
Effective Time.
Security National Equity means the consolidated shareholders' equity
of Security National on December 31, 1994, determined in accordance with
generally accepted accounting principles applied consistently with prior
determinations of consolidated shareholders' equity as shown on the audited
balance sheets of Security National ("Audited Equity"), decreased by the
after-tax amount of security gains and extraordinary gains realized after June
30, 1994, which in the aggregate exceed $50,000 and by the sum of the products
resulting from multiplying the number of shares subject to each of the Security
National Stock Options exercised after June 30, 1994, and prior to January 1,
1995, by the respective exercise price for such Security National Stock Option;
and increased by the after-tax amount of any investment banking fees and legal
fees recorded by Security National, whether paid or accrued, in connection with
the Merger. Security National Equity was $20,648,592 pursuant to this
calculation.
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
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Nasdaq National Market); provided, however, that if the Average Closing Sale
Price is less than $18.4050 (as adjusted for the Huntington 5 for 4 Stock
Split), the Price Per Share of Huntington Common Stock will be $18.4050, and if
the Average Closing Sale Price is greater than $22.4950 (as adjusted for the
Huntington 5 for 4 Stock Split), then the Price Per Share of Huntington Common
Stock will be $22.4950.
Notwithstanding the above, if the Average Closing Sale Price is less
than $15.3375 (as adjusted for the Huntington 5 for 4 Stock Split), 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 Security National. If a mutually acceptable adjustment to such pricing
terms is not agreed to by Huntington and Security National 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 $25.5625 (as adjusted for the
Huntington 5 for 4 Stock Split), 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 Security National would be
entitled to receive 1.4706 shares of Huntington Common Stock for each share of
Security National 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 Security National Common Stock held by a person who does
not vote in favor of the Merger, delivers to Security National before the vote
on the Merger a written demand for appraisal, and complies with all other
procedures specified under Delaware law shall not be converted into or
represent a right to receive shares of Huntington Common Stock as described
above, but rather the holder thereof shall be entitled to such appraisal rights
as are granted by Delaware law. See "THE MERGER - APPRAISAL RIGHTS OF OBJECTING
SHAREHOLDERS."
Each unexercised option to purchase shares of Security National Common
Stock held by an employee of Security National or Security Bank that is
outstanding immediately prior to the Effective Time under Security National'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 Security National Common Stock subject to the Security National 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 Security National Common Stock under the Security National 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 Security National stock option plan will be null and void. As of the
Record Date, there were options outstanding for the purchase of 144,000 shares
of Security National Common Stock.
FRACTIONAL SHARES
No fractional shares of Huntington Common Stock will be issued. Each
former shareholder of Security National who would otherwise be entitled to
receive a fractional share of Huntington Common Stock upon surrender of his
certificate or certificates for shares of Security National 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 Huntington Florida any unclaimed balance of cash owing with respect to
fractional shares and such cash shall be retained by, and become the property
of Huntington Florida, free and clear of any claims whatsoever.
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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 Security National 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 Security National Common Stock a letter of
transmittal containing instructions for the surrender of the certificates
formerly representing shares of Security National Common Stock. Upon surrender
to the Exchange Agent of the certificate or certificates which prior to the
Effective Time represented shares of Security National 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 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 Security National until
such former shareholder has either surrendered his certificate or certificates
representing shares of Security National 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 Security National 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 Security National 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
Security National Common Stock whose shares have been converted into Huntington
Common Stock until such holder surrenders his certificate or certificates
formerly representing shares of Security National 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 Security
National 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
Security National 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 Security National 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.
TERMS OF THE WARRANT
On July 12, 1994, pursuant to the terms of the Warrant Purchase
Agreement, Security National 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 500,600 shares of Security National Common Stock (the "Warrant
Stock"), representing 24.9% of the outstanding shares of Security National
Common Stock (after giving effect to the issuance of the Warrant Stock), at a
price of $25.56 per share (the "Warrant Price").
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The Warrant cannot be exercised by the Holder without the consent of
Security National except upon the occurrence of any of the following events:
(i) any willful material breach of the Merger Documents by Security National or
Security Bank or any other material breach of the Merger Documents by Security
National or Security Bank which would permit Huntington to terminate the Merger
Documents that is caused by or arises from any act or failure to act by
Security National, Security Bank, or persons acting on the behalf of Security
National or Security Bank, in a manner that is contrary to or inconsistent with
their obligations under the Merger Documents or the Warrant; (ii) prior to the
Special Meeting, any person or group of persons submits a proposal to Security
National 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 Security National or Security Bank, a merger or consolidation
involving Security Bank other than a transaction in which Security National
would be the owner of all of the stock of the surviving corporation, or a
merger or consolidation involving Security National other than a transaction in
which Security National would be the surviving corporation and the current
shareholders of Security National would own the majority of the stock of the
surviving corporation (an "Acquisition Transaction") and, on or before January
12, 1996, Security National 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 Security National which,
after giving effect to such offer, such person or group would own or have the
right to acquire a majority equity interest in Security National (a "Tender
Offer") and such equity interest is acquired pursuant to such Tender Offer on
or before January 12, 1996; or (iv) Security National enters into an agreement
with respect to an Acquisition Transaction after July 12, 1994, and such
transaction is consummated on or before January 12, 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) six months after the termination of the Merger
Documents pursuant to the terms thereof.
The Warrant and Warrant Purchase Agreement contain anti-dilution
provisions and provisions granting the Holder certain registration and
repurchase rights. In addition, Security National 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, Security National 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 offer has been made, the price
per share to be paid therefor by any third party pursuant to an agreement with
Security National, and the highest closing price per share of Security National
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.
The Warrant, once exercisable, or any Warrant Stock may be sold or
transferred only by private placement to the parties who would thereby be able
to acquire not more than 2% of the then outstanding shares of Security National
Common Stock or through underwriters in a public and dispersed distribution.
Prior to such transfer, Security National has a right of first refusal for not
less than all of the shares covered by or issued pursuant to the Warrant, at
the price set by the holder thereof for private placement or public sale.
THE SUBSIDIARY MERGER
Immediately after the consummation of the Merger, and effective as of
the Effective Date, the name of Security Bank will be changed to The Huntington
National Bank of Florida and HFSB, Huntington's wholly owned subsidiary
headquartered in Sebring, Florida, will be merged into The Huntington National
Bank of Florida (formerly Security Bank) under the charter of The Huntington
National Bank of Florida. The Huntington National Bank of Florida will
survive the merger and will remain a national bank and the separate existence
of HFSB will cease.
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COVENANTS OF THE PARTIES
The Merger Agreement provides, among other things, that Huntington
Florida and Security National 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 Security National
shareholders, the receipt of all required regulatory approvals, and the
expiration of all required regulatory waiting periods.
The Supplemental Agreement provides, among other things, that, from
January 1, 1995, until the Effective Date, Security National and Security Bank
will conduct their respective operations only in the ordinary and usual course
of business and will use their best efforts to preserve intact their business
organizations, assets, prospects, and business relationships, to keep available
the services of their officers and employees, and to maintain existing
relationships with other entities.
In addition, the Supplemental Agreement provides that, neither
Security National nor Security Bank can, 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 Security
National or Security Bank; the merger or consolidation involving Security Bank,
other than a transaction in which Security National will be the owner of all of
the stock of the surviving corporation; or a merger or consolidation involving
Security National, other than a transaction in which Security National will be
the surviving corporation and the current shareholders of Security National
will be the 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. Notwithstanding the above, Security National and
Security Bank are entitled to entertain, consider, participate in negotiations
and discussions regarding, and disclose information in connection with, an
unsolicited Acquisition Proposal to the extent that the Board of Directors of
Security National determines in good faith, after consultation with
Robinson-Humphrey, as financial adviser to Security National, with respect to
the financial aspects of the unsolicited Acquisition Proposal and the Merger,
and with legal counsel to Security National, that failure to consider or
participate in such negotiations or discussions would be inconsistent with the
fiduciary obligations of the directors of Security National to the shareholders
of Security National.
Huntington has agreed that, upon consummation of the Merger, the
existing employment agreement of Michael W. Sheffey, President and Chief
Executive Officer of Security National and Security Bank, will remain in effect
until terminated in accordance with the provisions of the agreement; however,
Security National must obtain a written agreement from Mr. Sheffey to accept
the benefits provided under applicable Huntington benefit plans in lieu of the
benefits provided under Security National's benefit plans. Huntington has
also agreed to assume certain obligations of Security National to indemnify and
defend the directors and officers of Security National in connection with such
persons' status or services as directors and officers of Security National.
See "THE MERGER - INTERESTS OF MANAGEMENT."
The Supplemental 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 Security National or Security Bank into similar plans of
Huntington, to the extent such plans are maintained by Huntington, and to give
credit to any employee of Security National or Security Bank who becomes an
employee of Huntington Florida following the consummation of the Merger for all
service with Security National or Security Bank 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
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The Merger will occur only if the Merger Agreement and the
Supplemental Agreement are approved by the affirmative vote of the holders of a
majority of the outstanding shares of Security National Common Stock.
Consummation of the Merger is subject to the satisfaction of certain other
conditions, including: (i) the receipt of approvals of the Merger by the
Federal Reserve Board or its delegate, the State of Florida, 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 Huntington or Huntington
Florida; (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 Huntington, Huntington
Florida, and Security National of certain legal opinions from counsel,
including an opinion regarding certain tax aspects of the Merger; and (iv) the
receipt by Security National of an opinion from Robinson-Humphrey, 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 Security
National shareholders.
The obligation of Security National to consummate the Merger is
further conditioned on the representations and warranties of Huntington
contained in the Supplemental Agreement being true and correct in all material
respects on the Effective Date; the obligations of Huntington and Huntington
Florida 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 Security National 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 Huntington and Huntington Florida 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 Security National contained in the Supplemental Agreement being
true and correct in all material respects on the Effective Date, and the
obligations of Security National to be performed pursuant to the Merger
Documents on or before the Effective Date having been performed in all material
respects; (ii) the delivery by each director, officer, and other person who is
deemed an "affiliate" of Security National and their affiliates to Huntington
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 Security National since December 31, 1993; (iv) the
receipt by Huntington of commitments for owners' and leasehold title insurance
policies insuring Security National's or Security Bank's ownership and
leasehold interests in and to all real estate owned or leased by Security
National or Security Bank, 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 Security National or Security Bank;
(vi) the total shareholders' equity of Security National and Security Bank on a
consolidated basis 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 Security National and Security Bank on a consolidated
basis as of December 31, 1994; (vii) the receipt by Huntington from Security
National of a certificate that all necessary steps have been taken for the
conversion of Security National 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 Security
National stock option outstanding on the Effective Date with respect to the
conversion of such option to a Huntington stock option; (viii) Security
National and Security Bank having obtained all consents required for the
prevention of any default under any material contract or license to which
either of them is a party; (ix) the receipt by Huntington of letters from
Security National's independent certified public accountants as of the
Effective Date with respect to certain financial information and from
Huntington's independent certified public accountants 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 Security National Common
Stock (see "THE MERGER - APPRAISAL RIGHTS OF OBJECTING SHAREHOLDERS").
On July 26, 1994, Security National delivered to Huntington a
memorandum (as may be amended from time to time prior to the Effective Date,
the "Disclosure Memorandum") which sets forth information and exceptions
pertaining to the representations and warranties made by Security National in
the Supplemental Agreement and attaches copies of all contracts, commitments,
leases, deeds, agreements, and other documents relating to the same. As an
additional condition precedent, Huntington must have completed its review of
the Disclosure Memorandum and its due diligence review of
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Security National and Security Bank and be satisfied, in its sole discretion,
that such reviews have not disclosed any material adverse facts, problems, or
conditions. The conditions precedent relating to these reviews will be deemed
to have been satisfied on the thirtieth day following receipt by Huntington of
Security National's audited financial statements for the fiscal year ended
December 31, 1994, unless, prior to such time, Huntington has notified Security
National that it is not satisfied, in which case Security National has an
additional period of five business days to cure the defect or defects to the
satisfaction of Huntington.
Huntington, Huntington Florida, and Security National 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 Agreement may be amended by Huntington Florida and Security
National, and the Supplemental Agreement may be amended by Huntington,
Huntington Florida, and Security National, at any time prior to the Effective
Time, by mutual agreement authorized by their respective boards of directors
and evidenced by a written agreement, provided that, after the Security
National shareholders have approved the Merger Agreement, the formula
determining the number of shares of Huntington Common Stock into which shares
of Security National Common Stock are to be converted may not be changed
without the approval of the holders of a majority of the issued and outstanding
shares of Security National Common Stock.
The Merger Documents will terminate on December 31, 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 $25.5625 or below $15.3375 (as adjusted for the Huntington 5 for 4 Stock
Split) and, in either case, Huntington elects to terminate the Merger rather
than proceeding with the Merger at an adjusted price or renegotiating 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 Huntington,
Huntington Florida, and Security National; (ii) by the Board of Directors of
Huntington if any condition precedent to performance by Huntington and
Huntington Florida has not been satisfied or waived, if Security National has
not performed in any material respect its obligations and agreements under the
Merger Documents, or if the representations of Security National set forth in
the Supplemental Agreement are incorrect in any material respect when made;
(iii) by the Board of Directors of Security National if any condition precedent
to performance by Security National has not been satisfied or waived, if
Huntington and Huntington Florida have not performed in any material respect
their obligations and agreements under the Merger Documents, or if the
representations of Huntington set forth in the Supplemental Agreement are
incorrect in any material respect when made.
The Supplemental Agreement provides that Security National 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
Security National prior to the Effective Time, or (ii) an Acquisition Proposal
is received by Security National, Security Bank, or Security National's
shareholders prior to the Special Meeting, or Security National's Board of
Directors fails to recommend to the shareholders approval of the Merger
Documents or withdraws its recommendation previously made, or Security
National's Board of Directors fails to solicit proxies of Security National's
shareholders to approve the Merger, and, in any such case, the shareholders of
Security National fail to approve the Merger Documents at the Special Meeting.
The Supplemental Agreement provides that, upon payment of this termination fee,
Security National and Security Bank would 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
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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 Huntington, Huntington Florida, or Security National,
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 OBJECTING SHAREHOLDERS
The appraisal rights of objecting shareholders of Security National
are governed by the provisions of Section 262 of the Delaware General
Corporation Law. Pursuant to the provisions of Section 262, any shareholder
holding shares of Security National Common Stock on the date of the making of a
demand for appraisal rights under Section 262 who (i) continuously holds such
shares through the Effective Date, (ii) does not vote in favor of the Merger,
and (iii) otherwise complies with certain procedural requirements specified in
Section 262, has the right to an appraisal by the Delaware Court of Chancery of
the fair value of such shares. The following summary and description of the
statutory appraisal rights of objecting shareholders is qualified in its
entirety by reference to the terms of Section 262, a copy of which is attached
hereto as Exhibit D. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE
APPLICABLE PROVISIONS OF THE APPRAISAL RIGHTS STATUTE IN ORDER FOR A
SHAREHOLDER OF SECURITY NATIONAL TO PERFECT HIS OR HER APPRAISAL RIGHTS.
Each Security National shareholder electing to demand the appraisal of
his or her shares must deliver to Security National, before the taking of the
vote on the merger at the Special Meeting, a separate written demand for
appraisal of his shares (a "Demand for Appraisal"). Such Demand for Appraisal
will be sufficient if it reasonably informs Security National of the identity
of the shareholder and that the shareholder intends thereby to demand the
appraisal of his shares. A PROXY OR VOTE AGAINST THE MERGER WILL NOT
CONSTITUTE A DEMAND FOR APPRAISAL. Within 10 days after the Effective Date of
the Merger, Huntington Florida will notify each former Security National
shareholder who (i) continuously held his or her shares of Security National
Common Stock from the date of the Demand for Appraisal through the Effective
Date, (ii) did not vote in favor of the Merger, and (iii) otherwise complied
with the procedural requirements specified in Section 262 (an "Objecting
Shareholder") of the Effective Date of the Merger.
Within 120 days after the Effective Date of the Merger, Huntington
Florida or any Objecting Shareholder may file a petition in the Delaware Court
of Chancery demanding a determination of the value of the shares of Security
National Common Stock of all such Objecting Shareholders. Notwithstanding the
foregoing, at any time within 60 days after the Effective Date of the Merger,
any Objecting Shareholder has the right to withdraw his or her Demand for
Appraisal and to accept the terms offered upon the Merger. Within 120 days
after the Effective Date of the Merger, any Objecting Shareholder, upon written
request, shall be entitled to receive from Huntington Florida a statement
setting forth the aggregate number of shares not voted in favor of the Merger
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall be
mailed to the Objecting Shareholder within 10 days after his or her written
request for such a statement is received by Huntington Florida.
Upon the filing of any such petition by an Objecting Shareholder,
service of a copy thereof must be made upon Huntington Florida which must,
within 20 days after such service, file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all Objecting Shareholders with whom agreements as to
the value of their shares have not been reached by Huntington Florida. If the
petition is filed by Huntington Florida, the petition must be accompanied by
such a duly verified list. The Register in Chancery, if so ordered by the
Court, will give notice of the time and place fixed for the hearing of such
petition by registered or certified mail to Huntington Florida and to the
Objecting Shareholders shown on the list at the addresses therein stated. Such
notice shall also be given by one or more publications at least one week before
the day of the hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware, or such other publication as the Court deems
advisable. The forms of the notices by mail and by publication must be
approved by the Court, and the costs of such notices must be borne by
Huntington Florida.
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At the hearing on such petition, the Court will determine the
Objecting Shareholders who have become entitled to appraisal rights. The Court
may require the Objecting Shareholders to submit their certificates formerly
representing their shares of Security National Common Stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings. If
any Objecting Shareholder fails to comply with such direction, the Court may
dismiss the proceedings as to such Objecting Shareholder.
After determining the Objecting Shareholders entitled to an appraisal,
the Court will appraise the shares, determining their fair value EXCLUSIVE OF
ANY ELEMENT OF VALUE ARISING FROM THE ACCOMPLISHMENT OR EXPECTATION OF THE
MERGER, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining such fair value, the
Court will take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which Huntington Florida would have had to pay to borrow money
during the pendency of the proceeding. Upon application by Huntington Florida
or by any Objecting Shareholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal prior to the
final determination of the Objecting Shareholders entitled to an appraisal.
Any Objecting Shareholder whose name appears on the list filed by Huntington
Florida and who has submitted his or her certificates of stock to the Register
in Chancery, if such is required, may participate fully in all appraisal
proceedings until it is finally determined that such Objecting Shareholder is
not entitled to appraisal rights under Section 262.
The Court will direct the payment of the fair value of the shares,
together with interest, if any, by Huntington Florida to the shareholders
entitled thereto upon the surrender to Huntington Florida of the certificates
representing such stock. Interest may be simple or compound, as the Court may
direct. The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of an Objecting Shareholder, the Court may order all or a portion
of the expenses incurred by any Objecting Shareholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
From and after the Effective Date of the Merger, no Objecting
Shareholder shall be entitled to vote his or her shares of Security National
Common Stock for any purpose or to receive payment of dividends or other
distributions on such stock (except dividends or other distributions payable to
shareholders of record at a date which is prior to the Effective Date of the
Merger); provided, however, that if no petition for an appraisal is filed
within 120 days after the Effective Date of the Merger, or if an Objecting
Shareholder delivers to Huntington Florida a written withdrawal of his or her
Demand for Appraisal and an acceptance of the Merger, either within 60 days
after the Effective Date of the Merger, or thereafter with the written approval
of Huntington Florida, then the right of such shareholder to an appraisal shall
cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery will be dismissed as to any Objecting Shareholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
Security National shareholders who choose to perfect their appraisal
rights under Delaware 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").
INTERESTS OF MANAGEMENT
Huntington has agreed that, upon consummation of the Merger, the
employment agreement, dated November 19, 1987, between Security Bank and Michael
W. Sheffey, President and Chief Executive Officer of Security National and
Security Bank, will remain in effect until terminated in accordance with the
provisions of the agreement; however, Security National must obtain a written
agreement from Mr. Sheffey to accept the benefits provided under applicable
Huntington benefit plans in lieu of the benefits provided under Security
National's benefit plans. The employment agreement is for a term of three
years, which is automatically renewed for a period of three years on November
19th each year, until such time as Mr. Sheffey receives written notice from
Security Bank that the term will no longer be automatically renewed, in which
event the agreement will terminate three years from the first November 19th
occurring after the date such notice is
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given. On November 19, 1994, the employment agreement was automatically renewed
for a term ending on November 19, 1998.
Notwithstanding the above, the agreement provides that Mr. Sheffey's
employment will be automatically terminated upon his death or disability, if
such disability continues for six months or more, and may be terminated by
Security Bank for "cause" at any time upon 30 days prior written notice stating
the facts constituting the "cause," during which time Mr. Sheffey may cure the
state of affairs that constituted the "cause." The term "cause" is limited to
(i) Mr. Sheffey's willful gross neglect or willful gross misconduct in carrying
out his duties causing material harm to Security Bank; (ii) Mr. Sheffey's
willful failure to substantially perform his duties after demand is made by the
Board of Directors specifically identifying the problem; (iii) an order of a
federal bank regulatory agency or court of competent jurisdiction requiring Mr.
Sheffey's termination, (iv) the conviction of a felony or fraud by Mr. Sheffey;
or (v) conduct of such moral turpitude that Mr. Sheffey's reputation is
impugned to such extent as to render him ineffective in his position. Upon
termination of employment voluntarily by Mr. Sheffey or for "cause" by action
of Security Bank, Mr. Sheffey will be paid only his base salary and expenses
earned or incurred but unpaid at the time of termination. Upon termination of
employment by Security Bank other than for "cause," or by reason of Mr.
Sheffey's death or by Mr. Sheffey because Security Bank breached the employment
agreement, Security Bank must pay Mr. Sheffey the full amount of the base
salary for the remainder of the term of the employment agreement. Termination
of the agreement, except for "cause," will not adversely affect Mr. Sheffey's
right to receive any of the other compensation or benefits to which he would
have been entitled but for such termination. Upon termination of the
employment by reason of Mr. Sheffey's disability for a period of six months or
more, Security Bank must pay Mr. Sheffey 50% of his base salary for the
remainder of the term under the agreement.
The agreement provides that the base salary and automobile allowance
paid to Mr. Sheffey will be reviewed annually by the Board of Directors of
Security Bank and adjusted in a manner consistent with Security Bank's practice
of reviewing the salaries of senior executive personnel. Mr. Sheffey's current
annual salary is $134,000. In addition, Mr. Sheffey is entitled to
participate in such employee benefits, including bonuses, and other perquisites
as are generally made available by Security Bank to its executive employees.
The agreement provides that Mr. Sheffey will not compete with Security Bank
within any county in which Security Bank or its holding company has a facility
or within 50 miles of any such county for a period of (i) three years if Mr.
Sheffey breaches the employment agreement or is terminated for "cause," or (ii)
three months if Mr. Sheffey is terminated by Security Bank other than for
"cause" or by reason of Mr. Sheffey's disability.
Upon the consummation of the Merger, it is Huntington's intention to
elect Mr. Sheffey to the Board of Directors of Huntington Florida and to
appoint him President, Chief Executive Officer, and Treasurer of Huntington
Florida. In addition, it is the intention of the Board of Directors of
Huntington Florida 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 on the Board of Directors of The Huntington
National Bank of Florida following the consummation of the Subsidiary Merger.
See "HUNTINGTON BANCSHARES INCORPORATED - HUNTINGTON FLORIDA AND HFSB."
Under the terms of the Merger Agreement, upon the consummation of the
Merger, all outstanding options to purchase shares of Security National Common
Stock previously granted to employees of Security National or Security Bank
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 twelve employees of Security National hold options to purchase a
total of 144,000 shares of Security National Common Stock, at option prices
ranging from $10.00 to $14.00 per share, depending on when the options were
granted.
Huntington Florida has acknowledged that, by operation of law, upon
effectiveness of the Merger, it will assume all legally enforceable obligations
of Security National to indemnify and defend the directors and officers of
Security National to the same extent that Security National had 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 Security
National.
FEDERAL INCOME TAX CONSEQUENCES
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The summary of the federal income tax consequences set forth below is
based on the Internal Revenue Code of 1986, as amended (the "Code"), is for
general information only, and is not intended to be tax advice to any
particular shareholder of Security National. 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 Security National 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, the
following is a summary of the federal income tax consequences which will
result:
(a) The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code and
Security National, Huntington, and Huntington Florida will each be
a party to the reorganization within the meaning of Section 368(b)
of the Code.
(b) The basis of the assets of Security National to be acquired by
Huntington Florida will be the same in the hands of Huntington
Florida as the basis of those assets in the hands of Security
National immediately prior to the Merger.
(c) The holding period of the assets of Security National to be
received by Huntington Florida will, in each instance, include the
period for which such assets were held by Security National.
(d) 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 Security National in exchange
for shares of Huntington Common Stock, the assumption by
Huntington Florida of the liabilities of Security National, the
payment of cash in lieu of fractional shares of Huntington Common
Stock, and the payment of cash to Objecting Shareholders, if any.
(e) Huntington Florida will succeed to and take into account the items
of Security National described in Section 381(c) of the Code,
subject to the conditions and limitations of Sections 381, 382(b),
383, and 384 of the Code and the Treasury Regulations thereunder.
(f) No gain or loss will be recognized by Security National 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 Security National, the
payment of cash in lieu of fractional shares of Huntington Common
Stock, and the payment of cash to Objecting Shareholders, if any.
(g) No gain or loss will be recognized by the shareholders of Security
National who exchange their shares of Security National 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.
(h) The basis of the shares of Huntington Common Stock to be received
by Security National shareholders who receive solely shares of
Huntington Common Stock will be the same as the basis of the
shares of Security National Common Stock surrendered in exchange
therefor.
(i) The holding period of the shares of Huntington Common Stock to be
received by a particular Security National shareholder will
include the holding period of the shares of Security National
Common Stock surrendered in exchange therefor, provided that the
shares of Security National Common Stock were held as a capital
asset in the hands of such Security National shareholder on the
Effective Date.
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(j) Where solely cash is received by a shareholder of Security
National in exchange for such shareholder's Security National
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 Security National Common
Stock, subject to the provisions and limitations of Section 302 of
the Code. Where as a result of such distribution a shareholder
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 Security National 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 Security National Common
Stock surrendered, as determined under Section 1011 of the Code.
(k) 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.
(l) While not free from doubt, holders of options to acquire shares of
Security National 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 Huntington,
Huntington Florida, and Security National of an opinion of Porter, Wright,
Morris & Arthur, counsel to Huntington and Huntington Florida, substantially to
the effect that, for federal income tax purposes, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and will result
in the tax consequences described above. Unlike a ruling, an opinion of
counsel is not binding upon the Internal Revenue Service ("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 Security National 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
Objecting 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
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
The Federal Reserve Board or its delegate and the OCC must approve the
Merger and the Subsidiary Merger, respectively. The OTS must be provided
notice concerning the Subsidiary Merger. At the state level, the Florida
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Department must approve the acquisition by Huntington of a bank holding
company, and thereby of a bank, in the State of Florida.
Approval by the Federal Reserve Board of the Merger is subject to the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The BHC Act
provides that no bank holding company may, without the prior approval of the
Federal Reserve Board, directly or indirectly acquire ownership or control of
more than 5 percent of the voting shares of any bank, and that no company not
already a bank holding company may, without such approval, take any action that
causes it to become a bank holding company.
The BHC Act also provides that the Federal Reserve Board may not
approve any transaction (i) which would result in a monopoly or which would be
in furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or (ii)
the effect of which in any section of the country may be to substantially
lessen competition, or tend to create a monopoly, or which in any other matter
might restrain trade, unless the Federal Reserve Board finds that the
anti-competitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs for the communities to be served.
In conducting its review of any application for approval under the BHC
Act, the Federal Reserve Board is required to consider the financial and
managerial resources and future prospects of the institutions concerned, and
the convenience and needs of the communities to be served. The Federal Reserve
Board may deny an application if it determines that the financial or managerial
resources of the acquiring bank holding company are inadequate.
