Huntington National Bank 2007 Annual Report Download - page 58

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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, and are expected to expire without being
drawn upon. Standby letters of credit are included in the determination of the amount of risk-based capital that the parent
company, and the Bank, are required to hold.
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 the provision for credit losses. At December 31, 2007,
we had $1.6 billion of standby letters of credit outstanding, of which 38% were collateralized.
We enter into forward contracts relating to the mortgage banking business. At December 31, 2007, and December 31, 2006, we had
commitments to sell residential real estate loans of $555.9 million and $319.9 million, respectively. These contracts mature in less
than one year.
We do not believe that off-balance sheet arrangements will have a material impact on our liquidity or capital resources.
Table 32 — Contractual Obligations
(in millions of dollars)
One Year
or Less
1to3
Years
3to5
Years
More than
5 years Total
At December 31, 2007
Deposits without a stated maturity $20,321 $ — $ — $ — $20,321
Certificates of deposit and other time deposits 12,715 3,736 490 481 17,422
Federal Home Loan Bank advances 46 609 2,400 29 3,084
Short-term borrowings 2,844 — — — 2,844
Other long-term debt 222 444 156 1,115 1,937
Subordinated notes 50 145 65 1,674 1,934
Operating lease obligations 47 84 72 160 363
Purchase commitments 111 129 7 13 260
Operational Risk
As with all companies, Huntington is subject to operational risk, which is the inherent risk 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. Operational risk also
encompasses compliance (legal) risk, which is the risk of loss from violations of, or noncompliance with, laws, rules, regulations,
prescribed practices, or ethical standards. External influences such as market conditions, fraudulent activities, disasters, security
risks, and legal risks have also significantly increased the potential for operational loss. We continuously strive to strengthen our
system of internal controls to ensure compliance with laws, rules and regulations, and to improve the oversight of our operational
risk.
Risk Management, through a combination of business units and centralized processes, manages the risk for the company through
processes that assess the overall level of risk on a regular basis and identifies specific risks and the steps being taken to control
them. To mitigate operational and compliance risks, we have established a senior management level Operational Risk Committee,
headed by the chief operational risk officer, and a senior management level Legal, Regulatory, and Compliance Committee, headed
by the director of corporate compliance. The responsibilities of these committees, among other things, include establishing and
maintaining management information systems to monitor material risks and to identify potential concerns, risks, or trends that
may have a significant impact and develop recommendations to address the identified issues. Both of these committees report any
significant findings and recommendations to the executive level Risk Management Committee, headed by the chief risk officer.
Additionally, potential concerns may be escalated to the Risk Committee of the board of directors, as appropriate.
The goal of this framework is to implement effective operational risk techniques and strategies, minimize operational losses, and
strengthen our overall performance.
56
MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED