Exhibit 99.3
UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C
Written Agreement by and between )
)
HUNTINGTON BANCSHARES INCORPORATED )
Columbus, Ohio )
)
and )
)
FEDERAL RESERVE BANK OF CLEVELAND )
Cleveland, Ohio )
WHEREAS, the Board of Governors of the Federal Reserve System (the "Board of
Governors") seeks to address deficiencies identified by the Federal Reserve Bank
of Cleveland (the "Reserve Bank") at Huntington Bancshares Incorporated,
Columbus, Ohio ("Huntington"), a registered bank holding company, relating to
its corporate governance, internal audit, risk management, and financial and
regulatory reporting;
WHEREAS, the Board of Governors has coordinated with the U.S. Securities and
Exchange Commission ("SEC") and the Office of the Comptroller of the Currency
("OCC") to review certain reports filed by Huntington in 2001 and 2002 and
amended in 2003;
WHEREAS, Huntington's wholly owned subsidiary, the Huntington National Bank,
Columbus, Ohio (the "Bank"), a national bank, has entered into a formal
agreement with the OCC;
WHEREAS, Huntington is taking steps to address deficiencies relating to its
corporate governance, internal audit, risk management, and financial and
regulatory reporting, and Huntington and the Reserve Bank have mutually agreed
to enter into this Written Agreement (the "Agreement") to ensure that Huntington
continues to address such deficiencies; and
WHEREAS, on January 19, 2005, the board of directors of Huntington adopted a
resolution authorizing and directing Thomas E. Hoaglin to enter into this
Agreement on behalf of Huntington and consenting to compliance by the board of
directors of Huntington and Huntington's institution-affiliated parties, as
defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act (the
"FDI Act") (12 U.S.C. 1813(u) and 1818(b)(3)), with each and every provision of
this Agreement.
NOW, THEREFORE, the Reserve Bank and Huntington agree as follows:
Management Review
1. (a) Within 10 days of this Agreement. Huntington's board of directors shall
engage an independent management consultant acceptable to the Reserve Bank to
conduct a review of the structure, functions, and performance of Huntington's
management and board of directors (the "Management Review"), and to prepare a
written report that includes findings, conclusions, and recommendations. The
primary purposes of the Management Review shall be, first, to assist
Huntington's board of directors in the development of board and management
structures that are adequately staffed by qualified and trained personnel and
are commensurate with the size, complexity, and business activities of the
consolidated organization, particularly in the areas of audit, accounting, and
financial and regulatory reporting; and, second, to enhance Huntington's
corporate governance and audit policies, procedures, and practices at the board
of directors, committee, and management levels. The terms of the engagement
letter shall provide that the independent firm will submit its report within
90 days of its engagement and will provide a copy of its report to the Reserve
Bank at the same time that it is provided to Huntington. The Management Review
and report shall address, consider, and include, at a minimum, an evaluation of:
(i) The effectiveness of Huntington's board of directors and its
committees in carrying out their oversight responsibilities,
including but not limited to, an assessment of the qualifications
of members of the board of directors and its committees; the
timeliness and adequacy of information provided to the board of
directors and committees; the number and types of responsibilities
assigned to committees; and the frequency of board of directors
and committee meetings;
(ii) the management structure of Huntington, including recommendations
regarding the type and number of senior officer and officer
positions needed to manage and properly supervise the affairs of
Huntington on an enterprise-wide basis, particularly in the
functions of internal audit, risk management, accounting policies
and procedures, and financial and regulatory reporting;
(iii) each senior executive officer of Huntington to determine whether
the individual possesses the ability, experience, and other
qualifications required to competently perform present and
anticipated duties, to adhere to established policies and
procedures, and to comply with the requirements of this
Agreement;
(iv) the effectiveness of Huntington's policies and procedures that are
designed to ensure enterprise-wide compliance with banking and
securities laws and regulations, compliance with generally
accepted accounting principles ("GAAP"), the filing of accurate
regulatory reports and public financial statements, and the
identification and reporting of deficiencies and weaknesses to
senior management and the board of directors;
(v) controls to ensure compliance with Huntington's policies and
procedures related to internal reporting and approval of accounting
changes; and
(vi) the effectiveness of Huntington's policies and procedures that
are designed to ensure compliance with the requirements of
section 112 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (12 U.S.C. 1831m) ("FDICIA 112").
(b) Within 60 days after Huntington's receipt of the Management Review report,
Huntington shall submit a written management plan to the Reserve Bank describing
specific actions that the board of directors proposes to take to fully address
the findings and recommendations of the Management Review.
2. Within 180 days of completion of the Management Review, and thereafter not
less frequently than semi-annually, the board of directors shall review
management's adherence to Huntington's written policies and procedures in the
areas of accounting, financial and regulatory reporting, internal audit, and
corporate governance and shall prepare written findings and conclusions of this
review along with written descriptions of any management or operational changes
that are made as a result of the review. These written findings shall be
included in the minutes of the board of directors' meetings and maintained for
subsequent supervisory review.
