July 29, 2016 - 10-Q: Quarterly report pursuant to Section 13 or 15(d) | Huntington Bancshares Incorporated (HBAN)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY PERIOD ENDED June 30, 2016

Commission File Number 1-34073

Huntington Bancshares Incorporated



Maryland	31-0724920
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

There were 799,153,996 shares of Registrant’s common stock ($0.01 par value) outstanding on June 30, 2016

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HUNTINGTON BANCSHARES INCORPORATED

INDEX



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	57
Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015	57
Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2016 and 2015	58
Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2016 and 2015	60
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2016 and 2015	61
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015	62
Notes to Unaudited Condensed Consolidated Financial Statements	64
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Executive Overview	7
Discussion of Results of Operations	8
Risk Management and Capital:	24
Credit Risk	24
Market Risk	35
Liquidity Risk	37
Operational Risk	41
Compliance Risk	42
Capital	42
Fair Value	46
Business Segment Discussion	47
Additional Disclosures	53
Item 3. Quantitative and Qualitative Disclosures about Market Risk	127
Item 4. Controls and Procedures	127
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	128
Item 1A. Risk Factors	128
Item 6. Exhibits	129
Signatures	131

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Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:



ABL		Asset Based Lending

ABS		Asset-Backed Securities

ACL		Allowance for Credit Losses

AFCRE		Automobile Finance and Commercial Real Estate

AFS		Available-for-Sale

ALCO		Asset-Liability Management Committee

ALLL		Allowance for Loan and Lease Losses

ARM		Adjustable Rate Mortgage

ASC		Accounting Standards Codification

ASU		Accounting Standards Update

ATM		Automated Teller Machine

AULC		Allowance for Unfunded Loan Commitments

Basel III		Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013

C&I		Commercial and Industrial

Camco Financial		Camco Financial Corp.

CCAR		Comprehensive Capital Analysis and Review

CDO		Collateralized Debt Obligations

CDs		Certificate of Deposit

CET1		Common equity tier 1 on a transitional Basel III basis

CFPB		Bureau of Consumer Financial Protection

CFTC		Commodity Futures Trading Commission

CMO		Collateralized Mortgage Obligations

CRE		Commercial Real Estate

Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act

DTA/DTL		Deferred Tax Asset/Deferred Tax Liability

E&P		Exploration and Production

EFT		Electronic Fund Transfer

EPS		Earnings Per Share

EVE		Economic Value of Equity

Fannie Mae		(see FNMA)

FASB		Financial Accounting Standards Board

FDIC		Federal Deposit Insurance Corporation

FDICIA		Federal Deposit Insurance Corporation Improvement Act of 1991

FHA		Federal Housing Administration

FHLB		Federal Home Loan Bank

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FHLMC		Federal Home Loan Mortgage Corporation

FICO		Fair Isaac Corporation

FirstMerit		FirstMerit Corporation

FNMA		Federal National Mortgage Association

FRB		Federal Reserve Bank

Freddie Mac		(see FHLMC)

FTE		Fully-Taxable Equivalent

FTP		Funds Transfer Pricing

GAAP		Generally Accepted Accounting Principles in the United States of America

GNMA		Government National Mortgage Association, or Ginnie Mae

HAA		Huntington Asset Advisors, Inc.

HAMP		Home Affordable Modification Program

HARP		Home Affordable Refinance Program

HASI		Huntington Asset Services, Inc.

HIP		Huntington Investment and Tax Savings Plan

HQLA		High Quality Liquid Asset

HTM		Held-to-Maturity

IRS		Internal Revenue Service

LCR		Liquidity Coverage Ratio

LGD		Loss-Given-Default

LIBOR		London Interbank Offered Rate

LIHTC		Low Income Housing Tax Credit

LTD		Long-Term Debt

LTV		Loan to Value

Macquarie		Macquarie Equipment Finance, Inc. (U.S. operations)

MBS		Mortgage-Backed Securities

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

MSA		Metropolitan Statistical Area

MSR		Mortgage Servicing Rights

NAICS		North American Industry Classification System

NALs		Nonaccrual Loans

NCO		Net Charge-off

NII		Net Interest Income

NIM		Net Interest Margin

NPA		Nonperforming Asset

N.R.		Not relevant. Denominator of calculation is a gain in the current period compared with a loss in the prior period, or vice-versa

OCC		Office of the Comptroller of the Currency

OCI		Other Comprehensive Income (Loss)

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OCR		Optimal Customer Relationship

OLEM		Other Loans Especially Mentioned

OREO		Other Real Estate Owned

OTTI		Other-Than-Temporary Impairment

PD		Probability-Of-Default

Plan		Huntington Bancshares Retirement Plan

Problem Loans		Includes nonaccrual loans and leases (Table 9), troubled debt restructured loans (Table 10), accruing loans and leases past due 90 days or more (aging analysis section of Footnote 4), and Criticized commercial loans (credit quality indicators section of Footnote 4).

RBHPCG		Regional Banking and The Huntington Private Client Group

RCSA		Risk and Control Self-Assessments

REIT		Real Estate Investment Trust

ROC		Risk Oversight Committee

RWA		Risk-Weighted Assets

SAD		Special Assets Division

SBA		Small Business Administration

SEC		Securities and Exchange Commission

SERP		Supplemental Executive Retirement Plan

SRIP		Supplemental Retirement Income Plan

SSFA		Simplified Supervisory Formula Approach

TCE		Tangible Common Equity

TDR		Troubled Debt Restructured Loan

TRUPS		Trust Preferred Securities

U.S. Treasury		U.S. Department of the Treasury

UCS		Uniform Classification System

UDAP		Unfair or Deceptive Acts or Practices

Unified		Unified Financial Securities, Inc.

UPB		Unpaid Principal Balance

USDA		U.S. Department of Agriculture

VIE		Variable Interest Entity

XBRL		eXtensible Business Reporting Language

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PART I. FINANCIAL INFORMATION

When we refer to “we”, “our”, and “us” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, insurance service programs, and other financial products and services. Our 772 branches and private client group offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio and a limited purpose office located in the Cayman Islands. Our foreign banking activities, in total or with any individual country, are not significant.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2015 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2015 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.

Our discussion is divided into key segments:


•	Executive Overview - Provides a summary of our current financial performance and business overview, including our thoughts on the impact of the economy, legislative and regulatory initiatives, and recent industry developments. This section also provides our outlook regarding our expectations for the next several quarters.


•	Discussion of Results of Operations - Reviews financial performance from a consolidated Company perspective. It also includes a Significant Items section that summarizes key issues helpful for understanding performance trends. Key consolidated average balance sheet and income statement trends are also discussed in this section.

•

Risk Management and Capital - Discusses credit, market, liquidity, operational, and compliance risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we obtain funding, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.


•	Business Segment Discussion - Provides an overview of financial performance for each of our major business segments and provides additional discussion of trends underlying consolidated financial performance.


•	Additional Disclosures - Provides comments on important matters including forward-looking statements, critical accounting policies and use of significant estimates, and recent accounting pronouncements and developments.

A reading of each section is important to understand fully the nature of our financial performance and prospects.

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EXECUTIVE OVERVIEW

Summary of 2016 Second Quarter Results Compared to 2015 Second Quarter

For the quarter, we reported net income of $175 million, or $0.19 per common share, compared with $196 million, or $0.23 per common share, in the year-ago quarter (see Table 1).

Fully-taxable equivalent net interest income was $516 million, up $17 million, or 3%. The results reflected the benefit from a $5.3 billion, or 8%, increase in average earning assets, partially offset by a 14 basis point reduction in the net interest margin to 3.06%. Average earning asset growth included a $4.0 billion, or 8%, increase in average loans and leases and a $2.0 billion, or 15%, increase in average securities. The net interest margin contraction reflected a 14 basis point increase in funding costs, primarily associated with the issuance of debt over the past five quarters and a 4 basis point decrease in earning asset yields, partially offset by a 4 basis point increase in the benefit from the amount of noninterest-bearing funds. Core deposit yields were unchanged.

The provision for credit losses was $25 million, up $4 million, or 20%. NALs increased $96 million, or 26%, from the year-ago quarter to $461 million, or 0.88% of total loans and leases. The year-over-year increase was exclusively centered in the Commercial portfolio and was primarily associated with a small number of energy sector loan relationships which were added to NALs during the 2016 first quarter. While the energy sector was a primary driver of the NAL activity over the last two quarters, the oil and gas exploration and production portfolio represented less than 1% of total loans outstanding at quarter end. NCOs decreased $9 million, or 34%, to $17 million. NCOs represented an annualized 0.13% of average loans and leases in the current quarter, down from 0.21% in the year-ago quarter. We continue to be pleased with the net charge-off performance across the entire portfolio. Commercial charge-offs were positively impacted by continued recoveries in the CRE portfolio and broader continued successful workout strategies, while consumer charge-offs declined substantially from the prior quarter and remain within our expected range. Overall consumer credit metrics, led by the residential mortgage and home equity portfolios, continue to show an improving trend, while the commercial portfolios continue to experience some quarter-to-quarter volatility based on the absolute low level of problem loans.

Noninterest income was $271 million, down $11 million, or 4%. This reflected a $7 million, or 18%, decrease in mortgage banking income, primarily as a result of an $8 million impact from net MSR activity. In addition, trust services decreased $4 million, or 15%, reflecting the sale of HAA, HASI, and Unified, and transition of the money market assets of the Huntington Funds to a third party at the end of the 2015 fourth quarter. Also, gain on sale of loans decreased $3 million, or 26%, primarily as a result of the $5 million gain from the automobile loan securitization in the year-ago quarter. These decreases were partially offset by a $5 million, or 8%, increase in service charges on deposit accounts, reflecting the benefit of continued new customer acquisition including a 4% increase in consumer checking households and a 3% increase in commercial checking relationships. In addition, cards and payment processing income increased $3 million, or 9%, due to higher card related income and underlying customer growth.

Noninterest expense was $524 million, up $32 million, or 6%. Personnel costs increased $17 million, or 6%, reflecting a $10 million increase in salaries and a $7 million increase in benefits expense. These increases are primarily the result of annual compensation increases coupled with a 1% increase in the number of average full-time equivalent employees, largely related to the build-out of the in-store strategy, as well as higher healthcare expenses. Personnel costs in the 2016 second quarter included $5 million of Significant Items, primarily comprised of personnel expense related to technology development for systems conversions and fully-dedicated personnel for merger and integration efforts. In addition, professional services increased $9 million, or 71%, primarily reflecting $11 million of legal and consulting expense related to the pending FirstMerit acquisition. Also, other expense increased $6 million, or 14%, primarily impacted by litigation reserve adjustments and included $2 million of Significant Items related to the pending FirstMerit acquisition. Further, outside data processing and other services increased $5 million, or 8%, primarily related to ongoing technology investments and included $3 million of Significant Items related to the pending FirstMerit acquisition. These increases were partially offset by a $6 million, or 64%, decrease in amortization of intangibles reflecting the full amortization of the core deposit intangible at the end of the 2015 second quarter from the Sky Financial acquisition.

The tangible common equity to tangible assets ratio was 7.96%, up 4 basis points. The CET1 risk-based capital ratio was 9.80% at June 30, 2016, up from 9.65% a year ago. The regulatory tier 1 risk-based capital ratio was 11.37% compared to 10.41% at June 30, 2015. All capital ratios were impacted by the repurchase of 9.3 million common shares during the 2015 third and fourth quarters. As previously announced, we decided to forgo the remaining $166 million of share repurchase capacity under our 2015 CCAR capital plan in order to build capital ratios in preparation for the pending FirstMerit acquisition. As a result, we did not repurchase any common shares during the 2016 first or second quarters. In addition, our 2016 CCAR capital plan did not include any proposed share repurchases over the next four quarters. The regulatory Tier 1 risk-based and total risk-based capital ratios benefited from the issuance of $400 million and $200 million of class D preferred equity during the 2016 first and second quarters, respectively.

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Business Overview

General

Our general business objectives are: (1) grow net interest income and fee income, (2) deliver positive operating leverage, (3) increase primary relationships across all business segments, (4) continue to strengthen risk management and (5) maintain capital and liquidity positions consistent with our risk appetite.

We continued to deliver solid 2016 performance during the second quarter, in line with our expectations. The quarter demonstrated encouraging growth in business lending and ongoing strong performance in auto loans and residential mortgage. We have continued executing our strategy to balance growth with disciplined risk management.

Progress toward the proposed acquisition of FirstMerit continued to move forward in the second quarter, with very high approval rates obtained from both sets of shareholders, the completion of senior leadership selection for the combined company, and our announcement of the combined company’s five-year community development plan. The integration planning continues to proceed as expected. Our recently announced divestiture of 13 Ohio branches primarily in the Canton and Ashtabula markets to First Commonwealth Bank is another important milestone. On July 29, 2016, we received regulatory approval from the Board of Governors of the Federal Reserve System. We continue to expect that the transaction will be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including OCC approval of the bank merger.

The successful completion of the annual regulatory capital review and the Federal Reserve's non-objection to our planned capital actions, including the proposed increase in the quarterly dividend beginning in the 2016 fourth quarter, validate our consistent performance.

Economy

We continue to expect growth in our regional economy, but recognize the escalation of market volatility year-to-date and its contribution to dampening global outlook. While still presenting a challenging operating environment for us, ongoing flat interest rates should benefit our consumer and business customers. Many of the large MSAs in our footprint were near 15-year lows for unemployment rates at the end of May 2016. Within the current environment, we continue to execute our core strategy in line with our established plans, while simultaneously making substantial progress with our acquisition of FirstMerit.

Expectations – 2016

Excluding Significant Items, net MSR activity, and the incremental impact of the pending FirstMerit acquisition, our goals for full-year 2016 performance remain consistent with our long-term financial goals of 4-6% revenue growth and annual positive operating leverage. Overall, asset quality metrics are expected to remain near current levels. Moderate quarterly volatility also is expected, given the quickly evolving macroeconomic conditions, commodities and currency market volatility, and current low level of problem assets and credit costs. We anticipate NCOs will remain below our long-term normalized range of 35 to 55 basis points.

DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section that summarizes key issues important for a complete understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion.”

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Table 1 - Selected Quarterly Income Statement Data (1)
(dollar amounts in thousands, except per share amounts)
	Three months ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2016			2016			2015			2015			2015
Interest income	$	565,658		$	557,251		$	544,153		$	538,477		$	529,795
Interest expense	59,777			54,185			47,242			43,022			39,109
Net interest income	505,881			503,066			496,911			495,455			490,686
Provision for credit losses	24,509			27,582			36,468			22,476			20,419
Net interest income after provision for credit losses	481,372			475,484			460,443			472,979			470,267
Service charges on deposit accounts	75,613			70,262			72,854			75,157			70,118
Cards and payment processing income	39,184			36,447			37,594			36,664			35,886
Mortgage banking income	31,591			18,543			31,418			18,956			38,518
Trust services	22,497			22,838			25,272			24,972			26,550
Insurance income	15,947			16,225			15,528			16,204			17,637
Brokerage income	14,599			15,502			14,462			15,059			15,184
Capital markets fees	13,037			13,010			13,778			12,741			13,192
Bank owned life insurance income	12,536			13,513			13,441			12,719			13,215
Gain on sale of loans	9,265			5,395			10,122			5,873			12,453
Securities gains (losses)	656			—			474			188			82
Other income	36,187			30,132			37,272			34,586			38,938
Total noninterest income	271,112			241,867			272,215			253,119			281,773
Personnel costs	298,949			285,397			288,861			286,270			282,135
Outside data processing and other services	63,037			61,878			63,775			58,535			58,508
Equipment	31,805			32,576			31,711			31,303			31,694
Net occupancy	30,704			31,476			32,939			29,061			28,861
Marketing	14,773			12,268			12,035			12,179			15,024
Professional services	21,488			13,538			13,010			11,961			12,593
Deposit and other insurance expense	12,187			11,208			11,105			11,550			11,787
Amortization of intangibles	3,600			3,712			3,788			3,913			9,960
Other expense	47,118			39,027			41,542			81,736			41,215
Total noninterest expense	523,661			491,080			498,766			526,508			491,777
Income before income taxes	228,823			226,271			233,892			199,590			260,263
Provision for income taxes	54,283			54,957			55,583			47,002			64,057
Net income	174,540			171,314			178,309			152,588			196,206
Dividends on preferred shares	19,874			7,998			7,972			7,968			7,968
Net income applicable to common shares	$	154,666		$	163,316		$	170,337		$	144,620		$	188,238
Average common shares—basic	798,167			795,755			796,095			800,883			806,891
Average common shares—diluted	810,371			808,349			810,143			814,326			820,238
Net income per common share—basic	$	0.19		$	0.21		$	0.21		$	0.18		$	0.23
Net income per common share—diluted	0.19			0.20			0.21			0.18			0.23
Cash dividends declared per common share	0.07			0.07			0.07			0.06			0.06
Return on average total assets	0.96		%	0.96		%	1.00		%	0.87		%	1.16		%
Return on average common shareholders’ equity	9.6			10.4			10.8			9.3			12.3
Return on average tangible common shareholders’ equity (2)	11.0			11.9			12.4			10.7			14.4
Net interest margin (3)	3.06			3.11			3.09			3.16			3.20
Efficiency ratio (4)	66.1			64.6			63.7			69.1			61.7
Effective tax rate	23.7			24.3			23.8			23.5			24.6
Revenue—FTE
Net interest income	$	505,881		$	503,066		$	496,911		$	495,455		$	490,686
FTE adjustment	10,091			9,159			8,425			8,168			7,962

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Net interest income (3)	515,972		512,225		505,336		503,623		498,648
Noninterest income	271,112		241,867		272,215		253,119		281,773
Total revenue (3)	$	787,084	$	754,092	$	777,551	$	756,742	$	780,421


(1)	Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Items” for additional discussion regarding these key factors.

(2)

Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 35% tax rate.


(3)	On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.


(4)	Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains.

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Table 2 - Selected Year to Date Income Statement Data (1)
(dollar amounts in thousands, except per share amounts)
	Six months ended June 30,				Change
	2016		2015		Amount			Percent
Interest income	$	1,122,909	$	1,031,891	$	91,018		9	%
Interest expense	113,962		73,520		40,442			55
Net interest income	1,008,947		958,371		50,576			5
Provision for credit losses	52,091		41,010		11,081			27
Net interest income after provision for credit losses	956,856		917,361		39,495			4
Service charges on deposit accounts	145,875		132,338		13,537			10
Cards and payment processing income	75,631		68,457		7,174			10
Mortgage banking income	50,134		61,479		(11,345		)	(18	)
Trust services	45,335		55,589		(10,254		)	(18	)
Insurance income	32,172		33,532		(1,360		)	(4	)
Brokerage income	30,101		30,684		(583		)	(2	)
Capital markets fees	26,047		27,097		(1,050		)	(4	)
Bank owned life insurance income	26,049		26,240		(191		)	(1	)
Gain on sale of loans	14,660		17,042		(2,382		)	(14	)
Securities gains (losses)	656		82		574			700
Other income	66,319		60,856		5,463			9
Total noninterest income	512,979		513,396		(417		)	—
Personnel costs	584,346		547,051		37,295			7
Outside data processing and other services	124,915		109,043		15,872			15
Equipment	64,381		61,943		2,438			4
Net occupancy	62,180		59,881		2,299			4
Marketing	27,041		27,999		(958		)	(3	)
Professional services	35,026		25,320		9,706			38
Deposit and other insurance expense	23,395		21,954		1,441			7
Amortization of intangibles	7,312		20,166		(12,854		)	(64	)
Other expense	86,145		77,277		8,868			11
Total noninterest expense	1,014,741		950,634		64,107			7
Income before income taxes	455,094		480,123		(25,029		)	(5	)
Provision for income taxes	109,240		118,063		(8,823		)	(7	)
Net income	345,854		362,060		(16,206		)	(4	)
Dividends declared on preferred shares	27,872		15,933		11,939			75
Net income applicable to common shares	$	317,982	$	346,127	$	(28,145	)	(8	)%
Average common shares—basic	796,961		808,335		(11,374		)	(1	)%
Average common shares—diluted	809,360		822,023		(12,663		)	(2	)
Net income per common share—basic	$	0.40	$	0.43	$	(0.03	)	(7	)
Net income per common share—diluted	0.39		0.42		(0.03		)	(7	)
Cash dividends declared per common share	0.14		0.12		0.02			17
Revenue—FTE
Net interest income	$	1,008,947	$	958,371	$	50,576		5	%
FTE adjustment	19,250		15,522		3,728			24
Net interest income (2)	1,028,197		973,893		54,304			6
Noninterest income	512,979		513,396		(417		)	—
Total revenue (2)	$	1,541,176	$	1,487,289	$	53,887		4	%


(1)	Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Items” for additional discussion regarding these key factors.


(2)	On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

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Significant Items

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section (See Non-GAAP Financial Measures) that summarizes key issues important for a complete understanding of performance trends. Key consolidated balance sheet and income statement trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion.”

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons were impacted by the Significant Items summarized below:

1.Mergers and Acquisitions. Significant events relating to mergers and acquisitions, and the impacts of those events on our reported results, were as follows:


•	During the 2016 second quarter, $21 million of noninterest expense was recorded related to the pending acquisition of FirstMerit. This resulted in a negative impact of $0.02 per common share.


•	During the 2016 first quarter, $6 million of noninterest expense was recorded related to the pending acquisition of FirstMerit. This resulted in a negative impact of $0.01 per common share.

The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected by this Results of Operations discussion:



Table 3 - Significant Items Influencing Earnings Performance Comparison
(dollar amounts in thousands, except per share amounts)
	Three Months Ended
	June 30, 2016						March 31, 2016						June 30, 2015 (4)
	After-tax			EPS (2)(3)			After-tax			EPS (2)(3)			After-tax		EPS (2)(3)
Net income	$	174,540					$	171,314					$	196,206
Earnings per share, after-tax				$	0.19					$	0.20				$	0.23
Significant Items—favorable (unfavorable) impact:	Earnings (1)			EPS (2)(3)			Earnings (1)			EPS (2)(3)			Earnings (1)		EPS (2)(3)
Mergers and acquisitions, net	$	(20,789	)	$	(0.02	)	$	(6,406	)	$	(0.01	)	$	—	$	—


(1)	Pretax unless otherwise noted.


(2)	Based on average outstanding diluted common shares.


(3)	After-tax.


(4)	The 2015 second quarter included $2 million of merger-related expense that was not considered a Significant Item for the second quarter of 2015, but merger-related expense was determined to be a Significant Item for the 2015 full year.



	Six Months Ended
	June 30, 2016						June 30, 2015 (4)
	After-tax			EPS (2)(3)			After-tax		EPS (2)(3)
Net income	$	345,854					$	362,060
Earnings per share, after-tax				$	0.39				$	0.42
Significant Items—favorable (unfavorable) impact:	Earnings (1)			EPS (2)(3)			Earnings (1)		EPS (2)(3)
Mergers and acquisitions, net	$	(27,195	)	$	(0.03	)	$	—	$	—


(1)	Pretax unless otherwise noted.


(2)	Based on average outstanding diluted common shares.


(3)	After-tax.


(4)	The 2015 first and second quarter included $3 million and $2 million, respectively of merger-related expense that was not considered a Significant Item for the first six-month period of 2015, but merger-related expense was determined to be a Significant Item for the 2015 full year.

Net Interest Income / Average Balance Sheet

The following tables detail the change in our average balance sheet and the net interest margin:

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Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (3)
(dollar amounts in millions)
	Average Balances
	Three Months Ended															Change
	June 30,			March 31,			December 31,			September 30,			June 30,			2Q16 vs. 2Q15
	2016			2016			2015			2015			2015			Amount			Percent
Assets:
Interest-bearing deposits in banks	$	99		$	98		$	89		$	89		$	89		$	10		11	%
Loans held for sale	571			433			502			464			1,272			(701		)	(55	)
Securities:
Available-for-sale and other securities:
Taxable	6,904			6,633			8,099			8,310			7,916			(1,012		)	(13	)
Tax-exempt	2,510			2,358			2,257			2,136			2,028			482			24
Total available-for-sale and other securities	9,414			8,991			10,356			10,446			9,944			(530		)	(5	)
Trading account securities	41			40			39			52			41			—			—
Held-to-maturity securities—taxable	5,806			6,054			4,148			3,226			3,324			2,482			75
Total securities	15,261			15,085			14,543			13,724			13,309			1,952			15
Loans and leases: (2)
Commercial:
Commercial and industrial	21,344			20,649			20,186			19,802			19,819			1,525			8
Commercial real estate:
Construction	881			923			1,108			1,101			970			(89		)	(9	)
Commercial	4,345			4,283			4,158			4,193			4,214			131			3
Commercial real estate	5,226			5,206			5,266			5,294			5,184			42			1
Total commercial	26,570			25,855			25,452			25,096			25,003			1,567			6
Consumer:
Automobile	10,146			9,730			9,286			8,879			8,083			2,063			26
Home equity	8,416			8,441			8,463			8,526			8,503			(87		)	(1	)
Residential mortgage	6,187			6,018			6,079			6,048			5,859			328			6
Other consumer	613			574			547			497			451			162			36
Total consumer	25,362			24,763			24,375			23,950			22,896			2,466			11
Total loans and leases	51,932			50,618			49,827			49,046			47,899			4,033			8
Allowance for loan and lease losses	(616		)	(604		)	(595		)	(609		)	(608		)	(8		)	1
Net loans and leases	51,316			50,014			49,232			48,437			47,291			4,025			9
Total earning assets	67,863			66,234			64,961			63,323			62,569			5,294			8
Cash and due from banks	1,001			1,013			1,468			1,555			926			75			8
Intangible assets	726			730			734			739			745			(19		)	(3	)
All other assets	4,149			4,223			4,233			4,273			4,233			(84		)	(2	)
Total assets	$	73,123		$	71,596		$	70,801		$	69,281		$	67,865		$	5,258		8	%
Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	16,507		$	16,334		$	17,174		$	17,017		$	15,893		$	614		4	%
Demand deposits—interest-bearing	8,445			7,776			6,923			6,604			6,584			1,861			28
Total demand deposits	24,952			24,110			24,097			23,621			22,477			2,475			11
Money market deposits	19,534			19,682			19,843			19,512			18,803			731			4
Savings and other domestic deposits	5,402			5,306			5,215			5,224			5,273			129			2
Core certificates of deposit	2,007			2,265			2,430			2,534			2,639			(632		)	(24	)
Total core deposits	51,895			51,363			51,585			50,891			49,192			2,703			5
Other domestic time deposits of $250,000 or more	402			455			426			217			184			218			118
Brokered deposits and negotiable CDs	2,909			2,897			2,929			2,779			2,701			208			8
Deposits in foreign offices	208			264			398			492			562			(354		)	(63	)

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Total deposits	55,414		54,979		55,338		54,379		52,639		2,775			5
Short-term borrowings	1,032		1,145		524		844		2,153		(1,121		)	(52	)
Long-term debt	7,899		7,202		6,788		6,043		5,121		2,778			54
Total interest-bearing liabilities	47,838		46,992		45,476		44,249		44,020		3,818			9
All other liabilities	1,416		1,515		1,515		1,442		1,435		(19		)	(1	)
Shareholders’ equity	7,362		6,755		6,636		6,573		6,517		845			13
Total liabilities and shareholders’ equity	$	73,123	$	71,596	$	70,801	$	69,281	$	67,865	$	5,258		8	%

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Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) (3)

	Average Yield Rates (2)
	Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,
Fully-taxable equivalent basis (1)	2016		2016		2015		2015		2015
Assets:
Interest-bearing deposits in banks	0.25	%	0.21	%	0.08	%	0.06	%	0.08	%
Loans held for sale	3.89		3.99		4.24		3.81		3.32
Securities:
Available-for-sale and other securities:
Taxable	2.37		2.39		2.50		2.51		2.60
Tax-exempt	3.38		3.40		3.15		3.12		3.13
Total available-for-sale and other securities	2.64		2.65		2.64		2.63		2.71
Trading account securities	0.98		0.50		1.09		0.97		1.00
Held-to-maturity securities—taxable	2.44		2.43		2.45		2.46		2.50
Total securities	2.56		2.56		2.58		2.59		2.65
Loans and leases: (3)
Commercial:
Commercial and industrial	3.49		3.52		3.47		3.58		3.61
Commercial real estate:
Construction	3.70		3.51		3.45		3.52		3.60
Commercial	3.35		3.59		3.31		3.43		3.41
Commercial real estate	3.41		3.57		3.34		3.45		3.45
Total commercial	3.47		3.53		3.45		3.55		3.58
Consumer:
Automobile	3.15		3.17		3.22		3.23		3.20
Home equity	4.17		4.20		4.01		4.01		3.97
Residential mortgage	3.65		3.69		3.67		3.71		3.72
Other consumer	10.28		10.02		9.17		8.88		8.45
Total consumer	3.79		3.81		3.74		3.75		3.73
Total loans and leases	3.63		3.67		3.59		3.65		3.65
Total earning assets	3.41		3.44		3.37		3.42		3.45
Liabilities:
Deposits:
Demand deposits—noninterest-bearing	—		—		—		—		—
Demand deposits—interest-bearing	0.09		0.09		0.08		0.07		0.06
Total demand deposits	0.03		0.03		0.02		0.02		0.02
Money market deposits	0.24		0.24		0.23		0.23		0.22
Savings and other domestic deposits	0.11		0.13		0.14		0.14		0.14
Core certificates of deposit	0.79		0.82		0.83		0.80		0.78
Total core deposits	0.22		0.23		0.23		0.23		0.22
Other domestic time deposits of $250,000 or more	0.40		0.41		0.40		0.43		0.44
Brokered deposits and negotiable CDs	0.40		0.38		0.19		0.17		0.17
Deposits in foreign offices	0.13		0.13		0.13		0.13		0.13
Total deposits	0.23		0.24		0.23		0.22		0.22
Short-term borrowings	0.36		0.32		0.09		0.09		0.14
Long-term debt	1.85		1.68		1.49		1.45		1.45
Total interest-bearing liabilities	0.50		0.46		0.41		0.39		0.36
Net interest rate spread	2.91		2.98		2.96		3.03		3.09
Impact of noninterest-bearing funds on margin	0.15		0.13		0.13		0.13		0.11
Net interest margin	3.06	%	3.11	%	3.09	%	3.16	%	3.20	%


(1)	FTE yields are calculated assuming a 35% tax rate.


(2)	Loan, lease, and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized fees.

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(3)	For purposes of this analysis, NALs are reflected in the average balances of loans.

2016 Second Quarter versus 2015 Second Quarter

FTE net interest income for the 2016 second quarter increased $17 million, or 3%, from the 2015 second quarter. This reflected the benefit from the $5.3 billion, or 8%, increase in average earning assets partially offset by a 14 basis point reduction in the FTE net interest margin to 3.06%. Average earning asset growth included a $4.0 billion, or 8%, increase in average loans and leases and a $2.0 billion, or 15%, increase in average securities. The NIM contraction reflected a 14 basis point increase in funding costs, primarily associated with the issuance of debt over the past five quarters and a 4 basis point decrease in earning asset yields, partially offset by a 4 basis point increase in the benefit from noninterest-bearing funds. Core deposit yields were unchanged.

Average earning assets for the 2016 second quarter increased $5.3 billion, or 8%, from the year-ago quarter. The increase was driven by:


•	$2.1 billion, or 26%, increase in average automobile loans. The 2016 second quarter represented the tenth consecutive quarter of greater than $1.0 billion in automobile loan originations, while maintaining our underwriting consistency and discipline.


•	$2.0 billion, or 15%, increase in average securities, primarily reflecting the reinvestment of cash flows and additional investment in Liquidity Coverage Ratio (LCR) Level 1 qualifying securities and a $0.6 billion increase in direct purchase municipal instruments in our Commercial Banking segment.


•	$1.5 billion, or 8%, increase in average C&I loans and leases, reflecting growth in equipment finance leases, automobile dealer floorplan lending, and corporate banking.


•	$0.3 billion, or 6%, increase in average residential mortgage loans, reflecting increased demand for mortgage loans across our portfolio.

Partially offset by:


•	$0.7 billion, or 55%, decrease in average loans held-for-sale, primarily related to automobile loans that were securitized and sold late in the year-ago quarter.

Average total deposits for the 2016 second quarter increased $2.8 billion, or 5%, from the year-ago quarter, including a $2.7 billion, or 5%, increase in average total core deposits. Average total interest-bearing liabilities increased $3.8 billion, or 9%, from the year-ago quarter. Year-over-year changes in total liabilities reflected:

•

$2.5 billion, or 11%, increase in average demand deposits, including a $1.9 billion, or 28%, increase in average interest-bearing demand deposits and a $0.6 billion, or 4%, increase in average noninterest-bearing demand deposits. The increase in average total demand deposits was comprised of a $1.6 billion, or 12%, increase in average commercial demand deposits and a $0.8 billion, or 10%, increase in average consumer demand deposits.


•	$1.7 billion, or 23%, increase in average total debt, reflecting the issuance of $3.1 billion of senior debt over the past five quarters, partially offset by a $1.1 billion, or 52%, decrease in average short-term borrowings.


•	$0.7 billion, or 4%, increase in average money market deposits, reflecting improvements in cross-sell and targeted marketing.

Partially offset by:


•	$0.6 billion, or 24%, decrease in average core certificates of deposit due to the continued strategic focus on changing the funding sources to low- and no-cost demand, savings, and money market deposits.


•	$0.4 billion, or 63%, decrease in deposits in foreign offices, reflecting targeted sales efforts to move existing sweep account deposit relationships into more efficient domestic, interest-bearing demand deposits.

2016 Second Quarter versus 2016 First Quarter

Compared to the 2016 first quarter, FTE net interest income increased $4 million, or 1%. Average earning assets increased $1.6 billion, or 2%, sequentially, and the NIM decreased 5 basis points. The decrease in the NIM reflected a 3 basis point decrease in earning asset yields, partially reflecting the approximately 2 basis point benefit from recoveries of previously charged-off CRE loans in the 2016 first quarter, and a 4 basis point increase in the cost of interest-bearing liabilities as a result of senior debt financing, partially offset by a 2 basis point increase in the benefit from noninterest-bearing funds.

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Compared to the 2016 first quarter, average earning assets increased $1.6 billion, or 2%. This increase reflected a $1.3 billion increase in average loans and leases, primarily comprised of a $0.7 billion in average C&I loans and a $0.4 billion increase in average automobile loans, and a $0.2 billion increase in average securities.

Compared to the 2016 first quarter, average total core deposits increased $0.5 billion, or 1%, primarily reflecting a $0.7 billion, or 9%, increase in average interest-bearing demand deposits. Average total debt increased $0.6 billion, or 7%, reflecting the $1.0 billion senior debt issuance late in the 2016 first quarter, as well as fluctuations in short-term borrowings as part of normal balance sheet management.




Table 5 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
(dollar amounts in millions)
	YTD Average Balances											YTD Average Rates (2)
	Six months ended June 30,						Change					Six months ended June 30,
Fully-taxable equivalent basis (1)	2016			2015			Amount			Percent		2016		2015
Assets:
Interest-bearing deposits in banks	$	98		$	91		$	7		8	%	0.23	%	0.13	%
Loans held for sale	502			829			(327		)	(39	)	3.93		3.39
Securities:
Available-for-sale and other securities:
Taxable	6,768			7,791			(1,023		)	(13	)	2.38		2.55
Tax-exempt	2,434			1,952			482			25		3.39		3.09
Total available-for-sale and other securities	9,202			9,743			(541		)	(6	)	2.65		2.66
Trading account securities	40			47			(7		)	(15	)	0.75		1.10
Held-to-maturity securities—taxable	5,930			3,335			2,595			78		2.44		2.48
Total securities	15,172			13,125			2,047			16		2.56		2.61
Loans and leases: (3)
Commercial:
Commercial and industrial	20,996			19,469			1,527			8		3.51		3.47
Commercial real estate:
Construction	902			929			(27		)	(3	)	3.60		3.70
Commercial	4,314			4,244			70			2		3.47		3.49
Commercial real estate	5,216			5,173			43			1		3.49		3.53
Total commercial	26,212			24,642			1,570			6		3.50		3.48
Consumer:
Automobile	9,938			8,431			1,507			18		3.16		3.22
Home equity	8,429			8,494			(65		)	(1	)	4.18		4.00
Residential mortgage	6,102			5,835			267			5		3.67		3.73
Other consumer	594			438			156			36		10.16		8.33
Total consumer	25,063			23,198			1,865			8		3.80		3.73
Total loans and leases	51,275			47,840			3,435			7		3.65		3.61
Allowance for loan and lease losses	(610		)	(610		)	—			—
Net loans and leases	50,665			47,230			3,435			7
Total earning assets	67,047			61,885			5,162			8		3.43	%	3.41	%
Cash and due from banks	1,007			930			77			8
Intangible assets	728			670			58			9
All other assets	4,187			4,180			7			—

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Total assets	$	72,359	$	67,055	$	5,304		8	%
Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	16,421	$	15,575	$	846		5	%	—	%	—	%
Demand deposits—interest-bearing	8,111		6,380		1,731			27		0.09		0.05
Total demand deposits	24,532		21,955		2,577			12		0.03		0.02
Money market deposits	19,608		19,084		524			3		0.24		0.22
Savings and other domestic deposits	5,354		5,220		134			3		0.12		0.14
Core certificates of deposit	2,136		2,726		(590		)	(22	)	0.81		0.77
Total core deposits	51,630		48,985		2,645			5		0.22		0.22
Other domestic time deposits of $250,000 or more	429		190		239			126		0.40		0.43
Brokered deposits and negotiable CDs	2,903		2,651		252			10		0.39		0.17
Deposits in foreign offices	236		559		(323		)	(58	)	0.13		0.13
Total deposits	55,198		52,385		2,813			5		0.24		0.22
Short-term borrowings	1,089		2,018		(929		)	(46	)	0.33		0.13
Long-term debt	7,549		4,744		2,805			59		1.77		1.38
Total interest-bearing liabilities	47,415		43,572		3,843			9		0.48		0.34
All other liabilities	1,465		1,441		24			2
Shareholders’ equity	7,058		6,467		591			9
Total liabilities and shareholders’ equity	$	72,359	$	67,055	$	5,304		8	%
Net interest rate spread										2.94		3.07
Impact of noninterest-bearing funds on margin										0.14		0.10
Net interest margin										3.08	%	3.17	%


(1)	FTE yields are calculated assuming a 35% tax rate.


(2)	Loan, lease, and deposit average rates include the impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.


(3)	For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans.

2016 First Six months versus 2015 First Six months

FTE net interest income for the first six-month period of 2016 increased $54 million, or 6%, reflecting the benefit of a $5.2 billion, or 8%, increase in average total earning assets. The fully-taxable equivalent net interest margin decreased to 3.08% from 3.17%. The increase in average earning assets reflected:


•	$2.0 billion, or 16%, increase in average securities, primarily reflecting the reinvestment of cash flows and additional investment in Liquidity Coverage Ratio (LCR) Level 1 qualifying securities and an increase in direct purchase municipal instruments in our Commercial Banking segment.


•	$1.5 billion, or 8%, increase in average C&I loans and leases, reflecting growth in equipment finance leases, automobile dealer floorplan lending, and corporate banking.


•	$1.5 billion, or 18%, increase in average automobile loans. The 2016 second quarter represented the tenth consecutive quarter of greater than $1.0 billion in automobile loan originations, while maintaining our underwriting consistency and discipline.

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Provision for Credit Losses

(This section should be read in conjunction with the Credit Risk section.)

The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels appropriate to absorb our estimate of credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.

The provision for credit losses for the 2016 second quarter was $25 million compared with $28 million for the 2016 first quarter and $20 million for the 2015 second quarter. The provision for credit losses for the 2016 second quarter increased $4 million, or 20%, compared to year-ago period. On a year-to-date basis, provision for credit losses for the first six-month period of 2016 was $52 million, an increase of $11 million, or 27%, compared to year-ago period (See Credit Quality discussion). Given the low level of the provision for credit losses and the uneven nature of commercial charge-offs and recoveries, some degree of volatility on a quarter-to-quarter basis is expected.

Noninterest Income

The following table reflects noninterest income for each of the past five quarters:



Table 6 - Noninterest Income
(dollar amounts in thousands)
	Three Months Ended										2Q16 vs 2Q15					2Q16 vs 1Q16
	June 30,		March 31,		December 31,		September 30,		June 30,		Change					Change
	2016		2016		2015		2015		2015		Amount			Percent		Amount			Percent
Service charges on deposit accounts	$	75,613	$	70,262	$	72,854	$	75,157	$	70,118	$	5,495		8	%	$	5,351		8	%
Cards and payment processing income	39,184		36,447		37,594		36,664		35,886		3,298			9		2,737			8
Mortgage banking income	31,591		18,543		31,418		18,956		38,518		(6,927		)	(18	)	13,048			70
Trust services	22,497		22,838		25,272		24,972		26,550		(4,053		)	(15	)	(341		)	(1	)
Insurance income	15,947		16,225		15,528		16,204		17,637		(1,690		)	(10	)	(278		)	(2	)
Brokerage income	14,599		15,502		14,462		15,059		15,184		(585		)	(4	)	(903		)	(6	)
Capital markets fees	13,037		13,010		13,778		12,741		13,192		(155		)	(1	)	27			—
Bank owned life insurance income	12,536		13,513		13,441		12,719		13,215		(679		)	(5	)	(977		)	(7	)
Gain on sale of loans	9,265		5,395		10,122		5,873		12,453		(3,188		)	(26	)	3,870			72
Securities gains (losses)	656		—		474		188		82		574			700		656			—
Other income	36,187		30,132		37,272		34,586		38,938		(2,751		)	(7	)	6,055			20
Total noninterest income	$	271,112	$	241,867	$	272,215	$	253,119	$	281,773	$	(10,661	)	(4	)%	$	29,245		12	%

2016 Second Quarter versus 2015 Second Quarter

Noninterest income for the 2016 second quarter decreased $11 million, or 4%, from the year-ago quarter. The year-over-year decrease primarily reflected:


•	$7 million, or 18%, decrease in mortgage banking income, primarily as a result of an $8 million impact from net MSR activity.


•	$4 million, or 15%, decrease in trust services, primarily related to the sale of HAA, HASI, and Unified, and the transition of the remaining Huntington Funds at the end of the 2015 fourth quarter.


•	$3 million, or 26%, decrease in gain on sale of loans, primarily reflecting the $5 million gain from the automobile loan securitization in the year-ago quarter.

Partially offset by:


•	$5 million, or 8%, increase in service charges on deposit accounts, reflecting the benefit of continued new customer acquisition including a 4% increase in consumer checking households and a 3% increase in commercial checking relationships.

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•	$3 million, or 9%, increase in cards and payment processing income, due to higher card related income and underlying customer growth.

2016 Second Quarter versus 2016 First Quarter

Compared to the 2016 first quarter, total noninterest income increased $29 million, or 12%. Mortgage banking income increased $13 million, or 70%, primarily driven by an $8 million, or 45%, increase in origination and secondary marketing income and a $4 million increase in net MSR activity. Other income increased $6 million, or 20%, primarily related to Huntington Technology Finance lease activity. Gain on sale of loans increased $4 million, or 72%, due to seasonally weak SBA loan sales in the prior quarter.



Table 7 - Noninterest Income—2016 First Six Months vs. 2015 First Six Months
(dollar amounts in thousands)
	Six months ended June 30,				Change
	2016		2015		Amount			Percent
Service charges on deposit accounts	$	145,875	$	132,338	$	13,537		10	%
Cards and payment processing income	75,631		68,457		7,174			10
Mortgage banking income	50,134		61,479		(11,345		)	(18	)
Trust services	45,335		55,589		(10,254		)	(18	)
Insurance income	32,172		33,532		(1,360		)	(4	)
Brokerage income	30,101		30,684		(583		)	(2	)
Capital markets fees	26,047		27,097		(1,050		)	(4	)
Bank owned life insurance income	26,049		26,240		(191		)	(1	)
Gain on sale of loans	14,660		17,042		(2,382		)	(14	)
Securities gains (losses)	656		82		574			700
Other income	66,319		60,856		5,463			9
Total noninterest income	$	512,979	$	513,396	$	(417	)	—	%

The $0.4 million, or less than 1%, decrease in total noninterest income reflected:


•	$11 million, or 18%, decrease in mortgage banking income, primarily as a result of a $10 million impact from net MSR activity.


•	$10 million, or 18%, decrease in trust services, primarily related to the sale of HAA, HASI, and Unified, and the transition of the remaining Huntington Funds at the end of the 2015 fourth quarter.

Partially offset by:


•	$14 million, or 10%, increase service charges on deposit accounts, reflecting the benefit of continued new customer acquisition.


•	$7 million, or 10%, increase in cards and payment processing income, due to higher card related income and underlying customer growth.


•	$5 million, or 9% increase in other income, primarily reflecting equipment operating lease income related to Huntington Technology Finance.

Noninterest Expense

(This section should be read in conjunction with Significant Item 1.)

