Huntington National Bank 2014 Annual Report Download - page 23

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The Audit and Risk Oversight committees routinely hold executive sessions with our key officers engaged in accounting and risk
management. On a periodic basis, the two committees meet in joint session to cover matters relevant to both such as the construct and
appropriateness of the ACL, which is reviewed quarterly. All directors have access to information provided to each committee and all
scheduled meetings are open to all directors.
Further, through its Compensation Committee, the board of directors seeks to ensure its system of rewards is risk-sensitive and
aligns the interests of management, creditors, and shareholders. We utilize a variety of compensation-related tools to induce
appropriate behavior, including common stock ownership thresholds for the chief executive officer and certain members of senior
management, a requirement to hold until retirement, or exit from the company, a portion of net shares received upon exercise of stock
options or release of restricted stock awards (50% for executive officers and 25% for other award recipients), equity deferrals,
recoupment provisions, and the right to terminate compensation plans at any time.
Management has implemented an Enterprise Risk Management and Risk Appetite Framework. Critically important is our self-
assessment process, in which each business segment produces an analysis of its risks and the strength of its risk controls. The segment
analyses are combined with assessments by our risk management organization of major risk sectors (e.g., credit, market, liquidity,
operational, reputational, compliance, etc.) to produce an overall enterprise risk assessment. Outcomes of the process include a
determination of the quality of the overall control process, the direction of risk, and our position compared to the defined risk appetite.
Management also utilizes a wide series of metrics (key risk indicators) to monitor risk positions throughout the Company. In
general, a range for each metric is established which allows the company, in aggregate, to operate within a moderate-to-low risk
profile. Deviations from the range will indicate if the risk being measured is moving, which may then necessitate corrective action.
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 escalation of issues and overall communication of strategies.
Huntington utilizes three lines 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 self-
assessment process. 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.
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, including the use of financial or other quantitative methodologies that may
not adequately predict future results, 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.