Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________

FORM 10-K

_______________________________________________

(Mark One)



x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2016



¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-34073

_______________________________________________

Huntington Bancshares Incorporated

(Exact name of registrant as specified in its charter)

_______________________________________________



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

41 S. High Street, Columbus, Ohio		43287
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (614) 480-8300

Securities registered pursuant to Section 12(b) of the Act:



Title of class		Name of exchange on which registered
8.50% Series A non-voting, perpetual convertible preferred stock		NASDAQ
5.875% Series C Non-Cumulative, perpetual preferred stock		NASDAQ
6.250% Series D Non-Cumulative, perpetual preferred stock		NASDAQ
Common Stock—Par Value $0.01 per Share		NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

Title of class

Floating Rate Series B Non-Cumulative Perpetual Preferred Stock

Depositary Shares (each representing a 1/40th interest in a share of Floating Rate Series B Non-Cumulative Perpetual Preferred Stock)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act. x Yes ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ¨ Yes x No

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 (or for such shorter period that the registrant was required to file such reports), 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 definition 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 Act) ¨ Yes x No

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2016, determined by using a per share closing price of $8.94, as quoted by NASDAQ on that date, was $6,959,125,311. As of January 31, 2017, there were 1,085,887,404 shares of common stock with a par value of $0.01 outstanding.

Documents Incorporated By Reference

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for the 2017 Annual Shareholders’ Meeting.

Table of Contents

HUNTINGTON BANCSHARES INCORPORATED

INDEX




Part I.
Item 1.	Business	6
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26
Part II.
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	Introduction	30
	Executive Overview	30
	Discussion of Results of Operations	33
	Risk Management and Capital:	43
	Credit Risk	43
	Market Risk	61
	Liquidity Risk	64
	Operational Risk	70
	Compliance Risk	71
	Capital	71
	Business Segment Discussion	75
	Results for the Fourth Quarter	82
	Additional Disclosures	92
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	97
Item 8.	Financial Statements and Supplementary Data	97
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	189
Item 9A.	Controls and Procedures	189
Item 9B.	Other Information	190
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	190

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Item 11.	Executive Compensation	190
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	190
Item 13.	Certain Relationships and Related Transactions, and Director Independence	191
Item 14.	Principal Accountant Fees and Services	191
Part IV.
Item 15.	Exhibits and Financial Statement Schedules	191
Item 16.	Form 10-K Summary	192
Signatures

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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:



ABS	Asset-Backed Securities
ACL	Allowance for Credit Losses
AFS	Available-for-Sale
ALCO	Asset-Liability Management Committee
ALLL	Allowance for Loan and Lease Losses
ANPR	Advance Notice of Proposed Rulemaking
ASC	Accounting Standards Codification
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
BHC	Bank Holding Companies
BHC Act	Bank Holding Company Act of 1956
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	Consumer Financial Protection Bureau
CISA	Cybersecurity Information Sharing Act
CMO	Collateralized Mortgage Obligations
CRA	Community Reinvestment Act
CRE	Commercial Real Estate
CREVF	Commercial Real Estate and Vehicle Finance
DIF	Deposit Insurance Fund
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS	Earnings Per Share
FDIC	Federal Deposit Insurance Corporation
FDICIA	Federal Deposit Insurance Corporation Improvement Act of 1991
FHA	Federal Housing Administration
FHC	Financial Holding Company
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
FIRSTMERIT	FirstMerit Corporation
FRB	Federal Reserve Bank
FTE	Fully-Taxable Equivalent
FTP	Funds Transfer Pricing
GAAP	Generally Accepted Accounting Principles in the United States of America
HAA	Huntington Asset Advisors, Inc.
HASI	Huntington Asset Services, Inc.
HQLA	High-Quality Liquid Assets
HTM	Held-to-Maturity
IRS	Internal Revenue Service
LCR	Liquidity Coverage Ratio
LIBOR	London Interbank Offered Rate
LGD	Loss-Given-Default
LIHTC	Low Income Housing Tax Credit

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LTV	Loan to Value
NAICS	North American Industry Classification System
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
NALs	Nonaccrual Loans
NCO	Net Charge-off
NII	Noninterest Income
NIM	Net Interest Margin
NPAs	Nonperforming Assets
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)
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 13), accruing loans and leases past due 90 days or more (Table 14), troubled debt restructured loans (Table 15), and criticized commercial loans (credit quality indicators section of Footnote 4).
RBHPCG	Regional Banking and The Huntington Private Client Group
REIT	Real Estate Investment Trust
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
TCE	Tangible Common Equity
TDR	Troubled Debt Restructured loan
U.S. Treasury	U.S. Department of the Treasury
UCS	Uniform Classification System
Unified	Unified Financial Securities, Inc.
UPB	Unpaid Principal Balance
USDA	U.S. Department of Agriculture
VA	U.S. Department of Veteran Affairs
VIE	Variable Interest Entity
XBRL	eXtensible Business Reporting Language

Table of Contents

Huntington Bancshares Incorporated

PART I

When we refer to "Huntington", "we", "our", "us", and "the Company" 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 1: Business

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. We have 15,993 average full-time equivalent employees. Through the Bank, we have 150 years of serving the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment leasing, investment management, trust services, brokerage services, insurance programs, and other financial products and services. The Bank, organized in 1866, is our only bank subsidiary. At December 31, 2016, the Bank had 24 private client group offices and 1,091 branches as follows:



	• 523 branches in Ohio		• 39 branches in Illinois
	• 353 branches in Michigan		• 37 branches in Wisconsin
	• 53 branches in Pennsylvania		• 30 branches in West Virginia
	• 46 branches in Indiana		• 10 branches in Kentucky

Select financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio. Our foreign banking activities, in total or with any individual country, are not significant.

Our business segments are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. For each of our five business segments, we expect the combination of our business model and exceptional service to provide a competitive advantage that supports revenue and earnings growth. Our business model emphasizes the delivery of a complete set of banking products and services offered by larger banks, but distinguished by local delivery and customer service.

A key strategic emphasis has been for our business segments to operate in cooperation to provide products and services to our customers and to build stronger and more profitable relationships using our OCR sales and service process. The objectives of OCR are to:

1.Use a consultative sales approach to provide solutions that are specific to each customer.

2.Leverage each business segment in terms of its products and expertise to benefit customers.

3.Develop prospects who may want to have multiple products and services as part of their relationship with us.

Following is a description of our five business segments and a Treasury / Other function:

•

Consumer and Business Banking: The Consumer and Business Banking segment provides a wide array of financial products and services to consumer and small business customers including but not limited to checking accounts, savings accounts, money market accounts, certificates of deposit, investments, consumer loans, credit cards and small business loans. Other financial services available to consumer and small business customers include mortgages, insurance, interest rate risk protection, foreign exchange, and treasury management. Huntington serves customers through our network of branches in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia, and Wisconsin. In addition to our extensive branch network, customers can access Huntington through online banking, mobile banking, telephone banking and ATMs.

We have a "Fair Play" banking philosophy; providing differentiated products and services, built on a strong foundation of customer advocacy. Our brand resonates with consumers and businesses; earning us new customers and deeper relationships with current customers.

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Business Banking is a dynamic part of our business and we are committed to being the bank of choice for businesses in our markets. Business Banking is defined as serving companies with revenues up to $20 million and consists of approximately 254,000 businesses. Huntington continues to develop products and services that are designed specifically to meet the needs of small business and look for ways to help companies find solutions to their financing needs.

•

Commercial Banking: Through a relationship banking model, this segment provides a wide array of products and services to the middle market, large corporate, and government public sector customers located primarily within our geographic footprint. The segment is divided into seven business units: middle market, large corporate, specialty banking, asset finance, capital markets, treasury management, and insurance.

Middle Market Banking primarily focuses on providing banking solutions to companies with annual revenues of $20 million to $500 million. Through a relationship management approach, various products, capabilities and solutions are seamlessly delivered in a client centric way.

Large Corporate Banking works with larger, often more complex companies with revenues greater than $500 million. These entities, many of which are publicly traded, require a different and customized approach to their banking needs.

Specialty Banking offers tailored products and services to select industries that have a foothold in the Midwest. Each team is comprised of industry experts with a dynamic understanding of the market and industry. Many of these industries are experiencing tremendous change, which creates opportunities for Huntington to leverage our expertise and help clients navigate, adapt, and succeed.

Asset Finance is a combination of our Equipment Finance, Public Capital, Asset Based Lending, Technology and Healthcare Equipment Leasing, and Lender Finance divisions that focus on providing financing solutions against these respective asset classes.

Capital Markets has two distinct product offerings: corporate risk management services and institutional sales, trading, and underwriting. The Capital Markets Group offers a full suite of risk management tools including commodities, foreign exchange, and interest rate hedging services. The Institutional Sales, Trading & Underwriting team provides access to capital and investment solutions for both municipal and corporate institutions.

Treasury Management teams help businesses manage their working capital programs and reduce expenses. Our liquidity solutions help customers save and invest wisely, while our payables and receivables capabilities help them manage purchases and the receipt of payments for goods and services. All of this is provided while helping customers take a sophisticated approach to managing their overhead, inventory, equipment, and labor.

Insurance brokerage business specializes in commercial property and casualty, employee benefits, personal lines, life, disability and specialty lines of insurance. The group also provides brokerage and agency services for residential and commercial title insurance and excess and surplus product lines of insurance. As an agent and broker, this business does not assume underwriting risks but alternatively provides our customers with access to quality, noninvestment insurance contracts.

•

Commercial Real Estate and Vehicle Finance: This segment provides lending and other banking products and services to customers outside of our traditional retail and commercial banking segments. Our products and services include providing financing for land, buildings, and other commercial real estate owned or constructed by real estate developers, automobile dealerships, or other customers with real estate project financing needs, and financing for the purchase of automobiles, light-duty trucks, recreational vehicles and marine craft at franchised dealerships, financing the acquisition of new and used vehicle inventory of franchised automotive dealerships. Products and services are delivered through highly specialized relationship-focused bankers and product partners. Huntington creates well-defined relationship plans which identify needs where solutions are developed and customer commitments are obtained.

The Commercial Real Estate team serves real estate developers, REITs, and other customers with lending needs that are secured by commercial properties. Most of these customers are located within our footprint. Within Commercial Real Estate, Huntington Community Development focuses on improving the quality of life for our communities and the residents of low-to moderate-income neighborhoods by developing and delivering innovative products and services to support affordable housing and neighborhood stabilization.

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The Vehicle Finance team services automobile dealerships, its owners, and consumers buying automobiles through these franchised dealerships. Huntington has provided new and used automobile financing and dealer services throughout the Midwest since the early 1950s. This consistency in the market and our focus on working with strong dealerships has allowed us to expand into select markets outside of the Midwest and to actively deepen relationships while building a strong reputation. RV and marine loans are originated on an indirect basis through a series of dealerships.

•

Regional Banking and The Huntington Private Client Group: Regional Banking and The Huntington Private Client Group is closely aligned with our regional banking markets. A fundamental point of differentiation is our commitment to be actively engaged within our local markets - building connections with community and business leaders and offering a uniquely personal experience delivered by colleagues working within those markets.

The core business of The Huntington Private Client Group is The Huntington Private Bank, which consists of Private Banking, Wealth & Investment Management, and Retirement plan services. The Huntington Private Bank provides high net-worth customers with deposit, lending (including specialized lending options), and banking services. The Huntington Private Bank also delivers wealth management and legacy planning through investment and portfolio management, fiduciary administration, and trust services. This group also provides retirement plan services to corporate businesses. The Huntington Private Client Group also provides corporate trust services and institutional and mutual fund custody services.

•

Home Lending: Home Lending originates and services consumer loans and mortgages for customers who are generally located in our primary banking markets. Consumer and mortgage lending products are primarily distributed through the Consumer and Business Banking and Regional Banking and The Huntington Private Client Group segments, as well as through commissioned loan originators. Home Lending earns interest on portfolio loans and loans held-for-sale, earns fee income from the origination and servicing of mortgage loans, and recognizes gains or losses from the sale of mortgage loans. Home Lending supports the origination and servicing of mortgage loans across all segments.

The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.

The financial results for each of these business segments are included in Note 24 of Notes to Consolidated Financial Statements and are discussed in the Business Segment Discussion of our MD&A.

Business Combination

On August 16, 2016, Huntington completed its acquisition of FirstMerit Corporation in a stock and cash transaction valued at approximately $3.7 billion. FirstMerit Corporation was a diversified financial services company headquartered in Akron, Ohio, with operations in Ohio, Michigan, Wisconsin, Illinois and Pennsylvania. Post acquisition, Huntington now operates across an eight-state Midwestern footprint. The acquisition resulted in a combined company with a larger market presence and more diversified loan portfolio, as well as a larger core deposit funding base and economies of scale associated with a larger financial institution. For further discussion, see Note 3 of the Notes to Consolidated Financial Statements.

Competition

We compete with other banks and financial services companies such as savings and loans, credit unions, and finance and trust companies, as well as mortgage banking companies, automobile and equipment financing companies (including captive automobile finance companies), insurance companies, mutual funds, investment advisors, and brokerage firms, both within and outside of our primary market areas. FinTech startups are also providing nontraditional, but increasingly strong, competition for our borrowers, depositors, and other customers.

We compete for loans primarily on the basis of a combination of value and service by building customer relationships as a result of addressing our customers’ entire suite of banking needs, demonstrating expertise, and providing convenience to our customers. We also consider the competitive pricing pressures in each of our markets.

We compete for deposits similarly on a basis of a combination of value and service and by providing convenience through a banking network of branches and ATMs within our markets and our website at www.huntington.com. We have also instituted customer friendly practices, such as our 24-Hour Grace^® account feature, which gives customers an additional business day to cover overdrafts to their consumer account without being charged overdraft fees.

The table below shows our combined Huntington and FirstMerit competitive ranking and market share based on deposits of FDIC-insured institutions as of June 30, 2016, in the top 10 metropolitan statistical areas (MSA) in which we compete:

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MSA	Rank	Deposits (in millions)		Market Share
Columbus, OH	1	$	20,453	32	%
Cleveland, OH	5	8,976		14
Detroit, MI	7	6,542		5
Akron, OH	1	5,611		39
Indianapolis, IN	4	3,272		7
Cincinnati, OH	4	2,727		3
Pittsburgh, PA	9	2,689		2
Chicago, IL	16	2,581		1
Toledo, OH	1	2,474		25
Grand Rapids, MI	2	2,466		12
Source: FDIC.gov, based on June 30, 2016 survey.

Many of our nonfinancial institution competitors have fewer regulatory constraints, broader geographic service areas, greater capital, and, in some cases, lower cost structures. In addition, competition for quality customers has intensified as a result of changes in regulation, advances in technology and product delivery systems, consolidation among financial service providers, and bank failures.

Financial Technology, or FinTech, startups are emerging in key areas of banking. In response, we are monitoring activity in marketplace lending along with businesses engaged in money transfer, investment advice, and money management tools. Our strategy involves assessing the marketplace, determining our near term plan, while developing a longer term approach to effectively service our existing customers and attract new customers. This includes evaluating which products we develop in-house, as well as evaluating partnership options, where applicable.

Regulatory Matters

General

We are subject to supervision, regulation and examination by various federal and state regulators, including the Federal Reserve, OCC, SEC, CFPB, FDIC, FINRA, and various state regulatory agencies. The statutory and regulatory framework that governs us is generally intended to protect depositors and customers, the DIF, the banking and financial system, and financial markets as a whole. Any change in the statutes, regulations or regulatory policies applicable to us, including changes in their interpretation or implementation, could have a material effect on our business or organization.

The banking industry is highly regulated. During the past several years, there has been a significant increase in regulation and regulatory oversight of U.S. financial services firms, primarily resulting from the Dodd-Frank Act. The Dodd-Frank Act implements numerous and far-reaching changes that affect financial companies, including banking organizations. Many of the provisions of the Dodd-Frank Act and other laws are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. Some of the regulations related to these reforms are still in the implementation stage and, as a result, there is significant uncertainty concerning their ultimate impact on us.

The following discussion describes certain elements of the comprehensive regulatory framework applicable to us.

Supervision, Regulation and Examination

Huntington is registered as a BHC with the Federal Reserve under the BHC Act and qualifies for and has elected to become a FHC under the Gramm-Leach-Bliley Act of 1999. As a FHC, Huntington is subject to primary supervision, regulation and examination by the Federal Reserve, and is permitted to engage in, and be affiliated with companies engaging in, a broader range of activities than permitted for a BHC, including underwriting, dealing and making markets in securities, and making merchant banking investments in non-financial companies. Huntington and the Bank must each remain “well-capitalized” and “well-managed” in order for Huntington to maintain its status as a FHC. In addition, the Bank must receive a CRA rating of at least “Satisfactory” at its most recent examination for Huntington to engage in the full range of activities permissible for FHCs.

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The Bank is a national banking association chartered under the laws of the United States and is subject to comprehensive primary supervision, regulation and examination by the OCC. As a national bank, the activities of the Bank are limited to those specifically authorized under the National Bank Act and related regulations and interpretations by the OCC. As a member of the DIF, the Bank is also subject to regulation and examination by the FDIC. In addition, the Bank is subject to supervision, regulation and examination by the CFPB, which is the primary administrator of most federal consumer financial statutes and the primary consumer financial regulator of banking organizations with $10 billion or more in assets.

Under the system of “functional regulation” established under the BHC Act, the Federal Reserve serves as the primary regulator of our consolidated organization. The primary regulators of our non-bank subsidiaries directly regulate the activities of those subsidiaries, with the Federal Reserve exercising a supervisory role. Such “functionally regulated” non-bank subsidiaries include, for example, broker-dealers registered with the SEC and investment advisers registered with the SEC with respect to their investment advisory activities.

Regulatory Capital Requirements

Huntington and the Bank are subject to certain risk-based capital and leverage ratio requirements. The Federal Reserve establishes capital and leverage requirements for Huntington and evaluates its compliance with such requirements. The OCC establishes similar capital and leverage requirements for the Bank. In 2013, the Federal Reserve and OCC issued final rules (and the FDIC issued interim final rules that were adopted as final rules in April 2014) to implement the Basel III capital accord, as well as certain requirements of the Dodd-Frank Act. The final capital rules made a number of significant changes to the regulatory capital ratios applicable to Huntington and the Bank, as well as all other banks and BHCs of their size. In addition, the capital rules modified the types of capital instruments that may be included in regulatory capital and how certain assets are risk-weighted for purposes of these calculations.

Under the final capital rules, Huntington and the Bank must maintain a minimum CET1 risk-based ratio, a minimum Tier I risk-based capital ratio, a minimum total risk-based capital ratio, and a minimum leverage ratio. The final capital rules also limit capital distributions and certain discretionary bonuses if a banking organization does not maintain certain capital ratios. The preamble to the final capital rules states that these quantitative calculations are minimums and that the agencies may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to be operate in a safe and sound manner.

In addition, the final capital rules generally provide that trust preferred securities and certain preferred securities no longer count as Tier I capital. Banking organizations with more than $15 billion in total consolidated assets were required to phase-out of additional Tier 1 capital any non-qualifying capital instruments (such as trust preferred securities and cumulative preferred shares) issued before September 12, 2010. We have phased out the additional tier 1 capital treatment of our trust preferred securities but are including these instruments in tier 2 capital as allowed by Basel III.

The final capital rules take effect in phases. Huntington and the Bank were required to be in compliance with certain calculation requirements and begin transitioning to other requirements by January 1, 2015, with full compliance with the modified calculations on January 1, 2019. The rules concerning capital conservation and countercyclical capital buffers became effective on January 1, 2016.

The following are the minimum Basel III regulatory capital levels that we must satisfy to avoid limitations on capital distributions and discretionary bonus payments during the applicable transition period, from January 1, 2016, until January 1, 2019:



	Minimum Basel III Regulatory Capital Levels
	January 1, 2016		January 1, 2017		January 1, 2018		January 1, 2019
Common equity tier 1 risk-based capital ratio	5.125	%	5.75	%	6.375	%	7.0	%
Tier 1 risk-based capital ratio	6.625	%	7.25	%	7.875	%	8.5	%
Total risk-based capital ratio	8.625	%	9.25	%	9.875	%	10.5	%

Failure to meet applicable capital guidelines may subject a financial institution to a variety of enforcement remedies available to the federal regulatory authorities. These include limitations on the ability to pay dividends, the issuance by the regulatory authority of a directive to increase capital, and the termination of deposit insurance by the FDIC. In addition, the financial institution could be subject to the measures described below under “Prompt Corrective Action” as applicable to under-capitalized institutions.

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Huntington’s regulatory capital ratios and those of the Bank were in excess of the levels established for well-capitalized institutions throughout 2016. An institution is deemed to be “well-capitalized” if it meets or exceeds the well-capitalized minimums listed below, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.



				At December 31, 2016
(dollar amounts in billions)		Well-capitalized minimums		Actual		Excess Capital (1)
Ratios:
Tier 1 leverage ratio	Consolidated	N/A		8.70	%	N/A
	Bank	5.00	%	9.29		$	4.2
Common equity tier 1 risk-based capital ratio	Consolidated	N/A		9.56		N/A
	Bank	6.50		10.42		3.1
Tier 1 risk-based capital ratio	Consolidated	6.00		10.92		2.7
	Bank	8.00		11.61		1.3
Total risk-based capital ratio	Consolidated	10.00		13.05		2.4
	Bank	10.00		13.83		3.0


(1)	Amount greater than the well-capitalized minimum percentage.

Enhanced Prudential Standards and Early Remediation Requirements

Under the Dodd-Frank Act, BHCs with consolidated assets of more than $50 billion, such as Huntington, are subject to certain enhanced prudential standards and early remediation requirements. As a result, Huntington is subject to more stringent standards and requirements, including liquidity and capital requirements, leverage limits, stress testing, risk management standards, than those applicable to smaller institutions. With regard to resiliency, we are expected to ensure that the consolidated organization and its core business lines can survive under a broad range of internal or external stresses. This requires financial resilience by maintaining sufficient capital and liquidity, and operational resilience by maintaining effective corporate governance, risk management, and recovery planning. With respect to lowering the probability of failure, we are expected to ensure the sustainability of our critical operations and banking offices under a broad range of internal or external stresses.

Comprehensive Capital Analysis and Review

Huntington is required to submit a capital plan annually to the Federal Reserve for supervisory review in connection with its annual CCAR process. Huntington is required to include within its capital plan an assessment of the expected uses and sources of capital and a description of all planned capital actions over the planning horizon, a detailed description of the process for assessing capital adequacy, its capital policy, and a discussion of any expected changes to its business plan that are likely to have a material impact on its capital adequacy. The planning horizon for the most recently completed capital planning and stress testing cycle encompassed the nine-quarter period from the first quarter of 2016 through the first quarter of 2018.

Currently, the Federal Reserve may object to a BHC’s capital plan based on either quantitative or qualitative grounds. If the Federal Reserve objects to a BHC’s capital plan, the BHC may not make any capital distribution unless the Federal Reserve indicates in writing that it does not object to the distribution. Under CCAR, the Federal Reserve makes a qualitative assessment of capital adequacy on a forward-looking basis and reviews the strength of a BHC’s capital adequacy process. The Federal Reserve also makes a quantitative assessment of capital based on supervisory-run stress tests that assess the ability to maintain capital levels above certain minimum ratios, after taking all capital actions included in a BHC’s capital plan, under baseline and stressful conditions throughout a nine-quarter planning horizon. As part of CCAR, the Federal Reserve evaluates whether BHCs have sufficient capital to continue operations throughout times of economic and financial market stress and whether they have robust, forward-looking capital planning processes that account for their unique risks.

The Federal Reserve expects BHCs subject to CCAR, such as Huntington, to have sufficient capital to withstand a highly adverse operating environment and to be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries. In addition, the Federal Reserve evaluates the planned capital actions of these BHCs, including planned capital distributions such as dividend payments or stock repurchases. We generally may pay dividends and repurchase stock only in accordance with a capital plan that has been reviewed by the Federal Reserve and as to which the Federal Reserve has not objected. In addition, we are generally prohibited from making a capital distribution unless, after giving effect to the distribution, we will meet all minimum regulatory capital ratios.

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On September 30, 2016, the Federal Reserve issued a proposed rule to amend the capital plan and stress test rules for large and non-complex BHCs, such as Huntington, to provide, among other things, that beginning with the 2017 CCAR cycle, such BHCs would continue to submit a capital plan for quantitative assessment but would no longer be subject to a non-objection from a qualitative aspect. The Federal Reserve is proposing to evaluate the strength of a large and non-complex company’s qualitative capital planning process through the regular supervisory process and targeted horizontal reviews of particular aspects of capital planning. A final rule implementing the changes described above was issued on February 3, 2017.

Huntington submitted its 2016 capital plan to the Federal Reserve in April 2016. The Federal Reserve did not object to Huntington’s 2016 capital plan. Huntington is required and intends to submit to the Federal Reserve its capital plan for 2017 by April 5, 2017. There can be no assurance that the Federal Reserve will respond favorably to Huntington’s 2017 capital plan, capital actions or stress test results.

Stress Testing

The Dodd-Frank Act requires a semi-annual supervisory stress test of BHCs, including Huntington, with $50 billion or more of total consolidated assets. This Dodd-Frank Act supervisory stress testing is a forward-looking quantitative evaluation of the impact of stressful economic and financial market conditions on BHC capital. The Dodd-Frank Act also requires BHCs to conduct company-run annual and semi-annual stress tests, the results of which are filed with the Federal Reserve and publicly disclosed. A BHC’s ability to make capital distributions is limited to the extent the BHC’s actual capital levels are less than the amount indicated in its capital plan submission.

The Dodd-Frank Act also requires a national bank, such as the Bank, with total consolidated assets of more than $10 billion to conduct annual company-run stress tests. The objective of the annual company-run stress test is to ensure that covered institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress. A covered institution is required to publish a summary of the results of its annual stress tests.

Liquidity Coverage Ratio

On September 3, 2014, the U.S. banking regulators approved a final rule which became effective on January 1, 2015 to implement a minimum LCR requirement for banking organizations with total consolidated assets of $250 billion or more, and a less stringent modified LCR requirement to depository institution holding companies, such as Huntington, below the threshold but with total consolidated assets of $50 billion or more. The LCR requires covered banking organizations to maintain HQLA equal to projected stressed cash outflows over a 30 calendar-day stress scenario. Huntington is covered by the “modified LCR” requirement and therefore subject to the phase-in of the rule beginning January 2016 at 90% and January 2017 at 100%. Huntington is required to calculate the LCR monthly. The LCR assigns less severe outflow assumptions to certain types of customer deposits, which should increase the demand, and perhaps the cost, among banks for these deposits. Additionally, the HQLA requirements has increased the demand for direct U.S. government and U.S. government-guaranteed debt that, while high quality, generally carry lower yields than other securities that banks hold in their investment portfolios.

Restrictions on Dividends

At the holding company level, Huntington relies on dividends, distributions and other payments from its subsidiaries, particularly the Bank, to fund the dividends paid to its shareholders, as well as to satisfy its debt and other obligations. Certain federal and state statutes, regulations and contractual restrictions limit the ability of our subsidiaries, including the Bank, to pay dividends to us. The OCC has authority to prohibit or limit the payment of dividends by the Bank if, in the OCC’s view, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the Bank.

In addition, Huntington’s ability to pay dividends or return capital to its shareholders, whether through an increase in common stock dividends or through a share repurchase program, is subject to the oversight of the Federal Reserve. The dividend and share repurchase policies of certain BHCs, such as Huntington, are reviewed by the Federal Reserve through the CCAR process, based on capital plans and stress tests submitted by the BHC, and are assessed against, among other things, the BHC’s ability to meet and exceed minimum regulatory capital ratios under stressed scenarios, its expected sources and uses of capital over the planning horizon under baseline and stressed scenarios, and any potential impact of changes to its business plan and activities on its capital adequacy and liquidity. The Federal Reserve’s capital planning rule includes a limitation on capital distributions to the extent that actual capital issuances are less than the amount indicated in the capital plan submission.

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Volcker Rule

The Dodd-Frank Act introduced restrictions to prohibit or restrict the ability of banking entities from engaging in short-term proprietary trading and sponsoring of or investing in private equity and hedge funds (the “Volcker Rule”). The final regulations implementing the Volcker Rule were adopted by the regulatory agencies on December 10, 2013.

The Volcker Rule and final regulations contain a number of exceptions to the prohibition on proprietary trading and sponsoring or acquiring any ownership interest in private equity or hedge funds (“covered funds”). The Volcker Rule permits banking entities to engage in certain activities such as underwriting, market-making and risk-mitigation hedging, and exempts from the definition of a covered fund certain entities, such as wholly-owned subsidiaries, joint ventures, and acquisitions vehicles, as well as SEC registered investment companies. In addition, the Volcker Rule limits certain types of transactions between a banking entity and any covered fund for which it serves as investment manager or investment advisor.

The final rules implementing the Volcker Rule extended the conformance period generally until July 21, 2015. On December 18, 2014, the Federal Reserve announced that it would give banking entities an additional one year, until July 21, 2016, to conform investments in and relationships with covered funds that were in place prior to December 31, 2013 (“legacy covered funds”). On July 7, 2016, the Federal Reserve granted banking entities an additional one-year extension of the conformance period until July 21, 2017, to conform ownership interests in and relationships to legacy covered funds. In February 2017, the Federal Reserve approved our application for an extended transition period with respect to certain legacy illiquid fund investments.

On January 14, 2014, the five federal agencies approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of the Volcker Rule. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if certain qualifications are met. In addition, the agencies released a non-exclusive list of issuers that meet the requirements of the interim final rule. At December 31, 2016, we had investments in seven different pools of trust preferred securities. Six of our pools are included in the list of non-exclusive issuers. We have analyzed the other pool that was not included on the list and believe that we will continue to be able to own this investment under the final Volcker Rule regulations as well.

Resolution Planning

As a BHC with assets of $50 billion or more, Huntington is required to submit annually to the Federal Reserve and the FDIC a plan for the orderly resolution of Huntington and its significant legal entities under the U.S. Bankruptcy Code or other applicable insolvency laws in a rapid and orderly fashion in the event of future material financial distress or failure (a “resolution plan”). If the Federal Reserve and the FDIC jointly determine that the resolution plan is not credible and the deficiencies are not cured in a timely manner, they may jointly impose on us more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. In addition, the FDIC requires each insured depository institution with $50 billion or more in assets, such the Bank, periodically to file a resolution plan with the FDIC.

In July 2016, we were informed that the FDIC extended the date for submission of the Bank’s 2016 resolution plan to December 31, 2017. In August 2016, we were informed that the Federal Reserve and the FDIC also had extended the date for the submission of Huntington’s 2016 resolution plan to December 31, 2017. In each case, we were informed that the submission of a resolution plan in 2017 will satisfy the 2016 resolution plan requirement.

On September 29, 2016, the OCC published final guidelines establishing standards for recovery planning by insured national banks with average total consolidated assets of $50 billion or more, including the Bank. The final guidelines provide, among other things, that a covered bank should develop and maintain a recovery plan that is appropriate for its individual size, risk profile, activities, and complexity, including the complexity of its organizational and legal entity structure. OCC examiners will assess the appropriateness and adequacy of a covered bank’s ongoing recovery planning process as part of the agency’s regular supervisory activities. Our compliance date is within 18 months from January 1, 2017.

Source of Strength

Huntington is required to serve as a source of financial and managerial strength to the Bank and to commit resources to support the Bank. This support may be required by the Federal Reserve at times when we might otherwise determine not to provide it or when doing so is not otherwise in the interests of Huntington or our stockholders or creditors. The Federal Reserve may require a BHC to make capital injections into a troubled subsidiary bank and may charge the BHC with engaging in unsafe and unsound practices if the BHC fails to commit resources to such a subsidiary bank or if it undertakes actions that the Federal Reserve believes might jeopardize the BHC’s ability to commit resources to such subsidiary bank.

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Prompt Corrective Action

FDICIA requires federal banking agencies to take “prompt corrective action” against banks that do not meet minimum capital requirements. Under this regime, the FDICIA imposes progressively more restrictive constraints on a bank’s operations, management and capital distributions, depending on the capital category in which an institution is classified. For instance, only a well-capitalized bank may accept brokered deposits without prior regulatory approval and an adequately capitalized bank may only do so with such prior approval.

Under FDICIA, five capital levels or categories are established: well capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized. These capital categories are determined solely for purposes of applying the prompt corrective action provisions, and such capital categories may not constitute an accurate representation of our overall financial condition or prospects. An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, as the capital category of an institution declines. Failure to meet the capital requirements could also require a depository institution to raise capital. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator.

Upon the insolvency of an insured depository institution, such as the Bank, the FDIC may be appointed as the conservator or receiver of the institution. The FDIC has broad powers to transfer any assets and liabilities without the approval of the institution’s creditors.

Transactions between a Bank and its Affiliates

Federal banking laws and regulations impose qualitative standards and quantitative limitations upon certain transactions between a bank and its affiliates, including between a bank and its holding company and companies that the BHC may be deemed to control for these purposes. Transactions covered by these provisions must be on arm’s-length terms, and cannot exceed certain amounts which are determined with reference to the bank’s regulatory capital. Moreover, if the transaction is a loan or other extension of credit, it must be secured by collateral in an amount and quality expressly prescribed by statute, and if the affiliate is unable to pledge sufficient collateral, the BHC may be required to provide it. The Dodd-Frank Act expanded the coverage and scope of these regulations, including by applying them to the credit exposure arising under derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions.

Heightened Governance and Risk Management Standards

The OCC has published final guidelines to update expectations for the governance and risk management practices of certain large financial institutions, including national banks with $50 billion or more in average total consolidated assets, such as the Bank. The guidelines, which became effective on November 10, 2014, require covered banks to establish and adhere to a written governance framework in order to manage and control their risk-taking activities. In addition, the guidelines provide standards for the institutions’ boards of directors to oversee the risk governance framework. Given its size and the phased implementation schedule, the Bank became subject to these heightened standards effective May 2016. As discussed in Item 1A: Risk Factors, the Bank currently has a written governance framework and associated controls.

Anti-Money Laundering

The Bank Secrecy Act, as amended by the Patriot Act, contains anti-money laundering and financial transparency laws and mandated the implementation of various regulations applicable to all financial institutions, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities.

The Patriot Act is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to cooperate in the prevention, detection and prosecution of international money laundering and the financing of terrorism. The Patriot Act contains anti-money laundering measures requiring insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. Failure to comply with these regulations may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on business. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants.

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Privacy

Federal law contains extensive consumer privacy protection provisions, including substantial consumer privacy protections provided under the Gramm-Leach-Bliley Act of 1999. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and generally annually thereafter, the institution’s policies and procedures regarding the handling and safeguarding of customers’ nonpublic personal information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such nonpublic personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

FDIC Insurance

DIF provides insurance coverage for certain deposits, which is funded through assessments on banks. The Bank accepts deposits that are insured by the DIF. As a DIF member, the Bank must pay insurance premiums. The FDIC may take action to increase the Bank’s insurance premiums based on various factors, including the FDIC’s assessment of its risk profile. The Dodd-Frank Act required the FDIC to change the deposit insurance assessment base from deposits to average consolidated total assets minus average tangible equity. In March 2016, the FDIC issued a final rule to increase the DIF from 1.15% to the statutorily required minimum level of 1.35%. Under the Dodd-Frank Act, banks with $10 billion or more in total assets, such as the Bank, are responsible for funding this increase.

On November 15, 2016, the FDIC adopted a final rule to facilitate prompt payment of FDIC-insured deposits when large insured depository institutions (those with more than two million deposit accounts) fail. The final rule, which is expected to become effective on April 1, 2017, requires us to configure our information technology system to be capable of calculating the insured and uninsured amount in each deposit account by ownership right and capacity, which would be used by the FDIC to make deposit insurance determinations in the event of our failure, and maintain complete and accurate information needed by the FDIC to determine deposit insurance coverage with respect to each deposit account, except as otherwise provided. We will have three years after the effective date for implementation.

Compensation

Our compensation practices are subject to oversight by the Federal Reserve and, with respect to some of our subsidiaries and employees, by other financial regulatory bodies. The scope and content of compensation regulation in the financial industry are continuing to develop, and we expect that these regulations and resulting market practices will continue to evolve over a number of years.

The federal bank regulatory agencies have provided guidance designed to ensure that incentive compensation arrangements at banking organizations take into account risk and are consistent with safe and sound practices. The guidance provides that supervisory findings with respect to incentive compensation will be incorporated, as appropriate, into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance also provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk management, control or governance processes pose a risk to the organization’s safety and soundness.

In 2016 the federal banking regulatory agencies, including the Federal Reserve, the OCC and the SEC, jointly proposed a rule to implement Section 956 of the Dodd-Frank Act. Section 956 generally requires the federal bank regulatory agencies to jointly issue regulations or guidelines: (1) prohibiting incentive-based payment arrangements that the agencies determine encourage inappropriate risks by certain financial institutions by providing excessive compensation or that could lead to material financial loss; and (2) requiring those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator.

Cyber Security

The CISA, which became effective on December 18, 2015, is intended to improve cyber security in the United States by enhanced sharing of information about security threats among the U.S. government and private sector entities, including financial institutions. The CISA also authorizes companies to monitor their own systems notwithstanding any other provision of law, and allows companies to carry out defensive measures on their own systems from cyber-attacks. The law includes liability protections for companies that share cyber threat information with third parties so long as such sharing activity is conducted in accordance with CISA.

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Enhanced Cyber Risk Management Standards

On November 22, 2016, the federal banking agencies released an ANPR regarding enhanced cyber risk management standards (enhanced standards) for large and interconnected entities under their supervision. The agencies stated that they were considering establishing enhanced standards to increase the operational resilience of covered entities and reduce the impact on the financial system in case of a cyber event experienced by a covered entity. The ANPR describes potential enhanced cyber standards that are divided into five general categories: cyber risk governance; cyber risk management; internal dependency management; external dependency management; and incident response, cyber resilience, and situational awareness. The agencies are considering implementing the enhanced standards in a tiered manner, imposing more stringent standards on the systems of those entities that are critical to the functioning of the financial sector. The Federal Reserve is considering applying the enhanced standards on an enterprise-wide basis to all BHCs, such as us, with total consolidated assets of $50 billion or more. The OCC is considering applying the standards to any national bank, such as the Bank, that is a subsidiary of a bank holding company with total consolidated assets of $50 billion or more.

Community Reinvestment Act

The CRA requires the Bank’s primary federal bank regulatory agency, the OCC, to assess the bank’s record in meeting the credit needs of the communities served by the Bank, including low- and moderate-income neighborhoods and persons. Institutions are assigned one of four ratings: “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” This assessment is reviewed for any bank that applies to merge or consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office. The CRA record of each subsidiary bank of a BHC, such as the Bank, also is assessed by the Federal Reserve in connection with any acquisition or merger application.

CFPB Regulation and Supervision

We are subject to supervision and regulation by the CFPB with respect to federal consumer protection laws, including laws relating to fair lending and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services.

On October 3, 2015, the CFPB’s final rules on integrated mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act became effective. On January 1, 2016, most requirements of the OCC’s Final Rule in Loans in Areas Having Special Flood Hazards (the Flood Final Rule) became effective, including the requirement that flood insurance premiums and fees for most mortgage loans be escrowed subject to certain exceptions. The Flood Final Rule also incorporated other existing flood insurance requirements and exceptions (e.g. the exemption from flood insurance requirements for non-residential detached structures - a discretionary item) with those portions of the Flood Final Rule becoming effective on October 1, 2015.

Throughout 2016, the CFPB continued its focus on fair lending practices of indirect automobile lenders. This focus led to some lenders to enter into consent orders with the CFPB and Department of Justice. Indirect automobile lenders have also received continued pressure from the CFPB to limit or eliminate discretionary pricing by dealers. Finally, the CFPB has implemented its larger participant rule for indirect automobile lending which brings larger non-bank indirect automobile lenders under CFPB supervision.

Banking regulatory agencies have increasingly used their authority under Section 5 of the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks under standards developed many years ago by the Federal Trade Commission in order to address practices that may not necessarily fall within the scope of a specific banking or consumer finance law. The Dodd-Frank Act also gave to the CFPB similar authority to take action in connection with unfair, deceptive, or abusive acts or practices by entities subject to CFPB supervisory or enforcement authority. Banks face considerable uncertainty as to the regulatory interpretation of “abusive” practices.

Available Information

This information may be read and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet web site that contains reports, proxy statements, and other information about issuers, like us, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by us with the SEC are also available free of charge at our Internet web site. The address of the site is http://www.huntington.com. Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those web sites is not part of this report. You also should be able to inspect reports, proxy statements, and other information about us at the offices of the NASDAQ National Market at 33 Whitehall Street, New York, New York.

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Item 1A: Risk Factors

Risk Governance

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. This does not preclude engagement in select higher risk activities. Rather, the definition is intended to represent an aggregate view of where we want our overall risk to be managed.

Three board committees primarily oversee implementation of this desired risk appetite and monitoring of our risk profile:

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The Audit Committee oversees the integrity of the consolidated financial statements, including policies, procedures, and practices regarding the preparation of financial statements, the financial reporting process, disclosures, and internal control over financial reporting. The Audit Committee also provides assistance to the board in overseeing the internal audit division and the independent registered public accounting firm’s qualifications and independence; compliance with our Financial Code of Ethics for the chief executive officer and senior financial officers; and compliance with corporate securities trading policies.

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The Risk Oversight Committee assists the board of directors in overseeing management of material risks, the approval and monitoring of the Company’s capital position and plan supporting our overall aggregate moderate-to-low risk profile, the risk governance structure, compliance with applicable laws and regulations, and determining adherence to the board’s stated risk appetite. The committee has oversight responsibility with respect to the full range of inherent risks: market, credit, liquidity, legal, compliance/regulatory, operational, strategic, and reputational. This committee also oversees our capital management and planning process, ensures that the amount and quality of capital are adequate in relation to expected and unexpected risks, and that our capital levels exceed “well-capitalized” requirements.

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The Technology Committee assists the board of directors in fulfilling its oversight responsibilities with respect to all technology, cyber security, and third-party risk management strategies and plans. The committee is charged with evaluating Huntington’s capability to properly perform all technology functions necessary for its business plan, including projected growth, technology capacity, planning, operational execution, product development, and management capacity. The committee provides oversight of technology investments and plans to drive efficiency as well as to meet defined standards for risk, security, and redundancy. The Committee oversees the allocation of technology costs and ensures that they are understood by the board of directors. The Technology Committee monitors and evaluates innovation and technology trends that may affect the Company’s strategic plans, including monitoring of overall industry trends. The Technology Committee reviews and provides oversight of the company’s continuity and disaster recovery planning and preparedness.

The Audit and Risk Oversight Committees routinely hold executive sessions with our key officers engaged in accounting and risk management. On a periodic basis, the two committees meet in joint session to cover matters relevant to both, such as the construct and appropriateness of the ACL, which is reviewed quarterly. All directors have access to information provided to each committee and all scheduled meetings are open to all directors.

Further, through its Compensation Committee, the board of directors seeks to ensure its system of rewards is risk-sensitive and aligns the interests of management, creditors, and shareholders. We utilize a variety of compensation-related tools to induce appropriate behavior, including common stock ownership thresholds for the chief executive officer and certain members of senior management, a requirement to hold until retirement or exit from the Company, a portion of net shares received upon exercise of stock options or release of restricted stock awards (50% for executive officers and 25% for other award recipients), equity deferrals, recoupment provisions, and the right to terminate compensation plans at any time.

Management has implemented an Enterprise Risk Management and Risk Appetite Framework. Critically important is our self-assessment process, in which each business segment produces an analysis of its risks and the strength of its risk controls. The segment analyses are combined with assessments by our risk management organization of major risk sectors (e.g., credit, market, liquidity, operational, legal, compliance, reputational, and strategic) to produce an overall enterprise risk assessment. Outcomes of the process include a determination of the quality of the overall control process, the direction of risk, and our position compared to the defined risk appetite.

Management also utilizes a wide series of metrics (key risk indicators) to monitor risk positions throughout the Company. In general, a range for each metric is established, which allows the Company, in aggregate, to operate within an aggregate moderate-to-low risk profile. Deviations from the range will indicate if the risk being measured exceeds desired tolerance, which may then necessitate corrective action.

We also have four executive level committees to manage risk: ALCO, Credit Policy and Strategy, Risk Management, and Capital Management. Each committee focuses on specific categories of risk and is supported by a series of subcommittees that are tactical in nature. We believe this structure helps ensure appropriate escalation of issues and overall communication of strategies.

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Huntington utilizes three lines of defense with regard to risk management: (1) business segments, (2) corporate risk management, and (3) internal audit and credit review. To induce greater ownership of risk within its business segments, segment risk officers have been embedded in the business to identify and monitor risk, elevate and remediate issues, establish controls, perform self-testing, and oversee the self-assessment process. Corporate Risk Management establishes policies, sets operating limits, reviews new or modified products/processes, ensures consistency and quality assurance within the segments, and produces the enterprise risk assessment. The Chief Risk Officer has significant input into the design and outcome of incentive compensation plans as they apply to risk. Internal Audit and Credit Review provide additional assurance that risk-related functions are operating as intended.

Risk Overview

We, like other financial companies, are subject to a number of risks that may adversely affect our financial condition or results of operations, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are:

•Credit risk, which is the risk of loss due to loan and lease customers or other counterparties not being able to meet their financial obligations under agreed upon terms;

•Market risk, which occurs when fluctuations in interest rates impact earnings and capital. Financial impacts are realized through changes in the interest rates of balance sheet assets and liabilities (net interest margin) or directly through valuation changes of capitalized MSR and/or trading assets (noninterest income);

•Liquidity risk, which is the risk to current or anticipated earnings or capital arising from an inability to meet obligations when they come due. Liquidity risk includes the inability to access funding sources or manage fluctuations in funding levels. Liquidity risk also results from the failure to recognize or address changes in market conditions that affect the Bank’s ability to liquidate assets quickly and with minimal loss in value;

•Operational and legal risk, which is the risk of loss arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events. Operational losses result from internal fraud; external fraud, inadequate or inappropriate employment practices and workplace safety, failure to meet professional obligations involving customers, products, and business practices, damage to physical assets, business disruption and systems failures, and failures in execution, delivery, and process management. Legal risk includes, but is not limited to, exposure to orders, fines, penalties, or punitive damages resulting from litigation, as well as regulatory actions;

•Compliance risk, which exposes us to money penalties, enforcement actions or other sanctions as a result of non-conformance with laws, rules, and regulations that apply to the financial services industry; and

•Strategic risk, which is defined as risk to current or anticipated earnings, capital, or enterprise value arising from adverse business decisions, improper implementation of business decisions or lack of responsiveness to industry / market changes.

We also expend considerable effort to protect our reputation. Reputation risk does not easily lend itself to traditional methods of measurement. Rather, we closely monitor it through processes such as new product / initiative reviews, colleague and client surveys, monitoring media tone, periodic discussions between management and our board, and other such efforts.

In addition to the other information included or incorporated by reference into this report, readers should carefully consider that the following important factors, among others, could negatively impact our business, future results of operations, and future cash flows materially.

Credit Risks:

1. Our ACL level may prove to be inappropriate or be negatively affected by credit risk exposures which could adversely affect our net income and capital.

Our business depends on the creditworthiness of our customers. Our ACL of $736 million at December 31, 2016, represented Management’s estimate of probable losses inherent in our loan and lease portfolio as well as our unfunded loan commitments and letters of credit. We regularly review our ACL for appropriateness. In doing so, we consider economic conditions and trends, collateral values, and credit quality indicators, such as past charge-off experience, levels of past due loans, and NPAs. There is no certainty that our ACL will be appropriate over time to cover losses in the portfolio because of unanticipated adverse changes in the economy, market conditions, or events adversely affecting specific customers, industries, or markets. If the credit quality of our customer base materially decreases, if the risk profile of a market, industry, or group of customers changes materially, or if the ACL is not appropriate, our net income and capital could be materially adversely affected, which could have a material adverse effect on our financial condition and results of operations.

In addition, regulatory review of risk ratings and loan and lease losses may impact the level of the ACL and could have a material adverse effect on our financial condition and results of operations.

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2. Weakness in economic conditions could adversely affect our business.

Our performance could be negatively affected to the extent there is deterioration in business and economic conditions which have direct or indirect material adverse impacts on us, our customers, and our counterparties. These conditions could result in one or more of the following:


•	A decrease in the demand for loans and other products and services offered by us;


•	A decrease in customer savings generally and in the demand for savings and investment products offered by us; and


•	An increase in the number of customers and counterparties who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to us.

An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of NPAs, NCOs, provision for credit losses, and valuation adjustments on loans held for sale. The markets we serve are dependent on industrial and manufacturing businesses and, thus, are particularly vulnerable to adverse changes in economic conditions affecting these sectors.

Market Risks:

1. Changes in interest rates could reduce our net interest income, reduce transactional income, and negatively impact the value of our loans, securities, and other assets. This could have an adverse impact on our cash flows, financial condition, results of operations, and capital.

Our results of operations depend substantially on net interest income, which is the difference between interest earned on interest earning assets (such as investments and loans) and interest paid on interest bearing liabilities (such as deposits and borrowings). Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Conditions such as inflation, deflation, recession, unemployment, money supply, and other factors beyond our control may also affect interest rates. If our interest earning assets mature or reprice faster than interest bearing liabilities in a declining interest rate environment, net interest income could be materially adversely impacted. Likewise, if interest bearing liabilities mature or reprice more quickly than interest earning assets in a rising interest rate environment, net interest income could be adversely impacted.

Changes in interest rates can affect the value of loans, securities, assets under management, and other assets, including mortgage and nonmortgage servicing rights. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans and leases may lead to an increase in NPAs and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. When we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. However, we continue to incur interest expense as a cost of funding NALs without any corresponding interest income. In addition, transactional income, including trust income, brokerage income, and gain on sales of loans can vary significantly from period-to-period based on a number of factors, including the interest rate environment. A decline in interest rates along with a flattening yield curve limits our ability to reprice deposits given the current historically low level of interest rates and could result in declining net interest margins if longer duration assets reprice faster than deposits.

Rising interest rates reduce the value of our fixed-rate securities and cash flow hedging derivatives portfolio. Any unrealized loss from these portfolios impacts OCI, shareholders’ equity, and the Tangible Common Equity ratio. Any realized loss from these portfolios impacts regulatory capital ratios. In a rising interest rate environment, pension and other post-retirement obligations somewhat mitigate negative OCI impacts from securities and financial instruments. For more information, refer to “Market Risk” of the MD&A.

Certain investment securities, notably mortgage-backed securities, are very sensitive to rising and falling rates. Generally, when rates rise, prepayments of principal and interest will decrease and the duration of mortgage-backed securities will increase. Conversely, when rates fall, prepayments of principal and interest will increase and the duration of mortgage-backed securities will decrease. In either case, interest rates have a significant impact on the value of mortgage-backed securities.

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.

In addition to volatility associated with interest rates, the Company also has exposure to equity markets related to the investments within the benefit plans and other income from client based transactions.

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2. Industry competition may have an adverse effect on our success.

Our profitability depends on our ability to compete successfully. We operate in a highly competitive environment, and we expect competition to intensify. Certain of our competitors are larger and have more resources than we do, enabling them to be more aggressive than us in competing for loans and deposits. In our market areas, we face competition from other banks and financial service companies that offer similar services. Some of our non-bank competitors are not subject to the same extensive regulations we are and, therefore, may have greater flexibility in competing for business. Our ability to compete successfully depends on a number of factors, including customer convenience, quality of service by investing in new products and services, personal contacts, pricing, and range of products. If we are unable to successfully compete for new customers and retain our current customers, our business, financial condition, or results of operations may be adversely affected. In particular, if we experience an outflow of deposits as a result of our customers seeking investments with higher yields or greater financial stability, or a desire to do business with our competitors, we may be forced to rely more heavily on borrowings and other sources of funding to operate our business and meet withdrawal demands, thereby adversely affecting our net interest margin. For more information, refer to “Competition” section of Item 1: Business.

Liquidity Risks:

1. Changes in either Huntington’s financial condition or in the general banking industry could result in a loss of depositor confidence.

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The Bank uses its liquidity to extend credit and to repay liabilities as they become due or as demanded by customers. The board of directors establishes liquidity policies, including contingency funding plans, and limits and management establishes operating guidelines for liquidity.

Our primary source of liquidity is our large supply of deposits from consumer and commercial customers. The continued availability of this supply depends on customer willingness to maintain deposit balances with banks in general and us in particular. The availability of deposits can also be impacted by regulatory changes (e.g. changes in FDIC insurance, the Liquidity Coverage Ratio, etc.), and other events which can impact the perceived safety or economic benefits of bank deposits. While we make significant efforts to consider and plan for hypothetical disruptions in our deposit funding, market related, geopolitical, or other events could impact the liquidity derived from deposits.

2. We are a holding company and depend on dividends by our subsidiaries for most of our funds.

Huntington is an entity separate and distinct from the Bank. The Bank conducts most of our operations and Huntington depends upon dividends from the Bank to service Huntington's debt and to pay dividends to Huntington's shareholders. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition including liquidity and capital adequacy of the Bank and other factors, that the OCC could limit the payment of dividends or other payments by the Bank. In addition, the payment of dividends by our other subsidiaries is also subject to the laws of the subsidiary’s state of incorporation, and regulatory capital and liquidity requirements applicable to such subsidiaries. In the event that the Bank was unable to pay dividends to us, we in turn would likely have to reduce or stop paying dividends on our Preferred and Common Stock. Our failure to pay dividends on our Preferred and Common Stock could have a material adverse effect on the market price of our Common Stock. Additional information regarding dividend restrictions is provided in Item 1. Regulatory Matters.

3. If we lose access to capital markets, we may not be able to meet the cash flow requirements of our depositors, creditors, and borrowers, or have the operating cash needed to fund corporate expansion and other corporate activities.

Wholesale funding sources include securitization, federal funds purchased, securities sold under repurchase agreements, non-core deposits, and long-term debt. The Bank is also a member of the Federal Home Loan Bank of Cincinnati, which provides members access to funding through advances collateralized with mortgage-related assets. We maintain a portfolio of highly-rated, marketable securities that is available as a source of liquidity.

Capital markets disruptions can directly impact the liquidity of Huntington and the Bank. The inability to access capital markets funding sources as needed could adversely impact our financial condition, results of operations, cash flows, and level of regulatory-qualifying capital. We may, from time-to-time, consider using our existing liquidity position to opportunistically retire outstanding securities in privately negotiated or open market transactions.

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4. A reduction in our credit rating could adversely affect our ability to raise funds including capital, and/or the holders of our securities.

The credit rating agencies regularly evaluate Huntington and the Bank, and credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry, the economy, and changes in rating methodologies. There can be no assurance that we will maintain our current credit ratings. A downgrade of the credit ratings of Huntington or the Bank could adversely affect our access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or purchase our securities. This could affect our growth, profitability and financial condition, including liquidity.

Operational and Legal Risks:

1. We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.

Our computer systems and network infrastructure are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions, including us. None of these events against us resulted in a breach of our client data or account information; however, the performance of our website, www.huntington.com, was adversely affected, and in some instances customers were prevented from accessing our website. We expect to be subject to similar attacks in the future. While events to date primarily resulted in inconvenience, future cyber-attacks could be more disruptive and damaging. Hacking and identity theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

Despite efforts to ensure the integrity of our systems, we may not be able to anticipate all security breaches of these types, nor may we be able to implement guaranteed preventive measures against such security breaches. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments. These risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications.

Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and "spear phishing" attacks are becoming more sophisticated and are extremely difficult to prevent. The successful social engineer will attempt to fraudulently induce colleagues, customers or other users of our systems to disclose sensitive information in order to gain access to its data or that of its clients.

A successful penetration or circumvention of system security could cause us serious negative consequences, including significant disruption of operations, misappropriation of confidential information, or damage to our computers or systems or those of our customers and counterparties. A successful security breach could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on the Company.

2. The resolution of significant pending litigation, if unfavorable, could have an adverse effect on our results of operations for a particular period.

We face legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. Substantial legal liability against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. It is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular reporting period.

Note 21 of the Notes to Consolidated Financial Statements updates the status of certain material litigation including litigation related to the bankruptcy of Cyberco Holdings, Inc.

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3. We face significant operational risks which could lead to financial loss, expensive litigation, and loss of confidence by our customers, regulators, and capital markets.

We are exposed to many types of operational risks, including the risk of fraud or theft by colleagues or outsiders, unauthorized transactions by colleagues or outsiders, operational errors by colleagues, business disruption, and system failures. Huntington executes against a significant number of controls, a large percent of which are manual and dependent on adequate execution by colleagues and third-party service providers. There is inherent risk that unknown single points of failure through the execution chain could give rise to material loss through inadvertent errors or malicious attack. These operational risks could lead to financial loss, expensive litigation, and loss of confidence by our customers, regulators, and the capital markets.

Moreover, negative public opinion can result from our actual or alleged conduct in any number of activities, including clients, products and business practices; corporate governance; acquisitions; and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to attract and retain customers and can also expose us to litigation and regulatory action.

Relative to acquisitions, we incur risks and challenges associated with the integration of employees, accounting systems, and technology platforms from acquired businesses and institutions in a timely and efficient manner, and we cannot guarantee that we will be successful in retaining existing customer relationships or achieving anticipated operating efficiencies expected from such acquisitions. Acquisitions may be subject to the receipt of approvals from certain governmental authorities, including the Federal Reserve, the OCC, and the United States Department of Justice, as well as the approval of our shareholders and the shareholders of companies that we seek to acquire. These approvals for acquisitions may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the acquisitions. Subject to requisite regulatory approvals, future business acquisitions may result in the issuance and payment of additional shares of stock, which would dilute current shareholders’ ownership interests. Additionally, acquisitions may involve the payment of a premium over book and market values. Therefore, dilution of our tangible book value and net income per common share could occur in connection with any future transaction.

4. Failure to maintain effective internal controls over financial reporting could impair our ability to accurately and timely report our financial results or prevent fraud, resulting in loss of investor confidence and adversely affecting our business and our stock price.

Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. We are subject to regulation that focuses on effective internal controls and procedures. Such controls and procedures are modified, supplemented, and changed from time-to-time as necessitated by our growth and in reaction to external events and developments. Any failure to maintain an effective internal control environment could impact our ability to report our financial results on an accurate and timely basis, which could result in regulatory actions, loss of investor confidence, and an adverse impact on our business and our stock price.

5. We rely on quantitative models to measure risks and to estimate certain financial values.

Quantitative models may be used to help manage certain aspects of our business and to assist with certain business decisions, including estimating probable loan losses, measuring the fair value of financial instruments when reliable market prices are unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of operations, managing risk, and for capital planning purposes (including during the CCAR capital planning and capital adequacy process). Our measurement methodologies rely on many assumptions, historical analyses, and correlations. These assumptions may not capture or fully incorporate conditions leading to losses, particularly in times of market distress, and the historical correlations on which we rely may no longer be relevant. Additionally, as businesses and markets evolve, our measurements may not accurately reflect this evolution. Even if the underlying assumptions and historical correlations used in our models are adequate, our models may be deficient due to errors in computer code, inaccurate data, misuse of data, or the use of a model for a purpose outside the scope of the model’s design.

All models have certain limitations. Reliance on models presents the risk that our business decisions based on information incorporated from models will be adversely affected due to incorrect, missing, or misleading information. In addition, our models may not capture or fully express the risks we face, may suggest that we have sufficient capitalization when we do not, or may lead us to misjudge the business and economic environment in which we will operate. If our models fail to produce reliable results on an ongoing basis, we may not make appropriate risk management, capital planning, or other business or financial decisions. Strategies that we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable. Also, information that we provide to the public or regulators based on poorly designed models could be inaccurate or misleading.

Banking regulators continue to focus on the models used by banks and bank holding companies in their businesses. Some of our decisions that the regulators evaluate, including distributions to our shareholders, could be affected adversely due to their perception that the quality of the models used to generate the relevant information is insufficient.

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6. We rely on third parties to provide key components of our business infrastructure.

We rely on third-party service providers to leverage subject matter expertise and industry best practice, provide enhanced products and services, and reduce costs. Although there are benefits in entering into third-party relationships with vendors and others, there are risks associated with such activities. When entering a third-party relationship, the risks associated with that activity are not passed to the third-party but remain our responsibility. The Technology Committee of the board of directors provides oversight related to the overall risk management process associated with third-party relationships. Management is accountable for the review and evaluation of all new and existing third-party relationships. Management is responsible for ensuring that adequate controls are in place to protect us and our customers from the risks associated with vendor relationships.

Increased risk could occur based on poor planning, oversight, control, and inferior performance or service on the part of the third-party, and may result in legal costs or loss of business. While we have implemented a vendor management program to actively manage the risks associated with the use of third-party service providers, any problems caused by third-party service providers could adversely affect our ability to deliver products and services to our customers and to conduct our business. Replacing a third-party service provider could also take a long period of time and result in increased expenses.

7. Changes in accounting policies, standards, and interpretations could 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.

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

8. Impairment of goodwill could require charges to earnings, which could result in a negative impact on our results of operations.

Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to Huntington Bancshares Incorporated, adversely impacting Huntington Bancshares Incorporated's liquidity and ability to pay dividends or repay debt. The most significant assumptions affecting our goodwill impairment evaluation are variables including the market price of our Common Stock, projections of earnings, and the control premium above our current stock price that an acquirer would pay to obtain control of us. We are required to test goodwill for impairment at least annually or when impairment indicators are present. If an impairment determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our Common Stock, or our regulatory capital levels, but such an impairment loss could significantly reduce the Bank’s earnings and thereby restrict the Bank's ability to make dividend payments to us without prior regulatory approval, because Federal Reserve policy states the bank holding company dividends should be paid from current earnings. At December 31, 2016, the book value of our goodwill was $2.0 billion, all of which was recorded at the Bank. Any such write down of goodwill or other acquisition related intangibles will reduce Huntington’s earnings, as well.

9. Negative publicity could damage our reputation and could significantly harm our business.

Our ability to attract and retain customers, clients, investors, and highly-skilled management and employees is affected by our reputation. Public perception of the financial services industry in general was damaged as a result of the credit crisis that started in 2008. We face increased public and regulatory scrutiny resulting from the credit crisis and economic downturn. Significant harm to our reputation can also arise from other sources, including employee misconduct, actual or perceived unethical behavior, conflicts of interest, litigation, GSE or regulatory actions, failing to deliver minimum or required standards of service and quality, failing to address customer and agency complaints, compliance failures, unauthorized release of confidential information due to cyber-attacks or otherwise, and the activities of our clients, customers and counterparties, including vendors. Actions by the financial service industry generally or by institutions or individuals in the industry can adversely affect our reputation, indirectly by association. All of these could adversely affect our growth, results of operation and financial condition.

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Compliance Risks:

1. Bank regulations regarding capital and liquidity, including the annual CCAR assessment process and the Basel III capital and liquidity standards, could require higher levels of capital and liquidity. Among other things, these regulations could impact our ability to pay common stock dividends, repurchase common stock, attract cost-effective sources of deposits, or require the retention of higher amounts of low yielding securities.

The Federal Reserve administers the annual CCAR, an assessment of the capital adequacy of bank holding companies with consolidated assets of $50 billion or more and of the practices used by covered banks to assess capital needs. Under CCAR, the Federal Reserve makes a qualitative assessment of capital adequacy on a forward-looking basis and reviews the strength of a bank holding company’s capital adequacy process. The Federal Reserve also makes a quantitative assessment of capital based on supervisory-run stress tests that assess the ability to maintain capital levels above each minimum regulatory capital ratio and above a CET1 ratio of 4.5%, after making all capital actions included in a bank holding company’s capital plan, under baseline and stressful conditions throughout a nine-quarter planning horizon. Capital plans for 2017 are required to be submitted by April 5, 2017, and the Federal Reserve will either object to the capital plan and/or planned capital actions, or provide a notice of non-objection, no later than June 30, 2017. We intend to submit our capital plan to the Federal Reserve on or before April 5, 2017. The Bank also must submit a capital plan to the OCC on or before April 5, 2017. There can be no assurance that the Federal Reserve will respond favorably to our capital plan, capital actions or stress test and the Federal Reserve, OCC, or other regulatory capital requirements may limit or otherwise restrict how we utilize our capital, including common stock dividends and stock repurchases.

In 2013, the Federal Reserve and the OCC adopted final rules to implement the Basel III capital rules for U.S. Banking organizations. The final rules establish an integrated regulatory capital framework and will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. As a Standardized Approach institution, the Basel III minimum capital requirements became effective for us on January 1, 2015, and will be fully phased-in on January 1, 2019.

On September 3, 2014, the U.S. banking regulators approved a final rule to implement a minimum LCR requirement for banking organizations with total consolidated assets of $250 billion or more, and a less stringent modified LCR requirement to depository institution holding companies below the threshold but with total consolidated assets of $50 billion or more. The LCR requires covered banking organizations to maintain HQLA equal to projected stressed cash outflows over a 30 calendar-day stress scenario. We are covered by the modified LCR requirement and therefore subject to the phase-in of the rule which, as of January 2017, is at 100%. We will also be required to calculate the LCR monthly. The LCR assigns less severe outflow assumptions to certain types of customer deposits, which should increase the demand, and perhaps the cost, among banks for these deposits. Additionally, the HQLA requirements will increase the demand for direct US government and US government- guaranteed debt that, while high quality, generally carry lower yields than other securities that banks hold in their investment portfolios.

2. If our regulators deem it appropriate, they can take regulatory actions that could result in a material adverse impact on our financial results, ability to compete for new business, or preclude mergers or acquisitions. In addition, regulatory actions could constrain our ability to fund our liquidity needs or pay dividends. Any of these actions could increase the cost of our services.

We are subject to the supervision and regulation of various state and federal regulators, including the OCC, Federal Reserve, FDIC, SEC, CFPB, Financial Industry Regulatory Authority, and various state regulatory agencies. As such, we are subject to a wide variety of laws and regulations, many of which are discussed in Item 1. Regulatory Matters. As part of their supervisory process, which includes periodic examinations and continuous monitoring, the regulators have the authority to impose restrictions or conditions on our activities and the manner in which we manage the organization. Such actions could negatively impact us in a variety of ways, including charging monetary fines, impacting our ability to pay dividends, precluding mergers or acquisitions, limiting our ability to offer certain products or services, or imposing additional capital requirements.

Under the supervision of the CFPB, our consumer products and services are subject to increasing regulatory oversight and scrutiny with respect to compliance under consumer laws and regulations. We may face a greater number or wider scope of investigations, enforcement actions, and litigation in the future related to consumer practices, thereby increasing costs associated with responding to or defending such actions. In addition, increased regulatory inquiries and investigations, as well as any additional legislative or regulatory developments affecting our consumer businesses, and any required changes to our business operations resulting from these developments, could result in significant loss of revenue, require remuneration to our customers, trigger fines or penalties, limit the products or services we offer, require us to increase our prices and, therefore, reduce demand for our products, impose additional compliance costs on us, cause harm to our reputation, or otherwise adversely affect our consumer businesses.

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3. Legislative and regulatory actions taken now or in the future that impact the financial industry may materially adversely affect us by increasing our costs, adding complexity in doing business, impeding the efficiency of our internal business processes, negatively impacting the recoverability of certain of our recorded assets, requiring us to increase our regulatory capital, limiting our ability to pursue business opportunities, and otherwise resulting in a material adverse impact on our financial condition, results of operation, liquidity, or stock price.

The Dodd-Frank Act was a comprehensive overhaul of the financial services industry within the United States, established the CFPB, and required the CFPB and other federal agencies to implement many new and significant rules and regulations. Compliance with these new laws and regulations have and will continue to result in additional costs, which could be significant, and may have a material and adverse effect on our results of operations. In addition, if we do not appropriately comply with current or future legislation and regulations that apply to our consumer operations, we may be subject to fines, penalties or judgments, or material regulatory restrictions on our businesses, which could adversely affect operations and, in turn, financial results.

4. We may become subject to more stringent regulatory requirements and activity restrictions if the Federal Reserve and FDIC determine that our resolution plan is not credible.

The Dodd-Frank Act and implementing regulations jointly issued by Federal Reserve and the FDIC require bank holding companies with more than $50 billion in assets to annually submit a resolution plan to the Federal Reserve and the FDIC that, in the event of material financial distress or failure, establish the rapid, orderly resolution of the Company under the U.S. Bankruptcy Code. If the Federal Reserve and the FDIC jointly determine that our 2015 resolution plan is not “credible,” we could become subjected to more stringent capital, leverage or liquidity requirements or restrictions, or restrictions on our growth, activities or operations, and could eventually be required to divest certain assets or operations in ways that could negatively impact its operations and strategy.

5. Our business, financial condition, and results of operations could be adversely affected if we lose our financial holding company status.

In order for us to maintain our status as a financial holding company, we and the Bank must remain “well capitalized,” and “well managed.” If we or our Bank cease to meet the requirements necessary for us to continue to qualify as a financial holding company, the Federal Reserve may impose upon us corrective capital and managerial requirements, and may place limitations on our ability to conduct all of the business activities that we conduct as a financial holding company. If the failure to meet these standards persists, we could be required to divest our Bank, or cease all activities other than those activities that may be conducted by bank holding companies that are not financial holding companies. In addition, our ability to commence or engage in certain activities as a financial holding company will be restricted if the Bank fails to maintain at least a “Satisfactory” rating on its most recent Community Reinvestment Act examination.

Item 1B: Unresolved Staff Comments

None.

Item 2: Properties

Our headquarters, as well as the Bank’s, is located in the Huntington Center, a thirty seven story office building located in Columbus, Ohio. Of the building’s total office space available, we lease approximately 22%. The lease term expires in 2030, with six five-year renewal options for up to 30 years but with no purchase option. The Bank has an indirect minority equity interest of 18.4% in the building.