The following table reflects noninterest expense for each of the past five quarters:

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Table 8 - Noninterest Expense
(dollar amounts in thousands)
	Three Months Ended										2Q16 vs 2Q15					2Q16 vs 1Q16
	June 30,		March 31,		December 31,		September 30,		June 30,		Change					Change
	2016		2016		2015		2015		2015		Amount			Percent		Amount			Percent
Personnel costs	$	298,949	$	285,397	$	288,861	$	286,270	$	282,135	$	16,814		6	%	$	13,552		5	%
Outside data processing and other services	63,037		61,878		63,775		58,535		58,508		4,529			8		1,159			2
Equipment	31,805		32,576		31,711		31,303		31,694		111			—		(771		)	(2	)
Net occupancy	30,704		31,476		32,939		29,061		28,861		1,843			6		(772		)	(2	)
Marketing	14,773		12,268		12,035		12,179		15,024		(251		)	(2	)	2,505			20
Professional services	21,488		13,538		13,010		11,961		12,593		8,895			71		7,950			59
Deposit and other insurance expense	12,187		11,208		11,105		11,550		11,787		400			3		979			9
Amortization of intangibles	3,600		3,712		3,788		3,913		9,960		(6,360		)	(64	)	(112		)	(3	)
Other expense	47,118		39,027		41,542		81,736		41,215		5,903			14		8,091			21
Total noninterest expense	$	523,661	$	491,080	$	498,766	$	526,508	$	491,777	$	31,884		6	%	$	32,581		7	%
Number of employees (average full-time equivalent)	12,363		12,386		12,418		12,367		12,274		89			1	%	(23		)	—	%

Impacts of Significant Items:



	Three Months Ended
	June 30,		March 31,		June 30,
	2016		2016		2015
Personnel costs	$	4,732	$	474	$	319
Outside data processing and other services	3,045		363		755
Equipment	3		—		—
Net occupancy	490		20		—
Marketing	241		13		27
Professional services	10,709		4,288		374
Other expense	1,569		1,248		26
Total noninterest expense adjustments	$	20,789	$	6,406	$	1,501

Adjusted Noninterest Expense (Non-GAAP):



	Three Months Ended						2Q16 vs 2Q15					2Q16 vs 1Q16
	June 30,		March 31,		June 30,		Change					Change
	2016		2016		2015		Amount			Percent		Amount			Percent
Personnel costs	$	294,217	$	284,923	$	281,816	$	12,401		4	%	$	9,294		3	%
Outside data processing and other services	59,992		61,515		57,753		2,239			4		(1,523		)	(2	)
Equipment	31,802		32,576		31,694		108			—		(774		)	(2	)
Net occupancy	30,214		31,456		28,861		1,353			5		(1,242		)	(4	)
Marketing	14,532		12,255		14,997		(465		)	(3	)	2,277			19
Professional services	10,779		9,250		12,219		(1,440		)	(12	)	1,529			17
Deposit and other insurance expense	12,187		11,208		11,787		400			3		979			9
Amortization of intangibles	3,600		3,712		9,960		(6,360		)	(64	)	(112		)	(3	)
Other expense	45,549		37,779		41,189		4,360			11		7,770			21
Total adjusted noninterest expense	$	502,872	$	484,674	$	490,276	$	12,596		3	%	$	18,198		4	%

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2016 Second Quarter versus 2015 Second Quarter

Reported noninterest expense for the 2016 second quarter increased $32 million, or 6%, from the year-ago quarter. Changes in reported noninterest expense primarily reflect:

•

$17 million, or 6%, increase in personnel costs, reflecting a $10 million increase in salaries and a $7 million increase in benefits expense. These increases are primarily the result of annual compensation increases coupled with a 1% increase in the number of average full-time equivalent employees, largely related to the build-out of the in-store strategy, as well as higher healthcare expenses. Personnel costs in the 2016 second quarter included $5 million of Significant Items, primarily comprised of personnel expense related to technology development for systems conversions and fully-dedicated personnel for merger and integration efforts.


•	$9 million, or 71%, increase in professional services expense, primarily reflecting $11 million of legal and consulting expense related to the pending FirstMerit acquisition.


•	$6 million, or 14%, increase in other expense, primarily impacted by litigation reserve adjustments and included $2 million of Significant Items related to the pending FirstMerit acquisition.


•	$5 million, or 8%, increase in outside data processing and other services expense, primarily related to ongoing technology investments and including $3 million of Significant Items related to the pending FirstMerit acquisition.

Partially offset by:


•	$6 million, or 64%, decrease in amortization of intangibles reflecting the full amortization of the core deposit intangible from the Sky Financial acquisition at the end of the 2015 second quarter.

2016 Second Quarter versus 2016 First Quarter

Reported noninterest expense increased $33 million, or 7%, from the 2016 first quarter. Personnel costs increased $14 million, or 5%, primarily related to incentive compensation and $5 million of Significant Items in the 2016 second quarter compared to less than $1 million of Significant Items in the prior quarter. Other expense increased $8 million, or 21%, primarily reflecting litigation reserve adjustments as well as $2 million of Significant Items in the 2016 second quarter compared to $1 million of Significant Items in the prior quarter. Professional services expense increased $8 million, or 59%, primarily reflecting $11 million of Significant Items in the 2016 second quarter compared to $4 million of Significant Items in the prior quarter.



Table 9 - Noninterest Expense—2016 First Six Months vs. 2015 First Six Months
(dollar amounts in thousands)
	Six months ended June 30,				Change
	2016		2015		Amount			Percent
Personnel costs	$	584,346	$	547,051	$	37,295		7	%
Outside data processing and other services	124,915		109,043		15,872			15
Equipment	64,381		61,943		2,438			4
Net occupancy	62,180		59,881		2,299			4
Marketing	27,041		27,999		(958		)	(3	)
Professional services	35,026		25,320		9,706			38
Deposit and other insurance expense	23,395		21,954		1,441			7
Amortization of intangibles	7,312		20,166		(12,854		)	(64	)
Other expense	86,145		77,277		8,868			11
Total noninterest expense	$	1,014,741	$	950,634	$	64,107		7	%

Impacts of Significant Items:

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	Six months ended June 30,
	2016		2015
Personnel costs	$	5,206	$	320
Outside data processing and other services	3,408		806
Equipment	3		—
Net occupancy	510		—
Marketing	254		28
Professional services	14,997		3,660
Other expense	2,817		38
Total noninterest expense adjustments	$	27,195	$	4,852

Adjusted Noninterest Expense (Non-GAAP):



	Six months ended June 30,				Change
	2016		2015		Amount			Percent
Personnel costs	$	579,140	$	546,731	$	32,409		6	%
Outside data processing and other services	121,507		108,237		13,270			12
Equipment	64,378		61,943		2,435			4
Net occupancy	61,670		59,881		1,789			3
Marketing	26,787		27,971		(1,184		)	(4	)
Professional services	20,029		21,660		(1,631		)	(8	)
Deposit and other insurance expense	23,395		21,954		1,441			7
Amortization of intangibles	7,312		20,166		(12,854		)	(64	)
Other expense	83,328		77,239		6,089			8
Total noninterest expense adjustments	$	987,546	$	945,782	$	41,764		4	%

Reported noninterest expense increased $64 million, or 7%. Excluding the impact of Significant Items, noninterest expense increased $42 million, or 4%. Changes in reported noninterest expense primarily reflect:

•

$37 million, or 7%, increase in personnel costs. Excluding the impact of significant items, personnel costs increased $32 million, or 6%, primarily due to a $26 million increase in salaries and an $11 million increase in benefit expense. The increase in salaries and benefits reflect annual merit increases, and a less than 1 percent increase in the number of average full-time equivalent employees, along with higher healthcare expenses.


•	$16 million, or 15%, increase in outside data processing and other services. Excluding the impact of significant items, outside data processing and other services increased $13 million, or 12%, primarily related to ongoing technology investments.


•	$10 million, or 38%, increase in professional services expense. Excluding the impact of significant items, professional services expense decreased $2 million, or 8%, primarily reflecting decrease in legal and consulting expense not related to the pending FirstMerit acquisition.


•	$9 million, or 11%, increase in other expense. Excluding the impact of significant items, other expense increased $6 million, or 8%, primarily impacted by litigation reserve adjustments.

Partially offset by:


•	$13 million, or 64%, decrease in amortization of intangibles reflecting the full amortization of the core deposit intangible from the Sky Financial acquisition at the end of the 2015 second quarter.

Provision for Income Taxes

The provision for income taxes in the 2016 second quarter was $54 million. This compared with a provision for income taxes of $64 million in the 2015 second quarter and $55 million in the 2016 first quarter. The provision for income taxes for the six-month periods ended June 30, 2016 and June 30, 2015 was $109 million and $118 million, respectively. All periods included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, and capital losses. The net federal deferred tax liability was $34 million and the net state deferred tax asset was $42 million at June 30, 2016.

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We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. The IRS is currently examining our 2010 and 2011 consolidated federal income tax returns. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, and Illinois.

RISK MANAGEMENT AND CAPITAL

We use a multi-faceted approach to risk governance. It begins with the board of directors defining our risk appetite as aggregate moderate-to-low. Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. Controls include, among others, effective segregation of duties, access, authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.

We identify primary risks, and the sources of those risks, across the Company. We utilize Risk and Control Self-Assessments (RCSA) to identify exposure risks. Through this RCSA process, we continually assess the effectiveness of controls associated with the identified risks, regularly monitor risk profiles and material exposure to losses, and identify stress events and scenarios to which we may be exposed. Our chief risk officer is responsible for ensuring that appropriate systems of controls are in place for managing and monitoring risk across the Company. Potential risk concerns are shared with the Risk Management Committee, Risk Oversight Committee (ROC), and the board of directors, as appropriate. Our internal audit department performs on-going independent reviews of the risk management process and ensures the adequacy of documentation. The results of these reviews are regularly reported to the audit committee and board of directors. In addition, our Credit Review group performs ongoing independent testing of our loan portfolio, the results of which are regularly reviewed with our Risk Oversight Committee.

We believe that our primary risk exposures are credit, market, liquidity, operational, and compliance oriented. More information on risk can be found in the Risk Factors section included in Item 1A of our 2015 Form 10-K and subsequent filings with the SEC. The MD&A included in our 2015 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the Form 10-K. This MD&A should also be read in conjunction with the financial statements, notes and other information contained in this report. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 2015 Form 10-K.

Credit Risk

Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. We also have credit risk associated with our AFS and HTM securities portfolios (see Note 5 and Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. While there is credit risk associated with derivative activity, we believe this exposure is minimal.

We continue to focus on the identification, monitoring, and managing of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use quantitative measurement capabilities utilizing external data sources, enhanced use of modeling technology, and internal stress testing processes. Our portfolio management resources demonstrate our commitment to maintaining an aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have focused on product design features, origination policies, and solutions for delinquent or stressed borrowers.

Loan and Lease Credit Exposure Mix

Refer to the “Loan and Lease Credit Exposure Mix” section of our 2015 Form 10-K for a brief description of each portfolio segment. The table below provides the composition of our total loan and lease portfolio:

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Table 10 - Loan and Lease Portfolio Composition
(dollar amounts in millions)

	June 30, 2016				March 31, 2016				December 31, 2015				September 30, 2015				June 30, 2015
Ending Balances by Type:
Commercial:
Commercial and industrial	$	21,372	41	%	$	21,254	41	%	$	20,560	41	%	$	20,040	40	%	$	20,003	41	%
Commercial real estate:
Construction	856		2		939		2		1,031		2		1,110		2		1,021		2
Commercial	4,466		7		4,343		8		4,237		8		4,294		9		4,192		9
Commercial real estate	5,322		9		5,282		10		5,268		10		5,404		11		5,213		11
Total commercial	26,694		50		26,536		51		25,828		51		25,444		51		25,216		52
Consumer:
Automobile	10,381		20		9,920		19		9,481		19		9,160		19		8,549		18
Home equity	8,447		17		8,422		17		8,471		17		8,461		17		8,526		17
Residential mortgage	6,377		12		6,082		12		5,998		12		6,071		12		5,987		12
Other consumer	644		1		579		1		563		1		520		1		474		1
Total consumer	25,849		50		25,003		49		24,513		49		24,212		49		23,536		48
Total loans and leases	$	52,543	100	%	$	51,539	100	%	$	50,341	100	%	$	49,656	100	%	$	48,752	100	%

Our loan portfolio is diversified by consumer and commercial credit. At the corporate level, we manage the credit exposure in part via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE primary project types, loans secured by residential real estate, shared national credit exposure, and designated high risk loan definitions represent examples of specifically tracked components of our concentration management process. Currently there are no identified concentrations that exceed the established limit. Our concentration management policy is approved by the ROC and is one of the strategies used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile. Changes to existing concentration limits require the approval of the ROC prior to implementation, incorporating specific information relating to the potential impact on the overall portfolio composition and performance metrics.

The table below provides our total loan and lease portfolio segregated by the type of collateral securing the loan or lease. The changes in the collateral composition from December 31, 2015 are consistent with the portfolio growth metrics.

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Table 11 - Loan and Lease Portfolio by Collateral Type
(dollar amounts in millions)

	June 30, 2016				March 31, 2016				December 31, 2015				September 30, 2015				June 30, 2015
Secured loans:
Real estate—commercial	$	8,071	15	%	$	8,247	16	%	$	8,296	16	%	$	8,470	17	%	$	8,479	17	%
Real estate—consumer	14,824		28		14,504		28		14,469		29		14,532		29		14,513		30
Vehicles	12,851		24		12,374		24		11,880		24		11,228		23		10,527		22
Receivables/Inventory	6,030		11		6,192		12		5,961		12		6,010		12		6,064		12
Machinery/Equipment	5,871		11		5,645		11		5,171		10		4,950		10		4,779		10
Securities/Deposits	1,013		2		969		2		974		2		1,054		2		1,095		2
Other	1,011		4		1,108		2		987		2		1,057		2		1,076		2
Total secured loans and leases	49,671		95		49,039		95		47,738		95		47,301		95		46,533		95
Unsecured loans and leases	2,872		5		2,500		5		2,603		5		2,355		5		2,219		5
Total loans and leases	$	52,543	100	%	$	51,539	100	%	$	50,341	100	%	$	49,656	100	%	$	48,752	100	%

Commercial Credit

Refer to the “Commercial Credit” section of our 2015 Form 10-K for our commercial credit underwriting and on-going credit management processes.

C&I PORTFOLIO

The C&I portfolio continues to have solid origination activity as evidenced by its growth over the past 12 months and we maintain a focus on high quality originations. Problem loans had trended downward over the last several years, reflecting a combination of proactive risk identification and effective workout strategies implemented by the SAD. However, over the past year, C&I problem loans began to increase, primarily as a result of oil and gas exploration and production customers and the increase in overall C&I loan portfolio size. We continue to maintain a proactive approach to identifying borrowers that may be facing financial difficulty in order to maximize the potential solutions. Subsequent to the origination of the loan, the Credit Review group provides an independent review and assessment of the quality of the underwriting and risk of new loan originations.

We have a dedicated energy lending group that focuses on upstream companies (exploration and production or E&P firms) as well as midstream (pipeline transportation) companies. This lending group is comprised of colleagues with many years of experience in this area of specialized lending, through several economic cycles. The exposure to the E&P companies is centered in broadly syndicated reserve-based loans and is less than 1% of our total loans. All of these loans are secured and in a first-lien position. The customer base consists of larger firms that generally have had access to the capital markets and/or are backed by private equity firms. This lending group has no exposure to oil field services companies. However, we have a few legacy oil field services customers for which the remaining aggregate credit exposure is negligible.

The significant reduction in oil and gas prices over the past year has had a negative impact on the energy industry, particularly exploration and production companies as well as the oil field services providers. The impact of low prices for an extended period of time has had some level of adverse impact on most, if not all, borrowers in this segment. Most of these borrowers have, therefore, had recent downward adjustments to their risk ratings, which has increased our loan loss reserve.

We have other energy related exposures, including utilities, mining, wholesale distributors, transportation companies, gas stations, and pipelines. We continue to monitor these exposures closely. However, these exposures have different factors affecting their performance, and we have not seen the same level of volatility in performance or risk rating migration.

Consumer Credit

Refer to the “Consumer Credit” section of our 2015 Form 10-K for our consumer credit underwriting and on-going credit management processes.

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Table 12 - Selected Home Equity and Residential Mortgage Portfolio Data
(dollar amounts in millions)
	Home Equity												Residential Mortgage
	Secured by first-lien						Secured by junior-lien
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
Ending balance	$	5,243		$	5,191		$	3,205		$	3,279		$	6,377		$	5,998
Portfolio weighted average LTV ratio(1)	72		%	72		%	82		%	82		%	75		%	75		%
Portfolio weighted average FICO score(2)	764			764			755			753			754			752
	Home Equity												Residential Mortgage (3)
	Secured by first-lien						Secured by junior-lien
	Six months ended June 30,
	2016			2015			2016			2015			2016			2015
Originations	$	836		$	840		$	499		$	438		$	781		$	771
Origination weighted average LTV ratio(1)	73		%	74		%	85		%	84		%	83		%	84		%
Origination weighted average FICO score(2)	777			779			767			768			755			755


(1)	The LTV ratios for home equity loans and home equity lines-of-credit are cumulative and reflect the balance of any senior loans. LTV ratios reflect collateral values at the time of loan origination.


(2)	Portfolio weighted average FICO scores reflect currently updated customer credit scores whereas origination weighted average FICO scores reflect the customer credit scores at the time of loan origination.


(3)	Represents only owned-portfolio originations.

We are subject to repurchase risk associated with residential mortgage loans sold in the secondary market. An appropriate level of reserve for representations and warranties related to residential mortgage loans sold has been established to address this repurchase risk inherent in the portfolio.

Credit Quality

(This section should be read in conjunction with Note 4 of the Notes to Unaudited Condensed Consolidated Financial Statements.)

We believe the most meaningful way to assess overall credit quality performance is through an analysis of credit quality performance ratios. This approach forms the basis of most of the discussion in the sections immediately following: NPAs and NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, and product segmentation in the analysis of our credit quality performance.

Credit quality performance in the 2016 second quarter reflected continued overall positive results. NPA’s decreased 7% from the prior quarter to $490 million. Net charge-offs increased by $8 million from the prior quarter, primarily due to one large CRE recovery in the previous quarter, however NCOs were 0.13% of average total loans and leases. The ACL to total loans and leases ratio declined by 1 basis point to 1.33%, due to overall loan growth.

NPAs, NALs, AND TDRs

(This section should be read in conjunction with Note 4 of the Notes to Unaudited Condensed Consolidated Financial Statements.)

NPAs and NALs

NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2) OREO properties, and (3) other NPAs. Any loan in our portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. Also, when a borrower with discharged non-reaffirmed debt in a Chapter 7 bankruptcy is identified and the loan is determined to be collateral dependent, the loan is placed on nonaccrual status.

C&I and CRE loans (except for purchased credit impaired loans) are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt.

Of the $313 million of CRE and C&I-related NALs at June 30, 2016, $236 million, or 75%, represented loans that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management. With the exception of residential mortgage loans guaranteed by government organizations which continue to accrue interest, first-lien loans

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secured by residential mortgage collateral are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile and other consumer loans are generally charged-off prior to the loan reaching 120-days past due.

When loans are placed on nonaccrual, accrued interest income is reversed with current year accruals charged to interest income and prior year amounts generally charged-off as a credit loss. When, in our judgment, the borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status.

The following table reflects period-end NALs and NPAs detail for each of the last five quarters:



Table 13 - Nonaccrual Loans and Leases and Nonperforming Assets
(dollar amounts in thousands)

	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015
Nonaccrual loans and leases (NALs): (1)
Commercial and industrial	$	289,811		$	307,824		$	175,195		$	157,902		$	149,713
Commercial real estate	23,663			30,801			28,984			27,516			43,888
Automobile	5,049			7,598			6,564			5,551			4,190
Residential mortgage	85,174			90,303			94,560			98,908			91,198
Home equity	56,845			62,208			66,278			66,446			75,282
Other consumer	5			—			—			154			68
Total nonaccrual loans and leases	460,547			498,734			371,581			356,477			364,339
Other real estate, net:
Residential	26,653			23,175			24,194			21,637			25,660
Commercial	2,248			2,957			3,148			3,273			3,572
Total other real estate, net	28,901			26,132			27,342			24,910			29,232
Other NPAs (2)	376			—			—			—			2,440
Total nonperforming assets	$	489,824		$	524,866		$	398,923		$	381,387		$	396,011
Nonaccrual loans and leases as a % of total loans and leases	0.88		%	0.97		%	0.74		%	0.72		%	0.75		%
NPA ratio (3)	0.93			1.02			0.79			0.77			0.81
(NPA+90days)/(Loan+OREO) (4)	1.12			1.22			1.00			0.98			1.03


(1)	Excludes loans transferred to held-for-sale.


(2)	Other nonperforming assets includes certain impaired investment securities.


(3)	Nonperforming assets divided by the sum of loans and leases, net other real estate owned, and other NPAs.


(4)	The sum of nonperforming assets and total accruing loans and leases past due 90 days or more divided by the sum of loans and leases and other real estate.

2016 Second Quarter versus 2016 First Quarter

Total NPAs decreased by $35 million, or 7% compared with March 31, 2016:


•	$18 million, or 6%, decline in C&I NALs, primarily the result of resolutions and paydowns during the quarter.


•	$7 million, or 23%, decline in CRE NALs, reflecting the resolution of one credit during the quarter.


•	$5 million, or 9%, decline in home equity NALs, reflecting the overall improvement in the real estate market and lower delinquencies as compared to prior periods, consistent with our expectations.


•	$5 million, or 6%, decline in residential mortgage NALs, reflecting the overall improvement in the real estate market and lower delinquencies as compared to prior periods, consistent with our expectations.

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2016 Second Quarter versus 2015 Fourth Quarter.

The $91 million, or 23%, increase in NPAs compared with December 31, 2015, represents:


•	$115 million or 65%, increase in C&I NALs, with the majority of the increase in our energy related E&P and coal portfolios.

Primarily offset by:


•	$9 million or 14% decline in home equity NALs, reflecting the overall improvement in the real estate market and lower delinquencies as compared to prior periods.


•	$9 million or 10% decline in residential mortgage NALs, reflecting the overall improvement in the real estate market and lower delinquencies as compared to prior periods.


•	$5 million, or 18%, decline in CRE NALs, reflecting the resolution of one credit during the year.

TDR Loans

(This section should be read in conjunction with Note 4 of the Notes to Unaudited Condensed Consolidated Financial Statements.)

TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. TDRs can be classified as either accruing or nonaccruing loans. Nonaccruing TDRs are included in NALs whereas accruing TDRs are excluded from NALs, as it is probable that all contractual principal and interest due under the restructured terms will be collected. TDRs primarily reflect our loss mitigation efforts to proactively work with borrowers in financial difficulty or to comply with regulatory regulations regarding the treatment of certain bankruptcy filing situations. Over the past five quarters, the accruing component of the total TDR balance has been between 86% and 80% indicating there is no identified credit loss and the borrowers continue to make their monthly payments. In fact, over 80% of the $460 million of accruing TDRs secured by residential real estate (Residential mortgage and Home Equity in Table 14) are current on their required payments. In addition, over 60% of the accruing pool have had no delinquency at all in the past 12 months. There is very limited migration from the accruing to non-accruing components, and virtually all of the charge-offs as presented in Table 15 come from the non-accruing TDR balances.

The table below presents our accruing and nonaccruing TDRs at period-end for each of the past five quarters:



Table 14 - Accruing and Nonaccruing Troubled Debt Restructured Loans (1)
(dollar amounts in thousands)

	June 30, 2016		March 31, 2016		December 31, 2015		September 30, 2015		June 30, 2015
Troubled debt restructured loans—accruing:
Commercial and industrial	$	232,112	$	205,989	$	235,689	$	241,327	$	233,346
Commercial real estate	85,015		108,861		115,074		103,767		158,056
Automobile	25,892		25,856		24,893		24,537		24,774
Home equity	203,047		204,244		199,393		192,356		279,864
Residential mortgage	256,859		259,750		264,666		277,154		266,986
Other consumer	4,522		4,768		4,488		4,569		4,722
Total troubled debt restructured loans—accruing	807,447		809,468		844,203		843,710		967,748
Troubled debt restructured loans—nonaccruing:
Commercial and industrial	77,592		83,600		56,919		54,933		46,303
Commercial real estate	6,833		14,607		16,617		12,806		19,490
Automobile	4,907		7,407		6,412		5,400		4,030
Home equity	21,145		23,211		20,996		19,188		26,568
Residential mortgage	63,638		68,918		71,640		68,577		65,415
Other consumer	142		191		151		152		160
Total troubled debt restructured loans—nonaccruing	174,257		197,934		172,735		161,056		161,966
Total troubled debt restructured loans	$	981,704	$	1,007,402	$	1,016,938	$	1,004,766	$	1,129,714

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(1)	Excludes TDRs transferred from loans to loans held for sale.

