Huntington National Bank 2014 Annual Report Download - page 25

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Rising interest rates reduce the value of our fixed-rate debt securities and cash flow hedging derivatives portfolio. Any unrealized
loss from these portfolios impacts OCI, shareholders’ equity, and the Tangible Common Equity ratio. Any realized loss from these
portfolios impacts regulatory capital ratios, notably Tier I and Total risk-based capital ratios. In a rising interest rate environment,
pension and other post-retirement obligations somewhat mitigate negative OCI impacts from securities and financial instruments. For
more information, refer to “Market Risk” of the MD&A.
Certain investment securities, notably mortgage-backed securities, are very sensitive to rising and falling rates. Generally, when
rates rise, prepayments of principal and interest will decrease and the duration of mortgage-backed securities will increase.
Conversely, when rates fall, prepayments of principal and interest will increase and the duration of mortgage-backed securities will
decrease. In either case, interest rates have a significant impact on the value of mortgage-backed securities investments.
Liquidity Risks:
1. Changes in either Huntington’s financial condition or in the general banking industry could result in a loss of
depositor confidence.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The Bank uses its liquidity to extend credit
and to repay liabilities as they become due or as demanded by customers. The board of directors establishes liquidity policies and
limits and management establishes operating guidelines for liquidity.
Our primary source of liquidity is our large supply of deposits from consumer and commercial customers. The continued
availability of this supply depends on customer willingness to maintain deposit balances with banks in general and us in
particular. The availability of deposits can also be impacted by regulatory changes (e.g. changes in FDIC insurance, the Liquidity
Coverage Ratio, etc.), and other events which can impact the perceived safety or economic benefits of bank deposits. While we make
significant efforts to consider and plan for hypothetical disruptions in our deposit funding, market related, geopolitical or other events
could impact the liquidity derived from deposits.
2. If we lose access to capital markets, we may not be able to meet the cash flow requirements of our depositors,
creditors, and borrowers, or have the operating cash needed to fund corporate expansion and other corporate activities.
Wholesale funding sources include securitization, federal funds purchased, securities sold under repurchase agreements, non-core
deposits, and long-term debt. The Bank is also a member of the Federal Home Loan Bank of Cincinnati, which provides members
access to funding through advances collateralized with mortgage-related assets. We maintain a portfolio of highly-rated, marketable
securities that is available as a source of liquidity.
Capital markets disruptions can directly impact the liquidity of the Bank and Corporation. The inability to access capital markets
funding sources as needed could adversely impact our financial condition, results of operations, cash flows, and level of regulatory-
qualifying capital. We may, from time-to-time, consider using our existing liquidity position to opportunistically retire outstanding
securities in privately negotiated or open market transactions.
Operational and Legal Risks:
1. We face security risks, including denial of service attacks, hacking and identity theft that could result in the disclosure
of confidential information, adversely affect our business or reputation and create significant legal and financial exposure.
Our computer systems and network infrastructure are subject to security risks and could be susceptible to cyber-attacks, such as
denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data
processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and
targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or
sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service
attacks have been launched against a number of large financial services institutions, including us. None of these events resulted in a
breach of our client data or account information; however, the performance of our website, www.huntington.com, was adversely
affected, and in some instances customers were prevented from accessing our website. We expect to be subject to similar attacks in the
future. While events to date primarily resulted in inconvenience, future cyber-attacks could be more disruptive and damaging. Hacking
and identity theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able
to anticipate or prevent all such attacks and could be held liable for any security breach or loss.