Huntington National Bank 2014 Annual Report Download - page 27

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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.
5. We rely on quantitative models to measure risks and to estimate certain financial values.
Quantitative models may be used to help manage certain aspects of our business and to assist with certain business decisions,
including estimating probable loan losses, measuring the fair value of financial instruments when reliable market prices are
unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of
operations, managing risk, and for capital planning purposes (including during the CCAR capital planning and capital adequacy
process). Our measurement methodologies rely on many assumptions, historical analyses and correlations. These assumptions may not
capture or fully incorporate conditions leading to losses, particularly in times of market distress, and the historical correlations on
which we rely may no longer be relevant. Additionally, as businesses and markets evolve, our measurements may not accurately
reflect this evolution. Even if the underlying assumptions and historical correlations used in our models are adequate, our models may
be deficient due to errors in computer code, bad data, misuse of data, or the use of a model for a purpose outside the scope of the
model’s design.
All models have certain limitations. Reliance on models presents the risk that our business decisions based on information
incorporated from models will be adversely affected due to incorrect, missing, or misleading information. In addition, our models
may not capture or fully express the risks we face, may suggest that we have sufficient capitalization when we do not, or may lead us
to misjudge the business and economic environment in which we will operate. If our models fail to produce reliable results on an
ongoing basis, we may not make appropriate risk management, capital planning, or other business or financial decisions. Strategies
that we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable. Also,
information that we provide to the public or regulators based on poorly designed models could be inaccurate or misleading.
Banking regulators continue to focus on the models used by banks and bank holding companies in their businesses. Some of our
decisions that the regulators evaluate, including distributions to our shareholders, could be affected adversely due to their perception
that the quality of the models used to generate the relevant information is insufficient.
Compliance Risks:
1. Bank regulations regarding capital and liquidity, including the annual CCAR assessment process and the Basel III
capital and liquidity standards, could require higher levels of capital and liquidity. Among other things, these regulations
could impact our ability to pay common stock dividends, repurchase common stock, attract cost-effective sources of deposits,
or require the retention of higher amounts of low yielding securities.
The Federal Reserve administers the annual CCAR, an assessment of the capital adequacy of bank holding companies with
consolidated assets of $50 billion or more and of the practices used by covered banks to assess capital needs. Under CCAR, the
Federal Reserve makes a qualitative assessment of capital adequacy on a forward-looking basis and reviews the strength of a bank
holding company’s capital adequacy process. The Federal Reserve also makes a quantitative assessment of capital based on
supervisory-run stress tests that assess the ability to maintain capital levels above each minimum regulatory capital ratio and above a
tier 1 common ratio of 5% and common equity tier 1 ratio of 4.5%, after making all capital actions included in a bank holding
company’s capital plan, under baseline and stressful conditions throughout a nine-quarter planning horizon. Capital plans for 2015
were required to be submitted by January 5, 2015, and the Federal Reserve will either object to the capital plan and/or planned capital
actions, or provide a notice of non-objection, no later than March 31, 2015. We submitted our capital plan to the Federal Reserve on
January 5, 2015. There can be no assurance that the Federal Reserve will respond favorably to our capital plan, capital actions or stress
test and the Federal Reserve, OCC, or other regulatory capital requirements may limit or otherwise restrict how we utilize our capital,
including common stock dividends and stock repurchases.
On July 2, 2013, the Federal Reserve voted to adopt final Basel III capital rules for U.S. Banking organizations. The final rules
establish an integrated regulatory capital framework and will implement in the United States the Basel III regulatory capital reforms
from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule,
minimum requirements will increase for both the quantity and quality of capital held by banking organizations. As a Standardized
Approach institution, the Basel III minimum capital requirements became effective for us on January 1, 2015, and will be fully
phased-in on January 1, 2019.