The following table reflects TDR activity for each of the past five quarters:



Table 15 - Troubled Debt Restructured Loan Activity
(dollar amounts in thousands)

	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015
Troubled debt restructured loans—accruing:
TDRs, beginning of period	$	809,468		$	844,203		$	843,710		$	967,748		$	888,125
New TDRs	153,041			159,877			144,779			200,014			207,707
Payments	(72,743		)	(51,241		)	(51,963		)	(86,450		)	(59,451		)
Charge-offs	(574		)	(1,100		)	(948		)	(1,539		)	(1,103		)
Sales	(5,316		)	(3,631		)	(4,074		)	(3,332		)	(4,127		)
Transfer to held-for-sale	—			—			—			(88,415		)	—
Transfer to OREO	(104		)	(206		)	(30		)	(228		)	(410		)
Restructured TDRs—accruing (1)	(72,188		)	(106,012		)	(54,082		)	(96,336		)	(61,570		)
Other (2)	(4,137		)	(32,422		)	(33,189		)	(47,752		)	(1,423		)
TDRs, end of period	$	807,447		$	809,468		$	844,203		$	843,710		$	967,748

Troubled debt restructured loans—nonaccruing:
TDRs, beginning of period	$	197,934		$	172,735		$	161,056		$	161,966		$	150,548
New TDRs	23,541			34,632			48,643			31,977			52,204
Payments	(24,461		)	(20,377		)	(20,833		)	(31,372		)	(5,017		)
Charge-offs	(12,183		)	(2,858		)	(6,323		)	(14,010		)	(11,204		)
Sales	(499		)	—			—			—			(381		)
Transfer to held-for-sale	—			—			—			(8,371		)	—
Transfer to OREO	(3,742		)	(3,164		)	(2,052		)	(2,050		)	(2,973		)
Restructured TDRs—nonaccruing (1)	(5,855		)	(12,314		)	(39,771		)	(17,398		)	(20,456		)
Other (2)	(478		)	29,280			32,015			40,314			(755		)
TDRs, end of period	$	174,257		$	197,934		$	172,735		$	161,056		$	161,966


(1)	Represents existing TDRs that were re-underwritten with new terms providing a concession. A corresponding amount is included in the New TDRs amount above.


(2)	Primarily includes transfers between accruing and nonaccruing categories.

ACL

(This section should be read in conjunction with Note 4 of the Notes to Unaudited Condensed Consolidated Financial Statements.)

Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. Our ACL methodology committee is responsible for developing the methodology, assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of losses inherent in the loan portfolio at the reported date. Additions to the ALLL result from recording provision expense for loan losses or increased risk levels resulting from loan risk-rating downgrades, while reductions reflect charge-offs (net of recoveries), decreased risk levels resulting from loan risk-rating upgrades, or the sale of loans. The AULC is determined by applying the same quantitative reserve determination process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation.

We regularly evaluate the appropriateness of the ACL by performing on-going evaluations of the loan and lease portfolio including such factors as the differing economic risks associated with each loan category, the financial condition of specific

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borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. We evaluate the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet their financial obligations when quantifying our exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In addition to general economic conditions and the other factors described above, additional factors considered include: the impact of increasing or decreasing residential real estate values; the diversification of CRE loans; the development of new or expanded Commercial business verticals such as healthcare, ABL, and energy. A provision for credit losses is recorded to adjust the ACL to the level we have determined to be appropriate to absorb credit losses inherent in our loan and lease portfolio as of the balance sheet date.

Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance.

The table below reflects the allocation of our ACL among our various loan categories during each of the past five quarters:



Table 16 - Allocation of Allowance for Credit Losses (1)
(dollar amounts in thousands)

	June 30, 2016				March 31, 2016				December 31, 2015				September 30, 2015				June 30, 2015
Commercial
Commercial and industrial	$	323,465	41	%	$	320,367	41	%	$	298,746	41	%	$	284,329	40	%	$	285,041	41	%
Commercial real estate	101,042		9		102,074		10		100,007		10		109,967		11		92,060		11
Total commercial	424,507		50		422,441		51		398,753		51		394,296		51		377,101		52
Consumer
Automobile	50,531		20		48,032		19		49,504		19		43,949		19		39,102		18
Home equity	76,482		17		78,102		17		83,671		17		86,838		17		111,178		17
Residential mortgage	42,392		12		40,842		12		41,646		12		42,794		12		51,679		12
Other consumer	29,152		1		24,302		1		24,269		1		24,061		1		20,482		1
Total consumer	198,557		50		191,278		49		199,090		49		197,642		49		222,441		48
Total allowance for loan and lease losses	623,064		100	%	613,719		100	%	597,843		100	%	591,938		100	%	599,542		100	%
Allowance for unfunded loan commitments	73,748				75,325				72,081				64,223				55,371
Total allowance for credit losses	$	696,812			$	689,044			$	669,924			$	656,161			$	654,913
Total allowance for loan and leases losses as % of:
Total loans and leases			1.19	%			1.19	%			1.19	%			1.19	%			1.23	%
Nonaccrual loans and leases			135				123				161				166				165
Nonperforming assets			127				117				150				155				151
Total allowance for credit losses as % of:
Total loans and leases			1.33	%			1.34	%			1.33	%			1.32	%			1.34	%
Nonaccrual loans and leases			151				138				180				184				180
Nonperforming assets			142				131				168				172				165


(1)	Percentages represent the percentage of each loan and lease category to total loans and leases.

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2016 Second Quarter versus 2015 Fourth Quarter

The $27 million, or 4%, increase in the ACL compared with December 31, 2015, was driven by:


•	$25 million, or 8%, increase in the ALLL of the C&I portfolio was related to an increase in NALs within our energy related E&P and coal portfolios.


•	$5 million, or 20%, increase in the ALLL of the other consumer portfolio. The increase was driven by growth in our credit card segment.


•	$2 million, or 2%, increase in the AULC driven primarily by an increase in criticized unfunded exposures within the energy sector portfolio.

Partially offset by:


•	$7 million, or 9%, decline in the ALLL of the home equity portfolio. The decline was driven by a reduction in delinquent and nonaccrual loans.

The ACL to total loans ratio of 1.33% at June 30, 2016, remained flat compared to 1.33% at December 31, 2015. Management believes the ratio is appropriate given the risk profile of our loan portfolio. We continue to focus on early identification of loans with changes in credit metrics and proactive action plans for these loans.

Given the combination of these noted positive and negative factors, we believe that our ACL is appropriate and its coverage level is reflective of the quality of our portfolio and the current operating environment.

NCOs

Any loan in any portfolio may be charged-off prior to the policies described below if a loss confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a collateral deficiency where that asset is the sole source of repayment. Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a charge-off to estimated collateral value, less anticipated selling costs at the time of discharge.

C&I and CRE loans are either fully or partially charged-off at 90-days past due with the exception of administrative small ticket lease delinquencies. Automobile loans and other consumer loans are generally charged-off at 120-days past due. First-lien and junior-lien home equity loans are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due and 120-days past due, respectively. Residential mortgages are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due.

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Table 17 - Quarterly Net Charge-off Analysis
(dollar amounts in thousands)

	Three months ended
	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015
Net charge-offs (recoveries) by loan and lease type (1):
Commercial:
Commercial and industrial	$	3,702		$	6,514		$	2,252		$	9,858		$	4,411
Commercial real estate:
Construction	(377		)	(104		)	(296		)	(309		)	164
Commercial	(296		)	(17,372		)	(3,939		)	(13,512		)	5,361
Commercial real estate	(673		)	(17,476		)	(4,235		)	(13,821		)	5,525
Total commercial	3,029			(10,962		)	(1,983		)	(3,963		)	9,936
Consumer:
Automobile	4,320			6,770			7,693			4,908			3,442
Home equity	1,078			3,681			4,706			5,869			4,650
Residential mortgage	776			1,647			3,158			2,010			2,142
Other consumer	7,552			7,416			8,249			7,339			5,205
Total consumer	13,726			19,514			23,806			20,126			15,439
Total net charge-offs	$	16,755		$	8,552		$	21,823		$	16,163		$	25,375
Net charge-offs (recoveries)—annualized percentages:
Commercial:
Commercial and industrial	0.07		%	0.13		%	0.04		%	0.20		%	0.09		%
Commercial real estate:
Construction	(0.17		)	(0.05		)	(0.11		)	(0.11		)	0.07
Commercial	(0.03		)	(1.62		)	(0.38		)	(1.29		)	0.51
Commercial real estate	(0.05		)	(1.34		)	(0.32		)	(1.04		)	0.43
Total commercial	0.05			(0.17		)	(0.03		)	(0.06		)	0.16
Consumer:
Automobile	0.17			0.28			0.33			0.22			0.17
Home equity	0.05			0.17			0.22			0.28			0.22
Residential mortgage	0.05			0.11			0.21			0.13			0.15
Other consumer	4.93			5.17			6.03			5.91			4.61
Total consumer	0.22			0.32			0.39			0.34			0.27
Net charge-offs as a % of average loans	0.13		%	0.07		%	0.18		%	0.13		%	0.21		%

(1) Amounts presented above exclude write-downs of $5.1 million in home equity loans for the three months ended September 30, 2015 arising from transfers to loans held for sale.

In assessing NCO trends, it is helpful to understand the process of how commercial loans are treated as they deteriorate over time. The ALLL established is consistent with the level of risk associated with the original underwriting. As a part of our normal portfolio management process for commercial loans, the loan is periodically reviewed and the ALLL is increased or decreased based on the updated risk rating. In certain cases, the standard ALLL is determined to not be appropriate, and a specific reserve is established based on the projected cash flow or collateral value of the specific loan. Charge-offs, if necessary, are generally recognized in a period after the specific ALLL was established. If the previously established ALLL exceeds that necessary to satisfactorily resolve the problem loan, a reduction in the overall level of the ALLL could be recognized. Consumer loans are treated in much the same manner as commercial loans, with increasing reserve factors applied based on the risk characteristics of the loan, although specific reserves are not identified for consumer loans. In summary, if loan quality deteriorates, the typical credit sequence would be periods of reserve building, followed by periods of higher NCOs

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as the previously established ALLL is utilized. Additionally, an increase in the ALLL either precedes or is in conjunction with increases in NALs. When a loan is classified as NAL, it is evaluated for specific ALLL or charge-off. As a result, an increase in NALs does not necessarily result in an increase in the ALLL or an expectation of higher future NCOs.

All first-lien mortgage loans greater than 150-days past due are charged-down to the estimated value of the collateral, less anticipated selling costs. The remaining balance is in delinquent status until a modification can be completed, or the loan goes through the foreclosure process. For second-lien home equity loans, defaults typically represent full charge-offs, as there is no remaining equity.

2016 Second Quarter versus 2016 First Quarter

NCOs were an annualized 0.13% of average loans and leases in the current quarter, an increase from 0.07% in the 2016 first quarter, but still below our long-term expectation of 0.35% - 0.55%. Commercial charge-offs were negatively impacted by one large recovery in the CRE portfolio in the previous quarter with no similar event in the current quarter. The negative impact was partially offset by broader continued successful workout strategies within the commercial portfolio. Consumer charge-offs for the quarter remain within our expected range. Given the low level of C&I and CRE NCO’s, there will continue to be some volatility on a quarter-to-quarter comparison basis.

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The table below reflects NCO detail for the six-month periods ended June 30, 2016 and 2015:



Table 18 - Year to Date Net Charge-off Analysis
(dollar amounts in thousands)

	Six months ended June 30,
	2016			2015
Net charge-offs (recoveries) by loan and lease type (1):
Commercial:
Commercial and industrial	$	10,216		$	15,814
Commercial real estate:
Construction	(481		)	(219		)
Commercial	(17,668		)	1,732
Commercial real estate	(18,149		)	1,513
Total commercial	(7,933		)	17,327
Consumer:
Automobile	11,090			7,690
Home equity	4,759			9,275
Residential mortgage	2,423			4,958
Other consumer	14,968			10,557
Total consumer	33,240			32,480
Total net charge-offs	$	25,307		$	49,807
Net charge-offs (recoveries) - annualized percentages:
Commercial:
Commercial and industrial	0.10		%	0.16		%
Commercial real estate:
Construction	(0.11		)	(0.05		)
Commercial	(0.82		)	0.08
Commercial real estate	(0.70		)	0.06
Total commercial	(0.06		)	0.14
Consumer:
Automobile	0.22			0.18
Home equity	0.11			0.22
Residential mortgage	0.08			0.17
Other consumer	5.04			4.81
Total consumer	0.27			0.28
Net charge-offs as a % of average loans	0.10		%	0.21		%

(1) Amounts presented above exclude write-downs arising from transfers to loans held for sale.

2016 First Six months versus 2015 First Six months

NCOs decreased $25 million in the first six-month period of 2016 to $25 million, primarily due to one large recovery in the CRE portfolio. Given the low level of C&I and CRE NCO’s, there will continue to be some volatility on a period-to-period comparison basis.

Market Risk

Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, foreign exchange rates, equity prices, and credit spreads. We have identified two primary sources of market risk: interest rate risk and price risk.

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Interest Rate Risk

OVERVIEW

Huntington actively manages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. The interest rate risk process is designed to compare income simulations under different market scenarios designed to alter the direction, magnitude, and speed of interest rate changes, as well as the slope of the yield curve. These scenarios are designed to illustrate the embedded optionality in the balance sheet from, among other things, faster or slower mortgage, and mortgage backed securities prepayments, and changes in funding mix.

As it relates to Brexit, we continue to monitor the economic and financial markets impacts. We do expect some volatility and uncertainty in the capital markets, which could impact our financial results given our interest rate sensitivity. We continue to manage our interest rate sensitivity in accordance with our policies and remain committed to executing our strategic plan.

INCOME SIMULATION AND ECONOMIC VALUE ANALYSIS

Interest rate risk measurement is calculated and reported to the ALCO monthly and ROC at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

Huntington uses two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk) and Economic Value of Equity at Risk (EVE). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivative positions under various interest rate scenarios over a one-year time horizon. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.



Table 19 - Net Interest Income at Risk

	Net Interest Income at Risk (%)
Basis point change scenario	-25		+100		+200
Board policy limits	N/A		-2.0	%	-4.0	%
June 30, 2016	-0.8	%	2.1	%	4.1	%
December 31, 2015	-0.3	%	0.7	%	0.3	%

The NII at Risk results included in the table above reflect the analysis used monthly by management. It models gradual -25, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next one-year period. Due to the current low level of short-term interest rates, the analysis reflects a declining interest rate scenario of 25 basis points, the point at which many assets and liabilities reach zero percent.

Huntington is within board of director policy limits for the +100 and +200 basis point scenarios. There is no policy limit for the -25 basis point scenario. The NII at Risk reported at June 30, 2016, shows that Huntington’s earnings are more asset sensitive at June 30, 2016 than at December 31, 2015, as a result of the $3.5 billion notional value reduction in asset receive-fixed cash flow swaps and the introduction of new Non-Maturity Deposit models in the 2016 first quarter.

As of June 30, 2016, Huntington had $11.5 billion of notional value in receive-fixed cash flow swaps, which we use for asset and liability management purposes. At June 30, 2016, the following table shows the expected maturity for asset and liability receive-fixed cash flow swaps:



Table 20 - Expected Maturity for Asset and Liability Receive-Fixed Cash Flow Swaps
(dollar amounts in thousands)	Asset receive fixed-generic cash flow swaps		Liability receive fixed-generic cash flow swaps
2016	$	1,375,000	$	850,000
2017	3,250,000		500,000
2018	75,000		2,610,000
2019	—		575,000
2020	—		1,300,000
2021	—		990,000

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Table 21 - Economic Value of Equity at Risk

	Economic Value of Equity at Risk (%)
Basis point change scenario	-25		+100		+200
Board policy limits	N/A		-5.0	%	-12.0	%
June 30, 2016	-1.2	%	2.5	%	2.9	%
December 31, 2015	-0.4	%	-0.5	%	-2.1	%

The EVE results included in the table above reflect the analysis used monthly by management. It models immediate -25, +100 and +200 basis point parallel shifts in market interest rates. Due to the current low level of short-term interest rates, the analysis reflects a declining interest rate scenario of 25 basis points, the point at which many assets and liabilities reach zero percent.

Huntington is within board of director policy limits for the +100 and +200 basis point scenarios. There is no policy limit for the -25 basis point scenario. The EVE reported at June 30, 2016 shows that the economic value of equity position is more asset sensitive compared with December 31, 2015 primarily due to the decline in spot and forward interest rates over the period, which results in a modeled increase in prepayments for mortgage-related assets. EVE asset sensitivity was also driven to a lesser extent by the introduction of new Non-Maturity Deposit models in the 2016 first quarter and adjustments to modeled prepayment for non-mortgage related securities.

MSRs

(This section should be read in conjunction with Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements.)

At June 30, 2016, we had a total of $134 million of capitalized MSRs representing the right to service $16.2 billion in mortgage loans. Of this $134 million, $13 million was recorded using the fair value method and $121 million was recorded using the amortization method.

MSR fair values are sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. We have employed strategies to reduce the risk of MSR fair value changes or impairment. However, volatile changes in interest rates can diminish the effectiveness of these economic hedges. We report MSR fair value adjustments net of hedge-related trading activity in the mortgage banking income category of noninterest income. Changes in fair value between reporting dates are recorded as an increase or a decrease in mortgage banking income.

MSRs recorded using the amortization method generally relate to loans originated with historically low interest rates, resulting in a lower probability of prepayments and, ultimately, impairment. MSR assets are included in servicing rights in the Unaudited Condensed Consolidated Financial Statements.

Price Risk

Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, securities owned by our broker-dealer subsidiary, foreign exchange positions, equity investments, and investments in securities backed by mortgage loans. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained, and on the amount of marketable equity securities that can be held.

Liquidity Risk

Liquidity risk is the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments resulting from 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. Please see the Liquidity Risk section in Item 1A of our 2015 Form 10-K for more details. In addition, the mix and maturity structure of Huntington’s balance sheet, the amount of on-hand cash and unencumbered securities, and the availability of contingent sources of funding can have an impact on Huntington’s ability to satisfy current or future funding commitments. We manage liquidity risk at both the Bank and the parent company.

The overall objective of liquidity risk management is to ensure that we can obtain cost-effective funding to meet current and future obligations, and can maintain sufficient levels of on-hand liquidity, under both normal business-as-usual and

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unanticipated stressed circumstances. The ALCO is appointed by the ROC to oversee liquidity risk management and the establishment of liquidity risk policies and limits. Contingency funding plans are in place, which measure forecasted sources and uses of funds under various scenarios in order to prepare for unexpected liquidity shortages. Liquidity risk is reviewed monthly for the Bank and the parent company, as well as its subsidiaries. In addition, liquidity working groups meet regularly to identify and monitor liquidity positions, provide policy guidance, review funding strategies, and oversee the adherence to, and maintenance of, the contingency funding plans.

Investment securities portfolio

The expected weighted average maturities of our AFS and HTM portfolios are significantly shorter than their contractual maturities as reflected in Note 5 and Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements. Particularly regarding the MBS and ABS, prepayments of principal and interest that historically occur in advance of scheduled maturities will shorten the expected life of these portfolios. The expected weighted average maturities, which take into account expected prepayments of principal and interest under existing interest rate conditions, are shown in the following table:



Table 22 - Expected Life of Investment Securities
(dollar amounts in thousands)
	June 30, 2016
	Available-for-Sale & Other Securities				Held-to-Maturity Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	682,978	$	672,177	$	19,205	$	19,238
After 1 year through 5 years	5,454,666		5,557,358		3,819,702		3,901,761
After 5 years through 10 years (1)	2,492,878		2,514,932		1,813,033		1,858,472
After 10 years	547,095		562,788		6,625		6,753
Other securities	345,343		345,783		—		—
Total	$	9,522,960	$	9,653,038	$	5,658,565	$	5,786,224


(1)	A portion of the securities with an average life of 5 years to 10 years, are variable rate; resulting in an average duration of 4.12 years.

Bank Liquidity and Sources of Funding

Our primary sources of funding for the Bank are retail and commercial core deposits. At June 30, 2016, these core deposits funded 70% of total assets (98% of total loans). Other sources of liquidity include non-core deposits, FHLB advances, wholesale debt instruments, and securitizations. Demand deposit overdrafts that have been reclassified as loan balances were $21 million and $16 million at June 30, 2016 and December 31, 2015, respectively.

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The following tables reflect deposit composition and short-term borrowings detail for each of the last five quarters:



Table 23 - Deposit Composition
(dollar amounts in millions)
	June 30,				March 31,				December 31,				September 30,				June 30,
	2016				2016				2015				2015				2015
By Type:
Demand deposits—noninterest-bearing	$	16,324	30	%	$	16,571	30	%	$	16,480	30	%	$	16,935	31	%	$	17,011	32	%
Demand deposits—interest-bearing	8,412		15		8,174		15		7,682		14		6,574		12		6,627		12
Money market deposits	19,480		34		19,844		35		19,792		36		19,494		36		18,580		35
Savings and other domestic deposits	5,341		10		5,423		10		5,246		9		5,189		10		5,240		10
Core certificates of deposit	1,866		4		2,123		4		2,382		4		2,483		5		2,580		5
Total core deposits:	51,423		93		52,135		94		51,582		93		50,675		94		50,038		94
Other domestic deposits of $250,000 or more	380		1		424		1		501		1		263		—		178		—
Brokered deposits and negotiable CDs	3,017		6		2,890		5		2,944		5		2,904		5		2,705		5
Deposits in foreign offices	223		—		180		—		268		1		403		1		552		1
Total deposits	$	55,043	100	%	$	55,629	100	%	$	55,295	100	%	$	54,245	100	%	$	53,473	100	%
Total core deposits:
Commercial	$	24,308	47	%	$	24,543	47	%	$	24,474	47	%	$	24,886	49	%	$	24,103	48	%
Consumer	27,115		53		27,592		53		27,108		53		25,789		51		25,935		52
Total core deposits	$	51,423	100	%	$	52,135	100	%	$	51,582	100	%	$	50,675	100	%	$	50,038	100	%



Table 24 - Federal Funds Purchased and Repurchase Agreements
(dollar amounts in millions)
	June 30,			March 31,			December 31,			September 30,			June 30,
	2016			2016			2015			2015			2015
Balance at period-end
Federal Funds purchased and securities sold under agreements to repurchase	$	149		$	204		$	601		$	1,051		$	1,101
Federal Home Loan Bank advances	1,800			250			—			400			375
Other short-term borrowings	8			18			14			3			35
Weighted average interest rate at period-end
Federal Funds purchased and securities sold under agreements to repurchase	0.05		%	0.04		%	0.13		%	0.05		%	0.05		%
Federal Home Loan Bank advances	0.42			0.41			—			0.19			0.15
Other short-term borrowings	4.19			2.13			0.27			0.19			0.17
Maximum amount outstanding at month-end during the period
Federal Funds purchased and securities sold under agreements to repurchase	$	258		$	401		$	601		$	1,051		$	1,101
Federal Home Loan Bank advances	1,800			1,575			—			400			1,850
Other short-term borrowings	21			20			14			3			35
Average amount outstanding during the period
Federal Funds purchased and securities sold under agreements to repurchase	$	515		$	582		$	503		$	685		$	898

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Federal Home Loan Bank advances	504		553		13		136		1,236
Other short-term borrowings	13		9		9		23		19
Weighted average interest rate during the period
Federal Funds purchased and securities sold under agreements to repurchase	0.25	%	0.18	%	0.05	%	0.05	%	0.07	%
Federal Home Loan Bank advances	0.42		0.40		0.25		0.16		0.16
Other short-term borrowings	1.81		3.69		1.99		0.78		1.94

The Bank maintains borrowing capacity at the FHLB and the Federal Reserve Bank Discount Window. The Bank does not consider borrowing capacity from the Federal Reserve Bank Discount Window as a primary source of liquidity. Total loans and securities pledged to the Federal Reserve Discount Window and the FHLB are $18.0 billion and $17.5 billion at June 30, 2016 and December 31, 2015, respectively.

