-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6U6tQofpG6LyfvcEqDY+YHkPgghcOqgCZbPSvyGQSO36h4kMqX1gsPwUFR6HYqi yKIGGExXye7IJrbT+xgerQ== 0000950152-02-004310.txt : 20020515 0000950152-02-004310.hdr.sgml : 20020515 20020515144836 ACCESSION NUMBER: 0000950152-02-004310 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNTINGTON BANCSHARES INC/MD CENTRAL INDEX KEY: 0000049196 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 310724920 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02525 FILM NUMBER: 02651207 BUSINESS ADDRESS: STREET 1: HUNTINGTON CTR STREET 2: 41 S HIGH ST HC0632 CITY: COLUMBUS STATE: OH ZIP: 43287 BUSINESS PHONE: 6144808300 MAIL ADDRESS: STREET 1: HUNTINGTON CENTER2 STREET 2: 41 S HIGH ST HC063 CITY: COLUMBUS STATE: OH ZIP: 43287 10-Q 1 l94357ae10-q.txt HUNTINGTON BANCSHARES INCORPORATED FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY PERIOD ENDED March 31, 2002 Commission File Number 0-2525 HUNTINGTON BANCSHARES INCORPORATED MARYLAND 31-0724920 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287 Registrant's telephone number (614) 480-8300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| There were 247,248,217 shares of Registrant's without par value common stock outstanding on April 30, 2002. HUNTINGTON BANCSHARES INCORPORATED INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2002 and 2001 and December 31, 2001 3 Consolidated Statements of Income - For the three months ended March 31, 2002 and 2001 4 Consolidated Statements of Changes in Shareholders' Equity - For the three months ended March 31, 2002 and 2001 5 Consolidated Statements of Cash Flows - For the three months ended March 31, 2002 and 2001 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 34-35 Signatures 36
2 PART I. FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, MARCH 31, (in thousands, except share amounts) 2002 2001 2001 ------------ ------------ ------------ (Unaudited) (Unaudited) ASSETS Cash and due from banks $ 654,312 $ 1,138,366 $ 1,006,809 Interest bearing deposits in banks 29,537 21,205 5,011 Trading account securities 4,040 13,392 70,550 Federal funds sold and securities purchased under resale agreements 60,118 83,275 155,738 Loans held for sale 184,353 629,386 388,545 Securities available for sale - at fair value 2,869,826 2,849,579 3,632,034 Investment securities - fair value $11,400; $12,499; and $15,586, respectively 11,264 12,322 15,358 Total loans (1) 19,338,947 21,601,873 20,870,648 Less allowance for loan losses 386,053 410,572 301,777 ------------ ------------ ------------ Net loans 18,952,894 21,191,301 20,568,871 ------------ ------------ ------------ Bank owned life insurance 852,931 843,183 814,502 Goodwill and other intangible assets 209,942 716,054 745,023 Premises and equipment 362,135 452,036 457,504 Customers' acceptance liability 15,558 13,670 16,510 Accrued income and other assets 539,044 536,390 564,733 ------------ ------------ ------------ TOTAL ASSETS $ 24,745,954 $ 28,500,159 $ 28,441,188 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1) $ 16,266,785 $ 20,187,304 $ 19,130,157 Short-term borrowings 1,803,250 1,955,926 2,700,351 Bank acceptances outstanding 15,558 13,670 16,510 Medium-term notes 1,969,398 1,795,002 2,084,859 Subordinated notes and other long-term debt 938,407 944,330 894,937 Company obligated mandatorily redeemable preferred capital securities of subsidiary trusts holding solely junior subordinated debentures of the Parent Company 300,000 300,000 300,000 Accrued expenses and other liabilities 1,018,618 887,487 909,118 ------------ ------------ ------------ Total Liabilities 22,312,016 26,083,719 26,035,932 ------------ ------------ ------------ Shareholders' equity Preferred stock - authorized 6,617,808 shares; none issued or outstanding -- -- -- Common stock - without par value; authorized 500,000,000 shares; issued 257,866,255; 257,866,255; and 257,866,255 shares, respectively; outstanding 249,991,932; 251,193,814; and 251,001,821 shares, respectively 2,486,832 2,490,724 2,491,848 Less 7,874,323; 6,672,441; and 6,864,434 treasury shares, respectively (144,199) (123,849) (126,532) Accumulated other comprehensive income (loss) 9,484 25,488 (4,221) Retained earnings 81,821 24,077 44,161 ------------ ------------ ------------ Total Shareholders' Equity 2,433,938 2,416,440 2,405,256 ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 24,745,954 $ 28,500,159 $ 28,441,188 ============ ============ ============
(1) See Page 13 for detail of Loans and Deposits. 3 CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, ---------------------- (in thousands, except per share amounts) 2002 2001 -------- -------- (Unaudited) (Unaudited) Interest and fee income Loans $342,102 $446,785 Securities 44,781 63,834 Other 6,712 7,356 -------- -------- TOTAL INTEREST INCOME 393,595 517,975 -------- -------- Interest expense Deposits 109,967 185,081 Short-term borrowings 11,605 33,163 Medium-term notes 16,598 36,663 Subordinated notes and other long-term debt 12,600 19,944 -------- -------- TOTAL INTEREST EXPENSE 150,770 274,851 -------- -------- NET INTEREST INCOME 242,825 243,124 Provision for loan losses 55,781 33,464 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 187,044 209,660 -------- -------- Total non-interest income (1) 301,428 117,724 Total non-interest expense (1) 263,570 234,090 -------- -------- INCOME BEFORE INCOME TAXES 224,902 93,294 Income taxes 127,175 25,428 -------- -------- NET INCOME $ 97,727 $ 67,866 ======== ======== PER COMMON SHARE Net income Basic $ 0.39 $ 0.27 Diluted $ 0.39 $ 0.27 Cash dividends declared $ 0.16 $ 0.20 AVERAGE COMMON SHARES Basic 250,749 250,998 Diluted 251,953 251,510
(1) See Page 14 for detail of Non-Interest Income and Non-Interest Expense. 4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED COMMON STOCK TREASURY STOCK OTHER -------------------- ------------------- COMPREHENSIVE RETAINED (in thousands) SHARES AMOUNT SHARES AMOUNT INCOME (LOSS) EARNINGS TOTAL ------ -------- ------ -------- ------------- -------- ----------- Three Months Ended March 31, 2001: Balance, beginning of period 257,866 $ 2,493,645 (7,007) $(129,432) $ (24,520) $26,354 $ 2,366,047 Comprehensive Income: Net income 67,866 67,866 Cumulative effect of change in accounting principle for derivatives (9,113) (9,113) Unrealized net holding gains on securities available for sale arising during the period, net of reclassifi- cation adjustment for net gains included in net income 26,289 26,289 Unrealized gains on derivative instruments used in cash flow hedging relationships 3,123 3,123 ------------ Total comprehensive income 88,165 ------------ Cash dividends declared (50,059) (50,059) Stock options exercised (1,797) 99 2,189 392 Treasury shares sold to employee benefit plans 44 711 711 ------- ----------- ------ --------- -------- ------- ----------- Balance, end of period (Unaudited) 257,866 $ 2,491,848 (6,864) $(126,532) $ (4,221) $44,161 $ 2,405,256 ======= =========== ====== ========= ======== ======= =========== THREE MONTHS ENDED MARCH 31, 2002: BALANCE, BEGINNING OF PERIOD 257,866 $ 2,490,724 (6,672) $(123,849) $ 25,488 $24,077 $ 2,416,440 COMPREHENSIVE INCOME: NET INCOME 97,727 97,727 UNREALIZED NET HOLDING LOSSES ON SECURITIES AVAILABLE FOR SALE ARISING DURING THE PERIOD, NET OF RECLASSIFICATION ADJUSTMENT FOR NET GAINS INCLUDED IN NET INCOME (14,800) (14,800) UNREALIZED GAINS ON DERIVATIVE INSTRUMENTS USED IN CASH FLOW HEDGING RELATIONSHIPS (1,204) (1,204) ------------ TOTAL COMPREHENSIVE INCOME 81,723 ------------ CASH DIVIDENDS DECLARED (39,983) (39,983) STOCK OPTIONS EXERCISED (3,892) 258 7,760 3,868 TREASURY SHARES PURCHASED (1,460) (28,110) (28,110) ------- ----------- ------ --------- -------- ------- ----------- BALANCE, END OF PERIOD (UNAUDITED) 257,866 $ 2,486,832 (7,874) $(144,199) $ 9,484 $81,821 $ 2,433,938 ======= =========== ====== ========= ======== ======= ===========
See notes to unaudited consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ----------------------------- (in thousands of dollars) 2002 2001 ----------- ----------- (Unaudited) (Unaudited) OPERATING ACTIVITIES Net Income $ 97,727 $ 67,866 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 55,781 33,464 Provision for depreciation and amortization 17,613 32,136 Deferred income tax expense 10,990 24,255 Decrease (increase) in trading account securities 9,352 (65,827) Decrease (increase) in mortgages held for sale 445,033 (233,441) Gains on sales of securities available for sale (457) (2,078) Gains on sales/securitizations of loans (1,395) (1,666) Gains on sale of Florida operations (175,344) -- Decrease in accrued income receivable 32,038 18,476 Net increase in other assets (61,852) (72,942) Increase in accrued expenses 30,158 34,048 Increase in other liabilities 14,924 37,077 Restructuring and special charges 56,184 -- ----------- ----------- NET CASH PROVIDED (USED FOR) BY OPERATING ACTIVITIES 530,752 (128,632) ----------- ----------- INVESTING ACTIVITIES Increase in interest bearing deposits in banks (8,332) (41) Proceeds from: Maturities and calls of investment securities 1,056 614 Maturities and calls of securities available for sale 238,433 397,078 Sales of securities available for sale 226,295 483,033 Purchases of securities available for sale (497,921) (367,003) Proceeds from sales/securitizations of loans 110,128 92,974 Net loan originations, excluding sales (623,960) (394,355) Proceeds from sale of premises and equipment 13,251 533 Purchases of premises and equipment (21,123) (16,612) Proceeds from sales of other real estate 2,412 1,892 Net cash paid related to sale of Florida operations (1,289,917) -- ----------- ----------- NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (1,849,678) 198,113 ----------- ----------- FINANCING ACTIVITIES Increase (decrease) in total deposits 853,834 (647,339) (Decrease) increase in short-term borrowings (152,676) 712,592 Maturity of long-term debt -- (4,000) Proceeds from issuance of medium-term notes 675,000 300,000 Payment of medium-term notes (500,000) (675,000) Dividends paid on common stock (40,201) (50,173) Repurchases of common stock (28,110) -- Net proceeds from issuance of common stock 3,868 1,103 ----------- ----------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 811,715 (362,817) ----------- ----------- CHANGE IN CASH AND CASH EQUIVALENTS (507,211) (293,336) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,221,641 1,455,883 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 714,430 $ 1,162,547 =========== ===========
See notes to unaudited consolidated financial statements. 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The Notes to the Consolidated Financial Statements appearing in Huntington Bancshares Incorporated's (Huntington) 2001 Annual Report on Form 10-K (2001 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. Certain amounts in the prior year's financial statements have been reclassified to conform to the 2002 presentation. These reclassifications had no effect on net income. NOTE 2 - EARNINGS PER SHARE Basic earnings per share is the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares for stock options. The calculation of basic and diluted earnings per share for each of the periods ended March 31, is as follows:
THREE MONTHS ENDED MARCH 31, (in thousands, except per share amounts) 2002 2001 -------- -------- Net Income $ 97,727 $ 67,866 ======== ======== Average common shares outstanding 250,749 250,943 Dilutive effect of stock options 1,204 567 -------- -------- Diluted common shares outstanding 251,953 251,510 ======== ======== Earnings per share Basic $ 0.39 $ 0.27 Diluted $ 0.39 $ 0.27
Approximately 5.6 million and 6.9 million stock options were outstanding at the end of each respective period but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares for the period and, therefore, the effect would be antidilutive. NOTE 3 - INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the Statements. Other intangible assets continue to be amortized over their useful lives. At March 31, 2002 and 2001, Huntington had $209.9 million and $745.0 million in goodwill and other intangible 7 assets, respectively. The following table reflects the activity in goodwill and other intangible assets for the three months ended March 31:
(in thousands of dollars) 2002 2001 --------- --------- Balance, beginning of period $ 716,054 $ 755,270 Additions 168 329 Sale of Florida operations (504,904) -- Amortization (1,376) (10,576) --------- --------- BALANCE, END OF PERIOD $ 209,942 $ 745,023 ========= =========
Huntington applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Prior to the sale of Huntington's operations in Florida, a majority of goodwill and other intangible assets related to those operations. The application of the non-amortization provisions of SFAS No. 142 resulted in an increase in net income per share of $.03 for the first quarter 2002. Had no amortization of goodwill, net of tax, been recorded in the prior year, net income and diluted earnings per share for the first quarter 2001 would have been $75.7 million and $0.30 per share, respectively. During 2002, Huntington will perform the first of the required impairment tests of the remaining goodwill as of January 1, 2002. Huntington's management does not expect the implementation of the impairment provisions of SFAS No. 142 to have a material impact on its results of operations or financial condition. NOTE 4 - COMPREHENSIVE INCOME Comprehensive Income includes net income as well as certain items that are reported directly within a separate component of stockholders' equity that are not considered part of net income. Currently, Huntington's only components of Other Comprehensive Income are the unrealized gains (losses) on securities available for sale and unrealized gains and losses on certain derivatives. The related before and after tax amounts are as follows:
THREE MONTHS ENDED MARCH 31, -------- -------- (in thousands of dollars) 2002 2001 -------- -------- Cumulative effect of change in accounting method for derivatives used in cash flow hedging relationships: Unrealized net losses $ -- $(14,020) Related tax benefit -- 4,907 -------- -------- Net -- (9,113) -------- -------- Unrealized holding (losses) gains on securities available for sale arising during the period: Unrealized net (losses) gains (22,312) 42,525 Related tax benefit (expense) 7,809 (14,884) -------- -------- Net (14,503) 27,641 -------- -------- Unrealized holding (losses) gains on derivatives used in cash flow hedging relationships arising during the period: Unrealized net (losses) gains (1,852) 4,805 Related tax benefit (expense) 648 (1,682) -------- -------- Net (1,204) 3,123 -------- -------- Less: Reclassification adjustment for net gains from sales of securities available for sale realized during the period: Realized net gains 457 2,078 Related tax expense (160) (726) -------- -------- Net 297 1,352 -------- -------- Total Other Comprehensive (Loss) Income $(16,004) $ 20,299 ======== ========
8 Activity in Accumulated Other Comprehensive Income for the three months ended March 31, 2002 and 2001 was as follows:
UNREALIZED GAINS (LOSSES) ON DERIVATIVE UNREALIZED GAINS (LOSSES) INSTRUMENTS USED IN ON SECURITIES CASH FLOW HEDGING (in thousands of dollars) AVAILABLE FOR SALE RELATIONSHIPS ------------------------- ---------------------- Balance, December 31, 2000 (24,520) -- Change in accounting method -- (9,113) Current-period change 26,289 3,123 -------- ------- Balance, March 31, 2001 $ 1,769 $(5,990) ======== ======= Balance, December 31, 2001 29,469 (3,981) Current-period change (14,800) (1,204) -------- ------- Balance, March 31, 2002 $ 14,669 $(5,185) ======== =======
NOTE 5 - RESTRUCTURING AND SPECIAL CHARGES During the first quarter of 2002, Huntington recorded pre-tax restructuring and special charges of $56.2 million related to the implementation of strategic initiatives announced July 2001. These charges included expenses of $32.7 million related to the sale of the Florida operations, $8.0 million for asset impairment, $4.3 million for the exit of certain e-commerce activities, $1.8 million related to facilities, and $9.4 million for other non-recurring costs. These charges amounted to $36.5 million, or $0.14 per share, on an after-tax basis and are reflected in non-interest expense in the accompanying unaudited consolidated financial statements. Combined with the amounts recorded in 2001, these pre-tax charges totaled $233.1 million ($151.5 million after-tax, or $0.60 per share), and consisted of $71.7 million related to credit quality, $45.3 million for asset impairment, $34.7 million for the costs related to sell the Florida operations, $20.1 million for the exit or curtailment of certain e-commerce activities, $15.6 million related to owned or leased facilities that Huntington has vacated or intends to vacate, and $45.7 million related to reduction of ATMs, employee severance, non-recurring legal, accounting, consulting, and other operational costs. NOTE 6 - SALE OF FLORIDA OPERATIONS On February 15, 2002, Huntington completed the sale of its Florida operations to SunTrust Banks, Inc. Included in the sale were $4.8 billion of deposits and other liabilities and $2.8 billion of loans and other assets. Huntington received a deposit premium of 15%, or $711.9 million. The total net pre-tax gain from the sale was $175.3 million and is reflected in non-interest income. The after-tax gain was $56.8 million, or $0.22 per share. Income taxes related to this transaction were $118.6 million. Most of the goodwill relating to the Florida operations was non-deductible for tax purposes. Pro forma financial information reflecting the effect of the sale is presented and described below. Since the transaction was completed during the quarter, no pro forma balance sheet is presented. The following unaudited pro forma consolidated income statement is presented for the quarter ended March 31, 2002, giving effect to the sale as if it had occurred on January 1, 2002, and does not include the net gain realized on the sale of Huntington's Florida operations or any related special charges. These pro forma financial statements do not include any assumptions as to future share repurchases pursuant to the previously announced share repurchase program that commenced following the sale. The pro forma consolidated income statement may not be indicative of the results of operations that would have actually occurred had the transaction been consummated during the period indicated. This pro forma financial information is also not intended to be an indication of the results of operations that may be attained in 9 the future. These pro forma consolidated financial statements should be read in conjunction with Huntington's historical financial statements. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE QUARTER ENDED MARCH 31, 2002
Florida Related Huntington (in thousands of dollars) Huntington Operations Transactions Pro Forma - ------------------------- ---------- ---------- ------------ ---------- Net interest income $242,825 $ (9,724) $ -- $233,101 Provision for loan losses 55,781 (5,186) -- 50,595 -------- -------- --------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 187,044 (4,538) -- 182,506 -------- -------- --------- -------- Non-interest income 301,428 (10,633) (175,344) 115,451 Non-interest expense 263,570 (18,335) (32,728) 212,507 -------- -------- --------- -------- INCOME BEFORE INCOME TAXES 224,902 3,164 (142,616) 85,450 Income taxes 127,175 1,107 (107,098) 21,184 -------- -------- --------- -------- NET INCOME $ 97,727 $ 2,057 $ (35,518) $ 64,266 ======== ======== ========= ======== NET INCOME PER COMMON SHARE -- DILUTED $ 0.39 $ 0.01 ($ 0.14) $ 0.26 ======== ======== ========= ======== OPERATING NET INCOME (1) $ 77,456 $ 2,057 $ 79,513 ======== ======== ======== OPERATING NET INCOME PER COMMON SHARE -- DILUTED (1) $ 0.31 $ 0.01 $ 0.32 ======== ======== ========
(1) Excludes after-tax gain on sale of the Florida operations and restructuring and special charges. The column entitled Florida Operations includes all direct revenue and expenses for Florida from January 1, 2002 through February 15, 2002, and any indirect revenue and expenses that ceased with the sale, including $1.1 million of amortization expense on intangible assets related to Florida. In addition, net interest income in that column includes a funding credit of $5.3 million related to the $2.0 billion of funding that Florida provided to Huntington and the $1.9 million of interest that would have been earned on the $711.9 million deposit premium. Both the funding credit and the assumed interest earned on the deposit premium are based on the average one-year LIBOR rate for the first quarter of 2002 of 2.15%. The column entitled Related Transactions reflects the $175.3 million net gain on the sale of the Florida operations, $32.7 million of the $56.2 million special charges recorded in the first quarter of 2002 that related to the sale of Florida, and the applicable income taxes. After excluding the remaining restructuring and special charges, net of taxes, the earnings per share were $0.32 for the first quarter of 2002. NOTE 7 - SEGMENT REPORTING Huntington views its operations as four distinct segments. Regional Banking, Dealer Sales, and the Private Financial Group (PFG) are Huntington's major business lines. The fourth segment includes Huntington's Treasury function and other unallocated assets, liabilities, revenue, and expense. Line of business results are determined based upon Huntington's business profitability reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around Huntington's organizational and management structure and accordingly, the results below are not necessarily comparable with similar information published by other financial institutions. In the first quarter of 2002, changes were made to the methodologies utilized for certain balance sheet and income statement allocations performed by Huntington's business profitability reporting system. The prior quarters have not been restated for these changes. The chief decision-makers for Huntington rely on "operating earnings", which are results of operations excluding the net gain from the sale of the Florida operations and restructuring and special charges, for review of performance and for critical decision making purposes. See note 5 to the unaudited consolidated financial 10 statements for further discussions regarding restructuring and special charges and note 6 for the net gain on sale of Huntington's Florida operations. Net interest income is presented on a fully tax equivalent (FTE) basis using a 35% tax rate. The following provides a brief description of the four operating segments of Huntington: REGIONAL BANKING: provides products and services to retail, business banking, and corporate customers. This segment's products include home equity loans, first mortgage loans, installment loans, business loans, personal and business deposit products, as well as investment and insurance services. These products and services are offered through Huntington's traditional banking network, Direct Bank, and Web Bank. Regional Banking also represents the middle-market and large corporate banking relationships which use a variety of banking products and services including, but not limited to, commercial loans, international trade, and cash management. Huntington's capital markets division also provides alternative financing solutions for larger business clients, including privately placed debt, syndicated commercial lending, and the sale of interest rate protection products. DEALER SALES: product offerings pertain to the automobile lending sector and include indirect consumer loans and leases, as well as floor plan financing. The consumer loans and leases comprise the vast majority of the business and involve the financing of vehicles purchased or leased by individuals through dealerships. PRIVATE FINANCIAL GROUP: this segment's array of products and services are designed to meet the needs of Huntington's higher wealth customers. Revenue is derived through the sale of personal trust, asset management, investment advisory, brokerage, insurance, and deposit and loan products and services. TREASURY / OTHER: this segment absorbs unassigned assets, liabilities, equity, revenue, and expense that cannot be directly assigned or allocated to one of Huntington's lines of business. Furthermore, Huntington uses a match-funded transfer pricing system to allocate interest income and interest expense to its business segments. This approach consolidates the interest rate risk management of Huntington into its Treasury Group. As part of its overall interest rate risk and liquidity management strategy, the Treasury Group administers an investment portfolio of approximately $2.9 billion. Revenue and expense associated with these activities remain within the Treasury Group. Additionally, the net gain from the 2002 sale of Huntington's Florida operations, the restructuring and special charges, and amortization expense of intangible assets are also components of Treasury/Other. Listed below is certain reported financial information reconciled to Huntington's first quarter 2002 and 2001 operating results by line of business.
