Huntington National Bank 2011 Annual Report Download - page 94

Operational Risk
As with all companies, we are subject to operational risk. Operational risk is the risk of loss due to human
error; inadequate or failed internal systems and controls; violations of, or noncompliance with, laws, rules,
regulations, prescribed practices, or ethical standards; and external influences such as market conditions,
fraudulent activities, disasters, and security risks. We continuously strive to strengthen our system of internal
controls to ensure compliance with laws, rules, and regulations, and to improve the oversight of our operational
risk. For example, we actively and continuously monitor cyber-attacks such as attempts related to efraud and loss
of sensitive customer data. We constantly evaluate internal systems, processes and controls to mitigate loss from
cyber-attacks and, to date, have not experienced any material losses.
To mitigate operational risks, we have established a senior management Operational Risk Committee and a
senior management Legal, Regulatory, and Compliance Committee. The responsibilities of these committees,
among other duties, include establishing and maintaining management information systems to monitor material
risks and to identify potential concerns, risks, or trends that may have a significant impact and ensuring that
recommendations are developed to address the identified issues. Both of these committees report any significant
findings and recommendations to the Risk Management Committee. Additionally, potential concerns may be
escalated to our Board Risk Oversight Committee, as appropriate.
The goal of this framework is to implement effective operational risk techniques and strategies, minimize
operational and fraud losses, and enhance our overall performance.
Representation and Warranty Reserve
We primarily conduct our loan sale and securitization activity with FNMA and FHLMC. In connection with
these and other securitization transactions, we make certain representations and warranties that the loans meet
certain criteria, such as collateral type and underwriting standards. We may be required to repurchase individual
loans and / or indemnify these organizations against losses due to a loan not meeting the established criteria. We
have a reserve for such losses, which is included in accrued expenses and other liabilities. The reserves are
estimated based on historical and expected repurchase activity, average loss rates, and current economic trends.
The level of mortgage loan repurchase losses depends upon economic factors, investor demand strategies and
other external conditions containing a level of uncertainty and risk that may change over the life of the
underlying loans. We do not have sufficient information to estimate the range of reasonably possible loss related
to representation and warranty exposure.
The tables below reflect activity in the representations and warranties reserve:
Table 34 — Summary of Reserve for Representations and Warranties on Mortgage Loans Serviced for
Others
Year Ended December 31,
2011 2010 2009
(dollar amounts in thousands)
Reserve for representations and warranties, beginning of year ..... $20,171 $ 5,916 $ 5,270
Assumed reserve for representations and warranties ............. —7,000 —
Reserve charges ......................................... (8,711) (9,012) (2,516)
Provision for representations and warranties ................... 11,758 16,267 3,162
Reserve for representations and warranties, end of year .......... $23,218 $20,171 $ 5,916
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