The BHC Act provides further that a transaction approved by the
Federal Reserve Board may not be consummated for 30 days after approval by the
Federal Reserve Board in order to allow for review by the Department of Justice
under the federal antitrust laws. If, however, the Department of Justice does
not commence a legal action during this 30-day period, it may not thereafter
challenge the transaction except in an action commenced under Section 2 of the
Sherman Antitrust Act. The Federal Reserve Board may, with the concurrence of
the Department of Justice, reduce the 30-day review period to 15 days.
Approval by the OCC of the Subsidiary Merger is subject to the Bank
Merger Act and the so-called Oakar provisions of the Federal Deposit Insurance
Act (12 U.S.C. 1815(d)(3)). 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, including Oakar transactions. In conducting
its review of any application under the Bank Merger Act, the OCC is required to
consider the same factors relating to monopoly and to the financial and
managerial resources of the institutions concerned as the Federal Reserve Board
is under the BHC Act. Mergers approved by the OCC are subject to the same
30-day antitrust waiting period as are bank holding company mergers approved by
the Federal Reserve Board.
The OTS has determined that, where an Oakar merger does not result in
a surviving savings association, a notification will suffice in place of an
application. The OTS has therefore imposed a notification requirement, and
will advise the responsible agency in the event OTS has any regulatory concerns
regarding the institutions involved in the merger.
The acquisition by an out of state bank holding company of a Florida
bank holding company, and thereby the acquisition of a national or state bank
located entirely in Florida, requires the approval of the Florida Department,
pursuant to the Florida Reciprocal Banking Act. In considering such approval,
the Florida Department is required to determine that the laws of the state in
which the out of state holding company making the acquisition has its principal
place of business permit Florida bank holding companies to acquire banks and
bank holding companies in that state, and must subject its approval to any
conditions, restrictions, requirements, or other limitations that would apply
in the other state to an acquisition by a Florida bank or bank holding company
but that would not apply to acquisitions in that other state by the state's own
banks or bank holding companies.
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The BHC Act and the Bank Merger Act provide for the publication of
notice of, and the opportunity for administrative hearings relating to, the
respective 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. The Florida Reciprocal
Banking Act also requires publication of notice of the proposed transaction.
Applications to the Federal Reserve Board, the OCC, and the Florida
Department, and a notification to the OTS, were submitted for filing on January
3, 1995. The Federal Reserve Board's delegate has indicated that final action
by the Federal Reserve Board may be anticipated on or before April 4, 1995, and
the OCC has stated that its final action may be expected on or before April 15,
1995. The Florida Department has advised that its final action may be
anticipated on or before April 3, 1995. The OTS has indicated that it
considers sufficient notice to have been given and no further action is
necessary with respect to the OTS prior to consummation.
The managements of Huntington and Security National believe that the
Merger and the Subsidiary Merger will be approved by the Federal Reserve Board
and the OCC, respectively; that the Florida Department will approve the
acquisition of Security National as a Florida bank holding company; and that
neither the Merger nor the Subsidiary Merger will be subject to challenge by
the Department of Justice under the antitrust laws. However, no assurance can
be provided that the Federal Reserve Board, the OCC, the Florida Department, or
the Department of Justice will concur in this assessment or that the approval
by the Federal Reserve Board, the OCC, or the Florida Department will not
contain conditions unacceptable to either Huntington or Security National. See
"THE MERGER - CONDITIONS TO CONSUMMATION OF THE MERGER."
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 Security National and other persons deemed to
be affiliates of Security National 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 Security National shareholders (other than
those shareholders who have perfected their appraisal rights - see "THE MERGER
- - APPRAISAL RIGHTS OF OBJECTING 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 Security National 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 Security National
shareholders from the rights of shareholders of Huntington; however, this
summary does not purport to be a complete description of such differences.
CAPITAL STOCK
Security National's Certificate of Incorporation authorizes the
issuance of 5,500,000 shares of capital stock, consisting of 5,000,000 shares
of common stock, par value $1.00 per share, and 500,000 shares of preferred
stock, par value $1.00 per share ("Security National Preferred Stock").
Security National's Certificate of Incorporation provides that shares
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of Security National Preferred Stock may be issued from time to time in one or
more classes or series, each with a title or designation as fixed by the Board
of Directors prior to the issuance of any such shares. Each such class or
series of Security National Preferred Stock will have such voting power,
preferences, and other special rights and qualifications, limitations, or
restrictions as may be adopted from time to time by Security National's Board of
Directors. There are currently no shares of Security National Preferred Stock
outstanding.
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 Security National 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 Delaware law nor Security National's Certificate of
Incorporation or Bylaws set forth specific procedures for the nomination of
persons for election to the Board of Directors of Security National. Security
National'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 twelve.
Security National's Certificate of Incorporation and Bylaws provide that the
directors will be divided into three classes and each class must consist, as
nearly as possible, of one-third of the total number of directors constituting
the entire Board of Directors. At each annual meeting of shareholders,
successors to the class of directors whose term expires at the annual meeting
will be elected for a three-year term, thus the term of office for one class
of directors will expire each year. 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. Neither
Security National's Certificate of Incorporation nor its Bylaws provide for
cumulative voting. A director will hold office until the annual meeting for
the year in which his or her term expires and until a successor is elected and
qualified, subject, however, to prior death, resignation, retirement,
disqualification, or removal from office. Under Security National's Bylaws,
any director or the entire Board of Directors may be removed, with or without
cause, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors. A director need not be a resident of the
State of Delaware or a shareholder of Security National.
Notwithstanding the foregoing, Security National's Certificate and
Bylaws provide that whenever the holders of any one or more classes or series
of Security National Preferred Stock has the right, voting separately by class
or series, to elect directors at an annual or special meeting, the election,
term of office, filling of vacancies, and other features will be governed by
the terms of the Certificate of Incorporation or by resolutions adopted by the
Board of Directors, and such directors so elected will not be divided into
classes, unless expressly provided by such terms.
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.
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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
Security National, 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 Certificate of
Incorporation nor Bylaws of Security National contain comparable provisions.
SPECIAL VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
In general, Delaware 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 material amendments to the certificate of
incorporation, a merger, consolidation, sale of assets other than in the
ordinary course of business, or dissolution of the corporation.
Delaware law, however, prohibits a Delaware corporation whose stock is
publicly traded from engaging in a "business combination" (as that term is
defined below) with an "interested stockholder" (as that term is defined below)
for a period of three years following the date on which the stockholder became
an interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation or bylaws not to be governed by the statute; (ii)
prior to the time the stockholder became an interested stockholder, the board
of directors approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (iii) the
stockholder owned at least 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are also officers or held
in certain employee stock plans) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder; or (iv) the
business combination was approved by the board of directors and two-thirds of
the outstanding voting stock of the corporation, excluding shares held by the
interested stockholder. Neither Security National's Certificate of
Incorporation nor Bylaws contain any provisions opting out of Delaware's
business combination statute.
Under Delaware law, a "business combination" is defined generally as
any merger or consolidation of the corporation with an interested stockholder;
the sale or other disposition of assets having an aggregate market value of 10%
or more of all of the assets of the corporation to an interested stockholder;
the issuance of stock to, or an increase in proportion of ownership of stock
by, an interested stockholder; or receipt of certain other financial benefits
by the interested stockholder. Generally, an "interested stockholder" is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) is an affiliate or associate of the corporation and was the owner of 15%
or more of the voting stock of the corporation at any time within three years
immediately prior to the date when the determination of the person's status as
an interested stockholder is to be made.
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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 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. Neither Delaware law nor Security National's
Certificate of Incorporation include provisions concerning control share
acquisitions.
The super majority vote and control share provisions of Maryland law
may deter or render more difficult attempts by third parties to obtain control
of Huntington if such attempts are not supported by Huntington's Board of
Directors. See also"HUNTINGTON BANCSHARES INCORPORATED - DESCRIPTION OF
HUNTINGTON COMMON STOCK - RIGHTS PLAN." Similarly, the Delaware's business
combination statute may deter or render more difficult attempts by third
parties to obtain control of Security National if such attempts are not
supported by Security National's Board of Directors.
EVALUATION OF MERGERS AND CONSOLIDATIONS
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. Neither Delaware law nor Security
National's Certificate of Incorporation include similar provisions.
SPECIAL MEETINGS
Security National's Bylaws provide that special meetings of the
shareholders will be held when directed by the Chairman of the Board, the
President, or the Board of Directors, or when requested in writing by the
holders of not less than 25% of all the shares entitled to vote at such
meeting. A meeting requested by shareholders must be called for a date not
less than ten and not more than sixty days after the request is made. The call
for the meeting must be issued by the Secretary, unless the Chairman of the
Board, the President, Board of Directors, or shareholders requesting the
calling of the meeting shall designate another person to do so.
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
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shareholders of the reasonably estimated cost of preparing and mailing the
notice of the meeting, and upon payment to Huntington of such costs, the
Secretary must give notice of such meeting, except that no special meeting need
be called upon the request of the holders of less than a majority of all votes
entitled to be cast at such meeting, to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
shareholders held during the preceding twelve months.
DIRECTORS' AND SHAREHOLDERS' RIGHT TO ADOPT, ALTER, OR REPEAL THE BYLAWS
Under Delaware law, after a corporation has received any payment for
any of its stock, the shareholders entitled to vote have the power to adopt,
amend, or repeal the bylaws of that corporation. A corporation, however, may
confer to the board of directors the power to adopt, amend, or repeal the bylaws
in the certificate of incorporation, but this power cannot divest nor limit the
shareholders' power to adopt, amend, or repeal the bylaws. Under Security
National's Certificate of Incorporation and Bylaws, the Board of Directors is
authorized to adopt, repeal, alter, amend, or rescind Security National's Bylaws
by the affirmative vote of the majority of the Board of Directors.
Under Maryland law, the power to adopt, alter, and repeal the bylaws of
a corporation is vested in the shareholders, except to the extent that the
charter or bylaws vest it in the board of directors. Huntington's Charter and
Bylaws provide that Huntington's Bylaws may be adopted, amended, or repealed by
the affirmative vote of two-thirds of the votes entitled to be cast by the
outstanding shares of Huntington's voting stock or by the Board of Directors at
any regular or special meeting.
RIGHTS OF DISSENTING SHAREHOLDERS
Both Delaware 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 Delaware law are
more fully described in "THE MERGER - APPRAISAL RIGHTS OF OBJECTING
SHAREHOLDERS."
PERSONAL LIABILITY OF OFFICERS AND DIRECTORS TO SHAREHOLDERS
Security National's Certificate of Incorporation provides that no
director will be personally liable to Security National or its shareholders for
monetary damages for any breach of fiduciary duty by such a director as a
director; provided, however, that a director will be liable to the extent
provided by applicable law (i) for any breach of a directors' duty of loyalty to
Security National or its shareholders, (ii) for acts or omissions not in good
faith which involve intentional misconduct or a knowing violation of law, (iii)
for an unlawful payment of a dividend or unlawful stock purchase or redemption
of the corporation's own shares; or (iv) for any transaction from which such
director derived an improper personal benefit.
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.
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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 COMMON STOCK." Security National does not have a
plan or agreements similar to the Rights Agreement.
HUNTINGTON BANCSHARES INCORPORATED
GENERAL
Huntington, incorporated in Maryland in 1966, is a multi-state bank
holding company headquartered in Columbus, Ohio. 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, a
$226 million savings and loan holding company located in Covington, Kentucky.
HUNTINGTON FLORIDA AND HFSB
Huntington Florida, an Ohio corporation, is a wholly owned subsidiary
of Huntington formed for the purpose of facilitating the 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
Subsidiary 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.
Immediately after the consummation of the Merger and effective as of
the Effective Date, Security Bank's name will be changed to The Huntington
National Bank
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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, The Huntington National Bank of Florida will survive the merger and
will remain a national bank, and the separate existence of HFSB will cease. In
addition, after consummation of the Merger, it is the intention of Huntington
to complete its acquisitions of Reliance Bank, a bank headquartered in
Melbourne, Florida, with assets of $95.7 million at December 31, 1994, and
First Seminole Bank ("First Seminole"), a bank headquartered in Lake Mary,
Florida, with assets of $48.1 million at December 31, 1994. Both of these
acquisitions are subject to regulatory and shareholder approval. It is expected
that Reliance Bank and First Seminole will be merged into The Huntington
National Bank of Florida in the second quarter or early in the third quarter of
1995. After consummation of these acquisitions, The Huntington National Bank of
Florida will have 19 banking offices with over $583 million in assets in
South/Central Florida.
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 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 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.
Upon consummation of the Subsidiary Merger, it is the intention of
Huntington Florida, as sole shareholder of The Huntington National Bank of
Florida, 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 National, 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 The Huntington National
Bank of Florida. In addition, after consummation of the Reliance acquisition, it
is Huntington's intention 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 The Huntington National
Bank of 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.
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CLASS I DIRECTORS
DIRECTORSHIPS HELD IN ANY
COMPANY WITH A CLASS OF
SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE SECURITIES EXCHANGE ACT OF 1934
- ------------------------------------------------------- ----------- --------------- ------------------------------------
John B. Gerlach 68 1984 Lancaster Colony
Chairman and Chief Executive Officer, Drug Emporium, Inc.,
Lancaster Colony Corporation, manufacturer M/I Schottenstein Homes, Inc.,
of housewares, specialty foods,and automotive Scioto Downs, Inc.,
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
William J. Williams 66 1985 Centerior Energy Corporation,
Retired Chairman, The Huntington National Bank Republic Engineered Steel, Inc.,
UNR Industries, Inc.
CLASS II DIRECTORS
DIRECTORSHIPS HELD IN ANY
COMPANY WITH A CLASS OF
SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE SECURITIES 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
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CLASS III DIRECTORS
DIRECTORSHIPS HELD IN ANY
COMPANY WITH A CLASS OF
SECURITIES REGISTERED PURSUANT
DIRECTOR TO SECTIONS 12 OR 15(d) OF THE
NAME AND PRINCIPAL OCCUPATION(1) AGE SINCE SECURITIES 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 Company,
American Electric Power Company, Inc., Indiana Michigan Power Company,
an investor owned electric utility system 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) Mr. 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 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).
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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 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.
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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 NationsBank of 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. 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
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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
1988 to the present. Mr. Wobst has also served as a director of The Huntington
National Bank and Huntington from the
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48
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
LONG-TERM
ANNUAL COMPENSATION 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 1994 800,000 564,000 83,384 125,000 400,009 36,000
Chairman and Chief 1993 760,000 646,000 59,144 109,998 0 34,200
Executive Officer 1992 730,000 376,200 (2) 103,122 281,213 32,850
ZUHEIR SOFIA 1994 467,500 329,588 (2) 62,500 233,764 21,037
President, Chief Operating 1993 445,000 378,250 (2) 61,873 0 20,025
Officer, and Treasurer 1992 421,667 226,883 (2) 51,559 164,669 18,975
W. LEE HOSKINS 1994 467,500 329,588 (2) 62,500 233,759 21,037
Chairman and CEO, The 1993 445,000 378,250 (2) 51,560 0 20,025
Huntington National Bank 1992 422,500 220,275 (2) 51,559 0 18,910
GERALD R. WILLIAMS 1994 254,000 131,070 (2) 18,750 128,509 11,430
Executive Vice President 1993 245,000 195,755 (2) 15,123 0 11,025
and Chief Financial Officer 1992 230,000 107,019 (2) 17,184 85,118 10,350
JUDITH D. FISHER 1994 220,000 122,200 (2) 25,000 110,011 9,900
Executive Vice President 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
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.
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49
(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
<FN>
- ---------------
(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 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
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50
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
$1,937,736, representing approximately .073% of the value, on the date of
grant, of all shares of Huntington outstanding at the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY(3)
FISCAL YEAR-END OPTIONS AT FISCAL
SHARES (#)(2) YEAR-END($)
ACQUIRED ON
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#)(1) REALIZED($) 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-
- ----------------
<FN>
(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
Judith D. Fisher (1) (2) 39,600 55,000 110,000
- -----------------
<FN>
(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.
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51
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 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)
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52
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 (nka The Midland Life
Insurance Company) in 1994, during which time Gerald E. Mayo was Chairman, Chief
Executive Officer, and President.
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 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
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53
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.
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:
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54
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%
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,
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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 a 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 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
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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 January 31, 1995, Huntington had 30,943 shareholders of
record. The following table sets forth the cash dividends declared and the high
and low last sale prices for Huntington Common Stock on the Nasdaq National
Market during the periods indicated. The dividends and price ranges have been
adjusted to reflect the Huntington 5 for 4 Stock Split and other stock dividends
and stock splits, as appropriate.
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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 $0.20 $18 3/4 $17
March 1, 1995)...........
On July 11, 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 $21.10 and $20.50, respectively
(as adjusted for the Huntington 5 for 4 Stock Split). On March 1, 1995, such
prices were $18.75 and $18.50, 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.
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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.
SECURITY NATIONAL CORPORATION
GENERAL
Security National is a bank holding company incorporated under the laws
of the state of Delaware on May 19, 1987. Security National currently operates
one wholly owned subsidiary, Security Bank. Security Bank is a commercial bank
chartered by the OCC. Security Bank'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"). Security Bank is a member of the
Federal Reserve System and Security National is regulated by the Federal Reserve
Board. See "GOVERNMENT REGULATION".
Security Bank's primary focus is to engage in commercial banking,
serving small to middle sized businesses, professionals, the title and escrow
industry, business entrepreneurs, and high net worth individuals. Security
Bank's customers are primarily in the Central Florida area and are served
through the six offices of Security Bank located in Orange, Seminole, Osceola,
Volusia, and Brevard counties. While Security Bank does not actively solicit the
broad-based retail banking market, consumer banking services are offered,
primarily to the officers and customers of its commercial customers. Security
Bank has no customer deposit relationship that averaged more than 5% of total
deposits during 1994. Security National believes that there is no single
customer whose loss would have a material adverse effect on Security National.
All of Security National'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. Security Bank makes secured and unsecured commercial loans,
real estate loans, and consumer loans. Security Bank also issues letters of
credit on behalf of its customers and maintains an investment portfolio of
marketable U.S. government securities and corporate debt obligations. All
lending and investment activities are governed by established policies approved
by Security Bank's Board of Directors.
Lending Area. Although Security Bank is legally authorized to make
loans throughout the United States, it has established as a matter of policy a
lending area that includes the five counties in which it has offices. The policy
anticipates that the majority of loans made would originate from the borrowers
in Orange, Seminole, Osceola, Volusia, and Brevard counties.
Loan Approval Authorities. Security Bank'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, loans up to $250,000 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 Security Bank. In
addition, Security Bank has established an internal limit on total indebtedness
to one borrower of $1,250,000. This limit is significantly more conservative
than the legal limitation on loans to one borrower.
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Loan Originations, Purchases, and Sales. Security Bank originates loans
for its own portfolio. From time-to-time Security Bank sells participation
interests in its loans to correspondent banks. Generally these sales arise on
larger credits where the 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. Security Bank 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 Security Bank for making the loan. In addition, as part of the loan
application, the borrower generally pays Security Bank for its out-of-pocket
costs related to the application (such as credit investigation, recording fees
and appraisal fees). Security Bank also receives loan fees, and service charges
on certain existing loans including late charges and assumption fees. Security
Bank's treatment of loan fees has followed generally accepted accounting
principles ("GAAP"). Since Security Bank opened in 1986, 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. Security Bank maintains an investment portfolio of high
grade marketable securities as a means of maintaining liquidity and maximizing
earnings. Security Bank'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. Security Bank's Board of Directors has defined investment grade
securities as securities rated in one of the three highest categories. Security
Bank purchases investment securities that are suitable to be held to maturity.
Security Bank has not established a trading account and does not engage in
trading activities. Security National 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 Security Bank's funds for
use in lending and for other purposes. In addition to deposits, Security Bank
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. Security Bank 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, Security Bank offers
other services related to deposit and borrowing activities. These include cash
management services, night depository, travelers' cheques, cashiers' checks,
savings bonds, automated teller machines, banking by mail, domestic collections,
and wire transfers. Security Bank is a member of the HONOR ATM network which
allows its customers to utilize the convenience of larger ATM networks. Security
Bank does not offer trust services.
COMPETITION
Security National and its national bank subsidiary face vigorous
competition from a number of sources, including other bank holding companies and
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.
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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 Security National.
To compete, Security National 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, Security National had 55 full-time equivalent
employees. Management considers its relations with its employees to be very
good. Security National's employees are not represented by any collective
bargaining group.
DESCRIPTION OF PROPERTY
Security National or Security Bank own the real estate properties
occupied by Security Bank and its branches. The Company's executive offices are
located in the Maitland, Florida facility. The real estate had a net tangible
book value of $6.2 million at December 31, 1994. The real estate holdings
consist of the following:
ADDRESS YEAR OPENED DESCRIPTION
- --------------------------------- ------------------- -----------------------------------------------
Main Office:
253 North Orlando Avenue
Maitland, Florida 32751 1986 14,000 square-foot, three story bank building
Kissimmee Office:
100 Park Place Boulevard
Kissimmee, Florida 34741 1988 10,000 square-foot, two story bank building
Altamonte Springs Office:
360 West State Road 436
Altamonte Springs,Florida 32714 1988 6,000 square-foot, single story bank building
Melbourne Office:
685 South Babcock Street
Melbourne, Florida 32901 1989 6,000 square foot, single story bank building
Sanford Office:
201 North Park Avenue
Sanford, Florida 32771 1992 2,300 square-foot, single story bank building
Orange City Office:
884 Saxon Boulevard
Orange City, Florida 32763 1992 2,800 square-foot, single story bank building
LEGAL PROCEEDINGS
Security National is not a party to any pending legal proceedings,
other than routine litigation incidental to its business activities.
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PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth (i) the name and address of each person
known by Security National to beneficially own more than 5% of the outstanding
shares of Security National Common Stock and the name of each of Security
National's directors and the two most highly compensated officers whose cash
compensation exceeds $100,000; (ii) the number and percent of shares of Security
National Common Stock owned by each such person and by all directors and
executive officers of Security National 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 Security National Common Stock beneficially owned by such
person or group by the Estimated Exchange Ratio of 1.4706 shares of Huntington
Common Stock for each share of Security National Common Stock.
SECURITY NATIONAL COMMON STOCK
--------------------------------------------------- HUNTINGTON COMMON
SHARES BENEFICIALLY PERCENT STOCK EXPECTED TO BE
NAME OF BENEFICIAL OWNER OWNED(1) OWNED BENEFICIALLY OWNED
- ---------------------------------------- ----------------------------- ----------------- --------------------
J. Albert Burnett
Principal Shareholder
1025 Anchorage Court
Winter Park, Florida 32789 161,748 (2) 10.7% 237,866
Lee Chira
Director
255 South Orange Avenue, Suite 1344
Orlando, Florida 32801 80,000 5.3% 117,648
Mary Demetree
Director 20,000 1.3% 29,412
Stephen F. Foreman
Director 40,000 2.6% 58,824
John J. Jennings
Director 45,329 3.0% 66,660
Mitchel J. Laskey
Director 12,000 0.8% 17,647
Fred L. MacLeod
Director 16,000 1.1% 23,529
Gerald R. McGratty, Jr.
Director 11,851 (3) 0.8% 17,428
Bert E. Roper
Chairman of the Board 32,617 (4) 2.2% 47,966
Jeffrey C. Schenck
Director 40,100 (5) 2.7% 58,971
Michael W. Sheffey
President, Chief Executive Officer, and
Director 60,307 (6) 3.8% 88,687
Benjamin P. Sibley
Director 18,291 1.2% 26,898
Phillip L. Tasker
Executive Vice President and Director 38,026 (7) 2.5% 55,921
All Directors and Executive Officers
as a group (12 in group) 414,521 16.8% 609,594
(1) Under applicable Commission 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,
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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 86,042 shares held in trust, with Mr. Burnett having sole
investment and voting powers over these shares, and 75,705 shares held by
Contemporary Sales, Inc., in which Mr. Burnett is a director and executive
officer.
(3) Consists of shares held in Mr. McGratty's retirement account.
(4) Consists of shares held in trust, with Mr. Roper having sole investment
and voting powers over these shares.
(5) Includes 40,000 shares held by Schenck Company in which Mr. Schenck is a
director and executive officer.
(6) Includes 726 shares held in Mr. Sheffey's IRA and 59,000 shares which
could have been acquired upon the exercise of stock options exercisable
within 60 days of December 31, 1994.
(7) Includes 819 shares held in Mr. Tasker's IRA and 37,000 shares which could
have been acquired upon the exercise of stock options exercisable within
60 days of December 31, 1994.
(8) Includes 96,000 shares which could have been acquired upon the exercise of
stock options exercisable within 60 days of December 31, 1994.
MARKET FOR SECURITY NATIONAL COMMON STOCK AND RELATED SHAREHOLDER MATTERS
There is no active trading market for Security National Common Stock,
although transactions do occur from time to time. To the knowledge of Security
National management, all transactions in Security National Common Stock are
negotiated on a private basis and quotations for such stock are not published.
The following table sets forth the cash dividends declared on shares of
Security National Common Stock during the periods indicated.
DIVIDENDS PER SHARE
-------------------
Year ended December 31, 1992................ $0.10
Year ended December 31, 1993................ $0.20
Year ended December 31, 1994................ $0.50
January 1, 1995 through March 1, 1995....... $0.00
The holders of Security National Common Stock are entitled to dividends
when, as, and if declared by the Board of Directors of Security National out of
funds legally available therefor. Security National's ability to pay dividends
is subject to, among other things, Delaware law and Security National's income.
Although the only source of income on which to base the payment of such
dividends is the income produced by Security Bank, Security National has had
sufficient cash for the payment of dividends in the past without the need for
Security Bank to pay a dividend to Security National. The payment of dividends
by Security Bank is subject to various regulatory restrictions. See "GOVERNMENT
REGULATION - DIVIDEND RESTRICTIONS".
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GOVERNMENT REGULATION
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to such
statutory or regulatory provisions.
GENERAL
As registered bank holding companies, Huntington and Security National
are subject to the supervision of the Federal Reserve Board and are required to
file with the Federal Reserve Board reports and other information regarding
their business operations and the business operations of their subsidiaries.
Each of them is also subject to examination by the Federal Reserve Board and
required to obtain Federal Reserve Board approval prior to acquiring, directly
or indirectly, ownership or control of voting shares of any bank, if, after such
acquisition, it would own or control more than 5% of any class of the voting
stock of such bank. In addition, pursuant to federal law and regulations
promulgated by the Federal Reserve Board, both Huntington and Security National
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,
both Huntington and Security National 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 both Huntington and Security National 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"). The deposits to be acquired by The
Huntington National Bank of Florida (formerly Security Bank) from HFSB in
connection with the Subsidiary Merger will, in accordance with Oakar procedures,
also continue to be insured by 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. In
addition to the impact of federal and state supervision and regulation, the
subsidiaries of Huntington and Security National are affected significantly by
the actions of the Federal Reserve Board as it attempts to control the money
supply and credit availability in order to influence the economy.
HOLDING COMPANY STRUCTURE
The depository institution subsidiaries of both Huntington and Security
National 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 $162 million
was available for loans to Huntington from its subsidiary banks and thrifts and
approximately $1.6 million was available for loans to Security National from
Security Bank.
The Federal Reserve Board has a policy to the effect that a bank
holding company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and to commit resources to support each
such subsidiary bank. Under the source of strength doctrine, the Federal Reserve
Board may require a bank holding company to make capital injections into a
troubled subsidiary bank, and may charge the bank holding company with engaging
in unsafe and unsound practices for failure to commit resources to such a
subsidiary bank. This capital injection may
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be required at times when either Huntington or Security National 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 directly affect Security National as long as it has only one bank
subsidiary.
Federal law permits the OCC to order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. This statute also provides for the enforcement of any such pro rata
assessment of shareholders of such national bank to cover such impairment of
capital stock by sale, to the extent necessary, of the capital stock of any
assessed shareholder failing to pay the assessment. Similarly, the laws of
certain states provide for such assessment and sale with respect to the
subsidiary banks chartered by such states. Huntington and Security National, as
the sole shareholder of their respective subsidiary banks, are subject to such
provisions. Moreover, under legislation that became effective August 10, 1993,
the claims of a receiver of an insured depository institution for administrative
expenses and the claims of holders of deposit liabilities of such an institution
are accorded priority over the claims of general unsecured creditors of such an
institution in the event of liquidation or other resolution of such institution.