INCOME STATEMENTS Regional Dealer Treasury/ Huntington (in thousands of dollars) Banking Sales PFG Other Consolidated -------- ------- ------- --------- ------------ 2002 Net interest income (FTE) $159,638 $53,070 $ 7,635 $ 23,651 $ 243,994 Provision for loan losses 28,969 26,812 -- -- 55,781 Non-Interest income 89,537 2,640 23,566 185,685 301,428 Non-Interest expense 160,281 18,222 17,409 67,658 263,570 Income taxes/FTE adjustment 20,974 3,737 4,827 98,806 128,344 -------- ------- ------- --------- --------- Net income, as reported 38,951 6,939 8,965 42,872 97,727 Gain on sale of Florida operations, net of tax -- -- -- 56,790 56,790 Restructuring and special charges, net of tax -- -- -- (36,519) (36,519) -------- ------- ------- --------- --------- Operating earnings $ 38,951 $ 6,939 $ 8,965 $ 22,601 $ 77,456 ======== ======= ======= ========= =========
11
INCOME STATEMENTS Regional Dealer Treasury/ Huntington (in thousands of dollars) Banking Sales PFG Other Consolidated -------- ------- ------- --------- ------------ 2001 Net interest income (FTE) $201,438 $54,356 $ 9,556 $(20,224) $245,126 Provision for loan losses 17,369 16,095 -- -- 33,464 Non-Interest income 79,602 11,273 23,520 3,329 117,724 Non-Interest expense 174,952 13,660 26,665 18,813 234,090 Income taxes/FTE adjustment 31,052 12,556 2,244 (18,422) 27,430 -------- ------- ------- -------- -------- Net income, as reported 57,667 23,318 4,167 (17,286) 67,866 Restructuring and special charges, net of tax -- -- -- -- -- -------- ------- ------- -------- -------- Operating earnings $ 57,667 $23,318 $ 4,167 $(17,286) $ 67,866 ======== ======= ======= ======== ========
BALANCE SHEETS AVERAGE ASSETS AVERAGE DEPOSITS ---------------------- ---------------------- (in millions of dollars) 2002 2001 2002 2001 ------- ------- ------- ------- Regional Banking $13,972 $14,263 $16,752 $18,027 Dealer Sales 7,916 7,037 57 82 PFG 903 718 731 637 Treasury / Other 3,753 6,221 385 321 ------- ------- ------- ------- Total $26,544 $28,239 $17,925 $19,067 ======= ======= ======= =======
12 FINANCIAL REVIEW LOAN PORTFOLIO COMPOSITION
MARCH 31, 2002 DECEMBER 31, 2001 MARCH 31, 2001 -------------------- ------------------- ------------------ (in thousands of dollars) BALANCE % BALANCE % BALANCE % ----------- ----- ----------- ----- ----------- ----- Commercial (unearned income $5,662, $2,859, and $1,343) $ 5,681,788 29.4 $ 6,439,372 29.8 $ 6,729,992 32.2 Commercial real estate 3,645,114 18.8 3,975,562 18.4 3,599,262 17.2 ----------- ----- ----------- ----- ----------- ----- Total Commercial and Commercial Real Estate 9,326,902 48.2 10,414,934 48.2 10,329,254 49.5 ----------- ----- ----------- ----- ----------- ----- Consumer Auto leases - Indirect (unearned income $471,421, $500,430 and $520,569) 3,126,101 16.2 3,207,514 14.8 3,175,981 15.2 Auto loans - Indirect (unearned income $12, $19, and $28) 2,561,936 13.2 2,883,279 13.3 2,511,652 12.0 Home equity lines 2,189,649 11.3 2,535,885 11.7 2,223,647 10.7 Residential mortgage 1,075,141 5.6 970,704 4.5 959,852 4.6 Other loans (unearned income $16, $24, and $36) 1,059,218 5.5 1,589,557 7.4 1,670,262 8.0 ----------- ----- ----------- ----- ----------- ----- Total Consumer 10,012,045 51.8 11,186,939 51.8 10,541,394 50.5 ----------- ----- ----------- ----- ----------- ----- TOTAL LOANS $19,338,947 100.0 $21,601,873 100.0 $20,870,648 100.0 =========== ===== =========== ===== =========== =====
DEPOSIT COMPOSITION
MARCH 31, 2002 DECEMBER 31, 2001 MARCH 31, 2001 -------------------- ------------------- ------------------ (in thousands of dollars) BALANCE % BALANCE % BALANCE % ----------- ----- ----------- ----- ----------- ----- Demand deposits Non-interest bearing $ 2,857,233 17.6 $ 3,635,173 18.0 $ 3,256,604 17.0 Interest bearing 4,747,283 29.2 5,723,160 28.4 4,688,109 24.5 Savings deposits 2,895,445 17.8 3,466,305 17.2 3,607,404 18.9 Other domestic time deposits 4,179,814 25.7 5,868,451 29.1 5,897,999 30.8 ----------- ----- ----------- ----- ----------- ----- TOTAL CORE DEPOSITS (1) 14,679,775 90.3 18,693,089 92.7 17,450,116 91.2 ----------- ----- ----------- ----- ----------- ----- Domestic time deposits of $100,000 or more 895,427 5.5 1,130,563 5.6 1,350,813 7.1 Brokered time deposits and negotiable CDs 451,173 2.8 137,915 0.7 136,147 0.7 Foreign time deposits 240,410 1.4 225,737 1.0 193,081 1.0 ----------- ----- ----------- ----- ----------- ----- TOTAL DEPOSITS $16,266,785 100.0 $20,187,304 100.0 $19,130,157 100.0 =========== ===== =========== ===== =========== =====
(1) Core deposits include non-interest bearing and interest bearing demand deposits, savings deposits, CDs under $100,000, and IRA deposits. 13 FINANCIAL REVIEW ANALYSIS OF NON-INTEREST INCOME
THREE MONTHS ENDED MARCH 31, ------------------- PERCENT (in thousands of dollars) 2002 2001 CHANGE -------- -------- -------- Service charges on deposit accounts $ 38,530 $ 38,907 (1.0)% Mortgage banking 19,565 10,031 95.0 Brokerage and insurance 18,792 18,768 0.1 Trust services 15,501 14,314 8.3 Bank Owned Life Insurance income 11,676 9,560 22.1 Other service charges and fees 10,632 11,098 (4.2) Other 10,931 12,968 (15.7) -------- -------- -------- TOTAL NON-INTEREST INCOME BEFORE GAIN ON SALE OF FLORIDA OPERATIONS AND SECURITIES GAINS 125,627 115,646 8.6 Gain on sale of Florida operations 175,344 -- N.M. Securities gains 457 2,078 (78.0) -------- -------- -------- TOTAL NON-INTEREST INCOME $301,428 $117,724 156.0% ======== ======== ========
ANALYSIS OF NON-INTEREST EXPENSE
THREE MONTHS ENDED MARCH 31, -------------------- PERCENT (in thousands of dollars) 2002 2001 CHANGE -------- -------- -------- Personnel costs $114,285 $117,662 (2.9)% Outside data processing and other services 18,439 16,654 10.7 Net occupancy 17,239 19,780 (12.9) Equipment 16,949 19,972 (15.1) Marketing 7,003 9,939 (29.5) Telecommunications 6,018 7,125 (15.5) Professional services 5,401 4,969 8.7 Printing and supplies 3,837 5,059 (24.2) Franchise and other taxes 2,328 2,120 9.8 Amortization of intangible assets 1,376 10,576 (87.0) Other 14,511 20,234 (28.3) -------- -------- -------- TOTAL NON-INTEREST EXPENSE BEFORE SPECIAL CHARGES 207,386 234,090 (11.4) Special charges 56,184 -- N.M. -------- -------- -------- TOTAL NON-INTEREST EXPENSE $263,570 $234,090 12.6% ======== ======== ========
N.M. - Not Meaningful. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Huntington is a multi-state financial holding company headquartered in Columbus, Ohio. Its subsidiaries are engaged in full-service commercial and consumer banking, mortgage banking, lease financing, trust services, discount brokerage services, underwriting credit life and disability insurance, issuing commercial paper guaranteed by Huntington, and selling other insurance and financial products and services. Huntington's subsidiaries operate domestically in offices located in Ohio, Michigan, Florida, West Virginia, Indiana, and Kentucky. Huntington has a foreign office in each of the Cayman Islands and Hong Kong. FORWARD-LOOKING STATEMENTS This interim report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements about Huntington. These include descriptions of products or services, plans, or objectives of its management for future operations, and forecasts of its revenues, earnings, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors, including but not limited to, those set forth under the heading "Business Risks" included in Item 1 of Huntington's 2001 Annual Report and other factors described from time to time in Huntington's other filings with the Securities and Exchange Commission, could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. The management of Huntington encourages readers of this interim report on Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Forward-looking statements speak only as of the date they are made. Huntington does not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. The following discussion and analysis, the purpose of which is to provide investors and others with information that Huntington's management believes to be necessary for an understanding of its financial condition, changes in financial condition, and results of operations, should be read in conjunction with the financial statements, notes, and other information contained in this document. SIGNIFICANT ACCOUNTING POLICIES Note 1 to Huntington's consolidated financial statements included in the 2001 Annual Report lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of Huntington and its results of operations. SALE OF FLORIDA OPERATIONS On February 15, 2002, Huntington completed the sale of its Florida operations to SunTrust Banks, Inc. These operations included 143 banking offices and 456 ATMs with approximately $2.8 billion in loans and other tangible assets, and $4.8 billion in deposits and other liabilities. Huntington received a 15% premium on the deposits sold, resulting in a net pre-tax gain of $175.3 million ($56.8 million after-tax, or $0.22 per share). The transaction slightly improved Huntington's earnings sensitivity to rising interest rates. In addition, the net interest margin, tangible equity to assets, and efficiency ratios were and will be favorably impacted in the future. The dollar value of NPAs was reduced but the NPA ratios increased with the sale. See note 6 to Huntington's unaudited consolidated financial statements regarding the sale of the Florida operations. ACQUISITION OF HABERER INVESTMENT ADVISOR, INC. On April 1, 2002, Huntington closed the acquisition of Haberer Investment Advisor, Inc. (Haberer), a Cincinnati-based registered investment advisory firm. Haberer has approximately $500 million in assets under management and will become part of Huntington's Private Financial Group line of business as a wholly-owned subsidiary of Huntington. 15 STRATEGIC REFOCUSING AND OTHER RESTRUCTURING During the first quarter 2002, Huntington implemented its strategic refocusing plan announced last July. This plan included the sale of Huntington's Florida operations, which closed in February 2002 as discussed above, the consolidation of numerous non-Florida branch offices, as well as credit-related and other actions to strengthen Huntington's balance sheet. These initiatives were designed to attain more positive revenue and earnings for shareholders and to improve capital efficiency. Huntington recorded $56.2 million of pre-tax restructuring and special charges during the first quarter of 2002 ($36.5 million after-tax, or $0.14 per share) related to its strategic refocusing plan. Combined with the amounts recorded in 2001, these pre-tax charges totaled $233.1 million ($151.5 million after-tax, or $0.60 per share), and consisted of $71.7 million related to credit quality, $45.3 million for asset impairment, $34.7 million for the costs related to the sale of the Florida operations, $20.1 million for the exit or curtailment of certain e-commerce activities, $15.6 million related to owned or leased facilities that Huntington has vacated or intends to vacate, and $45.7 million related to reduction of ATMs, employee severance, non-recurring legal, accounting, consulting, and other operational costs. OFF BALANCE SHEET ARRANGEMENTS Like other financial organizations, Huntington uses various commitments in its ordinary course of business that, under accounting principles generally accepted in the United States (GAAP), are not recorded in its financial statements. Huntington makes various commitments to extend credit to customers and to sell loans, and has obligations under operating-type noncancelable leases for its facilities. SPECIAL PURPOSE ENTITIES (SPEs) Huntington utilized two securitization trusts, or SPEs, in 2000 as funding sources. In the securitization transactions, loans that Huntington originated were sold to these trusts in exchange for funding collateralized by these loans. Under GAAP, these trusts are not consolidated in Huntington's financial statements. As such, the loans originated by Huntington and the funding it obtained are not included on the balance sheets. DERIVATIVES Huntington uses a variety of derivatives, principally interest rate swaps, in its asset and liability management activities to protect against the risk of adverse interest rate movements on either cash flows or market value of certain assets and liabilities. This, along with other information regarding derivatives, is discussed under the "Interest Rate Risk Management" section of this report and also in the notes to Huntington's unaudited consolidated financial statements. RELATED PARTY TRANSACTIONS Various directors and executive officers of Huntington are customers of The Huntington National Bank, Huntington's bank subsidiary, and other affiliates and had transactions with these affiliates in the ordinary course of business. Directors and executive officers of Huntington may also be affiliated with entities that are customers of Huntington and its affiliates, which enter into transactions with these affiliates in the ordinary course of business. A summary of the indebtedness of management can be found in note 4 to Huntington's 2001 Annual Report. All other related party transactions, including those reported in Huntington's 2002 Proxy Statement, were considered immaterial to its financial condition and results of operations. OVERVIEW Huntington reported net income of $97.7 million, or $0.39 per common share, for the first quarter of 2002. This compares with $67.9 million, or $0.27 per common share, for the same period a year ago. Return on average common equity (ROE) for the comparable periods was 16.72% and 11.53%, while return on average assets (ROA) was 1.49% and 0.97%. "Operating earnings" for the first quarter of 2002 exclude the $175.3 million net pre-tax gain on the sale of the Florida operations and the $56.2 million pre-tax restructuring and special charges related to the strategic refocusing plan discussed above. Operating earnings were $77.5 million, or $0.31 per common share, in the first three months of 2002, versus $67.9 million, or $0.27 per common share in the first quarter of last year. On this same basis, ROE was 13.26% for the recent three months, compared with 11.53% for the same period a year ago. ROA was 1.18% and 0.97% for the same respective periods. In addition to the net gain on the sale of the Florida operations and the restructuring and special charges, the first quarter 2002 results included the Florida operations for only one-half of the quarter. Comparison of the first quarter 2002 to other period's results is better understood when these items are excluded. Comments below are on this basis except where indicated. The following table reconciles Huntington's reported results with its operating earnings and results excluding the operations in Florida for the first quarter of 2002 and 2001: 16 FOR THE THREE MONTHS ENDED MARCH 31, 2002
- --------------------------------------------------------------------------------------------------------------------- Gain on Sale of Florida Operating Operations/ Earnings Restructuring Excluding (in thousands, except per share Reported and Special Operating Florida Florida amounts) Earnings Charges Earnings Operations Operations -------- -------- -------- ---------- ---------- Net interest income $242,825 $242,825 $ 9,724 $233,101 Provision for loan losses 55,781 55,781 5,186 50,595 Securities gains 457 457 -- 457 Non-interest income 300,971 $175,344 125,627 10,633 114,994 Non-interest expense 263,570 56,184 207,386 18,335 189,051 -------- -------- -------- -------- -------- Pre-tax income 224,902 119,160 105,742 (3,164) 108,906 Income taxes 127,175 98,889 28,286 (1,107) 29,393 -------- -------- -------- -------- -------- NET INCOME $ 97,727 $ 20,271 $ 77,456 $ (2,057) $ 79,513 -------- -------- -------- -------- -------- NET INCOME PER COMMON SHARE -- DILUTED $ 0.39 $ 0.08 $ 0.31 ($ 0.01) $ 0.32 ======== ======== ======== ======== ========
FOR THE THREE MONTHS ENDED MARCH 31, 2001
- --------------------------------------------------------------------------------------------------------------------- Operating Earnings Restructuring Excluding (in thousands, except per share Reported and Special Operating Florida Florida amounts) Earnings Charges Earnings Operations Operations -------- ------------- -------- ---------- ---------- Net interest income $243,124 $ -- $243,124 $ 24,606 $218,518 Provision for loan losses 33,464 -- 33,464 3,755 29,709 Securities gains 2,078 -- 2,078 2,078 Non-interest income 115,646 -- 115,646 19,073 96,573 Non-interest expense 234,090 -- 234,090 40,273 193,817 -------- -------- -------- -------- -------- Pre-tax income 93,294 -- 93,294 (349) 93,643 Income taxes 25,428 -- 25,428 965 24,463 -------- -------- -------- -------- -------- NET INCOME $ 67,866 $ -- $ 67,866 $ (1,314) $ 69,180 -------- -------- -------- -------- -------- NET INCOME PER COMMON SHARE -- DILUTED $ 0.27 $ 0.00 $ 0.27 ($ 0.01) $ 0.28 ======== ======== ======== ======== ========
Total assets declined to $24.7 billion from $28.5 billion at December 31, 2001, reflecting the impact of the sale of loans and other assets in Florida. Excluding Florida, managed loans grew at an annualized rate of 5% during the quarter, which helped offset the impact from the sale. Home equity lines of credit and residential real estate loans showed robust growth of 13% and 70%, respectively, during the quarter largely the result of the refinancing boom that occurred in the latter portion of 2001 that continued into the first quarter of 2002. Huntington's focus on origination of adjustable-rate mortgages produced $600 million in new loans recorded since September of 2001 and another $175 million that are in the pipeline. The growth in home equity lines of credit has been favorably impacted by the lower interest rate environment and has increased as a result of successful cross-selling to meet the needs of mortgage loan and other customers. Commercial real estate loans increased 16% on an annualized basis during the first quarter of 2002, primarily in construction loans. Commercial loans, auto loans and leases, and installment loans all showed declining growth rates for the quarter as a result of the weakened economic conditions. Commercial loans declined 6%, auto loans and leases were down 1%, and installment loans were lower by 17% on an annualized basis for the quarter. Auto loan and lease origination volume was down for the first quarter of 2002 to $699 million from $759 million in the fourth quarter of 2001. Core deposits, which are comprised of non-interest bearing and interest bearing deposits, savings accounts, certificates of deposit under $100,000, and IRAs, were $14.7 billion versus $19.8 billion at the end of 2001. Excluding the impact of the sale of the Florida deposits, core deposits increased at an annual rate of 6% during the quarter. This increase is the result of continued emphasis on attracting more retail deposits through Huntington's 17 sales management process and marks the third consecutive quarter of deposit growth. This broad-based growth helped to fund the sale of the Florida operations, as a lower level of wholesale funding was required to balance the transaction. RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income was $242.8 million for the three months ended March 31, 2002, down from $255.2 million for the fourth quarter of 2001 and nearly flat compared to $243.1 million in the same period a year earlier. Excluding the contribution from the Florida operations, net interest income was $233.1 million, versus $236.6 million and $218.5 million for the same respective periods. The net interest margin increased 21 basis points from a year ago to 4.14% for the first quarter of 2002, and was up 3 basis points from the fourth quarter of 2001. The net interest margin, excluding Florida, increased 23 basis points from 3.98% a year ago to 4.21% for the first quarter of 2002, but was down 6 basis points from the fourth quarter of 2001. This margin compression during the recent quarter was driven primarily by the reduction in benefit derived from the lag in repricing related to Huntington's $2 billion variable rate home equity lines of credit. The margin expansion over the recent five quarters is the result of a richer asset mix, primarily through the sale of lower-margin earning assets. Huntington's net interest margin analysis and average balance sheets for the recent five quarters can be found on pages 29 and 30 of this report. Huntington regularly enters into various types of derivative financial instruments, primarily interest rate swaps, to