Huntington National Bank 2013 Annual Report Download - page 24

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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 $710.8 million at December 31, 2013, 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.
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:
x A decrease in the demand for loans and other products and services offered by us;
x A decrease in customer savings generally and in the demand for savings and investment products offered by us; and
x An 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.
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. 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.
Changes in interest rates can affect the value of loans, securities, assets under management, and other assets, including
mortgage and nonmortgage servicing rights. An increase in interest rates that adversely affects the ability of borrowers to pay the
principal or interest on loans and leases may lead to an increase in NPAs and a reduction of income recognized, which could have a
material adverse effect on our results of operations and cash flows. When we place a loan on nonaccrual status, we reverse any
accrued but unpaid interest receivable, which decreases interest income. However, we continue to incur interest expense as a cost of
funding NALs without any corresponding interest income. In addition, transactional income, including trust income, brokerage
income, and gain on sales of loans can vary significantly from period-to-period based on a number of factors, including the interest
rate environment.