For further information related to debt issuances please see Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements.

At June 30, 2016, total wholesale funding was $12.1 billion, an increase from $10.9 billion at December 31, 2015. The increase from prior year-end primarily relates to an increase in short-term borrowings.

Liquidity Coverage Ratio

On September 3, 2014, the U.S. banking regulators adopted a final LCR for internationally active banking organizations, generally those with $250 billion or more in total assets, and a Modified LCR rule for banking organizations, similar to Huntington, with $50 billion or more in total assets that are not internationally active banking organizations. The LCR is designed to promote the short-term resilience of the liquidity risk profile of banks to which it applies. The Modified LCR requires Huntington to maintain HQLA to meet its net cash outflows over a prospective 30 calendar-day period, which takes into account the potential impact of idiosyncratic and market-wide shocks. The Modified LCR transition period began on January 1, 2016, with Huntington required to maintain HQLA equal to 90 percent of the stated requirement. The ratio increases to 100 percent on January 1, 2017. Huntington expects to be compliant with the Modified LCR requirement within the transition periods established in the Modified LCR rule.

At June 30, 2016, we believe the Bank had sufficient liquidity to meet its cash flow obligations for the foreseeable future.

Parent Company Liquidity

The parent company’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of nonbank subsidiaries, repurchases of our stock, and acquisitions. The parent company obtains funding to meet obligations from dividends and interest received from the Bank, interest and dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the federal consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities.

At June 30, 2016 and December 31, 2015, the parent company had $2.1 billion and $0.9 billion, respectively, in cash and cash equivalents. The increase primarily relates to 2016 issuances of long-term debt and preferred stock.

On July 20, 2016, the board of directors declared a quarterly common stock cash dividend of $0.07 per common share. The dividend is payable on October 3, 2016, to shareholders of record on September 19, 2016. Based on the current quarterly dividend of $0.07 per common share, cash demands required for common stock dividends are estimated to be approximately $56 million per quarter. On July 20, 2016, the board of directors declared a quarterly Series A, Series B, and Series D Preferred Stock dividend payable on October 17, 2016 to shareholders of record on October 1, 2016. Based on the current dividend, cash demands required for Series A Preferred Stock are estimated to be approximately $8 million per quarter. Cash demands required for Series B Preferred Stock are expected to be approximately $300 thousand per quarter. Cash demands required for Series D Preferred Stock are expected to be approximately $9 million per quarter.

During the second quarter, the Bank returned capital totaling $162 million to the holding company. The Bank declared a return of capital to the holding company of $175 million in the 2016 third quarter. To help meet any additional liquidity needs, the parent company may issue debt or equity securities from time to time. In April 2016, the Bank issued $490 million of preferred stock to the holding company. In the 2016 third quarter, the Bank declared a preferred dividend of $7 million to the holding company.

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On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction (see Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements). Considering this potential obligation, and expected quarterly dividend payments, we believe the parent company has sufficient liquidity to meet its cash flow obligations for the foreseeable future.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include commitments to extend credit, interest rate swaps, financial guarantees contained in standby letters-of-credit issued by the Bank, and commitments by the Bank to sell mortgage loans.

COMMITMENTS TO EXTEND CREDIT

Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature. See Note 16 for more information.

INTEREST RATE SWAPS

Balance sheet hedging activity is arranged to receive hedge accounting treatment and is classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert deposits and long-term debt from fixed-rate obligations to floating rate. Cash flow hedges are also used to convert floating rate loans made to customers into fixed rate loans. See Note 14 for more information.

STANDBY LETTERS-OF-CREDIT

Standby letters-of-credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years and are expected to expire without being drawn upon. Standby letters-of-credit are included in the determination of the amount of risk-based capital that the parent company and the Bank are required to hold. Through our credit process, we monitor the credit risks of outstanding standby letters-of-credit. When it is probable that a standby letter-of-credit will be drawn and not repaid in full, a loss is recognized in the provision for credit losses. See Note 16 for more information.

COMMITMENTS TO SELL LOANS

Activity related to our mortgage origination activity supports the hedging of the mortgage pricing commitments to customers and the secondary sale to third parties. In addition, we have commitments to sell residential real estate loans. These contracts mature in less than one year. See Note 16 for more information.

We believe that off-balance sheet arrangements are properly considered in our liquidity risk management process.

Operational Risk

Operational risk 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. We continuously strive to strengthen our system of internal controls to ensure compliance with laws, rules, and regulations, and to improve the oversight of our operational risk. We actively and continuously monitor cyber-attacks such as attempts related to online deception and loss of sensitive customer data. We evaluate internal systems, processes and controls to mitigate loss from cyber-attacks and, to date, have not experienced any material losses.

Our objective for managing cyber security risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate our systems. We work to achieve this objective by hardening networks and systems against attack, and by diligently managing visibility and monitoring controls within our data and communications environment to recognize events and respond before the attacker has the opportunity to execute a cyber attack. To this end we employ a set of defense in-depth

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strategies, which include efforts to make Huntington less attractive as a target and less vulnerable to threats, while investing in threat analytic capabilities for rapid detection and response. Potential concerns related to cyber security may be escalated to our board-level Technology Committee, as appropriate. As a complement to the overall cyber security risk management, we use a number of internal training methods, both formally through mandatory courses and informally through written communications and other updates. Internal policies and procedures have been implemented to encourage the reporting of potential phishing attacks or other security risks. We also use third party services to test the effectiveness of our cyber security risk management framework, and any such third parties are required to comply with our policies regarding information security and confidentiality.

To mitigate operational risks, we have a senior management Operational Risk Committee and a senior management Legal, Regulatory, and Compliance Committee. The responsibilities of these committees, among other duties, include establishing and maintaining management information systems to monitor material risks and to identify potential concerns, risks, or trends that may have a significant impact and ensuring that recommendations are developed to address the identified issues. In addition, we have a senior management Model Risk Oversight Committee that is responsible for policies and procedures describing how model risk is evaluated and managed and the application of the governance process to implement these practices throughout the enterprise. These committees report any significant findings and recommendations to the Risk Management Committee. Potential concerns may be escalated to our ROC, as appropriate.

The goal of this framework is to implement effective operational risk techniques and strategies, minimize operational, fraud, and legal losses, minimize the impact of inadequately designed models and enhance our overall performance.

Compliance Risk

Financial institutions are subject to many laws, rules, and regulations at both the federal and state levels. These broad-based laws, rules, and regulations include, but are not limited to, expectations relating to anti-money laundering, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices, protections for military members as they enter active duty, and community reinvestment. Additionally, the volume and complexity of recent regulatory changes have increased our overall compliance risk. As such, we utilize various resources to help ensure expectations are met, including a team of compliance experts dedicated to ensuring our conformance with all applicable laws, rules, and regulations. Our colleagues receive training for several broad-based laws and regulations including, but not limited to, anti-money laundering and customer privacy. Additionally, colleagues engaged in lending activities receive training for laws and regulations related to flood disaster protection, equal credit opportunity, fair lending, and/or other courses related to the extension of credit. We set a high standard of expectation for adherence to compliance management and seek to continuously enhance our performance.

Capital

Both regulatory capital and shareholders’ equity are managed at the Bank and on a consolidated basis. We have an active program for managing capital and maintain a comprehensive process for assessing the Company’s overall capital adequacy. We believe our current levels of both regulatory capital and shareholders’ equity are adequate.

Regulatory Capital

We are subject to the Basel III capital requirements including the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule. The following table presents risk-weighted assets and other financial data necessary to calculate certain financial ratios, including the CET1 ratio on a transitional Basel III basis, which we use to measure capital adequacy.

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Table 25 - Capital Under Current Regulatory Standards (transitional Basel III basis)
(dollar amounts in millions except per share amounts)

	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015
Common equity tier 1 risk-based capital ratio:
Total shareholders’ equity	$	7,507		$	7,158		$	6,595		$	6,583		$	6,496
Regulatory capital adjustments:
Shareholders’ preferred equity	(971		)	(773		)	(386		)	(386		)	(386		)
Accumulated other comprehensive loss (income) offset	134			167			226			140			186
Goodwill and other intangibles, net of taxes	(700		)	(703		)	(695		)	(697		)	(701		)
Deferred tax assets that arise from tax loss and credit carryforwards	(21		)	(29		)	(19		)	(15		)	(15		)
Common equity tier 1 capital	5,949			5,820			5,721			5,625			5,580
Additional tier 1 capital
Shareholders’ preferred equity	971			773			386			386			386
Qualifying capital instruments subject to phase-out	—			—			76			76			76
Other	(14		)	(19		)	(29		)	(22		)	(22		)
Tier 1 capital	6,906			6,574			6,154			6,065			6,020
LTD and other tier 2 qualifying instruments	590			611			563			623			623
Qualifying allowance for loan and lease losses	697			689			670			656			655
Tier 2 capital	1,287			1,300			1,233			1,279			1,278
Total risk-based capital	$	8,193		$	7,874		$	7,387		$	7,344		$	7,298
Risk-weighted assets (RWA)	$	60,721		$	59,798		$	58,420		$	57,839		$	57,850
Common equity tier 1 risk-based capital ratio	9.80		%	9.73		%	9.79		%	9.72		%	9.65		%
Other regulatory capital data:
Tier 1 leverage ratio	9.55			9.29			8.79			8.85			8.98
Tier 1 risk-based capital ratio	11.37			10.99			10.53			10.49			10.41
Total risk-based capital ratio	13.49			13.17			12.64			12.70			12.62

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Table 26 - Capital Adequacy—Non-Regulatory
(dollar amounts in millions)

	June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015
Consolidated capital calculations:
Common shareholders’ equity	$	6,536		$	6,385		$	6,209		$	6,197		$	6,110
Preferred shareholders’ equity	971			773			386			386			386
Total shareholders’ equity	7,507			7,158			6,595			6,583			6,496
Goodwill	(677		)	(677		)	(677		)	(677		)	(678		)
Other intangible assets	(48		)	(51		)	(55		)	(59		)	(63		)
Other intangible assets deferred tax liability (1)	17			18			19			21			22
Total tangible equity	6,799			6,448			5,882			5,868			5,777
Preferred shareholders’ equity	(971		)	(773		)	(386		)	(386		)	(386		)
Total tangible common equity	$	5,828		$	5,675		$	5,496		$	5,482		$	5,391
Total assets	$	73,954		$	72,645		$	71,018		$	70,186		$	68,824
Goodwill	(677		)	(677		)	(677		)	(677		)	(678		)
Other intangible assets	(48		)	(51		)	(55		)	(59		)	(63		)
Other intangible assets deferred tax liability (1)	17			18			19			21			22
Total tangible assets	$	73,246		$	71,935		$	70,305		$	69,471		$	68,105
Tangible equity / tangible asset ratio	9.28		%	8.96		%	8.37		%	8.45		%	8.48		%
Tangible common equity / tangible asset ratio	7.96			7.89			7.82			7.89			7.92


(1)	Calculated assuming a 35% tax rate.

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The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the past five quarters:



Table 27 - Regulatory Capital Data
(dollar amounts in millions)

		Basel III
		June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015
Total risk-weighted assets	Consolidated	$	60,721		$	59,798		$	58,420		$	57,839		$	57,850
	Bank	60,674			59,723			58,351			57,750			57,772
Common equity tier I risk-based capital	Consolidated	5,949			5,821			5,721			5,625			5,580
	Bank	5,578			5,518			5,519			5,475			5,497
Tier 1 risk-based capital	Consolidated	6,906			6,574			6,154			6,065			6,020
	Bank	6,221			5,672			5,735			5,692			5,716
Tier 2 risk-based capital	Consolidated	1,287			1,300			1,233			1,279			1,278
	Bank	1,331			1,119			1,115			1,101			747
Total risk-based capital	Consolidated	8,193			7,874			7,387			7,344			7,298
	Bank	7,552			6,791			6,851			6,793			6,463
Tier 1 leverage ratio	Consolidated	9.55		%	9.29		%	8.79		%	8.85		%	8.98		%
	Bank	8.61			8.02			8.21			8.33			8.54
Common equity tier I risk-based capital ratio	Consolidated	9.80			9.73			9.79			9.72			9.65
	Bank	9.19			9.24			9.46			9.48			9.51
Tier 1 risk-based capital ratio	Consolidated	11.37			10.99			10.53			10.49			10.41
	Bank	10.25			9.50			9.83			9.86			9.89
Total risk-based capital ratio	Consolidated	13.49			13.17			12.64			12.70			12.62
	Bank	12.45			11.37			11.74			11.76			11.19

At June 30, 2016, we maintained Basel III transitional capital ratios in excess of the well-capitalized standards established by the FRB.

Shareholders’ Equity

We generate shareholders’ equity primarily through the retention of earnings, net of dividends and share repurchases. Other potential sources of shareholders’ equity include issuances of common and preferred stock. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, to meet both regulatory and market expectations, and to provide the flexibility needed for future growth and business opportunities. Shareholders’ equity totaled $7.5 billion at June 30, 2016, an increase of $0.9 billion when compared with December 31, 2015. During the 2016 first and second quarter, Huntington issued $400 million and $200 million of preferred stock, respectively. Costs of $15 million related to the issuance are reported as a direct deduction from the face amount of the stock.

On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction (see Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements).

On June 29, 2016, Huntington announced that the Federal Reserve did not object to Huntington's proposed capital actions included in Huntington's capital plan submitted to the Federal Reserve in April 2016 as part of the 2016 Comprehensive Capital Analysis and Review (“CCAR”). These actions included a 14% increase in the quarterly dividend per common share to $0.08, starting in the fourth quarter of 2016. Huntington’s capital plan also included the issuance of capital in connection with the pending acquisition of FirstMerit Corporation and continues the previously announced suspension of the company’s share repurchase program.

Dividends

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We consider disciplined capital management as a key objective, with dividends representing one component. Our strong capital ratios and expectations for continued earnings growth positions us to continue to actively explore additional capital management opportunities.

On July 20, 2016, our board of directors declared a quarterly cash dividend of $0.07 per common share, payable on October 3, 2016. Also, cash dividends of $0.07 per share were declared on April 21, 2016 and January 20, 2016.

On July 20, 2016, our board of directors also declared a quarterly cash dividend on our 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock of $21.25 per share. The dividend is payable on October 17, 2016. Also, cash dividends of $21.25 per share were declared on April 21, 2016 and January 20, 2016.

On July 20, 2016, our board of directors also declared a quarterly cash dividend on our Floating Rate Series B Non-Cumulative Perpetual Preferred Stock of $8.45 per share. The dividend is payable on October 17, 2016. Also, cash dividends of $8.32 per share and $8.31 per share were declared on April 21, 2016 and January 20, 2016, respectively.

On July 20, 2016, our board of directors also declared a quarterly cash dividend on our 6.25% Series D Non-Cumulative Perpetual Convertible Preferred Stock of $15.63 per share. The dividend is payable on October 17, 2016. Also, cash dividends of $19.79 per share were declared on April 21, 2016.

Share Repurchases

From time to time the board of directors authorizes the Company to repurchase shares of our common stock. Although we announce when the board of directors authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations. Huntington's capital plan continues the previously announced suspension of the company's share repurchase program.

Fair Value

Fair Value Measurements

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. We estimate the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. We characterize active markets as those where transaction volumes are sufficient to provide objective pricing information, with reasonably narrow bid/ask spreads, and where received quoted prices do not vary widely. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. Inactive markets are characterized by low transaction volumes, price quotations that vary substantially among market participants, or in which minimal information is released publicly. When observable market prices do not exist, we estimate fair value primarily by using cash flow and other financial modeling methods. Our valuation methods consider factors such as liquidity and concentration concerns and, for the derivatives portfolio, counterparty credit risk. Other factors such as model assumptions, market dislocations, and unexpected correlations can affect estimates of fair value. Changes in these underlying factors, assumptions, or estimates in any of these areas could materially impact the amount of revenue or loss recorded.

The FASB ASC Topic 820, Fair Value Measurements, establishes a framework for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and establishes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the fair value measurement date. The three levels are defined as follows:


•	Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 – inputs include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 – inputs that are unobservable and significant to the fair value measurement. Financial instruments are considered Level 3 when values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable.

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At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. As necessary, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs at the measurement date. The fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs, can be found in Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements.

BUSINESS SEGMENT DISCUSSION

Overview

Our business segments are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. We have five major business segments: Retail and Business Banking, Commercial Banking, Automobile Finance and Commercial Real Estate (AFCRE), Regional Banking and The Huntington Private Client Group (RBHPCG), and Home Lending. A Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.

Business segment results are determined based upon our management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.

Revenue Sharing

Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing service to, customers. Results of operations for the business segments reflect these fee sharing allocations.

Expense Allocation

The management accounting process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all five business segments from Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, and a small amount of other residual unallocated expenses, are allocated to the five business segments.

Funds Transfer Pricing (FTP)

We use an active and centralized FTP methodology to attribute appropriate income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities).

Net Income by Business Segment

The segregation of net income by business segment for the six-month periods ending June 30, 2016 and June 30, 2015 is presented in the following table:

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Table 28 - Net Income (Loss) by Business Segment
(dollar amounts in thousands)
	Six months ended June 30,
	2016		2015
Retail and Business Banking	$	127,153	$	111,061
Commercial Banking	74,107		102,681
AFCRE	86,689		84,698
RBHPCG	23,280		4,468
Home Lending	7,908		353
Treasury/Other	26,717		58,799
Total net income	$	345,854	$	362,060

Treasury / Other

The Treasury / Other function includes revenue and expense related to assets, liabilities, and equity not directly assigned or allocated to one of the five business segments. Other assets include investment securities and bank owned life insurance. The financial impact associated with our FTP methodology, as described above, is also included.

Net interest income includes the impact of administering our investment securities portfolios and the net impact of derivatives used to hedge interest rate sensitivity. Noninterest income includes miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income and any investment security and trading asset gains or losses. Noninterest expense includes certain corporate administrative, merger, and other miscellaneous expenses not allocated to other business segments. The provision for income taxes for the business segments is calculated at a statutory 35% tax rate, though our overall effective tax rate is lower. As a result, Treasury / Other reflects a credit for income taxes representing the difference between the lower actual effective tax rate and the statutory tax rate used to allocate income taxes to the business segments.

Optimal Customer Relationship (OCR)

Our OCR strategy is focused on building and deepening relationships with our customers through superior interactions, product penetration, and quality of service. We will deliver high-quality customer and prospect interactions through a fully integrated sales culture which will include all partners necessary to deliver a total Huntington solution. The quality of our relationships will lead to our ability to be the primary bank for our customers, yielding quality, annuitized revenue and profitable share of customers overall financial services. We believe our relationship oriented approach will drive a competitive advantage through our local market delivery channels.

CONSUMER OCR PERFORMANCE

For consumer OCR performance, there are three key performance metrics: (1) the number of checking account households, (2) the number of product penetration per consumer checking household, and (3) the revenue generated from the consumer households of all business segments.

The growth in consumer checking account number of households is a result of both new sales of checking accounts, retention of existing checking account households, and growth in balances. The overall objective is to grow the number of households, along with an increase in product penetration.

We use the checking account as a measure since it typically represents the primary banking relationship product. We count additional services by type, not number, of services. For example, a household that has one checking account and one mortgage, we count as having two services. A household with four checking accounts, we count as having one service. The household relationship utilizing 6+ services is viewed to be more profitable and loyal. The overall objective, therefore, is to decrease the percentage of 1-5 services per consumer checking account household, while increasing the percentage of those with 6+ services.

The following table presents consumer checking account household OCR metrics:

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Table 29 - Consumer Checking Household OCR Cross-sell Report

	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2016			2016			2015			2015			2015
Number of households (1)	1,549,059			1,530,025			1,511,474			1,508,209			1,491,967
Product Penetration by Number of Services (2)
1 Service	2.6		%	2.6		%	2.6		%	2.6		%	2.5		%
2-3 Services	16.2			16.0			16.4			16.8			17.0
4-5 Services	28.8			28.8			29.1			29.2			29.5
6+ Services	52.4			52.6			51.9			51.4			51.0

Total revenue (in millions)	$	308		$	293		$	294		$	289		$	280


(1)	Checking account required.


(2)	The definitions and measurements used in our OCR process are periodically reviewed and updated prospectively.

Our emphasis on cross-sell, coupled with customers being attracted to the benefits offered through our “Fair Play” banking philosophy with programs such as 24-Hour Grace^® on overdrafts and Asterisk-Free Checking ^TM, are having a positive effect. The percent of consumer households with 6 or more product services at the end of the 2016 second quarter was 52.4%, up from 51.0% from the year-ago quarter due to increased product sales and services used.

COMMERCIAL OCR PERFORMANCE

For commercial OCR performance, there are three key performance metrics: (1) the number of commercial relationships, (2) the number of services penetration per commercial relationship, and (3) the revenue generated. Commercial relationships include relationships from all business segments.

The growth in the number of commercial relationships is a result of both new sales of checking accounts and improved retention of existing commercial accounts. The overall objective is to grow the number of relationships, along with an increase in product service distribution.

The commercial relationship is defined as a business banking or commercial banking customer with a checking account relationship. We use this metric because we believe that the checking account anchors a business relationship and creates the opportunity to increase our cross-sell activity. Multiple sales of the same type of service are counted as one service, which is the same methodology described above for consumer.

The following table presents commercial relationship OCR metrics:



Table 30 - Commercial Relationship OCR Cross-sell Report

	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2016			2016			2015			2015			2015
Commercial Relationships (1)	172,880			171,053			168,774			169,152			168,088
Product Penetration by Number of Services (2)
1 Service	11.8		%	12.1		%	13.7		%	14.0		%	14.3		%
2-3 Services	40.9			40.4			42.0			42.3			42.3
4+ Services (3)	47.3			47.5			44.3			43.7			43.4

Total revenue (in millions)	$	226		$	221		$	222		$	229		$	222


(1)	Checking account required.


(2)	The definitions and measurements used in our OCR process are periodically reviewed and updated prospectively.


