Huntington National Bank 2012 Annual Report Download - page 25

17
2. Weakness in economic conditions could materially adversely affect our business.
Our performance could be negatively affected to the extent there is deterioration in business and economic conditions which have
direct or indirect material adverse impacts on us, our customers, and our counterparties. These conditions could result in one or more
of the following:
xA decrease in the demand for loans and other products and services offered by us;
xA decrease in customer savings generally and in the demand for savings and investment products offered by us; and
xAn increase in the number of customers and counterparties who become delinquent, file for protection under bankruptcy
laws, or default on their loans or other obligations to us.
An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of NPAs, NCOs, provision for
credit losses, and valuation adjustments on loans held for sale. The markets we serve are dependent on industrial and manufacturing
businesses and thus are particularly vulnerable to adverse changes in economic conditions affecting these sectors.
3. Uncertain economic conditions in our markets could result in higher delinquencies, greater charge-offs, and increased
losses on the sale of foreclosed real estate in future periods.
Like all financial institutions, we are subject to the effects of any economic downturn. While beginning to improve slightly, there
has been a slowdown in the housing market across our geographic footprint over the past several years, reflecting declining prices and
excess inventories of houses to be sold. These developments have had, and further declines may continue to have, a negative effect on
our financial conditions and results of operations. At December 31, 2012, we had:
x$8.3 billion of home equity loans and lines, representing 20% of total loans and leases.
x$5.0 billion in residential real estate loans, representing 12% of total loans and leases.
x$4.3 billion of Federal Agency mortgage-backed securities, $0.1 billion of private label CMOs, and less than $0.1 billion of
Alt-A mortgage-backed securities that could be negatively affected by a decline in home values.
x$0.4 billion of bank owned life insurance investments primarily in mortgage-backed securities.
Because of the decline in home values, some of our borrowers have mortgages that exceed the value of their homes. The decline
in home values, coupled with the weakened economy, has increased short sales and foreclosures. The reduced levels of home sales
have had a materially adverse effect on the prices achieved on the sale of foreclosed properties. Further decline in home values may
escalate these problems resulting in higher delinquencies, greater charge-offs, and increased losses on the sale of foreclosed real estate
in future periods.
Market Risks:
1. Changes in interest rates could reduce our net interest income, reduce transactional income, and negatively impact
the value of our loans, securities, and other assets. This could have a material adverse impact on our cash flows, financial
condition, results of operations, and capital.
Our results of operations depend substantially on net interest income, which is the difference between interest earned on
interest earning assets (such as investments and loans) and interest paid on interest bearing liabilities (such as deposits and
borrowings). Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and
international economic and political conditions. Conditions such as inflation, deflation, recession, unemployment, money supply, and
other factors beyond our control may also affect interest rates.
At December 31, 2012, $4.1 billion, or 18%, of our commercial loan portfolio, and $2.5 billion, or 50%, of our residential
mortgage portfolio, as measured by the aggregate outstanding principal balances, were fixed-rate loans and the remainder was
adjustable-rate loans. If our interest earning assets mature or reprice faster than interest bearing liabilities in a declining interest rate
environment, net interest income could be materially adversely impacted. Likewise, if interest bearing liabilities mature or reprice
more quickly than interest earning assets in a rising interest rate environment, net interest income could be adversely impacted.