As a result of such legislation, claims of a receiver for administrative
expenses and claims of holders of deposit liabilities of Huntington's and
Security National's respective depository subsidiaries (including the FDIC, as
subrogee of such holders) would receive priority over the holders of notes and
other senior debt of such subsidiaries in the event of liquidation or other
resolution and over the interests of Huntington and Security National as sole
shareholder of their respective subsidiaries.
DIVIDEND RESTRICTIONS
Dividends from subsidiary banks and thrifts are a significant source of
funds for payment of dividends to Huntington's and Security National'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 in 1995 to Huntington of approximately $224 million
plus an additional amount equal to their net income during 1995, and Security
Bank could, without regulatory approval, declare dividends in 1995 of
approximately $4.7 million plus an additional amount equal to its net income
during 1995.
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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 guidelines for bank holding companies, such as Huntington and Security
National. All of Huntington's and Security National's depository institution
subsidiaries are subject to substantially similar capital requirements adopted
by applicable regulatory agencies. The risk-based capital ratio guidelines
establish a 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.
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66
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.
As of December 31, 1994, the Tier 1 risk-based ratio, total risk-based
ratio, and total assets leverage ratios for Huntington and Security National
were as follows:
HUNTINGTON
--------------------------------------
PRO SECURITY
REQUIREMENT HISTORICAL FORMA(1) NATIONAL
------------------ ------------------ ------------------ ---------------
Tier 1 Risk-Based Ratio................. 4.00% 9.55% 9.65% 23.59%
Total Risk-Based Ratio.................. 8.00% 13.57% 13.62% 24.82%
Tier 1 Leverage Ratio................... 3.00% 7.99% 8.04% 10.75%
- ------------------
(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 Security Bank had capital in excess of all applicable
requirements.
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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 and Security National's managements cannot determine what effect,
if any, an interest rate risk component would have on the capital of their
subsidiary commercial banks.
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%.
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
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68
bank subsidiaries had brokered deposits of $56.7 million, compared to $34.3
million as of December 31, 1993. Security Bank 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 audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, asset quality, earnings, and stock valuation. The Federal Reserve
Board has adopted a regulation in the form of guidelines covering most of these
items, and 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.
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 consolidated financial statements of Security National included
herein have been audited by Price Waterhouse LLP, independent certified public
accountants, as set forth in their report thereon included herein in. Such
consolidated financial statements are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL OPINIONS
The validity of the Huntington Common Stock to be issued to Security
National 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
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Stock. Certain legal matters in connection with the Merger will be passed on for
Security National by Smith, Mackinnon, Harris, Greeley, Bowdoin & Edwards P.A.,
Orlando, Florida. As of December 31, 1994, members of such firm beneficially
owned an aggregate of 5,000 shares of Security National Common Stock.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, management of
Security National knows of no business other than that described in this Proxy
Statement/Prospectus that will come before the 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
best judgment.
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INDEX TO FINANCIAL STATEMENTS
Page
CONSOLIDATED FINANCIAL STATEMENTS OF HUNTINGTON
Report of Independent Certified Public Accountants - Ernst & Young LLP........................... 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
CONSOLIDATED FINANCIAL STATEMENTS OF SECURITY NATIONAL AND SUBSIDIARY
Report of Independent Certified Public Accountants - Price Waterhouse LLP........................ F-37
Consolidated Balance Sheets as of December 31, 1994 and 1993..................................... F-38
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993, and 1992........................................................... F-39
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1994, 1993, and 1992............................................... F-40
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992........................................................... F-41
Notes to Consolidated Financial Statements ...................................................... F-42
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... F-54
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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
72
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
73
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
74
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
======= ========== ====== ========== ========== ========== ========== ==========
<FN>
See notes to consolidated financial statements.
F-4
75
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
76
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
77
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
78
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
79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
80
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
81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
82
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
83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
84
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
85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
86
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
87
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
88
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
89
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
90
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
91
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
92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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
93
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
94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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
95
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
96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
97
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
98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
99
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
100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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
101
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
102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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
103
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
104
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
105
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
106
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
107
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of
Security National Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Security National Corporation and its subsidiary (the Company) at December 31,
1994 and 1993, and the 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. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investments on January 1, 1994.
As discussed in Note 2 to the financial statements, the Company has entered into
an Agreement and Plan of Merger dated as of July 12, 1994. The merger is
anticipated to close in May 1995.
PRICE WATERHOUSE LLP
January 18, 1995
Orlando, Florida
F-37
108
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
DECEMBER 31,
-------------------------------
1994 1993
-------- --------
ASSETS
Cash and due from banks..................................... $ 14,136 $ 17,318
Federal funds sold.......................................... 11,550 1,400
Securities available for sale (at fair value)............... 24,944 --
Investment securities - (Market value - $58,351
and $90,826, respectively)................................ 60,208 90,395
Loans:
Commercial, financial and agricultural.................... 13,506 16,458
Real estate - construction................................ 3,759 2,512
Real estate - mortgage.................................... 46,143 41,437
Instalment and consumer lines............................. 9,639 9,861
-------- --------
Total loans............................................. 73,047 70,268
Less: Allowance for loan losses.......................... (1,102) (1,148)
-------- --------
Net loans............................................... 71,945 69,120
-------- --------
Premises and equipment...................................... 6,836 7,124
Other assets................................................ 1,800 1,453
-------- --------
Total assets............................................ $191,419 $186,810
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits............................... $ 53,357 $ 47,799
Interest bearing deposits:
Savings, time, and demand................................. 107,024 107,144
Time, $100,000 and over................................... 7,384 7,556
-------- --------
Total deposits.......................................... 167,765 162,499
Short-term borrowings....................................... 2,627 2,968
Other liabilities........................................... 459 1,226
-------- --------
Total liabilities....................................... 170,851 166,693
-------- --------
Shareholders' equity
Common stock - $1 par value, 5,000,000 shares authorized;
1,671,200 shares issued at December 31, 1994 and 1993,
and 1,511,181 and 1,559,955 shares outstanding at
December 31, 1994 and 1993.................................. 1,671 1,671
Additional paid-in capital.................................. 17,893 17,893
Retained earnings........................................... 3,159 1,715
Net unrealized loss on securities available for sale........ (433) --
Less: Treasury stock - at cost.............................. (1,722) (1,162)
-------- --------
20,568 20,117
-------- --------
Total liabilities and shareholders' equity.................... $191,419 $186,810
======== ========
The accompanying notes are an integral part of these financial statements.
F-38
109
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per-Share Information)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
------ ------ ------
Interest Income:
Interest and fees on loans.................................. $6,090 $5,229 $5,211
Interest on federal funds sold.............................. 392 310 354
Interest and dividends on investment securities............. 3,940 3,730 2,867
------ ------ ------
Total interest income.................................... 10,422 9,269 8,432
------ ------ ------
Interest expense:
Interest on deposits........................................ 2,929 2,723 2,892
Interest on short-term borrowings........................... 67 38 57
------ ------ ------
Total interest expense................................... 2,996 2,761 2,949
------ ------ ------
Net interest income.................................. 7,426 6,508 5,483
Provision for loan losses....................................... -- 60 271
------ ------ ------
Net interest income after
provision for loan losses......................... 7,426 6,448 5,212
------ ------ ------
Non-interest income:
Service charges............................................. 533 458 349
Gain on sale of investment securities....................... 7 87 17
Mortgage banking fees....................................... 143 207 --
Other....................................................... 83 109 112
------ ------ ------
Total non-interest income................................ 766 861 478
------ ------ ------
Non-interest expenses:
Salaries and employee benefits.............................. 1,869 1,982 1,810
Occupancy expenses.......................................... 518 480 400
Equipment expenses.......................................... 364 441 395
Other operating expenses.................................... 1,856 2,321 1,683
------ ------ ------
Total non-interest expenses.............................. 4,607 5,224 4,288
------ ------ ------
Income before income taxes and extraordinary item............... 3,585 2,085 1,402
Applicable income taxes......................................... 1,361 740 496
------ ------ ------
Income before extraordinary item................................ 2,224 1,345 906
Extraordinary credit resulting from utilization
of operating loss carryforward.............................. -- -- 85
------ ------ ------
Net income........................................... $2,224 $1,345 $ 991
====== ====== ======
Earnings per share:
Income before extraordinary item............................. $1.47 $0.85 $0.55
Extraordinary item........................................... -- -- 0.05
====== ====== ======
Net income per common share........................... $1.47 $0.85 $0.60
====== ====== ======
Weighted average shares outstanding (in thousands)............... 1,515 1,580 1,651
====== ====== ======
The accompanying notes are an integral part of these financial statements.
F-39
110
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
COMMON ADDITIONAL RETAINED
STOCK PAR PAID-IN EARNINGS UNREALIZED TREASURY
VALUE CAPITAL (DEFICIT) LOSS STOCK TOTAL
--------- --------- --------- ---------- -------- -------
Balance at December 31, 1991....... $1,671 $17,893 $ (125) $ -- $ (250) $19,189
Net income for 1992............. -- -- 991 -- -- 991
Payment of dividend............. -- -- (165) -- -- (165)
------ ------- ------ ----- ------- -------
Balance at December 31, 1992....... 1,671 17,893 701 -- (250) 20,015
Net income for 1993............. -- -- 1,345 -- -- 1,345
Acquisition of treasury shares
(91,425 at $10.00 per share).... -- -- -- -- (912) (912)
Payment of dividend............. -- -- (331) -- -- (331)
------ ------- ------ ----- ------- -------
Balance at December 31, 1993....... 1,671 17,893 1,715 -- (1,162) 20,117
Net income for 1994............. -- -- 2,224 -- -- 2,224
Net unrealized loss on
investment securities
available for sale.............. -- -- -- (433) -- (433)
Acquisition of treasury shares
(50,107 at $11.50 per share).... -- -- -- -- (576) (576)
Sale of treasury shares
(1,333 at $12.50 per share)..... -- -- -- -- 16 16
Payment of dividend............. -- -- (780) -- -- (780)
------ ------- ------ ----- ------- -------
Balance at December 31, 1994....... $1,671 $17,893 $3,159 $(433) $(1,722) $20,568
====== ======= ====== ===== ======= =======
The accompanying notes are an integral part of these financial statements.
F-40
111
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
-------- -------- --------
Operating activities:
Net income................................................. $ 2,224 $ 1,345 $ 991
Adjustment to reconcile net income to cash
provided by operating activities:
Provision for loan losses.............................. -- 60 271
Depreciation and amortization.......................... 373 428 407
Net investment security discounts/premiums............. 615 359 384
Increase in other assets............................... (347) (56) (36)
(Decrease) increase in other liabilities............... (767) 689 53
-------- -------- --------
Net cash provided by operating activities..................... 2,098 2,825 2,070
-------- -------- --------
Investing activities:
Increase (decrease) in federal funds sold.................. (10,150) 10,350 (715)
Purchase of investment securities.......................... (4,977) (66,881) (37,306)
Maturities and principal collections of:
Investment securities.................................... 2,439 16,114 14,716
Securities available for sale............................ 1,731 -- --
Sale of:
Investment securities.................................... -- 20,653 6,015
Securities available for sale............................ 5,002 -- --
(Increase) decrease in net loans........................... (2,825) (4,950) 679
Increase in premises and equipment......................... (85) (167) (1,668)
-------- -------- --------
Net cash used in investing activities......................... (8,865) (24,881) (18,279)
-------- -------- --------
Financing activities:
Net increase in deposits................................... 5,266 26,304 18,690
Net (decrease) increase in short-term borrowings........... (341) (523) 1,306
Purchase and sale of treasury stock, net................... (560) (912) --
Payment of dividend........................................ (780) (331) (165)
-------- -------- --------
Net cash provided by financing activities..................... 3,585 24,538 19,831
-------- -------- --------
Net (decrease) increase in cash and due from banks............ (3,182) 2,482 3,622
Beginning balance of cash and due from banks.................. 17,318 14,836 11,214
-------- -------- --------
Ending balance of cash and due from banks..................... $ 14,136 $ 17,318 $ 14,836
======== ======== ========
Supplemental disclosure:
Interest paid.............................................. $ 2,942 $ 2,822 $3,023
Taxes paid................................................. 1,222 915 315
The accompanying notes are an integral part of these financial statements.
F-41
112
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
THE BUSINESS
Security National Corporation (the "Company"), a bank holding company,
was incorporated under the laws of the state of Delaware on May 19,
1987. The Company currently operates one wholly-owned subsidiary,
Security National Bank (the "Bank"). The Bank is nationally chartered
and engages in a general commercial banking business which includes
deposit taking, general lending functions and mortgage brokerage
operations (new in 1993). The Bank operates under the supervision of
the Office of the Comptroller of the Currency and the Rules and
Regulations of the Federal Deposit Insurance Corporation. The Bank is
also a member of the Federal Reserve System and the Company itself is
regulated by the Federal Reserve Board under the Bank Holding Company
Act of 1956.
The accompanying financial statements include the accounts of the
Company and its banking subsidiary which operates through six offices
in Central Florida. All significant intercompany balances and
transactions have been eliminated from the consolidated financial
statements.
INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities
("FAS 115"), on January 1, 1994. In accordance with FAS 115, prior
years' financial statements have not been restated to reflect the
change in accounting method. There was no cumulative effect as a result
of adopting FAS 115 in 1994. Management has reviewed the securities
portfolio and classified securities as either held to maturity or
available for sale. In determining such classification, securities
expected to be held to maturity were classified in the amortized
historical cost portfolio. All other securities were classified as
available for sale and carried at fair value with unrealized gains and
losses included in shareholders' equity on an after-tax basis.
Prior to the adoption of FAS 115, management determined the appropriate
classification of securities at the time of purchase. If management had
the intent and the Company had 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 carried at amortized historical
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 classified
as held for sale and carried at the lower of aggregate cost or market
value.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal net of deferred loan
origination fees and costs, and an allowance for loan losses. Interest
income is calculated daily using the simple interest method on
principal balances outstanding.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible based on evaluations of
the collectibility of loans. The evaluations take into consideration
such factors as changes in the nature and volume of the loan
F-42
113
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
portfolio, overall portfolio quality, review of specific problem loans
and current economic conditions that may affect the borrowers' ability
to pay. Accrual of interest is discontinued on loans that are past due
90 days or more as to principal or interest unless substantially
collateralized and in process of collection, or sooner, if in the
opinion of management the borrowers' financial condition is such that
collection of principal or interest is doubtful.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation computed principally on the straight-line method over
estimated useful lives of the assets. These lives are summarized as
follows:
ASSET YEARS
Buildings and improvements 15 - 40
Equipment and furnishings 5 - 7
Maintenance and repairs to premises and equipment are charged to
operations, and improvements and additions are capitalized.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 Accounting for Income Taxes ("FAS 109").
The adoption of FAS 109 changes the Company's method of accounting for
income taxes from the deferred method to an asset and liability
approach. Previously, the Company deferred the past effects of timing
differences between financial reporting and taxable income. The asset
and liability approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets
and liabilities.
Under the provisions of FAS 109, the Company elected not to restate
prior years' consolidated financial statements. The cumulative effect
of initial adoption on prior years' retained earnings was not
significant. Additionally, the effect of adoption of FAS 109 on income
before taxes for 1993 was not significant.
EARNINGS PER SHARE
Per share amounts are based on weighted average common shares
outstanding. Shares for which options have been granted under the stock
option plan discussed in Note 9 have been excluded from the per share
computations since their inclusion would result in less than three
percent dilution.
2. MERGER
The Company has entered into an Agreement and Plan of Merger and
related Supplemental Agreement dated as of July 12, 1994 (the "Merger
Agreement"), pursuant to which the Company would be merged into
Huntington Bancshares Florida, Inc., a wholly owned subsidiary of
Huntington Bancshares Incorporated ("Huntington"). The Merger Agreement
provides that each shareholder of the Company will receive shares of
Huntington common stock in an amount determined pursuant to a formula
which is based upon 2.1 times
F-43
114
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
the adjusted shareholders' equity of the Company as of December 31,
1994. The exact number of shares of Huntington common stock to be
received for each share of the Company's common stock will depend on,
among other things, the average of the closing sale prices per share of
Huntington prior to the effective date of the merger. If the average
closing sale price is less than $15.3375 or more than $25.5625,
Huntington has certain options, including renegotiation of pricing
terms or terminating the merger. Until the effective date or
termination of the merger, the Merger Agreement precludes the Company
from entering into any material agreements or commitments or issuing
any additional shares of common stock, options or warrants, except for
common stock issued pursuant to the exercise of options previously
issued. The Company has also entered into a Warrant Purchase Agreement
with Huntington as described in Note 9. The merger is anticipated to
close in May 1995.
3. SECURITIES AVAILABLE FOR SALE
Book values, unrealized gains and losses and market values of
securities available for sale are summarized as follows (dollars in
thousands):
DECEMBER 31, 1994
------------------------------------------
U.S. U.S.
TREASURY GOVERNMENT
SECURITIES SECURITIES TOTAL
---------- ---------- -------
Carrying value................. $25,114 $514 $25,628
Gross unrealized:
Gains................. 6 -- 6
Losses................ (645) (45) (690)
------- ---- -------
Estimated market value......... $24,475 $469 $24,944
======= ==== =======
Proceeds from the sale of securities available for sale during 1994
were $5,002,000. The related net gains on these sales were $7,000 in
1994.
The book value and estimated market value of securities available for
sale at December 31, 1994 by contractual maturity are shown below
(dollars in thousands):
ESTIMATED
CARRYING MARKET
VALUE VALUE
-------- ---------
Due in one year or less............................... $13,089 $12,956
Due after one year through five years................. 12,026 11,520
Due after five years through ten years................ -- --
Due after ten years................................... 513 468
------- -------
$25,628 $24,944
======= =======
F-44
115
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
Approximately $19,917,000 in U.S. Government and U.S. Government
Agency securities are pledged to secure public funds, including the
Bank's Treasury Tax and Loan Note account with the Federal Reserve
Bank.
4. INVESTMENT SECURITIES
Book values, unrealized gains and losses and market values of
investment securities are summarized as follows (dollars in
thousands):
DECEMBER 31, 1994
------------------------------------------------------
U.S. U.S.
TREASURY GOVERNMENT
SECURITIES SECURITIES OTHER TOTAL
---------- ---------- ----- -------
Carrying value.................. $19,028 $40,212 $968 $60,208
Gross unrealized:
Gains.................. -- 4 4 8
Losses................. (900) (966) -- (1,866)
------- ------- ---- -------
Estimated market value.......... $18,128 $39,250 $972 $58,350
======= ======= ==== =======
DECEMBER 31, 1993
------------------------------------------------------
U.S. U.S.
TREASURY GOVERNMENT
SECURITIES SECURITIES OTHER TOTAL
---------- ---------- ------ -------
Carrying value.................. $49,312 $39,608 $1,475 $90,395
Gross unrealized:
Gains.................. 321 173 61 555
Losses................. (103) (21) -- (124)
------- ------- ------ -------
Estimated market value.......... $49,530 $39,760 $1,536 $90,826
======= ======= ====== =======
There were no sales of investment securities during 1994 other than
those available for sale (Note 3). Proceeds from the sale of investment
securities during 1993 and 1992 were $20,653,000 and $6,015,000,
respectively. The related net gains on these sales were $87,000 and
$17,000 in 1993 and 1992, respectively.
F-45
116
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
The book value and estimated market value of investment securities at
December 31, 1994, by contractual maturity, are shown below (dollars in
thousands):
ESTIMATED
CARRYING MARKET
VALUE VALUE
-------- ---------
Due in one year or less................................. $24,101 $23,838
Due after one year through five years................... 28,231 26,632
Due after five years through ten years.................. -- --
Due after ten years..................................... 360 360
------- -------
52,692 50,830
Mortgage-backed securities.............................. 7,516 7,520
------- -------
$60,208 $58,350
======= =======
Approximately $19,581,000 in U.S. Government and U.S. Government
Agency securities are pledged to secure public funds, including the
Bank's Treasury Tax and Loan Note account with the Federal Reserve
Bank.
As of January 1, 1994, $32,504,000 of investment securities were
transferred to securities available for sale.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses during the years ended
December 31 are as follows (dollars in thousands):
1994 1993 1992
------ ------ ------
Beginning balance............................ $1,148 $1,176 $1,147
Provision charged to expense -- 60 271
Loans charged-off............................ (53) (94) (279)
Recoveries................................... 7 6 37
------ ------ ------
Ending balance............................... $1,102 $1,148 $1,176
====== ====== ======
At December 31, 1994, there was $574,000 of loans on non-accrual. The
effect of non-accrual loans on interest income was not significant.
F-46
117
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 are
summarized as follows (dollars in thousands):
1994 1993
------- -------
Land................................................... $ 2,679 $ 2,679
Buildings and improvements............................. 4,210 4,183
Equipment and furnishings.............................. 2,311 2,253
------- -------
9,200 9,115
Accumulated depreciation and amortization.............. (2,364) (1,991)
------- -------
$ 6,836 $ 7,124
======= =======
Depreciation and amortization expense amounted to $373,000, $428,000
and $407,000 for 1994, 1993 and 1992, respectively.
7. RELATED PARTY TRANSACTIONS
Certain officers and directors, and companies in which they held a ten
percent or more beneficial ownership, were loan customers of the Bank
during 1994 and 1993. Loans to these individuals and their related
interests were made in the normal course of business at normal credit
terms, including interest rates and collateral, and do not represent
more than a normal risk of collection. These loans totaled $5,729,000
and $5,721,000 on December 31, 1994 and 1993, respectively. During
1994, $1,518,000 of new loans were made and repayments totaled
$1,228,000.
In addition, these same individuals and related entities maintain
deposit accounts with the Bank which totaled $2,744,000 and $3,371,000
on December 31, 1994 and 1993.
8. APPLICABLE INCOME TAXES
The provisions for income taxes for the years ended December 31 are as
follows (dollars in thousands):
1994 1993 1992
------ ---- ----
Current:
Federal .................................. 1,186 689 444
State .................................. 163 79 52
------ ---- ----
1,349 768 496
------ ---- ----
Deferred portion:
Federal.................................... 10 (24) --
State...................................... 2 (4) --
------ ---- ----
12 (28) --
------ ---- ----
Total provision for income taxes........... $1,361 $740 $496
====== ==== ====
F-47
118
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
Deferred tax asset (liabilities) are comprised of the following at
December 31, 1994 (dollars in thousands):
1994 1993
---- ----
Book in excess of tax bad debt reserve....... $ 307 $ 303
Net unrealized loss on securities
available for sale.......................... 254 --
----- -----
Gross deferred tax asset..................... 561 303
----- -----
Loan fees.................................... (58) (44)
Excess of tax depreciation over book......... (233) (231)
----- -----
Gross deferred tax liabilities............... (291) (275)
----- -----
Deferred tax assets, net..................... $ 270 $ 28
===== =====
For the years ended December 31, 1994, 1993 and 1992, the Company's
effective income tax rate differed from the statutory federal income
tax rate due to the following (dollars in thousands):
1994 1993 1992
------------------- ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT %
------- ---- ------ ---- ------ ----
Provision using
statutory rate............ $ 1,219 34.0 $ 709 34.0 $ 477 34.0
State income tax (net
of federal benefit)....... 108 3.0 52 2.5 34 2.4
Other, net................. 34 1.0 (21) (1.0) (15) (1.1)
------- ---- ------ ---- ------ ----
Total provision for $ 1,361 38.0 $ 740 35.5 $ 496 35.3
income taxes........ ======= ==== ====== ==== ====== ====
The extraordinary credit on the Consolidated Statement of Income for
1992 is the benefit resulting from the tax effects of the utilization
of net operating loss carryforwards.
The Company and subsidiary have entered into a tax-sharing agreement
under which intercompany tax settlements are made on an "as though
separate" basis.
9. SHAREHOLDERS' EQUITY
STOCK WARRANTS
In connection with the merger (Note 2) and in accordance with a certain
Warrant Purchase Agreement, dated July 12, 1994 between the Company and
Huntington, the Company granted Huntington warrants to purchase up to
24.9% of the outstanding shares (500,600 shares) of the Company's stock
under certain specified circumstances, at a price of $25.56 per share.
The warrants cannot be exercised by Huntington without the consent of
the Company unless there is a willful material breach of the merger
documents, there is a sale of more than 25% of the stock or majority of
the Company's assets prior to January 12, 1996 or the Company
consummates other acquisitions transactions, as
F-48
119
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
defined in the agreement, by January 12, 1996. The warrants terminate
on the earliest of six months after occurrence of any of the events
described above, the effective date of the merger or six months after
termination of the merger.
STOCK OPTION PLAN
The Company has adopted a nonstatutory stock option plan. Under this
plan, officers and employees of the Company and its subsidiary, at the
discretion of the Company's Board of Directors, may be granted options
to purchase up to 200,000 shares of the Company's common stock at the
fair market value as of the date of grant. One-third of such options
become exercisable in each of the second, third and fourth years after
grant. In addition, options become exercisable upon an event which
results in a change in control of the Company. Any options not
exercised within ten years of the date of grant will expire.
Upon the merger (Note 2), each unexercised option shall be converted
into an option to purchase shares of Huntington common stock under an
existing plan of Huntington with the number of shares to be determined
by converting the number of shares of the Company's stock in accordance
with provisions set forth in the Merger Agreement.
The following table summarizes the option activity:
SHARES UNDER
OPTION PRICE RANGE
------------ -------------
Outstanding at December 31, 1991......... 137,500 $ 10.00-14.00
Granted.................................. 19,000 12.50
Canceled................................. (12,500) 10.00-14.00
-------
Outstanding at December 31, 1992......... 144,000 10.00-14.00
Granted.................................. 26,500 12.50
Canceled................................. (33,500) 12.50-14.00
-------
Outstanding at December 31, 1993......... 137,000 10.00-14.00
Granted.................................. 17,000 11.50-12.50
Canceled................................. (8,667) 12.50-14.00
Exercised................................ (1,333) 12.50
-------
Outstanding at December 31, 1994......... 144,000 $ 10.00-14.00
=======
Exercisable at December 31, 1994......... 111,166 $ 10.00-14.00
=======
DIVIDENDS
The payment of dividends by a national bank is subject to the
regulations of the Comptroller of the Currency which require, among
other things, that dividends be paid only from net profits, subject to
certain limitations, adjustments and other restrictions. The subsidiary
bank has never paid a dividend. At December 31, 1994, the subsidiary
bank had approximately $4,700,000 of retained earning which is
available for payment of a dividend to the parent.
F-49
120
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
In January 1992, the Company paid a dividend of $0.10 per share to each
shareholder of record as of January 2, 1992. On January 15, 1993, the
Company paid a dividend of $0.20 per share to each shareholder of
record as of January 5, 1993. On January 14, 1994, the Company paid a
dividend of $.50 per share to each shareholder of record as of January
4, 1994.
10. OTHER OPERATING EXPENSES
The components of other operating expenses are as follows (dollars in
thousands):
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
------ ------ ------
Regulatory fees and assessments..................... $ 418 $ 358 $ 292
Data processing..................................... 245 252 276
Professional fees................................... 347 947 268
Supplies............................................ 137 147 167
Marketing and business development.................. 113 111 138
Postage/delivery/telephone.......................... 146 159 123
Insurance........................................... 100 84 55
Amortization of organizational costs................ -- 9 28
All other........................................... 350 254 336
------ ------ ------
$1,856 $2,321 $1,683
====== ====== ======
11. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
The Company has an employment agreement (the "Agreement") with an
executive of the Company dated November 19, 1987. The Agreement
provides a base salary for the executive and non-compete terms. The
Agreement can be terminated by the Company for death or disability and
other events as defined by the Agreement. The Agreement is for a term
of three years and is automatically renewed for an additional three
years on each November 19. Upon written notice of termination by the
Company, the Agreement will continue for a final three years from the
first November 19 after notice. On November 19, 1994, the Agreement was
renewed through November 19, 1998. Huntington has agreed that the
provisions of this Agreement will remain in effect after the merger.
LEGAL PROCEEDINGS
During 1993, the Company settled litigation. The settlement amount is
included in other operating expenses in the Consolidated Statement of
Income.