(3)	During the 2016 first quarter, there was a pricing change to a treasury management product that resulted in a one-time increase in our 4+ services data.

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By focusing on targeted relationships, we are able to achieve higher product service penetration among our commercial relationships and leverage these relationships to generate a deeper share of wallet. The percent of commercial relationships with 4 or more product services at the end of the 2016 second quarter was 47.3%, up from 43.4% from the year-ago quarter. Total commercial relationship revenue for the 2016 second quarter was $226 million, up $4 million, or 2%, from the year-ago quarter.



Retail and Business Banking

Table 31 - Key Performance Indicators for Retail and Business Banking
(dollar amounts in thousands unless otherwise noted)
	Six months ended June 30,						Change
	2016			2015			Amount			Percent
Net interest income	$	535,433		$	505,571		$	29,862		6	%
Provision for credit losses	33,745			26,553			7,192			27
Noninterest income	246,462			208,696			37,766			18
Noninterest expense	552,530			516,851			35,679			7
Provision for income taxes	68,467			59,802			8,665			14
Net income	$	127,153		$	111,061		$	16,092		14	%
Number of employees (average full-time equivalent)	5,383			5,266			117			2	%
Total average assets (in millions)	$	15,788		$	15,536		$	252		2
Total average loans/leases (in millions)	13,671			13,580			91			1
Total average deposits (in millions)	31,035			29,927			1,108			4
Net interest margin	3.55		%	3.48		%	0.07		%	2
NCOs	$	27,278		$	26,789		$	489		2
NCOs as a % of average loans and leases	0.40		%	0.39		%	0.01		%	3

2016 First Six months vs. 2015 First Six months

Retail and Business Banking reported net income of $127 million in the first six-month period of 2016. This was an increase of $16 million, or 14%, compared to the year-ago period. Segment net interest income increased $30 million, or 6%, primarily due to an increase in total average deposits, and a 7 basis point improvement in the net interest margin. The provision for credit losses increased $7 million, or 27%, as a result of enhancements made to the ACL estimation process in the 2015 first quarter. Noninterest income increased $38 million, or 18%, due to an increase in card and payment processing income and service charges on deposit accounts, which were driven by higher debit card-related transaction volumes and an increase in the number of households. The increase in noninterest income is also attributed to mortgage banking income which was primarily driven by increased referrals to Home Lending due to an improved mortgage refinance market. Noninterest expense increased $36 million, or 7%, due to an increase in personnel and occupancy expense, which were mostly off-set by a decrease in the amortization of intangibles. The increase in allocated noninterest expense was mostly offset by the increases in noninterest income.

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Commercial Banking

Table 32 - Key Performance Indicators for Commercial Banking
(dollar amounts in thousands unless otherwise noted)
	Six months ended June 30,						Change
	2016			2015			Amount			Percent
Net interest income	$	202,623		$	169,315		$	33,308		20	%
Provision for credit losses	29,562			3,808			25,754			676
Noninterest income	123,499			125,254			(1,755		)	(1	)
Noninterest expense	182,549			132,790			49,759			37
Provision for income taxes	39,904			55,290			(15,386		)	(28	)
Net income	$	74,107		$	102,681		$	(28,574	)	(28	)%
Number of employees (average full-time equivalent)	1,205			1,099			106			10	%
Total average assets (in millions)	$	17,515		$	15,528		$	1,987		13
Total average loans/leases (in millions)	13,767			12,476			1,291			10
Total average deposits (in millions)	11,075			10,988			87			1
Net interest margin	2.75		%	2.60		%	0.15		%	6
NCOs	$	16,261		$	12,261		$	4,000		33
NCOs as a % of average loans and leases	0.24		%	0.20		%	0.04		%	20

2016 First Six months vs. 2015 First Six months

Commercial Banking reported net income of $74 million in the first six-month period of 2016. This was a decrease of $29 million, or 28%, compared to the year-ago period. Segment net interest income increased $33 million, or 20%, primarily due to higher earning asset yields related to the Huntington Technology Finance acquisition late in the 2015 first quarter, an increase in average loans/leases, recoveries from previously charged-off loans, and the increase in average available-for-sale securities which are related to direct purchase municipal instruments. The provision for credit losses increased $26 million, or 676%, as a result of additional reserves for the energy sector portfolio and an increase in NCOs. Noninterest expense increased due to an increase in personnel expense and operating lease expense, which was attributed to the late 2015 first quarter acquisition of Huntington Technology Finance. The increase in allocated noninterest expense was partially offset by an increase in allocated noninterest income.



Automobile Finance and Commercial Real Estate

Table 33 - Key Performance Indicators for Automobile Finance and Commercial Real Estate
(dollar amounts in thousands unless otherwise noted)
	Six months ended June 30,						Change
	2016			2015			Amount			Percent
Net interest income	$	191,171		$	190,204		$	967		1	%
Provision (reduction in allowance) for credit losses	(6,891		)	2,115			(9,006		)	(426	)
Noninterest income	17,840			16,249			1,591			10
Noninterest expense	82,534			74,033			8,501			11
Provision for income taxes	46,679			45,607			1,072			2
Net income	$	86,689		$	84,698		$	1,991		2	%
Number of employees (average full-time equivalent)	310			294			16			5	%
Total average assets (in millions)	$	18,350		$	16,679		$	1,671		10
Total average loans/leases (in millions)	17,289			15,422			1,867			12
Total average deposits (in millions)	1,644			1,432			212			15
Net interest margin	2.17		%	2.38		%	(0.21		)%	(9	)
NCOs	$	(16,933	)	$	4,014		$	(20,947	)	(522	)
NCOs as a % of average loans and leases	(0.20		)%	0.05		%	(0.25		)%	(500	)

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2016 First Six months vs. 2015 First Six months

AFCRE reported net income of $87 million in the first six-month period of 2016. This was an increase of $2 million, or 2%, compared to the year-ago period. Segment net interest income was essentially unchanged, as the benefit from higher loan balances were offset by a 21 basis point decline in the net interest margin. The provision (reduction in allowance) for credit losses decreased by $9 million, primarily due to an increase in CRE net recoveries. Noninterest income increased $2 million, or 10%, primarily due to a $6 million increase in fee sharing revenue, primarily related to the sale of interest rate derivative products, and a $2 million increase in realized and unrealized gains associated with community development equity investments. These increases were partially offset by the year ago quarter including a $5 million gain on sale of loans from the automobile loan securitization. Noninterest expense increased $9 million, or 11%, primarily due to an increase in personnel costs and other allocated costs attributed to higher production and portfolio balance levels.



Regional Banking and The Huntington Private Client Group

Table 34 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group
(dollar amounts in thousands unless otherwise noted)
	Six months ended June 30,						Change
	2016			2015			Amount			Percent
Net interest income	$	79,781		$	54,575		$	25,206		46	%
Provision (reduction in allowance) for credit losses	(1,500		)	4,240			(5,740		)	(135	)
Noninterest income	55,395			78,388			(22,993		)	(29	)
Noninterest expense	100,860			121,849			(20,989		)	(17	)
Provision for income taxes	12,536			2,406			10,130			421
Net income	$	23,280		$	4,468		$	18,812		421	%
Number of employees (average full-time equivalent)	879			966			(87		)	(9	)%
Total average assets (in millions)	$	4,340		$	3,361		$	979		29
Total average loans/leases (in millions)	3,894			2,910			984			34
Total average deposits (in millions)	7,879			6,758			1,121			17
Net interest margin	2.06		%	1.65		%	0.41		%	25
NCOs	$	(3,015	)	$	4,028		$	(7,043	)	N.R.
NCOs as a % of average loans and leases	(0.15		)%	0.28		%	(0.43		)%	N.R.
Total assets under management (in billions)—eop	$	12.2		$	14.1		$	(1.9	)	(13	)
Total trust assets (in billions)—eop	86.1			81.1			5.0			6	%

N.R.—Not relevant.

eop—End of Period.

2016 First Six months vs. 2015 First Six months

RBHPCG reported net income of $23 million in the first six-month period of 2016. This was an increase of $19 million, or 421%, compared to the year-ago period. Segment net interest income increased $25 million, or 46%, mainly due to an increase in average total loans and deposits. The increase in average total loans was due to a transfer of $836 million in portfolio mortgage loans originated by Home Lending. The increase in average total deposits was the result of growth in the new Private Client Account interest checking product and growth in commercial and consumer money-market deposit account balances. The provision (reduction in allowance) for credit losses decreased $6 million, or 135%, primarily due to net recoveries in the current period. Noninterest income decreased $23 million, or 29%, primarily due to the sale of HASI and HAA at the end of 2015. Noninterest expense decreased $21 million, or 17%, due to reduced expense resulting from the sale of HASI and HAA, and reduced allocated costs.

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Home Lending

Table 35 - Key Performance Indicators for Home Lending
(dollar amounts in thousands unless otherwise noted)
	Six months ended June 30,						Change
	2016			2015			Amount			Percent
Net interest income	$	27,433		$	31,630		$	(4,197	)	(13	)%
Provision (reduction in allowance) for credit losses	(2,825		)	4,294			(7,119		)	N.R.
Noninterest income	33,971			50,634			(16,663		)	(33	)
Noninterest expense	52,063			77,427			(25,364		)	(33	)
Provision for income taxes	4,258			190			4,068			N.R.
Net income (loss)	$	7,908		$	353		$	7,555		N.R.
Number of employees (average full-time equivalent)	982			954			28			3	%
Total average assets (in millions)	$	3,126		$	3,931		$	(805	)	(20	)
Total average loans/leases (in millions)	2,558			3,336			(778		)	(23	)
Total average deposits (in millions)	351			354			(3		)	(1	)
Net interest margin	1.87		%	1.70		%	0.17		%	10
NCOs	$	1,717		$	2,415		$	(698	)	(29	)
NCOs as a % of average loans and leases	0.13		%	0.14		%	(0.01		)%	(7	)
Mortgage banking origination volume (in millions)	$	2,535		$	2,435		$	100		4

N.R.—Not relevant.

2016 First Six months vs. 2015 First Six months

Home Lending reported net income of $8 million in the first six-month period of 2016 compared to a net income of $0.4 million in the year-ago period. Segment net interest income decreased $4 million, or 13%, which primarily reflects the transfer of $836 million of portfolio mortgage loans to the RBHPCG segment. The provision (reduction in allowance) for credit losses decreased $7 million, due to a higher provision in the year-ago quarter from updated assumptions made to the ACL estimation process in 2015. Noninterest income decreased by $17 million, or 33%, primarily due to net MSR hedging impacts and higher fee sharing to other business segments from higher production volume. Noninterest expense declined $25 million, or 33%, primarily due to lower allocated expenses.

ADDITIONAL DISCLOSURES

Forward-Looking Statements

This report, including MD&A, contains certain forward-looking statements, including certain plans, expectations, goals, projections, and statements about the benefits of the proposed merger transaction with FirstMerit, the merger parties’ plans, objectives, expectations and intentions, the expected timing of completion of the transaction with FirstMerit, and other statements that are not historical facts. Such statements are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions, uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board, volatility and disruptions in global capital and credit markets; movements in interest rates; competitive pressures on product pricing and services; success, impact, and timing of Huntington’s and FirstMerit’s respective business strategies, including market acceptance of any new products or services implementing Huntington’s “Fair Play” banking philosophy; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB, and the regulatory approval process associated with the merger; the possibility that the proposed transaction with

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FirstMerit does not close when expected or at all because required regulatory or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Huntington and FirstMerit do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; Huntington’s ability to complete the acquisition and integration of FirstMerit successfully; and other factors that may affect future results of Huntington and FirstMerit. Additional factors that could cause results to differ materially from those described above can be found in Huntington’s Annual Report on Form 10-K for the year ended December 31, 2015 and in its subsequent Quarterly Reports on Form 10-Q, including for the quarter ended March 31, 2016, each of which is on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of Huntington’s website, http://www.huntington.com, under the heading “Publications and Filings” and in other documents Huntington files with the SEC, and in FirstMerit’s Annual Report on Form 10-K for the year ended December 31, 2015 and in its subsequent Quarterly Reports on Form 10-Q, including for the quarter ended March 31, 2016, each of which is on file with the SEC and available in the “Investors” section of FirstMerit’s website, http://www.firstmerit.com, under the heading “Publications & Filings” and in other documents FirstMerit files with the SEC.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. Neither Huntington nor FirstMerit assumes any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Non-GAAP Financial Measures

This document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Huntington’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

Significant Items

From time-to-time, revenue, expenses, or taxes are impacted by items judged by us to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by us at that time to be infrequent or short-term in nature. We refer to such items as Significant Items. Most often, these Significant Items result from factors originating outside the Company; e.g., regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions associated with significant corporate actions outside of the ordinary course of business; e.g., merger / restructuring charges, recapitalization actions, goodwill impairment, etc.

Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not define a Significant Item. For example, changes in the provision for credit losses, gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary banking activities and are, therefore, typically excluded from consideration as a Significant Item.

We believe the disclosure of Significant Items provides a better understanding of our performance and trends to ascertain which of such items, if any, to include or exclude from an analysis of our performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance accordingly. To this end, we adopted a practice of listing Significant Items in our external disclosure documents; e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K.

Significant Items for any particular period are not intended to be a complete list of items that may materially impact current or future period performance.

Fully-Taxable Equivalent Basis

Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides a more accurate picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 35 percent. We encourage readers to consider the consolidated financial

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statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.

Non-Regulatory Capital Ratios

In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:


•	Tangible common equity to tangible assets, and


•	Tangible common equity to risk-weighted assets using Basel III definitions.

These non-regulatory capital ratios are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market conditions. Additionally, presentation of these ratios allows readers to compare the Company’s capitalization to other financial services companies. These ratios differ from capital ratios defined by banking regulators principally in that the numerator excludes preferred securities, the nature and extent of which varies among different financial services companies. These ratios are not defined in Generally Accepted Accounting Principles (“GAAP”) or federal banking regulations. As a result, these non-regulatory capital ratios disclosed by the Company are considered non-GAAP financial measures.

Because there are no standardized definitions for these non-regulatory capital ratios, the Company’s calculation methods may differ from those used by other financial services companies. Also, there may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider the consolidated financial statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.

Risk Factors

Information on risk is discussed in the Risk Factors section included in Item 1A of our 2015 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.

Updates to Risk Factors

Changes in accounting policies, standards, and interpretations could materially affect how we report our financial condition and results of operations.

The FASB, regulatory agencies, and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of our financial statements. Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC, and banking regulators) may change prior interpretations or positions on how these standards should be applied. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations.

On June 16, 2016, the FASB issued Accounting Standard Update 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an expected losses approach for calculating credit reserves on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.

For further discussion, see Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Use of Significant Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 of Notes to Consolidated Financial Statements included in our December 31, 2015 Form 10-K, as supplemented by this report, lists significant accounting policies we use in the development and presentation of our financial statements. This MD&A, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors necessary for an understanding and evaluation of our company, financial position, results of operations, and cash flows.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that significantly differ from when those estimates were made.

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Our most significant accounting estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes, and deferred tax assets. These significant accounting estimates and their related application are discussed in our December 31, 2015 Form 10-K.

Recent Accounting Pronouncements and Developments

Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements discusses new accounting pronouncements adopted during 2016 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affect financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Unaudited Condensed Consolidated Financial Statements.

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Item 1: Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets

(Unaudited)



(dollar amounts in thousands, except number of shares)	June 30,			December 31,
	2016			2015
Assets
Cash and due from banks	$	867,180		$	847,156
Interest-bearing deposits in banks	44,896			51,838
Trading account securities	35,289			36,997
Loans held for sale (includes $614,626 and $337,577 respectively, measured at fair value) ⁽¹⁾	786,993			474,621
Available-for-sale and other securities	9,653,038			8,775,441
Held-to-maturity securities	5,658,565			6,159,590
Loans and leases (includes $37,903 and $34,637 respectively, measured at fair value) ⁽¹⁾	52,543,421			50,341,099
Allowance for loan and lease losses	(623,064		)	(597,843		)
Net loans and leases	51,920,357			49,743,256
Bank owned life insurance	1,777,628			1,757,668
Premises and equipment	596,642			620,540
Goodwill	676,869			676,869
Other intangible assets	47,666			54,978
Servicing rights	159,467			189,237
Accrued income and other assets	1,729,427			1,630,110
Total assets	$	73,954,017		$	71,018,301
Liabilities and shareholders’ equity
Liabilities
Deposits	$	55,043,465		$	55,294,979
Short-term borrowings	1,956,745			615,279
Long-term debt	7,929,820			7,041,364
Accrued expenses and other liabilities	1,516,683			1,472,073
Total liabilities	66,446,713			64,423,695
Shareholders’ equity
Preferred stock	971,278			386,291
Common stock	8,015			7,970
Capital surplus	7,074,249			7,038,502
Less treasury shares, at cost	(21,358		)	(17,932		)
Accumulated other comprehensive loss	(134,042		)	(226,158		)
Retained (deficit) earnings	(390,838		)	(594,067		)
Total shareholders’ equity	7,507,304			6,594,606
Total liabilities and shareholders’ equity	$	73,954,017		$	71,018,301
Common shares authorized (par value of $0.01)	1,500,000,000			1,500,000,000
Common shares issued	801,528,870			796,969,694
Common shares outstanding	799,153,996			794,928,886
Treasury shares outstanding	2,374,874			2,040,808
Preferred stock, authorized shares	6,617,808			6,617,808
Preferred shares issued	2,602,571			1,967,071
Preferred shares outstanding	998,006			398,006


(1)	Amounts represent loans for which Huntington has elected the fair value option.

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
(dollar amounts in thousands, except per share amounts)

	Three Months Ended June 30,					Six months ended June 30,
	2016			2015		2016			2015
Interest and fee income:
Loans and leases	$	469,770		$	436,564	$	933,192		$	857,177
Available-for-sale and other securities
Taxable	40,992			51,525		80,606			99,381
Tax-exempt	13,795			10,319		26,814			19,605
Held-to-maturity securities—taxable	35,420			20,742		72,209			41,408
Other	5,681			10,645		10,088			14,320
Total interest income	565,658			529,795		1,122,909			1,031,891
Interest expense:
Deposits	22,324			19,865		45,342			39,433
Short-term borrowings	913			731		1,811			1,273
Federal Home Loan Bank advances	72			71		141			447
Subordinated notes and other long-term debt	36,468			18,442		66,668			32,367
Total interest expense	59,777			39,109		113,962			73,520
Net interest income	505,881			490,686		1,008,947			958,371
Provision for credit losses	24,509			20,419		52,091			41,010
Net interest income after provision for credit losses	481,372			470,267		956,856			917,361
Service charges on deposit accounts	75,613			70,118		145,875			132,338
Cards and payment processing income	39,184			35,886		75,631			68,457
Mortgage banking income	31,591			38,518		50,134			61,479
Trust services	22,497			26,550		45,335			55,589
Insurance income	15,947			17,637		32,172			33,532
Brokerage income	14,599			15,184		30,101			30,684
Capital markets fees	13,037			13,192		26,047			27,097
Bank owned life insurance income	12,536			13,215		26,049			26,240
Gain on sale of loans	9,265			12,453		14,660			17,042
Net gains on sales of securities	732			82		732			82
Impairment losses recognized in earnings on available-for-sale securities	(76		)	—		(76		)	—
Other noninterest income	36,187			38,938		66,319			60,856
Total noninterest income	271,112			281,773		512,979			513,396
Personnel costs	298,949			282,135		584,346			547,051
Outside data processing and other services	63,037			58,508		124,915			109,043
Equipment	31,805			31,694		64,381			61,943
Net occupancy	30,704			28,861		62,180			59,881
Marketing	14,773			15,024		27,041			27,999
Professional services	21,488			12,593		35,026			25,320
Deposit and other insurance expense	12,187			11,787		23,395			21,954
Amortization of intangibles	3,600			9,960		7,312			20,166
Other noninterest expense	47,118			41,215		86,145			77,277
Total noninterest expense	523,661			491,777		1,014,741			950,634
Income before income taxes	228,823			260,263		455,094			480,123
Provision for income taxes	54,283			64,057		109,240			118,063
Net income	174,540			196,206		345,854			362,060
Dividends on preferred shares	19,874			7,968		27,872			15,933
Net income applicable to common shares	$	154,666		$	188,238	$	317,982		$	346,127

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Average common shares—basic	798,167			806,891		796,961			808,335
Average common shares—diluted	810,371			820,238		809,360			822,023
Per common share:
Net income—basic	$	0.19		$	0.23	$	0.40		$	0.43
Net income—diluted	0.19			0.23		0.39			0.42
Cash dividends declared	0.07			0.06		0.14			0.12
OTTI losses for the periods presented:
Total OTTI losses	$	(76	)	$	—	$	(3,809	)	$	—
Noncredit-related portion of loss recognized in OCI	—			—		3,733			—
Impairment losses recognized in earnings on available-for-sale securities	$	(76	)	$	—	$	(76	)	$	—

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended June 30,					Six months ended June 30,
(dollar amounts in thousands)	2016		2015			2016			2015
Net income	$	174,540	$	196,206		$	345,854		$	362,060
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale and other securities:
Non-credit-related impairment recoveries (losses) on debt securities not expected to be sold	667		8,720			(1,682		)	12,110
Unrealized net gains (losses) on available-for-sale and other securities arising during the period, net of reclassification for net realized gains and losses	30,603		(33,812		)	82,154			5,140
Total unrealized gains (losses) on available-for-sale securities	31,270		(25,092		)	80,472			17,250
Unrealized gains (losses) on cash flow hedging derivatives, net of reclassifications to income	1,134		(629		)	9,963			17,586
Change in accumulated unrealized losses for pension and other post-retirement obligations	840		903			1,681			1,806
Other comprehensive income (loss), net of tax	33,244		(24,818		)	92,116			36,642
Comprehensive income	$	207,784	$	171,388		$	437,970		$	398,702

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)



																Accumulated Other Comprehensive Gain (Loss)			Retained Earnings (Deficit)
(All amounts in thousands, except for per share amounts)	Preferred Stock		Common Stock					Capital Surplus			Treasury Stock
	Amount		Shares		Amount						Shares		Amount									Total
Six months ended June 30, 2015
Balance, beginning of period	$	386,292	813,136		$	8,131		$	7,221,745		(1,682	)	$	(13,382	)	$	(222,292	)	$	(1,052,324	)	$	6,328,170
Net income																			362,060			362,060
Other comprehensive income (loss)																36,642						36,642
Repurchase of common stock			(13,783	)	(138		)	(150,709		)												(150,847		)
Cash dividends declared:
Common ($0.12 per share)																			(96,732		)	(96,732		)
Preferred Series A ($42.50 per share)																			(15,407		)	(15,407		)
Preferred Series B ($14.85 per share)																			(526		)	(526		)
Recognition of the fair value of share-based compensation								25,573														25,573
Other share-based compensation activity			5,642		57			12,227											(1,935		)	10,349
Other			41		—			657			(288	)	(3,661		)				(20		)	(3,024		)
Balance, end of period	$	386,292	805,036		$	8,050		$	7,109,493		(1,970	)	$	(17,043	)	$	(185,650	)	$	(804,884	)	$	6,496,258
Six months ended June 30, 2016
Balance, beginning of period	$	386,291	796,970		$	7,970		$	7,038,502		(2,041	)	$	(17,932	)	$	(226,158	)	$	(594,067	)	$	6,594,606
Net income																			345,854			345,854
Other comprehensive income (loss)																92,116						92,116
Net proceeds from issuance of Series D preferred stock	584,987																					584,987
Cash dividends declared:
Common ($0.14 per share)																			(111,735		)	(111,735		)
Preferred Series A ($42.50 per share)																			(15,407		)	(15,407		)
Preferred Series B ($16.63 per share)																			(590		)	(590		)
Preferred Series D ($19.79 per share)																			(11,875		)	(11,875		)
Recognition of the fair value of share-based compensation								27,799														27,799
Other share-based compensation activity			4,559		45			7,872											(3,004		)	4,913
Other								76			(334	)	(3,426		)				(14		)	(3,364		)
Balance, end of period	$	971,278	801,529		$	8,015		$	7,074,249		(2,375	)	$	(21,358	)	$	(134,042	)	$	(390,838	)	$	7,507,304

