Huntington National Bank 2005 Annual Report Download - page 69

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
At December 31, 2005, the investment securities portfolio totaled $4.5 billion, of which $1.4 billion was pledged to secure public
and trust deposits, interest rate swap agreements, U.S. Treasury demand notes, and securities sold under repurchase agreements.
The composition and maturity of these securities are presented in Table 24. Another source of liquidity is non-pledged securities,
which increased to $3.1 billion at December 31, 2005, from $2.1 billion at December 31, 2004.
The relatively short-term nature of our loans and leases also provides significant liquidity. As shown in Table 25, of the
$10.8 billion total commercial loans at December 31, 2005, approximately 38% mature within one year. In addition, during 2005
and 2004, $0.4 billion and $1.5 billion, respectively, in indirect automobile loans were sold, with such sales representing another
source of liquidity.
Table 25 — Maturity Schedule of Commercial Loans
At December 31, 2005
One Year One to After Percent
(in millions of dollars) or Less Five Years Five Years Total of total
Commercial and industrial $ 2,819 $ 2,804 $ 1,186 $ 6,809 62.8%
Commercial real estate — construction 581 925 32 1,538 14.2
Commercial real estate — commercial 710 1,329 459 2,498 23.0
Total $ 4,110 $ 5,058 $ 1,677 $10,845 100.0%
Variable interest rates $ 3,992 $ 3,992 $ 1,467 $ 9,451 87.1%
Fixed interest rates 118 1,066 210 1,394 12.9
Total $ 4,110 $ 5,058 $ 1,677 $10,845 100.0%
Percent of total 37.9% 46.6% 15.5% 100.0%
Parent Company Liquidity
The parent company’s funding requirements consist primarily of dividends to shareholders, income taxes, funding of non-bank
subsidiaries, repurchases of our stock, debt service, and operating expenses. The parent company obtains funding to meet
obligations from dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the Federal
consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities.
We intend to maintain the Bank’s risk-based capital ratios at levels considered to be ‘‘well capitalized’’ by regulators. As a result,
the amount of dividends that can be paid to the parent company depends on the Bank’s capital needs. At December 31, 2005,
the bank was ‘‘well capitalized’’ according to guidelines established by the Bank’s primary regulator, the OCC. At December 31,
2005, the Bank could declare and pay dividends to the parent company of $163.0 million and still be considered ‘‘well
capitalized.’’ The Bank could declare an additional $230.6 million of dividends without regulatory approval at December 31, 2005,
although such dividends would take the Bank below ‘‘well capitalized’’ levels.
At December 31, 2005, the parent company had no debt outstanding under its medium-term note program, with $195 million
available for future funding needs. In January 2006, we filed an open-ended automatic shelf registration statement, which permits
us to issue debt or equity securities as needed.
At December 31, 2005, the parent company had $227 million in cash or cash equivalents. We believe that the parent company
has sufficient liquidity to meet its cash flow obligations in 2006, including anticipated annual dividend payments.
Credit Ratings
Credit ratings by the three major credit rating agencies are an important component of our liquidity profile. Among other
factors, the credit ratings are based on financial strength and profitability, credit quality and concentrations in the loan portfolio,
the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability
of a significant base of core retail and commercial deposits, and our ability to access a broad array of wholesale funding sources.
Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds
in the capital markets, but also the cost of these funds. In addition, certain financial on- and off-balance sheet arrangements
contain credit rating triggers that could increase funding needs if a negative rating change occurs. Letter of credit commitments
for marketable securities, interest rate swap collateral agreements, and certain asset securitization transactions contain credit rating
provisions.
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