Huntington National Bank 2012 Annual Report Download - page 77

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Capital
(This section should be read in conjunction with Note 14 of the Notes to Consolidated Financial Statements.)
Both regulatory capital and shareholders’ equity are managed at the Bank and on a consolidated basis. We have an active
program for managing capital and maintain a comprehensive process for assessing the Company’s overall capital adequacy. We
believe our current levels of both regulatory capital and shareholders’ equity are adequate.
Regulatory Capital
BASEL III and the Dodd-Frank Act
In June 2012, the FRB, OCC, and FDIC (collectively, the Agencies) each issued NPRs that would revise and replace the
Agencies’ current capital rules to align with the BASEL III capital standards and meet certain requirements of the Dodd-Frank
Act. Certain requirements of the NPRs would establish more restrictive capital definitions, higher risk-weightings for certain asset
classes, capital buffers and higher minimum capital ratios. The NPRs were in a comment period through October 22, 2012, and those
comments are currently being evaluated by the Agencies. In late 2012, the Agencies announced that implementation of the BASEL III
requirements would be delayed as certain aspects of the NPRs were to be enacted in 2013.
At the time of the NPR release, we evaluated the impact of the NPRs as proposed on our regulatory capital ratios and estimated a
reduction of approximately 150 basis points to our BASEL I Tier I Common risk-based capital ratio based on our June 30, 2012,
balance sheet composition. We anticipate that our capital ratios, on a BASEL III basis, would continue to exceed the well-capitalized
minimum requirements. We are evaluating options to mitigate the capital impact of the NPRs and will provide further guidance upon
issuance of the final rules by the Agencies.
Capital Planning
In connection with its increased focus on the adequacy of regulatory capital and risk management for larger financial institutions,
the FRB requires banks with assets over $50.0 billion to submit capital plans annually. Per the FRB’s rule, our submission included a
comprehensive capital plan supported by an assessment of expected uses and sources of capital over a given planning time period
under a range of expected and stress scenarios. We participated in the FRB’s CapPR process and made our 2012 capital plan
submission in January 2012. On March 14, 2012, we announced that the FRB had completed its review of our 2012 capital plan
submission and did not object to our proposed capital actions. The planned actions included the potential repurchase of up to $182.0
million of common stock and a continuation of our current common dividend through the 2013 first quarter.
In October 2012, the Federal Reserve published two final rules with stress testing requirements for certain bank holding
companies, state member banks, and savings and loan holding companies. We will be subject to the Federal Reserve’s supervisory
stress tests beginning in late 2013, however as in the prior year, we are subject to CapPR and must conduct internal stress testing as
part of the completion of our annual Capital Plan. We submitted our 2013 Capital Plan to the Federal Reserve on January 7, 2013, in
accordance with the Federal Reserve’s requirements.
In October 2012, the OCC issued its Annual Stress Test final rule. In that ruling, the OCC stipulated it will consult closely with
the Federal Reserve to provide common stress scenarios for use at both the depository institution and holding company levels. The
OCC has deferred the requirement for us to complete separate annual stress tests at the bank-level until 2013. For additional
discussion, refer to the Updates to Risk Factors section located in the Additional Disclosures section of this MD&A.
Capital Adequacy
The FRB establishes capital adequacy requirements, including well-capitalized standards for the Company. The OCC establishes
similar capital adequacy requirements and standards for the Bank. Regulatory capital primarily consists of Tier 1 risk-based capital
and Tier 2 risk-based capital. The sum of Tier 1 risk-based capital and Tier 2 risk-based capital equals our total risk-based capital.
Risk-based capital guidelines require a minimum level of capital as a percentage of “risk-weighted assets”. Risk-weighted assets
consist of total assets plus certain off-balance sheet and market items, subject to adjustment for predefined credit risk factors.
Throughout 2012, both the Company and the Bank were well-capitalized under applicable regulatory capital adequacy guidelines.
Tier 1 common equity, a non-GAAP financial measure, is used by banking regulators, investors and analysts to assess and
compare the quality and composition of our capital with the capital of other financial services companies. We use Tier 1 common
equity, along with the other capital measures, to assess and monitor our capital position. Tier 1 common equity is defined as Tier 1
capital less elements of Tier 1 capital not in the form of common equity (e.g. perpetual preferred stock, noncontrolling interests in
subsidiaries, and trust preferred capital debt securities).