Huntington National Bank 2012 Annual Report Download - page 74

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We sponsor a non-contributory defined benefit pension plan covering substantially all employees hired or rehired prior to January
1, 2010. The Plan provides benefits based upon length of service and compensation levels. Our policy is to contribute an annual
amount that is at least equal to the minimum funding requirements. The Bank and other subsidiaries fund approximately 90% of
pension contributions. Although we contributed a total of $75.0 million in 2012, there was no required minimum contribution for
2012. Funding requirements are calculated annually as of the end of the year and are heavily dependent on the value of our pension
plan assets and the interest rate used to discount plan obligations. To the extent that the low interest rate environment continues,
including as a result of the Federal Reserve Maturity Extension Program, or the pension plan does not earn the expected asset return
rates, annual pension contribution requirements in future years could increase and such increases could be significant. Any additional
pension contributions are not expected to significantly impact liquidity. See the contractual obligations table for our pension
minimum funding requirement.
Basel III includes short-term liquidity (Liquidity Coverage Ratio) and long-term funding (Net Stable Funding Ratio) standards.
The Liquidity Coverage Ratio, or LCR, is designed to ensure that banking organizations maintain an adequate level of cash, or assets
that can readily be converted to cash, to meet potential short-term liquidity needs. On January 7, 2013, the Basel Committee on
Banking Supervision (BCBS) issued a final standard on the Liquidity Coverage Ratio. The final standard delays full implementation
of the LCR. Partial implementation begins on January 1, 2015 with 60% of the high quality liquid assets requirement and increases
ratably until full implementation of the LCR effective January 1, 2019. The Net Stable Funding Ratio, which is scheduled to take
effect by January 1, 2018, is designed to promote a stable maturity structure of assets and liabilities of banking organizations over a
one-year time horizon. These requirements are subject to change by our banking regulators.
Considering the factors discussed above, and other analyses that we have performed, we believe the parent company has
sufficient liquidity to meet its cash flow obligations for the foreseeable future.
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, 2012, we
had $514.7 million of standby letters of credit outstanding, of which 80% were collateralized. Included in this $514.7 million total are
letters of credit issued by the Bank that support securities that were issued by our customers and remarketed by the Huntington
Investment Company, our broker-dealer subsidiary.
We enter into forward contracts relating to the mortgage banking business to hedge the exposures we have from commitments to
extend new residential mortgage loans to our customers and from our mortgage loans held for sale. At December 31, 2012, and
December 31, 2011, we had commitments to sell residential real estate loans of $849.8 million and $629.0 million, respectively.
These contracts mature in less than one year.