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six months ended June 30,
(dollar amounts in thousands)	2016			2015
Operating activities
Net income	$	345,854		$	362,060
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	52,091			41,010
Depreciation and amortization	208,249			167,957
Share-based compensation expense	27,799			25,573
Net gain on sales of securities	(656		)	(82		)
Net change in:
Trading account securities	1,708			(16,955		)
Loans held for sale	(307,880		)	(242,111		)
Accrued income and other assets	(97,334		)	(175,467		)
Deferred income taxes	(6,864		)	24,138
Accrued expense and other liabilities	70,554			(84,512		)
Other, net	(6,883		)	(15,516		)
Net cash provided by (used for) operating activities	286,638			86,095
Investing activities
Change in interest bearing deposits in banks	6,942			(6,850		)
Cash paid for acquisition of a business, net of cash received	—			(457,836		)
Proceeds from:
Maturities and calls of available-for-sale and other securities	467,633			916,486
Maturities of held-to-maturity securities	495,645			288,706
Sales of available-for-sale and other securities	170,986			20,126
Purchases of available-for-sale and other securities	(1,405,035		)	(1,798,749		)
Purchases of held-to-maturity securities	—			(215,447		)
Net proceeds from securitization	—			780,117
Net proceeds from sales of portfolio loans	234,608			203,058
Net loan and lease activity, excluding sales and purchases	(2,220,929		)	(1,172,432		)
Purchases of premises and equipment	(19,846		)	(43,093		)
Proceeds from sales of other real estate	13,290			21,025
Purchases of loans and leases	(341,985		)	(58,341		)
Other, net	2,698			1,327
Net cash provided by (used for) investing activities	(2,595,993		)	(1,521,903		)
Financing activities
Increase (decrease) in deposits	(256,333		)	1,821,169
Increase (decrease) in short-term borrowings	1,335,888			(888,979		)
Sale of deposits	—			(47,521		)
Net proceeds from issuance of long-term debt	1,051,794			1,746,938
Maturity/redemption of long-term debt	(255,750		)	(789,408		)
Dividends paid on preferred stock	(27,872		)	(15,933		)
Dividends paid on common stock	(112,087		)	(97,310		)
Repurchases of common stock	—			(150,847		)
Proceeds from stock options exercised	3,887			6,517
Net proceeds from issuance of preferred stock	584,987			—
Other, net	4,865			10,586
Net cash provided by (used for) financing activities	2,329,379			1,595,212

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Increase (decrease) in cash and cash equivalents	20,024		159,404
Cash and cash equivalents at beginning of period	847,156		1,220,565
Cash and cash equivalents at end of period	$	867,180	$	1,379,969



Supplemental disclosures:
Interest paid	$	107,428	$	67,381
Income taxes paid (refunded)	3,099		87,986
Non-cash activities
Loans transferred to held-for-sale from portfolio	266,527		111,588
Loans transferred to portfolio from held-for-sale	10,661		15,726
Transfer of loans to OREO	12,974		13,028

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Huntington Bancshares Incorporated

Notes to Unaudited Condensed Consolidated Financial Statements

1. BASIS OF PRESENTATION

The accompanying Unaudited Condensed Consolidated Financial Statements of Huntington reflect all adjustments consisting of normal recurring accruals which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These Unaudited Condensed Consolidated Financial Statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2015 Form 10-K, which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” which includes amounts on deposit with the Federal Reserve and “Federal funds sold and securities purchased under resale agreements.”

In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the Unaudited Condensed Consolidated Financial Statements or disclosed in the Notes to Unaudited Condensed Consolidated Financial Statements.

Certain prior period amounts have been reclassified to conform to the current year's presentation. Specifically, Huntington reclassified servicing assets from accrued income and other assets to disclose them as a separate line item on the balance sheets. In addition, debt issuance costs were reclassified to long-term debt from accrued income and other assets as part of adopting ASU 2015-03.

2. ACCOUNTING STANDARDS UPDATE

ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): The amendments in ASU 2014-09 supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The general principle of the amendments require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance sets forth a five step approach to be utilized for revenue recognition. The amendments were originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Subsequently, the FASB issued a one-year deferral for implementation, which results in new guidance being effective for annual and interim reporting periods beginning after December 15, 2017. The FASB, however, permitted adoption of the new guidance on the original effective date. Management is currently assessing the impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.

ASU 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis. This Update provides a new scope exception for registered money market funds and similar unregistered money market funds, provides targeted amendments to the current consolidation guidance, and ends the deferral granted to investment companies from applying the variable interest entity accounting guidance. This amendment was effective during the current reporting period and did not have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2015-03 - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs. This Update was issued to simplify the presentation of debt issuance costs. The amendments require debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction to the carrying amount of that debt liability, consistent with debt discounts. The amendment was effective during the current reporting period. Amounts reclassified in the prior periods were immaterial to Huntington’s Unaudited Condensed Consolidated Financial Statements. For more information, refer to Note 8 “Long-Term Debt”.

ASU 2015-10 - Technical Corrections and Improvements. This Update sets forth certain technical corrections and improvements issued in June 2015 with an objective to clarify the Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the ASU, among other things, requires disclosure of fair value for non-recurring items at the relevant measurement date where the fair value is not measured at the end of the reporting period. Also, for nonrecurring measurements estimated at a date during the reporting period other than the end of the reporting period, a reporting entity is required to clearly indicate that the fair value information presented is not as of the period’s end.

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The technical correction for fair value disclosure was effective upon issuance and did not have a significant impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.

ASU 2015-16 - Simplifying the Accounting for Measurement-Period Adjustments. This Update requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This Update was effective for the current reporting period and did not have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities. This Update sets forth targeted improvements to GAAP including, but not limited to, requiring an entity to recognize the changes in fair value of equity investments in the income statement, requiring public business entities to use the exit price when measuring the fair value of financial instruments for financial statement disclosure purposes, eliminating certain disclosures required by existing GAAP, and providing for additional disclosures. The Update is effective for the fiscal period beginning after December 15, 2017, including interim periods within those fiscal years. A cumulative-effect adjustment to the balance sheet will be required as of the beginning of the fiscal year upon adoption. The Update is not expected to have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-02 - Leases. This Update sets forth a new lease accounting model for lessors and lessees. For lessees, all leases will be required to be recognized on the balance sheet by recording a right-of-use asset. Subsequent accounting for leases varies depending on whether the lease is an operating lease or a finance lease. The accounting applied by a lessor is largely unchanged from that applied under the existing guidance. The ASU requires additional qualitative and quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Update is effective for the fiscal period beginning after December 15, 2018, with early application permitted. Management is currently assessing the impact of the new guidance on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-05 - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. This Update provides accounting clarification for changes in the counterparty to a derivative instrument that has been designated as a qualified hedging instrument. Specifically, changes in the derivative counterparty should not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This Update is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early application is permitted. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Management does not believe the new guidance will have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-06 - Contingent Put and Call Options in Debt Instruments. This Update clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt instruments. An entity performing the assessment set forth in this Update will be required to assess embedded call (put) options solely in accordance with the four-step decision sequence. This Update is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. An entity should apply this Update on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. This Update is not expected to have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-07 - Simplifying the Transition to the Equity Method of Accounting. This Update eliminates the requirement for the retrospective use of the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence of an investor. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for the equity method accounting. This Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments are not expected to have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-09 - Improvements to Employee Share-Based Payment Accounting. This Update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The amendments, among other things, require all tax

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benefits and tax deficiencies related to share-based award to be recognized in the income statement. Other changes include an election related to the accounting for forfeitures, changes to the cash flow statement presentation for excess tax benefits, as well as for cash paid by an employer when directly withholding shares for tax withholding purposes. The amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. Management is currently assessing the impact of this Update on Huntington's Unaudited Condensed Consolidated Financial Statements.

ASU 2016-13 - Financial Instruments - Credit Losses. The amendments in this Update eliminate the probable initial recognition threshold for credit losses on financial assets measured at amortized cost basis. The Update requires those financial assets to be presented at the net amount expected to be collected (i.e., net of expected credit losses). The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The Update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The amendments should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Management is currently assessing the impact of this Update on Huntington's Unaudited Condensed Consolidated Financial Statements.

3. PENDING ACQUISITION OF FIRSTMERIT CORPORATION

On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction valued at approximately $3.4 billion based on the closing stock price on the day preceding the announcement. FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, which reported assets of approximately $25.5 billion based on their December 31, 2015 balance sheet.

Under the terms of the agreement, shareholders of FirstMerit Corporation will receive 1.72 shares of Huntington common stock, and $5.00 in cash, for each share of FirstMerit Corporation common stock. The transaction is expected to be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including regulatory approvals.

On June 13, 2016, Huntington and FirstMerit announced that the shareholders of Huntington had approved the Huntington Stock Issuance Proposal and that the shareholders of FirstMerit had approved the Merger Agreement. In connection with proposed merger, Huntington and FirstMerit announced the divestiture of 13 Ohio branches primarily in the Canton and Ashtabula markets to First Commonwealth Bank. On July 29, 2016, Huntington received regulatory approval from the Board of Governors of the Federal Reserve System. We continue to expect that the transaction will be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including OCC approval of the bank merger.

4. LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES

Loans and leases for which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. Except for loans which are accounted for at fair value, loans are carried at the principal amount outstanding, net of unamortized premiums and discounts and deferred loan fees and costs, which resulted in a net premium of $270 million and $262 million at June 30, 2016 and December 31, 2015, respectively.

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Loan and Lease Portfolio Composition

The following table provides a detailed listing of Huntington’s loan and lease portfolio at June 30, 2016 and December 31, 2015:



(dollar amounts in thousands)	June 30, 2016			December 31, 2015
Loans and leases:
Commercial and industrial	$	21,372,474		$	20,559,834
Commercial real estate	5,322,068			5,268,651
Automobile	10,380,644			9,480,678
Home equity	8,447,066			8,470,482
Residential mortgage	6,377,017			5,998,400
Other consumer	644,152			563,054
Loans and leases	52,543,421			50,341,099
Allowance for loan and lease losses	(623,064		)	(597,843		)
Net loans and leases	$	51,920,357		$	49,743,256

As shown in the table above, the primary loan and lease portfolios are: C&I, CRE, automobile, home equity, residential mortgage, and other consumer. For ACL purposes, these portfolios are further disaggregated into classes. The classes within each portfolio are as follows:



Portfolio	Class
Commercial and industrial	Owner occupied
	Purchased credit-impaired
	Other commercial and industrial

Commercial real estate	Retail properties
	Multi-family
	Office
	Industrial and warehouse
	Purchased credit-impaired
	Other commercial real estate

Automobile	NA (1)

Home equity	Secured by first-lien
	Secured by junior-lien

Residential mortgage	Residential mortgage
	Purchased credit-impaired

Other consumer	Other consumer
	Purchased credit-impaired


(1)	Not applicable. The automobile loan portfolio is not further segregated into classes.

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Loan Purchases and Sales

The following table summarizes significant portfolio loan purchase and sale activity for the three-month and six-month periods ended June 30, 2016 and 2015. The table below excludes mortgage loans originated for sale.



(dollar amounts in thousands)	Commercial and Industrial		Commercial Real Estate		Automobile			Home Equity		Residential Mortgage		Other Consumer		Total
Portfolio loans and leases purchased or transferred from held for sale during the:
Three-month period ended June 30, 2016	$	35,198	$	—	$	—		$	—	$	1,669	$	—	$	36,867
Six-month period ended June 30, 2016	$	338,172	$	—	$	—		$	—	$	3,813	$	—	$	341,985
Three-month period ended June 30, 2015	31,905		—		—			—		2,754		$	—	34,659
Six-month period ended June 30, 2015	44,496		—		—			—		6,637		—		51,133
Portfolio loans and leases sold or transferred to loans held for sale during the:
Three-month period ended June 30, 2016	$	96,278	$	—	$	—		$	—	$	—	$	—	$	96,278
Six-month period ended June 30, 2016	$	240,797	$	—	$	—		$	—	$	—	$	—	$	240,797
Three-month period ended June 30, 2015	100,202		—		—			—		—		—		100,202
Six-month period ended June 30, 2015	185,902		—		764,540		(1)	—		—		—		950,442


(1)	Reflects the transfer of approximately $1.0 billion automobile loans to loans held-for-sale at March 31, 2015, net of approximately $262 million of automobile loans transferred back to loans and leases in the 2015 second quarter.

NALs and Past Due Loans

Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date.

Any loan in any portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. When a borrower with debt is discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower, the loan is determined to be collateral dependent and placed on nonaccrual status.

All classes within the C&I and CRE portfolios (except for purchased credit-impaired loans) are placed on nonaccrual status at 90-days past due. Residential mortgage loans are placed on nonaccrual status at 150-days past due, with the exception of residential mortgages guaranteed by government organizations. First-lien home equity loans are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile and other consumer loans are generally charged-off when the loan is 120-days past due.

For all classes within all loan portfolios, when a loan is placed on nonaccrual status, any accrued interest income is reversed with current year accruals charged to interest income, and prior year amounts are recognized as a credit loss.

For all classes within all loan portfolios, cash receipts received on NALs are applied entirely against principal until the loan or lease has been collected in full, after which time any additional cash receipts are recognized as interest income. However, for secured non-reaffirmed debt in a Chapter 7 bankruptcy, payments are applied to principal and interest when the borrower has demonstrated a capacity to continue payment of the debt and collection of the debt is reasonably assured. For unsecured non-reaffirmed debt in a Chapter 7 bankruptcy where the carrying value has been fully charged-off, payments are recorded as loan recoveries.

Regarding all classes within the C&I and CRE portfolios, the determination of a borrower’s ability to make the required principal and interest payments is based on an examination of the borrower’s current financial statements, industry, management capabilities, and other qualitative measures. For all classes within the consumer loan portfolio, the determination of a borrower’s ability to make the required principal and interest payments is based on multiple factors, including number of days past due and, in some instances, an evaluation of the borrower’s financial condition. When, in Management’s judgment,

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the borrower’s ability to make required principal and interest payments resumes and collectability is no longer in doubt, supported by sustained repayment history, the loan or lease is returned to accrual status. For these loans that have been returned to accrual status, cash receipts are applied according to the contractual terms of the loan.

The following table presents NALs by loan class at June 30, 2016 and December 31, 2015:



(dollar amounts in thousands)	June 30, 2016		December 31, 2015
Commercial and industrial:
Owner occupied	$	27,624	$	35,481
Other commercial and industrial	262,187		139,714
Total commercial and industrial	289,811		175,195
Commercial real estate:
Retail properties	2,345		7,217
Multi-family	5,819		5,819
Office	10,742		10,495
Industrial and warehouse	1,864		2,202
Other commercial real estate	2,893		3,251
Total commercial real estate	23,663		28,984
Automobile	5,049		6,564
Home equity:
Secured by first-lien	33,279		35,389
Secured by junior-lien	23,566		30,889
Total home equity	56,845		66,278
Residential mortgage	85,174		94,560
Other consumer	5		—
Total nonaccrual loans	$	460,547	$	371,581

The following table presents an aging analysis of loans and leases, including past due loans, by loan class at June 30, 2016 and December 31, 2015: (1)



	June 30, 2016
	Past Due										Total Loans and Leases		90 or more days past due and accruing
(dollar amounts in thousands)	30-59 Days		60-89 Days		90 or more days		Total		Current		Total Loans and Leases		90 or more days past due and accruing
Commercial and industrial:
Owner occupied	$	3,143	$	3,336	$	10,779	$	17,258	$	3,934,039	$	3,951,297	$	—
Purchased credit-impaired	178		172		3,750		4,100		5,076		9,176		3,750		(2)
Other commercial and industrial	16,936		7,229		44,420		68,585		17,343,416		17,412,001		1,866		(3)
Total commercial and industrial	20,257		10,737		58,949		89,943		21,282,531		21,372,474		5,616
Commercial real estate:
Retail properties	86		199		810		1,095		1,600,914		1,602,009		—
Multi-family	507		802		1,892		3,201		999,638		1,002,839		—
Office	—		40		10,519		10,559		845,284		855,843		—
Industrial and warehouse	156		324		894		1,374		490,912		492,286		—
Purchased credit-impaired	—		335		10,799		11,134		5,939		17,073		10,799		(2)
Other commercial real estate	351		620		1,713		2,684		1,349,334		1,352,018		—

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Total commercial real estate	1,100		2,320		26,627		30,047		5,292,021		5,322,068		10,799
Automobile	61,988		13,900		5,589		81,477		10,299,167		10,380,644		5,452
Home equity:
Secured by first-lien	12,311		7,008		24,565		43,884		5,198,668		5,242,552		4,775
Secured by junior-lien	15,514		6,844		21,261		43,619		3,160,895		3,204,514		2,804
Total home equity	27,825		13,852		45,826		87,503		8,359,563		8,447,066		7,579
Residential mortgage:
Residential mortgage	86,760		35,127		110,859		232,746		6,143,167		6,375,913		67,488		(4)
Purchased credit-impaired	—		—		—		—		1,104		1,104		—
Total residential mortgage	86,760		35,127		110,859		232,746		6,144,271		6,377,017		67,488
Other consumer:
Other consumer	7,323		2,377		1,645		11,345		632,807		644,152		1,645
Purchased credit-impaired	—		—		—		—		—		—		—
Total other consumer	7,323		2,377		1,645		11,345		632,807		644,152		1,645
Total loans and leases	$	205,253	$	78,313	$	249,495	$	533,061	$	52,010,360	$	52,543,421	$	98,579



	December 31, 2015
	Past Due										Total Loans and Leases		90 or more days past due and accruing
(dollar amounts in thousands)	30-59 Days		60-89 Days		90 or more days		Total		Current
Commercial and industrial:
Owner occupied	$	11,947	$	3,613	$	13,793	$	29,353	$	3,983,447	$	4,012,800	$	—
Purchased credit-impaired	292		1,436		5,949		7,677		13,340		21,017		5,949		(2)
Other commercial and industrial	32,476		8,531		27,236		68,243		16,457,774		16,526,017		2,775		(3)
Total commercial and industrial	44,715		13,580		46,978		105,273		20,454,561		20,559,834		8,724
Commercial real estate:
Retail properties	1,823		195		3,637		5,655		1,501,054		1,506,709		—
Multi family	961		1,137		2,691		4,789		1,073,429		1,078,218		—
Office	5,022		256		3,016		8,294		886,331		894,625		—
Industrial and warehouse	93		—		373		466		503,701		504,167		—
Purchased credit-impaired	102		3,818		9,549		13,469		289		13,758		9,549		(2)
Other commercial real estate	1,231		315		2,400		3,946		1,267,228		1,271,174		—
Total commercial real estate	9,232		5,721		21,666		36,619		5,232,032		5,268,651		9,549
Automobile	69,553		14,965		7,346		91,864		9,388,814		9,480,678		7,162
Home equity
Secured by first-lien	18,349		7,576		26,304		52,229		5,139,256		5,191,485		4,499
Secured by junior-lien	18,128		9,329		29,996		57,453		3,221,544		3,278,997		4,545
Total home equity	36,477		16,905		56,300		109,682		8,360,800		8,470,482		9,044
Residential mortgage
Residential mortgage	102,670		34,298		119,354		256,322		5,740,624		5,996,946		69,917		(5)

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Purchased credit-impaired	103		—		—		103		1,351		1,454		—
Total residential mortgage	102,773		34,298		119,354		256,425		5,741,975		5,998,400		69,917
Other consumer
Other consumer	6,469		1,852		1,395		9,716		553,286		563,002		1,394
Purchased credit-impaired	—		—		—		—		52		52		—
Total other consumer	6,469		1,852		1,395		9,716		553,338		563,054		1,394
Total loans and leases	$	269,219	$	87,321	$	253,039	$	609,579	$	49,731,520	$	50,341,099	$	105,790


(1)	NALs are included in this aging analysis based on the loan’s past due status.


(2)	Amounts represent accruing purchased impaired loans related to acquisitions. Under the applicable accounting guidance (ASC 310-30), the loans were recorded at fair value upon acquisition and remain in accruing status.


(3)	Amounts include Huntington Technology Finance administrative lease delinquencies.


(4)	Includes $56 million guaranteed by the U.S. government.


(5)	Includes $56 million guaranteed by the U.S. government.

Allowance for Credit Losses

Huntington maintains two reserves, both of which reflect Management’s judgment regarding the appropriate level necessary to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. The determination of the ACL requires significant estimates, including the timing and amounts of expected future cash flows on impaired loans and leases, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans and leases, all of which may be susceptible to change.

The appropriateness of the ACL is based on Management’s current judgments about the credit quality of the loan portfolio. These judgments consider on-going evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. Further, Management evaluates the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet their financial obligations when quantifying our exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In addition to general economic conditions and the other factors described above, additional factors also considered include: the impact of increasing or decreasing residential real estate values; the diversification of CRE loans; the development of new or expanded Commercial business segments such as healthcare, ABL, and energy, and the overall condition of the manufacturing industry. Management’s determinations regarding the appropriateness of the ACL are reviewed and approved by the Company’s board of directors.

The ALLL consists of two components: (1) the transaction reserve, which includes a loan level allocation, specific reserves related to loans considered to be impaired, and loans involved in troubled debt restructurings, and (2) the general reserve. The transaction reserve component includes both (1) an estimate of loss based on pools of commercial and consumer loans and leases with similar characteristics, and (2) an estimate of loss based on an impairment review of each impaired C&I and CRE loan where obligor balance is greater than $1 million. For the C&I and CRE portfolios, the estimate of loss based on pools of loans and leases with similar characteristics is made by applying a PD factor and a LGD factor to each individual loan based on a regularly updated loan grade, using a standardized loan grading system. The PD factor and an LGD factor are determined for each loan grade using statistical models based on historical performance data. The PD factor considers on-going reviews of the financial performance of the specific borrower, including cash flow, debt-service coverage ratio, earnings power, debt level, and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. These reserve factors are developed and updated periodically based on credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data.

In the case of other homogeneous portfolios, such as automobile loans, home equity loans, and residential mortgage loans, the determination of the transaction reserve also incorporates PD and LGD factors. The estimate of loss is based on pools of loans and leases with similar characteristics. The PD factor considers current credit scores unless the account is delinquent, in which case a higher PD factor is used. The credit score provides a basis for understanding the borrower’s past and current payment performance, and this information is used to estimate expected losses over the emergence period. The performance of first-lien loans ahead of our junior-lien loans is available to use as part of our updated score process. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. Credit scores, models, analyses, and other factors used to determine

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both the PD and LGD factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as required.

