Huntington National Bank 2003 Annual Report Download - page 138

Download and view the complete annual report

Please find page 138 of the 2003 Huntington National Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 146

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D
ERIVATIVES
U
SED IN
T
RADING
A
CTIVITIES
Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their
risk management purposes. Derivative financial instruments held in Huntington’s trading portfolio during 2003 and 2002 consisted
predominantly of interest rate swaps, but also included interest rate caps, floors, and futures, as well as foreign exchange options.
Interest rate options grant the option holder the right to buy or sell an underlying financial instrument for a predetermined price
before the contract expires. Interest rate futures are commitments to either purchase or sell a financial instrument at a future date for a
specified price or yield and may be settled in cash or through delivery of the underlying financial instrument. Interest rate caps and
floors are option-based contracts that entitle the buyer to receive cash payments based on the difference between a designated reference
rate and a strike price, applied to a notional amount. Written options, primarily caps, expose Huntington to market risk but not credit
risk. Purchased options contain both credit and market risk. They are used to manage fluctuating interest rates as exposure to loss from
interest rate contracts changes.
Supplying these derivatives to customers results in fee income. These instruments are carried at fair value with gains and losses
reflected in other non-interest income. Total trading revenue for customer accommodation was $10.3 million in 2003, $6.4 million in
2002, and $8.4 million in 2001. The total notional value of derivative financial instruments used by Huntington on behalf of customers
(for which the related interest rate risk is offset by third parties) was $5.0 billion at the end of 2003 and $3.2 billion at the end of the
prior year. Huntington’s credit risk from interest rate swaps used for trading purposes was $82.2 million and $92.1 million at the same
dates.
In connection with its securitization activities, interest rate caps were purchased with a notional value totaling $1 billion. These
purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling
$1 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income in accordance
with accounting principles generally accepted in the United States.
29. Regulatory Matters
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.
As of December 31, 2003, Huntington and The Huntington National Bank (the Bank) met all capital adequacy requirements and had
regulatory capital ratios in excess of the levels established for well-capitalized institutions. The period-end capital amounts and capital
ratios of Huntington and the Bank are as follows:
Tier 1 Total Capital Tier 1 Leverage
(in millions of dollars) 2003 2002 2003 2002 2003 2002
Huntington Bancshares Incorporated
Amount $2,401 $2,254 $3,367 $3,041 $2,401 $2,254
Ratio 8.53% 8.34% 11.95% 11.25% 7.98% 8.51%
The Huntington National Bank
Amount $1,782 $1,535 $2,983 $2,613 $1,782 $1,535
Ratio 6.36% 5.67% 10.65% 9.65% 6.01% 5.88%
136 HUNTINGTON BANCSHARES INCORPORATED