Huntington National Bank 2004 Annual Report Download - page 130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
formal investigation and disclosed that it expected that a settlement of this matter, which is subject to approval by the SEC, would
involve the entry of an order requiring, among other possible matters, Huntington to comply with various provisions of the Securities
Exchange Act of 1934 and the Securities Act of 1933, along with the imposition of a civil money penalty. At December 31, 2004, the
Company had reserves related to the expectation of the imposition of a civil money penalty, which the Company viewed as sufficient
given negotiations with the SEC. However, no assurances can be made that any assessed penalty may not exceed this amount.
Management continues to have ongoing discussions with the staff of the SEC regarding resolution of this matter. The final results of
the investigation, however, are not known at the time of this filing and therefore, the impact to Huntington’s financial condition,
results of operations, and cash flows is not known.
23. FORMAL REGULATORY SUPERVISORY AGREEMENTS
On March 1, 2005, Huntington announced that it had entered into formal written agreements with its banking regulators, the Federal
Reserve Bank of Cleveland (FRBC) and the Office of the Comptroller of the Currency (OCC), providing for a comprehensive action
plan designed to enhance its corporate governance, internal audit, risk management, accounting policies and procedures, and
financial and regulatory reporting. They call for independent third-party reviews, as well as the submission of written plans and
progress reports by management. These written agreements remain in effect until terminated by the banking regulators.
Management has been working with its banking regulators over the past several months and has been taking actions and devoting
significant resources to address all of the issues raised. Management believes that the changes that it has already made, and is in the
process of making, will address these issues fully and comprehensively. No assurances, however, can be provided as to the ultimate
timing or outcome of these matters.
24. OTHER 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, 2004, 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) 2004 2003 2004 2003 2004 2003
Huntington Bancshares Incorporated
Amount $2,683 $2,401 $3,687 $3,367 $2,683 $2,401
Ratio 9.08% 8.53% 12.48% 11.95% 8.42% 7.98%
The Huntington National Bank
Amount $1,770 $1,782 $2,955 $2,983 $1,770 $1,782
Ratio 6.08% 6.36% 10.16% 10.65% 5.66% 6.01%
Tier 1 Risk-Based Capital consists of total equity plus qualifying capital securities and minority interests, excluding unrealized gains
and losses accumulated in other comprehensive income, and non-qualifying intangible and servicing assets. Total Risk-Based Capital
is Tier 1 Risk-Based Capital plus qualifying subordinated notes and allowable allowances for credit losses (limited to 1.25% of total
risk-weighted assets). Tier 1 Leverage Capital is equal to Tier 1 Capital. Both Tier 1 Capital and Total Capital ratios are derived by
dividing the respective capital amounts by net risk-weighted assets, which are calculated as prescribed by regulatory agencies. Tier 1
Leverage Capital ratio is calculated by dividing the Tier 1 capital amount by average adjusted total assets for the fourth quarter of 2004
and 2003, less non-qualifying intangibles and other adjustments.
Huntington and its subsidiaries are also subject to various regulatory requirements that impose restrictions on cash, debt, and
dividends. The Bank is required to maintain cash reserves based on the level of certain of its deposits. This reserve requirement may be
met by holding cash in banking offices or on deposit at the Federal Reserve Bank. During 2004 and 2003, the average balance of these
deposits were $70.4 million and $66.6 million, respectively.
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