Huntington National Bank 2004 Annual Report Download - page 66

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
At December 31, 2004, the Company had unused authority to repurchase up to 7.5 million common shares, though no shares have
been repurchased since the 2003 first quarter. This authorization may be used to help mitigate the dilutive earnings impact resulting
from the issuance of Incentive Plan shares. All purchases under the current authorization will be made from time-to-time in the open
market or through privately negotiated transactions depending on market conditions.
Effective with the dividend declared in the 2004 third quarter, the quarterly common stock dividend was increased 14% to $0.20 per
share from $0.175 per share. Total cash dividends declared were $0.75 per share in 2004, up from $0.67 per share in 2003.
Management evaluates several measures of capital, but there are three primary regulatory ratios: Tier 1 Risk-based Capital, Total Risk-
based Capital, and Tier 1 Leverage. The Federal Reserve Board, which supervises and regulates the parent, sets minimum capital
requirements for each of these regulatory capital ratios. In the calculation of these risk-based capital ratios, risk weightings are
assigned to certain asset and off-balance sheet items such as interest rate swaps, loan commitments, and securitizations. Huntington’s
Tier 1 Risk-based Capital, Total Risk-based Capital, Tier 1 Leverage ratios and risk-adjusted assets for five years are shown in Table 22
and are well in excess of minimum levels established for ‘‘well capitalized’’ institutions. The Bank is primarily supervised and
regulated by the Office of the Comptroller of the Currency, which establishes regulatory capital guidelines for banks similar to those
established for bank holding companies by the Federal Reserve Board. At December 31, 2004, the Bank had regulatory capital ratios in
excess of ‘‘well capitalized’’ regulatory minimums.
Table 22 — Capital Adequacy
‘‘Well At December 31,
Capitalized’’
(in millions of dollars) Minimums 2004 2003 2002 2001 2000
Total risk-adjusted assets $29,542 $28,164 $27,030 $27,736 $26,757
Ratios:
Tier 1 leverage ratio 5.00% 8.42% 7.98% 8.51% 7.16% 6.85%
Tier 1 risk-based capital ratio 6.00 9.08 8.53 8.34 7.02 7.13
Total risk-based capital ratio 10.00 12.48 11.95 11.25 10.07 10.29
Tangible equity ratio / Asset ratio 7.18 6.79 7.22 5.86 5.69
Tangible equity / Risk-weighted assets ratio 7.86 7.31 7.29 5.86 5.90
The Company’s tangible equity ratio at December 31, 2004, was 7.18%, up 39 basis points from the prior year. This improvement in
tangible equity was largely due to the retention of earnings in excess of dividends paid to shareholders, offset partially by a $2.0 billion
increase in period-end assets. Management has targeted a longer-term tangible common equity to asset ratio of 6.50%-6.75%, given
the current portfolio risk profile.
Another measure of capital adequacy favored by one of the rating agencies is tangible common equity to risk-weighted assets. This
measurement utilizes risk-weighted assets, as defined in the regulatory capital ratio. The tangible common equity to risk-weighted
assets ratio at December 31, 2004, was 7.86%, up from 7.31% at the end of 2003. The ratio was favorably impacted by the addition of
lower risk-weighted assets during the year, e.g., residential mortgages, home equity loans, and investment securities.
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