There are no other pending legal proceedings to which the Company or
its subsidiary is a party other than routine litigation incidental in
the course of business.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
F-50
121
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
The Bank is party to certain financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to
extend credit and stand-by letters of credit and involve, to varying
degrees, elements of both credit and potential interest rate risk in
excess of the amount recognized in the balance sheet. Total unfunded
commitments for loans and letters of credit at December 31, 1994 were
$7,231,000.
FEDERAL RESERVE REQUIREMENTS
The Federal Reserve Board requires that certain banks maintain
reserves, based on their average deposits, in the form of vault cash
and average deposit balances at a Federal Reserve Bank. The average
reserve requirement for the Bank during 1994 and 1993 was approximately
$2,161,000 and $1,333,000, respectively.
CONCENTRATIONS OF CREDIT RISK
A credit risk concentration results when a bank has a significant
credit exposure to an individual or a group engaged in similar
activities or having similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly affected
by changes in economic or other conditions.
Most of the Bank's business activity is with customers located in
Metropolitan Orlando, Florida. Approximately 69% of the loan portfolio
are real estate loans with the remainder diversified among individuals
and types of industries. Loans are expected to be repaid from cash
flows or proceeds from the sale of selected assets from borrowers. The
amount of collateral obtained upon extension of credit is based upon
the Bank's credit evaluation of the customer. Collateral primarily
includes residential homes, owner occupied commercial properties,
accounts receivable, inventory, and property and equipment.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS ("FAS 107, ") requires disclosure
of estimated fair values of financial instruments, whether or not
recognized in the statements of financial condition, for which it is
practicable to estimate such values. In cases where quoted market
prices are not available, fair value estimates are based on the quoted
market price of a financial instrument with similar characteristics,
the present value of expected future cash flows or other valuation
techniques, all of which may be significantly affected by the
assumptions used. Therefore, these values may not be substantiated by
comparison to independent markets and are not intended to reflect the
proceeds that may be realizable from offering for sale at one time the
Company's entire holdings of a particular financial instrument.
Furthermore, the Company does not intend to dispose of a significant
portion of its financial instruments and any aggregate unrealized gains
or losses should not be interpreted as a forecast of future earnings
and cash flows.
Disclosure of fair value estimates are not required for non-financial
assets and liabilities, such as fixed assets, intangibles and
anticipated future business. In the Company's opinion, the value of
these non-financial items, is significantly in excess of their carrying
amounts. However, the Company also believes their value is often only
reliably determinable in arms-length transactions and may vary
significantly depending on specific circumstances. For these reasons,
no fair value estimates of these non-financial instruments are
disclosed. As a result, the following fair values are not comprehensive
and therefore do not reflect the underlying value of the Company.
The following methods and assumptions were used to estimate the fair
value of each material class of financial instruments:
F-51
122
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS. For short-term instruments (which
include federal funds sold, securities purchased under agreements to
resell and other short-term instruments), the carrying amount is a
reasonable estimate of fair value.
INVESTMENT SECURITIES. For investment securities, fair value equals
quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
LOAN RECEIVABLES. For residential mortgage loans, fair value is
estimated using quoted market prices for sales of whole loans with
similar characteristics, such as repricing dates, product type and
size. For other homogeneous categories of loans, fair value is
estimated using quoted market prices for securities backed by similar
loans, adjusted for differences in loan characteristics.
The fair value of other types of loans, such as commercial, commercial
real estate, construction, and consumer loans for which quoted market
prices are not available, is estimated by discounting expected future
cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
DEPOSIT LIABILITIES. The fair value of demand deposits and certain
money market deposits is the amount payable on demand at the reporting
date. The fair value of certificates of deposit is estimated using
rates currently offered for deposits of similar remaining maturities.
OTHER BORROWINGS. For other borrowings (which include federal funds
purchased, securities sold under agreements to repurchase and other
short-term borrowings), the carrying amount is a reasonable estimate of
fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT. The fair
value of commitments to extend credit and letters of credit is
considered negligible.
The estimated fair values of the Company's financial instruments at
December 31, 1994 and 1993 are as follows (dollars in thousands):
1994 1993
----------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- -------- --------- --------
Financial Assets:
Cash and short-term investments..... $ 25,686 $ 25,686 $ 18,718 $ 18,718
Investment securities............... 60,208 58,351 90,394 90,826
Securities available for sale....... 24,944 24,944 -- --
Loans............................... 71,945 71,488 70,268 70,211
Financial Liabilities:
Deposits............................ 167,765 167,736 162,499 162,568
Other borrowings.................... 2,627 2,627 2,968 2,968
Unrecognized Financial Instruments:
Commitments to extend credit and
standby letters of credit........... -- -- -- --
F-52
123
SECURITY NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
13. SECURITY NATIONAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS):
BALANCE SHEETS DECEMBER 31,
------------------------
1994 1993
------- -------
ASSETS
Cash in subsidiary bank.......................................... $ 290 $ 885
Interest bearing deposits in subsidiary bank..................... 864 1,041
Investment in and advances to subsidiary bank.................... 19,607 19,223
Other assets..................................................... 41 41
------- -------
Total assets..................................................... $20,802 $21,190
======= =======
Liabilities........................................................ $ 234 $ 1,073
------- -------
Shareholders' equity:
Common stock - $1 par value, 5,000,000 shares
authorized; 1,671,200 shares issued and
1,511,181 shares outstanding................................... 1,671 1,671
Additional paid-in capital....................................... 17,893 17,893
Retained earnings................................................ 3,159 1,715
Net unrealized loss on investment securities
available for sale............................................. (433)
Less: Treasury stock - at cost.................................. (1,722) (1,162)
------- -------
Total shareholders' equity................................ 20,568 20,117
------- -------
Total liabilities and shareholders' equity......................... $20,802 $21,190
======= =======
STATEMENTS OF INCOME DECEMBER 31,
-----------------------------
1994 1993 1992
------ ------ ------
Income:
Equity in earnings of subsidiary bank............... $2,425 $1,443 $1,056
Interest income from subsidiary bank................ 23 23 20
Other income........................................ -- -- 1
------ ------ ------
Total income.................................. 2,448 1,466 1,077
------ ------ ------
Expenses:
Salaries and employee benefits...................... 132 122 48
Professional fees................................... 116 17 31
Taxes and licenses.................................. 7 21 19
Amortization of organizational costs................ -- -- 14
Other expenses...................................... 29 23 10
------ ------ ------
Total expenses................................ 284 183 122
------ ------ ------
Income before income taxes.............................. 2,164 1,283 955
Income tax benefit...................................... (60) (62) (36)
------ ------ ------
Net income.................................... $2,224 $1,345 $ 991
====== ====== ======
F-53
124
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of financial results and financial condition for
the years ended December 31, 1994, 1993, and 1992, should be read in conjunction
with the financial statements and statistical data presented elsewhere.
SUMMARY
Net income for the years ended December 31, 1994, 1993, and 1992, are
set forth below:
For the year ended December 31, 1994 $ 2,223,635
For the year ended December 31, 1993 $ 1,344,688
For the year ended December 31, 1992 $ 991,106
Net income for 1994 was up 65% from 1993. Net income for 1993 was up
36% from 1992. On a quarterly basis, net income per share for 1994, 1993, and
1992 were:
QUARTER 1994 1993 1992
----- ----- -----
First Quarter......................... $0.30 $0.15 $0.13
Second Quarter........................ 0.36 0.20 0.14
Third Quarter......................... 0.35 0.25 0.11
Fourth Quarter........................ 0.46 0.25 0.22
----- ----- -----
$1.47 $0.85 $0.60
===== ===== =====
Revenue from earning assets during 1994 increased 12% from 1993. This
increase was attributable, in part, to a 7% increase in average earning assets
as well as increased yields. Revenue from earning assets in 1993 was up 10% from
1992 primarily due to a 24% increase in average earning assets.
NET INTEREST INCOME
Net interest income, the principal source of income for the Company, is
the total interest income on earning assets less the interest expense on
deposits and funds borrowed to support earning assets. The following table sets
forth information concerning net interest income for 1994, 1993, and 1992:
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
------------ ----------- -----------
Interest income............ $ 10,421,705 $ 9,269,179 $ 8,431,509
Interest expense........... 2,996,000 2,761,618 2,948,592
------------ ----------- -----------
Net interest income........ $ 7,425,705 $ 6,507,561 $ 5,482,917
============ =========== ===========
Changes in net interest income from period to period result from
increases or decreases in the average balances (volume) of interest earning
assets and interest bearing liabilities, increases or decreases in the average
rates earned and paid on such assets and liabilities, the Company's ability to
manage its earning asset portfolio, and the availability of particular sources
of funds.
Net interest income has increased during the periods noted in the table
above primarily due to increases in volumes or the average balances of earning
assets and interest bearing liabilities. Average earning assets increased during
each of the periods noted above. As noted, interest rates in the financial
marketplace had an impact upon the Company's net interest margins. Set forth
below is the average prime interest rate charged on loans and the average
Federal Funds rate earned by the Company during 1994, 1993, and 1992:
F-54
125
FEDERAL
PRIME FUNDS
RATE RATE
----- -------
For the year ended December 31, 1994 7.16% 4.67%
For the year ended December 31, 1993 6.00% 3.02%
For the year ended December 31, 1992 6.25% 3.46%
Loans tied to the prime rate and investments in Federal Funds comprised
39% of the Company's earning assets at December 31, 1994, and 37% at December
31, 1993.
The tables on the following two pages provide an analysis of the
changes in net interest income and illustrate the impact in the increase in
balances of interest earning assets and interest bearing liabilities. The tables
also note the impact of overall interest rates in the financial marketplace.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table sets forth the dollar amount of changes in net
interest income for each major category of interest earning asset and interest
bearing liability 1994, 1993, and 1992:
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------- NET CHANGE NET CHANGE
1994 1993 1992 1993-1994 1992-1993
----------- ---------- ---------- ---------- ----------
Earning Assets - Interest Income:
Interest Bearing Bank Balances.......... $ 1,876 $ 4,500 $ 4,500 $ (2,624) $ 0
Fed Funds Sold.......................... 391,508 309,572 353,824 81,936 (44,252)
Taxable Investment Securities........... 3,938,256 3,725,852 2,862,364 212,404 863,488
Non-taxable Investment Securities....... 0 0 0 0 0
Loans (Includes Loan Fees).............. 6,090,065 5,229,255 5,210,821 860,810 18,434
----------- ---------- ---------- ---------- ----------
TOTAL................................... $10,421,705 $9,269,179 $8,431,509 $1,152,526 $ 837,670
=========== ========== ========== ========== ==========
Interest Expense on Deposits
and Borrowed Funds:
Demand Accounts-Interest Bearing........ $ 295,087 $ 285,597 $ 329,302 $ (34,215) $ (43,705)
Savings................................. 83,051 81,964 58,247 1,087 23,717
Money Market Accounts................... 1,944,044 1,453,943 1,359,230 490,101 94,713
Time Deposits........................... 606,460 902,198 1,145,482 (295,738) (243,284)
Fed Funds Purchased..................... 9,666 0 0 9,666 0
TTL and Other Borrowings................ 57,692 37,916 56,331 19,776 (18,415)
----------- ---------- ---------- ---------- ----------
TOTAL................................... $ 2,996,000 $2,761,618 $2,948,592 $ 190,677 $ (186,974)
----------- ---------- ---------- ---------- ----------
NET INTEREST INCOME..................... $ 7,425,705 $6,507,561 $5,482,917 $ 961,849 $1,024,644
=========== ========== ========== ========== ==========
Changes in net interest income are attributed to either changes in
average balances (volume change) or changes in average rates (rate change) for
earning assets and sources of funds on which interest is paid. Volume change is
calculated as change in volume times the old rate while rate change is the
change in rate times the old volume. The table below indicates dollar amount of
the change attributable to each factor. The rate/volume change, the change in
rate times the change in volume, is allocated between the volume change and rate
change at the ratio each of the components bears to the absolute value of their
total.
F-55
126
AMOUNT OF CHANGE AMOUNT OF CHANGE
ATTRIBUTABLE TO CHANGES IN: ATTRIBUTABLE TO CHANGES IN:
--------------------------- ----------------------------
TOTAL CHANGE OUTSTANDING TOTAL CHANGE OUTSTANDING
FROM 12/31/93 BALANCES FROM 12/31/92 BALANCES
TO 12/31/94 (VOLUME) INTEREST RATES TO 12/31/93 (VOLUME) INTEREST RATES
------------- ----------- -------------- ------------- ----------- --------------
Interest Income:
Interest Earning
Balances in Bank........ $ (2,624) $ 0 $ (2,624) $ 0 $ 0 $ 0
Fed Funds Sold.............. 81,936 (64,018) 145,954 (44,252) 276 (44,528)
Investment Securities:
Taxable................. 212,404 470,224 (257,820) 863,488 1,421,742 (558,254)
Non-taxable............. 0 0 0 0 0 0
Loans (Includes Loan Fees) 860,810 169,964 690,846 18,434 243,343 (224,909)
---------- --------- --------- ---------- ---------- ---------
Total....................... $1,152,526 $ 576,170 $ 576,356 $ 837,670 $1,665,361 $(827,691)
Interest Expense:
Demand Accounts -
Interest Bearing........ $ (34,215) $ 14,576 $ (48,791) $ (43,705) $ 20,378 $ (64,083)
Savings..................... 1,087 (3,255) 4,342 23,717 31,666 (7,949)
Money Market Accounts....... 490,101 367,470 122,631 94,713 483,725 (389,012)
Time Deposits............... (295,738) (339,707) 43,969 (243,284) 64,031 (307,315)
Fed Funds Purchased......... 9,666 9,666 0 0 0 0
TTL and Other Borrowings.... 19,776 (4,845) 24,621 (18,415) (4,568) (13,847)
---------- --------- --------- ---------- ---------- ---------
Total....................... $ 190,677 $ 43,904 $ 146,773 $ (186,974) $ 595,232 $(782,206)
Net Interest Income......... $ 961,849 $ 532,265 $ 429,584 $1,024,644 $1,070,129 $ (45,485)
========== ========= ========= ========== ========== =========
PROVISION FOR LOAN LOSSES
It is the Company's practice to maintain the allowance for loan losses
at a level considered by management to be adequate to provide for reasonably
foreseeable loan losses. Management's evaluation is based upon a continuing
review of the loan portfolio and includes, but is not limited to, consideration
of actual loan loss experience, the present and prospective financial condition
of borrowers, industry concentrations within the portfolio, and general economic
conditions.
The tables on the following two pages set forth the loan loss
experience of the Company for 1994, 1993, and 1992 and management's allocation
of the reserve for loan losses.
As noted on the table on the following page, the annualized ratio of
net charge-offs during 1994, 1993, and 1992 has remained relatively constant.
Loan losses continue to be moderate. The Company reduced the provision charged
to expense for possible loan losses during 1994 due to its moderate loan loss
experience and after an evaluation of the adequacy of the allowance for loan
losses.
Company management believes that the allowance for loan losses was
adequate at December 31, 1994, based upon the loan portfolio as of that date.
F-56
127
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at December 31, 1994,
December 31, 1993, and December 31, 1992, daily average balances for 1994, 1993,
and 1992; changes in the allowance arising from loans charged off and recoveries
on loans previously charged off, by loan category; and additions to the
allowance for loan losses which have been charged to expense:
12/31/94 12/31/93 12/31/92
----------- ----------- -----------
Average loans outstanding.................. $70,198,629 $68,041,947 $64,939,766
Net loans at end of period................. $73,047,446 $70,268,455 $65,407,252
Allowance for loan losses
at beginning of period.................. $ 1,148,054 $ 1,176,602 $ 1,147,250
Loans Charged off:
Commercial Loans........................ 0 59,709 222,271
Residential real estate loans........... 0 0 0
Commercial real estate loans............ 0 0 26,200
Construction and land
development loans...................... 0 0 3,011
Installment loans....................... 36,715 0 2,442
Revolving credit loans.................. 16,664 34,730 25,061
----------- ----------- -----------
53,379 94,439 278,985
Recoveries of loans previously
charged off............................. 7,457 5,891 37,537
----------- ----------- -----------
Net loans charged off...................... 45,922 88,548 241,448
Provision charged to expense............... 0 60,000 270,800
----------- ----------- -----------
Allowance for loan losses
at end of period........................ $ 1,102,132 $ 1,148,054 $ 1,176,602
=========== =========== ===========
Annualized ratio of net charge-offs
during period to average net
loans outstanding....................... 0.07% 0.13% 0.37%
Allowance for loan losses as
a percentage of net loans
outstanding at end of period............ 1.51% 1.63% 1.80%
F-57
128
ALLOCATION OF RESERVE FOR LOAN LOSSES
Although the total reserve is available to absorb losses from all
loans, management allocates the reserve among general portfolio categories for
informational and regulatory reporting purposes. The following tables reflect
that allocation and information for the periods indicated:
ALLOCATION OF RESERVE FOR LOAN LOSSES BY LOAN TYPE
12/31/94 12/31/93 12/31/92
---------- ---------- ----------
Commercial Loans.................................... $ 162,334 $ 164,577 $ 210,822
Residential real estate loans....................... 839 24,605 12,770
Commercial real estate loans........................ 270,564 367,222 531,630
Construction and land development loans............. 3,403 25,125 10,615
Installment loans................................... 17,480 63,619 22,826
Revolving credit loans.............................. 56,067 59,639 103,328
Unallocated reserve................................. 591,445 443,267 284,611
---------- ---------- ----------
Total............................................... 1,102,132 $1,148,054 $1,176,602
========== ========== ==========
ALLOCATION OF RESERVE FOR LOAN LOSSES AS A PERCENTAGE OF TOTAL RESERVE
12/31/94 12/31/93 12/31/92
-------- -------- --------
Commercial Loans.................................... 14.7% 14.3% 17.9%
Residential real estate loans....................... 0.1% 2.1% 1.1%
Commercial real estate loans........................ 24.5% 32.0% 45.2%
Construction and land development loans............. 0.3% 2.2% 0.9%
Installment loans................................... 1.6% 5.5% 1.9%
Revolving credit loans.............................. 5.1% 5.2% 8.8%
Unallocated reserve................................. 53.7% 38.7% 24.2%
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
===== ===== =====
PERIOD END LOAN TYPES AS A PERCENTAGE OF TOTAL LOANS
12/31/94 12/31/93 12/31/92
-------- -------- --------
Commercial Loans.................................... 17.9% 23.4% 22.6%
Residential real estate loans....................... 7.4% 7.0% 7.2%
Commercial real estate loans........................ 56.8% 52.0% 54.4%
Construction and land development loans............. 5.2% 3.6% 1.1%
Installment loans................................... 6.2% 7.2% 7.0%
Revolving credit loans.............................. 6.5% 6.8% 7.7%
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
===== ===== =====
AVERAGE BALANCE SHEETS AND COMPOSITION OF AVERAGE DEPOSITS
The tables on the following two pages show the average balances of
assets, liabilities, and shareholders' equity, the amount of interest income or
expense and the average yield or rate for each category of interest earning
asset and interest bearing liability, the Company's net interest spread, and the
Company's net interest margin.
F-58
129
The mix of the Company's average earning assets as a percentage of
total average assets for 1994, 1993, and 1992 were:
1994 1993 1992
---- ---- ----
Interest - Bearing Bank Balances 0.1% 0.1% 0.1%
Federal Funds Sold 4.6% 6.0% 7.5%
Investment Securities 45.9% 42.7% 34.1%
Loans (Net of Unearned Income) 38.8% 39.6% 47.4%
---- ---- ----
Total Earning Assets 89.4% 88.4% 89.1%
==== ==== ====
Average deposit liabilities increased 6% in 1994 as compared to 1993.
In 1993, average deposits increased 30% over 1992. The composition of the
deposit base has consistently been heavy in low cost "core" deposits. For 1994,
transaction accounts (both interest bearing and non-interest bearing) totaled
38% of average deposits, and average money market account balances totaled
another 49%. At the same time, more expensive time deposits comprised only 11%
of the deposit base. This composition is the result of acquiring more
"relationship" customers through direct marketing efforts. The on-going impact
of this structure is a lower cost of funds and higher net interest margins.
F-59
130
AVERAGE BALANCE SHEETS
12/31/94 12/31/93
------------------------------------ -------------------------------------
INTEREST INTEREST
INCOME INCOME
AVERAGE OR AVERAGE OR
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------ ---------- ----- ------------ ---------- -----
ASSETS:
Interest Bearing Bank Balances........ $100,000 $1,876 1.88% $100,000 $4,500 4.50%
Fed Funds Sold........................ 8,382,978 391,508 4.67% 10,247,662 309,572 3.02%
Taxable Investment Securities......... 83,188,127 3,938,256 4.73% 73,485,694 3,725,852 5.07%
Non-taxable Investment Securities..... 0 0 0.00% 0 0 0.00%
Loans (Net of Unearned Income)........ 70,198,629 6,090,065 8.68% 68,041,947 5,229,255 7.69%
------------ ---------- ---- ------------ ---------- ----
TOTAL EARNING ASSETS/
INTEREST INCOME....................... 161,869,734 10,421,705 6.44% 151,875,303 9,269,179 6.10%
All Other Assets....................... 19,219,607 19,906,993
------------ ------------
TOTAL........................ $181,089,341 $171,782,296
============ ============
LIABILITIES AND SHAREHOLDERS EQUITY:
Deposits:
Demand-interest Bearing............. $15,484,407 $295,087 1.91% $15,768,074 $285,597 1.81%
Savings............................. 3,503,197 83,051 2.37% 3,644,755 81,964 2.25%
Money Market Accounts............... 78,080,688 1,944,044 2.50% 63,044,229 1,453,943 2.31%
Time Deposits....................... 17,428,758 606,460 3.48% 27,250,557 902,198 3.31%
Fed Funds Purchased................. 290,563 9,666 3.33% 0 0 0.00%
TTL and Other Borrowings............ 1,379,704 57,692 4.18% 1,561,029 37,916 2.43%
------------ ---------- ---- ------------ ---------- ----
TOTAL INTEREST
BEARING FUNDS......................... 116,167,317 2,966,000 2.59% 111,268,644 2,761,618 2.48%
Demand Deposits........................ 44,587,291 40,085,321
Other Liabilities...................... 609,268 793,761
Shareholders' Equity................... 19,725,465 19,634,570
------------ ------------
TOTAL........................ $181,089,341 $171,782,296
============ ============
INTEREST SPREAD (Average Rate
Earned Minus Average Rate Paid).................................. 3.85% 3.62%
NET INTEREST INCOME.................................. $7,425,705 $6,507,561
NET INTEREST MARGIN (Net Interest
Income/Average Earning Assets)................................... 4.59% 4.28%
12/31/92
------------------------------------
INTEREST
INCOME
AVERAGE OR
BALANCE EXPENSE RATE
------------ ---------- -----
ASSETS:
Interest Bearing Bank Balances........ $100,000 $4,500 4.50%
Fed Funds Sold........................ 10,239,685 353,824 3.46%
Taxable Investment Securities......... 46,731,739 2,862,364 6.13%
Non-taxable Investment Securities..... 0 0 0.00%
Loans (Net of Unearned Income)........ 64,939,766 5,210,821 8.02%
------------ ---------- ----
TOTAL EARNING ASSETS/
INTEREST INCOME....................... 122,011,190 8,431,509 6.91%
All Other Assets....................... 14,884,559
------------
TOTAL........................ $136,895,749
============
LIABILITIES AND SHAREHOLDERS EQUITY:
Deposits:
Demand-interest Bearing............. $14,805,516 $329,302 2.22%
Savings............................. 2,269,569 58,247 2.57%
Money Market Accounts............... 44,345,640 1,359,230 3.07%
Time Deposits....................... 25,739,584 1,145,482 4.45%
Fed Funds Purchased................. 0 0 0.00%
TTL and Other Borrowings............ 1,709,323 56,331 3.30%
------------ ---------- ----
TOTAL INTEREST
BEARING FUNDS......................... 88,869,632 2,948,592 3.32%
Demand Deposits........................ 27,962,664
Other Liabilities...................... 591,825
Shareholders' Equity................... 19,471,628
------------
TOTAL........................ $136,895,749
============
INTEREST SPREAD (Average Rate
Earned Minus Average Rate Paid).................................. 3.59%
NET INTEREST INCOME.................................. $ 5,482,917
NET INTEREST MARGIN (Net Interest
Income/Average Earning Assets)................................... 4.49%
F-60
131
COMPOSITION OF AVERAGE DEPOSITS
Set forth below is the composition of average deposits for 1994, 1993,
and 1992:
YEAR ENDED DECEMBER 31, AS A PERCENT OF TOTAL DEPOSITS
--------------------------------------------- ------------------------------
1994 1993 1992 1994 1993 1992
------------ ------------ ------------ ------ ------ -----
Noninterest bearing.......... $ 44,587,291 40,085,321 27,962,664 28.0% 26.8% 24.3%
Interest Bearing Demand...... 15,484,407 15,768,074 14,805,516 9.7% 10.5% 12.9%
Money market accounts........ 78,080,688 63,044,229 44,345,640 49.1% 42.1% 38.4%
Savings Accounts............. 3,503,197 3,644,755 2,269,569 2.2% 2.4% 2.0%
Time Deposits................ 17,428,758 27,250,557 25,739,584 11.0% 18.2% 22.4%
------------ ------------ ------------ ----- ----- -----
Total........................ $159,084,341 $149,792,936 $115,122,973 100.0% 100.0% 100.0%
============ ============ ============ ===== ===== =====
GROWTH IN AVERAGE DEPOSIT BALANCES
DOLLAR GROWTH IN PERCENTAGE GROWTH IN
DEPOSIT BALANCES DEPOSIT BALANCES
-------------------------- -----------------------
1993-1994 1992-1993 1993-1994 1992-1993
------------ ----------- --------- ---------
Noninterest bearing.......... $ 4,501,970 $12,122,657 11.2% 43.4%
Interest Bearing Demand...... (283,667) 962,558 -1.8% 6.5%
Money market accounts........ 15,036,459 18,698,589 23.9% 42.2%
Savings Accounts............. (141,558) 1,375,186 -3.9% 60.6%
Time Deposits................ (9,821,799) 1,510,973 -36.0% 5.9%
----------- ----------- ----- ----
Total........................ $ 9,291,405 $34,669,963 6.2% 30.1%
=========== =========== ===== ====
NON-INTEREST INCOME
Set forth below is a summary of non-interest income for the years ended
1994, 1993, and 1992:
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
-------- -------- --------
Banking fees and service charges........... $532,402 $458,408 $348,803
Mortgage banking fees...................... 143,212 207,016 0
Gain on sale of investments................ 6,826 87,167 16,674
Gain on sale of real estate................ 0 9,354 16,661
Rental income.............................. 53,385 66,520 67,271
Other income............................... 29,973 32,931 28,628
-------- -------- --------
Total noninterest income................... 765,798 $861,396 $478,037
======== ======== ========
F-61
132
Banking fees and service charges rose 16% in 1994, compared to 1993.
For 1993, banking fees rose 31% as compared to 1992. Fees and service charges
are primarily a function of deposit account activity, particularly transaction
account activity. These increases were consistent with the gain in transaction
account balances noted earlier. The Company's marketing strategy, however, is to
concentrate on commercial banking, serving small to middle-sized businesses,
professionals, the title and escrow industry, the business entrepreneur, and
high net worth individuals. These types of banking customers traditionally pay
for their banking services through the maintenance of sufficient deposit
balances to avoid the payment of fees and service charges. The Company does not,
therefore, anticipate that non-interest income will represent a significant
percentage of the Company's overall income for the foreseeable future.
Rental income is received from renting excess space in banking
facilities. The Company has limited excess space available for rental and does
not anticipate that rental income will become a significant source of revenue.
In 1994, the Company's mortgage banking operations experienced reduced
originations due to the impact of increased interest rates on the market. Income
from originating residential mortgage loans totaled $143,212 in 1994, down from
$207,016 in 1993.
NONINTEREST EXPENSE
The table below summarizes noninterest expenses for 1994, 1993, and
1992. As indicated, noninterest expenses increased 11.8% in 1994, as compared to
1993. The most significant decrease was in the area of professional fees and
legal expenses due to litigation in which the Company was involved during 1993.
A settlement was reached ending the litigation during the fourth quarter of
1993, and no expenses associated with the suit were incurred in 1994.
