Huntington National Bank 2015 Annual Report Download - page 76

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During the fourth quarter, the Bank paid dividends of $154 million to the holding company. The Bank declared a dividend to the
holding company of $174 million in the first quarter of 2016. To help meet any additional liquidity needs, we have an open-ended,
automatic shelf registration statement filed and effective with the SEC, which permits the parent company to issue an unspecified
amount of debt or equity securities.
On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit
Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction valued at
approximately $3.4 billion based on the closing stock price on the day preceding the announcement. The transaction is
expected to be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including regulatory
approvals and the approval of the shareholders of Huntington and FirstMerit Corporation. Considering this potential obligation, and
expected quarterly dividend payments, 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
commitments to extend credit, interest rate swaps, financial guarantees contained in standby letters-of-credit issued by the Bank, and
commitments by the Bank to sell mortgage loans.
COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit
Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit
quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market
conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire
without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk
arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature. See Note 20
for more information.
INTEREST RATE SWAPS
Balance sheet hedging activity is arranged to receive hedge accounting treatment and is classified as either fair value or cash
flow hedges. Fair value hedges are purchased to convert deposits and long-term debt from fixed-rate obligations to floating rate. Cash
flow hedges are also used to convert floating rate loans made to customers into fixed rate loans. See Note 18 for more information.
STANDBY LETTERS-OF-CREDIT
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, a loss is recognized in the provision for credit losses. See
Note 20 for more information.
COMMITMENTS TO SELL LOANS
Activity related to our mortgage origination activity supports the hedging of the mortgage pricing commitments to customers
and the secondary sale to third parties. In addition, we have commitments to sell residential real estate loans. These contracts mature in
less than one year. See Note 20 for more information.
We believe that off-balance sheet arrangements are properly considered in our liquidity risk management process.