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Our other major properties consist of the following:




Description	Location	Own	Lease
13 story office building, located adjacent to the Huntington Center	Columbus, Ohio	ü
12 story office building, located adjacent to the Huntington Center	Columbus, Ohio	ü
3 story office building - the Crosswoods building (1)	Columbus, Ohio		ü
A portion of 200 Public Square Building	Cleveland, Ohio		ü
12 story office building	Youngstown, Ohio	ü
10 story office building	Warren, Ohio		ü
10 story office building	Toledo, Ohio	ü
A portion of the Grant Building	Pittsburgh, Pennsylvania		ü
18 story office building	Charleston, West Virginia		ü
3 story office building	Holland, Michigan		ü
2 building office complex	Troy, Michigan		ü
Data processing and operations center (Easton)	Columbus, Ohio	ü
Data processing and operations center (Northland) (1)	Columbus, Ohio		ü
Data processing and operations center (Parma)	Cleveland, Ohio		ü
8 story office building	Indianapolis, Indiana	ü
A portion of Huntington Center at 525 Vine	Cincinnati, OH		ü
A portion of 222 LaSalle St.	Chicago, IL		ü
A portion of Two Towne Square	Southfield, MI		ü
7 story office building	Akron, OH		ü
27 story office building	Akron, OH		ü
Operations Center	Akron, OH		ü
12 story office building	Saginaw, MI		ü
2 building office complex	Flint, MI		ü
4 story office building	Melrose Park, IL		ü

(1) During the 2016 fourth quarter, we announced our intent to vacate these properties and invest in a facility in Columbus, Ohio.

Item 3: Legal Proceedings

Information required by this item is set forth in Note 21 of the Notes to Consolidated Financial Statements under the caption "Litigation" and is incorporated into this Item by reference.

Item 4: Mine Safety Disclosures

Not applicable.

PART II

Item 5: Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The common stock of Huntington Bancshares Incorporated is traded on the NASDAQ Stock Market under the symbol “HBAN”. The stock is listed as “HuntgBcshr” or “HuntBanc” in most newspapers. As of January 31, 2017, we had 34,831 shareholders of record.

Information regarding the high and low sale prices of our common stock and cash dividends declared on such shares, as required by this Item, is set forth in Tables 46 and 48 Selected Quarterly Income Statement Data and is incorporated into this Item by reference. Information regarding restrictions on dividends, as required by this Item, is set forth in Item 1: Business - Regulatory Matters and in Note 22 of the Notes to Consolidated Financial Statements and incorporated into this Item by reference.

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The following graph shows the changes, over the five-year period, in the value of $100 invested in (i) shares of Huntington’s Common Stock; (ii) the Standard & Poor’s 500 Stock Index (the S&P 500 Index) and (iii) Keefe, Bruyette & Woods Bank Index, for the period December 31, 2011, through December 31, 2016. The KBW Bank Index is a market capitalization-weighted bank stock index published by Keefe, Bruyette & Woods. The index is composed of the largest banking companies and includes all money center banks and regional banks, including Huntington. An investment of $100 on December 31, 2011, and the reinvestment of all dividends, are assumed. The plotted points represent the cumulative total return on the last trading day of the fiscal year indicated.



	2011	2012	2013	2014	2015	2016
HBAN	$100	$116	$180	$200	$215	$265
S&P 500	$100	$114	$151	$172	$174	$195
KBW Bank Index	$100	$129	$177	$194	$195	$251

For information regarding securities authorized for issuance under Huntington's equity compensation plans, see Part III, Item 12.

During the three-month period ended December 31, 2016, Huntington did not repurchase any of its common stock. The approximate dollar value of common stock that may yet be purchased under publicly announced stock repurchase authorizations was $166 million.

On June 29, 2016, Huntington announced that the Federal Reserve did not object to the proposed capital actions included in Huntington's capital plan submitted to the Federal Reserve in April 2016 as part of the 2016 CCAR. These actions included an 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 acquisition of FirstMerit Corporation and continues the previously announced suspension of the company’s 2015 share repurchase program.

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Item 6: Selected Financial Data

Table 1 - Selected Annual Income Statement Data (1)
(dollar amounts in thousands, except per share amounts)
	Year Ended December 31,
	2016			2015			2014			2013			2012
Interest income	$	2,632,113		$	2,114,521		$	1,976,462		$	1,860,637		$	1,930,263
Interest expense	262,795			163,784			139,321			156,029			219,739
Net interest income	2,369,318			1,950,737			1,837,141			1,704,608			1,710,524
Provision for credit losses	190,802			99,954			80,989			90,045			147,388
Net interest income after provision for credit losses	2,178,516			1,850,783			1,756,152			1,614,563			1,563,136
Noninterest income	1,149,731			1,038,730			979,179			1,012,196			1,106,321
Noninterest expense	2,408,485			1,975,908			1,882,346			1,758,003			1,835,876
Income before income taxes	919,762			913,605			852,985			868,756			833,581
Provision for income taxes	207,941			220,648			220,593			227,474			202,291
Net income	711,821			692,957			632,392			641,282			631,290
Dividends on preferred shares	65,274			31,873			31,854			31,869			31,989
Net income applicable to common shares	$	646,547		$	661,084		$	600,538		$	609,413		$	599,301
Net income per common share—basic	$	0.72		$	0.82		$	0.73		$	0.73		$	0.70
Net income per common share—diluted	0.70			0.81			0.72			0.72			0.69
Cash dividends declared per common share	0.29			0.25			0.21			0.19			0.16
Balance sheet highlights
Total assets (period end)	$	99,714,097		$	71,018,301		$	66,283,130		$	59,454,113		$	56,131,660
Total long-term debt (period end)	8,309,159			7,041,364			4,321,082			2,445,493			1,356,570
Total shareholders’ equity (period end)	10,308,146			6,594,606			6,328,170			6,090,153			5,778,500
Average total assets	83,054,283			68,560,023			62,483,232			56,289,181			55,661,162
Average total long-term debt	8,048,477			5,585,458			3,479,438			1,661,169			1,975,990
Average total shareholders’ equity	8,391,361			6,536,018			6,269,884			5,914,914			5,671,455
Key ratios and statistics
Margin analysis—as a % of average earnings assets
Interest income(2)	3.50		%	3.41		%	3.47		%	3.66		%	3.85		%
Interest expense	0.34			0.26			0.24			0.30			0.44
Net interest margin(2)	3.16		%	3.15		%	3.23		%	3.36		%	3.41		%
Return on average total assets	0.86		%	1.01		%	1.01		%	1.14		%	1.13		%
Return on average common shareholders’ equity	8.6			10.7			10.2			11.0			11.3
Return on average tangible common shareholders’ equity(3), (7)	10.7			12.4			11.8			12.7			13.3
Efficiency ratio(4)	66.8			64.5			65.1			62.6			63.2
Dividend payout ratio	40.3			30.5			28.8			26.0			22.9
Average shareholders’ equity to average assets	10.10			9.53			10.03			10.51			10.19
Effective tax rate	22.6			24.2			25.9			26.2			24.3
Non-regulatory capital
Tangible common equity to tangible assets (period end) (5), (7)	7.16			7.82			8.17			8.82			8.74
Tangible equity to tangible assets (period end)(6), (7)	8.26			8.37			8.76			9.48			9.44
Tier 1 common risk-based capital ratio (period end)(7), (8)	N.A.			N.A.			10.23			10.90			10.48
Tier 1 leverage ratio (period end)(9), (10)	N.A.			N.A.			9.74			10.67			10.36
Tier 1 risk-based capital ratio (period end)(9), (10)	N.A.			N.A.			11.50			12.28			12.02
Total risk-based capital ratio (period end)(9), (10)	N.A.			N.A.			13.56			14.57			14.50
Capital under current regulatory standards (Basel III)
Common equity tier 1 risk-based capital ratio	9.56			9.79		%	N.A.			N.A.			N.A.
Tier 1 leverage ratio (period end)	8.70			8.79		%	N.A.			N.A.			N.A.
Tier 1 risk-based capital ratio (period end)	10.92			10.53		%	N.A.			N.A.			N.A.
Total risk-based capital ratio (period end)	13.05			12.64		%	N.A.			N.A.			N.A.
Other data
Full-time equivalent employees (average)	15,993			12,243			11,873			11,964			11,494
Domestic banking offices (period end)	1,115			777			729			711			705


(1)	Comparisons for presented periods are impacted by a number of factors. Refer to the "Significant Items" in the Discussion of Results of Operations for additional discussion regarding these key factors.

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(2)	On an FTE basis assuming a 35% tax rate.

(3)

Net income applicable to common shares excluding expense for amortization of intangibles for the period divided by average tangible shareholders’ equity. Average tangible shareholders’ equity equals average total 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.


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


(5)	Tangible common equity (total common equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax and calculated assuming a 35% tax rate. (Non-GAAP)


(6)	Tangible equity (total equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax and calculated assuming a 35% tax rate.

(7)

Tier 1 common equity, tangible equity, tangible common equity, and tangible assets are non-GAAP financial measures. Additionally, any ratios utilizing these financial measures are also non-GAAP. These financial measures have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength. Other companies may calculate these financial measures differently.


(8)	In accordance with applicable regulatory reporting guidance, we are not required to retrospectively update historical filings for newly adopted accounting principles. Therefore, tier 1 capital, tier 1 common equity, and risk-weighted assets have not been updated for the adoption of ASU 2014-01.


(9)	In accordance with applicable regulatory reporting guidance, we are not required to retrospectively update historical filings for newly adopted accounting principles. Therefore, regulatory capital data has not been updated for the adoption of ASU 2014-01.


(10)	Ratios are calculated on the Basel I basis.


N.A.	On January 1, 2015, we became subject to the Basel III capital requirements and the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule.

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Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

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 should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements, and other information contained in this report. The forward-looking statements in this section and other parts of this report involve assumptions, risks, uncertainties, and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption "Forward-Looking Statements" and those set forth in Item 1A.

EXECUTIVE OVERVIEW

Business Combinations

2016 Financial Performance Review

In 2016, we reported net income of $712 million, a 3% increase from the prior year. Earnings per common share on a diluted basis for the year was $0.70, down 14% from the prior year. Reported net income was impacted by FirstMerit acquisition related expenses totaling $282 million pre-tax, or $0.20 per common share and a reduction to the litigation reserve totaling $42 million pre-tax, or $0.03 per common share.

Fully-taxable equivalent net interest income was $2.4 billion, up $0.4 billion, or 22%. This reflected the impact of 21% earning asset growth, 22% interest-bearing liability growth, and a 1 basis point increase in the NIM to 3.16%. The average earning asset growth included an $8.8 billion, or 18%, increase in average loans and leases and a $4.1 billion, or 30%, increase in average securities, both of which were impacted by the FirstMerit acquisition. The net interest margin expansion reflected a 9 basis point positive impact from the mix and yield on earning assets, a 3 basis point increase in the benefit from noninterest-bearing funds, partially offset by an 11 basis point increase in funding costs.

The provision for credit losses was $191 million, up $91 million, or 91%. The higher provision expense was due to several factors, including the migration of the acquired portfolio to the originated portfolio, and the corresponding reserve build, portfolio growth and transitioning the FirstMerit portfolio to Huntington’s reserving methodology. Net charge-offs represented an annualized 0.19% of average loans and leases, which remains below our long-term target of 35 to 55 basis points.

Noninterest income was $1.1 billion, up $111 million, or 11%. Service charges on deposit accounts increased $44 million, or 16%, reflecting the benefit of continued new customer acquisition. In addition, cards and payment processing income increased $26 million, or 18%, due to higher card related income and underlying customer growth. Also, mortgage banking income increased $16 million, or 15%, reflecting a 24% increase in mortgage origination volume. Finally, gain on sale of loans increased $14 million, or 43%, primarily reflecting an increase of $6 million in SBA loan sales gains and the $7 million gains on non-relationship C&I and CRE loan sales, both of which were related to the balance sheet optimization strategy completed in the 2016 fourth quarter.

Noninterest expense was $2.4 billion, up $433 million, or 22%. Reported noninterest expense was impacted by FirstMerit acquisition-related expenses totaling $282 million. Personnel costs increased $227 million, or 20%, primarily reflecting $76 million of acquisition-related expense and a 31% increase in the number of average full-time equivalent employees largely related to the in-store branch expansion and the addition of colleagues from FirstMerit. In addition, outside data processing and other services, professional services, equipment expense, and net occupancy expense all increased as a result of acquisition-related expenses. Also, other expense decreased $17 million, or 8%, primarily reflecting a $42 million reduction to litigation reserves, which was mostly offset by a $40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to FirstMerit.

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The tangible common equity to tangible assets ratio was 7.16%, down 66 basis points. The CET1 risk-based capital ratio was 9.56%, down 23 basis points. The regulatory tier 1 risk-based capital ratio was 10.92%, up 39 basis points. All capital ratios were impacted by the $1.3 billion of goodwill created and the issuance of $2.8 billion of common stock as part of the FirstMerit acquisition. The regulatory Tier 1 risk-based and total risk-based capital ratios benefited from the issuance of $600 million of Class D preferred equity and separately, the issuance of $100 million of Class C preferred equity in exchange for FirstMerit preferred equity in conjunction with the acquisition. The total risk-based capital ratio was impacted by the repurchase of $65 million of trust preferred securities. In addition, $5 million of trust preferred securities acquired in the FirstMerit acquisition were subsequently redeemed. There were no common shares repurchased during 2016.

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. Additionally, we are focused on the successful integration of FirstMerit in 2017.

Economy

Looking forward into 2017, we are optimistic that improved consumer confidence and jobs growth will translate into overall economic growth in the markets where we do business. Operationally, we expect to realize the full financial benefits of integration completion within the second half of the year, meeting our commitment for cost savings. We are driving revenue synergies and organic revenue growth, leveraging our expanded footprint and customer base. We will see minor benefits from the Federal Reserve’s December interest rate action, and any additional rate increases in 2017 would be additive to our bottom line.

Legislative and Regulatory

A comprehensive discussion of legislative and regulatory matters affecting us can be found in the Regulatory Matters section included in Item 1 of this Form 10-K.

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Table 2 - Selected Annual Income Statements (1)
(dollar amounts in thousands, except per share amounts)
	Year Ended December 31,
				Change from 2015							Change from 2014
	2016			Amount			Percent		2015		Amount			Percent		2014
Interest income	$	2,632,113		$	517,592		24	%	$	2,114,521	$	138,059		7	%	$	1,976,462
Interest expense	262,795			99,011			60		163,784		24,463			18		139,321
Net interest income	2,369,318			418,581			21		1,950,737		113,596			6		1,837,141
Provision for credit losses	190,802			90,848			91		99,954		18,965			23		80,989
Net interest income after provision for credit losses	2,178,516			327,733			18		1,850,783		94,631			5		1,756,152
Service charges on deposit accounts	324,299			43,950			16		280,349		6,608			2		273,741
Cards and payment processing income	169,064			26,349			18		142,715		37,314			35		105,401
Mortgage banking income	128,257			16,404			15		111,853		26,966			32		84,887
Trust services	108,274			2,441			2		105,833		(10,139		)	(9	)	115,972
Insurance income	64,523			(741		)	(1	)	65,264		(209		)	—		65,473
Brokerage income	61,834			1,629			3		60,205		(8,072		)	(12	)	68,277
Capital markets fees	59,527			5,911			11		53,616		9,885			23		43,731
Bank owned life insurance income	57,567			5,167			10		52,400		(4,648		)	(8	)	57,048
Gain on sale of loans	47,153			14,116			43		33,037		11,946			57		21,091
Securities gains (losses)	(84		)	(828		)	(111	)	744		(16,810		)	(96	)	17,554
Other income	129,317			(3,397		)	(3	)	132,714		6,710			5		126,004
Total noninterest income	1,149,731			111,001			11		1,038,730		59,551			6		979,179
Personnel costs	1,349,124			226,942			20		1,122,182		73,407			7		1,048,775
Outside data processing and other services	304,743			73,390			32		231,353		18,767			9		212,586
Equipment	164,839			39,882			32		124,957		5,294			4		119,663
Net occupancy	153,090			31,209			26		121,881		(6,195		)	(5	)	128,076
Professional services	105,266			54,975			109		50,291		(9,264		)	(16	)	59,555
Marketing	62,957			10,744			21		52,213		1,653			3		50,560
Deposit and other insurance expense	54,107			9,498			21		44,609		(4,435		)	(9	)	49,044
Amortization of intangibles	30,456			2,589			9		27,867		(11,410		)	(29	)	39,277
Other expense	183,903			(16,652		)	(8	)	200,555		25,745			15		174,810
Total noninterest expense	2,408,485			432,577			22		1,975,908		93,562			5		1,882,346
Income before income taxes	919,762			6,157			1		913,605		60,620			7		852,985
Provision for income taxes	207,941			(12,707		)	(6	)	220,648		55			—		220,593
Net income	711,821			18,864			3		692,957		60,565			10		632,392
Dividends on preferred shares	65,274			33,401			105		31,873		19			—		31,854
Net income applicable to common shares	$	646,547		$	(14,537	)	(2	)%	$	661,084	$	60,546		10	%	$	600,538
Average common shares—basic	904,438			101,026			13	%	803,412		(16,505		)	(2	)%	819,917
Average common shares—diluted	918,790			101,661			12		817,129		(15,952		)	(2	)	833,081
Per common share:
Net income—basic	$	0.72		$	(0.10	)	(12	)%	$	0.82	$	0.09		12	%	$	0.73
Net income—diluted	0.70			(0.11		)	(14	)	0.81		0.09			13		0.72
Cash dividends declared	0.29			0.04			16		0.25		0.04			19		0.21
Revenue—FTE
Net interest income	$	2,369,318		$	418,581		21	%	$	1,950,737	$	113,596		6	%	$	1,837,141
FTE adjustment	42,408			10,293			32		32,115		4,565			17		27,550
Net interest income⁽²⁾	2,411,726			428,874			22		1,982,852		118,161			6		1,864,691
Noninterest income	1,149,731			111,001			11		1,038,730		59,551			6		979,179
Total revenue⁽²⁾	$	3,561,457		$	539,875		18	%	$	3,021,582	$	177,712		6	%	$	2,843,870


(1)	Comparisons for presented periods are impacted by a number of factors. Refer to “Significant Items” in the Discussion of Results of Operations.


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

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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 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

Earnings comparisons among the three years ended December 31, 2016, 2015, and 2014 were impacted by a number of 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 2016, $282 million of noninterest expense and $1 million of noninterest income was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.20 per common share in 2016.


•	During 2015, $9 million of noninterest expense was recorded related to the acquisition of Macquarie Equipment Finance, which was rebranded Huntington Technology Finance. Also during 2015, $4 million of noninterest expense and $3 million of noninterest income was recorded related to the sale of HAA, HASI, and Unified. This resulted in a negative impact of $0.01 per common share in 2015.


•	During 2014, $16 million of net noninterest expense was recorded related to the acquisition of 24 Bank of America branches and Camco Financial. This resulted in a net negative impact of $0.01 per common share in 2014.


2.	Litigation Reserve. Significant events relating to our litigation reserve, and the impacts of those events on our reported results, were as follows:


•	During 2016, a $42 million reduction to litigation reserves was recorded as other noninterest expense. This resulted in a positive impact of $0.03 per common share in 2016.


•	During 2015 and 2014, $38 million and $21 million of net additions to litigation reserves were recorded as other noninterest expense, respectively. This resulted in a negative impact of $0.03 and $0.02 per common share in 2015 and 2014, respectively.


3.	Franchise Repositioning Related Expense. Significant events relating to franchise repositioning, and the impacts of those events on our reported results, were as follows:


•	During 2015, $8 million of franchise repositioning related expense was recorded. This resulted in a negative impact of $0.01 per common share in 2015.


•	During 2014, $28 million of franchise repositioning related expense was recorded. This resulted in a negative impact of $0.02 per common share in 2014.

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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)

	2016						2015						2014
	Amount			EPS (1)			Amount			EPS (1)			Amount			EPS (1)
Net income	$	711,821					$	692,957					$	632,392
Earnings per share, after-tax				$	0.70					$	0.81					$	0.72
Significant items—favorable (unfavorable) impact:	Earnings			EPS			Earnings			EPS			Earnings			EPS

Mergers and acquisitions, net expenses	$	(282,086	)				$	(9,323	)				$	(15,818	)
Tax impact	94,709						3,263						5,436
Mergers and acquisitions, after-tax	$	(187,377	)	$	(0.20	)	$	(6,060	)	$	(0.01	)	$	(10,382	)	$	(0.01	)

Litigation reserves	$	41,587					$	(38,186	)				$	(20,909	)
Tax impact	(14,888		)				13,365						7,318
Litigation reserves, after-tax	$	26,699		$	0.03		$	(24,821	)	$	(0.03	)	$	(13,591	)	$	(0.02	)

Franchise repositioning related expense	$	—					$	(7,588	)				$	(27,976	)
Tax impact	—						2,656						9,792
Franchise repositioning related expense, after-tax	$	—		$	—		$	(4,932	)	$	(0.01	)	$	(18,184	)	$	(0.02	)


(1)	Based upon the annual average outstanding diluted common shares.

Net Interest Income / Average Balance Sheet

Our primary source of revenue is net interest income, which is the difference between interest income from earning assets (primarily loans, securities, and direct financing leases), and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Earning asset balances and related funding sources, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest-bearing sources of funds, often referred to as “free” funds, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis, which means that tax-free interest income has been adjusted to a pretax equivalent income, assuming a 35% tax rate.

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The following table shows changes in fully-taxable equivalent interest income, interest expense, and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities:



Table 4 - Change in Net Interest Income Due to Changes in Average Volume and Interest Rates (1)
(dollar amounts in millions)
	2016							2015
	Increase (Decrease) From Previous Year Due To							Increase (Decrease) From Previous Year Due To
Fully-taxable equivalent basis(2)	Volume		Yield/ Rate			Total		Volume			Yield/ Rate			Total
Loans and leases	$	332.3	$	87.0		$	419.3	$	117.6		$	(35.1	)	$	82.5
Investment securities	104.7		(7.0		)	97.7		45.8			3.2			49.0
Other earning assets	12.5		(1.7		)	10.8		10.4			0.7			11.1
Total interest income from earning assets	449.5		78.3			527.8		173.8			(31.2		)	142.6
Deposits	16.3		3.5			19.8		5.6			(9.9		)	(4.3		)
Short-term borrowings	0.2		3.3			3.5		(1.6		)	0.3			(1.3		)
Long-term debt	42.2		33.5			75.7		30.1			—			30.1
Total interest expense of interest-bearing liabilities	58.7		40.3			99.0		34.1			(9.6		)	24.5
Net interest income	$	390.8	$	38.0		$	428.8	$	139.7		$	(21.6	)	$	118.1


(1)	The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.


(2)	Calculated assuming a 35% tax rate.



