Huntington National Bank 2011 Annual Report Download - page 30

of the instrument and reduces Tier I and Total Risk-based Capital regulatory ratios. Somewhat offsetting these
negative impacts to OCI in a rising interest rate environment, is a decrease in pension and other post-retirement
obligations.
If short-term interest rates remain at their historically low levels for a prolonged period, and assuming
longer term interest rates fall further, we could experience net interest margin compression as our interest earning
assets would continue to reprice downward while our interest bearing liability rates could fail to decline in
tandem. This could have a material adverse effect on our net interest income and our results of operations.
Liquidity Risks:
1. If we are unable to borrow funds through access to capital markets, we may not be able to meet the
cash flow requirements of our depositors, creditors, and borrowers, or have the operating cash
needed to fund corporate expansion and other corporate activities.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The liquidity of the
Bank is used to make loans and leases and to repay deposit liabilities as they become due or are demanded by
customers. Liquidity policies and limits are established by our board of directors, with operating limits set by
Management. Wholesale funding sources include federal funds purchased; securities sold under repurchase
agreements, noncore deposits, and medium- and long-term debt, which includes a domestic bank note program
and a Euronote program. The Bank is also a member of the FHLB, which provides funding through advances to
members that are collateralized with mortgage-related assets.
We maintain a portfolio of securities that can be used as a secondary source of liquidity. There are other
sources of liquidity available to us should they be needed. These sources include the sale or securitization of loans,
the ability to acquire additional national market noncore deposits, issuance of additional collateralized borrowings
such as FHLB advances, the issuance of debt securities, and the issuance of preferred or common securities in
public or private transactions. The Bank also can borrow from the Federal Reserve’s discount window.
Starting in mid-2007, significant turmoil and volatility in worldwide financial markets increased, though
current volatility has declined. Such disruptions in the liquidity of financial markets directly impact us to the
extent we need to access capital markets to raise funds to support our business and overall liquidity position. This
situation could adversely affect the cost of such funds or our ability to raise such funds. If we were unable to
access any of these funding sources when needed, we might be unable to meet customers’ needs, which could
adversely impact our financial condition, results of operations, cash flows, and level of regulatory-qualifying
capital. We may, from time to time, consider opportunistically retiring our outstanding securities in privately
negotiated or open market transactions for cash or common shares. This could adversely affect our liquidity
position.
2. Due to the losses that the Bank incurred in 2008 and 2009, at December 31, 2011, the Bank and its
subsidiaries could not declare and pay dividends to the holding company, any subsidiary of the
holding company outside the Bank’s consolidated group, or any security holder outside the Bank’s
consolidated group, without regulatory approval. Also, the Bank may not pay a dividend in an
amount greater than its undivided profits.
Dividends from the Bank to the parent company are the primary source of funds for the payment of
dividends to our shareholders. Under applicable statutes and regulations, a national bank may not declare and pay
dividends in any year greater than its undivided profits or in excess of an amount equal to the sum of the total of
the net income of the bank for that year and the retained net income of the bank for the preceding two years,
minus the sum of any transfers required by the OCC and any transfers required to be made to a fund for the
retirement of any preferred stock, unless the OCC approves the declaration and payment of dividends in excess
of such amount. Due to the losses that the Bank incurred in 2008 and 2009, at December 31, 2011, the Bank and
its subsidiaries could not declare and pay dividends to the parent company, any subsidiary of the parent company
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