manage its exposure to changes in interest rates. The cash flows generated by derivative instruments used to manage risk associated with earning assets and interest bearing liabilities are recorded along with the interest from the hedged item and consequently impact the yields on those assets and liabilities. The impact of these derivatives increased the net interest margin by 12 basis points for the first quarter of 2002 and lowered it by 4 basis points for the same period in 2001. Huntington's interest rate risk position as well as the implementation of a new accounting standard regarding derivatives is discussed further in the "Interest Rate Risk Management" section of this report. PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses is the expense necessary to maintain the allowance for loan losses (ALL) at a level adequate to absorb management's estimate of inherent losses in the loan portfolio. The provision expense increased to $55.8 million for the quarter ended March 31, 2002, from $33.5 million in the year-ago quarter. This increase in expense represents increases in net charge-offs, which were 111 basis points for the current quarter, up from 55 basis points last year. Excluding the losses on the sub-prime automobile and truck and equipment lending businesses that Huntington exited last year for which reserves were established in the second quarter of 2001, net charge offs were 104 basis points for the current quarter compared to 55 basis points last year. Excluding losses related to the exited businesses and Florida, net charge offs were 100 basis points for the recent period compared to 57 basis points for the period last year. On this same basis, commercial net charge offs rose to 131 basis points for the first quarter 2002 compared with 41 basis points for the same period a year ago and consumer net charge offs were 110 basis points and 78 basis points for the same periods. The ALL was $386.1 million at March 31, 2002, up from $301.8 million the end of the first quarter 2001. This represents 2.00% of total 2002 first quarter-end loans compared with 1.45% of total loans at the end of the same quarter last year. The ALL was $410.6 million at the end of 2001 and was reduced by $22.3 million related to $2.8 billion of loans sold in conjunction with the sale of Florida during the first quarter of 2002. Non-performing loans were covered by the ALL 1.8 times compared with 1.9 times at the end of 2001 and 2.7 times at the end of the first quarter last year. Additional information regarding the ALL and asset quality appears in the "Credit Risk" section. Huntington allocates the ALL to each loan category based on an expected loss ratio determined by continuous assessment of credit quality based on portfolio risk characteristics and other relevant factors such as historical performance, internal controls, and impacts from mergers and acquisitions. For the commercial and industrial and commercial real estate credits, expected loss factors are assigned by credit grade at the individual loan level. The aggregation of these factors represents management's estimate of the inherent loss. The portion of the allowance allocated to the more homogeneous consumer loan segments is determined by developing expected loss ratios based on the risk characteristics of the various segments and giving consideration to existing economic conditions and trends. Projected loss ratios incorporate factors such as trends in past due and non-accrual amounts, recent loan loss experience, current economic conditions, risk characteristics, and concentrations of various loan categories. Actual 18 loss ratios experienced in the future, however, could vary from those projected as a loan's performance is a function of not only economic factors but also other factors unique to each customer. The diversity in size of commercial and commercial real estate loans can be significant as well. The dollar exposure could significantly vary from estimated amounts due to diversity. To ensure adequacy to a higher degree of confidence, a portion of the ALL is considered unallocated. While amounts are allocated to various portfolio segments, the total ALL, excluding impairment reserves prescribed under provisions of Statement of Financial Accounting Standard No. 114, is available to absorb losses from any segment of the portfolio. Unallocated reserves are based on levels of criticized/classified assets, delinquencies in the accruing loan portfolios, and the level of non-performing loans. Total unallocated reserves were 12% at March 31, 2002, versus 11% one year ago. Huntington's management believes consumer charge-offs may decline both seasonally and fundamentally in the second and third quarters, reflecting the higher quality auto loans and leases that have been booked in the last year and the decline in delinquencies in these portfolios in recent months. Charge-offs in the commercial portfolio are not expected to be significantly different than was experienced in the last two quarters. NON-INTEREST INCOME Non-interest income before gains from the sale of the Florida operations and investment securities, was $125.6 million in the first quarter of 2002, compared with $115.6 million for the same period last year. Excluding Florida, non-interest income was $115.0 million versus $96.6 million for the respective periods. The following table reflects non-interest income detail for the three months ended March 31, 2002 and 2001, excluding the Florida operations and the net gain from its sale: NON-INTEREST INCOME
(in thousands of dollars) 2002 2001 -------- ------- Service charges on deposit accounts $ 34,282 $31,143 Mortgage banking 19,644 9,238 Trust services 15,096 13,670 Brokerage and insurance income 14,587 12,232 Bank Owned Life Insurance income 11,676 9,560 Other service charges and fees 9,118 8,415 Other 10,591 12,315 -------- ------- TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS, EXCLUDING FLORIDA 114,994 96,573 Securities gains 457 2,078 -------- ------- TOTAL NON-INTEREST INCOME, EXCLUDING FLORIDA $115,451 $98,651 ======== =======
The remainder of the discussion within this "Non-interest Income" section addresses the information provided in the "Non-interest Income" table above. The increase in non-interest income was lead by mortgage banking revenue, which was up 113%. This increase was driven by deliveries of loans in the secondary market. Service charges on deposit accounts were higher by 10% from the same three-month period a year ago, primarily due to increased levels of corporate maintenance fees. Brokerage and insurance revenue was up 19% driven by strong growth in insurance and investment banking fees, particularly through annuity sales. In the first quarter of 2002, annuity sales outside of Florida were $129 million, which were 30% above last year's first quarter sales. Revenue from sales of Huntington's proprietary mutual funds helped drive trust income up 10%. Other service charges and fees increased 8% over the same period last year reflecting increased ATM and debit card fees. Other non-interest income declined over last year's first quarter due to lower revenue from sales of customer derivative products and lower income from securitization activity. NON-INTEREST EXPENSE Non-interest expense, on an operating basis, was $207.4 million in the first quarter of 2002, and $234.1 million in the same period last year. A discussion of Huntington's restructuring and special charges can be found in the beginning of Management's Discussion and Analysis and in the notes to the unaudited consolidated financial statements. Excluding Florida, non-interest expense was $189.1 million for the recent quarter, down 2.5% from $193.8 million in the year-ago quarter. The following table reflects non-interest expense detail for the three months ended March 31, 2002 and 2001, excluding the Florida operations and restructuring and special charges: 19 NON-INTEREST EXPENSE
(in thousands of dollars) 2002 2001 -------- -------- Personnel costs $104,320 $ 99,296 Outside data processing and other services 17,097 14,122 Equipment 15,582 17,503 Net occupancy 14,771 15,568 Marketing 7,174 8,832 Telecommunications 5,282 5,952 Professional services 5,242 4,793 Printing and supplies 3,519 4,098 Franchise and other taxes 2,326 2,116 Amortization of intangible assets 251 3,031 Other 13,487 18,506 -------- -------- TOTAL NON-INTEREST EXPENSE, EXCLUDING FLORIDA $189,051 $193,817 ======== ========
The remainder of the discussion within this "Non-interest Expense" section addresses the information provided in the "Non-interest Expense" table above. Higher personnel costs reflect increases in sales commissions consistent with the increases in fee income. Increases in processing expenses related to Huntington's loan and deposit products drove outside data processing and other services up $3 million. Occupancy and equipment costs decreased 8% for the first quarter of 2002 compared to the first quarter of 2001 due to lower depreciation and building maintenance. The $2.8 million reduction in amortization of intangible assets reflects the implementation of the new accounting standard, SFAS No. 142. Other non-interest expense for 2001 included a $4.2 million impairment loss related to PG&E commercial paper and $1.7 million in expenses incurred in conjunction with the installation of Customer Relationship Management software. Huntington's efficiency ratio, which expresses expense as a percentage of revenue on a tax-equivalent basis, improved to 54.1% for the quarter ended March 31, 2002, from 60.2% for the same period in 2001. INCOME TAXES Huntington's provision for income taxes of $127.2 million for the first quarter of 2002 includes expense of $118.6 million related to the net pre-tax gain on the sale of the Florida operations and a benefit of $19.7 million related to the restructuring and special charges. Most of the goodwill relating to the Florida operations was non-deductible for tax purposes. Huntington's effective tax rate on operating earnings was 26.8% for the first three months of 2002 versus 27.3% for the same period in 2001. INTEREST RATE RISK MANAGEMENT Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. The Board of Directors and Asset and Liability Management Committee (ALCO) oversees financial risk management by establishing broad policies and specific operating limits that govern a variety of financial risks inherent in Huntington's operations, including interest rate, liquidity, counterparty, settlement, and market risks. Market risk is the risk of loss arising from the adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. Interest rate risk is Huntington's primary market risk and results from the timing differences in the repricing of assets and liabilities, changes in relationships between rate indices and the potential exercise of explicit or embedded options. ALCO regularly monitors Huntington's interest rate sensitivity position to ensure consistency with approved risk tolerances. Interest rate risk management is a dynamic process, encompassing business flows onto the balance sheet, wholesale investment and funding, and the changing market and business environment. Effective management of interest rate risk begins with appropriately diversified investments and funding sources. To accomplish its overall balance sheet objectives, Huntington regularly accesses a variety of global markets--money, bond, futures, and options--as well as numerous trading exchanges. In addition, dealers in over-the-counter financial instruments provide availability of interest rate swaps as needed. 20 Measurement and monitoring of interest rate risk is an ongoing process. Two key elements used in this process are Huntington's income simulation model and its net present value model. The income simulation model estimates the amount that net interest income will change over a twelve to twenty-four month period given adverse changes in interest rates. The net present value model, or Economic Value of Equity (EVE), is used to discern levels of risk in Huntington's balance sheet that may not be determined in its income simulation model. These two models have limitations but complement each other and together these models portray the magnitude of exposure to interest rate risk. Assumptions used in these models are inherently uncertain, but management believes that these models provide a reasonably accurate estimate of Huntington's interest rate risk exposure. The income simulation model used by Huntington incorporates a gradual change in the shape of the forward yield curve and captures all major assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates. These include prepayment speeds on mortgages and consumer installment loans, cash flows of loans and deposits, principal amortization on revolving credit instruments, and balance sheet growth assumptions. The model also captures embedded options, e.g. interest rate caps/floors or call options, and accounts for changes in rate relationships, as various rate indices lead or lag changes in market rates. The forward yield curve at March 31, 2002 implied a 150 basis point increase in short-term interest rates by the end of March 2003. The results of Huntington's recent sensitivity analysis indicated that net interest income would be 0.8% lower during the next twelve months if interest rates were 100 basis points higher at the end of that period than implied by forward rates at March 31, 2002, or 250 basis points higher than current market rates. Net interest income was estimated to be 1.7% lower if rates were 200 basis points higher than the yield curve, or 350 basis points overall. Conversely, if rates were 100 and 200 basis points lower than the yield curve, net interest income would be 0.8% and 1.5% higher, respectively. The sale of the assets and liabilities in the Florida franchise increased the interest rate sensitivity of net interest income modestly, but the repositioning of the balance sheet in anticipation of the sale ensured that the resulting level remained below the management limit of 2%. The EVE simulation model used by Huntington measures the level of risk in the balance sheet that might not have been accounted for in the income simulation model due to that model's limited time horizon. The EVE is defined as the discounted present value of asset cash flows and derivative cash flows, minus the discounted value of liability cash flows. The timing and variability of balance sheet cash flows are critical assumptions, along with assumptions regarding the speed of loan and security prepayments and the assumed behavior of zero-maturity deposits. The sensitivity of the EVE to changes in interest rates is estimated by calculating the EVE under alternative interest rate scenarios. Unlike the analysis of net interest income at risk, which is based on assumed changes in interest rates over time, the EVE analysis is based on assumed immediate shifts in interest rates. In addition, the EVE analysis does not reflect assumed changes to the balance sheet that would arise from new business. These estimates reflect the characteristics of the balance sheet at March 31, 2002. At this date, an immediate increase of 100 basis points was estimated to reduce the EVE by 1.8%. A 200 basis point increase was estimated to reduce the EVE by 4.0%. The EVE was estimated to increase by 1.2% in response to a 100 basis point decrease in rates and decrease by 1.5% in response to a 200 basis point decrease. CREDIT RISK Huntington's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize "in-market" lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The credit administration function employs extensive risk management techniques, including forecasting, to ensure that loans adhere to corporate policy and problem loans are promptly identified. These procedures provide executive management with the information necessary to implement policy adjustments where necessary, and take corrective actions on a proactive basis. Non-performing assets (NPAs) consist of loans that are no longer accruing interest, loans that have been renegotiated based upon financial difficulties of the borrower, and real estate acquired through foreclosure. Commercial and real estate loans are placed on non-accrual status and stop accruing interest when collection of principal or interest is in doubt or generally when the loan is 90 days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior year amounts generally 21 charged off as a credit loss. Consumer loans are not placed on non-accrual status; rather they are charged off in accordance with regulatory statutes, which is generally no more than 120 days. Total NPAs were $225.5 million at March 31, 2002, down slightly from $227.5 million at December 31, 2001. NPAs were $124.9 million at the end of March 2001. A majority of the increase over last year occurred in the manufacturing and service sectors. As of the same dates, NPAs as a percent of total loans and other real estate were 1.17%, 1.05%, and 0.60%. This ratio increased during the first quarter of 2002 as expected as a result of the sale of $6.5 million of NPAs included in the sale of the Florida operations. The rate of NPAs to total assets attributable to the Florida operations was lower than Huntington's. Management does not expect any significant changes in NPAs in the next two quarters but does feel that it is at or near the peak for this credit cycle. Loans past due ninety days or more but continuing to accrue interest decreased to $61.7 million from $91.6 million at December 31, 2001, and from $102.7 million at March 31, 2001. This represented .32%, .42% and .49% of total loans, respectively. CAPITAL Capital is managed at each subsidiary based upon the respective risks and growth opportunities, as well as regulatory requirements. Huntington places significant emphasis on the maintenance of strong capital, which promotes investor confidence, provides access to the national markets under favorable terms, and enhances business growth and acquisition opportunities. Huntington also recognizes the importance of managing capital and continually strives to maintain an appropriate balance between capital adequacy and returns to shareholders. Shareholders' equity at March 31, 2002 increased $17.5 million during the first quarter of 2002 from December 31, 2001, and $28.7 million from March 31, 2001. These increases were largely the result of earnings and reduced dividends, offset by higher stock held in treasury. Appreciation or depreciation in the unrealized fair value of the available-for-sale securities portfolio also impacted changes in shareholders' equity. Cash dividends declared were $0.16 a share in the first quarter of 2002, down from $0.20 a share for the same period in 2001. Average shareholders' equity was relatively flat for the first quarter of 2002 when compared to the first and fourth quarter of 2001. Huntington's ratio of average equity to average assets in the recent quarter was 8.93% versus 8.46% a year ago. Tangible equity to assets, which excludes the unrealized losses on securities available for sale and intangible assets, was 9.03% and 6.01% at the end of March 2002 and 2001, respectively. The increase is the direct result of the sale of the Florida operations. Assuming Huntington continues its share repurchase program as discussed below, this ratio will decline. Huntington has indicated it intends to maintain a minimum tangible common equity ratio of 6.50%. Risk-based capital guidelines established by the Federal Reserve Board set minimum capital requirements and require institutions to calculate risk-based capital ratios by assigning risk weightings to assets and off-balance sheet items, such as interest rate swaps, loan commitments, and securitizations. These guidelines further define "well-capitalized" levels for Tier 1, total capital, and leverage ratio purposes at 6%, 10%, and 5%, respectively. At the recent quarter-end, Huntington's Tier 1 risk-based capital ratio was 10.26%, total risk-based capital ratio was 13.40%, and the leverage ratio was 9.72%. Huntington's bank subsidiary also had regulatory capital ratios in excess of the levels established for well-capitalized institutions. In February 2002, Huntington's Board of Directors authorized a new share repurchase program for up to 22 million shares and cancelled an earlier authorization. Repurchased shares will be reserved for reissue in connection with Huntington's dividend reinvestment and employee benefit plans as well as for acquisitions and other corporate purposes. Through the end of April 2002, Huntington repurchased approximately 4.4 million shares of its common stock through open market and privately negotiated transactions. LINES OF BUSINESS Below is a brief description of each line of business and a discussion of the business segment results. The financial information by line of business for the quarters ended March 31, 2002 and 2001 can be found in the notes to the unaudited consolidated financial statements. Regional Banking, Dealer Sales, and the Private Financial Group are Huntington's major business lines. During the first quarter of 2002, Huntington's management combined the internal reporting of Retail Banking and Corporate Banking into one segment, Regional Banking, reflecting the decentralized management structure in these businesses. The fourth 22 segment includes the impact of Huntington's Treasury function and other unallocated assets, liabilities, revenue, and expense. Line of business results are determined based upon Huntington's business profitability reporting system which assigns balance sheet and income statement items to each of the business segments. This process is designed around Huntington's organizational and management structure and, accordingly, the results are not necessarily comparable with similar information published by other financial institutions. In the first quarter of 2002, changes were made to the methodologies utilized for certain balance sheet and income statement allocations performed by Huntington's business profitability reporting system. The prior quarters have not been restated for these changes. Huntington's management reviews financial results on an operating basis, which excludes the impact of the net gain on the sale of its Florida operations and restructuring and special charges. Discussion regarding Huntington's lines of business performance also exclude operating results of its Florida operations for all periods presented. The following table reconciles operating earnings by line of business to operating earnings, excluding Florida operations for the periods indicated. Refer to note 7 in the notes to the unaudited consolidated financial statements for a reconciliation of reported earnings to operating earnings by line of business. FOR THE THREE MONTHS ENDED MARCH 31, 2002