The Company's subsidiary bank opened two new branch offices in June
1992 and September 1992. The full year compensation, occupancy, and equipment
expenses relating to these new facilities contributed to increases in those
expense categories.
The Company's subsidiary bank pays fees to the Office of the
Comptroller of the Currency and deposit insurance premiums to the Federal
Deposit Insurance Corporation. These regulatory fees are computed based upon the
bank's asset size and deposit base, respectively. Increases in regulatory fees
in 1994 and 1993, are primarily the result of growth in assets and deposits.
YEAR ENDED DECEMBER 31, % CHANGE % CHANGE
---------------------------------------
1994 1993 1992 1993-1994 1992-1993
---------- ---------- --------- --------- ---------
Salaries and benefits.................. $1,868,834 $1,981,778 $1,809,704 -5.7% 9.5%
Equipment expenses..................... 363,756 441,410 395,313 -17.6% 11.7%
Occupancy expenses..................... 517,686 480,035 399,589 7.8% 20.1%
Data processing........................ 244,973 251,693 276,520 -2.7% -9.0%
Regulatory fees........................ 418,230 357,504 291,855 17.0% 22.5%
Professional fees/legal expenses....... 347,095 947,353 268,447 -63.4% 252.9%
Marketing expense...................... 113,037 111,215 137,864 1.6% -19.3%
Postage/delivery/telephone............. 145,610 159,240 123,257 -8.6% 29.2%
Supplies............................... 137,277 147,200 167,196 -6.7% -12.0%
Insurance.............................. 100,062 83,647 54,616 19.6% 53.2%
Other operating expenses............... 350,308 263,194 363,687 33.1% -27.6%
---------- ---------- ---------- ----- -----
Total noninterest expenses......... $4,606,868 $5,224,269 $4,288,048 -11.8% 21.8%
========== ========== ========== ===== =====
F-62
133
As the following table indicates, the Company's noninterest expense
ratios compare very favorably with other institutions of its size.
Annualized expense ratios (as a percentage of average assets):
YEAR ENDED DECEMBER 31, AVERAGE FOR
---------------------------------- BANK HOLDING COMPANIES
1994 1993 1992 OF COMPARABLE SIZE*
---- ---- ---- ----------------------
Total noninterest expenses 2.54% 3.04% 3.13% 3.50%
Salaries and benefits 1.03% 1.15% 1.32% 1.66%
Occupancy expense. 0.29% 0.28% 0.29% 0.49%
* Five year average ratio of expense to average assets as reported by
the Federal Financial Institutions Examination Council
INCOME TAXES
For 1994, the Company had income of $3,585,000 before a provision of
$1,361,000 for income taxes. The $1,361,000 provision for income taxes consists
of provisions for Federal and state income tax purposes relating to 1993.
For 1993, the Company had income of $2,085,000 before a provision of
$740,000 for income taxes.
LIQUIDITY
Liquidity is a bank's ability to maintain sufficient sources of funds
to meet its obligations. Liquidity exists when these sources provide funds when
they are needed and at a reasonable cost. Funding of loan requests, providing
for liability (deposit) outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of specific short-term loans and investments with specific types of
deposits and borrowings. The objective of liquidity management is to maintain a
balance between sources and uses of funds such that the cash flow needs of the
Company are met in the most economical manner. On the asset side, the Company's
liquidity is provided by short-term money market assets, such as time deposits
with other banks, Federal Funds sold, loan principal repayments, and by
investment securities with maturities of one year or less.
At December 31, 1994, and December 31, 1993, the Company had Federal
funds sold of $11,550,000 and $1,400,000, respectively. Cash flow from principal
repayments scheduled to be received within one year from loans (including demand
loans, but excluding revolving credit lines) and investment securities maturing
within one year amounted to $63,639,000 at December 31, 1994, and $24,271,000 at
December 31, 1993.
The Company's dependence upon large time deposits which experience
volatile rate changes is moderate. At December 31, 1994, certificates of deposit
with balances of $100,000 or greater comprised 4% of total deposits, down from
5% at December 31, 1993. The maturities of time certificates of deposit with
balances of $100,000 or greater at December 31, 1994, are summarized below:
Three months or less $2,988,000
Over three through six months 1,983,000
Over six through twelve months 1,811,000
Over twelve months 602,000
----------
$7,384,000
==========
The Company has not acquired brokered "jumbo" certificates of deposit
and does not anticipate using this method as a source of funds in the future.
F-63
134
ASSET/LIABILITY MANAGEMENT
The objective of asset and liability management is to maximize earnings
while maintaining interest rate risk and liquidity at acceptable levels. A
certain amount of risk is inherent in any investment situation, and greater
risks usually provide higher earnings. For the Company, the most important
objectives in asset and liability management include: (1) controlling interest
rate exposure, (2) ensuring adequate liquidity, and (3) maintaining a strong
capital foundation.
The table on the following page sets forth the cumulative ability of
the Company to reprice its interest earning assets and interest bearing
liabilities as of December 31, 1994, the Company's interest rate sensitivity gap
(i.e., interest rate sensitive assets less interest rate sensitive liabilities),
the Company's cumulative interest rate sensitivity gap, the Company's interest
sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest
rate sensitive liabilities), and the Company's cumulative interest sensitivity
gap ratio. For the purposes of the Interest Sensitivity Table, an asset or
liability is considered rate sensitive within a specified period when it matures
or could be repriced within such a period in accordance with its contractual
terms.
Historically, the Company has tried to maintain the cumulative gap
ratio at the one year reporting interval within a narrow range to limit its
exposure to changes in interest rates. The following sets forth the cumulative
gap ratios for the periods commencing on the dates indicated:
1994 1993 1992
---- ---- ----
March 31 0.67 0.95 1.03
June 30 0.70 0.86 0.88
September 30 0.71 0.93 0.90
December 31 1.04 0.59 0.82
A ratio of greater than 1.00 indicates that within a twelve month
period, a greater volume of assets will reprice than liabilities (an asset
sensitive position). A ratio of less than 1.00 indicates that within the same
period a greater volume of liabilities will reprice than assets (a liability
sensitive position). A ratio of 1.00 indicates that an equal amount of assets
and liabilities will reprice during the twelve month period (a neutral
position). A rising rate environment favors an asset sensitive position and a
falling rate environment favors a liability sensitive position.
The Company attempts to limit its exposure to changes in interest rates
through the asset/liability management process. The Company has established
guidelines that limit the changes in net interest income associated with changes
in interest rates to 10% of net interest income. For 1994, changes in net
interest income attributable to changes in interest rates totaled 6% of total
net interest income or well within the above the guidelines. For 1993, changes
in net interest income attributable to changes in interest rates totaled -1% of
total net interest income.
F-64
135
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS)
-------------------------------------------------------------------------
NON RATE
SENSITIVE
181-365 AND OVER
0-30 DAYS 31-90 DAYS 91-180 DAYS DAYS ONE YEAR TOTAL
--------- ---------- ----------- ---------- --------- ---------
ASSETS:
Commercial and Real Estate Loans....... $ 55,741 $ 910 $ 970 $ 1,126 $ 4,661 $ 63,408
Home Equity Credit Lines............... 4,311 4,311
Other Credit Lines..................... 775 775
Consumer Loans......................... 540 14 35 265 3,699 4,553
--------- -------- -------- -------- ------- --------
Total Loans...................... 61,367 924 1,005 1,391 8,360 73,047
Securities............................. 0 5,008 3,003 35,958 41,183 85,152
Federal Funds Sold..................... 11550 11,550
--------- -------- -------- -------- ------- --------
Total Earning Assets............. 72,917 5,932 4,008 37,349 49,543 169,749
Cash, Property and Other Assets........ 22,772 22,772
Less: Allowance for loan losses
and unearned income.................. (1,102) (1,102)
--------- -------- -------- -------- ------- --------
TOTAL ASSETS......................... $ 72,917 $ 5,932 $ 4,008 $ 37,349 $71,213 $191,419
========= ======== ======== ======== ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY: $
Deposits:
Demand-non interest bearing.......... $ 53,357 $53,357
Demand-interest bearing.............. $ 16,827 16,827
Savings.............................. 2,697 2,697
Money Market Accounts................ 76,964 76,964
Time Deposits........................ 3,492 $ 3,154 $ 5,775 $ 3,756 17,443 17,920
--------- -------- -------- -------- ------- --------
Total deposits................... 99,980 3,154 5,775 3,756 55,101 167,765
Federal funds purchased................ 0 0
Other short term borrowings............ 2,627 2,627
Other liabilities...................... 459 459
Shareholders' equity................... 20,568 20,568
--------- -------- -------- -------- ------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY................. $ 102,607 $ 3,154 $ 5,775 $ 3,756 $76,127 $191,419
========= ======== ======== ======== ======= ========
Interest rate sensitivity gap $(29,986) $ 2,778 $ (1,767) $ 33,593 $(4,618)
Cumulative interest rate
sensitivity gap $(29,986) $(27,208) $(28,975) $ 4,618
Cumulative sensitivity gap ratio 0.71 0.74 0.74 1.04
ONE YEAR CUMULATIVE SENSITIVITY GAP RATIO HISTORY
1994 1993 1992
------ ------ ------
March 31...................... 0.67 0.95 1.03
June 30....................... 0.70 0.86 0.88
September 30.................. 0.71 0.93 0.90
December 31................... 1.04 0.63 0.82
F-65
136
INVESTMENT SECURITY PORTFOLIO AT DECEMBER 31, 1994
The following table shows the carrying value, the fair value, and the
weighted average yield of the Company's investment portfolio categorized by
issuer, by maturity, and by whether the security is available for sale or is
being held to its maturity in accordance with the provisions of FAS 115.
Investment securities are stated at cost adjusted for amortization of premium
and accretion of discount:
HELD TO MATURITY AVAILABLE FOR SALE
------------------------------------- -------------------------------------
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE RATE COST VALUE RATE
----------- ----------- ------- ----------- ------------ -------
U.S. Treasury Securities:
Maturing in Less Than 1 Year....... $9,012,398 $8,826,250 4.04% $13,089,677 $12,954,406 6.55%
Maturing in 1 to 5 Years........... 10,015,653 9,301,563 4.41% 12,026,048 11,520,640 4.41%
Maturing in 5 to 10 Years.......... 0 0 0.00% 0 0 0.00%
Maturing in More Than 10 Years..... 0 0 0.00% 0 0 0.00%
----------- ----------- ------- ----------- ------------ -------
Total....................... $19,028,051 $18,127,813 4.23% $25,115,725 $24,475,046 5.53%
U.S. Government Agency Securities:
Maturing in Less Than 1 Year....... $14,988,899 $14,911,737 5.58% $0 $0 0.00%
Maturing in 1 to 5 Years........... 17,707,308 16,818,813 4.56% 0 0 0.00%
Maturing in 5 to 10 Years.......... 0 0 0.00% 0 0 0.00%
Maturing in More Than 10 Years..... 0 0 0.00% 0 0 0.00%
----------- ----------- ------- ----------- ------------ -------
Total....................... $32,696,207 $31,730,550 5.03% $0 $0 0.00%
Securities Issued By State and Political
Subdivisions:
Maturing in Less Than 1 Year....... $0 $0 0.00% $0 $0 0.00%
Maturing in 1 to 5 Years........... 0 0 0.00% 0 0 0.00%
Maturing in 5 to 10 Years.......... 0 0 0.00% 0 0 0.00%
Maturing in More Than 10 Years..... 0 0 0.00% 0 0 0.00%
----------- ----------- ------- ----------- ------------ -------
Total....................... $0 $0 0.00% $0 $0 0.00%
Mortgage Backed Securities:
Maturing in Less Than 1 Year........ $0 $0 0.00% $0 $0 0.00%
Maturing in 1 to 5 Years............ $638,451 $640,300 8.91% $0 $0 0.00%
Maturing in 5 to 10 Years........... $0 $0 0.00% $0 $0 0.00%
Maturing in More Than 10 Years...... $6,877,519 $6,880,055 5.97% $514,607 $468,970 5.04%
----------- ----------- ------- ----------- ------------ -------
Total........................ $7,515,970 $7,520,355 6.22% $514,607 $468,970 5.04%
Other Securities (Including Federal
Reserve Bank Stock):
Maturing in Less Than 1 Year........ $100,000 $100,000 3.00% $0 $0 0.00%
Maturing in 1 to 5 Years............ $507,923 $511,590 8.28% $0 $0 0.00%
Maturing in 5 to 10 Years........... $0 $0 0.00% $0 $0 0.00%
Maturing in More Than 10 Years...... $360,000 $360,000 6.00% $0 $0 0.00%
----------- ----------- ------- ----------- ------------ -------
Total........................ $967,923 $971,950 6.89% $0 $0 0.00%
----------- ----------- ------- ----------- ------------ -------
Total Securities.......... $60,208,151 $58,350,668 4.96% $25,630,332 $24,946,016 5.52%
=========== =========== ======= =========== ============ =======
F-66
137
CAPITAL RESOURCES
12/31/94 12/31/93 12/31/92
----------- ----------- -----------
Tier One Capital:
Common shareholders' equity................... $20,568,342 $20,116,670 $20,014,672
Less: Intangible assets...................... 0 0 8,730
----------- ----------- -----------
Total Tier One Capital........................ 20,568,342 20,116,670 20,005,942
Tier Two Capital:
Allowance for loan losses..................... 1,102,132 1,080,000 1,019,000
Perpetual Preferred Stock..................... 0 0 0
Long term debt qualifying as
Tier Two capital............................ 0 0 0
----------- ----------- -----------
$21,670,474 $21,196,670 $21,024,942
=========== =========== ===========
Leverage Capital Ratio............................ 10.7% 10.7% 12.5%
Risk Based Capital Ratios:
Tier 1 Capital Ratio.......................... 23.1% 23.3% 24.2%
Tier 2 Capital Ratio.......................... 1.2% 1.3% 1.2%
----------- ----------- -----------
Total Capital to Risk-weighted assets......... 24.3% 24.6% 25.4%
=========== =========== ===========
Regulatory agencies have approved guidelines to implement a risk-based
capital structure that makes capital requirements more sensitive to the risk
profiles of individual banking companies. These guidelines define capital as
either core (Tier 1) capital or supplementary (Tier 2) capital. Tier 1 capital
consists primarily of shareholders' equity, while Tier 2 capital is comprised of
certain debt instruments and a portion of the reserve for loan losses. At
December 31, 1994, the Company and its subsidiary bank were subject to a minimum
Tier 1 Risk-Based capital ratio of 4% and a total risk-based capital ratio (Tier
1 plus Tier 2) of 8%. At December 31, 1994, the Company's Tier 1 and total
risk-based capital ratios, based upon the definitions in effect at December 31,
1994, were 23.1% and 24.3% respectively. These ratios, as well as the
corresponding ratios of the Company's subsidiary bank, all exceed regulatory
minimums.
Regulatory agencies have also adopted minimum standards for the
leverage capital ratio. The leverage ratio is computed by dividing Tier 1
capital by adjusted total assets. Currently, the minimum leverage capital ratio
for a well capitalized institution is 5%. The Company had a leverage capital
ratio of 10.7% at December 31, 1994, and at December 31, 1993.
As required by the FDIC Improvement Act of 1991, federal regulatory
agencies have adopted standards for determining a financial institution's
capital category for purposes of regulatory enforcement and for use in
calculating risk-based FDIC insurance premiums. Those standards are set forth in
the table below:
TOTAL RISK BASED TIER 1 RISK BASED
CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO
---------------- ----------------- --------------
Well Capitalized 10% or Greater 6% or Greater 5% or Greater
Adequately Capitalized 8% to 10% 4% to 6% 4% to 5%
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly Undercapitalized Less than 6% Less than 3% Less than 3%
The Company's capital ratios at December 31, 1994, exceeded the
minimum capital ratios for a well capitalized financial institution.
F-67
138
LOAN PORTFOLIO SUMMARY
% CHANGE
--------------------
12/31/93 12/31/92
TO TO
TYPES OF LOANS 12/31/94 12/31/93 12/31/92 12/31/94 12/31/93
----------- ----------- ----------- -------- --------
Commercial Loans..................... $13,102,346 $16,457,697 $14,847,990 -20.4% 10.8%
Residential real estate loans........ 5,400,360 4,921,283 4,711,554 9.7% 4.5%
Commercial real estate loans......... 41,615,142 36,722,126 35,688,771 13.3% 2.9%
Construction and land
development loans.................. 3,759,563 2,512,494 694,746 49.6% 261.6%
Installment loans.................... 4,552,591 5,089,499 4,589,275 -10.5% 10.9%
Revolving credit loans............... 4,789,986 4,771,103 5,058,868 0.4% -5.7%
----------- ----------- ----------- -------- --------
Total loans.......................... 73,219,988 70,474,202 65,591,204 3.9% 7.4%
Less:
Unearned loan fees................... 172,542 205,747 183,952 -16.1% 11.8%
Allowance for loan losses............ 1,102,132 1,148,054 1,176,602 -4.0% -2.4%
----------- ----------- ----------- -------- --------
Net loans............................ $71,945,314 $69,120,401 $64,230,650 4.1% 7.6%
=========== =========== =========== ======== ========
Loan-to-Deposit Ratio................ 45.0% 43.2% 48.0%
Nonperforming loans to total loans... 0.08% 0.00% 0.14%
Loan demand increased during 1994. Gross loans outstanding increased
$2.7 million (or 4%) in 1994. Gross loans outstanding increased $4.9 million (or
7.4%) during 1993.
The Company's marketing philosophy is to concentrate lending efforts to
customers within its primary market area and to generally avoid loans for
speculative purposes. The Company has no foreign or agricultural loans and no
loans to energy producing customers. The Company's loan portfolio contains no
loans that would be classified as a highly leveraged transaction. Bank
regulators have defined highly leveraged transactions as loans and other
facilities that have been extended in connection with a leveraged buyout, a
corporate acquisition or a recapitalization and the resulting ratio of total
debt to equity is equal to or greater than twelve to one or the borrower doubles
existing liabilities resulting in a debt to equity ratio of greater than 100%.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities, which would cause them to be similarly
impacted by economic or other conditions. At December 31, 1994, no concentration
of loans within any portfolio category to any group of borrowers engaged in
similar activities or in a similar business, exceeded 10% of total loans.
Generally, construction and land development loans and commercial real
estate loans can present a higher degree of risk to a lender depending upon,
among other things, whether the borrower has permanent financing at the end of
the loan period, whether the project is an income producing transaction in the
interim, and the nature of changing economic conditions including changing
interest rates. While there is no assurance that the Company would not realize
any loss on its construction and land development loans or its commercial real
estate loans, management is of the belief that the degree of risk related to
such loans is not significant to the Company because, among other things,
generally such loans made by the Company's subsidiary bank relate to (i)
owner-occupied projects, (ii) projects where the borrower has received
commitment for permanent financing to repay the loan, and (iii) projects where
management believes that the borrowers will recognize sufficient income to meet
their loan requirements in the interim.
F-68
139
NONPERFORMING ASSETS
Nonperforming assets consist of loans in a non-accrual status, loans
past due ninety days or more, loans that have been restructured, and other real
estate owned. Loans are placed in non-accrual status when, in the opinion of
management, uncertainty exists as to the ultimate collection of principal or
interest. Interest income on nonaccrual loans is recognized on a cash basis.
The table below summarizes the Company's nonperforming assets as of the
dates indicated:
12/31/94 12/31/93 12/31/92
----------- ----------- -----------
Total loans outstanding...................... $73,047,446 $70,268,455 $65,407,252
Total reserve for loan losses................ 1,102,132 1,148,054 1,176,602
Nonaccrual loans:
Commercial................................. 0 0 0
Real estate:
Construction............................. 0 0 0
Mortgage, 1-4 family..................... 32,231 0 0
Other.................................... 541,897 0 0
Consumer................................. 0 0 0
----------- ----------- -----------
Total nonaccrual loans................... 574,128 0 0
Accruing loans past due
ninety days or more...................... 0 0 0
----------- ----------- -----------
Total nonperforming loans.................... 0 0 0
Other real estate............................ 0 0 90,000
----------- ----------- -----------
Total nonperforming assets................... $ 574,128 $ 0 $ 90,000
=========== =========== ===========
Ratios:
Nonperforming loans to
net total loans.......................... 0.79% 0.00% 0.00%
Nonperforming assets to
net total loans plus other
real estate owned........................ 0.79% 0.00% 0.14%
Reserve for loan losses to
nonperforming loans...................... 191.97% N/A N/A
The table above sets forth a summary of nonperforming assets at
December 31, 1994, December 31, 1993, and at December 31, 1992. Nonperforming
loans are accruing loans past due ninety days or more and loans that have been
placed in a non-accrual status.
For 1994 and 1992, the gross amount of interest income that would have
been recorded on nonaccrual loans if all such loans had been accruing interest
at the original contract rate was $16,554 and $1,762, respectively. No interest
payments were recorded in 1994, 1993, or in 1992 as interest income for
nonaccrual loans.
F-69
140
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of July 12,
1994, between HUNTINGTON BANCSHARES FLORIDA, INC., an Ohio corporation that
will become a registered bank holding company ("Huntington Florida"), and
SECURITY NATIONAL CORPORATION, a Delaware corporation that is a registered bank
holding company ("Security National"). (Huntington Florida and Security
National are collectively referred to herein as the "Constituent
Corporations.")
RECITALS
A. Huntington Florida is a corporation organized and existing under the laws
of Ohio and is authorized to issue 850 shares of common stock, without par
value ("Huntington Florida Common"), all of which are issued and outstanding as
of the date hereof and owned by Huntington Bancshares Incorporated, a Maryland
corporation ("Huntington").
B. Security National is a corporation organized and existing under the laws
of Delaware and is authorized to issue: (a) 5,000,000 shares of common stock,
$1.00 par value ("Security National Common"), of which 1,509,848 shares are
issued and outstanding as of the date hereof, exclusive of treasury shares,
with an additional 147,334 shares being subject to outstanding stock options
previously granted (collectively, the "Security National Stock Options" and
individually, a "Security National Stock Option") under the Security National
Corporation Stock Option Plan (the "Security National Stock Option Plan"); and
(b) 500,000 shares of preferred stock, $1.00 par value ("Security National
Preferred"), none of which are issued and outstanding.
C. The respective Boards of Directors of Huntington Florida and Security
National have approved the merger of Security National into Huntington Florida
substantially on the terms and conditions contained in this Agreement.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein,
the parties agree as follows:
1. MERGER. Subject to the terms and conditions hereof, and the terms and
conditions contained in a certain Supplemental Agreement, of even date
herewith, among Huntington, Huntington Florida, and Security National (the
"Supplemental Agreement"), which is incorporated herein by reference, at the
"Effective Time" (as such term is defined in Section 2 hereof), Security
National shall be merged into Huntington Florida (the "Merger"). Huntington
Florida shall be the surviving corporation in the Merger (the "Surviving
Corporation"), which shall continue its corporate existence under the laws of
Ohio following the consummation of the Merger. At the Effective Time, the
separate existence and corporate organization of Security National shall cease.
2. EFFECTIVE TIME; EFFECTIVE DATE. The Merger shall be effective at 11:59
p.m., local Ohio time (the "Effective Time"), on the "Effective Date" which
date shall be (i) the day on which this Agreement and the related Certificate
of Merger have been filed in accordance with the requirements of the laws of
Ohio and Delaware, respectively, (ii) such later date as may be specified in
such Certificate of Merger; provided, however, that the Effective Date shall
not be earlier than the Permissible Date, which shall be the later of (iii) May
1, 1995, or (iv) the date of expiration of the last required waiting period
following receipt of the last regulatory approval required for the transaction.
Unless the parties otherwise agree, the Effective Date shall be the closing
date as specified in Section 9 of the Supplemental Agreement.
3. NAME. The name of the Surviving Corporation shall be "Huntington
Bancshares Florida, Inc."
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4. CHARTER. The Articles of Incorporation of Huntington Florida in effect at
the Effective Time shall be the articles of incorporation of the Surviving
Corporation, until amended in accordance with law.
5. DIRECTORS. The directors of the Surviving Corporation shall be Frank
Wobst, Zuheir Sofia, Gerald R. Williams, and John W. Liebersbach, to serve
until their successors are duly elected and qualified in accordance with the
Code of Regulations of the Surviving Corporation and the laws of Ohio.
6. REGULATIONS. The Code of Regulations of Huntington Florida in effect at
the Effective Time shall be the regulations of the Surviving Corporation, until
amended in accordance with law.
7. STATUTORY AGENT. The name and address of the agent upon whom any process,
notice, or demand against any Constituent Corporation or the Surviving
Corporation may be served is John W. Liebersbach, 41 South High Street,
Columbus, Ohio 43287.
8. CONVERSION OF SHARES.
(a) All shares of Huntington Florida Common that are issued and
outstanding immediately prior to the Effective Time shall continue to be issued
and outstanding shares of Huntington Florida Common at and after the Effective
Time.
(b) At the Effective Time, the shares of Security National 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 Security National Common shall be
converted into the right to receive the number of whole shares of
Huntington Common determined according to the following formula:
NHC/SC = ((TPP + NSO) / PHC)
-------------------
NSC
where:
NHC/SC = the number of shares of Huntington Common to be received
for each share of Security National Common (the
"Conversion Ratio");
TPP = 2.10 times the Security National Equity (as that term is
defined below) (the "Total Purchase Price");
PHC = the price per share of Huntington Common determined in
accordance with subsection 8(b)(ii), (iii), or (iv)
below, as applicable (the "Price Per Share of Huntington
Common"); and
NSC = the number of shares of Security National Common issued and
outstanding at the Effective Time plus the number of
shares of Security National Common subject to stock
options outstanding at the Effective Time.
NSO = the sum of the products resulting from multiplying
the number of shares subject to each of the Security
National Stock Options outstanding at June 30, 1994, by
the respective exercise price for such Security National
Stock Option.
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(ii) For purposes of the formula set forth in subsection 8(b)(i) above
and except as otherwise provided in subsections 8(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
$23.0063, then the Price Per Share of Huntington Common shall be $23.0063,
and if the Average Closing Sale Price is greater than $28.1188, then the
Price Per Share of Huntington Common shall be $28.1188. 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 75% of $25.5625
(as adjusted for stock dividends and stock splits), then Huntington may elect
to either consummate the Merger 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 set forth in this subsection
8(b) with Security National mutually acceptable to the parties. If a
mutually acceptable adjustment to such pricing terms of the Merger is not
agreed to by the parties hereto by the 10th day after the determination of
the Average Closing Sale Price, this Agreement shall terminate in accordance
with Section 11.01 of the Supplemental Agreement.
(iv) If the Average Closing Sale Price is more than 125% of $25.5625
(as adjusted for stock dividends and stock splits), then Huntington may elect
to consummate the Merger 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 11.01 of the Supplemental Agreement.
(v) No fractional shares of Huntington Common shall be issued. Each
holder of Security National 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 under
subsection 8(b)(ii) above. No interest shall be payable with respect to such
cash payment.
(c) Each outstanding share of Security National Common held by a
person who has demanded and perfected a right to relief as a dissenting
shareholder under Section 262 of the Delaware General Corporation Law (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 8(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 Security National Common shall receive
payment therefor from Huntington in accordance with the provisions of the
Dissenters' Rights Law. If any holder of Security National Common who demands
relief as a dissenting shareholder under the Dissenters' Rights Law with
respect to such holder's shares of Security National Common shall effectively
withdraw or lose (through failure to perfect or otherwise), the right to such
relief, each share of Security National Common held by such holder shall
automatically be converted into the right to receive shares of Huntington
Common pursuant to subsection 8(b) hereof.
(d) Each unexercised Security National 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
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determined by converting the number of shares of Security National Common
subject to the Security National Stock Option into a number of Huntington
Common shares in accordance with the procedure for converting outstanding
Security National Common shares into Huntington Common shares as set forth in
subsection 8(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 Security National Common share under the Security
National Stock Option divided by the Conversion Ratio determined in accordance
with subsection 8(b)(i) above; provided, however, that, in the case of any
Security National 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 Security National 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 Security National shall terminate.
