Huntington National Bank 2003 Annual Report Download - page 69

MANAGEMENT’S DISCUSSION AND ANALYSIS
The Bank enters into forward contracts relating to its mortgage banking business. At December 31, 2003 and 2002, commitments to
sell residential real estate loans totaled $277 million and $782 million, respectively. These contracts mature in less than one year.
Huntington and/or the Bank may also have liabilities under certain contractual agreements contingent upon the occurrence of certain
events. A discussion of significant contractual arrangements under which Huntington and/or the Bank may be held contingently liable,
including guarantee arrangements, is included in Note 25 of the Notes to Consolidated Financial Statements.
Through its credit process, Management monitors the credit risks of outstanding standby letters of credit. When it is probable that a
standby letter of credit will be drawn and not repaid in full, losses are recognized in non-interest expense. Management does not
believe that its off-balance sheet arrangements will have a material impact on its liquidity or capital resources.
Capital
Capital is managed both at the parent and the Bank levels. Capital levels are maintained based on regulatory capital requirements and
the economic capital required to support credit, market, and operation risks inherent in the company’s business and to provide the
flexibility needed for future growth and new business opportunities. Management places significant emphasis on the maintenance of a
strong capital position, which promotes investor confidence, provides access to the national markets under favorable terms, and
enhances business growth and acquisition opportunities. The importance of managing capital is also recognized and Management
continually strives to maintain an appropriate balance between capital adequacy and providing attractive returns to shareholders.
Shareholders’ equity totaled $2.3 billion at December 31, 2003. This balance represented an $85 million increase during 2003. The
growth in shareholders’ equity resulted from the retention of net income after dividends to shareholders of $118.9 million, offset by
$81.1 million in share repurchases during 2003 and by a reduction in accumulated other comprehensive income of $60 million. The
decline in accumulated other comprehensive income resulted from a decline in the market value of securities available for sale and cash
flow hedges at December 31, 2003, compared with December 31, 2002. Effective with the dividend declared in the 2003 third quarter,
the quarterly common stock dividend was increased 9.4% to $0.175 per share from $0.16 per share. Total cash dividends declared were
$0.67 per share in 2003, up from $0.64 per share in 2002. During 2003, the company repurchased 4.3 million shares of its common
stock on the open market or through privately negotiated transactions. At December 31, 2003, the company had unused authority to
repurchase up to 3.9 million shares.
Table 19—Capital Adequacy
“Well-
Capitalized”
Minimums
December 31,
(in millions of dollars) 2003 2002 2001 2000 1999
Total Risk-Adjusted Assets $28,164 $27,030 $27,736 $26,757 $25,187
Ratios:
Tier 1 Risk-Based Capital 6.00% 8.53% 8.34% 7.02% 7.13% 7.46%
Total Risk-Based Capital 10.00 11.95 11.25 10.07 10.29 10.57
Tier 1 Leverage 5.00 7.98 8.51 7.16 6.85 6.64
Tangible common equity 6.80 7.22 5.86 5.69 5.18
Tangible common equity to risk-weighted assets 7.30 7.29 5.86 5.90 5.92
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 the recent five years are shown in Table
19 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 2003, the Bank had regulatory capital ratios in
excess of “well capitalized” regulatory minimums.
HUNTINGTON BANCSHARES INCORPORATED 67