INCOME STATEMENTS Regional Dealer Treasury/ Huntington (in thousands of dollars) Banking Sales PFG Other Consolidated ------- ------- ------- --------- ------------ Operating earnings $38,951 $ 6,939 $ 8,965 $ 22,601 $ 77,456 Florida operations net income (loss) 762 794 (23) (3,590) (2,057) ------- ------- ------- -------- -------- Operating earnings, excluding Florida operations $38,189 $ 6,145 $ 8,988 $ 26,191 $ 79,513 ======= ======= ======= ======== ========
FOR THE THREE MONTHS ENDED MARCH 31, 2001
INCOME STATEMENTS Regional Dealer Treasury/ Huntington (in thousands of dollars) Banking Sales PFG Other Consolidated ------- ------- ------- --------- ------------ Operating earnings $57,667 $23,318 $ 4,167 $(17,286) $ 67,866 Florida operations net income (loss) 5,570 1,384 794 (9,062) (1,314) ------- ------- ------- -------- -------- Operating earnings, excluding Florida operations $52,097 $21,934 $ 3,373 $ (8,224) $ 69,180 ======= ======= ======= ======== ========
REGIONAL BANKING Regional Banking provides products and services to retail, business banking, and corporate customers. This segment's products include home equity loans, first mortgage loans, installment loans, business loans, personal and business deposit products, as well as investment and insurance services. These products and services are offered through Huntington's traditional banking network, Direct Bank, and Web Bank. Regional Banking also represents the middle-market and large corporate banking relationships which use a variety of banking products and services including, but not limited to, commercial loans, international trade, and cash management. Huntington's capital markets division also provides alternative financing solutions for larger business clients, including privately placed debt, syndicated commercial lending, and the sale of interest rate protection products. Regional Banking's operating earnings, net of tax, was $38.2 million in the first quarter of 2002, compared with $52.1 million for the same period a year ago. The lower interest rate environment along with a 7% decline in loan fees offset by strong deposit growth in the recent quarter caused net interest income to decline 13%. This interest rate environment, however, helped to push non-interest income up 26% as mortgage banking income nearly doubled over the first quarter of last year. Deposit growth, particularly in demand deposits, helped to keep services charges steady when compared to levels for the same period a year earlier. The 20% growth in residential mortgage loans from the year-ago quarter, primarily from refinancing activity, continued to provide cross-selling opportunities resulting in significant growth in home equity loans and personal lines of credit (13%). Growth in commercial loans declined 4% over last year, while construction and commercial real estate loans showed a 13% increase. This loan growth helped offset the negative impact of lower interest rates. The provision expense, which covered charge-offs, was $24.4 million for the first quarter of 2002, compared with $14.5 million for the first quarter last year excluding losses related to the Florida operations. Net charge-offs for the first quarter of 2002 were 79 basis points versus 34 basis points in the first quarter of 2001. Non-interest expense increased due to higher commissions that were consistent with the increases in fee income. In addition, increases in outside services expense, equipment and occupancy expenses, marketing expense, and professional fees helped drive non-interest expenses up $7.3 million, or 5%. 23 This segment contributed 48% of Huntington's operating earnings, excluding results for the Florida operations, for the first quarter of 2002 and comprised 63% of its total loan portfolio and 99% of its core deposits. DEALER SALES Dealer Sales product offerings pertain to the automobile lending sector and include indirect consumer loans and leases, as well as floor plan financing. The consumer loans and leases comprise the vast majority of the business and involve the financing of vehicles purchased or leased by individuals through dealerships. Operating earnings for this segment were $6.1 million for the three months ended March 31, 2002. This compares with $21.9 million in the first quarter of 2001. Net charge-offs in this segment's loan portfolios in the comparable periods were 165 basis points versus 103 basis points, which drove the provision for loan losses higher by $11.0 million. A 4% growth in auto lease and indirect lending portfolios along with slightly wider margins in the recent quarter over last year's first quarter helped to keep the net interest income steady. Non- interest income declined primarily due to lower revenue from securitization related activities. Non-interest expense increased due to the higher level of premium expense relating to policies covering auto lease residual values. Dealer Sales contributed 8% of Huntington's operating earnings for the first three months of 2002, excluding results from the Florida operations, and comprised 32% of its outstanding loans. PRIVATE FINANCIAL GROUP PFG provides an array of products and services designed to meet the needs of Huntington's higher wealth customers. Revenue is derived through the sale of personal trust, asset management, investment advisory, brokerage, insurance, and deposit and loan products and services. Operating earnings were $9.0 million for the first quarter of 2002, representing an increase of 228% from $3.4 million for the year-ago quarter. Net interest income was down $1.5 million in the recent quarter despite higher loan balances over the same period last year. The loan growth was particularly strong in personal credit lines and residential mortgage loans. Non-interest income was up $2.5 million largely from increases in fees from Huntington Funds. Non- interest expense declined $7.7 million as the first quarter of 2001 included the PG&E impairment loss related to activities in The Huntington National Bank's Money Market Mutual Fund. This segment represented 11% of Huntington's quarterly operating earnings, excluding results of the Florida operations, and 4% of total loans. TREASURY / OTHER The Treasury/Other segment absorbs unassigned assets, liabilities, equity, revenue, and expense that cannot be directly assigned or allocated to one of Huntington's lines of business. Furthermore, Huntington uses a match-funded transfer pricing system to allocate interest income and interest expense to its business segments. This approach consolidates the interest rate risk management of Huntington into its Treasury Group. As part of its overall interest rate risk and liquidity management strategy, the Treasury Group administers an investment portfolio of approximately $2.9 billion. Revenue and expense associated with these activities remain within the Treasury Group. Additionally, amortization expense of intangible assets is also a significant component of Treasury/Other. This segment showed operating income of $26.2 million for the first quarter of 2002, compared with an operating loss of $8.2 million for the quarter ended March 31, 2001. The effects from a balance sheet repositioning and the widening of spreads favorably affected net interest income for the comparable three-month periods. Non-interest income increased $6.3 million, primarily due to the increase in Bank Owned Life Insurance income. Non-interest expense was down $9.0 million due in part to lower amortization of intangibles arising from the implementation of SFAS No. 142. This segment included the reconciling items to the statutory tax rate of 35% in Income taxes. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures for the current period are found on page 20 of this report, which includes changes in market risk exposures from disclosures presented in Huntington's 2001 Annual Report. 24 FINANCIAL REVIEW SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 2002 AND DECEMBER 31, 2001
(in thousands of dollars) MARCH 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- AMORTIZED Amortized COST FAIR VALUE Cost Fair Value ---------- ---------- ---------- ---------- U.S. Treasury Under 1 year $ 1,194 $ 1,299 $ 696 $ 711 1-5 years 33,386 33,452 31,399 31,563 6-10 years 4,451 4,565 6,420 6,833 Over 10 years 412 416 413 433 ---------- ---------- ---------- ---------- Total 39,443 39,732 38,928 39,540 ---------- ---------- ---------- ---------- Federal agencies Mortgage-backed securities 1-5 years 52,313 52,463 77,975 77,734 6-10 years 95,406 97,004 99,049 100,954 Over 10 years 705,391 709,638 651,187 662,674 ---------- ---------- ---------- ---------- Total 853,110 859,105 828,211 841,362 ---------- ---------- ---------- ---------- Other agencies 1-5 years 896,381 907,990 918,023 940,845 6-10 years 81,714 82,938 77,515 78,925 Over 10 years 427,868 432,190 414,485 421,407 ---------- ---------- ---------- ---------- Total 1,405,963 1,423,118 1,410,023 1,441,177 ---------- ---------- ---------- ---------- Total U.S. Treasury and Federal Agencies 2,298,516 2,321,955 2,277,162 2,322,079 ---------- ---------- ---------- ---------- Other Under 1 year 13,137 13,140 11,315 11,374 1-5 years 36,280 37,157 198,776 199,812 6-10 years 36,997 36,916 35,832 35,823 Over 10 years 238,320 236,797 176,524 174,715 Retained interest in securitizations 173,220 173,220 Marketable equity securities 52,509 50,641 104,395 105,776 ---------- ---------- ---------- ---------- Total 550,463 547,871 526,842 527,500 ---------- ---------- ---------- ---------- Total Securities Available for Sale $2,848,979 $2,869,826 $2,804,004 $2,849,579 ========== ========== ========== ==========
25 CONSOLIDATED FINANCIAL HIGHLIGHTS (in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 2001 % CHANGE ----------- ----------- ----------- NET INCOME (1) $ 77,456 $ 67,866 14.1 % PER COMMON SHARE AMOUNTS Net income Basic $ 0.31 $ 0.27 14.4 Diluted $ 0.31 $ 0.27 13.9 Cash dividends declared $ 0.16 $ 0.20 (20.0) AVERAGE COMMON SHARES OUTSTANDING-DILUTED 251,953 251,510 0.2 KEY RATIOS Return on: Average total assets 1.18% 0.97% 21.6 Average shareholders' equity 13.26% 11.53% 15.0 Efficiency ratio 55.7% 62.0% (10.0) Average equity/average assets 8.93% 8.46% 5.6 Net interest margin 4.14% 3.93% 5.3
(1) Income component excludes after-tax impact of the $56.8 million gain on sale of Florida operations and $36.5 million restructuring and special charges in 1Q '02. 26 FINANCIAL REVIEW LOAN LOSS EXPERIENCE
2002 2001 --------- ------------------------------------------------------------ (in thousands) 1Q 4Q 3Q 2Q 1Q --------- --------- --------- --------- --------- ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 410,572 $ 360,446 $ 352,243 $ 301,777 $ 297,880 Loan losses (67,527) (66,808) (49,386) (75,472) (35,649) Recoveries of loans previously charged off 11,746 10,662 9,643 10,007 7,556 --------- --------- --------- --------- --------- Net loan losses (55,781) (56,146) (39,743) (65,465) (28,093) --------- --------- --------- --------- --------- Allowance of assets sold (22,297) -- -- -- -- Allowance of securitized loans (2,222) (2,003) (1,613) (1,564) (1,474) Provision for loan losses (1) 55,781 108,275 49,559 117,495 33,464 --------- --------- --------- --------- --------- ALLOWANCE FOR LOAN LOSSES, END OF PERIOD $ 386,053 $ 410,572 $ 360,446 $ 352,243 $ 301,777 ========= ========= ========= ========= ========= AS A % OF AVERAGE TOTAL LOANS Net loan losses--annualized 1.11% 1.04% 0.74% 1.25% 0.55% Net loan losses--annualized excluding losses on exited portfolios for which reserves were previously established 1.04% 0.98% 0.61% 0.73% 0.55% Provision for loan losses--annualized 1.11% 1.07% 0.92% 0.87% 0.66% Allowance for loan losses as a % of total loans 2.00% 1.90% 1.67% 1.67% 1.45% Net loan loss coverage (2) 2.90x 2.87x 3.81x 3.89x 4.51x
(1) Includes the impact of restructuring and special charges in 4Q '01 and 2Q '01. (2) Income before taxes (excluding gain on sale of Florida operations and restructuring and special charges) and the provision for loan losses to net loan losses. 27 FINANCIAL REVIEW NON-PERFORMING ASSETS AND PAST DUE LOANS
2002 2001 --------- -------------------------------------------------------------- (in thousands) 1Q 4Q 3Q 2Q 1Q --------- --------- --------- --------- --------- Non-accrual loans: Commercial $ 162,959 $ 159,637 $ 148,177 $ 116,044 $ 62,716 Commercial real estate 43,295 48,360 40,882 26,870 34,893 Residential mortgage 11,896 11,836 11,666 11,868 11,949 --------- --------- --------- --------- --------- Total Non-accrual Loans 218,150 219,833 200,725 154,782 109,558 Renegotiated loans 1,268 1,276 1,286 1,290 1,297 --------- --------- --------- --------- --------- TOTAL NON-PERFORMING LOANS 219,418 221,109 202,011 156,072 110,855 Other real estate, net 6,112 6,384 8,050 9,913 14,031 --------- --------- --------- --------- --------- TOTAL NON-PERFORMING ASSETS $ 225,530 $ 227,493 $ 210,061 $ 165,985 $ 124,886 ========= ========= ========= ========= ========= Non-performing loans as a % of total loans 1.13% 1.02% 0.94% 0.74% 0.53% Non-performing assets as a % of total loans and other real estate 1.17% 1.05% 0.97% 0.79% 0.60% Allowance for loan losses as a % of non-performing loans 176% 186% 178% 226% 272% Allowance for loan losses and other real estate as a % of non-performing assets 171% 180% 171% 211% 239% Accruing loans past due 90 days or more $ 61,746 $ 91,635 $ 92,791 $ 67,077 $ 102,658
NON-PERFORMING ASSETS
2002 2001 --------- -------------------------------------------------------------- (in thousands) 1Q 4Q 3Q 2Q 1Q --------- --------- --------- --------- --------- NON-PERFORMING ASSETS, BEGINNING OF PERIOD $ 227,493 $ 210,061 $ 165,985 $ 124,886 $ 105,397 New non-performing assets 74,446 85,986 94,990 95,037(2) 53,869 Loan losses (26,072) (34,580) (12,480) (13,188) (7,243) Payments (37,663) (28,315) (34,219) (19,332) (24,973) Sales (8,925)(1) (4,131) (3,331) (21,306)(2) (1,892) Other (3,749) (1,528) (884) (112) (272) --------- --------- --------- --------- --------- NON-PERFORMING ASSETS, END OF PERIOD $ 225,530 $ 227,493 $ 210,061 $ 165,985 $ 124,886 ========= ========= ========= ========= =========
(1) Includes $6.5 million related to the sale of Florida operations. (2) Includes $14.9 million related to PG&E. 28 QUARTERLY NET INTEREST MARGIN ANALYSIS (in millions of dollars)
AVERAGE BALANCES ------------------------------------------------------- 2002 2001 ------- ------------------------------------------- Fully Tax Equivalent Basis (1) FIRST FOURTH THIRD SECOND FIRST ------- ------- ------- ------- ------- ASSETS Interest bearing deposits in banks $ 34 $ 14 $ 5 $ 5 $ 5 Trading account securities 5 8 8 39 48 Federal funds sold and securities purchased under resale agreements 62 86 86 93 164 Loans held for sale 381 433 344 420 240 Securities: Taxable 2,713 2,720 2,896 3,368 3,606 Tax exempt 101 108 140 201 248 ------- ------- ------- ------- ------- Total Securities 2,814 2,828 3,036 3,569 3,854 ------- ------- ------- ------- ------- Loans: Commercial 6,045 6,491 6,681 6,741 6,678 Real Estate Construction 1,455 1,492 1,388 1,303 1,263 Commercial 2,364 2,397 2,346 2,294 2,324 Consumer Auto Leases - Indirect 3,166 3,229 3,243 3,222 3,117 Auto Loans - Indirect 2,730 2,903 2,806 2,575 2,499 Home Equity Lines 2,365 2,489 2,372 2,271 2,189 Residential Mortgage 1,021 892 854 942 960 Other Loans 1,326 1,619 1,658 1,673 1,674 ------- ------- ------- ------- ------- Total Consumer 10,608 11,132 10,933 10,683 10,439 ------- ------- ------- ------- ------- Total Loans 20,472 21,512 21,348 21,021 20,704 ------- ------- ------- ------- ------- Allowance for loan losses 415 393 358 316 307 ------- ------- ------- ------- ------- Net loans (2) 20,057 21,119 20,990 20,705 20,397 ------- ------- ------- ------- ------- Total earning assets 23,768 24,881 24,827 25,147 25,015 ------- ------- ------- ------- ------- Cash and due from banks 819 876 910 910 952 All other assets 2,372 2,613 2,609 2,608 2,579 ------- ------- ------- ------- ------- TOTAL ASSETS $26,544 $27,977 $27,988 $28,349 $28,239 ======= ======= ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Core deposits Non-interest bearing deposits $ 3,041 $ 3,406 $ 3,341 $ 3,252 $ 3,213 Interest bearing demand deposits 5,148 5,519 5,096 4,799 4,597 Savings deposits 3,097 3,388 3,472 3,547 3,505 Other domestic time deposits 5,015 5,923 5,940 5,718 5,950 ------- ------- ------- ------- ------- Total core deposits 16,301 18,236 17,849 17,316 17,265 ------- ------- ------- ------- ------- Domestic time deposits of $100,000 or more 1,052 1,199 1,262 1,294 1,368 Brokered time deposits and negotiable CDs 302 109 120 118 167 Foreign time deposits 270 230 257 377 267 ------- ------- ------- ------- ------- Total deposits 17,925 19,774 19,488 19,105 19,067 ------- ------- ------- ------- ------- Short-term borrowings 1,998 1,907 2,140 2,759 2,504 Medium-term notes 1,967 1,863 1,990 2,005 2,240 Subordinated notes and other long-term debt, including preferred capital securities 1,233 1,183 1,184 1,180 1,171 ------- ------- ------- ------- ------- Total interest bearing liabilities 20,082 21,321 21,461 21,797 21,769 ------- ------- ------- ------- ------- All other liabilities 1,051 889 811 897 869 Shareholders' equity 2,370 2,361 2,375 2,403 2,388 ------- ------- ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $26,544 $27,977 $27,988 $28,349 $28,239 ======= ======= ======= ======= =======
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate. (2) Net loan rate includes loan fees, whereas individual loan components above are shown exclusive of fees. 29 QUARTERLY NET INTEREST MARGIN ANALYSIS (IN MILLIONS OF DOLLARS)