(e) The term "Security National Equity" shall mean the
consolidated shareholders' equity of Security National on December 31, 1994,
determined in accordance with generally accepted accounting principles applied
consistently with prior determinations of consolidated shareholders' equity as
shown on the audited balance sheets of Security National ("Audited Equity"), as
adjusted pursuant to the provisions of this Section 8(e). Notwithstanding the
above, Security National shall consult with Huntington with respect to the
level of loan loss reserves reflected in Security National's consolidated
shareholders' equity.
In determining Security National Equity, the following adjustments
to Audited Equity shall be made:
(i) Audited Equity will be decreased by the after-tax amount of
security gains and extraordinary gains realized after June 30, 1994, which in
the aggregate exceed $50,000;
(ii) Audited Equity will be decreased by the sum of the
products resulting from multiplying the number of shares subject to each of the
Security National Stock Options exercised after June 30, 1994 and prior to
January 1, 1995, by the respective exercise price for such Security National
Stock Option; and
(iii) Audited Equity will be increased by the after-tax effect of
any paid or accrued liability for investment banking fees and legal fees
recorded by Security National in connection with this Merger.
Additionally, after the Permitted Application Date (as that term
is defined in the Supplemental Agreement), Security National will not enter
into any transaction that would materially impact its net income or capital
without the prior written approval of Huntington.
As promptly as possible, Security National shall, at its expense,
cause Price Waterhouse to prepare an audited consolidated balance sheet of
Security National and its Subsidiary as of December 31, 1994, so that a
determination of Security National Equity, as provided in this Section 8(e),
can be made, and to furnish an opinion to Huntington and Huntington Florida to
the effect that such consolidated balance sheet was prepared in accordance with
generally accepted accounting principles and present fairly, in all material
respects, the consolidated financial position of Security National. Prior to
the delivery of such consolidated balance sheet and opinion to Huntington and
Huntington Florida, a substantially completed draft balance sheet and draft
opinion shall be delivered to and reviewed by Ernst & Young, and Security
National and Price Waterhouse shall make all work papers and other supporting
documents available for Ernst & Young's review prior to finalization of such
balance sheet and opinion. The parties and their accounting firms shall make a
good faith effort to resolve any differences of opinion with respect to the
calculation of Audited Equity and Security National Equity. If such good faith
effort fails to resolve any differences, such differences shall be submitted to
arbitration by a certified public accountant chosen by Price Waterhouse and
Ernst & Young and the parties shall be bound by the decision of such
arbitrator.
(f) At the Effective Time, all shares of Security National
Preferred shall be cancelled.
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9. 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 8(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 Security National Common a letter
of transmittal containing instructions for the surrender of all certificates
for shares of Security National Common. Upon the surrender by such holder of a
certificate or certificates for shares of Security National 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 8(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 Corporation 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 Corporation, free and clear of any claims
whatsoever.
(c) Neither Huntington, the Surviving Corporation, 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 Security National until such former shareholder surrenders the certificate
or certificates representing shares of Security National 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 Security National
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 Security National Common represented thereby
shall have been converted.
(d) After the Effective Date and until the outstanding
certificates formerly representing shares of Security National 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 Security
National 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 such
outstanding certificates for Security National 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 Security National 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 9 not
inconsistent with the provisions of this Agreement.
(g) Adoption of this Agreement by the shareholders of Security
National shall constitute ratification of the appointment of the Exchange
Agent.
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10. 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 Ohio. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time,
the separate existence of Security National shall cease; all assets and
property (real, personal, and mixed, tangible and intangible, choses in action,
rights, and credits) then owned by each Constituent Corporation, 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 Corporation. All rights and obligations of the Constituent
Corporations shall remain unimpaired and the Surviving Corporation shall
succeed to all such rights and obligations.
(b) From time to time, as and when requested by the Surviving
Corporation or by its successors, the officers and directors of Security
National 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 Corporation, 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 Security National and otherwise to carry out the purposes of this
Agreement.
11. OFFICES. The principal executive offices of the Surviving
Corporation shall be located at Huntington Center, 41 South High Street,
Columbus, Franklin County, Ohio 43287.
12. SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of Security National for adoption as soon as reasonably
practicable following the execution of this Agreement.
13. ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions provided in this
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 Security National, the receipt of all
required regulatory approvals, and the occurrence of the Permissible Date.
(b) Security National 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 Security National in
accordance with the terms of the Supplemental Agreement, granting to Huntington
or its nominee the right to purchase certain shares of Security National Common
under certain conditions.
14. AMENDMENT. 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 Security National have adopted this Agreement, provided that
the number of shares of Huntington Common into which shares of Security
National Common are to be converted as determined in Section 8 hereof shall not
be changed after the shareholders of Security National 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.
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 Security National, in the manner and under the
circumstances set forth in the Supplemental Agreement.
16. ENTIRE AGREEMENT. This Agreement, the Supplemental 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
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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.
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.
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.
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.
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.
21. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HUNTINGTON BANCSHARES FLORIDA, INC.
By: /s/ Zuheir Sofia
------------------------------
Zuheir Sofia, President
SECURITY NATIONAL CORPORATION
By: /s/ Michael W. Sheffey
---------------------------------
Michael W. Sheffey, President
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AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment") is
made as of January 26, 1995, between HUNTINGTON BANCSHARES FLORIDA, INC., an
Ohio corporation that will become a registered bank holding company
("Huntington Florida"), and SECURITY NATIONAL CORPORATION, a Delaware
corporation that is a registered bank holding company ("Security National").
RECITALS
A. Huntington Florida and Security National entered into an
Agreement and Plan of Merger, dated as of July 12, 1994 (the "Merger
Agreement"), which provides for the merger of Security National into Huntington
Florida (the "Merger") and the exchange of all issued and outstanding shares of
common stock, $1.00 par value, of Security National ("Security National
Common") into shares of common stock, without par value, of Huntington
Bancshares Incorporated ("Huntington Common"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Merger
Agreement.
B. The parties hereto desire to amend the conversion provisions
set forth in Section 8(b)(i) of the Merger Agreement on the terms and
conditions set forth in this Amendment.
AGREEMENT
In consideration of the foregoing and the mutual promises contained
herein, the parties agree as follows:
1. AMENDMENT TO CONVERSION OF SHARES. Section 8(b)(i) of the
Merger Agreement shall be amended to read in its entirety as follows:
(i) Each outstanding share of Security National Common
shall be converted into the right to receive the number of whole shares
of Huntington Common determined according to the following formula:
NHC/SC = ((TPP + NSO) / PHC)
-------------------
NSC
where:
NHC/SC = the number of shares of Huntington Common to be
received for each share of Security National Common
(the "Conversion Ratio");
TPP = 2.10 times the Security National Equity (as that
term is defined below) (the "Total Purchase Price");
PHC = the price per share of Huntington Common determined
in accordance with subsection 8(b)(ii), (iii), or
(iv) below, as applicable (the "Price Per Share of
Huntington Common");
NSC = the number of shares of Security National Common
issued and outstanding at the Effective Time plus
the number of shares of Security National Common
subject to stock options outstanding at the
Effective Time; and
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NSO = the sum of the products resulting from multiplying
the number of shares subject to each Security
National Stock Option outstanding at the Effective
Time, by the exercise price for such Security
National Stock Option, plus the sum of the products
resulting from multiplying the number of shares
subject to each Security National Stock Option
exercised between June 30, 1994, and the Effective
Time, by the exercise price for such Security
National Stock Option.
2. RATIFICATION. Except as otherwise amended hereby, the Merger
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
HUNTINGTON BANCSHARES FLORIDA, INC.
By: /s/ Zuheir Sofia
-----------------------------------
Zuheir Sofia, President
SECURITY NATIONAL CORPORATION
By: /s/ Michael W. Sheffey
-----------------------------------
Michael W. Sheffey, President
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EXHIBIT B
SUPPLEMENTAL AGREEMENT
AMONG
HUNTINGTON BANCSHARES INCORPORATED,
HUNTINGTON BANCSHARES FLORIDA, INC.
AND
SECURITY NATIONAL CORPORATION
TO AGREEMENT AND PLAN OF MERGER
BETWEEN
HUNTINGTON BANCSHARES FLORIDA, INC.
AND
SECURITY NATIONAL CORPORATION
DATED AS OF
JULY 12, 1994
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SUPPLEMENTAL AGREEMENT
THIS SUPPLEMENTAL AGREEMENT (this "Agreement") is made as of July 12,
1994, among HUNTINGTON BANCSHARES INCORPORATED, a Maryland corporation
("Huntington"), HUNTINGTON BANCSHARES FLORIDA, INC., an Ohio corporation
("Huntington Florida"), and SECURITY NATIONAL CORPORATION, a Delaware
corporation ("Security National").
RECITALS
A. Huntington is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHCA"). Huntington Florida will
become a registered bank holding company under the BHCA. Huntington Florida is
a wholly owned subsidiary of Huntington.
B. Security National is a registered bank holding company under
the BHCA. Security National Bank is a national banking association and a
wholly owned subsidiary of Security National ("Security National Bank").
C. Concurrently with the execution and delivery of this
Agreement, Security National and Huntington Florida are entering into an
Agreement and Plan of Merger (the "Merger Agreement"), which provides for the
merger of Security National into Huntington Florida in accordance with the
terms and conditions contained in the Merger Agreement and in this Agreement
(the "Merger").
D. The parties hereto desire to enter into this Agreement for the
purpose of setting forth 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 and to set forth certain
additional terms and conditions applicable to the Merger.
AGREEMENT
In consideration of the foregoing and of the mutual promises contained
herein, the parties agree as follows:
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) "Security National";
(d) "Security National Bank";
(e) "Huntington";
(f) "Huntington Florida";
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(g) the "Merger"; and
(h) the "Merger Agreement".
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 "Code";
(b) the "Dissenters' Rights Law";
(c) the "Effective Date";
(d) the "Effective Time";
(e) the "Exchange Agent";
(f) "Huntington Common";
(g) the "Huntington Stock Option Plan";
(h) the "Huntington Stock Options" or a "Huntington Stock
Option";
(i) the "Permissible Date";
(j) "Security National Common";
(k) "Security National Preferred";
(l) the "Security National Stock Option Plan"; and
(m) the "Security National Stock Options" or a "Security
National Stock Option".
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 Security National or Security National
Bank, 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 Security
National or Security National Bank, (iii) a merger or consolidation involving
Security National Bank, other than a transaction in which Security National
will be the owner of all of the stock of the surviving corporation following
the transaction, or (iv) a merger or consolidation involving Security National,
other than a transaction in which Security National will be the surviving
corporation and the current shareholders of Security National will be the
owners of a majority of the stock of the surviving corporation following the
transaction;
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(c) an "Affiliate" of a party means a director, officer,
employee, agent, or adviser of such party;
(d) the "Audited Financial Statements" mean the consolidated
financial statements of Security National and Security National Bank,
consisting of balance sheets as of December 31, 1994 and 1993, and statements
of income, cash flows, and changes in stockholders' equity for the fiscal years
ended or ending December 31, 1994, 1993, and 1992, with the report thereon of
Price Waterhouse;
(e) "BIF" means the Bank Insurance Fund of the FDIC;
(f) "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended;
(g) "CRA" means the Community Reinvestment Act of 1977, as
amended;
(h) "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;
(i) the "Disclosure Memorandum" means a certain Disclosure
Memorandum which will be delivered by Security National to Huntington on or
before July 30, 1994, as the same may subsequently be amended prior to the
Effective Date;
(j) "Employee Benefit Plans" means any and all "employee
benefit plans," as defined in ERISA;
(k) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended;
(l) "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;
(m) "FDIC" means the Federal Deposit Insurance Corporation;
(n) the "Federal Reserve Board" means the Board of Governors
of the Federal Reserve System, or its delegate;
(o) "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;
(p) the "Interim Financial Statements" mean the unaudited
consolidated financial statements of Security National and Security National
Bank consisting of balance sheets as of March 31, 1995 and 1994, June 30, 1994
and 1993, and September 30, 1994 and 1993, and statements of income, cash
flows, and changes in stockholders' equity for the three-month, six-month, and
nine-month periods ended or ending on March 31, 1995 and 1994, June 30, 1994
and 1993, and September 30, 1994 and 1993, respectively, and the separate
unaudited financial statements of Security National Bank for March 31, 1995 and
1994, June 30, 1994 and 1993, and September 30, 1994 and 1993, in accordance
with generally accepted accounting principles applied on a consistent basis;
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(q) the "1934 Act" means the Securities Exchange Act of 1934,
as amended;
(r) the "1933 Act" means the Securities Act of 1933, as
amended;
(s) the "OCC" means the Office of the Comptroller of the
Currency;
(t) the "Permitted Application Date" means January 1, 1995;
(u) 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;
(v) the "Real Property" means any and all real property owned
or leased by Security National or Security National Bank 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;
(w) 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 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;
(x) the "SEC" means the Securities and Exchange Commission;
(y) an "Unsolicited Acquisition Proposal" means a written
Acquisition Proposal that is received by Security National or Security National
Bank or made public by or on behalf of the proponent of such Acquisition
Proposal without any solicitation of such proposal by any director, officer,
Principal Shareholder, employee, agent, or other person acting on behalf of
Security National; and
(z) the "Warrant" means the warrant to purchase certain shares
of Security National Common issued or to be issued by Security National to
Huntington pursuant to Section 8.13 of this Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SECURITY NATIONAL
Security National represents and warrants to Huntington and Huntington
Florida that, except as set forth in the Disclosure Memorandum:
2.01 ORGANIZATION AND AUTHORITY. Security National is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, 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.
2.02 CAPITALIZATION. The authorized capital stock of Security
National consists of: (a) 5,000,000 shares of Security National Common, of
which 1,509,848 shares were issued and outstanding as of the date of this
Agreement, exclusive of treasury shares; and (b) 500,000 shares of Security
National Preferred, none of which are issued and outstanding. All of the
outstanding shares of Security National 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 Security National of any additional shares of Security National
Common, Security National Preferred, or other equity securities of Security
National except the Security National Stock Options and the Warrant. The
Disclosure Memorandum will include a true and correct copy of the Security
National Stock Option Plan and a list of all option holders under such plan,
the number of shares subject to options
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held by each, the exercise price or prices of such options, and the dates each
option was granted, becomes exercisable, and terminates.
2.03 SUBSIDIARIES. The Disclosure Memorandum will list all
corporations in which Security National owns, directly or indirectly, five
percent or more of any class of capital stock as of the date of this Agreement,
and indicates, 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 Security National. Security National owns all of the capital
stock of Security National Bank. Other than Security National Bank, Security
National does not own, directly or indirectly, more than 50 percent of the
capital stock of any other corporation. There are no options, contracts,
commitments, understandings, or arrangements by which Security National Bank is
bound to issue additional shares of its equity securities. All of the shares
of the capital stock of Security National Bank held by Security National are
duly and validly authorized, issued, and outstanding, fully paid and
nonassessable, and owned by Security National free and clear of any claim,
lien, encumbrance, or agreement with respect thereto. Security National Bank
is a national banking association duly organized, validly existing, and in good
standing under the laws of the United States, 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, as well as any and all necessary
governmental authorizations to own its properties and assets and to carry on
its business as it is presently being conducted. Security National Bank's
deposits are insured by the BIF.
2.04 DIRECTORS, OFFICERS, AND PRINCIPAL SHAREHOLDERS. The
Disclosure Memorandum will contain a true and complete list of all directors,
executive officers, and Principal Shareholders of Security National and
Security National Bank.
2.05 AUTHORIZATION. The execution, delivery, and performance of
this Agreement and the Merger Agreement by Security National, and the
consummation of the transactions contemplated hereby and thereby have been duly
approved by the Board of Directors of Security National, subject to the
adoption of the Merger Agreement and this Agreement by the shareholders of
Security National.
2.06 ABSENCE OF DEFAULTS. Neither the execution and delivery of
this Agreement or the Merger Agreement, nor the consummation of the Merger, nor
compliance by Security National with any provisions hereof or thereof will
conflict with or result in a breach of any provisions of the articles or
certificate of incorporation, regulations, bylaws, or other charter documents
of Security National or Security National Bank 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 Security National or
Security National Bank is a party or by which Security National or Security
National Bank may be bound.
2.07 FINANCIAL STATEMENTS. Security National has delivered the
Audited Financial Statements to Huntington and either has delivered the Interim
Financial Statements to Huntington or will deliver them to Huntington as soon
as they are available. The Audited Financial Statements present, and the
Interim Financial Statements present and will present, fairly and accurately,
the financial position and results of operations of Security National and
Security National Bank on a consolidated basis and those of Security National
Bank 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 Security National or Security National Bank 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 or will not be so reflected or
disclosed.
2.08 TITLE TO PROPERTIES.
(a) The Disclosure Memorandum will set forth a complete and
correct list of all of the Real Property. Security National and Security
National Bank have good and marketable title to all of the Real Property listed
as owned by them in the Disclosure Memorandum and valid leasehold interests in
all of the Real Property listed
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as leased by them 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
Security National or Security National Bank do not violate any local zoning or
similar land use laws, any governmental regulations, or any restrictive
covenants. To the knowledge of Security National or Security National Bank,
after reasonable investigation, (i) the Real Property and the use thereof by
Security National or Security National Bank 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, Security National 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 Security
National or Security National Bank, 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 Security National or Security National Bank), is owned
by Security National or Security National Bank, free and clear of any lien or
encumbrance.
2.09 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against on the Audited Financial Statements, neither
Security National nor Security National Bank has any 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 Security
National or Security National Bank.
2.10 ABSENCE OF CERTAIN CHANGES. Since December 31, 1993, neither
Security National nor Security National Bank has:
(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 either of them;
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 (including, but not limited
to, any such transactions involving either of Security National or Security
National Bank with respect to the capital stock or other securities of the
other of them), 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 2.18 hereof;
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(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, except for the cash dividend paid by
Security National to its shareholders of $.50 per share declared in January
1994;
(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 Security National or Security
National Bank, 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 director, officer, or Principal Shareholder
(or any person or business entity controlled by or affiliated with such
director, officer, or Principal Shareholder);
(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 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 2.18 hereof;
(p) adopted any change in any accounting policy or method;
(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;
(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;
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(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.
2.11 TAXES. Security National and Security National Bank have
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 Security
National or Security National Bank that have not been settled and paid. The
federal income tax returns of Security National or Security National Bank have
not been examined by the Internal Revenue Service for any of the eight years
preceding the date of this Agreement.
2.12 LABOR MATTERS. Neither Security National nor Security
National Bank is a party to any collective bargaining or other union agreement
with any of its employees, or is involved in any labor dispute.
2.13 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 Security National or
Security National Bank, threatened against (i) Security National or Security
National Bank, (ii) the assets, business, or goodwill of Security National or
Security National Bank, or (iii) any director, officer, or Principal
Shareholder of Security National or Security National Bank, in relation to the
business of Security National or Security National Bank or any such person's
capacity as a director, officer, or Principal Shareholder of Security National
or Security National Bank. Security National knows of no basis or grounds for
any such action, suit, proceeding, claim, or investigation. Neither Security
National nor Security National Bank are subject to any supervisory agreement,
consent order or decree, cease and desist order, or other restriction on the
business or assets of Security National or Security National Bank.
2.14 ENVIRONMENTAL MATTERS.
(a) Security National and Security National Bank are and have
been at all times in substantial compliance with all applicable Environmental
Laws and neither Security National nor Security National Bank has 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 Security National or Security National Bank, threatened in
connection with any alleged violation of any applicable Environmental Law (i)
by Security National or Security National Bank or (ii) in relation to any part
of the Real Property. No claims have been made or, to the knowledge of
Security National or Security National Bank, threatened at any time by any
third party against Security National or Security National Bank relating to
damage, contribution, cost recovery, compensation, loss, or injury resulting
from any Hazardous Substance. Neither Security National nor Security National
Bank has 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 of the Real Property. None of the Real Property has been used by
Security National or Security National Bank 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. Neither Security National
nor Security National Bank has any 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 Security
National or Security National Bank is that of a lien holder or mortgagee, but
including any property as to which title has been taken by Security National or
Security National Bank pursuant to mortgage foreclosure or similar proceeding
and any property as to which Security National or Security National Bank has
participated in the financial management to a degree sufficient to influence
the property's treatment of Hazardous Substances).
(b) To the knowledge of Security National and Security
National Bank, 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
either of them at any time prior to the date of this Agreement, together with
any improvements located thereon.
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2.15 COMMUNITY REINVESTMENT ACT COMPLIANCE. Security National and
Security National Bank are in compliance with the applicable provisions of the
CRA and the regulations promulgated thereunder, and Security National Bank has
received a CRA rating of satisfactory or better from the OCC. Security
National knows of no fact or circumstance or set of facts or circumstances
which would cause Security National or Security National Bank to fail to comply
with such provisions or to cause the CRA rating of Security National Bank to
fall below satisfactory.
2.16 COMPLIANCE WITH LAWS. Security National and Security National
Bank hold 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 them
to carry on their respective businesses as they are presently conducted.
Security National and Security National Bank have conducted their businesses so
as to comply in all material respects with all applicable statutes,
regulations, rules, and orders.
2.17 INFORMATION PROVIDED BY SECURITY NATIONAL. None of the
information supplied or to be supplied by Security National for inclusion in
the Registration Statement, the application for approval, or any other document
to be filed with the Federal Reserve Board, the OCC, the SEC, the State of
Florida, 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.
2.18 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 either Security National or
Security National Bank is a party, by which either Security National or
Security National Bank or any of their property is bound, or which has been
authorized by Security National or Security National Bank:
(i) promissory notes, guaranties, mortgages, security agreements,
or other evidences of indebtedness of Security National or Security National
Bank;
(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;
(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
Security National or Security National Bank and used in connection with the
business of such entity;
(ix) leases of, commitments to lease, and other agreements relating
to the lease or rental of, real or personal property by Security National or
Security National Bank and used in connection with the business of such entity;
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(x) all policies of insurance and fidelity bonds of Security
National or Security National Bank;
(xi) all direct or indirect loans or guaranties of loans to any
director, officer, or Principal Shareholder of Security National or any
director or officer above the rank of Vice President of Security National Bank
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, Security National 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 Security National or Security National Bank
is valid and subsisting and in full force and effect in all material respects;
(ii) Security National and Security National Bank have in all material respects
performed all obligations required to be performed by them 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 Security National or Security National Bank
under any agreement, lease, or commitment.
2.19 EMPLOYEE BENEFIT PLANS.
(a) As of the date hereof:
(i) all Employee Benefit Plans maintained by Security
National or Security National Bank 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 Security National 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 respect by all such Plans;
(iv) neither Security National nor Security National
Bank has any 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 Security National
aware of any claim pending or threatened to be brought by any party regarding
such matters;
(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;
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(vii) neither Security National nor Security National
Bank is a defendant in any lawsuit or criminal action concerning such entity's
conduct as a fiduciary, party-in-interest, or disqualified person with respect
to any plans;
(viii) neither Security National nor Security
National Bank is engaged in litigation or a continuing controversy with or, to
the knowledge of Security National or Security National Bank, 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) neither Security National nor Security National
Bank is required to contribute to an Employee Benefit Plan that is a
"multiemployer 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 Security National or
Security National Bank 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,
Security National 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.
2.20 INSURANCE POLICIES. The Disclosure Memorandum will contain a
complete and correct list of the insurance policies and fidelity bonds
currently maintained by Security National or Security National Bank.
Concurrently with its delivery of the Disclosure Memorandum, Security National
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 Security National and Security National
Bank have complied in all respects with the provisions of such policies and
bonds. Security National and Security National Bank have not failed to give
any notice or present any claim under any insurance policy or fidelity bond in
due and timely fashion.
2.21 CAPITAL REQUIREMENTS. Security National Bank is in compliance
with all currently applicable capital requirements and guidelines prescribed by
all appropriate federal regulatory agencies.
2.22 LOAN LOSS RESERVES. Since December 31, 1993, Security
National Bank has not incurred any unusual or extraordinary loan losses. The
allowance for loan losses reflected on the financial statements of Security
National Bank 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. Neither
Security National nor Security National Bank has any knowledge of any potential
losses that have not been considered in establishing the current allowance for
loan losses.
2.23 BROKERS; CERTAIN FEES. Neither Security National nor Security
National Bank, nor any of their 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 that Security National has retained The Robinson-Humphrey
Company, Inc. to perform various investment banking services in connection with
the Merger. The Disclosure Memorandum will contain a complete and correct list
as of the date of this Agreement of all written or oral agreements between
Security National and The Robinson-Humphrey Company, Inc. Concurrently with
its delivery of
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the Disclosure Memorandum, Security National will deliver to Huntington
complete and correct copies of all written agreements between Security National
and The Robinson-Humphrey Company, Inc., together with amendments thereto,
listed in the Disclosure Memorandum and a complete and correct written
description of all oral agreements between Security National and The
Robinson-Humphrey Company, Inc. listed in the Disclosure Memorandum.
2.24 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 Security National 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 Huntington or Huntington
Florida.
2.25 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 6.05 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 Security
National who own five percent or more of the outstanding shares of Security
National Common, and, to the knowledge of the management of Security National,
there is no plan or intention on the part of the remaining shareholders of
Security National, 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
Security National 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 Security National Common as of the same date. For
purposes of this representation, shares of Security National Common surrendered
by dissenters or exchanged for cash in lieu of fractional shares of Huntington
Common will be treated as outstanding shares of Security National Common on the
Effective Date. Moreover, shares of Security National Common and shares of
Huntington Common held by Security National shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger have been considered
in making this representation.
(b) Security National and Security National Bank will pay
their own expenses, if any, incurred in connection with the Merger and will not
pay any expenses of Huntington, Huntington Florida, or the shareholders of
Security National.
(c) All liabilities to which the assets of Security National
and Security National Bank are subject and all other liabilities of Security
National and Security National Bank to be assumed by Huntington Florida in the
Merger were incurred by Security National and Security National Bank in the
ordinary and usual course of their respective businesses, as such term is
described in the first sentence of Section 4.03 hereof.
(d) Neither Security National nor Security National Bank is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(e) The fair market value of the assets of Security National
and Security National Bank to be transferred to Huntington Florida in the
Merger will equal or exceed the sum of the liabilities to be assumed by
Huntington Florida in the Merger plus the amount of liabilities, if any, to
which the assets to be transferred in the particular merger are subject.
(f) No material dividends or distributions have been or will
be made with respect to the Security National Common or by Security National
Bank prior to the Merger, except for the dividend referred to in Section
2.10(k) above.
(g) Neither Security National nor Security National Bank are
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.
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(h) There is no indebtedness existing between Security
National or Security National Bank on the one hand and Huntington or Huntington
Florida 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 Security National shareholder in
the Merger will be approximately equal to the fair market value of the Security
National Common surrendered in exchange therefor.
(j) Huntington Florida will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by Security National immediately prior to the
Merger. For purposes of this representation, amounts paid by Security National
to dissenters, amounts paid by Security National to shareholders who receive
cash or other property, Security National assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by Security National immediately preceding the transfer, will
be included as assets of Security National held immediately prior to the
Merger.
(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 Security National will be separate consideration for,
or allocable to, any of their shares of Security National Common; none of the
shares of Huntington Common received by any shareholder-employees of Security
National will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employees of Security
National 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 Security National Common granted under the Security National Stock Option
Plan, a holder of such option will not receive any additional benefits from
Security National as a result of the conversion of the option in the Merger.
2.26 FILING OF REPORTS. Security National Common is not now and
has never been registered pursuant to Section 12 of the 1934 Act. Security
National is not now and has never been subject to the reporting requirements of
Section 13 of the 1934 Act. Since January 1, 1992, Security National 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 Security National under 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 3. REPRESENTATIONS AND WARRANTIES OF HUNTINGTON
Huntington represents and warrants to Security National as follows:
3.01 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.
3.02 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
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business as it is presently being conducted, and to enter into and carry out
its obligations under this Agreement and the Merger Agreement.
3.03 CAPITALIZATION. The authorized capital stock of Huntington
consists of (i) 200,000,000 shares of common stock, without par value, of which
105,354,117 shares were issued and outstanding as of December 31, 1993
(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.
3.04 AUTHORIZATION OF HUNTINGTON. The execution, delivery, and
performance of this Agreement by Huntington, and the consummation of the
transactions contemplated hereby, have been duly approved by the Board of
Directors of Huntington. 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.
3.05 AUTHORIZATION 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, have been duly approved by the Board of Directors of Huntington
Florida. 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.