Compliance with Laws and Regulations
3. Huntington shall ensure that its consolidated organization fully complies
with the requirements of FDICIA 112 and its implementing regulations set forth
in Part 363 of the Federal Deposit Insurance Corporation's regulations (12
C.F.R. 363). Documentation indicating how each FDICIA 112 annual report was
prepared shall be maintained for subsequent supervisory review.
4. Huntington shall take steps to enhance its enterprise-wide compliance program
to ensure that Huntington complies with all applicable laws and regulations,
including but not limited to, FDICIA 112 and all relevant securities laws and
regulations.
Risk Management and Internal Controls over Financial Reporting
5. Within 90 days of this Agreement, Huntington shall submit to the Reserve Bank
an acceptable written plan designed to strengthen Huntington's risk management
in the areas of accounting and financial and regulatory reporting. The plan
shall, at a minimum, address, consider, and include:
(a) Enhanced risk management policies and procedures designed to identify,
measure, monitor, and control risks associated with accounting and financial and
regulatory reporting;
(b) measures to improve the board of directors' oversight of management's
implementation of risk management policies and procedures for accounting and
financial and regulatory reporting;
(c) management information systems and reporting procedures designed to ensure
that management personnel and the board of directors and its committees receive
timely, informative, and accurate reports necessary to effectively manage risks
and correct weaknesses and deficiencies associated with accounting and financial
and regulatory reporting; and
(d) internal controls designed to ensure adherence to risk management policies
and procedures and consistent compliance with GAAP and with all applicable laws,
regulations, and supervisory guidance relating to financial and regulatory
reporting.
Audit
6. (a) Within 10 days of this Agreement, Huntington shall engage an independent
firm acceptable to the Reserve Bank to conduct a review of the enterprise-wide
internal audit function (the "Audit Review") and to prepare a written report
that includes findings, conclusions, and recommendations (the "Audit Report").
Prior to commencement of the Audit Review, Huntington shall submit an engagement
letter to the Reserve Bank for approval. The terms of the engagement letter
shall provide that the independent firm will submit the Audit Report within
60 days of its engagement and will provide a copy of the Audit Report to the
Reserve Bank at the same time that it is provided to Huntington. The Audit
Review and Report shall address, consider, and include, at a minimum:
(i) The quality of audit reports and the adequacy of information
provided to line-of-business managers and Huntington's Audit/Risk
Committee;
(ii) the adequacy and timeliness of formal management responses to
audit findings;
(iii) the tracking of audit issues and the internal audit function's
review of management's corrective action;
(iv) the adequacy of the oversight provided by Huntington's board of
directors and its committees of the enterprise-wide internal
audit function;
(v) compliance with regulatory guidance regarding the internal audit
function, including but not limited to the requirements of the
Interagency Policy Statement on the Internal Audit Function and
its Outsourcing, issued March 17, 2003; and
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(vi) the adequacy of internal audit staffing, policies, and
procedures in relation to Huntington's activities and
complexity.
(b) Within 60 days after Huntington's receipt of the Audit Report, Huntington
shall submit an acceptable written plan to the Reserve Bank describing specific
actions that Huntington's board of directors proposes to take to fully address
the findings and recommendations of the Audit Report.
7. The board of directors of Huntington shall continue to ensure that
Huntington's independent public accountant is engaged by, and reports directly
to, the Audit/Risk Committee of the board of directors.
Accounting Policies and Procedures
8. Upon receipt of the report prepared by the independent accounting consultant
previously engaged by Huntington to review its accounting policies and
procedures (the "Accounting Report"), Huntington shall forward a copy to the
Reserve Bank.
9. No later than March 31, 2005, Huntington shall submit to the Reserve Bank an
acceptable written plan that fully addresses the findings and recommendations in
the Accounting Report and describes the specific actions that the board of
directors proposes to take in order to establish accounting policies and
procedures that provide appropriate guidance on accounting matters, ensure
compliance with applicable laws and guidelines, ensure the accuracy of
Huntington's regulatory reports and public financial statements, and enhance
Huntington's accounting control environment. The plan shall, at a minimum,
address, consider, and include:
(a) The completeness and accuracy of Huntington's books, records, and public
financial statements, including consistent application of GAAP and adherence to
the SEC's Staff Accounting Bulletin No. 99 on Materiality ("SAB 99") and other
applicable accounting guidance;
(b) a formal process for ongoing documentation and maintenance of accounting
policies and procedures;
(c) the timely provision of complete and accurate reports to the board of
directors or its committees regarding changes in accounting treatment of
material financial statement items and material transactions;
(d) disclosure of accounting policy changes to Huntington's external auditors,
consistent with SAB 99; and
(e) enhanced internal controls to ensure consistent adherence to accounting
policies and procedures.