Table 5 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (3)
(dollar amounts in millions)
	Average Balances
			Change from 2015						Change from 2014
Fully-taxable equivalent basis (1)	2016		Amount		Percent		2015		Amount			Percent		2014
Assets
Interest-bearing deposits in banks	$	100	$	10	11	%	$	90	$	5		6	%	$	85
Loans held for sale	1,054		400		61		654		331			102		323
Available-for-sale and other securities:
Taxable	9,278		1,279		16		7,999		1,214			18		6,785
Tax-exempt	2,716		641		31		2,075		646			45		1,429
Total available-for-sale and other securities	11,994		1,920		19		10,074		1,860			23		8,214
Trading account securities	67		21		46		46		—			—		46
Held-to-maturity securities—taxable	5,693		2,180		62		3,513		(99		)	(3	)	3,612
Total securities	17,754		4,121		30		13,633		1,761			15		11,872
Loans and leases: (2)
Commercial:
Commercial and industrial	23,684		3,950		20		19,734		1,392			8		18,342
Commercial real estate:
Construction	1,088		71		7		1,017		289			40		728
Commercial	4,919		709		17		4,210		(61		)	(1	)	4,271
Commercial real estate	6,007		780		15		5,227		228			5		4,999
Total commercial	29,691		4,730		19		24,961		1,620			7		23,341
Consumer:
Automobile loans and leases	10,540		1,780		20		8,760		1,090			14		7,670
Home equity	9,058		564		7		8,494		99			1		8,395

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Residential mortgage	6,730			780			13		5,950			327			6		5,623
RV and marine finance	693			693			—		—			—			—		—
Other consumer	742			261			54		481			85			21		396
Total consumer	27,763			4,078			17		23,685			1,601			7		22,084
Total loans and leases	57,454			8,808			18		48,646			3,221			7		45,425
Allowance for loan and lease losses	(614		)	(8		)	1		(606		)	32			(5	)	(638		)
Net loans and leases	56,840			8,800			18		48,040			3,253			7		44,787
Total earning assets	76,362			13,339			21		63,023			5,318			9		57,705
Cash and due from banks	1,220			(3		)	—		1,223			325			36		898
Intangible assets	1,359			656			93		703			125			22		578
All other assets	4,727			510			12		4,217			276			7		3,941
Total assets	$	83,054		$	14,494		21	%	$	68,560		$	6,076		10	%	$	62,484
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits—noninterest-bearing	$	19,045		$	2,703		17	%	$	16,342		$	2,354		17	%	$	13,988
Demand deposits—interest-bearing	10,985			4,412			67		6,573			677			11		5,896
Total demand deposits	30,030			7,115			31		22,915			3,031			15		19,884
Money market deposits	19,069			(314		)	(2	)	19,383			1,466			8		17,917
Savings and other domestic deposits	7,981			2,761			53		5,220			189			4		5,031
Core certificates of deposit	2,300			(303		)	(12	)	2,603			(712		)	(21	)	3,315
Total core deposits	59,380			9,259			18		50,121			3,974			9		46,147
Other domestic time deposits of $250,000 or more	408			152			59		256			14			6		242
Brokered time deposits and negotiable CDs	3,499			746			27		2,753			614			29		2,139
Deposits in foreign offices	204			(298		)	(59	)	502			127			34		375
Total deposits	63,491			9,859			18		53,632			4,729			10		48,903
Short-term borrowings	1,530			184			14		1,346			(1,415		)	(51	)	2,761
Long-term debt	8,048			2,463			44		5,585			2,105			60		3,480
Total interest-bearing liabilities	54,024			9,803			22		44,221			3,065			7		41,156
All other liabilities	1,594			133			9		1,461			391			37		1,070
Shareholders’ equity	8,391			1,855			28		6,536			266			4		6,270
Total liabilities and shareholders’ equity	$	83,054		$	14,494		21	%	$	68,560		$	6,076		10	%	$	62,484


(3)	Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.



Table 6 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) (3)
(dollar amounts in thousands)
	Interest Income / Expense						Average Rate (2)
Fully-taxable equivalent basis (1)	2016		2015		2014		2016		2015		2014
Assets
Interest-bearing deposits in banks	$	443	$	90	$	103	0.44	%	0.10	%	0.12	%
Loans held for sale	34,480		23,812		12,728		3.27		3.64		3.94
Securities:
Available-for-sale and other securities:
Taxable	221,782		202,104		171,080		2.39		2.53		2.52
Tax-exempt	90,972		64,637		44,562		3.35		3.11		3.12

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Total available-for-sale and other securities	312,754		266,741		215,642		2.61		2.65		2.63
Trading account securities	284		493		421		0.42		1.06		0.92
Held-to-maturity securities—taxable	138,312		86,614		88,724		2.43		2.47		2.46
Total securities	451,350		353,848		304,787		2.54		2.60		2.57
Loans and leases: (2)
Commercial:
Commercial and industrial	878,873		700,139		643,484		3.71		3.55		3.51
Commercial real estate:
Construction	40,467		36,956		31,414		3.72		3.63		4.31
Commercial	175,491		146,526		163,192		3.57		3.48		3.82
Commercial real estate	215,958		183,482		194,606		3.60		3.51		3.89
Total commercial	1,094,831		883,621		838,090		3.69		3.54		3.59
Consumer:
Automobile loans and leases	350,358		282,379		262,931		3.32		3.22		3.43
Home equity	381,002		340,342		343,281		4.21		4.01		4.09
Residential mortgage	244,077		220,678		213,268		3.63		3.71		3.79
RV and marine finance	39,243		—		—		5.67		—		—
Other consumer	78,737		41,866		28,824		10.62		8.71		7.30
Total consumer	1,093,417		885,265		848,304		3.94		3.74		3.84
Total loans and leases	2,188,248		1,768,886		1,686,394		3.81		3.64		3.71
Total earning assets	$	2,674,521	$	2,146,636	$	2,004,012	3.50	%	3.41	%	3.47	%
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits—noninterest-bearing	$	—	$	—	$	—	—	%	—	%	—	%
Demand deposits—interest-bearing	11,278		4,278		2,272		0.10		0.07		0.04
Total demand deposits	11,278		4,278		2,272		0.04		0.02		0.01
Money market deposits	45,411		43,406		42,156		0.24		0.22		0.24
Savings and other domestic deposits	15,337		7,340		8,779		0.19		0.14		0.17
Core certificates of deposit	12,961		20,646		26,998		0.56		0.79		0.81
Total core deposits	84,987		75,670		80,205		0.21		0.22		0.25
Other domestic time deposits of $250,000 or more	1,624		1,078		1,036		0.40		0.42		0.43
Brokered time deposits and negotiable CDs	15,125		4,767		4,728		0.43		0.17		0.22
Deposits in foreign offices	268		659		483		0.13		0.13		0.13
Total deposits	102,004		82,174		86,452		0.23		0.22		0.25
Short-term borrowings	5,140		1,584		2,940		0.34		0.12		0.11
Long-term debt	155,651		80,026		49,929		1.93		1.43		1.43
Total interest-bearing liabilities	262,795		163,784		139,321		0.48		0.37		0.34
Net interest income	$	2,411,726	$	1,982,852	$	1,864,691
Net interest rate spread							3.02		3.04		3.13
Impact of noninterest-bearing funds on margin							0.14		0.11		0.10
Net interest margin							3.16	%	3.15	%	3.23	%

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


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


(3)	Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

2016 vs. 2015

Fully-taxable equivalent net interest income for 2016 increased $429 million, or 22%, from 2015. This reflected the impact of 21% earning asset growth, a 1 basis point increase in the NIM to 3.16%, partially offset by 22% interest-bearing liability growth.

Average earning assets increased $13.3 billion, or 21%, from the prior year, driven by:


•	$4.1 billion, or 30%, increase in average securities, primarily reflecting the FirstMerit acquisition, as well as the reinvestment of cash flows and additional investment in LCR Level 1 qualifying securities. The 2016 average balance also included $2.1 billion of direct purchase municipal instruments in our Commercial segment, up from $1.7 billion in the year-ago period.


•	$4.0 billion, or 20%, increase in average C&I loans and leases was impacted by the FirstMerit acquisition. The increase in average C&I loans and leases also reflects organic growth in equipment finance leases, automobile dealer floorplan lending, and corporate banking.


•	$1.8 billion, or 20%, increase in average automobile loans, which reflects continued strength in new and used automobile originations, while maintaining our underwriting consistency and discipline. This increase was also impacted by the FirstMerit acquisition and was partially offset by the $1.5 billion auto loan securitization during the 2016 fourth quarter.

Average noninterest-bearing demand deposits increased $2.7 billion, or 17%, while average total interest-bearing liabilities increased $9.8 billion, or 22%, primarily reflecting:


•	$4.4 billion, or 67%, increase in average interest-bearing demand deposits.


•	$2.8 billion, or 53%, increase in savings and other domestic deposits, reflecting continued banker focus across all segments on obtaining our customers' full deposit relationship.


•	$2.4 billion, or 44% increase in average long-term debt, reflecting the issuance of $2.0 billion of senior debt during 2016, as well as $0.5 billion of subordinate debt assumed during the acquisition of FirstMerit.

The 1 basis point increase in NIM primary reflected:


•	9 basis point positive impact from the mix and yield on earning assets, a 3 basis point increase in the benefit from noninterest-bearing funds, partially offset by an 11 basis point increase in funding costs.

2015 vs. 2014

Fully-taxable equivalent net interest income for 2015 increased $118 million, or 6%, from 2014. This reflected the impact of 9% earning asset growth, partially offset by 7% interest-bearing liability growth and an 8 basis point decrease in the NIM to 3.15%.

Average earning assets increased $5.3 billion, or 9%, from the prior year, driven by:


•	$1.8 billion, or 15%, increase in average securities, primarily reflecting additional investment in LCR Level 1 qualifying securities. The 2015 average balance also included $1.7 billion of direct purchase municipal instruments originated by our Commercial segment, up from $1.0 billion in the year-ago period.


•	$1.4 billion, or 8%, increase in average C&I loans and leases, primarily reflecting the $0.9 billion increase in asset finance, including the $0.8 billion of equipment finance leases acquired in the Huntington Technology Finance transaction at the end of the 2015 first quarter.


•	$1.1 billion, or 14%, increase in average Automobile loans, as originations remained strong.


•	$0.3 billion, or 6%, increase in average Residential mortgage loans.

Average noninterest-bearing demand deposits increased $2.4 billion, or 17%, while average total interest-bearing liabilities increased $3.1 billion, or 7%, primarily reflecting:


•	$1.5 billion, or 8%, increase in money market deposits, reflecting continued banker focus across all segments on obtaining our customers’ full deposit relationship.

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•	$0.7 billion, or 11%, increase in average interest-bearing demand deposits. The increase reflected growth in both consumer and commercial accounts.

•

$0.7 billion, or 11%, increase in average total debt, reflecting a $2.1 billion, or 60%, increase in average long-term debt partially offset by a $1.4 billion, or 51%, reduction in average short-term borrowings. The increase in average long-term debt reflected the issuance of $3.1 billion of bank-level senior debt during 2015, including $0.9 billion during the 2015 fourth quarter, as well as $0.5 billion of debt assumed in the Huntington Technology Finance acquisition at the end of the 2015 first quarter.


•	$0.6 billion, or 29%, increase in brokered deposits and negotiated CDs, which were used to efficiently finance balance sheet growth while continuing to manage the overall cost of funds.

Partially offset by:


•	$0.7 billion, or 21%, decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to low- and no-cost demand deposits and money market deposits.

The primary items impacting the decrease in the NIM were:


•	6 basis point negative impact from the mix and yield on earning assets, primarily reflecting lower rates on loans and the impact of an increase in total securities balances.


•	3 basis point negative impact from the mix and yield of total interest-bearing liabilities.

Partially offset by:


•	1 basis point increase in the benefit to the margin of noninterest-bearing funds.

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 inherent in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.

The provision for credit losses in 2016 was $191 million, up $91 million, or 91%, from 2015. The higher provision expense was due to several factors, including the migration of the acquired loan portfolio to the originated portfolio, which requires a reserve build, portfolio growth and transitioning the FirstMerit portfolio to our reserve methodology. NCOs represented 19 basis points of average loans and leases, consistent with 2015, and below our long-term target of 35 to 55 basis points.

The provision for credit losses in 2015 was $100 million, up $19 million, or 23%, from 2014, reflecting a $37 million, or 30%, decrease in NCOs. The provision for credit losses in 2015 was $12 million more than total NCOs.

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Noninterest Income

The following table reflects noninterest income for the past three years:



Table 7 - Noninterest Income
(dollar amounts in thousands)
	Year Ended December 31,
				Change from 2015							Change from 2014
	2016			Amount			Percent		2015		Amount			Percent		2014
Service charges on deposit accounts	$	324,299		$	43,950		16	%	$	280,349	$	6,608		2	%	$	273,741
Cards and payment processing income	169,064			26,349			18		142,715		37,314			35		105,401
Mortgage banking income	128,257			16,404			15		111,853		26,966			32		84,887
Trust services	108,274			2,441			2		105,833		(10,139		)	(9	)	115,972
Insurance income	64,523			(741		)	(1	)	65,264		(209		)	—		65,473
Brokerage income	61,834			1,629			3		60,205		(8,072		)	(12	)	68,277
Capital markets fees	59,527			5,911			11		53,616		9,885			23		43,731
Bank owned life insurance income	57,567			5,167			10		52,400		(4,648		)	(8	)	57,048
Gain on sale of loans	47,153			14,116			43		33,037		11,946			57		21,091
Securities gains (losses)	(84		)	(828		)	(111	)	744		(16,810		)	(96	)	17,554
Other income	129,317			(3,397		)	(3	)	132,714		6,710			5		126,004
Total noninterest income	$	1,149,731		$	111,001		11	%	$	1,038,730	$	59,551		6	%	$	979,179

2016 vs. 2015

Noninterest income increased $111 million, or 11%, from the prior year, primarily reflecting:


•	$44 million, or 16%, increase in service charges on deposit accounts, reflecting the benefit of continued new customer acquisition.


•	$26 million, or 18%, increase in cards and payment processing income, due to higher card related income and underlying customer growth.


•	$16 million, or 15%, increase in mortgage banking income, reflecting a 24% increase in mortgage origination volume.


•	$14 million, or 43%, increase in gain on sale of loans primarily reflecting an increase of $6 million in SBA loan sales gains. In addition, there was a $7 million gain on non-relationship C&I and CRE loan sales, which was related to the balance sheet optimization strategy completed in the 2016 fourth quarter.

2015 vs. 2014

Noninterest income increased $60 million, or 6%, from the prior year, primarily reflecting:


•	$37 million, or 35%, increase in cards and payment processing income due to higher card related income and underlying customer growth.


•	$27 million, or 32%, increase in mortgage banking income primarily driven by a $33 million, or 58%, increase in origination and secondary marketing revenue.


•	$12 million, or 57%, increase in gain on sale of loans primarily reflecting an increase of $7 million in SBA loan sales gains and the $5 million automobile loan securitization gain during the 2015 second quarter.


•	$10 million, or 23%, increase in capital market fees primarily related to customer foreign exchange and commodities derivatives products.

Partially offset by:


•	$17 million, or 96% decrease in securities gains as we adjusted the mix of our securities portfolio to prepare for the LCR requirements during the 2014 first quarter.

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•	$10 million, or 9%, decrease in trust services primarily related to our fiduciary trust businesses moving to a more open architecture platform and a decline in assets under management in proprietary mutual funds. During the 2015 fourth quarter, Huntington sold HAA, HASI, and Unified.



Noninterest Expense
(This section should be read in conjunction with Significant Items section.)

The following table reflects noninterest expense for the past three years:

Table 8 - Noninterest Expense
(dollar amounts in thousands)
	Year Ended December 31,
			Change from 2015							Change from 2014
	2016		Amount			Percent		2015		Amount			Percent		2014
Personnel costs	$	1,349,124	$	226,942		20	%	$	1,122,182	$	73,407		7	%	$	1,048,775
Outside data processing and other services	304,743		73,390			32		231,353		18,767			9		212,586
Equipment	164,839		39,882			32		124,957		5,294			4		119,663
Net occupancy	153,090		31,209			26		121,881		(6,195		)	(5	)	128,076
Professional services	105,266		54,975			109		50,291		(9,264		)	(16	)	59,555
Marketing	62,957		10,744			21		52,213		1,653			3		50,560
Deposit and other insurance expense	54,107		9,498			21		44,609		(4,435		)	(9	)	49,044
Amortization of intangibles	30,456		2,589			9		27,867		(11,410		)	(29	)	39,277
Other expense	183,903		(16,652		)	(8	)	200,555		25,745			15		174,810
Total noninterest expense	$	2,408,485	$	432,577		22	%	$	1,975,908	$	93,562		5	%	$	1,882,346
Number of employees (average full-time equivalent)	15,993		3,750			31	%	12,243		370			3	%	11,873



Impact of Significant Items:
	Year Ended December 31,
(dollar amounts in thousands)	2016		2015		2014
Personnel costs	$	76,020	$	5,457	$	19,850
Outside data processing and other services	46,467		4,365		5,507
Equipment	24,742		110		2,248
Net occupancy	14,772		4,587		11,153
Professional services	57,817		5,087		2,228
Marketing	5,520		28		1,357
Other expense	14,010		38,733		23,140
Total impact of significant items on noninterest expense	$	239,348	$	58,367	$	65,483

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Adjusted Noninterest Expense (See Non-GAAP Financial Measures in the Additional Disclosures section):

	Year Ended December 31,						Change from 2015				Change from 2014
(dollar amounts in thousands)	2016		2015		2014		Amount		Percent		Amount			Percent
Personnel costs	1,273,104		1,116,725		1,028,925		156,379		14		87,800			9
Outside data processing and other services	258,276		226,988		207,079		31,288		14		19,909			10
Equipment	140,097		124,847		117,415		15,250		12		7,432			6
Net occupancy	138,318		117,294		116,923		21,024		18		371			—
Professional services	47,449		45,204		57,327		2,245		5		(12,123		)	(21	)
Marketing	57,437		52,185		49,203		5,252		10		2,982			6
Deposit and other insurance expense	54,107		44,609		49,044		9,498		21		(4,435		)	(9	)
Amortization of intangibles	30,456		27,867		39,277		2,589		9		(11,410		)	(29	)
Other expense	169,893		161,822		151,670		8,071		5		10,152			7
Total adjusted noninterest expense (Non-GAAP)	$	2,169,137	$	1,917,541	$	1,816,863	$	251,596	13	%	$	100,678		6	%

2016 vs. 2015

Noninterest expense increased $433 million, or 22%, from 2015:


•	$227 million, or 20%, increase in personnel costs, primarily reflecting a 31% increase in the number of average full-time equivalent employees largely related to the in-store branch expansion and the addition of colleagues from FirstMerit.


•	$73 million, or 32%, increase in outside data processing and other services, primarily reflecting $46 million of acquisition-related expense and ongoing technology investments.


•	$55 million, or 109%, increase in professional services, primarily reflecting $58 million of acquisition-related expense.


•	$40 million, or 32%, increase in equipment expense, primarily reflecting $25 million of acquisition-related expense.


•	$31 million, or 26%, increase in net occupancy expense, primarily reflecting $15 million of acquisition-related expense.

Partially offset by:


•	$17 million, or 8%, decrease in other expense, primarily reflecting a $42 million reduction to litigation reserves which was mostly offset by a $40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to FirstMerit.

2015 vs. 2014

Noninterest expense increased $94 million, or 5%, from 2014:

•

$73 million, or 7%, increase in personnel costs. Excluding the impact of significant items, personnel costs increased $88 million, or 9%, reflecting a $79 million increase in salaries related to the 2015 second quarter implementation of annual merit increases, the addition of Huntington Technology Finance, and a 3% increase in the number of average full-time equivalent employees, largely related to the build-out of the in-store strategy.


•	$26 million, or 15%, increase in other noninterest expense. Excluding the impact of significant items, other noninterest expense increased $10 million, or 7%, due to an increase in operating lease expense related to Huntington Technology Finance.

•

$19 million, or 9%, increase in outside data processing and other services. Excluding the impact of significant items, outside data processing and other services increased $20 million, or 10%, primarily reflecting higher debit and credit card processing costs and increased other technology investment expense, as we continue to invest in technology supporting our products, services, and our Continuous Improvement initiatives.

Partially offset by:


•	$11 million, or 29%, 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.

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•	$9 million, or 16%, decrease in professional services. Excluding the impact of significant items, professional services decreased $12 million, or 21%, reflecting a decrease in outside consultant expenses related to strategic planning.

$6 million, or 5%, decrease in net occupancy. Excluding the impact of significant items, net occupancy remained relatively unchanged.

Provision for Income Taxes

(This section should be read in conjunction with Note 17 of the Notes to Consolidated Financial Statements.)

2016 versus 2015

The provision for income taxes was $208 million for 2016 compared with a provision for income taxes of $221 million in 2015. Both years included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, and capital losses. As of December 31, 2016 and 2015 there was no valuation allowance on federal deferred taxes. In 2015, a $69 million reduction in the provision for federal income taxes was recorded for the portion of federal capital loss carryforward deferred tax asset that are more likely than not to be realized. In 2016 and 2015 there was essentially no change recorded in the provision for state income taxes, net of federal, for the portion of state deferred tax assets and state net operating loss carryforwards that are more likely than not to be realized. At December 31, 2016, we had a net federal deferred tax asset of $76 million and a net state deferred tax asset of $41 million.

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, Wisconsin, and Illinois.

2015 versus 2014

The provision for income taxes was $221 million for 2015 compared with a provision for income taxes of $221 million in 2014. Both years included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, and capital losses. In 2015, a $69 million reduction in the provision for federal income taxes was recorded for the portion of federal deferred tax assets related to capital loss carryforwards that are more likely than not to be realized compared to a $27 million reduction in 2014. In 2015, there was essentially no change recorded in the provision for state income taxes, net of federal taxes, for the portion of state deferred tax assets and state net operating loss carryforwards that are more likely than not to be realized, compared to a $7 million reduction, net of federal taxes, in the 2014.

RISK MANAGEMENT AND CAPITAL

A comprehensive discussion of risk management and capital matters affecting us can be found in the Risk Governance section included in Item 1A and the Regulatory Matters section of Item 1 of this Form 10-K.

Some of the more significant processes used to manage and control credit, market, liquidity, operational, and compliance risks are described in the following sections.

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 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, based on our underwriting practices we believe this exposure is minimal. (see Note 1 of the Notes to Consolidated Financial Statements)

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.

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The maximum level of credit exposure to individual credit borrowers is limited by policy guidelines based on the perceived risk of each borrower or related group of borrowers. All authority to grant commitments is delegated through the independent credit administration function and is closely monitored and regularly updated. Concentration risk is managed through limits on loan type, geography, industry, and loan quality factors. We focus predominantly on extending credit to retail and commercial customers with existing or expandable relationships within our primary banking markets, although we will consider lending opportunities outside our primary markets if we believe the associated risks are acceptable and aligned with strategic initiatives. Although we offer a broad set of products, we continue to develop new lending products and opportunities. Each of these new products and opportunities goes through a rigorous development and approval process prior to implementation to ensure our overall objective of maintaining an aggregate moderate-to-low risk portfolio profile.

The checks and balances in the credit process and the separation of the credit administration and risk management functions are designed to appropriately assess and sanction the level of credit risk being accepted, facilitate the early recognition of credit problems when they occur, and provide for effective problem asset management and resolution. For example, we do not extend additional credit to delinquent borrowers except in certain circumstances that substantially improve our overall repayment or collateral coverage position.

Loan and Lease Credit Exposure Mix

At December 31, 2016, our loans and leases totaled $67.0 billion, representing a $16.6 billion, or 33%, increase compared to $50.3 billion at December 31, 2015.