3.06 ABSENCE OF DEFAULTS. Neither the execution and delivery of
this Agreement, nor the consummation of the Merger, nor compliance by
Huntington with any of the provisions hereof will conflict with or result in a
breach of any provision of the charter or bylaws of Huntington 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 Huntington is a party or to which Huntington may be bound. Neither the
execution and delivery of this Agreement or the Merger Agreement, nor the
consummation of the Merger, nor compliance by Huntington Florida with any of
the provisions hereof or thereof will conflict with or result in a breach of
any provision of the articles of incorporation or regulations of Huntington
Florida 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 Huntington Florida is a party or by which
Huntington Florida may be bound.
3.07 INFORMATION PROVIDED BY HUNTINGTON. None of the information
supplied or to be supplied by Huntington for inclusion in the Registration
Statement, application for approval, or any other document to be filed with the
Federal Reserve Board, the OCC, the SEC, the State of Florida, 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.
3.08 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 Security National or Security National Bank.
3.09 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
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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 4. COVENANTS OF SECURITY NATIONAL
Security National covenants and agrees as follows:
4.01 APPLICATIONS FOR REGULATORY APPROVALS; REGISTRATION STATEMENT.
Security National and Security National Bank will cooperate, and will cause
their respective 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 5.02 hereof.
4.02 SHAREHOLDERS' MEETING. As soon as practicable and, in any
event, within ten business days after the SEC has declared the Registration
Statement effective, Security National 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 Security National will
recommend to the shareholders that they vote their shares in favor of the
Merger.
4.03 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, Security National and
Security National Bank will conduct their respective operations only, and shall
not take any action except, in the ordinary and usual course of business, and
Security National and Security National Bank will use their best efforts to
preserve intact their business organizations, assets, prospects, and business
relationships, to keep available the services of their 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, neither Security National nor Security National Bank will:
(a) enter into any agreement or commitment of the character
referred to in subsections 2.18(a)(i) through (xii) hereof; or
(b) take or permit to be taken any action of a character which
is listed in subsections (a) through (v) of Section 2.10 hereof.
4.04 ACCESS TO INFORMATION. Security National 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 Security National and Security National Bank, provided that
such access shall not unreasonably interfere with the operations of Security
National or Security National Bank, and shall furnish to representatives of
Huntington all such information concerning its and their affairs as Huntington
may reasonably request.
4.05 PRESS RELEASES. Security National 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 Security National or Security National
Bank from making any disclosure (after consultation with Huntington with
respect thereto) which its counsel deems necessary under applicable law.
4.06 BEST EFFORTS. Security National 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.
4.07 ACQUISITION PROPOSALS. Unless and until this Agreement shall
have been terminated by either party pursuant to Section 11 hereof, neither
Security National nor Security National Bank shall (i) directly or indirectly,
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through any of its officers, directors, agents, or 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; provided,
however, that Security National and Security National Bank shall be entitled to
entertain, consider, and participate in negotiations and discussions regarding
an Unsolicited Acquisition Proposal, and to disclose such information and
provide such access in connection with such an Unsolicited Acquisition
Proposal, to the extent that the Board of Directors of Security National
determines in good faith, after consultation with The Robinson-Humphrey
Company, Inc., as financial advisor to Security National, with respect to the
financial aspects of the Unsolicited Acquisition Proposal and the Merger, and
with legal counsel to Security National, that failure to so consider or
participate in such negotiations or discussions would be inconsistent with the
fiduciary obligations of the directors of Security National to the shareholders
of Security National. Security National shall give Huntington prompt notice of
any such Acquisition Proposals.
4.08 ADVICE OF CHANGES. Between the date hereof and the Effective
Date, Security National 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, Security
National shall deliver to Huntington a supplement to the Disclosure Memorandum,
which shall contain a description of any and all such matters.
4.09 TITLE INSURANCE. For each parcel of the Real Property
described in the Disclosure Memorandum as being owned by Security National or
Security National Bank, and for each lease for any parcel of the Real Property
described in the Disclosure Memorandum as being leased by Security National or
Security National Bank as to which Huntington may specifically request,
Security National 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 Security National or Security
National Bank as of December 31, 1994. Each title insurance commitment shall
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
Security National or Security National Bank, and that it is 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 owners policy committed for therein shall be an ALTA 1970 form,
revised in 1984, and each leasehold owner's policy shall be a ALTA 1975 form,
or other form acceptable to Huntington and Huntington Florida.
4.10 SURVEY. Within 30 days after the Permitted Application Date,
Security National shall provide to Huntington and Huntington Florida, at
Security National'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 A 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.
4.11 FORM 13D OR 13G FILINGS. Security National shall promptly
advise Huntington of the filing of a Form 13D or 13G under the 1934 Act, if
any, with respect to Security National Common and shall provide Huntington with
a copy of any such Form 13D or 13G promptly after receipt thereof.
4.12 CONFIDENTIALITY. From and after the date of this Agreement,
Security National and Security National Bank shall, and shall cause their
respective Affiliates to, treat all Confidential Information of Huntington and
Huntington Florida, as confidential, and Security National and Security
National Bank shall, and shall cause their respective Affiliates to, not use
any such Confidential Information for any purpose except in furtherance of the
transactions
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contemplated hereby. In the event this Agreement is terminated pursuant to
Section 11 hereof, Security National and Security National Bank shall, and
shall cause their respective Affiliates to, promptly return to Huntington all
documents and work papers, and all copies thereof, containing any such
Confidential Information of Huntington or Huntington Florida. The covenants of
Security National and Security National Bank contained in this Section 4.12 are
of the essence and shall survive any termination of this Agreement and the
closing of the transactions contemplated hereby.
4.13 TAX REPRESENTATIONS. Security National will furnish a letter
to Porter, Wright, Morris & Arthur, as counsel for Huntington and Huntington
Florida, 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 2.25 hereof in order to enable such counsel to render the tax opinions
referred to in Section 6.05 hereof.
SECTION 5. COVENANTS OF HUNTINGTON AND HUNTINGTON FLORIDA
Huntington and Huntington Florida covenant and agree as follows:
5.01 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 Security National 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 8(b)(v) and 9(a) of
the Merger Agreement.
5.02 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 State of Florida, 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 Security National and provide Security National a
reasonable opportunity to review such draft or drafts prior to filing the same.
5.03 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 be required. Huntington shall deliver a draft or drafts of
the Registration Statement to Security National and provide Security National a
reasonable opportunity to review such draft or drafts prior to filing the same.
5.04 PRESS RELEASES. Huntington shall consult in advance with
Security National 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.
5.05 BEST EFFORTS. Huntington will use its best efforts to take or
cause to be taken all actions necessary, proper, or advisable to consummate the
Merger.
5.06 CONFIDENTIALITY. From and after the date of this Agreement,
Huntington and Huntington Florida shall, and shall cause their respective
Affiliates to, treat all Confidential Information of Security National or
Security National Bank 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 11 hereof, Huntington and Huntington Florida shall, and
shall cause their respective Affiliates to, promptly return to Security
National all documents and work papers, and all copies thereof, containing any
such Confidential Information of Security National or Security National Bank.
The covenants of Huntington and Huntington Florida contained in this Section
5.06 are of the essence and shall survive any termination of this Agreement,
but shall terminate as of the closing of the transactions contemplated hereby.
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5.07 ASSUMPTION OF EMPLOYMENT AGREEMENT. Huntington Florida will
assume Security National's obligations under an employment agreement with
Michael W. Sheffey; provided, however, that Security National will obtain an
agreement from such employee, in writing, to accept the benefits provided under
all applicable Huntington benefit plans in lieu of the benefits provided under
the benefit plans of Security National.
5.08 INDEMNIFICATION OF DIRECTORS AND OFFICERS. Huntington Florida
acknowledges that, by operation of law, at the Effective Time, Huntington
Florida will assume any and all legally enforceable obligations of Security
National to indemnify and defend the directors and officers of Security
National pursuant to, to the extent of, and in accordance with the terms and
conditions of any such obligations that Security National 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
Security National, whether by contractual right or by any provision of the
articles of incorporation or bylaws of Security National, 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 Huntington Florida's obligations with
respect to such indemnification over that to which Security National would have
been subject had the Merger not been consummated.
5.09 EMPLOYEE BENEFIT PLANS. Huntington and Huntington Florida
agree to use their reasonable best efforts to coordinate the conversion of any
Employee Benefit Plans, practices, or policies of Security National or Security
National Bank into similar plans of Huntington, to the extent similar plans are
maintained by Huntington, and 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 Security
National or Security National Bank who become employees of Huntington Florida
following the consummation of the Merger for all service with Security National
or Security National Bank prior to the Effective Time.
SECTION 6. 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:
6.01 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 Security National Common.
6.02 REGULATORY APPROVALS; PERMISSIBLE DATE. The Merger shall have
been approved by the Federal Reserve Board, the State of Florida, and any other
governmental authority having jurisdiction, 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 or
Huntington Florida, and the Permissible Date shall have occurred.
6.03 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. For
purposes hereof, advisory opinions or written requests for information which
could be used in connection with such suit, investigation, or proceeding given
by governmental agencies may be deemed to constitute such a threat.
6.04 FAIRNESS OPINION. Security National shall have received a
fairness opinion from The Robinson-Humphrey Company, Inc. 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 Security
National from a financial point of view.
6.05 TAX OPINION. Huntington, Huntington Florida, and Security
National shall have received an opinion of Porter, Wright, Morris & Arthur
substantially to the effect that:
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(a) the Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code and
Security National, Huntington, and Huntington Florida will each be a party to
the reorganization within the meaning of Section 368(b) of the Code;
(b) the basis of the assets of Security National acquired by
Huntington Florida will be the same in the hands of Huntington Florida as the
basis of those assets in the hands of Security National immediately prior to
the Merger;
(c) the holding period of the assets of Security National
received by Huntington Florida will, in each instance, include the period for
which such assets were held by Security National;
(d) no gain or loss will be recognized by either Huntington or
Huntington Florida upon the acquisition by Huntington Florida of substantially
all of the assets of Security National 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 by Huntington
Florida of the liabilities of Security National;
(e) Huntington Florida will succeed to and take into account
the items of Security National described in Section 381(c) of the Code, subject
to the conditions and limitations of Sections 381, 382(b), 383, and 384 of the
Code and the Treasury Regulations thereunder;
(f) no gain or loss will be recognized by Security National
upon the transfer of substantially all of its assets to Huntington Florida in
exchange for shares of Huntington Common, the payment of cash to dissenting
shareholders of Security National, if any, the payment of cash in lieu of
fractional shares of Huntington Common, and the assumption by Huntington
Florida of the liabilities of Security National;
(g) no gain or loss will be recognized by the shareholders of
Security National who exchange their shares of Security National Common for
shares of Huntington Common, 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 Security National who receive solely shares of
Huntington Common will be the same as the basis of the shares of Security
National Common surrendered in exchange therefor;
(i) the holding period of the shares of Huntington Common
received by shareholders of Security National will include the holding period
of the shares of Security National Common surrendered in exchange therefor,
provided that the Security National Common was held as a capital asset in the
hands of the shareholder of Security National on the Effective Date;
(j) where solely cash is received by a shareholder of Security
National in exchange for his or her shares of Security National 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 Security
National 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 Security National 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 Security National Common shares surrendered, as
determined under Section 1011 of the Code;
(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
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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 Security
National 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 Section 8(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 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SECURITY NATIONAL
The obligations of Security National to consummate the Merger are
subject to the fulfillment on or before the Effective Date of the following
additional conditions precedent:
7.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Huntington 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; Huntington
and Huntington Florida 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 Security National a certificate or certificates,
dated as of the Effective Date, in respect of the foregoing matters and in
respect of such other matters as Security National shall reasonably request.
7.02 OPINION OF COUNSEL. Security National 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) Huntington and Huntington Florida are corporations duly
organized, validly existing, and in good standing under the laws of the States
of Maryland and Ohio, respectively; Huntington and Huntington Florida have the
corporate power and authority to own all of their properties and assets and to
carry on their businesses as presently conducted in all jurisdictions in which
such ownership exists or such business is conducted; and Huntington Florida has
the corporate power and authority to merge with Security National 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 articles or certificate of incorporation,
regulations, bylaws, or other charter documents of Huntington or Huntington
Florida;
(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 Huntington and Huntington Florida; and this
Agreement and the Merger Agreement are valid and binding agreements of
Huntington and Huntington Florida in accordance with their 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 Huntington and Huntington Florida 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.
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
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of Huntington or Huntington Florida. 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.
7.03 EFFECTIVENESS OF THE REGISTRATION STATEMENT; NASD Listing.
Security National 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 Security National shareholders
pursuant to the Merger Agreement shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF HUNTINGTON AND
HUNTINGTON FLORIDA
The obligations of Huntington and Huntington Florida 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 Security National 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; Security National 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 principal
financial officer of Security National 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.
8.02 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 Security National, reasonably
acceptable to Huntington, to the effect that:
(a) Security National Bank is a national banking association,
duly organized, validly existing, and in good standing under the laws of the
United States; Security National is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware; all eligible
accounts of deposit in Security National Bank are insured by the BIF to the
fullest extent permitted by law; Security National is a duly and validly
registered bank holding company under the BHCA; all corporate action required
to be taken by the directors and shareholders of Security National to authorize
the transactions contemplated by this Agreement and the Merger Agreement have
been taken; and Security National 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 or certificate of incorporation,
regulations, bylaws, or other charter documents of Security National or
Security National Bank;
(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 Security National; and this Agreement and the
Merger Agreement are valid and binding agreements of Security National 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
Security National may be subject to general principles of equity;
(d) Security National and Security National Bank have the
corporate power and authority to own all of their properties and assets and to
carry on their businesses as presently conducted in all jurisdictions in which
such
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ownership exists or such business is conducted; Security National and Security
National Bank are 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 Security National or
Security National Bank.
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 Security National and Security
National Bank. 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 ACCOUNTANTS' LETTERS.
(a) Huntington shall have received from Security National's
independent Certified Public Accountants letters dated (i) not more than three
days prior to the date of mailing of the proxy statement to Security National'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
Security National, 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-interest accounting treatment if consummated in
accordance with this Agreement and the Merger Agreement.
8.04 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.
8.05 DISSENTING SHAREHOLDERS. The total number of shares of
Security National Common, if any, as to which the right to dissent has been
asserted under Section 262 of the Delaware General Corporation Law shall not
exceed five percent of the total number of outstanding shares of Security
National Common.
8.06 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 Security National,
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) changes in economic
conditions that affect the banking and thrift industries generally, including
changes in the general level of interest rates, or (iii) any matter or matters
relating to Security National or Security National Bank which have been
disclosed in the Disclosure Memorandum.
8.07 TITLE TO REAL PROPERTY. Security National 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 4.09 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.
8.08 SURVEY. Security National shall have delivered to Huntington
the surveys in accordance with the requirements of Section 4.10 hereof.
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8.09 CONSENTS AND APPROVALS. Security National and Security
National Bank 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 2.18 hereof, to which either Security National or Security National
Bank is a party or by which either Security National, Security National Bank,
or any of their property or assets is bound, or (ii) any license or permit of
Security National or Security National Bank, 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 Huntington, Huntington Florida,
Security National, or Security National Bank.
8.10 AGREEMENT TO VOTE. Huntington shall have received from ten of
Security National's directors and executive officers selected by Huntington,
individually, an agreement, substantially in the form attached hereto as
Exhibit B, to vote all shares of Security National Common owned by them or over
which they have the power to vote in favor of the Merger.
8.11 SHAREHOLDER EQUITY. The total shareholder equity of Security
National and Security National Bank on a consolidated basis as of the end of
the most recent calendar quarter preceding the Effective Date and as of the
Effective Date shall not be less than the total shareholder equity of Security
National and Security National Bank on a consolidated basis as of December 31,
1994.
8.12 CONVERSION OF STOCK OPTIONS.
(a) All outstanding Security National Stock Options held by
persons who are not employees of either Security National or Security National
Bank on the Effective Date, including, but not limited to, non-employee
directors of either of them, shall have been either exercised or terminated
prior to the Effective Date.
(b) All holders of outstanding Security National Stock Options
who are employees of either Security National or Security National Bank on the
Effective Date shall have entered into agreements with Huntington,
substantially in the form attached hereto as Exhibit C, providing for the
conversion on the Effective Date of all Security National Stock Options held by
them to Huntington Stock Options in accordance with Section 8(d) of the Merger
Agreement.
(c) Security National shall have certified to Huntington as of
the Effective Date that the actions described in paragraph (a) and (b) of this
Section 8.12 have been taken.
8.13 WARRANT. Security National shall have executed and delivered
to Huntington a Warrant Purchase Agreement, substantially in the form attached
hereto as Exhibit D, and the Warrant substantially in the forms attached as
Attachment A to such Warrant Purchase Agreement.
8.14 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 Security National
and Security National Bank 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 receipt by Huntington of the Audited Financial Statement for the
fiscal year ended December 31, 1994, unless, prior to such time, Huntington has
notified Security National 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 Security National,
Security National shall have an additional period of five business days to
permit it to cure the defect or defects to the satisfaction of Huntington. If
Security National cures the defect or defects within such period and Huntington
acknowledges its satisfaction in writing, this condition shall be deemed to
have been satisfied.
8.15 DISCLOSURE MEMORANDUM. Huntington shall have reviewed the
Disclosure Memorandum and all contracts, commitments, leases, deeds,
agreements, and other documents relating to the information set therein or
herein
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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 the close
of business on the day which is 30 days after receipt by Huntington of the
Audited Financial Statement for the fiscal year ended December 31, 1994,
unless, prior to such time, Huntington has notified Security National 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 Security National, Security National
shall have an additional period of five business days to permit it to cure the
defect or defects to the satisfaction of Huntington. If Security National
cures the defect or defects within such period and Huntington acknowledges its
satisfaction in writing, this condition shall be deemed to have been satisfied.
SECTION 9. CLOSING DATE
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 last business day of the month in which the conditions specified in
Sections 6.01 and 6.02 hereof have been satisfied.
SECTION 10. 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 Security National have adopted this Agreement.
SECTION 11. TERMINATION
11.01 TERMINATION. This Agreement and the Merger Agreement shall
terminate on December 31, 1995, unless a later date is agreed upon in writing
by the parties; shall terminate if the parties are unable to renegotiate the
pricing terms of the Merger in accordance with Section 8(b)(iii) of the Merger
Agreement; shall terminate if Huntington elects in accordance with Section
8(b)(iv) of the Merger Agreement; and may be terminated and the Merger may be
abandoned at any time prior to the Effective Time as follows:
(a) by the mutual consent, evidenced in writing, of the boards
of directors of Huntington, Huntington Florida, and Security National;
(b) by the board of directors of Huntington, by giving written
notice thereof to Security National, which notice shall specify in reasonable
detail the grounds therefor: (i) if any condition precedent to performance by
Huntington and Huntington Florida has not been satisfied or waived; (ii) if
Security National has not fully performed its obligations and agreements
hereunder and under the Merger Agreement; or (iii) if any of the
representations of Security National set forth herein are untrue or incorrect
in any material respect; or
(c) by the board of directors of Security National, by giving
written notice thereof to Huntington, which notice shall specify in reasonable
detail the grounds therefor: (i) if any condition precedent to performance by
Security National has not been satisfied or waived; (ii) if Huntington and
Huntington Florida have not fully performed their obligations and agreements
hereunder and under the Merger Agreement; or (iii) if any of the
representations of Huntington set forth herein are untrue or incorrect in any
material respect.
11.02 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 or their respective shareholders,
directors, or officers, except pursuant to Sections 4.12,
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5.06, 11.03, and 12 hereof, which shall survive a termination of this Agreement
in accordance with the express terms of such Sections.
11.03 TERMINATION FEE. During the term of this Agreement, if (i) an
Acquisition Proposal is submitted to and approved by the shareholders of
Security National at any time prior to the Effective Time, or (ii) an
Acquisition Proposal is received by Security National or Security National Bank
or is made directly to the shareholders of Security National at any time prior
to the holding of the meeting of the shareholders of Security National to be
called pursuant to Section 4.02 hereof, the board of directors of Security
National fails to recommend to the shareholders of Security National approval
of the Merger Agreement or this Agreement, withdraws such recommendation
previously made to the shareholders of Security National, or fails to solicit
proxies of shareholders of Security National to approve the Merger, and the
Merger Agreement and this Agreement are subsequently rejected by the
shareholders of Security National at such meeting, then, in either such event,
Security National 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, neither Security National
nor Security National Bank shall have any further liability under this
Agreement or the Merger Agreement other than pursuant to the Warrant Purchase
Agreement or the Warrant. The obligations of Security National under this
Section 11.03 shall survive a termination of this Agreement.
SECTION 12. 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 13. 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:
(a) If to Security National, to:
Michael W. Sheffey
President
Security National Corporation
253 North Orlando Avenue
Maitland, Florida 32751
with a copy to:
John P. Greeley, Esq.
Smith, Mackinnon, Harris, Greeley, Bowdoin & Edwards, P.A.
Firstate Tower
255 South Orange Avenue, Suite 800
Orlando, Florida 32801
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(b) If to Huntington or Huntington Florida, to:
Zuheir Sofia
President
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
with a copy to:
Ralph K. Frasier, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
and:
Michael T. Radcliffe, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
SECTION 14. GENERAL PROVISIONS
14.01 ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement and the documents referred to or incorporated herein or therein,
reflect 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.
14.02 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.
14.03 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.
14.04 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.
14.05 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.
14.06 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.
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14.07 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
SECURITY NATIONAL CORPORATION
By: /s/ Michael W. Sheffey
------------------------------
Michael W. Sheffey, President
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EXHIBIT A TO SUPPLEMENTAL 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
Florida, Inc., and the title insurance company. 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.
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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.
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.
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SURVEYOR'S CERTIFICATE
The undersigned hereby certifies to [Buyer], and _____________ [title
insurer] as of _________________, 1994, that this survey was actually made upon
the ground; that it and the information, courses and distances shown thereon
are accurate; that the property description "closes" by engineering
calculation; that this survey correctly shows the size, location and type of
all buildings, structures and other improvements on the property and all are
within the boundary lines and applicable set-back lines (whether established by
subdivision plat, recorded restrictions or applicable zoning or building codes)
affecting the property; that there are no easements or uses affecting the
property appearing from a careful physical inspection of the same, other than
those shown thereon; that all utility services necessary for the operation of
the property are present on the property or within adjacent public right of way
or recorded easement; that there are no encroachments on adjoining premises,
streets or alleys by any of said buildings, structures or other improvements or
encroachments upon the property by any building, structure or other improvement
situated upon any adjoining premises; that the boundary lines of the tract are
contiguous with [identify adjoining street(s)] as shown hereon; that the
property has direct access to [identify adjoining street(s)]; that the property
does not lie within any flood hazard area shown on the applicable special flood
hazard area map published by the Federal Emergency Management Agency which is
identified as [INDICATE PANEL NUMBER AND DATE OF FLOOD MAP]; and that this
survey was made in accordance with current "Minimum Standard Detail
Requirements for Land Title Surveys" jointly established by ALTA and ACSM and
meets the accuracy requirements of a Class A Survey, as defined therein.
______________________________________
(Name of Surveyor)
(SEAL)
______________________________________
(Registration Number)
______________________________________
(Address)
______________________________________
(Telephone Number)
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EXHIBIT B TO SUPPLEMENTAL AGREEMENT
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Agreement") is made as of July 12,
1994, between HUNTINGTON BANCSHARES INCORPORATED, a Maryland corporation
("Huntington"), and the undersigned (the "Shareholder"), who is a shareholder
of SECURITY NATIONAL CORPORATION, a Delaware corporation ("Security National").
RECITALS
A. The Shareholder owns or has the power to vote, either
exclusive or shared, ____________ shares of the common stock, $1.00 par value,
of Security National (together with all shares of such stock which the
Shareholder subsequently acquires or obtains the power to vote, the "Shares").
B. Security National has entered into (i) a certain Agreement and
Plan of Merger with Huntington Bancshares Florida, Inc., an Ohio corporation
("Huntington Florida"), dated July 12, 1994 (the "Merger Agreement"), and (ii)
a certain Supplemental Agreement with Huntington Florida and Huntington, also
dated July 12, 1994 (the "Supplemental Agreement"), pursuant to which Security
National is to be merged into Huntington Florida (the "Merger"), pursuant to
which the shareholders of Security National will exchange their shares of
Security National common stock, $1.00 par value, for shares of Huntington
common stock, without par value ("Huntington Common"), in accordance with the
terms and conditions of the Merger Agreement and the Supplemental Agreement.
C. Under the terms of the Merger Agreement, Security National 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 and
Huntington Florida under the Merger Agreement and the Supplemental Agreement
that certain shareholders of Security National, including the Shareholder,
shall have agreed to vote their shares of Security National stock in favor of
the Merger.
AGREEMENT
Accordingly, the parties hereto hereby agree as follows:
1. AGREEMENT TO VOTE. The Shareholder agrees to vote the Shares
as follows:
(a) in favor of the adoption of the Merger Agreement and the
Supplemental Agreement 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 Security
National or the purchase of all or a substantial portion of the assets of
Security National 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 Security National to consummate the Merger in accordance with
the Merger Agreement and the Supplemental Agreement.
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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 Security National with
respect to any matter, including but not limited to, the management or
operation of Security National. The obligation to vote as provided in Section
1(a) of this Agreement is subject to the filing of a registration statement as
required by Section 5.03 of the Supplemental Agreement and the declaration of
effectiveness of such registration statement.
3. TERMINATION. This Agreement shall terminate on the earlier of
(a) December 31, 1995, (b) the date on which the Merger Agreement and
Supplemental Agreement are terminated in accordance with Section 11 of the
Supplemental Agreement, (c) the date on which the Merger is consummated, or (d)
the death of the Shareholder.
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.
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 connection with the Merger will not be
"restricted securities" within the meaning of Rule 144 of the Securities Act of
1933.
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.
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.
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IN WITNESS WHEREOF, the undersigned have executed this Shareholder
Agreement as of the day and year first above written.
SHAREHOLDER:
______________________________________
Signature
______________________________________
Print Name
HUNTINGTON BANCSHARES INCORPORATED
By: ______________________________
Zuheir Sofia, President
ACKNOWLEDGMENT
STATE OF FLORIDA )
)SS.
COUNTY OF __________________ )
The foregoing instrument was acknowledged before me this ______ day of
July, 1994, by ______________________.
______________________________________
Notary Public
My Commission expires_________________
(Notarial Seal)
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EXHIBIT C TO SUPPLEMENTAL AGREEMENT
STOCK OPTION CONVERSION AGREEMENT
This Agreement is entered into this 12th day of July, 1994, by and
among __________________________ (the "Optionholder"), HUNTINGTON BANCSHARES
INCORPORATED, a Maryland corporation ("Huntington"), HUNTINGTON BANCSHARES
FLORIDA, INC., an Ohio corporation ("Huntington Florida"), and SECURITY
NATIONAL CORPORATION., a Delaware corporation ("Security National").
RECITALS
A. Huntington Florida is a wholly owned subsidiary of Huntington.
B. Huntington Florida and Security National have entered into a
certain Agreement and Plan of Merger, dated July 12, 1994 (the "Merger
Agreement"), and Huntington, Huntington Florida, and Security National have
entered into a certain Supplemental Agreement, also dated July 12, 1994 (the
"Supplemental Agreement"), pursuant to which Security National is to be merged
into Huntington Florida (the "Merger"). Upon the consummation of the Merger,
Huntington Florida will be the successor by merger to Security National. (All
capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Merger Agreement or the Supplemental
Agreement.)
C. The Optionholder is currently an employee of Security National
or Security National Bank.
D. The Optionholder is also currently the holder of a Security
National Stock Option (the "Security National Option") to purchase certain
shares of Security National Common, pursuant to the Security National Stock
Option Plan and a certain Stock Option Agreement executed by the Optionholder
and Security National pursuant to such plan (the "Security National Stock
Option Agreement"). The total number of shares subject to the Security
National Option as of the date of this Agreement, the exercise price for the
shares which may be purchased under such option (the "Security National
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 Exhibit A which is attached hereto
and incorporated by reference herein.
E. The Security National Stock Option Agreement provides that it
shall be binding upon the successors of Security National.
