Huntington National Bank 2012 Annual Report Download - page 24

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We also have four other executive level committees to manage risk: ALCO, Credit Policy and Strategy, Risk Management, and
Capital Management. Each committee focuses on specific categories of risk and is supported by a series of subcommittees that are
tactical in nature. We believe this structure helps ensure appropriate elevation of issues and overall communication of strategies.
Huntington utilizes three levels of defense with regard to risk management: (1) business segments, (2) corporate risk
management, and (3) internal audit and credit review. To induce greater ownership of risk within its business segments, segment risk
officers have been embedded to identify and monitor risk, elevate and remediate issues, establish controls, perform self-testing, and
oversee the quarterly self-assessment process. Segment risk officers report directly to the related segment manager with a dotted line
to the Chief Risk Officer. Corporate Risk Management establishes policies, sets operating limits, reviews new or modified
products/processes, ensures consistency and quality assurance within the segments, and produces the enterprise risk assessment. The
Chief Risk Officer has significant input into the design and outcome of incentive compensation plans as they apply to risk. Internal
Audit and Credit Review provide additional assurance that risk-related functions are operating as intended.
Huntington believes it has provided a sound risk governance foundation to support the Bank. Our process will be subject to
continuous improvement and enhancement. Our objective is to have strong risk management practices and capabilities.
Risk Overview
We, like other financial companies, are subject to a number of risks that may adversely affect our financial condition or results of
operations, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns.
Among the risks assumed are: (1) credit risk, which is the risk of loss due to loan and lease customers or other counterparties not being
able to meet their financial obligations under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market
value of assets and liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and credit spreads, (3)
liquidity risk, which is (a) the risk of loss due to the possibility that funds may not be available to satisfy current or future
commitments based on 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, and (b) the risk of loss based on our ability to satisfy current
or future funding commitments due to the mix and maturity structure of our balance sheet, amount of on-hand cash and unencumbered
securities and the availability of contingent sources of funding, (4) operational and legal risk, which 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,
and (5) compliance risk, which 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.
We also expend considerable effort to contain risk which emanates from execution of our business strategies and work
relentlessly to protect the Company’s reputation. Strategic risk and reputational risk do not easily lend themselves to traditional
methods of measurement. Rather, we closely monitor them through processes such as new product / initiative reviews, frequent
financial performance reviews, employee and client surveys, monitoring market intelligence, periodic discussions between
management and our board, and other such efforts.
In addition to the other information included or incorporated by reference into this report, readers should carefully consider that
the following important factors, among others, could negatively impact our business, future results of operations, and future cash
flows materially.
Credit Risks:
1. Our ACL level may prove to be inappropriate or be negatively affected by credit risk exposures which could
materially adversely affect our net income and capital.
Our business depends on the creditworthiness of our customers. Our ACL of $809.7 million at December 31, 2012, represented
Management’s estimate of probable losses inherent in our loan and lease portfolio as well as our unfunded loan commitments and
letters of credit. We periodically review our ACL for appropriateness. In doing so, we consider economic conditions and trends,
collateral values, and credit quality indicators, such as past charge-off experience, levels of past due loans, and NPAs. There is no
certainty that our ACL will be appropriate over time to cover losses in the portfolio because of unanticipated adverse changes in the
economy, market conditions, or events adversely affecting specific customers, industries, or markets. If the credit quality of our
customer base materially decreases, if the risk profile of a market, industry, or group of customers changes materially, or if the ACL is
not appropriate, our net income and capital could be materially adversely affected which, in turn, could have a material adverse effect
on our financial condition and results of operations.
In addition, bank regulators periodically review our ACL and may require us to increase our provision for loan and lease losses or
loan charge-offs. Any increase in our ACL or loan charge-offs as required by these regulatory authorities could have a material
adverse effect on our financial condition and results of operations.