Total commercial loans and leases were $35.4 billion at December 31, 2016, and represented 53% of our total loan and lease credit exposure. Our commercial loan portfolio is diversified by product type, customer size, and geography within our footprint, and is comprised of the following (see Commercial Credit discussion):

C&I – C&I loans and leases are made to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects. The majority of these borrowers are customers doing business within our geographic regions. C&I loans and leases are generally underwritten individually and secured with the assets of the company and/or the personal guarantee of the business owners. The financing of owner occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The operation, sale, rental, or refinancing of the real estate is not considered the primary repayment source for these types of loans. As we have expanded our C&I portfolio, we have developed a series of “vertical specialties” to ensure that new products or lending types are embedded within a structured, centralized Commercial Lending area with designated, experienced credit officers. These specialties are comprised of either targeted industries (for example, Healthcare, Food & Agribusiness, Energy, etc.) and/or lending disciplines (Equipment Finance, ABL, etc.), all of which requires a high degree of expertise and oversight to effectively mitigate and monitor risk. As such, we have dedicated colleagues and teams focused on bringing value added expertise to these specialty clients.

CRE – CRE loans consist of loans to developers and REITs supporting income-producing or for-sale commercial real estate properties. We mitigate our risk on these loans by requiring collateral values that exceed the loan amount and underwriting the loan with projected cash flow in excess of the debt service requirement. These loans are made to finance properties such as apartment buildings, office and industrial buildings, and retail shopping centers, and are repaid through cash flows related to the operation, sale, or refinance of the property. For loans secured by real estate, appropriate appraisals are obtained at origination and updated on an as needed basis in compliance with regulatory requirements.

Construction CRE – Construction CRE loans are loans to developers, companies, or individuals used for the construction of a commercial or residential property for which repayment will be generated by the sale or permanent financing of the property. Our construction CRE portfolio primarily consists of retail, multi family, office, and warehouse project types. Generally, these loans are for construction projects that have been presold or preleased, or have secured permanent financing, as well as loans to real estate companies with significant equity invested in each project. These loans are underwritten and managed by a specialized real estate lending group that actively monitors the construction phase and manages the loan disbursements according to the predetermined construction schedule.

Total consumer loans and leases were $31.6 billion at December 31, 2016, and represented 47% of our total loan and lease credit exposure. The consumer portfolio is comprised primarily of automobile loans, home equity loans and lines-of-credit, and residential mortgages (see Consumer Credit discussion).

Automobile – Automobile loans are comprised primarily of loans made through automotive dealerships and include exposure in selected states outside of our primary banking markets. The exposure outside of our primary banking markets represents 16% of the total exposure, with no individual state representing more than 5%. Applications are underwritten using an automated underwriting system that applies consistent policies and processes across the portfolio.

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Home equity – Home equity lending includes both home equity loans and lines-of-credit. This type of lending, which is secured by a first-lien or junior-lien on the borrower’s residence, allows customers to borrow against the equity in their home or refinance existing mortgage debt. Products include closed-end loans which are generally fixed-rate with principal and interest payments, and variable-rate, interest-only lines-of-credit which do not require payment of principal during the 10-year revolving period. The home equity line of credit may convert to a 20-year amortizing structure at the end of the revolving period. Applications are underwritten centrally in conjunction with an automated underwriting system. The home equity underwriting criteria is based on minimum credit scores, debt-to-income ratios, and LTV ratios, with current collateral valuations. The underwriting for the floating rate lines of credit also incorporates a stress analysis for a rising interest rate.

Residential mortgage – Residential mortgage loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed over a 15-year to 30-year term, and in most cases, are extended to borrowers to finance their primary residence. Applications are underwritten centrally using consistent credit policies and processes. All residential mortgage loan decisions utilize a full appraisal for collateral valuation. Huntington has not originated or acquired residential mortgages that allow negative amortization or allow the borrower multiple payment options.

RV and marine finance – RV and marine finance loans are loans provided to consumers for the purpose of financing recreational vehicles and boats. Loans are originated on an indirect basis through a series of dealerships across 26 states. The loans are underwritten centrally using an application and decisioning system similar to automobile loans. The current portfolio includes 60% of the balances within our core footprint states.

Other consumer – Other consumer loans primarily consists of consumer loans not secured by real estate, including personal unsecured loans, overdraft balances, and credit cards.

The table below provides the composition of our total loan and lease portfolio:



Table 9 - Loan and Lease Portfolio Composition
(dollar amounts in millions)
	At December 31,
	2016				2015				2014				2013				2012
Ending Balances by Type:
Originated loans
Commercial:
Commercial and industrial	$	21,631	41	%	$	20,560	41	%	$	19,033	40	%	$	17,594	41	%	$	16,971	42	%
Commercial real estate:
Construction	979		2		1,031		2		875		2		557		1		648		2
Commercial	4,740		9		4,237		8		4,322		9		4,293		10		4,751		12
Commercial real estate	5,719		11		5,268		10		5,197		11		4,850		11		5,399		14
Total commercial	27,350		52		25,828		51		24,230		51		22,444		52		22,370		56
Consumer:
Automobile	9,619		18		9,481		19		8,690		18		6,639		15		4,634		11
Home equity	8,665		16		8,471		17		8,491		18		8,336		19		8,335		20
Residential mortgage	6,717		13		5,998		12		5,831		12		5,321		12		4,970		12
RV and marine finance	166		—		—		—		—		—		—		—		—		—
Other consumer	730		1		563		1		414		1		380		2		419		1
Total consumer	25,897		48		24,513		49		23,426		49		20,676		48		18,358		44
Total originated loans and leases	$	53,247	100	%	$	50,341	100	%	$	47,656	100	%	$	43,120	100	%	$	40,728	100	%

Acquired loans (1)
Commercial:
Commercial and industrial	$	6,428	47	%
Commercial real estate:
Construction	467		3
Commercial	1,115		8
Commercial real estate	1,582		11
Total commercial	8,010		58
Consumer:
Automobile	1,350		10
Home equity	1,441		11

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Residential mortgage	1,008		7
RV and marine finance	1,680		12
Other consumer	226		2
Total consumer	5,705		42
Total acquired loans and leases	$	13,715	100	%

Total loans
Commercial:
Commercial and industrial	$	28,059	42	%	$	20,560	41	%	$	19,033	40	%	$	17,594	41	%	$	16,971	42	%
Commercial real estate:
Construction	1,446		2		1,031		2		875		2		557		1		648		2
Commercial	5,855		9		4,237		8		4,322		9		4,293		10		4,751		12
Commercial real estate	7,301		11		5,268		10		5,197		11		4,850		11		5,399		14
Total commercial	35,360		53		25,828		51		24,230		51		22,444		52		22,370		56
Consumer:
Automobile	10,969		16		9,481		19		8,690		18		6,639		15		4,634		11
Home equity	10,106		15		8,471		17		8,491		18		8,336		19		8,335		20
Residential mortgage	7,725		12		5,998		12		5,831		12		5,321		12		4,970		12
RV and marine finance	1,846		3		—		—		—		—		—		—		—		—
Other consumer	956		1		563		1		414		1		380		2		419		1
Total consumer	31,602		47		24,513		49		23,426		49		20,676		48		18,358		44
Total loans and leases	$	66,962	100	%	$	50,341	100	%	$	47,656	100	%	$	43,120	100	%	$	40,728	100	%


(1)	Represents loans from FirstMerit acquisition.

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, and net deferred loan fees and costs. Acquired loans are those purchased in the FirstMerit acquisition and are recorded at estimated fair value at the acquisition date with no carryover of the related ALLL. The difference between acquired contractual balance and estimated fair value at acquisition date was recorded as a purchase premium or discount. The acquired loan portfolio will show a continuous decline as a result of payments, payoffs, charge-offs or other disposition, unless Huntington acquires additional loans in the future.

Our loan portfolio is composed of consumer and commercial credits. At the corporate level, we manage the credit exposure and portfolio composition 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, including the impact of the FirstMerit acquisition. Our concentration management policy is approved by the ROC of the Board 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.

The increase in the unsecured exposure is centered in high quality commercial credit customers.

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Table 10 - Loan and Lease Portfolio by Collateral Type
(dollar amounts in millions)
	At December 31,
	2016				2015				2014				2013				2012
Secured loans:
Real estate—commercial	$	11,729	18	%	$	8,296	16	%	$	8,631	18	%	$	8,622	20	%	$	9,128	22	%
Real estate—consumer	17,831		27		14,469		29		14,322		30		13,657		32		13,305		33
Vehicles, RV and marine	15,934		24		11,880		24		10,932		23		8,989		21		6,659		16
Receivables/Inventory	6,277		9		5,961		12		5,968		13		5,534		13		5,178		13
Machinery/Equipment	9,465		14		5,171		10		3,863		8		2,738		6		2,749		7
Securities/Deposits	1,305		2		974		2		964		2		786		2		826		2
Other	1,154		1		987		2		919		2		1,016		2		1,090		3
Total secured loans and leases	63,695		95		47,738		95		45,599		96		41,342		96		38,935		96
Unsecured loans and leases	3,267		5		2,603		5		2,057		4		1,778		4		1,793		4
Total loans and leases	$	66,962	100	%	$	50,341	100	%	$	47,656	100	%	$	43,120	100	%	$	40,728	100	%

Commercial Credit

The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the borrower’s management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. We utilize a centralized preview and senior loan approval committee, led by our chief credit officer. The risk rating (see next paragraph), size, and complexity of the credit determines the threshold for approval of the senior loan committee with a minimum credit exposure of $10.0 million. For loans not requiring senior loan committee approval, with the exception of small business loans, credit officers who understand each local region and are experienced in the industries and loan structures of the requested credit exposure are involved in all loan decisions and have the primary credit authority. For small business loans, we utilize a centralized loan approval process for standard products and structures. In this centralized decision environment, certain individuals who understand each local region may make credit-extension decisions to preserve our commitment to the communities in which we operate. In addition to disciplined and consistent judgmental factors, a sophisticated credit scoring process is used as a primary evaluation tool in the determination of approving a loan within the centralized loan approval process.

In commercial lending, on-going credit management is dependent on the type and nature of the loan. We monitor all significant exposures on an on-going basis. All commercial credit extensions are assigned internal risk ratings reflecting the borrower’s PD and LGD. This two-dimensional rating methodology provides granularity in the portfolio management process. The PD is rated and applied at the borrower level. The LGD is rated and applied based on the specific type of credit extension and the quality and lien position associated with the underlying collateral. The internal risk ratings are assessed at origination and updated at each periodic monitoring event. There is also extensive macro portfolio management analysis on an on-going basis. We continually review and adjust our risk-rating criteria based on actual experience, which provides us with the current risk level in the portfolio and is the basis for determining an appropriate allowance for credit losses (ACL) amount for the commercial portfolio. A centralized portfolio management team monitors and reports on the performance of the entire commercial portfolio, including small business loans, to provide consistent oversight.

In addition to the initial credit analysis conducted during the approval process, our Credit Review group performs testing to provide an independent review and assessment of the quality and risk of new loan originations. This group is part of our Risk Management area and conducts portfolio reviews on a risk-based cycle to evaluate individual loans, validate risk ratings, and test the consistency of credit processes.

Our standardized loan grading system considers many components that directly correlate to loan quality and likelihood of repayment, one of which is guarantor support. On an annual basis, or more frequently if warranted, we consider, among other things, the guarantor’s reputation and creditworthiness, along with various key financial metrics such as liquidity and net worth, assuming such information is available. Our assessment of the guarantor’s credit strength, or lack thereof, is reflected in our risk ratings for such loans, which is directly tied to, and an integral component of, our ACL methodology. When a loan goes to impaired status, viable guarantor support is considered in the determination of a credit loss.

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If our assessment of the guarantor’s credit strength yields an inherent capacity to perform, we will seek repayment from the guarantor as part of the collection process and have done so successfully.

Substantially all loans categorized as Classified (see Note 4 of Notes to Consolidated Financial Statements) are managed by SAD. SAD is a specialized group of credit professionals that handle the day-to-day management of workouts, commercial recoveries, and problem loan sales. Its responsibilities include developing and implementing action plans, assessing risk ratings, and determining the appropriateness of the allowance, the accrual status, and the ultimate collectability of the Classified loan portfolio.

C&I PORTFOLIO

We manage the risks inherent in the C&I portfolio through origination policies, a defined loan concentration policy with established limits, on-going loan level reviews and portfolio level reviews, recourse requirements, and continuous portfolio risk management activities. Our origination policies for the C&I portfolio include loan product-type specific policies such as LTV and debt service coverage ratios, as applicable. During 2016, the most volatile segment of the C&I portfolio was loans to borrowers supporting oil and gas exploration and production, and currently represents less than 1% of the total loan portfolio. While the energy industry remains a focus, the performance of the energy related portfolio has stabilized over the past three quarters.

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. The loans added as a result of the FirstMerit acquisition have a very similar risk profile and composition to the legacy Huntington portfolio. The only material new geographic location is the Chicago market. 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, in the first quarter of 2016 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 have seen some improvement in the Energy portfolio risk profile since the 2016 first quarter. 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.

CRE PORTFOLIO

We manage the risks inherent in this portfolio specific to CRE lending, focusing on the quality of the developer and the specifics associated with each project. Generally, we: (1) limit our loans to 80% of the appraised value of the commercial real estate at origination, (2) require net operating cash flows to be 125% of required interest and principal payments, and (3) if the commercial real estate is non-owner occupied, require that at least 50% of the space of the project be preleased. We actively monitor both geographic and project-type concentrations and performance metrics of all CRE loan types, with a focus on loans identified as higher risk based on the risk rating methodology. Both macro-level and loan-level stress-test scenarios based on existing and forecast market conditions are part of the on-going portfolio management process for the CRE portfolio.

Dedicated real estate professionals originate and manage the portfolio. The portfolio is diversified by project type and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this portfolio. 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.

Appraisal values are obtained in conjunction with all originations and renewals, and on an as needed basis, in compliance with regulatory requirements and to ensure appropriate decisions regarding the on-going management of the portfolio reflect the changing market conditions. Appraisals are obtained from approved vendors and are reviewed by an internal appraisal review group comprised of certified appraisers to ensure the quality of the valuation used in the underwriting process. We continue to perform on-going portfolio level reviews within the CRE portfolio. These reviews generate action plans based on occupancy levels or sales volume associated with the projects being reviewed. This highly individualized process requires working closely with all of our borrowers, as well as an in-depth knowledge of CRE project lending and the market environment.

Consumer Credit

Consumer credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of exposure, and transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision models. Importantly, certain individuals who understand each local region have the authority to make credit extension decisions to preserve our focus on the local communities in which we operate. Each credit extension is assigned a specific PD and LGD. The PD is generally based on the borrower’s most recent credit bureau score (FICO), which we update quarterly, providing an ongoing view of the borrowers PD. The LGD is related to the type of collateral associated with the credit extension, which typically does not change over the course of the loan term. This allows Huntington to maintain a current view of the customer for credit risk management and ACL purposes.

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In consumer lending, credit risk is managed from a segment (i.e., loan type, collateral position, geography, etc.) and vintage performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio, which may result in changes to future origination strategies. The ongoing analysis and review process results in a determination of an appropriate ALLL amount for our consumer loan portfolio. The independent risk management group has a consumer process review component to ensure the effectiveness and efficiency of the consumer credit processes.

Collection actions by our customer assistance team are initiated as needed through a centrally managed collection and recovery function. We employ a series of collection methodologies designed to maintain a high level of effectiveness, while maximizing efficiency. In addition to the consumer loan portfolio, the customer assistance team is responsible for collection activity on all sold and securitized consumer loans and leases. Collection practices include a single contact point for the majority of the residential real estate secured portfolios.

AUTOMOBILE PORTFOLIO

Our strategy in the automobile portfolio continues to focus on high quality borrowers as measured by both FICO and internal custom scores, combined with appropriate LTVs, terms, and profitability. Our strategy and operational capabilities allow us to appropriately manage the origination quality across the entire portfolio, including our newer markets. Although increased origination volume and entering new markets can be associated with increased risk levels, we believe our disciplined strategy and operational processes significantly mitigate these risks.

We have continued to consistently execute our value proposition and take advantage of available market opportunities. Importantly, we have maintained our high credit quality standards while expanding the portfolio.

RESIDENTIAL REAL ESTATE SECURED PORTFOLIOS

The properties securing our residential mortgage and home equity portfolios are primarily located within our geographic footprint. Huntington continues to support our local markets with consistent underwriting across all residential secured products. The residential-secured portfolio originations continue to be of high quality, with the majority of the negative credit impact coming from loans originated in 2006 and earlier. Our portfolio management strategies associated with our Home Savers group allow us to focus on effectively helping our customers with appropriate solutions for their specific circumstances.



Table 11 - Selected Home Equity and Residential Mortgage Portfolio Data
(dollar amounts in millions)
	Home Equity							Residential Mortgage
	December 31,
		2016			2015			2016			2015
Ending balance		$	10,106		$	8,471		$	7,725		$	5,998
Portfolio weighted-average LTV ratio (1)		75		%	75		%	75		%	75		%
Portfolio weighted-average FICO score (2)		760			760			748			752

	Home Equity							Residential Mortgage (3)
	Twelve months ended December 31,
		2016			2015			2016			2015
Originations		$	2,717		$	2,606		$	1,878		$	1,409
Origination weighted-average LTV ratio (1)		78		%	77		%	84		%	83		%
Origination weighted-average FICO score (2)		775			774			751			754


(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.

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Home Equity Portfolio

Within the home equity portfolio, the standard product is a 10-year interest-only draw period with a 20-year fully amortizing term at the end of the draw period. Prior to 2006, the standard product was a 10-year draw period with a balloon payment. In either case, after the 10-year draw period, the borrower must reapply, subject to full underwriting guidelines, to continue with the interest only revolving structure or begin repaying the debt in a term structure. The principal and interest payment associated with the term structure will be higher than the interest-only payment, resulting in end of draw period risk. Our HELOC risk can be segregated into two distinct segments: (1) home equity lines-of-credit underwritten with a balloon payment at maturity acquired from FirstMerit and (2) home equity lines-of-credit with an automatic conversion to a 20-year amortizing loan. We manage this risk based on both the actual maturity date of the line-of-credit structure and at the end of the 10-year draw period. This risk is embedded in the portfolio which we address with proactive contact strategies beginning one year prior to either maturity or the end of draw period. In certain circumstances, our Home Saver group is able to provide payment and structure relief to borrowers experiencing significant financial hardship associated with the payment adjustment.

The table below summarizes our home equity line-of-credit portfolio by end of draw period described above:



Table 12 - Draw Schedule of Home Equity Line-of-Credit Portfolio
(dollar amounts in millions)

	December 31, 2016
	Amortizing		1 year or less		1 to 2 years		2 to 3 years		3 to 4 years		More than 4 years		Total
Current Balance
First Lien	$	94	$	98	$	255	$	134	$	168	$	3,486	$	4,235
Second Lien	380		220		256		115		127		2,403		3,501
Total Current Balance	$	474	$	318	$	511	$	249	$	295	$	5,889	$	7,736

Residential Mortgages Portfolio

Huntington underwrites all applications centrally, with a focus on higher quality borrowers. We do not originate residential mortgages that allow negative amortization or allow the borrower multiple payment options and have incorporated regulatory requirements and guidance into our underwriting process. Residential mortgages are originated based on a completed full appraisal during the credit underwriting process. We update values in compliance with applicable regulations to facilitate our portfolio management, as well as our workout and loss mitigation functions.

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.

RV AND MARINE FINANCE PORTFOLIO

Our strategy in the RV and Marine portfolio focuses on high quality borrowers, combined with appropriate LTVs, terms, and profitability. Although entering new markets can be associated with increased risk levels, we believe our disciplined strategy and operational processes significantly mitigate these risks.

Credit Quality

(This section should be read in conjunction with Note 4 of the Notes to 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 2016, including the FirstMerit acquisition, reflected continued overall positive results. Total NCOs were $109 million or 0.19% of average total loans and leases. The ACL to total loans and leases ratio decreased by 23 basis points to 1.10%, due to the impact of the FirstMerit acquisition as acquired loans are recorded at fair value with no associated ALLL on the date of acquisition.

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

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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 $255 million of CRE and C&I-related NALs at December 31, 2016, $173 million, or 68%, 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 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 charged-off at 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 table reflects period-end NALs and NPAs detail for each of the last five years:



Table 13 - Nonaccrual Loans and Leases and Nonperforming Assets
(dollar amounts in thousands)
	December 31,
	2016		2015		2014		2013		2012
Nonaccrual loans and leases (NALs): (1)
Originated NALs
Commercial and industrial	$	225,162	$	175,195	$	71,974	$	56,615	$	90,705
Commercial real estate	19,565		28,984		48,523		73,417		127,128
Automobile	4,696		6,564		4,623		6,303		7,823
Residential mortgage	83,159		94,560		96,564		119,532		122,452
RV and marine	—		—		—		—		—
Home equity	66,033		66,278		78,515		66,169		59,519
Other consumer	—		—		45		20		6
Total nonaccrual loans and leases	398,615		371,581		300,244		322,056		407,633
Other real estate, net:
Residential	23,326		24,194		29,291		23,447		21,378
Commercial	3,404		3,148		5,748		4,217		6,719
Total other real estate, net	26,730		27,342		35,039		27,664		28,097
Other NPAs(2)	6,968		—		2,440		2,440		10,045
Total nonperforming assets (4)	$	432,313	$	398,923	$	337,723	$	352,160	$	445,775

Acquired NALs (5)
Commercial and industrial	$	9,022
Commercial real estate	943
Automobile	1,070
Residential mortgage	7,343
RV and marine	245
Home equity	5,765
Other consumer	—
Total nonaccrual loans and leases	24,388
Other real estate, net:
Residential	7,606
Commercial	16,594
Total other real estate, net	24,200
Other NPAs(2)	—

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Total nonperforming assets (4)	$	48,588

Total NALs
Commercial and industrial	$	234,184		$	175,195		$	71,974		$	56,615		$	90,705
Commercial real estate	20,508			28,984			48,523			73,417			127,128
Automobile	5,766			6,564			4,623			6,303			7,823
Residential mortgage	90,502			94,560			96,564			119,532			122,452
RV and marine	245			—			—			—			—
Home equity	71,798			66,278			78,515			66,169			59,519
Other consumer	—			—			45			20			6
Total nonaccrual loans and leases	423,003			371,581			300,244			322,056			407,633
Other real estate, net:
Residential	30,932			24,194			29,291			23,447			21,378
Commercial	19,998			3,148			5,748			4,217			6,719
Total other real estate, net	50,930			27,342			35,039			27,664			28,097
Other NPAs(2)	6,968			—			2,440			2,440			10,045
Total nonperforming assets (4)	$	480,901		$	398,923		$	337,723		$	352,160		$	445,775

Nonaccrual loans and leases as a % of total loans and leases	0.63		%	0.74		%	0.63		%	0.75		%	1.00		%
NPA ratio(3)	0.72			0.79			0.71			0.82			1.09


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


(2)	Other nonperforming assets represent an investment security backed by a municipal bond.


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


(4)	Nonaccruing troubled debt restructured loans are included in the total nonperforming assets balance.


(5)	Represents loans from FirstMerit acquisition.

The $82 million, or 21%, increase in NPAs compared with December 31, 2015, primarily reflected:


•	$59 million, or 34%, increase in C&I NALs, with the majority of the increase in our energy related portfolios, noting that the performance of the energy portfolio has stabilized since the 2016 first quarter.


•	$24 million, or 86%, increase in OREO, predominantly associated with an increase in commercial properties from the FirstMerit acquisition.