F. Huntington has previously established and adopted the
Huntington Stock Option Plan, a copy of which is attached as Exhibit 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
Security National Stock Option Plan.
G. Pursuant to the terms of the Merger Agreement, upon the
consummation of the Merger, all shares of Security National Common are to be
converted into shares of Huntington Common and all options granted under the
Security National Stock Option Plan are to be converted into options to
purchase Huntington Common subject to the terms of the Huntington Stock Option
Plan.
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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 Security National Option shall be converted into a
Huntington Stock Option subject to all of the terms and conditions of the
Huntington Stock Option Plan (the "Huntington Option"), and all further rights
of the Optionholder and obligations of Security National under the Security
National Stock Option Plan and the Security National 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
Security National Common subject to the Security National Option as of the
Effective Time multiplied by the Conversion Ratio, rounded off 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 Security National Exercise Price
divided by the Conversion Ratio.
(c) The dates after which the Security National Option
shall be exercisable shall be the same as those provided under the Security
National 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 Security National Common
exercisable after the such exercise date is to the total number of shares of
Security National Common subject to the Security National Option, rounded to
the nearest whole number of shares of Huntington Common.
(d) 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.
(e) 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
Security National Option into the Huntington Option hereunder, and hereby
disclaims and agrees to return any such additional benefits that he or she may
receive.
2. Security National shall notify Huntington promptly if the
Optionholder's employment with Security National or Security National Bank 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
Security National, stating (if it is true) that the Optionholder is an employee
of Security National or Security National Bank as of that date and listing the
number of shares of Security National Common subject to the Security National
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 Supplemental
Agreement.
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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
OPTIONHOLDER HUNTINGTON BANCSHARES INCORPORATED
_____________________________ By:________________________________
Signature Name:______________________________
Title:_____________________________
_____________________________
Name (please type or print)
SECURITY NATIONAL CORPORATION HUNTINGTON BANCSHARES FLORIDA, INC.
By:_______________________________ By:________________________________
Name:_____________________________ Name:______________________________
Title:____________________________ Title:_____________________________
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EXHIBIT D TO SUPPLEMENTAL AGREEMENT
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of July
12, 1994, between HUNTINGTON BANCSHARES INCORPORATED, a Maryland corporation
("Huntington"), and SECURITY NATIONAL CORPORATION, a Delaware corporation
("Security National").
RECITALS
A. Concurrently herewith, Huntington Bancshares Florida, Inc., a
wholly owned subsidiary of Huntington ("Huntington Florida"), and Security
National have entered into an Agreement and Plan of Merger (the "Merger
Agreement") and Huntington, Huntington Florida, and Security National have
entered into a Supplemental Agreement (the "Supplemental Agreement"), both
dated as of the date hereof (collectively, the "Merger Documents"), which
provide for the merger of Security National into Huntington Florida (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, Security
National has agreed to issue to Huntington a warrant or warrants entitling
Huntington to purchase up to a total of 500,600 shares of Security National
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:
1. ISSUANCE AND EXERCISE OF THE WARRANT. Concurrently with the
execution of the Merger Documents and this Agreement, Security National shall
issue to Huntington a warrant in the forms attached as Attachment A hereto (the
"Warrant") to purchase up to a total of 500,600 shares of Security National
Common at a purchase price equal to $25.56 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.
2. REGISTRATION RIGHTS. If, at any time after the Warrant
becomes exercisable in accordance with its terms, Security National shall
receive a written request therefor from the Holder, Security National shall
prepare and file a registration statement under the 1933 Act covering such
number of shares of Security National 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 Security National nor any other holder of securities of
Security National may include securities in such registration.
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3. "PIGGYBACK" RIGHTS. If, at any time after the Warrant becomes
exercisable in accordance with its terms, Security National 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, Security National 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 Security National,
Security National shall, except as herein provided, cause all shares of
Security National Common which the Holder shall request be included in such
registration statement to be so included; provided, however, that nothing
herein shall prevent Security National from abandoning or delaying any
registration at any time; and provided, further, that if Security National
decides not to proceed with a registration after the registration statement has
been filed with the SEC and Security National's decision not to proceed is
primarily based upon the anticipated public offering price of the securities to
be sold by Security National, Security National shall promptly complete the
registration for the benefit of the Holder if the Holder agrees to bear all
additional and incremental expenses incurred by Security National as the result
of such registration after Security National 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 Security National 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 Security
National 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 Security National, 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 Security National 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.
4. OBLIGATIONS OF SECURITY NATIONAL IN CONNECTION WITH A
REGISTRATION. If and whenever Security National is required by the provisions
of Sections 2 or 3 hereof to effect the registration of any shares of Security
National Common under the 1933 Act, Security National 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 30 days;
(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, 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 Security National shall not be required by
virtue hereof to submit to the general jurisdiction of any state;
(e) notify the Holder, promptly after Security National
shall receive notice thereof, of the time when such registration statement 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;
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(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 Security National), is required under the 1933 Act
or the rules and regulations promulgated thereunder in connection with the
distribution of the shares of Security National 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;
(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 Security National 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 Security National,
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 Security National 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.
5. EXPENSES OF REGISTRATION. With respect to a registration
requested pursuant to Section 2 hereof and with respect to each inclusion of
shares of Security National Common in a registration statement pursuant to
Section 3 hereof, Security National 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 Security
National, fees and disbursements of counsel for the underwriter or underwriters
of such securities (if Security National 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 for the Holder, and
any other expenses incurred by the Holder not expressly included above shall be
borne by the Holder.
6. INDEMNIFICATION.
(a) Security National 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 Security National 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
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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 the indemnifying party pursuant to the provision of such paragraph
(a), promptly notify the indemnifying party of the commencement thereof; but
the omission to so notify the indemnifying party 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 the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in and, to the extent
that it may wish to do so, jointly with any other indemnifying party similarly
notified, 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 the indemnifying party and there is a conflict
of interest which would prevent counsel for the indemnifying party 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
the indemnifying party to such indemnified party of its election so to assume
the defense of any such action, the indemnified party shall have the right to
participate in such action and to retain its own counsel, but the indemnifying
party or parties 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) the indemnifying party 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)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(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.
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) Security National may, and upon the written
request of the Holder, Security National 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) Security National may, and upon the written
request of the owner (the "Owner") of any shares of Security
National Common purchased pursuant to an exercise of the Warrant
("Warrant Stock"), Security National 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
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(iii) If any repurchase pursuant to clauses (i)
and (ii) of this Section 7 occurs, Security National 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 Merger Documents 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 Security National Common has
been made, (ii) the price per share of Security National Common to be paid by
any third party pursuant to an agreement with Security National, and (iii) the
highest closing price for shares of Security National 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 Security National 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 Security National to repurchase the Warrant or the
Warrant Stock pursuant to this Section 7 by surrendering for such purpose to
Security National, 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 that the Holder or the Owner, as the case may
be, requests Security National 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, Security National 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
Security National is not then prohibited under applicable law and regulation
from so delivering.
(d) To the extent that Security National 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, Security National 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 Security National
is no longer so prohibited. Upon receipt of such notice from Security
National 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 Security National at its principal office stating that the Holder
and/or the Owner elects to revoke its election to exercise its right to require
Security National to repurchase the Warrant and/or Warrant Stock, whereupon
Security National will promptly deliver to the Holder and/or Owner the Warrant
and/or certificates representing shares of Warrant Stock surrendered to
Security National for purposes of such repurchase and Security National shall
have no further obligation to repurchase such Warrant and/or Warrant Stock
hereunder. Security National hereby agrees to use its best efforts to obtain
all required legal and regulatory approvals necessary to permit Security
National to repurchase the Warrant and/or the Warrant Stock as promptly as
practicable. To the extent that Security National is prohibited from
repurchasing the Warrant or the Warrant Stock in full at the time of receiving
the notice called for under paragraph (c) of this Section 7 and for a
continuous period of 25 months thereafter, Security National shall, upon the
expiration of such 25-month period, deliver to the Holder a new Warrant or
Warrant evidencing the right of the Holder to purchase that number of shares of
Security National Common obtained by multiplying the number of shares of
Security National Common for which the Warrant may at such time be exercised by
a fraction, the numerator of which is the Warrant Repurchase Price less the
portion thereof (if any) theretofore delivered to the Holder and the
denominator of which is the Warrant Repurchase Price, and Security National
shall deliver to the Owner a certificate for the shares of Warrant Stock it is
then so prohibited from repurchasing, and Security National shall have no
further obligation to repurchase such new Warrant or such Warrant Stock
hereunder.
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(e) Notwithstanding anything in this Section 7 to the
contrary, Security National shall be entitled to offset, to the extent
necessary, the amount of the termination fee previously paid pursuant to and in
accordance with Section 11.03(a) of the Supplemental Agreement against any
amounts owed to Huntington in connection with the repurchase of the Warrant or
the Warrant Stock or the payment of out-of-pocket expenses of the sort
described in Section 7(a)(iii).
8. ASSUMPTION OF OBLIGATIONS UNDER THIS AGREEMENT. Security
National 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 Security National hereunder.
9. REMEDIES. Without limiting the foregoing or any remedies
available to the Holder, Security National 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
Security National hereby agrees that Huntington and any successor holder of the
Warrant shall be entitled to specific performance of the obligations of
Security National hereunder and injunctive relief against actual or threatened
violations of the provisions hereof.
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:___________________________________
Zuheir Sofia, President
SECURITY NATIONAL CORPORATION
By:___________________________________
Michael W. Sheffey, President
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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 500,600 SHARES OF THE COMMON STOCK
OF
SECURITY NATIONAL CORPORATION
This is to certify that, for value received, HUNTINGTON BANCSHARES
INCORPORATED, a Maryland corporation ("Huntington"), is entitled to purchase
from SECURITY NATIONAL CORPORATION, a Delaware corporation ("Security
National"), at any time on or after the date hereof, an aggregate of up to
500,600 shares of the common stock, $1.00 par value per share, of Security
National ("Security National Common"), at a price of $25.56 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 Security National (the "Warrant Purchase Agreement"). The number of shares
of Security National 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 Agreement and Plan of Merger, dated as of the date
hereof, between Security National and Huntington Bancshares Florida, Inc.
("Huntington Florida"), and a certain Supplemental Agreement, dated as of the
date hereof, among Huntington, Huntington Florida, and Security National
(collectively, the "Merger Documents"), which provide for the merger of
Security National into Huntington Florida (the "Merger"). The term "Holder"
shall mean and refer to the holder of this Warrant from time to time.
1. EXERCISE OF THE WARRANT.
(a) Huntington will not exercise this Warrant unless, and
to the extent required, it has obtained the approval 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, Huntington will not exercise this Warrant
without the written consent of Security National, except upon the occurrence
of any of the following events:
(i) any willful material breach of the Merger
Documents by Security National or Security National Bank, or any
other material breach of the Merger Documents by Security National
or Security National Bank which would permit Huntington to terminate
the Merger Documents and that is caused by or arises from any act or
failure to act by Security National, Security National Bank, or any
director, officer, shareholder, employee, agent, or other
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person acting on behalf of Security National or Security
National Bank in a manner that is contrary to or inconsistent with
their obligations under this Agreement or the Merger Agreement,
including, without limitation, Security National having entered into
an agreement with any third party that is inconsistent with the
transactions contemplated under the Merger Documents;
(ii) prior to the meeting of the Security
National 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 Security National
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 Security National or Security National Bank,
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 Security National or Security National Bank, (3) a merger or
consolidation involving Security National Bank, other than a
transaction in which Security National will be the owner of all of the
stock of the surviving corporation following the transaction, or (4) a
merger or consolidation involving Security National, other than a
transaction pursuant to which Security National will be the surviving
corporation and the current shareholders of Security National will be
the 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, Security National 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 Security National if, after giving
effect to such offer, such person or group would own or have the right
to acquire a majority equity interest in Security National (a "Tender
Offer"), and such equity interest is acquired pursuant to such Tender
Offer within 18 months after the date hereof; or
(iv) Security National 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 Security National at its principal office accompanied by
(i) a written notice of exercise for a specified number of shares of Security
National Common, (ii) payment to Security National, for the account of Security
National, 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 Security National Common specified in the
notice shall be payable in immediately available funds.
(d) Upon such presentation and surrender, Security
National 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,
Security National 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
Security National of this Warrant, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the shares of Security National
Common issuable upon such exercise, notwithstanding that the stock transfer
books of Security National shall then be closed or that certificates
representing such shares of Security National Common shall not then be actually
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delivered to the Holder. Security National 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 only (i) by
private placement to the parties who would thereby be able to acquire not more
than 2.0 percent of the then outstanding shares of Security National Common, or
(ii) through underwriters in a public and dispersed distribution. Prior to
such sale or transfer, Security National shall have a right of first refusal
for not less than all of the shares covered by or issued pursuant to the
Warrant, at the price set by the Holder for private placement or public sale.
2. CERTAIN COVENANTS AND REPRESENTATIONS OF SECURITY NATIONAL.
(a) Security National shall at all times maintain
sufficient authorized but unissued shares of Security National Common so that
this Warrant may be exercised without additional authorization of Security
National Common, after giving effect to all other options, warrants,
convertible securities, and other rights to purchase Security National Common.
(b) Security National represents and warrants to
Huntington that the shares of Security National Common issued upon an exercise
of this Warrant will be duly authorized, fully paid, non-assessable, and
subject to no preemptive rights.
(c) Security National 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 Security National; (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, 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 this Warrant and Security National duly and
effectively to issue shares pursuant hereto; and (iii) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
3. FRACTIONAL SHARES. Security National shall not be required to
issue fractional shares of Security National 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.
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 Security National for other Warrants of
different denominations entitling the Holder thereof to purchase in the
aggregate the same number of shares of Security National Common purchasable
hereunder. The term "Warrant" as used herein includes any warrants for which
this Warrant may be exchanged. Upon receipt by Security National 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, Security National 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 Security
National, whether or not the Warrant so lost, stolen, destroyed, or mutilated
shall at any time be enforceable by anyone.
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5. CERTAIN TRANSACTIONS.
(a) In case Security National 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 Security National and Security National shall be the continuing
or surviving corporation, but, in connection with such merger, the then
outstanding shares of Security National Common shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property or the then outstanding shares of Security National Common shall
after such merger represent less than 50% of the outstanding shares and share
equivalents, or (iii) sell or otherwise transfer all or substantially all of
its assets or the assets of Security National Bank, a wholly owned subsidiary
of Security National, 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, Security National, in which case
such warrant shall be a newly issued warrant (in any such case, the "Substitute
Warrant").
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the
continuing or surviving corporation of a consolidation or
merger with Security National (if other than Security National), (B)
the corporation merging into Security National in a merger in which
Security National is the continuing or surviving person and in
connection with which the then outstanding shares of Security National
Common are changed into or exchanged for stock or other securities of
any other Person or cash or any other property or the then outstanding
shares of Security National Common shall after such merger represent
less than 50% of the outstanding shares and share equivalents, or (C)
the transferee of all or substantially all of Security National's
assets;
(ii) "Substitute Common Stock" shall mean the
common stock issued by the issuer of the Substitute Warrant;
(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 Security National'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
Security National as determined by a recognized investment banking
firm selected by the Holder, divided by the number of shares of
Security National 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 Security National 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 Security National 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
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(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 Security National 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 Security National 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.
6. RIGHTS OF THE HOLDER; REMEDIES.
(a) The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in Security National.
(b) Without limiting the foregoing or any remedies
available to the Holder, Security National 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 Security National
hereby agrees that Huntington and any successor holder of this Warrant shall be
entitled to specific performance of the obligations of Security National
hereunder and injunctive relief against actual or threatened violations of the
provisions hereof.
7. ANTIDILUTION PROVISIONS. The number of shares of Security
National 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 Security National issues any
additional shares of Security National Common at any time after the date hereof
(including pursuant to stock option plans), the number of shares of Security
National 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.
(b) (i) In case Security National shall pay or make a
dividend or other distribution of any class of capital stock of Security
National in Security National Common, the number of shares of Security National
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 Security National 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 case outstanding shares of Security
National Common shall be subdivided into a greater number of shares of Security
National Common, the number of shares of Security National 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 case outstanding shares of Security National
Common shall each be combined into a smaller number of shares of Security
National Common, the number of shares of Security National 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
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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 Security National is the continuing
corporation) of Security National Common into securities including other than
Security National Common shall be deemed to involve a subdivision or
combination, as the case may be, of the number of shares of Security National
Common outstanding immediately prior to such reclassification into the number
of shares of Security National 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) Security National may make such increases in
the number of shares of Security National 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 Security National
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
Security National Common purchasable prior to the adjustment and the
denominator of which is equal to the number of shares of Security National
Common purchasable after the adjustment.
(d) For the purpose of this Section 7, the term "Security
National Common" shall include any shares of Security National 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 Security National and which is not subject to
redemption by Security National.
8. NOTICE.
(a) Whenever the number of shares of Security National
Common for which this Warrant is exercisable is adjusted as provided in
Section 7 hereof, Security National shall promptly compute such adjustment and
mail to the Holder a certificate, signed by a principal financial officer of
Security National, setting forth the number of shares of Security National
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 and the computation thereof and when such adjustment will become
effective.
(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, Security National 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 Security National,
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, Security National 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
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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.
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) six months after the
termination of the Merger Documents in accordance with the terms thereof.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
this 12th day of July, 1994.
ATTEST: SECURITY NATIONAL CORPORATION
By:_______________________________ By:_______________________________
Michael W. Sheffey, President
Title:____________________________
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EXHIBIT C
THE ROBINSON-HUMPHREY COMPANY, INC.
CORPORATE FINANCE INVESTMENT BANKERS
DEPARTMENT SINCE 1894
___________ __, 1995
Board of Directors
Security National Corporation
253 North Orlando Avenue
Maitland, Florida 32751
Gentlemen:
In connection with the proposed acquisition of Security National
Corporation ("SNC") by Huntington Bancshares Incorporated ("HBAN") (the
"Merger"), you have asked us to render an opinion as to whether the financial
terms of the Merger, as provided in the Agreement and Plan of Merger dated as
of July 12, 1994 among such parties (the "Merger Agreement"), are fair, from a
financial point of view, to the stockholders of SNC. Under the terms of the
Merger, holders of all outstanding shares of SNC stock will receive shares of
HBAN common stock equal to 2.10x the SNC fully-diluted book value at December
31, 1994 for each SNC share, subject to adjustment under certain circumstances.
Our firm, as part of its investment banking business, is frequently
involved in the valuation of securities as related to public underwritings,
private placements, mergers, acquisitions, recapitalizations and other
purposes.
In connection with our study for rendering this opinion, we have
reviewed the Merger Agreement, SNC's financial results for fiscal years 1989,
1990, 1991, 1992 and 1993, and the quarters ended March 31, 1994, and June 30,
1994 and certain documents and information we deem relevant to our analysis.
We have also held discussions with our senior management of SNC for the purpose
of reviewing the historical and current operations of, and outlook for SNC,
industry trends, the terms of the proposed Merger, and related matters.
We have also studied published financial data concerning certain other
publicly traded banks which we deem comparable to SNC as well as certain
financial data relating to acquisitions of other banks that we deem relevant or
comparable. In addition, we have reviewed other published information,
performed certain financial analyses and considered other factors and
information which we deem relevant.
As the proposed Merger Agreement entails the issuance of shares of
HBAN as the consideration to be paid to SNC stockholders, we have examined
publicly available information, as well as internal data, relating to HBAN
including its historical financial statements, from 1989 up through and
including the fiscal year ended December 31, 1993, and the quarter ended March
31, 1994. We are generally familiar with HBAN's business practices and in the
course of business, our firm publishes research coverage of HBAN from time to
time.
In rendering this opinion, we have relied upon the accuracy of the
Merger Agreement, the financial information listed above, and other information
furnished to us by SNC and HBAN. We have not separately verified this
information nor have we made an independent evaluation of any of the assets or
liabilities of SNC and HBAN.
Based upon the foregoing, our experience as investment bankers, and
upon current market and economic conditions, and such other facts as we deemed
relevant, we are of the opinion that, from a financial point of view, the terms
of the Merger as provided in the Merger Agreement are fair to the stockholders
of SNC.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
ATLANTA FINANCIAL CENTER
3333 PEACHTREE ROAD, NE - ATLANTA, GEORGIA 3026
(404) 266-6000
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EXHIBIT D
DELAWARE GENERAL CORPORATION LAW
SECTION 262
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Sections 251, 252, 254, 257,
258 or 263 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series of stock
which, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by more than 2,000 stockholders; and further
provided that no appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258 and 263 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation;
b. Shares of stock of any other corporation which at
the effective date of the merger or consolidation
will be either listed on a national securities
exchange or designated as a national market
system security on an interdealer quotation
system by the National Association of Securities
Dealers, Inc. or held of record by more than
2,000 stockholders;
c. Cash in lieu of fractional shares of the
corporations described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash
in lieu of fractional shares described in the
foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal rights
are available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder electing
to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant
to Sections 228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or consolidation or
within 10 days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this section. The
notice shall be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from the surviving
or resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
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(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery,
if so ordered by the Court, shall give notice of the time and place fixed for
the hearing of such petition by registered or certified mail to the surviving
or resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock
for any purpose or to receive payment of dividends or other distributions on
the stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal shall
be filed within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a written
withdrawal of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then
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the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
337, L. '92, eff. 7-1-92.)
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation, as amended, provide that it
shall indemnify its directors to the full extent of the general laws of the
State of Maryland now or hereafter in force, including the advance of expenses
to directors subject to procedures provided by such laws; its officers to the
same extent it shall indemnify its directors; and its officers who are not
directors to such further extent as shall be authorized by the Board of
Directors and be consistent with law.
Section 2-418 of the Maryland general corporation law provides, in
substance, that a corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by the director in
connection with the proceeding, unless it is proved that the act or omission of
the director was material to the cause of action adjudicated in the proceeding
and was committed in bad faith or was the result of active and deliberate
dishonesty; or the director actually received an improper personal benefit in
money, property or services; or, in the case of any criminal proceeding, the
director had reasonable cause to believe that the act or omission was unlawful.
Notwithstanding the above, a director may not be indemnified in respect of any
proceeding, by or in the right of the corporation, in which such director shall
have been adjudged liable to the corporation or in respect of any proceeding
charging improper receipt of a personal benefit.
Termination of any proceeding by judgment, order or settlement does not
create a presumption that the director did not meet the requisite standard of
conduct. Termination of any proceeding by conviction, 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.
205
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 July 12,
1994, between Huntington Bancshares Florida, Inc.
and Security National Corporation (Attached as
Exhibit A to the Prospectus filed herewith).
2(b) Supplemental Agreement, dated as of July 12,
1994, among Huntington Bancshares Incorporated,
Huntington Bancshares Florida, Inc. and Security
National Corporation (Attached as Exhibit B to the
Prospectus filed herewith).
2(c) Warrant Purchase Agreement, dated as of July 12,
1994, between Huntington Bancshares Incorporated
and Security National Corporation.
2(d) Warrant to purchase 500,600 shares of common stock,
dated as of July 12, 1994, issued by Security
National Corporation 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 of Huntington Bancshares
Incorporated (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 of Huntington Bancshares Incorporated
(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) Articles Fifth, Eighth and Tenth of the Articles of
Restatement of Charter of Huntington Bancshares
Incorporated (reference is made to Huntington
Bancshares Incorporated's Charter, 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).
4(b) Rights Agreement, dated as of February 22,
1990, between Huntington Bancshares Incorporated
and The Huntington Trust Company, National
Association, as Rights Agent, which includes as
Exhibit A Articles Supplementary setting forth
the terms of the Series A Junior Participating
Preferred Stock, as Exhibit B the form of
Right Certificate, and as Exhibit C the Summary
of Rights to Purchase Series A Junior
Participating Preferred Stock of Huntington
Bancshares Incorporated (previously filed as
Exhibit 1 to Registration Statement on Form 8-A,
dated as of February 22, 1990, and Exhibit 4 to Form
8-K, dated as of February 21, 1990, and
incorporated herein by reference).
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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 B to Exhibit 2(b) above.
10(b) Employment Agreement, dated as of 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 as of 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 as of 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 as of 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 as of 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)(1) Executive Agreement, dated as of 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(g)(2) 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, 1993, and incorporated herein by
reference).
10(g)(3) Schedule identifying material details of Executive
Agreements, substantially similar to Exhibit
10(g)(3)(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(h) Huntington Bancshares Incorporated 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(i) Huntington Bancshares Incorporated Long-Term
Incentive Compensation Plan (previously
filed as Exhibit 10(j) to Form Annual Report on
10-K for the year ended December 31, 1993, and
incorporated herein by reference).
10(j) Huntington Bancshares Incorporated 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(k) Huntington Bancshares Incorporated Deferred
Compensation Plan and Trust for Directors (previously
filed as Exhibit 4(a) of Post-Effective Amendment
No. 2 to Registration
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207
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(l) Huntington Bancshares Incorporated Deferred
Compensation Plan and Trust for Huntington Bancshares
Incorporated Directors (previously filed as 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(m) Huntington Bancshares Incorporated Retirement Plan
For Outside Directors (previously filed as Exhibit
10(t) to Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by
reference).
10(n) Huntington Supplemental Stock Purchase and Tax
Savings Plan and Trust (previously filed as Exhibit
4(a) of 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(o)(1) Huntington Bancshares Incorporated 1983 Stock Option
Plan (previously filed as Exhibit 4A of Registration
Statement on Form S-8, Registration No. 2-89672,
filed with the Securities and Exchange Commission on
February 27, 1984, and incorporated herein by
reference).
10(o)(2) Second Amendment to the Huntington Bancshares
Incorporated 1983 Stock Option Plan (previously
filed as Exhibit 10(j)(2) to Annual Report on Form
10-K for the year ended December 31, 1987, and
incorporated herein by reference).
10(o)(3) Third Amendment to the Huntington Bancshares
Incorporated 1983 Stock Option Plan (previously
filed as Exhibit 10(j)(3) to Annual Report on Form
10-K for the year ended December 31, 1987, and
incorporated herein by reference).
10(o)(4) Fourth Amendment to the Huntington Bancshares
Incorporated 1983 Stock Option Plan (previously
filed as Exhibit 10(m)(4) to Annual Report on Form
10-K for the year ended December 31, 1993, and
incorporated herein by reference).
10(p)(1) Huntington Bancshares Incorporated 1990 Stock Option
Plan (previously filed as Exhibit 4(a) of
Registration Statement on Form S-8, Registration No.
33-37373, filed with the Securities and Exchange
Commission on October 18, 1990, and incorporated
herein by reference).
10(p)(2) First Amendment to the Huntington Bancshares
Incorporated 1990 Stock Option Plan (previously
filed as Exhibit 10(q)(2) to Annual Report on Form
10-K for the year ended December 31, 1991, and
incorporated herein by reference).
10(q) Huntington Bancshares Incorporated 1994 Stock Option
Plan (previously filed as 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).
10(r) Huntington Supplemental Retirement Plan
(previously filed as Exhibit 10(s) of to Annual
Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
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208
11 Statement re: Computation of Earnings Per Share
(previously filed as Exhibit 11 to Annual Report on
Form 10-K for the year ended December 31, 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 Price Waterhouse LLP re: financial
statements of Security National Corporation.
23(d) Consent of The Robinson-Humphrey Company, Inc.
24 Powers of Attorney.
- ---------------
* Filed herewith
(b) FINANCIAL STATEMENT SCHEDULES
None.
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209
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.
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210
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to 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 7, 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
amendment to 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 7, 1995
Gerald R. Williams (principal financial officer) )
)
)
)
*John D. Van Fleet Senior Vice President )
- ------------------------------- (principal accounting officer) )
John D. Van Fleet )
)
)
)
*Don M. Casto, III Director )
- ------------------------------- )
Don M. Casto, III )
)
)
)
*Don Conrad Director )
- ------------------------------- )
Don Conrad )
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211
*John B. Gerlach Director )
- ------------------------------- )
John B. Gerlach )
)
)
)
*Wm. J. Lhota Director )
- ------------------------------- )
Wm. J. Lhota )
)
)
)
Director )
- ------------------------------- )
Gerald E. Mayo )
)
)
*Timothy P. Smucker Director ) March 7, 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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