Huntington National Bank 2005 Annual Report Download - page 71

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include financial
guarantees contained in standby letters of credit issued by the Bank and commitments by the Bank to sell mortgage loans.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. Most of these arrangements mature within two years. Approximately 48% of standby letters of
credit are collateralized and most are expected to expire without being drawn upon. There were $1.1 billion and $0.9 billion of
outstanding standby letters of credit at December 31, 2005 and 2004, respectively. Non-interest income was recognized from the
issuance of these standby letters of credit of $11.1 million and $11.3 million in 2005 and 2004, respectively. The carrying amount
of deferred revenue related to standby letters of credit at December 31, 2005, was $4.0 million. Standby letters of credit are
included in the determination of the amount of risk-based capital that we and the Bank are required to hold.
The Bank enters into forward contracts relating to the mortgage banking business. At December 31, 2005 and 2004,
commitments to sell residential real estate loans totaled $348.3 million and $311.3 million, respectively. These contracts mature in
less than one year.
The parent company 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 the parent company and/or the
Bank may be held contingently liable, including guarantee arrangements, is included in Note 22 of the Notes to Consolidated
Financial Statements.
Through our credit process, we monitor 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 provision for credit losses. We do not believe
that off-balance sheet arrangements will have a material impact on our liquidity or capital resources.
Table 27 — Contractual Obligations
At December 31, 2005
One Year 1 to 3 3 to 5 More than
(in millions of dollars) or Less Years Years 5 years Total
Deposits without a stated maturity $ 14,047 $ — $ — $ — $14,047
Certificates of deposit and other time deposits 4,102 3,034 656 571 8,363
Other long-term debt 775 325 450 868 2,418
Federal Home Loan Bank advances 159 995 — 2 1,156
Short-term borrowings 1,889 — — — 1,889
Subordinated notes — — — 1,023 1,023
Operating lease obligations 32 59 52 158 301
Operational Risk
As with all companies, there is risk inherent in the day-to-day operations that could result in losses due to human error,
inadequate or failed internal systems and controls, and external events. We, through a combination of business units and
centralized processes, have the responsibility to manage the risk for the company through a process that assesses the overall level
of risk on a regular basis and identifies specific risks and the steps being taken to control them. Furthermore, a system of
committees is established to provide guidance over the process and escalate potential concerns to senior management on the
operational risk committee, executive management on the risk management committee and the risk committee of the board of
directors, as appropriate.
We continue to develop and enhance policies and procedures to control the elements of risk found in our processes. While we are
not able to eliminate risk completely, our goal is to minimize the impact of a risk event and to be prepared to cover the result of
it through insurance, earnings, and capital.
Certain overarching operational risk activities are performed by an enterprise risk group. These include monitoring adherence to
corporate policies governing risk, business continuity programs to assure that operations to serve our customers continue during
emergency situations, and information security to monitor and address electronic and sensitive information threats for the
company.
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