Huntington National Bank 2011 Annual Report Download - page 58

operations in the period it occurs. Nevertheless, although no assurances can be given, we believe that the
resolution of these examinations will not, individually or in the aggregate, have a material adverse impact on our
consolidated financial position. In the third quarter 2011, the IRS began its examination of our 2008 and 2009
consolidated federal income tax returns. Various state and other jurisdictions remain open to examination,
including Kentucky, Indiana, Michigan, Pennsylvania, West Virginia and Illinois.
2010 versus 2009
The provision for income taxes was $40.0 million for 2010 compared with a benefit of $584.0 million in
2009. Both years included the benefits from tax-exempt income, tax-advantaged investments, and general
business credits. In 2010, we entered into an asset monetization transaction that generated a tax benefit of $63.6
million. Also, in 2010, undistributed previously reported earnings of a foreign subsidiary of $142.3 million were
distributed and an additional $49.8 million of tax expense was recorded. The tax benefit in 2009 was impacted by
the pretax loss combined with the favorable impacts of the Franklin restructuring in 2009 and the reduction of the
capital loss valuation reserve, offset by the nondeductible portion of the 2009 goodwill impairment.
The Franklin restructuring in 2009 resulted in a $159.9 million net deferred tax asset equal to the amount of
income and equity that was included in our operating results for 2009. During 2010, a $43.6 million net tax
benefit was recognized, primarily reflecting the increase in the net deferred tax asset relating to the assets
acquired from the March 31, 2009 Franklin restructuring.
RISK MANAGEMENT AND CAPITAL
Risk awareness, identification and assessment, reporting, and active management are key elements in
overall risk management. We manage risk to an aggregate moderate-to-low risk profile through a control
framework and by monitoring and responding to potential risks. Controls include, among others, effective
segregation of duties, access, authorization and reconciliation procedures, as well as staff education and a
disciplined assessment process.
We identify primary risks, and the sources of those risks, within each business unit. We utilize Risk and
Control Self-Assessments (RCSA) to identify exposure risks. Through this RCSA process, we continually assess
the effectiveness of controls associated with the identified risks, regularly monitor risk profiles and material
exposure to losses, and identify stress events and scenarios to which we may be exposed. Our chief risk officer is
responsible for ensuring that appropriate systems of controls are in place for managing and monitoring risk
across the Company. Potential risk concerns are shared with the Risk Management Committee and the board of
directors, as appropriate. Our internal audit department performs on-going independent reviews of the risk
management process and ensures the adequacy of documentation. The results of these reviews are reported
regularly to the audit committee of the board of directors.
We believe our primary risk exposures are credit, market, liquidity, operational, and compliance risk. Credit
risk is the risk of loss due to adverse changes in a counterparty’s ability to meet their financial obligations under
agreed upon terms. Market risk represents the risk of loss due to changes in the market value of assets and
liabilities due to changes in interest rates, exchange rates, and equity prices. Liquidity risk arises from the
possibility that funds may not be available to satisfy current or future commitments resulting from external
macro market issues, investor and customer perception of financial strength, and events unrelated to us, such as
war, terrorism, or financial institution market specific issues. In addition, the mix and maturity structure of
Huntington’s balance sheet, amount of on-hand cash and unencumbered securities and the availability of
contingent sources of funding, can have an impact on Huntington’s ability to satisfy current or future funding
commitments. We manage liquidity risk at both the Bank and the parent company. Operational risk arises from
our inherent day-to-day operations that could result in losses due to human error, inadequate or failed internal
systems and controls, and external events. Compliance risk exposes us to money penalties, enforcement actions
or other sanctions as a result of nonconformance with laws, rules, and regulations that apply to the financial
services industry.
44