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Regulatory Reports
10. (a) Within 30 days of this Agreement, Huntington shall engage an independent
firm acceptable to the Reserve Bank to conduct a review of regulatory reports
filed by Huntington since 2001 to determine whether they comply with GAAP and
bank regulatory requirements (the "Regulatory Report Review") and to prepare a
written report that includes findings, conclusions, and recommendations. Prior
to commencement of the Regulatory Report Review, Huntington shall submit an
engagement letter to the Reserve Bank for approval. The terms of the engagement
letter shall provide that the independent firm will submit its report within
90 days of its engagement and will provide a copy of its report to the Reserve
Bank at the same time that it is provided to Huntington.
(b) Within 60 days after Huntington's receipt of the consultant's report,
Huntington shall file amended regulatory reports to correct any reports that do
not comply with GAAP or bank regulatory requirements.
11. Huntington shall ensure that (a) each regulatory report, including each
Consolidated Financial Statements for Bank Holding Companies with Total
Consolidated Assets of $150 million or More, or with More Than One Subsidiary
Bank (Form Y-9 C), accurately reflects Huntington's condition on the date for
which it is filed and all material transactions undertaken by the bank holding
company and its subsidiaries, (b) each regulatory report is prepared in
accordance with GAAP and regulatory guidance, including but not limited to the
reporting and documentation of reserves for the allowance for loan and lease
losses and other operations, and (c) all records indicating how the report was
prepared are maintained for subsequent supervisory review.
12. Huntington shall take steps to ensure that all balance sheet and income
statements are reconciled on at least a monthly basis and that internal audit
periodically reviews Huntington's procedures for the preparation of regulatory
reports to monitor adherence to policy, G AAP, and regulatory guidance.
Compliance with Agreement
13. Within 15 days of this Agreement, the board of directors of Huntington shall
appoint a committee (the "Compliance Committee") to monitor and coordinate
Huntington's compliance with the provisions of this Agreement. The Compliance
Committee shall be comprised of three or more outside directors who are not
executive officers or principal shareholders of Huntington or the Bank, as
defined in section 215.2 (e)(1) of Regulation O of the Board of Governors (12
C.F.R. 215.2(3)). At a minimum, the Compliance Committee shall keep detailed
minutes of each meeting and shall report its findings to the board of directors
on a monthly basis.
14. Within 30 days after the end of each calendar quarter (June 30,
September 30, December 31, and March 31) following the date of this Agreement,
Huntington shall furnish a written progress report detailing the form and manner
of all actions taken to secure compliance with the provision of this Agreement,
and the results thereof, to the Reserve Bank.
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Effect and Terms of Agreement
15. The engagement letters and plans required by paragraphs 5, 6(a), 6(b), 9 and
10(a) of this Agreement shall be submitted to the Reserve Bank for review, and
approval. Acceptable engagement letters and plans shall be submitted within the
time periods set forth in this Agreement. Huntington shall adopt the approved
engagement letters and plans within 10 days of approval by the Reserve Bank and
then shall fully comply with them. During the term of this Agreement, the
approved engagement letters and plans shall not be amended or rescinded without
the prior written approval of the Reserve Bank.
16. All communications regarding this Agreement shall be sent to:
(a) James W. Nelson
Executive Vice President and Chief Risk Officer
Huntington Bancshares, Inc.
41 South High Street
Columbus, Ohio 43287
(b) Andrew C. Burkle, Jr.
Senior Vice President
Federal Reserve Bank of Cleveland
P.O. Box 6387
1455 East 6th Street
Cleveland, OH 44114-2566
17. The provisions of this Agreement shall be binding on Huntington and each of
its institution-affiliated parties in their capacities as such, and their
successors and assigns.
18. Each provision of this Agreement shall remain effective and enforceable
until stayed, modified, terminated, or suspended by the Reserve Bank.
19. Notwithstanding any provision of this Agreement, the Reserve Bank may, in
its discretion, grant written extensions of time to Huntington to comply with
any provision of this Agreement.
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20. The provisions of this Agreement shall not bar, estop or otherwise prevent
the Board of Governors, the Reserve Bank, the SEC, or any other federal or state
agency or department from taking any other action affecting Huntington or any of
its current or former institution-affiliated parties and their successors and
assigns.
21. This Agreement is a "written agreement" for the purposes of, and is
enforceable by the Board of Governors as an order issued under, section 8 of the
FDI Act (12 U.S.C. 1818).
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the 28th day of February, 2005.
Huntington Bancshares, Inc. Federal Reserve Bank of Cleveland
By: /s/ Thomas E. Hoaglin By: /s/ Andrew C. Burkle, Jr.
Andrew C. Burkle, Jr.
Senior Vice President
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