Huntington National Bank 2005 Annual Report Download - page 133

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
pricing, asset quality, and volume parameters. At December 31, 2005, approximately $51.6 million of automobile loans related to
this commitment were classified as held for sale.
L ITIGATION
In the ordinary course of business, there are various legal proceedings pending against Huntington and its subsidiaries. In the
opinion of management, the aggregate liabilities, if any, arising from such proceedings are not expected to have a material adverse
effect on Huntington’s consolidated financial position, results of operations, or cash flows.
C OMMITMENTS U NDER C APITAL AND O PERATING L EASE O BLIGATIONS
At December 31, 2005, Huntington and its subsidiaries were obligated under noncancelable leases for land, buildings, and
equipment. Many of these leases contain renewal options and certain leases provide options to purchase the leased property
during or at the expiration of the lease period at specified prices. Some leases contain escalation clauses calling for rentals to be
adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in the consumer or
other price indices.
The future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 2005, were $31.5 million in 2006, $30.4 million in 2007, $28.6 million in 2008,
$27.4 million in 2009, $25.2 million in 2010, and $158.4 million thereafter. At December 31, 2005, total minimum lease payments
have not been reduced by minimum sublease rentals of $77.8 million due in the future under noncancelable subleases. At
December 31, 2005, the future minimum sublease rental payments that Huntington expects to receive are $16.7 million in 2006;
$14.2 million in 2007; $13.1 million in 2008; $12.5 million in 2009; $9.3 million in 2010; and $12.0 million thereafter. The rental
expense for all operating leases was $34.0 million, $40.4 million, and $36.1 million for 2005, 2004, and 2003, respectively.
Huntington had no material obligations under capital leases.
S ECURITIES AND E XCHANGE C OMMISSION F ORMAL I NVESTIGATION
On June 2, 2005, Huntington filed a Form 8-K announcing that the Commission approved the settlement of its previously
announced formal investigation into certain financial accounting matters. Huntington consented to pay a penalty of $7.5 million.
This civil money penalty had no 2005 financial impact on Huntington’s results, as reserves for this amount were established and
expensed in 2004.
23. FORMAL REGULATORY SUPERVISORY AGREEMENTS AND OTHER REGULATORY MATTERS
On March 1, 2005, Huntington announced entering into a formal written agreement with the Federal Reserve Bank of Cleveland
(FRBC), as well as the Bank entering into a formal written agreement with the Office of the Comptroller of the Currency (OCC),
providing for a comprehensive action plan designed to enhance corporate governance, internal audit, risk management,
accounting policies and procedures, and financial and regulatory reporting. The agreements called for independent third-party
reviews, as well as the submission of written plans and progress reports by Management and remain in effect until terminated by
the banking regulators.
On October 6, 2005, Huntington announced that the OCC had terminated its formal written agreement with the Bank dated
February 28, 2005, and that the FRBC written agreement remained in effect. Huntington was verbally advised that it was in full
compliance with the financial holding company and financial subsidiary requirement under the Gramm-Leach-Bliley Act (GLB
Act). This notification reflected that Huntington and the Bank met both the ‘‘well-capitalized’’ and ‘‘well-managed’’ criteria under
the GLB Act. Management believes that the changes it has already made, and is in the process of making, will address the FRBC
issues fully and comprehensively.
Huntington and its bank subsidiary, The Huntington National Bank, are subject to various regulatory capital requirements
administered by federal and state banking agencies. These requirements involve qualitative judgments and quantitative measures
of assets, liabilities, capital amounts, and certain off-balance sheet items as calculated under regulatory accounting practices.
Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a material
adverse effect on Huntington’s and The Huntington National Bank’s financial statements. Applicable capital adequacy guidelines
require minimum ratios of 4.00% for Tier 1 Risk-based Capital, 8.00% for Total Risk-based Capital, and 4.00% for Tier 1
Leverage Capital. To be considered ‘‘well capitalized’’ under the regulatory framework for prompt corrective action, the ratios
must be at least 6.00%, 10.00%, and 5.00%, respectively.
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