AVERAGE RATES (3) ------------------------------------------------------- 2002 2001 ------- ------------------------------------------- Fully Tax Equivalent Basis (1) FIRST FOURTH THIRD SECOND FIRST ------- ------- ------- ------- ------- ASSETS Interest bearing deposits in banks 2.02% 2.09% 3.75% 5.09% 5.24% Trading account securities 2.79 3.59 3.83 5.15 5.52 Federal funds sold and securities purchased under resale agreements 1.43 2.18 3.20 4.21 5.78 Loans held for sale 6.51 6.64 7.18 6.96 7.19 Securities: Taxable 6.43 6.62 6.71 6.26 6.72 Tax exempt 7.76 7.81 7.38 7.26 7.55 ------- ------- ------- ------- ------- Total Securities 6.48 6.66 6.75 6.32 6.77 ------- ------- ------- ------- ------- Loans: Commercial 5.39 5.86 6.92 7.44 8.19 Real Estate Construction 4.91 5.50 6.62 7.43 8.31 Commercial 6.62 6.85 7.54 7.92 8.40 Consumer Auto Leases - Indirect 6.62 6.58 6.67 6.71 6.90 Auto Loans - Indirect 8.03 8.24 8.45 8.70 8.83 Home Equity Lines 5.12 6.22 7.00 8.04 8.93 Residential Mortgage 6.57 7.17 7.54 7.72 7.91 Other Loans 8.88 9.09 9.19 9.13 9.19 ------- ------- ------- ------- ------- Total Consumer 6.92 7.34 7.65 7.94 8.25 ------- ------- ------- ------- ------- Total Loans 6.29 6.71 7.34 7.75 8.25 ------- ------- ------- ------- ------- Allowance for loan losses ------- ------- ------- ------- ------- Net loans (2) 6.77 7.22 7.87 8.31 8.74 ------- ------- ------- ------- ------- Total earning assets 6.71% 7.12% 7.70% 7.98% 8.39% ------- ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Core deposits Non-interest bearing deposits Interest bearing demand deposits 1.80% 2.00% 2.74% 2.87% 3.29% Savings deposits 1.87 2.11 3.00 3.42 3.85 Other domestic time deposits 4.99 5.19 5.52 5.83 6.01 ------- ------- ------- ------- ------- Total core deposits 2.46 2.68 3.20 3.42 3.73 ------- ------- ------- ------- ------- Domestic time deposits of $100,000 or more 3.05 4.68 4.82 5.33 5.97 Brokered time deposits and negotiable CDs 2.48 3.55 4.42 5.57 6.37 Foreign time deposits 1.91 1.99 3.39 4.11 5.45 ------- ------- ------- ------- ------- Total deposits 2.49 2.80 3.32 3.58 3.94 ------- ------- ------- ------- ------- Short-term borrowings 2.36 2.65 3.69 4.37 5.37 Medium-term notes 3.43 4.58 6.12 6.59 6.64 Subordinated notes and other long-term debt, including preferred capital securities 4.14 4.96 5.19 5.96 6.81 ------- ------- ------- ------- ------- Total interest bearing liabilities 3.04% 3.51% 4.23% 4.62% 5.12% ------- ------- ------- ------- ------- Net interest rate spread 3.67% 3.61% 3.47% 3.36% 3.27% Impact of non-interest bearing funds on margin 0.47% 0.50% 0.57% 0.61% 0.66% ------- ------- ------- ------- ------- NET INTEREST MARGIN 4.14% 4.11% 4.04% 3.97% 3.93% ======= ======= ======= ======= =======
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate. (2) Net loan rate includes loan fees, whereas individual loan components above are shown exclusive of fees. (3) Loan and deposit average rates include impact of applicable derivatives. 30 SELECTED QUARTERLY INCOME STATEMENT DATA
2002 2001 -------- ----------------------------------------- (in thousands of dollars, except per share amounts) (1) FIRST FOURTH THIRD SECOND FIRST -------- -------- -------- -------- -------- TOTAL INTEREST INCOME $393,595 $443,751 $478,834 $498,959 $517,975 TOTAL INTEREST EXPENSE 150,770 188,513 229,047 250,926 274,851 -------- -------- -------- -------- -------- NET INTEREST INCOME 242,825 255,238 249,787 248,033 243,124 Provision for loan losses 55,781 58,275 49,559 45,777 33,464 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 187,044 196,963 200,228 202,256 209,660 -------- -------- -------- -------- -------- Service charges on deposit accounts 38,530 42,753 41,719 40,673 38,907 Mortgage banking 19,565 15,768 14,616 18,733 10,031 Brokerage and insurance income 18,792 20,966 19,912 19,388 18,768 Trust services 15,501 15,321 15,485 15,178 14,314 Bank Owned Life Insurance income 11,676 9,560 9,560 9,561 9,560 Other service charges and fees 10,632 12,552 12,350 12,217 11,098 Other 10,931 16,088 15,755 14,956 12,968 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS 125,627 133,008 129,397 130,706 115,646 Securities gains 457 89 1,059 2,747 2,078 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 126,084 133,097 130,456 133,453 117,724 -------- -------- -------- -------- -------- Personnel costs 114,285 118,143 120,767 122,068 117,662 Outside data processing and other services 18,439 17,992 17,375 17,671 16,654 Net occupancy 17,239 19,950 19,266 18,188 19,780 Equipment 16,949 20,593 20,151 19,844 19,972 Marketing 7,003 6,345 6,921 7,852 9,939 Telecommunications 6,018 6,793 6,859 7,207 7,125 Professional services 5,401 6,235 5,912 6,763 4,969 Printing and supplies 3,837 4,293 4,450 4,565 5,059 Franchise and other taxes 2,328 2,893 2,470 2,246 2,120 Amortization of intangible assets 1,376 10,100 10,114 10,435 10,576 Other 14,511 14,017 14,605 16,457 20,234 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 207,386 227,354 228,890 233,296 234,090 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 105,742 102,706 101,794 102,413 93,294 Income taxes 28,286 27,214 26,134 27,909 25,428 -------- -------- -------- -------- -------- NET INCOME $ 77,456 $ 75,492 $ 75,660 $ 74,504 $ 67,866 ======== ======== ======== ======== ======== PER COMMON SHARE Net Income - Diluted $ 0.31 $ 0.30 $ 0.30 $ 0.30 $ 0.27 Cash Dividends Declared $ 0.16 $ 0.16 $ 0.16 $ 0.20 $ 0.20 FULLY TAX EQUIVALENT MARGIN: Net Interest Income $242,825 $255,238 $249,787 $248,033 $243,124 Tax Equivalent Adjustment (2) 1,169 1,292 1,442 1,616 2,002 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income $243,994 $256,530 $251,229 $249,649 $245,126 ======== ======== ======== ======== ========
(1) Income component excludes after-tax impact of the $56.8 million gain on sale of Florida operations in 1Q '02 and restructuring and special charges ($36.5 million in 1Q '02; $9.8 million in 4Q '01; $33.0 million in 3Q '01; $72.1 million in 2Q '01). (2) Calculated assuming a 35% tax rate. 31 SELECTED QUARTERLY INCOME STATEMENT DATA, EXCLUDING FLORIDA OPERATIONS
2002 2001 -------- ----------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)(1) FIRST FOURTH THIRD SECOND FIRST -------- -------- -------- -------- -------- TOTAL INTEREST INCOME $369,521 $392,978 $427,654 $447,218 $466,098 TOTAL INTEREST EXPENSE 136,420 156,382 197,742 222,410 247,580 -------- -------- -------- -------- -------- NET INTEREST INCOME 233,101 236,596 229,912 224,808 218,518 Provision for loan losses 50,595 54,281 46,027 41,937 29,709 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 182,506 182,315 183,885 182,871 188,809 -------- -------- -------- -------- -------- Service charges on deposit accounts 34,282 35,220 33,593 32,650 31,143 Mortgage banking 19,644 15,049 13,859 17,672 9,238 Brokerage and insurance income 14,587 15,066 13,943 13,185 12,232 Trust services 15,096 14,679 14,816 14,431 13,670 Bank Owned Life Insurance income 11,676 9,560 9,560 9,561 9,560 Other service charges and fees 9,118 9,582 9,547 9,383 8,415 Other 10,591 15,135 14,722 13,979 12,315 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS 114,994 114,291 110,040 110,861 96,573 Securities gains 457 89 1,059 2,747 2,078 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 115,451 114,380 111,099 113,608 98,651 -------- -------- -------- -------- -------- Personnel costs 104,320 100,076 101,866 103,707 99,296 Outside data processing and other services 17,097 15,414 14,650 15,100 14,122 Net occupancy 14,771 15,251 14,481 13,755 15,568 Equipment 15,582 18,117 17,580 17,363 17,503 Marketing 7,174 5,305 5,717 6,807 8,832 Telecommunications 5,282 5,647 5,728 5,964 5,952 Professional services 5,242 6,069 5,754 6,481 4,793 Printing and supplies 3,519 3,511 3,693 3,688 4,098 Franchise and other taxes 2,326 2,885 2,439 2,229 2,116 Amortization of intangible assets 251 2,555 2,569 2,890 3,031 Other 13,487 12,599 12,577 14,459 18,506 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 189,051 187,429 187,054 192,443 193,817 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 108,906 109,266 107,930 104,036 93,643 Income taxes 29,393 28,999 27,394 27,463 24,463 -------- -------- -------- -------- -------- NET INCOME $ 79,513 $ 80,267 $ 80,536 $ 76,573 $ 69,180 ======== ======== ======== ======== ======== NET INCOME PER COMMON SHARE - DILUTED $ 0.32 $ 0.32 $ 0.32 $ 0.30 $ 0.28 FULLY TAX EQUIVALENT MARGIN: Net Interest Income $233,101 $236,596 $229,912 $224,808 $218,518 Tax Equivalent Adjustment (2) 1,169 1,292 1,442 1,616 2,002 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income $234,270 $237,888 $231,354 $226,424 $220,520 ======== ======== ======== ======== ========
(1) Income component excludes after-tax impact of the $56.8 million gain on sale of Florida operations in 1Q '02 and restructuring and special charges ($36.5 million in 1Q '02; $9.8 million in 4Q '01; $33.0 million in 3Q '01; $72.1 million in 2Q '01). (2) Calculated assuming a 35% tax rate. 32 HUNTINGTON BANCSHARES INCORPORATED STOCK SUMMARY, KEY RATIOS AND STATISTICS, AND CAPITAL DATA QUARTERLY COMMON STOCK SUMMARY
2002 2001 ------- ------------------------------------- 1Q 4Q 3Q 2Q 1Q ------- ------- ------- ------- ------- High $20.310 $17.490 $19.280 $17.000 $18.000 Low 16.660 14.510 15.150 13.875 12.625 Close 19.700 17.190 17.310 16.375 14.250 Cash dividends declared $ 0.16 $ 0.16 $ 0.16 $ 0.20 $ 0.20
Note: Stock price quotations were obtained from NASDAQ KEY RATIOS AND STATISTICS
2002 2001 MARGIN ANALYSIS - AS A % ------- ------------------------------------------------- OF AVERAGE EARNING ASSETS (1) 1Q 4Q 3Q 2Q 1Q ------- ------- ------- ------- ------- Interest Income 6.71% 7.12% 7.70% 7.98% 8.39% Interest Expense 2.57% 3.01% 3.66% 4.01% 4.46% ------- ------- ------- ------- ------- Net Interest Margin 4.14% 4.11% 4.04% 3.97% 3.93% ====== ======= ======= ======= ======= RETURN ON (2) Average total assets 1.18% 1.07% 1.07% 1.05% 0.97% Average shareholders' equity 13.26% 12.68% 12.64% 12.43% 11.53% Efficiency Ratio (2) 55.7% 55.8% 57.5% 58.6% 62.0% Efficiency Ratio, excluding Florida (2) 54.1% 52.5% 54.0% 56.2% 60.2% Effective tax rate 26.75% 26.50% 25.67% 27.25% 27.26%
CAPITAL DATA
2002 2001 ------- ------------------------------------------------- 1Q 4Q 3Q 2Q 1Q (in millions of dollars) ------- ------- ------- ------- ------- Total Risk-Adjusted Assets $24,935 $27,896 $27,757 $27,375 $27,230 Tier 1 Risk-Based Capital Ratio 10.26% 7.24% 6.97% 7.01% 7.19% Total Risk-Based Capital Ratio 13.40% 10.29% 10.13% 10.20% 10.31% Tier 1 Leverage Ratio 9.72% 7.41% 7.10% 6.96% 7.12% Tangible Equity/Asset Ratio 9.03% 6.04% 5.96% 5.97% 6.01%
(1) Presented on a fully tax equivalent basis assuming a 35% tax rate. (2) Income component excludes the impact of the gain on sale of Florida operations and restructuring and special charges. 33 PART II. OTHER INFORMATION In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4. Instruments defining the Rights of Security Holders: Reference is made to Articles Fifth, Eighth and Tenth of Articles of Restatement of Charter, as amended and supplemented, previously filed as exhibit 3(i) to annual report on form 10-K for the year ended December 31, 1993 and exhibit 3(i)(c) to quarterly report on form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference. Also, reference is made to Rights Plan, dated February 22, 1990, previously filed as Exhibit 1 to Registration Statement on Form 8-A, and incorporated herein by reference and to Amendment No. 1 to the Rights Agreement, dated as of August 16, 1995, previously filed as Exhibit 4(b) to Form 8-K filed with the Securities and Exchange Commission on August 28, 1995, and incorporated herein by reference. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. 10. Material contracts: (a) * Fourth Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan. (b) * Fifth Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan. (c) * First Amendment to the Amended and Restated Huntington Bancshares Incorporated 1994 Stock Option Plan. (d) * Second Amendment to the Amended and Restated Huntington Bancshares Incorporated 1994 Stock Option Plan. (e) * Third Amendment to the Amended and Restated Huntington Bancshares Incorporated 1994 Stock Option Plan. (f) * Severance Agreement and Release and Waiver of All Claims made by and between Huntington Bancshares Incorporated and Ronald J. Seiffert, Vice Chairman. (g) * First Amendment to the Amended and Restated 1999 Incentive Compensation Plan (h) * First Amendment to the 2001 Stock and Long-term Incentive Plan 34 (i) * Second Amendment to the 2001 Stock and Long-term Incentive Plan 99. Earnings to Fixed Charges (b) Reports on Form 8-K 1. A report on Form 8-K, dated January 18, 2002, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the fourth quarter and year ended December 31, 2001. 2. A report on Form 8-K, dated January 31, 2002, was filed under report item numbers 5 and 7, concerning Huntington's presentation at the Salomon Smith Barney Financial Services Equity Conference. 3. A report on Form 8-K, dated February 15, 2002, was filed under report item numbers 2 and 7, regarding the completion of Huntington's sale of its Florida operations to SunTrust Banks, Inc. 4. A report on Form 8-K, dated February 19, 2002, was filed under report item numbers 5 and 7, announcing that the board of directors has authorized a new share repurchase program for up to 22 million shares. 5. A report on Form 8-K, dated March 27, 2002, was filed under report item numbers 5 and 7, announcing the resignation of Ronald J. Seiffert, Vice Chairman. * Denotes management contract or compensatory plan or arrangement. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Huntington Bancshares Incorporated ---------------------------------- (Registrant) Date: May 15, 2002 /s/ Richard A. Cheap ------------------------------------------ Richard A. Cheap General Counsel and Secretary Date: May 15, 2002 /s/ Michael J. McMennamin ------------------------------------------ Michael J. McMennamin Vice Chairman, Chief Financial Officer and Treasurer (Principal Financial Officer) 36 EX-10.A 3 l94357aex10-a.txt EXHIBIT 10A EXHIBIT 10 (a) HUNTINGTON BANCSHARES INCORPORATED BOARD OF DIRECTORS MEETING AUGUST 15, 2001 RE: FOURTH AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 1990 STOCK OPTION PLAN WHEREAS, the Board of Directors and shareholders of Huntington Bancshares Incorporated (the "Corporation") previously adopted and established the Huntington Bancshares Incorporated 1990 Stock Option Plan (the "1990 Plan") which provides for the grant to eligible employees of the Corporation or its subsidiaries of options to purchase shares of common stock, without par value, of the Corporation; WHEREAS, Section 5(d) of the 1990 Plan currently defines "Termination" to include a termination of employment following a Change in Control or the disposition (other than a Change in Control) of substantially all of the stock or assets of the Corporation; WHEREAS, Section 7(b) of the 1990 Plan provides that this Board of Directors may at any time and from time to time amend the 1990 Plan; WHEREAS, this Board deems it desirable and in the best interests of the Corporation, effective August 15, 2001, to amend Section 5(d) of the 1990 Plan to allow the Compensation and Stock Option Committee (the "Committee") the discretion to determine such other events not in the ordinary course of business that will be treated as a "Termination" for non-executive officer employees of the Corporation for purposes of the 1990 Plan. For purposes of this provision, "non-executive officer employees" means employees who are not Section 16 reporting persons under the Securities Exchange Act of 1934, as amended. NOW, THEREFORE, BE IT RESOLVED, that, effective August 15, 2001, Section 5(d) of the 1990 Plan shall be amended and that the Fourth Amendment to the 1990 Plan, as presented to this Board and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the proper officers of the Corporation are authorized to take such actions or make such findings as determined, in their discretion, to be necessary or beneficial to effectuate these Resolutions. EXHIBIT A FOURTH AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 1990 STOCK OPTION PLAN Effective August 15, 2001, Section 5(d) of the Huntington Bancshares Incorporated 1990 Stock Option Plan is hereby amended by deleting the second sentence of Section 5(d) in its entirety and replacing it with the following sentence "Notwithstanding the preceding sentence of this Section (d), each option granted pursuant to the Plan shall terminate and be cancelled upon the termination of the employment with the Company of the employee to whom such option has been granted ("Optionholder") for any reason other than death, retirement under one or more of the retirement plans of the Company or the termination of employment of the Optionholder for any reason following: (i) a Change in Control (as defined herein), (ii) the disposition (other than a Change in Control), direct or indirect, of substantially all of the stock or assets of any Company to any person or entity other than any Company referred to herein, or (iii) for non-executive officer employees only, any event occurring not in the ordinary course of business which the Committee determines, in its discretion, constitutes an event that shall be treated as a Termination for purposes of this Section 5(d) (termination of employment in any such event shall be referred to as a "Termination"). For purposes of this provision, "non-executive officer employees" means employees who are not Section 16 reporting persons under the Securities Exchange Act of 1934, as amended. EX-10.B 4 l94357aex10-b.txt EXHIBIT 10B EXHIBIT 10 (b) HUNTINGTON BANCSHARES INCORPORATED BOARD OF DIRECTORS RESOLUTIONS FEBRUARY 18, 2002 RE: FIFTH AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 1990 STOCK OPTION PLAN WHEREAS, the Board of Directors and shareholders of Huntington Bancshares Incorporated (the "Corporation") previously adopted and established the Huntington Bancshares Incorporated 1990 Stock Option Plan (the "1990 Plan") which provides for the grant to eligible employees of the Corporation or its subsidiaries of options to purchase shares of common stock, without par value, of the Corporation; WHEREAS, while Section 5(h) of the 1990 Plan currently provides that upon the death of a participant within three months of retirement, the optionholder's executor, administrator or estate may exercise any unexercised option within the earlier of the expiration of the term of the option or 13 months from the date of death, the 1990 Plan is ambiguous as to the treatment of options for an optionholder who dies after three months after retirement; WHEREAS, the Stock Option and Compensation Committee has consistently interpreted and administered the 1990 Plan in such a manner so as to provide that upon the death of an optionholder following his or her retirement, the optionholder's executor, administrator, or estate shall be able to exercise any then unexercised options within the earlier of the expiration period of such option or 13 months from the date of death. WHEREAS, Section 7(b) of the 1990 Plan provides that this Board may at any time and from time to time amend the 1990 Plan; WHEREAS, this Board deems it desirable and in the best interests of the Corporation to amend Section 5(h) of the 1990 Plan to resolve any potential ambiguity and provide that upon the death of an optionholder following his or her retirement, the optionholder's executor, administrator, or estate shall be able to exercise any then unexercised options within the earlier of the expiration period of such option or 13 months from the date of death. NOW, THEREFORE, BE IT RESOLVED, that Section 5(h) of the 1990 Plan shall be amended and that the Fifth Amendment to the 1990 Plan, as presented to this Board and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the proper officers of the Corporation are authorized to take such actions or make such findings as determined, in their discretion, to be necessary or beneficial to effectuate these Resolutions. EXHIBIT A FIFTH AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 1990 STOCK OPTION PLAN Section 5(h) of the Huntington Bancshares Incorporated 1990 Stock Option Plan is hereby amended by deleting Section 5(h) in its entirety and replacing it with the following: "Upon the death of any Optionholder (i) while in the employ of the Company, or (ii) after his or her retirement from the employ of the Company under one or more of the retirement plans of the Company, prior to the exercise in full of any option granted to such Optionholder, the Optionholder's executor, administrator or such other person or persons to whom the option shall pass by testamentary transfer, bequest or by the operation of the laws of descent and distribution, may exercise any option then unexercised in full within the period ending upon the earlier of the expiration date of the option or date thirteen months after death, and may then purchase all or any part of the shares subject to the option, whether or not such