Partially offset by declines in the Residential and CRE portfolios.

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The following table reflects period-end accruing loans and leases 90 days or more past due for each of the last five years:



Table 14 - Accruing Past Due Loans and Leases
(dollar amounts in thousands)
	December 31,
	2016			2015			2014			2013			2012
Accruing loans and leases past due 90 days or more:
Commercial and industrial (1)	$	18,148		$	8,724		$	4,937		$	14,562		$	26,648
Commercial real estate (2)	17,215			9,549			18,793			39,142			56,660
Automobile	10,182			7,162			5,703			5,055			4,418
Residential mortgage (excluding loans guaranteed by the U.S. Government)	15,074			14,082			33,040			2,469			2,718
RV and marine finance	1,462			—			—			—			—
Home equity	11,508			9,044			12,159			13,983			18,200
Other consumer	3,895			1,394			837			998			1,672
Total, excl. loans guaranteed by the U.S. Government	77,484			49,955			75,469			76,209			110,316
Add: loans guaranteed by U.S. Government	51,878			55,835			55,012			87,985			90,816
Total accruing loans and leases past due 90 days or more, including loans guaranteed by the U.S. Government	$	129,362		$	105,790		$	130,481		$	164,194		$	201,132
Ratios:
Excluding loans guaranteed by the U.S. Government, as a percent of total loans and leases	0.12		%	0.10		%	0.16		%	0.18		%	0.27		%
Guaranteed by U.S. Government, as a percent of total loans and leases	0.08			0.11			0.12			0.20			0.22
Including loans guaranteed by the U.S. Government, as a percent of total loans and leases	0.19			0.21			0.27			0.38			0.49


(1)	Amounts include Huntington Technology Finance administrative lease delinquencies and accruing purchase impaired loans related to acquisitions.


(2)	Amounts include accruing purchase impaired loans related to acquisitions.

TDR Loans

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 regulations regarding the treatment of certain bankruptcy filing and discharge situations. Acquired, non-purchased credit impaired loans are only considered for TDR reporting for modifications made subsequent to acquisition. Over the past five quarters, the accruing component of the total TDR balance has been between 80% and 84% indicating there is no identified credit loss and the borrowers continue to make their monthly payments. In fact, over 80% of the $513 million of accruing TDRs secured by residential real estate (Residential mortgage and Home Equity in Table 15) 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 16 come from the non-accruing TDR balances.

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



Table 15 - Accruing and Nonaccruing Troubled Debt Restructured Loans
(dollar amounts in thousands)

	December 31,
	2016		2015		2014		2013		2012
TDRs—accruing:
Commercial and industrial	$	210,119	$	235,689	$	116,331	$	83,857	$	76,586
Commercial real estate	76,844		115,074		177,156		204,668		208,901
Automobile	26,382		24,893		26,060		30,781		35,784
Home equity	269,709		199,393		252,084		188,266		110,581
Residential mortgage	242,901		264,666		265,084		305,059		290,011
RV and marine finance	—		—		—		—		—
Other consumer	3,780		4,488		4,018		1,041		2,544
Total TDRs—accruing	829,735		844,203		840,733		813,672		724,407
TDRs—nonaccruing:
Commercial and industrial	107,087		56,919		20,580		7,291		19,268
Commercial real estate	4,507		16,617		24,964		23,981		32,548
Automobile	4,579		6,412		4,552		6,303		7,823
Home equity	28,128		20,996		27,224		20,715		6,951
Residential mortgage	59,157		71,640		69,305		82,879		84,515
RV and marine finance	—		—		—		—		—
Other consumer	118		151		70		—		113
Total TDRs—nonaccruing	203,576		172,735		146,695		141,169		151,218
Total TDRs	$	1,033,311	$	1,016,938	$	987,428	$	954,841	$	875,625

Our strategy is to structure TDRs in a manner that avoids new concessions subsequent to the initial TDR terms. However, there are times when subsequent modifications are required, such as when the modified loan matures. Often the loans are performing in accordance with the TDR terms, and a new note is originated with similar modified terms. These loans are subjected to the normal underwriting standards and processes for other similar credit extensions, both new and existing. If the loan is not performing in accordance with the existing TDR terms, typically an individualized approach to repayment is established. In accordance with GAAP, the refinanced note is evaluated to determine if it is considered a new loan or a continuation of the prior loan. A new loan is considered for removal of the TDR designation. A continuation of the prior note requires the continuation of the TDR designation, and because the refinanced note constitutes a new or amended debt instrument, it is included in our TDR activity table (below) as a new TDR and a restructured TDR removal during the period.

The types of concessions granted for existing TDRs are consistent with those granted on new TDRs and include interest rate reductions, amortization or maturity date changes beyond what the collateral supports, and principal forgiveness based on the borrower’s specific needs at a point in time. Our policy does not limit the number of times a loan may be modified. A loan may be modified multiple times if it is considered to be in the best interest of both the borrower and us.

Commercial loans are not automatically considered to be accruing TDRs upon the granting of a new concession. If the loan is in accruing status and no loss is expected based on the modified terms, the modified TDR remains in accruing status. For loans that are on nonaccrual status before the modification, collection of both principal and interest must not be in doubt, and the borrower must be able to exhibit sufficient cash flows for at least a six-month period of time to service the debt in order to return to accruing status. This six-month period could extend before or after the restructure date.

Any granted change in terms or conditions that are not readily available in the market for that borrower, requires the designation as a TDR. There are no provisions for the removal of the TDR designation based on payment activity for consumer loans. A loan may be returned to accrual status when all contractually due interest and principal has been paid and the borrower demonstrates the financial capacity to continue to pay as agreed, with the risk of loss diminished. During the 2016 third quarter, Huntington transferred $81 million of home equity TDRs from loans held for sale back to loans.

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The following table reflects TDR activity during the periods indicated:



Table 16 - Troubled Debt Restructured Loan Activity
(dollar amounts in thousands)
	Year Ended December 31,
	2016			2015
TDRs—accruing: (3)
TDRs, beginning of period	$	844,203		$	840,733
New TDRs	543,006			731,783
Payments	(214,144		)	(225,219		)
Charge-offs	(3,547		)	(5,816		)
Sales	(18,801		)	(14,204		)
Transfer from (to) held-for-sale	74,424			(88,415		)
Transfer to OREO	(435		)	(668		)
Restructured TDRs—accruing (1)	(289,745		)	(297,688		)
Restructured TDRs—nonaccruing (1)	—			—
Other (2)	(105,226		)	(96,303		)
TDRs, end of period	$	829,735		$	844,203

TDRs—nonaccruing: (3)
TDRs, beginning of period	$	172,735		$	146,695
New TDRs	134,708			162,917
Payments	(82,258		)	(65,139		)
Charge-offs	(34,605		)	(37,675		)
Sales	(1,445		)	(2,858		)
Transfer from (to) held-for-sale	6,656			(8,371		)
Transfer to OREO	(10,140		)	(9,444		)
Restructured TDRs—accruing (1)	—			—
Restructured TDRs—nonaccruing (1)	(42,937		)	(98,474		)
Other (2)	60,862			85,084
TDRs, end of period	$	203,576		$	172,735

	Year Ended December 31,
	2016			2015			2014			2013			2012
Total TDRs, beginning of period (3)	$	1,016,938		$	987,428		$	954,841		$	875,625		$	805,650
New TDRs	677,714			894,700			667,315			611,556			597,425
Payments	(296,402		)	(290,358		)	(252,285		)	(191,367		)	(191,035		)
Charge-offs	(38,152		)	(43,491		)	(35,150		)	(29,897		)	(81,115		)
Sales	(20,246		)	(17,062		)	(23,424		)	(11,164		)	(13,787		)
Transfer from (to) held-for-sale	81,080			(96,786		)	—			—			—
Transfer to OREO	(10,575		)	(10,112		)	(12,668		)	(8,242		)	(21,709		)
Restructured TDRs—accruing (1)	(289,745		)	(297,688		)	(243,225		)	(211,131		)	(153,583		)
Restructured TDRs—nonaccruing (1)	(42,937		)	(98,474		)	(45,705		)	(26,772		)	(63,080		)
Other	(44,364		)	(11,219		)	(22,271		)	(53,767		)	(3,141		)
Total TDRs, end of period	$	1,033,311		$	1,016,938		$	987,428		$	954,841		$	875,625

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(1)	Represents existing TDRs that were 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.


(3)	Effective 2015, we began tracking accruing and non-accruing TDR information.

ACL

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. (see Note 1 of the Notes to Consolidated Financial Statements)

The acquired loans were recorded at their fair value as of the acquisition date and the prior ALLL was eliminated. An ALLL for acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized.

Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. While the total ACL balance increased year over year, all of the relevant benchmarks remain strong.

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The following table reflects activity in the ALLL and AULC for each of the last five years:



Table 17 - Summary of Allowance for Credit Losses
(dollar amounts in thousands)
	Year Ended December 31,
	2016			2015			2014			2013			2012
ALLL, beginning of year	$	597,843		$	605,196		$	647,870		$	769,075		$	964,828
Loan and lease charge-offs
Commercial:
Commercial and industrial	(76,802		)	(79,724		)	(76,654		)	(45,904		)	(101,475		)
Commercial real estate:
Construction	(2,124		)	(1,843		)	(5,626		)	(9,585		)	(12,131		)
Commercial	(12,988		)	(16,233		)	(19,078		)	(59,927		)	(105,920		)
Commercial real estate	(15,112		)	(18,076		)	(24,704		)	(69,512		)	(118,051		)
Total commercial	(91,914		)	(97,800		)	(101,358		)	(115,416		)	(219,526		)
Consumer:
Automobile	(49,541		)	(36,489		)	(31,330		)	(23,912		)	(26,070		)
Home equity	(25,527		)	(36,481		)	(54,473		)	(98,184		)	(124,286		)
Residential mortgage	(10,851		)	(15,696		)	(25,946		)	(34,236		)	(52,228		)
RV and marine finance	(2,769		)	—			—			—			—
Other consumer	(46,712		)	(31,415		)	(33,494		)	(34,568		)	(33,090		)
Total consumer	(135,400		)	(120,081		)	(145,243		)	(190,900		)	(235,674		)
Total charge-offs	(227,314		)	(217,881		)	(246,601		)	(306,316		)	(455,200		)
Recoveries of loan and lease charge-offs
Commercial:
Commercial and industrial	31,687			51,800			44,531			29,514			37,227
Commercial real estate:
Construction	4,208			2,667			4,455			3,227			4,090
Commercial	37,243			31,952			29,616			41,431			35,532
Total commercial real estate	41,451			34,619			34,071			44,658			39,622
Total commercial	73,138			86,419			78,602			74,172			76,849
Consumer:
Automobile	17,550			16,198			13,762			13,375			16,628
Home equity	16,523			16,631			17,526			15,921			7,907
Residential mortgage	5,027			5,570			6,194			7,074			4,305
RV and marine finance	481			—			—			—			—
Other consumer	5,699			5,270			5,890			7,108			7,049
Total consumer	45,280			43,669			43,372			43,478			35,889
Total recoveries	118,418			130,088			121,974			117,650			112,738
Net loan and lease charge-offs	(108,896		)	(87,793		)	(124,627		)	(188,666		)	(342,462		)
Provision for loan and lease losses	169,407			88,679			83,082			67,797			155,193
Allowance for assets sold and securitized or transferred to loans held for sale	(19,941		)	(8,239		)	(1,129		)	(336		)	(8,484		)
ALLL, end of year	638,413			597,843			605,196			647,870			769,075
AULC, beginning of year	72,081			60,806			62,899			40,651			48,456
(Reduction in) Provision for unfunded loan commitments and letters of credit losses	21,395			11,275			(2,093		)	22,248			(7,805		)
AULC recorded at acquisition	4,403			—			—			—			—
AULC, end of year	97,879			72,081			60,806			62,899			40,651
ACL, end of year	$	736,292		$	669,924		$	666,002		$	710,769		$	809,726

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



Table 18 - Allocation of Allowance for Credit Losses (1)
(dollar amounts in thousands)
	December 31,
	2016				2015				2014				2013				2012
ACL
Originated loans
Commercial
Commercial and industrial	$	324,737	41	%	$	298,746	41	%	$	286,995	40	%	$	265,801	41	%	$	241,051	42	%
Commercial real estate	95,483		11		100,007		10		102,839		11		162,557		11		285,369		14
Total commercial	420,220		52		398,753		51		389,834		51		428,358		52		526,420		56
Consumer
Automobile	47,970		18		49,504		19		33,466		18		31,053		15		34,979		11
Home equity	65,474		16		83,671		17		96,413		18		111,131		19		118,764		20
Residential mortgage	30,986		13		41,646		12		47,211		12		39,577		12		61,658		12
RV and marine finance	832		—		—		—		—		—		—		—		—		—
Other consumer	34,233		1		24,269		1		38,272		1		37,751		2		27,254		1
Total consumer	179,495		48		199,090		49		215,362		49		219,512		48		242,655		44
Total ALLL	599,715		100	%	597,843		100	%	605,196		100	%	647,870		100	%	769,075		100	%
AULC	81,299				72,081				60,806				62,899				40,651
Total ACL	$	681,014			$	669,924			$	666,002			$	710,769			$	809,726

Acquired loans (2)
Commercial
Commercial and industrial	$	30,687	47	%
Commercial real estate	184		11
Total commercial	30,871		58
Consumer
Automobile	—		10
Home equity	—		11
Residential mortgage	2,412		7
RV and marine finance	4,479		12
Other consumer	936		2
Total consumer	7,827		42
Total ALLL	38,698		100	%
AULC	16,580
Total ACL	$	55,278

Total loans
Commercial
Commercial and industrial	$	355,424	42	%	$	298,746	41	%	$	286,995	40	%	$	265,801	41	%	$	241,051	42	%
Commercial real estate	95,667		11		100,007		10		102,839		11		162,557		11		285,369		14
Total commercial	451,091		53		398,753		51		389,834		51		428,358		52		526,420		56
Consumer
Automobile	47,970		16		49,504		19		33,466		18		31,053		15		34,979		11
Home equity	65,474		15		83,671		17		96,413		18		111,131		19		118,764		20
Residential mortgage	33,398		12		41,646		12		47,211		12		39,577		12		61,658		12
RV and marine finance	5,311		3		—		—		—		—		—		—		—		—
Other consumer	35,169		1		24,269		1		38,272		1		37,751		2		27,254		1
Total consumer	187,322		47		199,090		49		215,362		49		219,512		48		242,655		44
Total ALLL	638,413		100	%	597,843		100	%	605,196		100	%	647,870		100	%	769,075		100	%
AULC	97,879				72,081				60,806				62,899				40,651
Total ACL	$	736,292			$	669,924			$	666,002			$	710,769			$	809,726
Total ALLL as % of:

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Total loans and leases	0.95	%	1.19	%	1.27	%	1.50	%	1.89	%
Nonaccrual loans and leases	151		161		202		201		189
NPAs	133		150		179		184		173
Total ACL as % of:
Total loans and leases	1.10	%	1.33	%	1.40	%	1.65	%	1.99	%
Nonaccrual loans and leases	174		180		222		221		199
NPAs	153		168		197		202		182


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


(2)	Represents loans from FirstMerit acquisition.

The $66 million, or 10%, increase in the ACL compared with December 31, 2015, was driven by:


•	$57 million, or 19%, increase in the ALLL of the C&I portfolio was primary driven by the impact of the acquisition and loan growth within the portfolio along with an increase in NALs within our energy related portfolios.


•	$26 million, or 36%, increase in the AULC driven primarily by acquired commercial exposures.


•	$11 million, or 45%, increase in the ALLL of the other consumer portfolio driven primarily by growth within the credit card portfolio.

Partially offset by:


•	$18 million, or 22%, decline in the ALLL of the home equity portfolio. The decline was driven by a reduction in delinquent and nonaccrual loans.


•	$8 million, or 20%, decline in the ALLL of the residential mortgage portfolio, also driven by a reduction in delinquency rates within the portfolio.

The ACL to total loans declined to 1.10% at December 31, 2016, compared to 1.33% at December 31, 2015. The reduction in the ratio can be attributed directly to the acquisition of the FirstMerit loan portfolio. We believe 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 charged-off or written down to net realizable value at 90-days past due with the exception of administrative small ticket lease delinquencies. Automobile loans, RV and marine finance, 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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The following table reflects NCO detail for each of the last five years:



Table 19 - Net Loan and Lease Charge-offs
(dollar amounts in thousands)
	Year Ended December 31,
	2016 (2)			2015			2014			2013		2012
Net charge-offs by loan and lease type:
Originated Loans
Commercial:
Commercial and industrial	$	43,929		$	27,924		$	32,123		$	16,390	$	64,248
Commercial real estate:
Construction	(2,084		)	(824		)	1,171			6,358		8,041
Commercial	(24,460		)	(15,719		)	(10,538		)	18,496		70,388
Commercial real estate	(26,544		)	(16,543		)	(9,367		)	24,854		78,429
Total commercial	17,385			11,381			22,756			41,244		142,677
Consumer:
Automobile	27,057			20,291			17,568			10,537		9,442
Home equity	8,073			19,850			36,947			82,263		116,379
Residential mortgage	5,560			10,126			19,752			27,162		47,923
RV and marine finance	—			—			—			—		—
Other consumer	38,627			26,145			27,604			27,460		26,041
Total consumer	79,317			76,412			101,871			147,422		199,785
Total originated net charge-offs	$	96,702		$	87,793		$	124,627		$	188,666	$	342,462

Acquired loans (1)
Commercial:
Commercial and industrial	$	1,186
Commercial real estate:
Construction	—
Commercial	205
Commercial real estate	205
Total commercial	1,391
Consumer:
Automobile	4,934
Home equity	931
Residential mortgage	264
RV and marine finance	2,288
Other consumer	2,386
Total consumer	10,803
Total acquired net charge-offs	$	12,194

Total Loans
Commercial:
Commercial and industrial	$	45,115		$	27,924		$	32,123		$	16,390	$	64,248
Commercial real estate:
Construction	(2,084		)	(824		)	1,171			6,358		8,041
Commercial	(24,255		)	(15,719		)	(10,538		)	18,496		70,388
Commercial real estate	(26,339		)	(16,543		)	(9,367		)	24,854		78,429
Total commercial	18,776			11,381			22,756			41,244		142,677
Consumer:
Automobile	31,991			20,291			17,568			10,537		9,442
Home equity	9,004			19,850			36,947			82,263		116,379

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Residential mortgage	5,824			10,126			19,752			27,162			47,923
RV and marine finance	2,288			—			—			—			—
Other consumer	41,013			26,145			27,604			27,460			26,041
Total consumer	90,120			76,412			101,871			147,422			199,785
Total net charge-offs	$	108,896		$	87,793		$	124,627		$	188,666		$	342,462

Net charge-offs - annualized percentages:
Commercial:
Commercial and industrial	0.19		%	0.14		%	0.18		%	0.10		%	0.40		%
Commercial real estate:
Construction	(0.19		)	(0.08		)	0.16			1.10			1.38
Commercial	(0.49		)	(0.37		)	(0.25		)	0.42			1.35
Commercial real estate	(0.44		)	(0.32		)	(0.19		)	0.49			1.36
Total commercial	0.06			0.05			0.10			0.19			0.66
Consumer:
Automobile	0.30			0.23			0.23			0.19			0.21
Home equity	0.10			0.23			0.44			0.99			1.40
Residential mortgage	0.09			0.17			0.35			0.52			0.92
RV and marine finance	0.33			—			—			—			—
Other consumer	5.53			5.44			6.99			6.30			5.72
Total consumer	0.32			0.32			0.46			0.75			1.08
Net charge-offs as a % of average loans	0.19		%	0.18		%	0.27		%	0.45		%	0.85		%


(1)	Represents loans from FirstMerit acquisition.


(2)	Amounts presented above exclude write-downs of loans transferred 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 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 residential 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.

2016 versus 2015

NCOs increased $21 million, or 24%, in 2016. 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 refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to 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.

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Interest Rate Risk

OVERVIEW

We actively manage interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. Changes in market interest rates may result in changes in the fair market value of our financial instruments, cash flows, and net interest income. We seek to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. ALCO oversees market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. According to these policies, responsibility for measuring and the management of interest rate risk resides in the corporate treasury group.

Interest rate risk on our balance sheet consists of reprice, option, and basis risks. Reprice risk results from differences in the maturity, or repricing, of asset and liability portfolios. Option risk arises from embedded options present in the investment portfolio and in many financial instruments such as loan prepayment options, deposit early withdrawal options, and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for us. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as interest-bearing checking accounts, savings accounts, and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates. The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and EVE sensitivity analysis, which capture both short-term and long-term interest rate risk exposures. Combining the results from these separate risk measurement processes allows a reasonably comprehensive view of our short-term and long-term interest rate risk.

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.

We use two approaches to model interest rate risk: Net interest income at risk (NII at risk) and EVE.

NII at risk uses net interest income simulation analysis which involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. The assumptions used in the models are our best estimates based on studies conducted by the treasury department. The treasury department uses a data warehouse to study interest rate risk at a transactional level and uses various ad-hoc reports to refine assumptions continuously. Assumptions and methodologies regarding administered rate liabilities (e.g., savings, money market and interest-bearing checking accounts), balance trends, and repricing relationships reflect our best estimate of expected behavior and these assumptions are reviewed regularly.

We also have longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses economic value of equity at risk modeling, or EVE, sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of all cash flows of on-balance sheet and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our EVE. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow us to measure longer-term repricing and option risk in the balance sheet.



Table 20 - Net Interest Income at Risk

	Net Interest Income at Risk (%)
Basis point change scenario	-25		+100		+200
Board policy limits	—	%	-2.0	%	-4.0	%
December 31, 2016	-1.0	%	2.7	%	5.6	%
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 twelve months. 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.

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Our NII at Risk is within our board of director's 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 shows that our earnings are more asset sensitive at December 31, 2016 than at December 31, 2015, as a result of the $4.9 billion notional value reduction in asset receive-fixed cash flow swaps, the introduction of new non-maturity deposit models in the 2016 first quarter, and the FirstMerit acquisition in the third quarter.

As of December 31, 2016, we had $10.8 billion of notional value in receive-fixed cash flow swaps, which we use for asset and liability management purposes. At December 31, 2016, the following table shows the expected maturity for asset and liability receive-fixed cash flow swaps:



Table 21 - 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
2017	$	3,250,000	$	500,000
2018	75,000		2,610,000
2019	—		575,000
2020	—		1,300,000
2021	—		990,000
2022	—		1,000,000
Thereafter	—		500,000



Table 22 - Economic Value of Equity at Risk

	Economic Value of Equity at Risk (%)
Basis point change scenario	-25		+100		+200
Board policy limits	—	%	-5.0	%	-12.0	%
December 31, 2016	-0.6	%	0.9	%	0.2	%
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 deposit costs reach zero percent.

We are within our board of director's policy limits for the +100 and +200 basis point scenarios. There is no policy limit for the -25 basis point scenario. The EVE depicts a moderate level of long-term interest rate risk, which indicates the balance sheet is positioned favorably for rising interest rates.

MSRs

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

At December 31, 2016, we had a total of $186 million of capitalized MSRs representing the right to service $18.9 billion in mortgage loans. Of this $186 million, $13.7 million was recorded using the fair value method and $172.5 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 hedging 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 Consolidated Financial Statements.