The general reserve consists of our risk-profile reserve components, which includes items unique to our structure, policies, processes, and portfolio composition, as well as qualitative measurements and assessments of the loan portfolios including, but not limited to, management quality, concentrations, portfolio composition, industry comparisons, and internal review functions.

The estimate for the AULC is determined using the same procedures and methodologies as used for the ALLL. The loss factors used in the AULC are the same as the loss factors used in the ALLL while also considering a historical utilization of unused commitments. The AULC is reflected in accrued expenses and other liabilities in the Unaudited Condensed Consolidated Balance Sheet.

The ACL is increased through a provision for credit losses that is charged to earnings, based on Management’s quarterly evaluation of the factors previously mentioned, and is reduced by charge-offs, net of recoveries, and the ACL associated with securitized or sold loans.

The following table presents ALLL and AULC activity by portfolio segment for the three-month and six-month periods ended June 30, 2016 and 2015:



(dollar amounts in thousands)	Commercial and Industrial			Commercial Real Estate			Automobile			Home Equity			Residential Mortgage			Other Consumer			Total
Three-month period ended June 30, 2016:
ALLL balance, beginning of period	$	320,367		$	102,074		$	48,032		$	78,102		$	40,842		$	24,302		$	613,719
Loan charge-offs	(14,743		)	(2,190		)	(8,850		)	(5,910		)	(2,923		)	(8,929		)	(43,545		)
Recoveries of loans previously charged-off	11,041			2,863			4,530			4,832			2,147			1,377			26,790
Provision (reduction in allowance) for loan and lease losses	6,800			(1,705		)	6,819			(542		)	2,312			12,402			26,086
Write-downs of loans sold or transferred to loans held for sale	—			—			—			—			14			—			14
ALLL balance, end of period	$	323,465		$	101,042		$	50,531		$	76,482		$	42,392		$	29,152		$	623,064
AULC balance, beginning of period	$	58,385		$	7,487		$	—		$	2,110		$	20		$	7,323		$	75,325
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	(2,343		)	188			—			40			(11		)	549			(1,577		)
AULC balance, end of period	$	56,042		$	7,675		$	—		$	2,150		$	9		$	7,872		$	73,748
ACL balance, end of period	$	379,507		$	108,717		$	50,531		$	78,632		$	42,401		$	37,024		$	696,812
Six-month period ended June 30, 2016:
ALLL balance, beginning of period	$	298,746		$	100,007		$	49,504		$	83,671		$	41,646		$	24,269		$	597,843
Loan charge-offs	(31,566		)	(14,316		)	(20,336		)	(13,620		)	(5,683		)	(17,716		)	(103,237		)
Recoveries of loans previously charged-off	21,350			32,465			9,246			8,861			3,260			2,748			77,930
Provision (reduction in allowance) for loan and lease losses	34,935			(17,114		)	12,117			(2,430		)	3,065			19,851			50,424
Write-downs of loans sold or transferred to loans held for sale	—			—			—			—			104			—			104
ALLL balance, end of period	$	323,465		$	101,042		$	50,531		$	76,482		$	42,392		$	29,152		$	623,064
AULC balance, beginning of period	$	55,886		$	7,562		$	—		$	2,068		$	18		$	6,547		$	72,081
Provision for (reduction in allowance) unfunded loan commitments and letters of credit	156			113			—			82			(9		)	1,325			1,667
AULC balance, end of period	$	56,042		$	7,675		$	—		$	2,150		$	9		$	7,872		$	73,748
ACL balance, end of period	$	379,507		$	108,717		$	50,531		$	78,632		$	42,401		$	37,024		$	696,812

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(dollar amounts in thousands)	Commercial and Industrial			Commercial Real Estate			Automobile			Home Equity			Residential Mortgage			Other Consumer			Total
Three-month period ended June 30, 2015:
ALLL balance, beginning of period	$	284,573		$	100,752		$	37,125		$	110,280		$	55,380		$	17,016		$	605,126
Loan charge-offs	(12,213		)	(8,288		)	(7,691		)	(8,629		)	(3,610		)	(6,539		)	(46,970		)
Recoveries of loans previously charged-off	7,802			2,763			4,249			3,979			1,468			1,334			21,595
Provision for (reduction in allowance) loan and lease losses	4,879			(3,167		)	5,418			5,548			(1,559		)	8,671			19,790
Allowance for loans sold or transferred to loans held for sale	—			—			1			—			—			—			1
ALLL balance, end of period	$	285,041		$	92,060		$	39,102		$	111,178		$	51,679		$	20,482		$	599,542
AULC balance, beginning of period	$	42,315		$	5,531		$	—		$	2,639		$	9		$	4,248		$	54,742
Provision for (reduction in allowance) unfunded loan commitments and letters of credit	(466		)	247			—			(117		)	8			957			629
AULC balance, end of period	$	41,849		$	5,778		$	—		$	2,522		$	17		$	5,205		$	55,371
ACL balance, end of period	$	326,890		$	97,838		$	39,102		$	113,700		$	51,696		$	25,687		$	654,913
Six-month period ended June 30, 2015:
ALLL balance, beginning of period	$	286,995		$	102,839		$	33,466		$	96,413		$	47,211		$	38,272		$	605,196
Loan charge-offs	(36,825		)	(10,301		)	(15,794		)	(17,215		)	(8,473		)	(13,437		)	(102,045		)
Recoveries of loans previously charged-off	21,011			8,788			8,104			7,940			3,515			2,880			52,238
Provision for (reduction in allowance) loan and lease losses	13,860			(9,266		)	15,618			24,040			9,426			(7,233		)	46,445
Allowance for loans sold or transferred to loans held for sale	—			—			(2,292		)	—			—			—			(2,292		)
ALLL balance, end of period	$	285,041		$	92,060		$	39,102		$	111,178		$	51,679		$	20,482		$	599,542
AULC balance, beginning of period	$	48,988		$	6,041		$	—		$	1,924		$	8		$	3,845		$	60,806
Provision for (reduction in allowance) unfunded loan commitments and letters of credit	(7,139		)	(263		)	—			598			9			1,360			(5,435		)
AULC balance, end of period	$	41,849		$	5,778		$	—		$	2,522		$	17		$	5,205		$	55,371
ACL balance, end of period	$	326,890		$	97,838		$	39,102		$	113,700		$	51,696		$	25,687		$	654,913

Any loan in any portfolio may be charged-off prior to the policies described below if a loss confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a collateral deficiency and that asset is the sole source of repayment. Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a charge-off to estimated collateral value, less anticipated selling costs.

C&I and CRE loans are either fully or partially charged-off at 90-days past due. Automobile loans and other consumer loans are charged-off at 120-days past due. First-lien and junior-lien home equity loans are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due and 120-days past due, respectively. Residential mortgages are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due.

Credit Quality Indicators

To facilitate the monitoring of credit quality for C&I and CRE loans, and for purposes of determining an appropriate ACL level for these loans, Huntington utilizes the following categories of credit grades:

Pass - Higher quality loans that do not fit any of the other categories described below.

OLEM - The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the loan may weaken or the collateral may be inadequate to protect Huntington’s position in the future. For these reasons, Huntington considers the loans to be potential problem loans.

Substandard - Inadequately protected loans by the borrower’s ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. It is likely Huntington will sustain some loss if any identified weaknesses are not mitigated.

Doubtful - Loans that have all of the weaknesses inherent in those loans classified as Substandard, with the added elements of the full collection of the loan is improbable and that the possibility of loss is high.

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The categories above, which are derived from standard regulatory rating definitions, are assigned upon initial approval of the loan or lease and subsequently updated as appropriate.

Commercial loans categorized as OLEM, Substandard, or Doubtful are considered Criticized loans. Commercial loans categorized as Substandard or Doubtful are also considered Classified loans.

For all classes within all consumer loan portfolios, each loan is assigned a specific PD factor that is partially based on the borrower’s most recent credit bureau score, which we update quarterly. A credit bureau score is a credit score developed by Fair Isaac Corporation based on data provided by the credit bureaus. The credit bureau score is widely accepted as the standard measure of consumer credit risk used by lenders, regulators, rating agencies, and consumers. The higher the credit bureau score, the higher likelihood of repayment and therefore, an indicator of higher credit quality.

Huntington assesses the risk in the loan portfolio by utilizing numerous risk characteristics. The classifications described above, and also presented in the table below, represent one of those characteristics that are closely monitored in the overall credit risk management processes.

The following table presents each loan and lease class by credit quality indicator at June 30, 2016 and December 31, 2015:



	June 30, 2016
	Credit Risk Profile by UCS Classification
(dollar amounts in thousands)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial:
Owner occupied	$	3,708,602	$	83,694	$	158,248	$	753	$	3,951,297
Purchased credit-impaired	1,484		293		7,379		20		9,176
Other commercial and industrial	16,315,278		316,141		776,383		4,199		17,412,001
Total commercial and industrial	20,025,364		400,128		942,010		4,972		21,372,474
Commercial real estate:
Retail properties	1,582,809		8,297		10,903		—		1,602,009
Multi-family	959,152		28,778		14,573		336		1,002,839
Office	787,401		34,957		33,098		387		855,843
Industrial and warehouse	469,083		4,500		18,703		—		492,286
Purchased credit-impaired	3,157		228		12,151		1,537		17,073
Other commercial real estate	1,316,273		4,584		30,343		818		1,352,018
Total commercial real estate	5,117,875		81,344		119,771		3,078		5,322,068

	Credit Risk Profile by FICO Score (1)
	750+		650-749		<650		Other (2)		Total
Automobile	5,205,064		3,779,606		1,116,762		279,212		10,380,644
Home equity:
Secured by first-lien	3,346,422		1,463,054		264,024		169,052		5,242,552
Secured by junior-lien	1,818,244		982,067		289,865		114,338		3,204,514
Total home equity	5,164,666		2,445,121		553,889		283,390		8,447,066
Residential mortgage:
Residential mortgage	3,886,423		1,848,386		522,665		118,439		6,375,913
Purchased credit-impaired	320		331		453		—		1,104
Total residential mortgage	3,886,743		1,848,717		523,118		118,439		6,377,017
Other consumer:
Other consumer	257,518		313,712		59,699		13,223		644,152
Purchased credit-impaired	—		—		—		—		—
Total other consumer	$	257,518	$	313,712	$	59,699	$	13,223	$	644,152

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	December 31, 2015
	Credit Risk Profile by UCS Classification
(dollar amounts in thousands)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial:
Owner occupied	$	3,731,113	$	114,490	$	165,301	$	1,896	$	4,012,800
Purchased credit-impaired	3,051		674		15,661		1,631		21,017
Other commercial and industrial	15,523,625		284,175		714,615		3,602		16,526,017
Total commercial and industrial	19,257,789		399,339		895,577		7,129		20,559,834
Commercial real estate:
Retail properties	1,473,014		10,865		22,830		—		1,506,709
Multi-family	1,029,138		28,862		19,898		320		1,078,218
Office	822,824		35,350		36,011		440		894,625
Industrial and warehouse	493,402		259		10,450		56		504,167
Purchased credit-impaired	7,194		397		6,167		—		13,758
Other commercial real estate	1,240,482		4,054		25,811		827		1,271,174
Total commercial real estate	5,066,054		79,787		121,167		1,643		5,268,651

	Credit Risk Profile by FICO Score (1)
	750+		650-749		<650		Other (2)		Total
Automobile	4,680,684		3,454,585		1,086,914		258,495		9,480,678
Home equity:
Secured by first-lien	3,369,657		1,441,574		258,328		121,926		5,191,485
Secured by junior-lien	1,841,084		1,024,851		323,998		89,064		3,278,997
Total home equity	5,210,741		2,466,425		582,326		210,990		8,470,482
Residential mortgage
Residential mortgage	3,563,683		1,813,002		567,688		52,573		5,996,946
Purchased credit-impaired	381		777		296		—		1,454
Total residential mortgage	3,564,064		1,813,779		567,984		52,573		5,998,400
Other consumer
Other consumer	233,969		269,694		49,650		9,689		563,002
Purchased credit-impaired	—		52		—		—		52
Total other consumer	$	233,969	$	269,746	$	49,650	$	9,689	$	563,054


(1)	Reflects most recent customer credit scores.


(2)	Reflects deferred fees and costs, loans in process, loans to legal entities, etc.

Impaired Loans

For all classes within the C&I and CRE portfolios, all loans with an obligor balance of $1 million or greater are considered for individual evaluation on a quarterly basis for impairment. Generally, consumer loans within any class are not individually evaluated on a regular basis for impairment. However, certain home equity and residential mortgage loans are measured for impairment based on the underlying collateral value. All TDRs, regardless of the outstanding balance amount, are also considered to be impaired. Loans acquired with evidence of deterioration of credit quality since origination for which it is probable at acquisition that all contractually required payments will not be collected are also considered to be impaired.

Once a loan has been identified for an assessment of impairment, the loan is considered impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. This determination requires significant judgment and use of estimates, and the eventual outcome may differ significantly from those estimates.

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When a loan in any class has been determined to be impaired, the amount of the impairment is measured using the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the observable market price of the loan, or the fair value of the collateral, less anticipated selling costs, if the loan is collateral dependent. When the present value of expected future cash flows is used, the effective interest rate is the original contractual interest rate of the loan adjusted for any premium, discount, fees, or costs. A specific reserve is established as a component of the ALLL when a commercial loan has been determined to be impaired. Subsequent to the initial measurement of impairment, if there is a significant change to the impaired loan’s expected future cash flows, or if actual cash flows are significantly different from the cash flows previously estimated, Huntington recalculates the impairment and appropriately adjusts the specific reserve. Similarly, if Huntington measures impairment based on the observable market price of an impaired loan or the fair value of the collateral of an impaired collateral dependent loan, Huntington will adjust the specific reserve.

When a loan within any class is impaired, the accrual of interest income is discontinued unless the receipt of principal and interest is no longer in doubt. Interest income on TDRs is accrued when all principal and interest is expected to be collected under the post-modification terms. Cash receipts received on nonaccruing impaired loans within any class are generally applied entirely against principal until the loan has been collected in full (including already charged-off portion), after which time any additional cash receipts are recognized as interest income. Cash receipts received on accruing impaired loans within any class are applied in the same manner as accruing loans that are not considered impaired.

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance at June 30, 2016 and December 31, 2015:



(dollar amounts in thousands)	Commercial and Industrial		Commercial Real Estate		Automobile		Home Equity		Residential Mortgage		Other Consumer		Total
ALLL at June 30, 2016:
Portion of ALLL balance:
Attributable to purchased credit-impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Attributable to loans individually evaluated for impairment	30,636		4,894		1,795		12,962		16,513		309		67,109
Attributable to loans collectively evaluated for impairment	292,829		96,148		48,736		63,520		25,879		28,843		555,955
Total ALLL balance	$	323,465	$	101,042	$	50,531	$	76,482	$	42,392	$	29,152	$	623,064
Loan and Lease Ending Balances at June 30, 2016:
Portion of loan and lease ending balance:
Attributable to purchased credit-impaired loans	$	9,176	$	17,073	$	—	$	—	$	1,104	$	—	$	27,353
Individually evaluated for impairment	579,003		108,187		30,800		244,917		347,412		4,664		1,314,983
Collectively evaluated for impairment	20,784,295		5,196,808		10,349,844		8,202,149		6,028,501		639,488		51,201,085
Total loans and leases evaluated for impairment	$	21,372,474	$	5,322,068	$	10,380,644	$	8,447,066	$	6,377,017	$	644,152	$	52,543,421



(dollar amounts in thousands)	Commercial and Industrial		Commercial Real Estate		Automobile		Home Equity		Residential Mortgage		Other Consumer		Total
ALLL at December 31, 2015
Portion of ALLL balance:
Attributable to purchased credit-impaired loans	$	2,602	$	—	$	—	$	—	$	127	$	—	$	2,729
Attributable to loans individually evaluated for impairment	19,314		8,114		1,779		16,242		16,811		176		62,436
Attributable to loans collectively evaluated for impairment	276,830		91,893		47,725		67,429		24,708		24,093		532,678
Total ALLL balance:	$	298,746	$	100,007	$	49,504	$	83,671	$	41,646	$	24,269	$	597,843
Loan and Lease Ending Balances at December 31, 2015
Portion of loan and lease ending balances:
Attributable to purchased credit-impaired loans	$	21,017	$	13,758	$	—	$	—	$	1,454	$	52	$	36,281
Individually evaluated for impairment	481,033		144,977		31,304		248,839		366,995		4,640		1,277,788
Collectively evaluated for impairment	20,057,784		5,109,916		9,449,374		8,221,643		5,629,951		558,362		49,027,030
Total loans and leases evaluated for impairment	$	20,559,834	$	5,268,651	$	9,480,678	$	8,470,482	$	5,998,400	$	563,054	$	50,341,099

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The following tables present by class the ending, unpaid principal balance, and the related ALLL, along with the average balance and interest income recognized only for loans and leases individually evaluated for impairment and purchased credit-impaired loans: (1), (2)



	June 30, 2016						Three Months Ended June 30, 2016				Six months ended June 30, 2016
(dollar amounts in thousands)	Ending Balance		Unpaid Principal Balance (5)		Related Allowance		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial:
Owner occupied	$	55,637	$	60,883	$	—	$	45,108	$	260	$	47,856	$	551
Purchased credit-impaired	9,176		22,219		—		11,888		1,003		14,931		2,000
Other commercial and industrial	223,863		232,421		—		232,142		1,129		221,341		2,072
Total commercial and industrial	288,676		315,523		—		289,138		2,392		284,128		4,623
Commercial real estate:
Retail properties	12,776		13,252		—		14,461		197		25,567		682
Multi-family	20,574		20,574		—		20,408		172		13,591		229
Office	16,248		30,258		—		16,268		142		13,469		284
Industrial and warehouse	227		227		—		76		1		609		19
Purchased credit-impaired	17,073		49,728		—		14,883		1,255		14,508		2,122
Other commercial real estate	6,470		6,636		—		6,473		88		4,896		136
Total commercial real estate	73,368		120,675		—		72,569		1,855		72,640		3,472
Residential mortgage:
Residential mortgage	—		—		—		—		—		—		—
Purchased credit-impaired	1,104		1,672		—		1,298		109		1,350		111
Total residential mortgage	1,104		1,672		—		1,298		109		1,350		111
Other consumer
Other consumer	—		—		—		—		—		—		—
Purchased credit-impaired	—		—		—		19		2		30		104
Total other consumer	—		—		—		19		2		30		104

With an allowance recorded:
Commercial and industrial: (3)
Owner occupied	55,831		66,013		3,481		60,741		579		59,120		1,164
Purchased credit-impaired	—		—		—		—		—		—		—
Other commercial and industrial	243,672		262,710		27,155		231,020		1,160		210,398		2,665
Total commercial and industrial	299,503		328,723		30,636		291,761		1,739		269,518		3,829
Commercial real estate: (4)
Retail properties	6,217		7,334		284		6,073		89		7,371		174
Multi-family	15,212		17,773		1,205		15,738		185		22,091		481
Office	5,636		9,066		586		9,727		55		10,724		106
Industrial and warehouse	2,793		3,338		276		2,985		19		5,242		39
Purchased credit-impaired	—		—		—		—		—		—		—
Other commercial real estate	22,034		23,915		2,543		23,834		267		24,073		573
Total commercial real estate	51,892		61,426		4,894		58,357		615		69,501		1,373
Automobile	30,800		31,247		1,795		32,032		524		31,789		1,102
Home equity:
Secured by first-lien	55,766		59,675		4,151		55,798		518		54,756		1,018

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Secured by junior-lien	189,151		219,008		8,811		192,258		2,444		193,561		4,912
Total home equity	244,917		278,683		12,962		248,056		2,962		248,317		5,930
Residential mortgage (6):
Residential mortgage	347,412		386,170		16,513		352,489		3,027		357,324		6,064
Purchased credit-impaired	—		—		—		—		—		—		—
Total residential mortgage	347,412		386,170		16,513		352,489		3,027		357,324		6,064
Other consumer:
Other consumer	4,664		4,665		309		4,812		53		4,754		120
Purchased credit-impaired	—		—		—		—		—		—		—
Total other consumer	$	4,664	$	4,665	$	309	$	4,812	$	53	$	4,754	$	120



	December 31, 2015						Three Months Ended June 30, 2015				Six months ended June 30, 2015
(dollar amounts in thousands)	Ending Balance		Unpaid Principal Balance (5)		Related Allowance		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial:
Owner occupied	$	57,832	$	65,812	$	—	$	21,025	$	72	$	16,645	$	147
Purchased credit-impaired	—		—		—		—		—		—		—
Other commercial and industrial	197,969		213,739		—		71,905		498		56,728		836
Total commercial and industrial	255,801		279,551		—		92,930		570		73,373		983
Commercial real estate:
Retail properties	42,009		54,021		—		50,905		463		54,231		959
Multi-family	—		—		—		—		—		—		—
Office	9,030		12,919		—		11,515		86		6,597		117
Industrial and warehouse	1,720		1,741		—		—		—		263		7
Purchased credit-impaired	13,758		55,358		—		31,468		2,163		33,769		3,941
Other commercial real estate	1,743		1,775		—		1,838		16		3,096		62
Total commercial real estate	68,260		125,814		—		95,726		2,728		97,956		5,086
Other consumer	—		—		—		—		—		—		—
Purchased credit-impaired	52		101		—		—		—		—		—
Total other consumer	52		101		—		—		—		—		—

With an allowance recorded:
Commercial and industrial: (3)
Owner occupied	54,092		62,527		4,171		59,605		495		55,448		934
Purchased credit-impaired	21,017		30,676		2,602		20,750		1,577		21,576		2,874
Other commercial and industrial	171,140		181,000		15,143		183,095		1,339		61,833		1,086
Total commercial and industrial	246,249		274,203		21,916		263,450		3,411		138,857		4,894
Commercial real estate: (4)
Retail properties	9,096		11,121		1,190		44,213		418		42,312		780
Multi-family	34,349		37,208		1,593		16,200		184		15,884		354
Office	14,365		17,350		1,177		40,710		450		45,644		1,013
Industrial and warehouse	9,721		10,550		1,540		5,835		81		7,079		163
Purchased credit-impaired	—		—		—		—		—		—		—
Other commercial real estate	22,944		28,701		2,614		29,405		335		29,254		689
Total commercial real estate	90,475		104,930		8,114		136,363		1,468		140,173		2,999

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Automobile	31,304	31,878	1,779	29,482	544	29,859	1,105
Home equity:
Secured by first-lien	52,672	57,224	4,359	148,892	1,715	147,783	3,299
Secured by junior-lien	196,167	227,733	11,883	181,059	2,231	175,666	4,216
Total home equity	248,839	284,957	16,242	329,951	3,946	323,449	7,515
Residential mortgage (6):
Residential mortgage	366,995	408,925	16,811	369,245	2,978	369,356	6,100
Purchased credit-impaired	1,454	2,189	127	2,104	4	2,040	7
Total residential mortgage	368,449	411,114	16,938	371,349	2,982	371,396	6,107
Other consumer:

Form: 10-Q

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