option is then exercisable in full pursuant to its terms." EX-10.C 5 l94357aex10-c.txt EXHIBIT 10C EXHIBIT 10 (c) FIRST AMENDMENT TO HUNTINGTON BANCSHARES INCORPORATED AMENDED AND RESTATED 1994 STOCK OPTION PLAN Effective as set forth below, the Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan shall be amended as follows: 1. Effective for exercises after June 30, 2000, Section 8(e) of the 1994 Plan is hereby amended and restated in its entirety to read as follows: (e) Upon the exercise of any option, the Optionholder shall be required to pay, or make satisfactory provision for payment, to HBI of an amount equal to any tax which HBI is required to withhold under any federal, state or local tax laws in connection with the exercise of any option granted under this Plan. The Optionholder may satisfy this obligation, in whole or in part, with respect to any option exercised by making an election ("Election") at the time the Optionholder provides written notice of exercise to HBI pursuant to Section 8(b) above to either (i) have HBI withhold from the shares otherwise to be delivered on the exercise of the option that number of shares of HBI having a fair market value equal to the amount of the withholding requirement, or (ii) to deliver to HBI sufficient shares of HBI having a fair market value equal to the amount of the withholding requirement. Such shares shall be valued at their fair market value on the date that income from the exercise of such option becomes taxable ("Tax Date"). At the time of making an Election, the Optionholder may certify to the Committee the rates (which shall not exceed the maximum Federal and the maximum state statutory rates applicable to the income of individuals for the year in which Tax Date occurs, exclusive of any effect that losses of deduction or credits at various income levels may have on such Optionholder's taxes) at which the Optionholder, upon adequate investigation, expects his or her income from the shares to be taxed and requests that withholding with respect to Federal and state income taxes be made at such rates. Notwithstanding anything herein to the contrary, for exercises of options after June 30, 2000, an Optionholder may not make an Election that would (i) require HBI to withhold from the shares otherwise to be delivered upon exercise, or (ii) require HBI to accept shares of HBI, in an amount that is in excess of the tax which HBI is required to withhold based on the minimum statutory withholding rates for federal, state and local tax purposes, including payroll taxes, that are applicable to such supplemental taxable income resulting from the exercise of any option granted under this Plan. Delivery of or withholding of fractional shares shall not be permitted. Upon receipt of payment of the exercise price or written direction with respect to such exercise price and upon payment or satisfactory provision for payment of any taxes due on the exercise of any option, HBI shall issue and deliver to the person exercising the option a certificate or certificates for the shares with respect to which the option shall have been so exercised (less any shares withheld in payment of the exercise price or any withholding requirement), dated as of the date of exercise. 2. Effective as of May 17, 2000, the beginning phrase of the second sentence of Section 7(e) of the 1994 Plan is hereby amended to read "Notwithstanding the second paragraph of Section 7(b)." EX-10.D 6 l94357aex10-d.txt EXHIBIT 10D EXHIBIT 10 (d) HUNTINGTON BANCSHARES INCORPORATED BOARD OF DIRECTORS MEETING AUGUST 15, 2001 RE: SECOND AMENDMENT TO THE AMENDED AND RESTATED HUNTINGTON BANCSHARES INCORPORATED 1994 STOCK OPTION PLAN WHEREAS, the Board of Directors and shareholders of Huntington Bancshares Incorporated (the "Corporation") previously adopted and established the Amended and Restated Huntington Bancshares Incorporated 1994 Stock Option Plan (the "1994 Plan") which provides for the grant to eligible employees of the Corporation or its subsidiaries of options to purchase shares of common stock, without par value, of the Corporation; WHEREAS, Section 2(xii) of the 1994 Plan currently defines "Other Termination" to include a termination of employment following a Change in Control or a disposition other than in a Change in Control of substantially all of the stock or assets of the Corporation; WHEREAS, Section 10(a) of the 1994 Plan provides that this Board of Directors may at any time and from time to time amend the 1994 Plan; WHEREAS, this Board deems it desirable and in the best interests of the Corporation, effective August 15, 2001, to amend Section 2(xii) of the 1994 Plan to allow the Compensation and Stock Option Committee (the "Committee") the discretion to determine such other events not in the ordinary course of business that will be treated as an "Other Termination" for non-executive officer employees of the Corporation for purposes of the 1994 Plan. For purposes of this provision, "non-executive officer employees" means employees who are not Section 16 reporting persons under the Securities Exchange Act of 1934, as amended. NOW, THEREFORE, BE IT RESOLVED, that, effective August 15, 2001, Section 2(xii) of the 1994 Plan shall be amended and that the First Amendment to the 1994 Plan, as presented to this Board and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the proper officers of the Corporation are authorized to take such actions or make such findings as determined, in their discretion, to be necessary or beneficial to effectuate these Resolutions. EXHIBIT A FIRST AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED AMENDED AND RESTATED 1994 STOCK OPTION PLAN Effective August 15, 2001, Section 2(xii) of the Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan is hereby amended by deleting Section 2(xii) in its entirety and replacing it with the following: "(xii) "Other Termination" shall mean the termination of the employment or the directorship of an Optionholder, as the case may be, for any reason following: (i) a Change in Control, (ii) the disposition other than in a Change in Control, directly or indirectly, of substantially all of the stock or assets of the Company to any person or entity other than the Company, or (iii) for non-executive officer employees only, any event occurring not in the ordinary course of business which the Committee determines, in its discretion, constitutes an event that shall be treated as an Other Termination for purposes of this Section 2(xii). For purposes of this provision, "non-executive officer employees" means employees who are not Section 16 reporting persons under the Securities Exchange Act of 1934, as amended." EX-10.E 7 l94357aex10-e.txt EXHIBIT 10E EXHIBIT 10 (e) HUNTINGTON BANCSHARES INCORPORATED BOARD OF DIRECTORS MEETING NOVEMBER 20, 2001 RE: THIRD AMENDMENT TO THE AMENDED AND RESTATED HUNTINGTON BANCSHARES INCORPORATED 1994 STOCK OPTION PLAN WHEREAS, the Board of Directors and shareholders of Huntington Bancshares Incorporated (the "Corporation") previously adopted and established the Amended and Restated Huntington Bancshares Incorporated 1994 Stock Option Plan (the "1994 Plan") which provides for the grant to eligible employees of the Corporation or its subsidiaries of options to purchase shares of common stock, without par value, of the Corporation; WHEREAS, Section 7(d) of the 1994 Plan currently permits only holders of Non-Statutory Stock Options to designate a beneficiary to exercise his or her Non-Statutory Stock Option after the optionholder's death; WHEREAS, Section 10(a) of the 1994 Plan provides that this Board of Directors may at any time and from time to time amend the 1994 Plan; WHEREAS, this Board deems it desirable and in the best interests of the Corporation, effective November 20, 2001, to amend Section 7(a) and Section 7(d) of the 1994 Plan to allow the holders of Incentive and Non-Statutory Stock Options the ability to designate a beneficiary to exercise such options following the optionholder's death; and WHEREAS, this Board deems it desirable and in the best interests of the Corporation, effective November 20, 2001, to amend the definition of "Retirement" under Section 2(xv) of the 1994 Plan to conform the definition to the other stock option plans of the Corporation. NOW, THEREFORE, BE IT RESOLVED, that, effective November 20, 2001, Section 7(a), Section 7(d) and Section 2(xv) of the 1994 Plan shall be amended to permit holders of Incentive and Non-Statutory Stock Options the ability to designate a beneficiary to exercise such options following the optionholder's death and to conform the definition of "Retirement" as used in the 1994 Plan to the other stock option plans of the Corporation, and that the Third Amendment to the 1994 Plan, as presented to this Board and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the proper officers of the Corporation are authorized to take such actions or make such findings as determined, in their discretion, to be necessary or beneficial to effectuate these Resolutions. EXHIBIT A THIRD AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED AMENDED AND RESTATED 1994 STOCK OPTION PLAN Effective November 20, 2001, Section 7(d) of the Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan is hereby amended by deleting in its entirety subsection (a) of the second paragraph of Section 7(d) and replacing it with the following: "(a) designate in writing a beneficiary to exercise his or her Incentive Stock Option or Non-Statutory Stock Option after the optionholder's death." Effective November 20, 2001, Section 7(a) of the Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan is hereby amended by deleting Section 7(a) in its entirety and replacing it with the following: "(a) Exercise Upon Death. Upon the death of any Optionholder (1) while in the employ of the company, or (2) which serving as a member of the Board of Directors of the Company, or (3) after Retirement, but prior to the exercise in full of any option granted to such Optionholder, the Optionholder's executor, administrator or such other person or persons to whom the Option shall pass by testamentary transfer, bequest, the operation of the laws of descent or distribution, or by reason of a written beneficiary designation on a form proscribed by the Company, may exercise any option then unexercised in full within the period ending upon the earlier of the Expiration Date of the option or the date thirteen months after the Optionholder's death, and may then purchase all or any part of the shares subject to the option, whether or not such option is then exercisable in full pursuant to its terms." Effective November 20, 2001, Section 2(xv) of the Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan is hereby amended by deleting Section 2(xv) in its entirety and replacing it with the following: "Retirement" shall mean, in the case of an employee, the retirement from the employ of the Company under one or more of the retirement plans of the Company, and, in the case of an Eligible Director, shall mean the retirement from the Board of Directors of the Company at any time after the Eligible Director attains age 55 and has served at least 5 years as a Director." EX-10.F 8 l94357aex10-f.txt EXHIBIT 10F SEVERANCE AGREEMENT AND RELEASE AND WAIVER OF ALL CLAIMS This Severance Agreement and Release and Waiver of All Claims ("Agreement") is made by and between, and shall inure to the benefit of and be binding upon, the following parties; RONALD J. SEIFFERT, hereinafter referred to, together with his heirs, estate, executors, administrators, successors, assigns and other personal representatives, as MR. SEIFFERT; and HUNTINGTON BANCSHARES INCORPORATED, together with its subsidiary organizations, is hereinafter referred to as "HUNTINGTON," except as noted in paragraph 5 hereof. In consideration of the mutual provisions and promises of this Agreement, MR. SEIFFERT and HUNTINGTON agree as follows: 1. LAST DAY OF EMPLOYMENT. HUNTINGTON and MR. SEIFFERT mutually agree that MR. SEIFFERT will resign voluntarily from his current position and titles with HUNTINGTON effective March 31, 2002. MR. SEIFFERT will remain employed with HUNTINGTON, will remain on HUNTINGTON's payroll, and will be permitted to continue to participate in certain of HUNTINGTON's employee benefit plans through September 30, 2002 (the "Period"). MR. SEIFFERT's continued employment during the Period will be subject to all of the terms of this Agreement, including the following: A. At the close of business on September 30, 2002, MR. SEIFFERT's employment with HUNTINGTON will terminate, unless such employment is terminated earlier by MR. SEIFFERT or HUNTINGTON pursuant to the terms set forth below in this Agreement. B. During the Period, MR. SEIFFERT will proactively support the leadership of HUNTINGTON among the community, employees, directors, and shareholders and will provide services to HUNTINGTON as HUNTINGTON requests from time-to-time, although MR. SEIFFERT will have resigned any directorship and as an executive officer of HUNTINGTON effective March 31, 2002. During the Period, except when and as requested by HUNTINGTON pursuant to paragraph 10 of this Agreement, MR. SEIFFERT will not be providing any other employment-related or other services to or on behalf of HUNTINGTON. C. During the Period, HUNTINGTON agrees to maintain MR. SEIFFERT on HUNTINGTON's payroll at his current base salary of $395,000 and to continue to provide him with the employee benefits listed in Exhibit A, at the levels then in effect on March 31, 2002 or as HUNTINGTON may amend its benefit plan levels thereafter from time-to-time pursuant to the terms of those benefit plans and HUNTINGTON's standard payroll and benefit practices. Such base salary and benefits will be paid less applicable and required tax withholdings, deductions, and co-pay requirements. HUNTINGTON and MR. SEIFFERT agree that during the Period MR. SEIFFERT will have used and will not be entitled to accrue or receive any monies for any vacation, sick days and/or personal days; nor will he be entitled to participate in or receive any monies under any of HUNTINGTON's employee benefit plans, incentive compensation plans, or under any executive agreements, practices, or programs, including any Executive "Change in Control" Agreement entered into between MR. SEIFFERT and HUNTINGTON, that are not specifically listed in Exhibit A; nor will he be entitled to any expense reimbursement during the Period except as provided in paragraph 10. D. In exchange for the additional severance benefits being offered to him under this Agreement, during the Period MR. SEIFFERT further agrees not to post or apply for any open positions within HUNTINGTON, and he expressly relinquishes and waives any such right to do so under any HUNTINGTON policy, program or practice. 2. Termination from Employment During the Period. A. By MR. SEIFFERT. HUNTINGTON and MR. SEIFFERT further understand and agree that pursuant to the terms of this paragraph and upon written notice delivered to HUNTINGTON's Chairman or General Counsel's office, MR. SEIFFERT may, at any time during the Period, terminate the Period and remove himself from employment and HUNTINGTON's payroll and benefit plans. MR. SEIFFERT agrees that under this paragraph 2.A., he is obligated to notify HUNTINGTON's Chairman or General Counsel's office in writing if he desires to terminate the Period for personal reasons or because he has secured and plans to begin any paid employment, consultancy or independent contractor relationship other than his paid employment with HUNTINGTON; provided, however, that MR. SEIFFERT is not obligated to terminate the Period merely because he has secured but has not started any such other paid employment, consulting, or independent contractor relationship during the Period. If MR. SEIFFERT elects to terminate the Period, MR. SEIFFERT must include with such notice the date he desires to terminate the Period, the reason, and, if applicable: (1) the identity of any such employment, consultancy or independent contractor relationship, and (2) the first date on which he will start receiving compensation from any such employment, consultancy or independent contractor relationship. Assuming such paid employment, consultancy or independent contractor relationship does not violate MR. SEIFFERT's non-competition obligation under paragraph 7 of this Agreement, and provided MR. SEIFFERT is otherwise in compliance with this paragraph and the other terms of this Agreement, in addition to the other severance benefits to which MR. SEIFFERT may be entitled to under Exhibit A, HUNTINGTON agrees to pay MR. SEIFFERT the equivalent of any unpaid base salary remaining for the period between the date of the termination of the Period and September 30, 2002. Such payment will be minus applicable withholdings and deductions and will he calculated from an annualized base salary rate of $395,000. Such payment will be paid within thirty days of the termination date of the Period. B. By HUNTINGTON. At any time during the Period, upon written notice delivered to MR. SEIFFERT, HUNTINGTON may remove MR. SEIFFERT from employment and HUNTINGTON's payroll and benefit plans, as well as cease any payments, services, and other considerations set forth in - 2 - Exhibit A that have not yet been paid or provided to MR. SEIFFERT, if: (1) MR. SEIFFERT starts performing any remunerated employment or consulting services, whether as an employee, consultant, or independent contractor, for any person or entity oilier than HUNTINGTON without first having notified HUNTINGTON and terminated the Period pursuant to 2.A. above; (2) HUNTINGTON has clear and convincing evidence that before or after March 31, 2002, MR. SEIFFERT engaged in any acts of fraud, dishonesty or intentional wrongdoing materially adverse to HUNTINGTON; misappropriated or embezzled any monies from HUNTINGTON; engaged in criminal conduct involving HUNTINGTON; or filed any lawsuit or other legal, equitable or administrative action against HUNTINGTON, except (i) any claim solely for benefits that arises under the Employee Retirement Income Security Act ("ERISA"); or (ii) an arbitration claim to enforce his rights set forth in this Agreement; or (3) MR. SEIFFERT breaches any obligation under paragraphs 1, 2, 4, 5, 6, 7, 8, 9, 10, 11 or 13 of this Agreement. HUNTINGTON agrees that before terminating and removing MR. SEIFFERT from its payroll or exercising its other rights under this paragraph 2 due to a breach by MR. SEIFFERT of paragraph 2.B., HUNTINGTON will first provide MR. SEIFFERT with five business days notice and an opportunity to explain and resolve the breach to HUNTINGTON's satisfaction. 3. Severance. Based on MR. SEIFFERT's performance and years of service, and subject to the terms of this Agreement, in addition to any payment that may be made under paragraph 2.A. above, HUNTINGTON agrees to provide MR. SEIFFERT with the severance benefits as set forth in Exhibit A to this Agreement, the terms of which are incorporated in their entirety into this Agreement. 