Huntington National Bank 2012 Annual Report Download - page 27

19
Operational and Legal Risks:
1. The resolution of significant pending litigation, if unfavorable, could have a material adverse effect on our results of
operations for a particular period.
We face legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed in litigation and
regulatory proceedings against financial institutions remain high. Substantial legal liability against us could have material adverse
financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. It is possible
that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular reporting
period.
Note 22 of the Notes to Consolidated Financial Statements updates the status of litigation concerning Cyberco Holdings, Inc.
Although the bank maintains litigation reserves related to this case, the ultimate resolution of the matter, if unfavorable, may be
material to our results of operations for a particular reporting period.
2. We face significant operational risks which could lead to expensive litigation and loss of confidence by our customers,
regulators, and capital markets.
We are exposed to many types of operational risks, including cyber-attack risk, the risk of fraud or theft by employees or
outsiders, unauthorized transactions by employees or outsiders, or operational errors by employees, including clerical or record-
keeping errors or those resulting from faulty or disabled computer or telecommunications systems. These operational risks could lead
to expensive litigation and loss of confidence by our customers, regulators, and the capital markets.
Moreover, negative public opinion can result from our actual or alleged conduct in any number of activities, including lending
practices, corporate governance, and acquisitions and from actions taken by government regulators and community organizations in
response to those activities. Negative public opinion can adversely affect our ability to attract and retain customers and can also
expose us to litigation and regulatory action.
Relative to acquisitions, we cannot predict if, or when, we will be able to identify and attract acquisition candidates or make
acquisitions on favorable terms. We incur risks and challenges associated with the integration of acquired institutions in a timely and
efficient manner, and we cannot guarantee that we will be successful in retaining existing customer relationships or achieving
anticipated operating efficiencies.
Huntington is under continuous threat of loss due to cyber-attacks especially as we continue to expand customer capabilities to
utilize internet and other remote channels to transact business. The most significant cyber–attack risks that we face are e-fraud, denial
of service, and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from
customer or our accounts. Loss can occur as a result of negative customer experience in the event of a successful denial of service
attack that disrupts availability of our on-line banking services. The attempts to breach sensitive customer data, such as account
numbers and social security numbers, could present significant reputational, legal and/or regulatory costs to us if successful. Our risk
and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals
and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional
remote connectivity solutions to serve our customers.
3. Failure to maintain effective internal controls over financial reporting in the future could impair our ability to
accurately and timely report our financial results or prevent fraud, resulting in loss of investor confidence and adversely
affecting our business and stock price.
Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. As a
financial holding company, we are subject to regulation that focuses on effective internal controls and procedures. Such controls and
procedures are modified, supplemented, and changed from time-to-time as necessitated by our growth and in reaction to external
events and developments. Any failure to maintain, in the future, an effective internal control environment could impact our ability to
report our financial results on an accurate and timely basis, which could result in regulatory actions, loss of investor confidence, and
adversely impact our business and stock price.