4. Timing of Consideration. Provided MR. SEIFFERT has adhered to his obligations under this Agreement and did not exercise his right to revoke his acceptance of this Agreement during its seven-day "revocation period," HUNTINGTON agrees to provide MR. SEIFFERT with the severance benefits listed in Exhibit A within the time periods specified in Exhibit A. 5 Releases, Waivers and Covenants Not to Sue. In consideration of the benefits provided above, the adequacy and sufficiency of which MR. SEIFFERT hereby expressly acknowledges, MR. SEIFFERT, as defined in this Agreement, hereby RELEASES, WAIVES AND FOREVER DISCHARGES HUNTINGTON, as defined below, of and from any and every action, cause of action, complaint, claim, demand, administrative charge, legal right, compensation, obligation, damages (including exemplary or punitive damages), benefits (except as set forth herein), liability, cost and/or expense (including attorney's fees), that he has, may have, or may be entitled to against HUNTINGTON, whether legal, equitable or administrative, whether known or unknown, which arise directly or indirectly out of, or are related in any way to, MR. SEIFFERT's employment with and termination from HUNTINGTON, and agrees and covenants not to bring any claim, suit or other action against HUNTINGTON for any other reason, act, or omission, specified or unspecified, occurring or arising prior to the effective date of this Agreement, except that this Release, Waiver and Covenant Not to Sue does not apply to any claim arising before or after the effective date of this Agreement which pertains or relates to accrued but unpaid salary since the date of the last paycheck that was paid to MR. SEIFFERT before the effective date of this Agreement; any expense reimbursements consistent with HUNTINGTON's policies that MR. SEIFFERT incurred after March 25, 2002, and before April - 3 - 1, 2002, and a pending expense reimbursement request for estate planning services; any claim solely for benefits MR. SEIFFERT may have under HUNTINGTON's employee benefit plans, including without limitation, group health, pension, or 401(k) plan, or SRIP; or to any claims MR. SEIFFERT may file for workers' compensation. In exchange for MR. SEIFFERT's promises set forth in this Agreement, HUNTINGTON hereby RELEASES, WAIVES AND FOREVER DISCHARGES MR. SEIFFERT, as defined in this Agreement, of and from any and every legal, equitable and administrative claim, action, cause of action, complaint, demand, charge, legal right, compensation, obligation, damages (including exemplary or punitive damages), benefits (except as set forth herein), liability, cost and/or expense (including attorney's fees), that it has, may have, or may be entitled to against MR. SEIFFERT, and agrees and covenants not to bring any such claim, suit or other action against MR. SEIFFERT, based on acts or omissions of MR. SEIFFERT's which occurred prior to the effective date of this Agreement and while he was acting within the scope of his employment and with authority from HUNTINGTON. HUNTINGTON and MR. SEIFFERT further agree that HUNTINGTON does not release, waive or discharge MR. SEIFFERT from any legal, equitable or administrative claim or action: (1) based on any obligation or debt he has as a customer of HUNTINGTON; (2) based on any personal banking or other personal financial services relationship he has with HUNTINGTON; (3) based on any act of his of fraud, dishonesty, embezzlement, intentional wrongdoing or criminal conduct involving HUNTINGTON; or (4) from any claims or action that federal or state law prohibit HUNTINGTON from releasing, waiving and discharging MR. SEIFFERT from. HUNTINGTON further agrees, to the fullest extent permitted by its Articles of Association, Bylaws, and federal and state law, including the laws of the State of Maryland, to indemnify MR. SEIFFERT if any claim or action is brought against him personally relating to or arising out of any acts or omissions of MR. SEIFFERT's which occurred while he was acting within the scope of his employment with and authority from HUNTINGTON. Solely for purposes of this paragraph 5, "HUNTINGTON" means HUNTINGTON BANCSHARES INCORPORATED, together with all its past, present and future assigns, successors, affiliates, parent and subsidiary organizations, divisions, and corporations, and including all past, present and future officers, directors, shareholders, employees, and agents of the same, as well as their heirs, executors, administrators, successors, assigns and other personal representatives, individually and in their respective corporate capacities. 6. Knowledge of Rights. MR. SEIFFERT acknowledges that he is aware of his rights under federal, state and local statutory and common law, including those relating to discrimination, and understands that the consideration being paid to him herein is expressly conditioned on him waiving all claims relating, directly or indirectly, to his employment with and termination from HUNTINGTON, including, but not limited to, any and all claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act, and any and all contract, tort, and common law claims. 7. Non-Disclosure, Non-Solicitation, Non-Recruitment and Non-Competition. HUNTINGTON and MR. SEIFFERT agree that their May 24, 2000, Stock Option Grant Agreement (attached as "Exhibit B"), including its provisions on non-disclosure of Confidential Information, non-solicitation, and non-recruitment (contained in (a)(i), (ii), (b), (c) and (d)), is incorporated in its entirety into this Agreement and shall remain in full force and effect during - 4 - the Period and after the Period ends, including during the twelve-month post-termination Business Protection Period in (a)(i), (ii), (b), and (c) of Exhibit B. HUNTINGTON and MR. SEIFFERT further agree that the end of MR. SEIFFERT's continued employment Period, whether it ends voluntarily or involuntarily, will not constitute a reduction-in-force under Exhibit B. MR. SEIFFERT represents and warrants that on or before March 31, 2002, he will have returned to HUNTINGTON all documentation, computer discs, or other property which contain or reflect any Confidential Information as defined in Exhibit B. HUNTINGTON and MR. SEIFFERT further agree that in exchange for the severance benefits and other consideration provided to him under this Agreement, MR. SEIFFERT agrees that he will not compete against HUNTINGTON in commercial banking, as an owner, director, officer, employee, or paid or unpaid contractor, consultant, or volunteer of any financial institution or other business entity that competes directly or indirectly with HUNTINGTON in Ohio. HUNTINGTON and MR. SEIFFERT agree that the duration of this non-competition restriction will be throughout the Period and for the six-month period after the termination of the Period, whether such termination occurs voluntarily or involuntarily. HUNTINGTON and MR. SEIFFERT agree that if, during the Period and the six-month period thereafter, MR. SEIFFERT receives an offer of employment or another business relationship that would result in MR. SEIFFERT's violation of his non-compete obligation, MR. SEIFFERT, prior to accepting any such other and without prejudice to any of his rights under this Agreement, may ask HUNTINGTON's Chairman or General Counsel whether HUNTINGTON, in its discretion, will consent to such employment or other business relationship as an exception to this non-compete obligation. To be effective, any such consent must be expressed in writing and signed by HUNTINGTON's Chairman. HUNTINGTON and MR. SEIFFERT further agree that ownership of not more than 2% of the stock of a financial institution or other business entity that competes directly or indirectly with HUNTINGTON will not violate this non-competition obligation. HUNTINGTON and MR. SEIFFERT further acknowledge and agree that this non-competition restriction is reasonable in scope and duration, and appropriate and necessary to protect HUNTINGTON's legitimate business interests and confidential business information. 8. No Re-Employment. MR. SEIFFERT agrees that he will not at any time seek reemployment or a new position with HUNTINGTON, covenants not to bring any suit or claim against HUNTINGTON should he seek and be denied employment or any new position, and agrees that this Agreement shall act as a complete bar to any claim based upon denial of employment or any new position. In the event, however, that MR. SEIFFERT is employed by a financial institution or other business entity that purchases or acquires HUNTINGTON, or seeks employment with and is hired by a financial institution or other business entity that has purchased or acquired HUNTINGTON, this provision will not apply. 9. Non-Admission of Liability and Non-Disparagement. MR. SEIFFERT and HUNTINGTON agree that nothing in or related to this Agreement and/or related to MR SEIFFERT's employment or termination from employment constitutes an admission by HUNTINGTON or MR. SEIFFERT of any violation of any federal, state or local law. HUNTINGTON and MR. SEIFFERT further agree not to make or publish to any third party any false or disparaging statements about the other. HUNTINGTON and MR. SEIFFERT agree that only violations of this non-disparagement provision committed by its current Chairman and Vice - 5 - Chairmen while still employed with HUNTINGTON can constitute a violation by HUNTINGTON of this non-disparagement obligation. 10. Cooperation Agreement. As a condition of remaining employed with HUNTINGTON during the Period, and of receiving the additional severance benefits specified in Exhibit A, MR. SEIFFERT agrees that during the Period he will comply with any requests from HUNTINGTON as HUNTINGTON's Chairman or Vice Chairman may make of him from time-to-time to work on HUNTINGTON business and/or litigation matters during normal business hours. MR. SEIFFERT further agrees that after the Period terminates, if requested by HUNTINGTON he will make himself reasonably available to consult with HUNTINGTON on business or litigation concerning matters in which he was involved while a HUNTINGTON employee. For any requests made of MR. SEIFFERT under this paragraph, HUNTINGTON agrees to reimburse MR. SEIFFERT for any travel, lodging, long distance phone charges, copying charges, fax charges and meal expenses that MR. SEIFFERT may reasonably incur in providing such consultation, provided HUNTINGTON has pre-approved such expenses in advance. For any such requests of MR. SEIFFERT made after the Period terminates, and except in connection with any federal or state court litigation, arbitration, or administrative proceeding where he is a named party, HUNTINGTON further agrees to pay MR. SEIFFERT One Hundred Forty Dollars ($140.00) per hour on a pro rata hourly basis for any pre-approved time he incurs per a request by HUNTINGTON pursuant to this paragraph. 11. MR. SEIFFERT's Responsibility far Tax and Social Security Liability. MR. SEIFFERT acknowledges and agrees that, except as provided in this Agreement, he is responsible for any and all of his own federal, state and local tax, FICA and/or social security liabilities and consequences which may result from his receipt of the additional severance benefits referenced in Exhibit A, and agrees to hold harmless and indemnify HUNTINGTON against any and all such liabilities or resulting consequences, including assessments, judgments, fines, interests, penalties, costs and reasonable attorney's fees. MR. SEIFFERT further agrees that HUNTINGTON shall not be required to pay any further sums to him for any reason even if the tax and/or social security liabilities and resulting consequences to him are ultimately assessed in a fashion which MR. SEIFFERT does not presently anticipate. 12. Consultation with Counsel. MR. SEIFFERT and HUNTINGTON agree and acknowledge that MR. SEIFFERT has been advised in writing to consult legal counsel concerning the terms of this Agreement prior to executing it, that he has been given up to twenty-one (21) days within which to consider the terms of this Agreement, that pursuant to the Older Workers Benefits Protection Act of 1990, MR. SEIFFERT has seven (7) days following the execution of this Agreement to revoke his acceptance of the Agreement, and that the Agreement shall not become effective or enforceable until the revocation period has expired. MR. SEIFFERT and HUNTINGTON further agree that they have been given the opportunity to fully discuss the terms of this Agreement with their respective attorneys, that this agreement is written in a manner that they both understood, and that they have had the opportunity to fully review with their attorneys the legal claims and rights which are being released and the obligations of each party under this Agreement. Based upon that review and discussion with counsel, MR. SEIFFERT and HUNTINGTON acknowledge that they fully and completely understand and accept the terms of this agreement and enter into it freely, voluntarily and of their own free will. - 6 - 13. Breach. MR. SEIFFERT and HUNTINGTON agree and acknowledge that this Agreement may be used as evidence in any subsequent proceeding in which either party alleges a breach of this Agreement or asserts claims inconsistent with its terms. MR. SEIFFERT and HUNTINGTON further agree that all future disputes they may have concerning their obligations under this Agreement will be submitted to binding arbitration, including any disputes over the enforcement of the terms of this Agreement, excepting only potential claims relating to payment of vested benefits from any HUNTINGTON benefit plan or a request for equitable relief from a court of competent jurisdiction to enjoin an ongoing violation of this Agreement and to preserve the status quo pending the arbitration proceedings required under this provision. If either party contends that they have a claim of any kind against the other, or that any provisions of this Agreement are not being complied with, written notice of alleged non-compliance shall be given to the other party within thirty (30) calendar days of notice of the alleged dispute or noncompliance. Such notice must be either hand delivered or sent by certified mail to the party's last known address on or before the 30th day. The party receiving such notice shall have five (5) business days from receipt of such written notice to resolve the alleged dispute(s) or noncompliance through mutual efforts of conciliation. The parties may mutually agree in writing upon additional time to endeavor to resolve the alleged dispute(s) or non-compliance. In the event the parties are unable to conciliate the dispute(s) or non-compliance within the five (5) business days mentioned above (or within the additional period of time to which the parties may have mutually agreed), at the conclusion of the five-day business period the parties agree to submit the dispute(s) or issue(s) of non-compliance to binding arbitration, upon the request of either party if made within sixty (60) calendar days starting with the day after the five-day period ends. The binding arbitration shall be administered by the American Arbitration Association ("AAA") under its Employment Dispute Resolution Arbitration Rules. The arbitration shall take place in Columbus, Ohio. The arbitrator's award shall be accepted as final and binding upon the parties. The entire arbitration proceeding and any award or decision relating thereto shall be kept completely confidential by AAA, the arbitrator, the parties and any non-party witnesses. In the event of arbitration instituted under this Agreement, MR. SEIFFERT and HUNTINGTON each shall be responsible for half of the full payment of the arbitrator's fee, as well as the expenses of the arbitration, excluding their own costs and attorney's fees, for which each party shall remain solely responsible. However, the arbitrator has the power to award all or a portion of costs and attorneys' fees to a prevailing party, or to the other party if the arbitrator determines that a party has made a frivolous claim or defense, where the arbitrator decides that such an award is just. In any arbitration instituted under this Agreement, the arbitrator shall have the authority to render a decision in accordance with applicable state and/or federal law and to award any and all appropriate damages including the forfeiture of any monies already paid pursuant to this Agreement, and any other legal or equitable relief, including restitution of the arbitrator's fee to the prevailing party. This agreement to arbitrate may be compelled under the Federal Arbitration Act. 14. Entire Agreement. MR. SEIFFERT and HUNTINGTON agree and acknowledge that this Agreement, together with Exhibits A and B, contain and comprise the entire agreement and understanding between the parties and that no other representation, promise, covenant or agreement of any kind whatsoever has been made to cause either party to execute this Agreement. The parties further agree and acknowledge that the terms of this - 7 - Agreement are contractual, and not a mere recital, and the parties intend this Agreement to be a substituted contract, not an executory accord. The parties also agree that the terms of this Agreement shall not be amended or changed except in writing and signed by MR. SEIFFERT and a duly-authorized agent of HUNTINGTON. The parties to this Agreement further agree that this Agreement shall be binding on and inure to the benefit of RONALD J. SEIFFERT and HUNTINGTON BANCSHARES INCORPORATED as defined and described in paragraph 5 of this Agreement. 15. Effective Date. The effective date of this Agreement shall be the eighth day following the date on which MR. SEIFFERT executes this Agreement, unless he revokes his acceptance in accordance with the seven-day revocation period set forth above in this Agreement. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THE FOREGOING SEVERANCE AGREEMENT AND RELEASE AND WAIVFR OF ALL CLAIMS, FULLY UNDERSTAND IT AND HAVE VOLUNTARILY SIGNED THIS AGREEMENT ON THE DATE INDICATED, SIGNIFYING THEREBY THEIR ASSENT TO, AND WILLINGNESS TO BE BOUND BY, ITS TERMS: 3-27-02 /s/ Ronald J. Seiffert ------- ---------------------- Date RONALD J. SEIFFERT STATE OF OHIO ) ) ss: COUNTY OF FRANKLIN ) Before me, a Notary Public in and for said County and State, personally appeared the above-named RONALD J. SEIFFERT, who acknowledged that he did sign the foregoing instrument, and that the same is his free act and deed. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Franklin County, Ohio, this 27th day of March, 2002. /s/ Joyce P. Whitefield ----------------------- NOTARY PUBLIC JOYCE P. WHITEFIELD NOTARY PUBLIC, STATE OF OHIO MY COMMISSION EXPIRES 10-18-05 - 8 - HUNTINGTON BANCSHARES INCORPORATED Date: 3/28/02 By: /s/ Thomas E. Hoaglin ------------- ------------------------- Title: Chairman and CEO STATE OF OHIO ) ) ss: COUNTY OF FRANKLIN ) Before me, a Notary Public in and for said County and State, personally appeared the above-named Huntington Bancshares Incorporated through Thomas E. Hoaglin, its Chairman, who acknowledged that he has full authority to bind and did sign the foregoing instrument for and on behalf of Huntington Bancshares Incorporated, and that the same is the free act and deed of Huntington Bancshares Incorporated, and the free act and deed of him as its agent. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Franklin County, Ohio, this 28 day of March, 2002. /s/ T. Renee Miller ------------------- NOTARY PUBLIC [SEAL] T. RENEE MILLER Notary Public, State of Ohio My Commission Expires 03-18-04 - 9 - Exhibit A 1. During the Period. A. During the Period, and provided he is in compliance with his obligations under the Agreement, MR. SEIFFERT ("Executive") will be entitled to: 1) base salary at his current rate of pay, paid out bi-weekly pursuant to Huntington's normal payroll cycle 2) continued health and dental insurance coverage at his current employee rates 3) continued Pension Plan benefit 4) continued SRIP benefit 5) exercise stock options 6) continued participation in Huntington Investment and Tax Savings Plan ("HIP"), and Huntington Supplemental Stock Purchase Plan, including eligibility for company matching contributions in accordance with the terms of the plans 7) continued life insurance coverage at group rates 8) continued disability insurance coverage at group rates 2. Additional Severance Benefits. A. Provided Executive did not exercise his right to revoke his acceptance of the Agreement and is in compliance with his obligations under the Agreement, Huntington agrees to: 1) Pay Executive two years of base salary ($790,000), minus applicable withholdings and deductions, to be paid in a lump sum within thirty days of the effective (date of the Agreement. 2) Allow continued vesting and Executive's right to exercise vested stock options during the Period. Options vesting as of May 17, 2002 (55,000 shares) and May 16, 2002 (23,333 shares) may be exercised at any time during the Period in accordance with the terms of HUNTINGTON's stock option plan, up to the close of business on the last business day of the Period. 3) Pay Executive a pro-rata payout of LTIP bonus (2000-2002 cycle) for 2000, 2001, and through the effective date of March 31, 2002 at the target payout of 50% of base salary, to be paid in a lump-sum, minus applicable withholdings and deductions, within thirty days of the effective date of the Agreement. 4) Pay Executive a 2002 "MIP-like" payout at the target of 60% on a pro-rata basis through the effective date of March 31, 2002, to be paid in a lump-sum, minus applicable withholdings and deductions, within thirty days of the effective date of the Agreement. 5) Fund Executive's purchase of company vehicle at book value as of March 31, 2002, on a tax neutral basis (putting Executive in the same after-tax position as if this were a nontaxable benefit). 6) Provide Executive with executive outpatient services, or an equivalent resource or service as may be agreed to by HUNTINGTON and Executive, to commence immediately upon the effective date of the Agreement. 7) Submit for approval a resolution of the Board of The Huntington National Bank recognizing Executive's contribution to the Board similar to resolutions that have been traditionally provided for departing board members, and to do so upon the effective date of the Agreement. 8) Provide, upon the effective date of this Agreement, an employment reference letter signed by Tom Hoaglin that is mutually agreeable to the parties. 9) Use its best efforts to sponsor Executive, at his expense, in seeking to obtain his NASD Series 7 license, provided such sponsorship can be accomplished in compliance with and without violating any applicable NASD or HUNTINGTON policies, procedures, or requirements pertaining to such a Section 7 sponsorship. B. Other: Within thirty days of the termination of the Period, and provided Executive has remained in compliance with the Agreement, HUNTINGTON agrees to: 1) Fund Executive's purchase of COBRA coverage, if Executive elects to receive COBRA coverage, by making a lump-sum payment to Executive equivalent to the difference between the full COBRA premium cost and the Executive's last HUNTINGTON employee co-pay amount on a tax neutral basis (putting Executive in the same after-tax position as if this were a nontaxable benefit). 2) Submit for approval to the Pension Review Committee an additional 3 years of service credited to the SRIP, and to approve such additional years of - 2 - service pursuant to the Committee's regularly scheduled meetings and approval process. 3) Transfer membership in New Albany Country Club (if allowable by Club). 4) Have Executive's final personnel record reflect a voluntary resignation. - 3 - [LOGO] Huntington Banking. Investments. Insurance. NOTICE OF GRANT OF STOCK OPTION AND GRANT AGREEMENT May 24, 2000 Ronald J. Seiffert Vice Chairman Huntington Bancshares Incorporated The Compensation and Stock Option Committee of the Board of Huntington Bancshares Incorporated ("the Huntington"), at its meeting on May 17 2000, granted you an option to purchase 75,000 shares of Huntington Bancshares Incorporated stock, as described below: Incentive Stock Option Shares Granted 5,871 Nonqualified Stock Option Shares Granted 69,129 Option Price per Share $17.03125 Total Value of Shares Granted $1,277,343.75
This option award to you does not only acknowledge your personal contribution to the growth and success of our company, but the Committee was very much influenced by the performance of our company during the most recent past and expressed its desire to continue to improve the company's position relative to its peer group. This option has been granted from the Huntington Bancshares Incorporated 1994 Stock Option Plan ("the Plan") and will vest in equal increments (with odd shares vesting first, if applicable) on each May 17 of the years 2001 through 2003. Your option to purchase will expire at midnight on May 16, 2010 or upon such earlier expiration date as provided in the Plan, and shall not be exercisable thereafter. This option is subject to all the terms, conditions and limitations of the Plan. Enclosed for your reference is a Plan Summary and an exercise form. In exchange for receiving and accepting this award (which requires that you sign and return a copy of this Agreement): You acknowledge and agree that in the performance of your duties of employment with the Huntington you may be in contact with customers, potential customers and/or information about customers or potential customers of the Huntington. You also acknowledge and agree that trade secrets and confidential information of the Huntington, more fully described in paragraph (c) of this Agreement, gained by you during your employment with the Huntington, have been developed by the Huntington through substantial expenditures of time, effort and financial resources and constitute valuable and unique property of the Huntington. You further understand and agree that the foregoing makes it necessary for the protection of the Huntington's businesses that you not divert business or customers from the Huntington and that you maintain the confidentiality and integrity of the Confidential Information as hereinafter defined. (a) You agree that you will not, during your employment by the Huntington and for a period of one year after such employment ceases, whether voluntarily or involuntarily (the "Business Protection Period"): (i) solicit or take away any customers or business of the Huntington with whom you have had contact or responsibility during your employment with the Huntington, or attempt to do so, for the sale of any product or service that competes with a product or service offered by the Huntington; or (ii) solicit or take away any potential customer identified, selected or targeted by the Huntington with whom you have had contact or responsibility during your employment with the Huntington, or attempt to do so, for the sale of any product or service that competes with a product or service offered by Huntington. Notwithstanding the foregoing provisions of this paragraph, if your employment terminates as a result of a reduction-in-force or, within one year following a change-in-control (as defined in the Plan), your employment terminates voluntarily or due to a reduction-in-force, your obligation under this paragraph (a) will cease as of the date of your termination of employment. Exhibit B NOTICE OF GRANT OF STOCK OPTION AND GRANT AGREEMENT -2- Nothing contained in this paragraph (a) shall preclude you from accepting employment with a company, firm, or business that competes with the Huntington so long as your activities do not violate the provisions of subparagraph (a)(i) and (a)(ii) above or any of the provisions of paragraphs (b) and (c) below. (b) You agree that you will not directly or indirectly at any time during the Business Protection Period solicit or induce or attempt to solicit or induce any employee, consultant or independent contractor of the Huntington to terminate his or her employment, representation or other association with the Huntington. (c) You agree that you will keep in strict confidence, and will not, directly or indirectly, at any time during or after the Business Protection Period, disclose or use (except in the course of performing your duties of employment with the Huntington) any trade secrets or confidential business or technical information of the Huntington or its customers or vendors (the "Confidential Information"), without limitation as to when or how you may have acquired such information. The Confidential Information shall include the whole or any portion of any information or plans, financial information, or listing of names, addresses or telephone numbers, including without limitation, information relating to the Huntington's customers or prospective customers, the Huntington's customer list, contract information including terms, pricing and services provided, information received as a result of customer contacts, the Huntington's products and processing capabilities, methods of operation, business plans, financials or strategy, and agreements to which the Huntington may be a party. The Confidential Information shall not include information that is or becomes publicly available other than as a result of disclosure by you. You specifically acknowledge that the Confidential Information derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been put forth by the Huntington to maintain the secrecy of such information, that such information is the sole property of the Huntington and that any retention and use of such information during or after your employment with the Huntington (except in the course of performing your duties of employment with the Huntington) shall constitute a violation of this and a misappropriation of the Huntington's Confidential Information. You further agree that, at the time of termination of your employment you will return to the Huntington, in good condition, all property of the Huntington, including, without limitation, the Confidential Information. In the event that said items are not so returned, the Huntington shall have the right to charge you for all reasonable damages, costs, attorney's fees and other expenses incurred in searching for, taking, removing, and/or recovering such property. In the event that you are advised in writing by your legal counsel that you are required by subpoena or other legal process to disclose any of the Confidential Information, you shall promptly notify the Huntington of this situation and you shall promptly provide the Huntington with a copy of the written advice of legal counsel so that the Huntington may seek a protective order or other appropriate remedy. If a protective order or other appropriate remedy is not obtained in a reasonable period of time, you may furnish only that portion of the Confidential Information that you are advised by your legal counsel is legally required. (d) For purposes of paragraphs (a), (b), and (c) above, the term "the Huntington" includes Huntington Bancshares Incorporated and any of its direct or indirect subsidiaries, successors, and assigns. The agreements set forth in paragraph (a) supercede this agreement made in paragraph (a) of the prior Stock Option Grant Agreement between you and the Huntington, and paragraphs (a), (b), (c), and this paragraph (d) shall survive any termination, expiration, or cancellation of the option grant evidenced by this Agreement. This Agreement shall be governed by the laws of the State of Ohio, without giving effect to any conflict of law provisions. If you agree to the provisions and conditions included in this Agreement, you should sign, date and return one copy of this Agreement to Auralee Childs in the enclosed envelope and keep the other copy for your personal file. The option grant evidenced by this Agreement shall, at the discretion of the Committee, be forfeited if it is not signed and returned by June 26, 2000. If you have any questions regarding the administration of the Plan or the exercise of a stock option, please contact Auralee at (614) 480-3832. /s/ Frank Wobst May 24, 2000 - ------------------------------------ ------------ Frank Wobst Date Chairman and Chief Executive Officer /s/ Ronald J. Seiffert May 26, 2000 - ------------------------------------ ------------ Ronald J. Seiffert Date EX-10.G 9 l94357aex10-g.txt EXHIBIT 10G EXHIBIT 10 (g) COMPENSATION COMMITTEE RESOLUTIONS FEBRUARY 13, 2002 RE: FIRST AMENDMENT TO THE AMENDED AND RESTATED 1999 INCENTIVE COMPENSATION PLAN WHEREAS, the Board of Directors of Huntington Bancshares Incorporated (the "Corporation") previously adopted the Amended and Restated 1999 Incentive Compensation Plan (the "Incentive Compensation Plan"), effective for performance cycles beginning January 1, 1999 and thereafter; WHEREAS, Article 5.2 of the Incentive Compensation Plan provides that potential Awards shall be expressed as a percentage of Base Salary of the participant as of December 31 of each plan year; WHEREAS, Article 2.1 defines the term "Base Salary" as used in the Incentive Compensation Plan; WHEREAS, Article 9.1 of the Incentive Compensation Plan provides that this Committee may at any time and from time to time amend the Incentive Compensation Plan; and WHEREAS, this Committee deems it desirable and in the best interests of the Corporation and the participants to adopt an amendment to the Incentive Compensation Plan to provide that the Base Salary used to determine potential Awards for non-Covered Officers shall be subject to adjustment by the Committee to account for changes in a participant's Base Salary during the applicable year. NOW, THEREFORE, BE IT RESOLVED, that, effective February 13, 2002, Article 2.1 of the Incentive Compensation Plan shall be amended and that the First Amendment to the Amended and Restated 1999 Incentive Compensation Plan, as presented to this Committee and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the officers of this Corporation be and they hereby are, authorized and directed to do any and all things and to take any and all action which they deem necessary or advisable in order to carry out the intent and purpose of these resolutions. EXHIBIT A FIRST AMENDMENT TO THE AMENDED AND RESTATED 1999 INCENTIVE COMPENSATION PLAN Effective February 13, 2002, Article 2.1 of Amended and Restated 1999 Incentive Compensation Plan is hereby amended by deleting the definition of "Base Salary" in its entirety and replacing it with the following: "Base Salary" shall mean the annual cash salary payable to an Officer, excluding bonuses, incentive compensation, stock options, employer contributions to pension and benefit plans, and other forms of irregular payments and deferred compensation; and for purposes of calculating a potential Award for non-Covered Officers pursuant to Section 5.2, shall be subject to adjustment by the Committee in its discretion to account for changes to a non-Covered Officer's Base Salary during the applicable year. EX-10.H 10 l94357aex10-h.txt EXHIBIT 10H EXHIBIT 10 (h) COMPENSATION COMMITTEE RESOLUTIONS AUGUST 15, 2001 RE: FIRST AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 2001 STOCK AND LONG-TERM INCENTIVE PLAN WHEREAS, the Board of Directors of Huntington Bancshares Incorporated (the "Corporation") previously adopted and established The Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan (the "2001 Plan") which provides for the grant to eligible employees of the Corporation or its subsidiaries of options to purchase shares of common stock, without par value, of the Corporation, grants of restricted stock and grants and payments of other long-term performance awards pursuant to the terms of the 2001 Plan; WHEREAS, Article 2.2 of the 2001 Plan currently defines "Award Agreement" as an agreement entered into by the Corporation and a participant setting forth the terms and provisions applicable to Awards granted under the 2001 Plan; WHEREAS, Article 14.1 of the 2001 Plan provides that this Committee may at any time and from time to time amend the 2001 Plan; WHEREAS, this Committee, for reasons of administrative efficiency, deems it desirable and in the best interests of the Corporation, effective August 15, 2001, to amend Article 2.2 of the 2001 Plan to eliminate the requirement that a participant enter into an Award Agreement with the Corporation. NOW, THEREFORE, BE IT RESOLVED, that, effective August 15, 2001, Article 2.2 of the 2001 Plan shall be amended to reflect the elimination of the requirement that a participant enter into an Award Agreement with the Corporation and that the First Amendment to the 2001 Plan, as presented to this Committee and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the proper officers of the Corporation are authorized to take such actions or make such findings as determined, in their discretion, to be necessary or beneficial to effectuate these Resolutions. EXHIBIT A FIRST AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 2001 STOCK AND LONG-TERM INCENTIVE PLAN Effective August 15, 2001, Article 2.2 of the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan is hereby amended and restated in its entirety to read as follows: 2.2 "Award Agreement" means a written statement prepared by the Corporation setting forth the terms and provisions applicable to Awards granted under this Plan. EX-10.I 11 l94357aex10-i.txt EXHIBIT 10I EXHIBIT 10 (i) COMPENSATION COMMITTEE RESOLUTIONS NOVEMBER 20, 2001 RE: SECOND AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 2001 STOCK AND LONG-TERM INCENTIVE PLAN WHEREAS, the Board of Directors of Huntington Bancshares Incorporated (the "Corporation") previously adopted and established The Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan (the "2001 Plan") which provides for the grant to eligible employees of the Corporation or its subsidiaries of options to purchase shares of common stock, without par value, of the Corporation, grants of restricted stock and grants and payments of other long-term performance awards pursuant to the terms of the 2001 Plan; WHEREAS, Article 2.33 of the 2001 Plan provides that Retirement shall mean, in case of a Non-employee Director, retirement from the Board at any time after the Non-employee Director attains age 70 and has served at least 5 years as a Director; WHEREAS, Article 10 of the 2001 Plan currently permits Participants to name a beneficiary or beneficiaries to whom any Plan benefits may be paid, but only upon approval by the Compensation and Stock Option Committee; WHEREAS, Article 14.1 of the 2001 Plan provides that this Committee may at any time amend the 2001 Plan; WHEREAS, this Committee, deems it desirable and in the best interests of the Corporation, effective November 20, 2001, to amend Article 2.33 and Article 10 of the 2001 Plan to change the retirement requirements for a Non-employee Director and to eliminate the need of Committee approval for designating a beneficiary or beneficiaries under the 2001 Plan. NOW, THEREFORE, BE IT RESOLVED, that, effective November 20, 2001, Article 2.33, Article 6.8 and Article 10 of the 2001 Plan shall be amended to change the retirement requirements for a Non-employee Director and to eliminate the need of Committee approval for designating a beneficiary or beneficiaries under the 2001 Plan and that the Second Amendment to the 2001 Plan, as presented to this Committee and as indicated on Exhibit A attached hereto, be, and hereby is, adopted and approved. FURTHER RESOLVED, that the proper officers of the Corporation are authorized to take such actions or make such findings as determined, in their discretion, to be necessary or beneficial to effectuate these Resolutions. EXHIBIT A SECOND AMENDMENT TO THE HUNTINGTON BANCSHARES INCORPORATED 2001 STOCK AND LONG-TERM INCENTIVE PLAN Effective November 20, 2001, Article 2.33 of the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan is hereby amended and restated in its entirety to read as follows: 2.33 "Retirement" shall mean, in the case of an Employee, the retirement from the employ of the Corporation under one or more retirement plans of the Corporation, or as otherwise specified by the Committee, and, in the case of a Non-employee Director, shall mean the retirement from the Board at any time after the Non-employee Director attains age 55 and has served at least 5 years as a Director. Effective November 20, 2001, Article 10 of the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan is hereby amended by deleting the phrase "If permitted by the Committee" from the first sentence of said Article 10. Effective November 20, 2001, Article 6.8 of the Huntington Bancshares Incorporated 2001 Stock and Long-term Incentive Plan is hereby amended by deleting the 2nd sentence of Article 6.8 and restating the 2nd sentence of Article 6.8 to read as follows: "In the event that the employment of a Participant is terminated by reason of death, all such Participant's Options shall become exercisable in full, and the executor or administrator of such Person's estate or a person or persons who have acquired the Option directly from such Participant by bequest, inheritance, or by reason of a written designation as a beneficiary on a form proscribed by the Corporation, shall have until the expiration date of such Option or 13 months after the termination of employment, whichever first occurs, to exercise any Options." EX-99 12 l94357aex99.txt EXHIBIT 99 EXHIBIT 99 HUNTINGTON BANCSHARES INCORPORATED RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------ (in thousands of dollars) 2002 2001 -------- -------- EARNINGS: Income before taxes $224,902 $ 93,294 -------- -------- Add: Fixed charges, excluding interest on deposits 44,119 93,342 -------- -------- Earnings available for fixed charges, excluding interest on deposits 269,021 186,636 Add: Interest on deposits 109,967 185,081 -------- -------- Earinings available for fixed charges, including interest on deposits $378,988 $371,717 ======== ======== FIXED CHARGES: Interest expense, excluding interest on deposits 40,803 89,770 Interest factor in net rental expense 3,316 3,572 -------- -------- Total fixed charges, excluding interest on deposits 44,119 93,342 Add: Interest on deposits 109,967 185,081 -------- -------- Total fixed charges, including interest on deposits $154,086 $278,423 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES Excluding interest on deposits 6.10 x 2.00 x Including interest on deposits 2.46 x 1.34 x
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