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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 possibility of us being unable to meet current and future financial obligations in a timely manner. Liquidity is managed to ensure stable, reliable, and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. We consider core earnings, strong capital ratios, and credit quality essential for maintaining high credit ratings, which allows us cost-effective access to market-based liquidity. We rely on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk. The ALCO is appointed by the ROC to oversee liquidity risk management and the establishment of liquidity risk policies and limits. The treasury department is responsible for identifying, measuring, and monitoring our liquidity profile. The position is evaluated daily, weekly, and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments by future months, and identifying sources and uses of funds. The overall management of our liquidity position is also integrated into retail and commercial pricing policies to ensure a stable core deposit base. Liquidity risk is reviewed and managed continuously 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.

Our primary source of liquidity is our core deposit base. Core deposits comprised approximately 94% of total deposits at December 31, 2016. We also have available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets, and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $15.0 billion as of December 31, 2016. The treasury department also prepares a contingency funding plan that details the potential erosion of funds in the event of a systemic financial market crisis or institutional-specific stress scenario. An example of an institution specific event would be a downgrade in our public credit rating by a rating agency due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition. Examples of systemic events unrelated to us that could have an effect on our access to liquidity would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about us, or the banking industry in general, may adversely affect the cost and availability of normal funding sources. The liquidity contingency plan therefore outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities and communication protocols for effectively managing liquidity through a problem period.

Available-for-sale and other securities portfolio

(This section should be read in conjunction with Note 5 of the Notes to Consolidated Financial Statements.)

Our investment securities portfolio is evaluated under established asset/liability management objectives. Changing market conditions could affect the profitability of the portfolio, as well as the level of interest rate risk exposure.

The composition and maturity of the portfolio is presented on the following two tables:



Table 23 - Available-for-sale and other securities Portfolio Summary at Fair Value
(dollar amounts in thousands)	At December 31,
	2016		2015		2014
U.S. Treasury, Federal agency, and other agency securities	$	10,752,381	$	4,643,073	$	5,679,696
Other	4,810,456		4,132,368		3,704,974
Total available-for-sale and other securities	$	15,562,837	$	8,775,441	$	9,384,670
Duration in years (1)	4.7		5.2		3.9


(1)	The average duration assumes a market driven prepayment rate on securities subject to prepayment.



Table 24 - Available-for-sale and other securities Portfolio Composition and Maturity
(dollar amounts in thousands)	At December 31, 2016
	Amortized

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	Cost		Fair Value		Yield (1)
U.S. Treasury, Federal agency, and other agency securities:
U.S. Treasury:
1 year or less	$	4,978	$	4,988	1.12	%
After 1 year through 5 years	502		509		1.94
After 5 years through 10 years	—		—		—
After 10 years	—		—		—
Total U.S. Treasury	5,480		5,497		1.20
Federal agencies: mortgage-backed securities:
1 year or less	—		—		—
After 1 year through 5 years	46,591		46,762		2.72
After 5 years through 10 years	173,941		176,404		2.90
After 10 years	10,630,929		10,450,176		2.22
Total Federal agencies: mortgage-backed securities	10,851,461		10,673,342		2.24
Other agencies:
1 year or less	4,302		4,367		3.39
After 1 year through 5 years	5,092		5,247		3.00
After 5 years through 10 years	63,618		63,928		2.48
After 10 years	—		—		—
Total other agencies	73,012		73,542		2.57
Total U.S. Treasury, Federal agency, and other agency securities	10,929,953		10,752,381		—
Municipal securities:
1 year or less	169,636		166,887		3.70
After 1 year through 5 years	933,893		933,903		3.36
After 5 years through 10 years	1,463,459		1,464,583		3.58
After 10 years	693,440		684,684		4.28
Total municipal securities	3,260,428		3,250,057		3.68
Private-label CMO:					—
1 year or less	—		—		—
After 1 year through 5 years	—		—		3.19
After 5 years through 10 years	—		—		—
After 10 years	—		—		3.21
Total private-label CMO	—		—		3.21
Asset-backed securities:
1 year or less	—		—		—
After 1 year through 5 years	80,700		80,560		2.54
After 5 years through 10 years	223,352		224,565		2.80
After 10 years	520,072		488,356		2.93
Total asset-backed securities	824,124		793,481		2.86
Corporate debt:
1 year or less	43,223		43,603		4.29
After 1 year through 5 years	78,430		80,196		3.74
After 5 years through 10 years	32,523		32,865		3.66
After 10 years	40,361		42,019		3.15
Total corporate debt	194,537		198,683		3.73
Other:
1 year or less	1,650		1,650		2.39

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After 1 year through 5 years	2,302		2,283		2.76
After 5 years through 10 years	—		—		N/A
After 10 years	10		10		N/A
Non-marketable equity securities (2)	547,704		547,704		3.17
Mutual funds	15,286		15,286		N/A
Marketable equity securities (3)	861		1,302		N/A
Total other	567,813		568,235		3.07
Total available-for-sale and other securities	$	15,776,855	$	15,562,837	2.61	%


(1)	Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 35% tax rate.


(2)	Consists of FHLB and FRB restricted stock holding carried at par. For 2016, the Federal Reserve reduced the dividend rate on FRB stock from 6% to 2.45%, the current 10-year Treasury rate for banks with more than $10 billion in assets.


(3)	Consists of certain mutual fund and equity security holdings.

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 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 25 - Expected Life of Investment Securities
(dollar amounts in thousands)	At December 31, 2016
	Available-for-Sale & Other Securities				Held-to-Maturity Securities
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	394,532	$	389,422	$	11,479	$	11,469
After 1 year through 5 years	4,135,992		4,131,335		2,544,725		2,534,949
After 5 years through 10 years (1)	9,895,629		9,709,394		5,244,564		5,234,948
After 10 years	786,442		767,986		6,171		5,902
Other securities	564,260		564,700		—		—
Total	$	15,776,855	$	15,562,837	$	7,806,939	$	7,787,268

(1) The average duration of the securities with an average life of 5 years to 10 years is 5.28 years

Bank Liquidity and Sources of Funding

Our primary sources of funding for the Bank are retail and commercial core deposits. At December 31, 2016, these core deposits funded 72% of total assets (107% 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 and were $23 million and $16 million at December 31, 2016 and December 31, 2015, respectively.

The following tables reflect contractual maturities of other domestic time deposits of $250,000 or more and brokered deposits and negotiable CDs as well as other domestic time deposits of $100,000 or more and brokered deposits and negotiable CDs at December 31, 2016.



Table 26 - Maturity Schedule of time deposits, brokered deposits, and negotiable CDs
(dollar amounts in millions)	At December 31, 2016
	3 Months or Less		3 Months to 6 Months		6 Months to 12 Months		12 Months or More		Total
Other domestic time deposits of $250,000 or more and brokered deposits and negotiable CDs	$	3,770	$	60	$	145	$	203	$	4,178
Other domestic time deposits of $100,000 or more and brokered deposits and negotiable CDs	$	3,938	$	170	$	350	$	438	$	4,896

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The following table reflects deposit composition detail for each of the last three years:



Table 27 - Deposit Composition
(dollar amounts in millions)	At December 31,
	2016				2015				2014
By Type:
Demand deposits—noninterest-bearing	$	22,836	30	%	$	16,480	30	%	$	15,393	30	%
Demand deposits—interest-bearing	15,676		21		7,682		14		6,248		12
Money market deposits	18,407		24		19,792		36		18,986		37
Savings and other domestic deposits	11,975		16		5,246		9		5,048		10
Core certificates of deposit	2,535		3		2,382		4		2,936		5
Total core deposits:	71,429		94		51,582		93		48,612		94
Other domestic deposits of $250,000 or more	394		1		501		1		198		—
Brokered deposits and negotiable CDs	3,784		5		2,944		5		2,522		5
Deposits in foreign offices	—		—		268		1		401		1
Total deposits	$	75,608	100	%	$	55,295	100	%	$	51,733	100	%
Total core deposits:
Commercial	$	31,887	45	%	$	24,474	47	%	$	19,982	44	%
Consumer	39,542		55		27,108		53		25,355		56
Total core deposits	$	71,429	100	%	$	51,582	100	%	$	45,337	100	%

The following table reflects short-term borrowings detail for each of the last three years:



Table 28 - Federal Funds Purchased and Repurchase Agreements
(dollar amounts in millions)	At December 31,
	2016			2015			2014
Weighted average interest rate at year-end
Federal Funds purchased and securities sold under agreements to repurchase	0.35		%	0.13		%	0.08		%
Federal Home Loan Bank advances	0.65			—			0.14
Other short-term borrowings	0.66			0.27			1.11
Maximum amount outstanding at month-end during the year
Federal Funds purchased and securities sold under agreements to repurchase	$	1,537		$	1,120		$	1,491
Federal Home Loan Bank advances	2,425			1,850			2,375
Other short-term borrowings	64			43			56
Average amount outstanding during the year
Federal Funds purchased and securities sold under agreements to repurchase	$	690		$	784		$	987
Federal Home Loan Bank advances	822			542			1,753
Other short-term borrowings	18			20			21
Weighted average interest rate during the year
Federal Funds purchased and securities sold under agreements to repurchase	0.14		%	0.06		%	0.07		%
Federal Home Loan Bank advances	0.44			0.16			0.06
Other short-term borrowings	2.86			1.17			1.63

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. Information regarding amounts pledged, for the ability to borrow if necessary, and the unused borrowing capacity at both the Federal Reserve Bank and the FHLB, is outlined in the following table:

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Table 29 - Federal Reserve Bank and FHLB Borrowing Capacity

(dollar amounts in billions)	At December 31,
	2016		2015
Loans and securities pledged:
Federal Reserve Bank	$	10.0	$	8.3
FHLB	9.7		9.2
Total loans and securities pledged	$	19.7	$	17.5
Total unused borrowing capacity at Federal Reserve Bank and FHLB	$	14.1	$	13.6

(For further information related to debt issuances please see Note 11 of the Notes to Consolidated Financial Statements.)

To the extent we are unable to obtain sufficient liquidity through core deposits, we may meet our liquidity needs through sources of wholesale funding, asset securitization, or sale. Sources of wholesale funding include other domestic deposits of $250,000 or more, brokered deposits and negotiable CDs, deposits in foreign offices, short-term borrowings, and long-term debt. At December 31, 2016, total wholesale funding was $16.2 billion, an increase from $11.4 billion at December 31, 2015. The increase from prior year-end primarily relates to an increase in short-term borrowings, brokered time deposits and negotiable CDs, and long-term debt, partially offset by a decrease in deposits in foreign offices and domestic time deposits of $250,000 or more.

Liquidity Coverage Ratio

At December 31, 2016, we believe the Bank had sufficient liquidity to be in compliance with the LCR requirements and to meet its cash flow obligations for the foreseeable future.



Table 30 - Maturity Schedule of Commercial Loans
(dollar amounts in millions)	At December 31, 2016
	One Year or Less			One to Five Years			After Five Years			Total			Percent of total
Commercial and industrial	$	6,557		$	16,805		$	4,697		$	28,059		79	%
Commercial real estate—construction	536			823			87			1,446			4
Commercial real estate—commercial	1,374			3,465			1,016			5,855			17
Total	$	8,467		$	21,093		$	5,800		$	35,360		100	%
Variable-interest rates	$	7,170		$	16,487		$	3,419		$	27,076		77	%
Fixed-interest rates	1,297			4,606			2,381			8,284			23
Total	$	8,467		$	21,093		$	5,800		$	35,360		100	%
Percent of total	24		%	60		%	16		%	100		%

At December 31, 2016, the carrying value of investment securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $5.0 billion. There were no securities of a non-governmental single issuer that exceeded 10% of shareholders’ equity at December 31, 2016.

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 December 31, 2016 and December 31, 2015, the parent company had $1.8 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.

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On January 18, 2017, the board of directors declared a quarterly common stock cash dividend of $0.08 per common share. The dividend is payable on April 3 2017, to shareholders of record on March 20, 2017. Based on the current quarterly dividend of $0.08 per common share, cash demands required for common stock dividends are estimated to be approximately $87 million per quarter. On January 18, 2017, the board of directors declared a quarterly Series A, Series, B, Series, C, and Series D Preferred Stock dividend payable on April 17, 2017 to shareholders of record on April 1, 2017. 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 less than $1 million per quarter. Cash demands required for Series C Preferred Stock are expected to be approximately $2 million per quarter. Cash demands required for Series D Preferred Stock are expected to be approximately $9 million per quarter.

During the fourth quarter, the Bank declared a return of capital to the holding company of $225 million payable in the 2017 first 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 and fourth quarter, the Bank declared and paid a preferred dividend of $7 million to the holding company.

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 21 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 19 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 21 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 21 for more information.

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

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Table 31 - Contractual Obligations (1)
(dollar amounts in millions)	At December 31, 2016
	One Year or Less		1 to 3 Years		3 to 5 Years		More than 5 Years		Total
Deposits without a stated maturity	$	67,786	$	—	$	—	$	—	$	67,786
Certificates of deposit and other time deposits	4,498		1,839		1,164		321		7,822
Short-term borrowings	3,693		—		—		—		3,693
Long-term debt	814		3,385		2,426		1,758		8,383
Operating lease obligations	59		102		76		152		389
Purchase commitments	96		112		34		16		258


(1)	Amounts do not include associated interest payments.

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 plan and execute on its own goals. To this end we employ a set of defense in-depth strategies, which include efforts to make us 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 FirstMerit integration is inherently large and complex. Our objective for managing execution risk is to minimize impacts to daily operations. We have an established Integration Management Office led by senior management. Responsibilities include central management, reporting, and escalation of key integration deliverables. In addition, a board level Integration Governance Committee has been established to assist in the oversight of the integration of people, systems, and processes of FirstMerit with Huntington.

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.

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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

(This section should be read in conjunction with the Regulatory Matters section included in Part 1, Item 1 and Note 22 of the Notes to Consolidated Financial Statements.)

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 common CET1 on a Basel III basis, which we use to measure capital adequacy.

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Table 32 - Capital Under Current Regulatory Standards (transitional Basel III basis) (Non-GAAP)
(dollar amounts in millions, except per share amounts)
	At December 31,
	2016			2015
Common equity tier 1 risk-based capital ratio:
Total shareholders’ equity	$	10,308		$	6,595
Regulatory capital adjustments:
Shareholders’ preferred equity and related surplus	(1,076		)	(386		)
Accumulated other comprehensive loss (income) offset	401			226
Goodwill and other intangibles, net of taxes	(2,126		)	(695		)
Deferred tax assets that arise from tax loss and credit carryforwards	(21		)	(19		)
Common equity tier 1 capital	7,486			5,721
Additional tier 1 capital
Shareholders’ preferred equity	1,076			386
Qualifying capital instruments subject to phase-out	—			76
Other	(15		)	(29		)
Tier 1 capital	8,547			6,154
LTD and other tier 2 qualifying instruments	932			563
Qualifying allowance for loan and lease losses	736			670
Tier 2 capital	1,668			1,233
Total risk-based capital	$	10,215		$	7,387
Risk-weighted assets (RWA)	$	78,263		$	58,420
Common equity tier 1 risk-based capital ratio	9.56		%	9.79		%
Other regulatory capital data:
Tier 1 leverage ratio	8.70			8.79
Tier 1 risk-based capital ratio	10.92			10.53
Total risk-based capital ratio	13.05			12.64
Tangible common equity / RWA ratio	8.92			9.41

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Table 33 - Capital Adequacy—Non-Regulatory (Non-GAAP)
(dollar amounts in millions)
	At December 31,
	2016			2015
Consolidated capital calculations:
Common shareholders’ equity	$	9,237		$	6,209
Preferred shareholders’ equity	1,071			386
Total shareholders’ equity	10,308			6,595
Goodwill	(1,993		)	(677		)
Other intangible assets	(402		)	(55		)
Other intangible asset deferred tax liability (1)	141			19
Total tangible equity	8,054			5,882
Preferred shareholders’ equity	(1,071		)	(386		)
Total tangible common equity	$	6,983		$	5,496
Total assets	$	99,714		$	71,018
Goodwill	(1,993		)	(677		)
Other intangible assets	(402		)	(55		)
Other intangible asset deferred tax liability (1)	141			19
Total tangible assets	$	97,460		$	70,305
Tangible equity / tangible asset ratio	8.26		%	8.37		%
Tangible common equity / tangible asset ratio	7.16			7.82


(1)	Other intangible assets are net of deferred tax liability, and 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 the past two years:



Table 34 - Regulatory Capital Data (1)
(dollar amounts in millions)
		At December 31,
		Basel III
		2016			2015
Total risk-weighted assets	Consolidated	$	78,263		$	58,420
	Bank	78,242			58,351
Common equity tier 1 risk-based capital	Consolidated	7,486			5,721
	Bank	8,153			5,519
Tier 1 risk-based capital	Consolidated	8,547			6,154
	Bank	9,086			5,735
Tier 2 risk-based capital	Consolidated	1,668			1,233
	Bank	1,732			1,115
Total risk-based capital	Consolidated	10,215			7,387
	Bank	10,818			6,851
Tier 1 leverage ratio	Consolidated	8.70		%	8.79		%
	Bank	9.29			8.21
Common equity tier 1 risk-based capital ratio	Consolidated	9.56			9.79
	Bank	10.42			9.46
Tier 1 risk-based capital ratio	Consolidated	10.92			10.53
	Bank	11.61			9.83
Total risk-based capital ratio	Consolidated	13.05			12.64
	Bank	13.83			11.74

All capital ratios were impacted by the $1.3 billion of goodwill created and the issuance of $2.8 billion of common stock as part of the FirstMerit acquisition. 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, and the issuance of $100 million of Class C preferred equity during the 2016 third quarter in exchange for FirstMerit preferred equity in conjunction with the acquisition. The total risk-based capital ratio was impacted by the repurchase of $40 million of trust preferred securities during the 2016 fourth quarter and $20 million of trust preferred securities during the 2016 third quarter, both of which were executed under the de minimis clause of the Federal Reserve's CCAR rules. In addition, $5 million of trust preferred securities were acquired in the FirstMerit acquisition and subsequently were redeemed.

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 $10.3 billion at December 31, 2016, an increase of $3.7 billion when compared with December 31, 2015. In connection with the FirstMerit merger, during the 2016 third quarter, we issued $2.8 billion of common stock and $0.1 billion of preferred stock. During the 2016 first and second quarter, we issued $400 million and $200 million of preferred stock, respectively. Costs of $15 million related to the issuances are reported as a direct deduction from the face amount of the stock.

On June 29, 2016, we announced that the Federal Reserve did not object to our proposed capital actions included in our 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. Our capital plan also included the issuance of capital in connection with the acquisition of FirstMerit Corporation and continues the previously announced suspension of our share repurchase program.

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Dividends

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

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, including the FRB’s response to our annual capital plan. Our capital plan continues the previously announced suspension of our share repurchase program. There were no common shares repurchased during 2016.

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: Consumer and Business Banking, Commercial Banking, Commercial Real Estate and Vehicle Finance (CREVF), 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.

On August 16, 2016, we completed our acquisition of FirstMerit Corporation and segment results were impacted by the mid-quarter acquisition.

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).

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Net Income by Business Segment

Net income by business segment for the past three years is presented in the following table:



Table 35 - Net Income (Loss) by Business Segment

(dollar amounts in thousands)	Year ended December 31,
	2016			2015			2014
Consumer and Business Banking	$	358,146		$	236,298		$	172,199
Commercial Banking	197,375			198,008			152,653
CREVF	203,029			164,830			196,377
RBHPCG	68,504			37,861			22,010
Home Lending	17,837			(6,561		)	(19,727		)
Treasury / Other	(133,070		)	62,521			108,880
Net income	$	711,821		$	692,957		$	632,392

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.

The net loss reported by the Treasury / Other function reflected a combination of factors:


•	The impact of our investment securities portfolios and the net impact of derivatives used to hedge interest rate sensitivity.


•	$282 million of FirstMerit acquisition-related expense, $42 million reduction to litigation reserves, certain corporate administrative, 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.



Consumer and Business Banking

Table 36 - Key Performance Indicators for Consumer and Business Banking
(dollar amounts in thousands unless otherwise noted)
	Year ended December 31,						Change from 2015
	2016			2015			Amount			Percent		2014
Net interest income	$	1,272,713		$	1,027,950		$	244,763		24	%	$	912,992
Provision for credit losses	71,945			42,777			29,168			68		75,529
Noninterest income	558,811			478,142			80,669			17		409,746
Noninterest expense	1,208,585			1,099,779			108,806			10		982,288
Provision for income taxes	192,848			127,238			65,610			52		92,722
Net income	$	358,146		$	236,298		$	121,848		52	%	$	172,199
Number of employees (average full-time equivalent)	6,488			5,776			712			12	%	5,239
Total average assets (in millions)	$	17,963		$	15,571		$	2,392		15		$	14,861
Total average loans/leases (in millions)	15,187			13,581			1,606			12		13,034
Total average deposits (in millions)	36,442			30,200			6,242			21		29,023
Net interest margin	3.58		%	3.47		%	0.11		%	3		3.19		%
NCOs	$	70,139		$	62,729		$	7,410		12		$	90,628
NCOs as a % of average loans and leases	0.46		%	0.46		%	—		%	—	%	0.70		%

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2016 vs. 2015

Consumer and Business Banking reported net income of $358 million in 2016. This was an increase of $122 million, or 52%, compared to the year-ago period. The increase in net income reflected a combination of factors described below.

The increase in net interest income from the year-ago period reflected:


•	$6.2 billion, or 21%, increase in total average deposits and a 10 basis point increase in deposit spreads, as a result of an increase in the FTP rates assigned to deposits.


•	$1.6 billion or 12%, increase in total average loans combined with an 18 basis point increase in loan spreads, as a result of a reduction in the FTP rates assigned to loans and improved effective rates.

The increase in the provision for credit losses from the year-ago period reflected:


•	The migration of the acquired portfolio to the originated portfolio, which required a reserve build, portfolio growth, and a $7 million, or 12%, increase in NCOs.

The increase in total average loans and leases from the year-ago period reflected:


•	$1.2 billion, or 13%, increase in consumer loans, primarily due to the acquisition and core growth in home equity lines of credit, credit card, and residential mortgages.


•	$0.4 billion, or 10%, increase in commercial loans, primarily due to the impact of the acquisition and core portfolio growth.

The increase in total average deposits from the year-ago period reflected:


•	$6.2 billion, or 21%, increase due to the acquisition and core household growth.

The increase in noninterest income from the year-ago period reflected:


•	$36 million, or 16%, increase in service charges on deposits accounts cards, primarily due to new customer acquisition.


•	$35 million, or 29%, increase in cards and payment processing income, primarily due to higher debit card-related transaction volumes and an increase in the number of households.


•	$12 million, or 51%, increase in mortgage banking income.

The increase in noninterest expense from the year-ago period reflected:


•	$56 million, or 16%, increase in personnel costs, primarily due to the FirstMerit acquisition.


•	$22 million, or 4%, increase in other noninterest expense, primarily reflecting an increase in allocated overhead expenses.


•	$14 million, or 18%, increase in occupancy expense, primarily due to the FirstMerit acquisition.

2015 vs. 2014

Consumer and Business Banking reported net income of $236 million in 2015, compared with a net income of $172 million in 2014. The $64 million increase included a $33 million, or 43%, decrease in provision for credit losses, a $68 million, or 17%, increase noninterest income, and a $115 million, or 13%, increase in net interest income partially offset by a $35 million, or 37%, increase in provision for income taxes and a $117 million, or 12%, increase in noninterest expense.

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Commercial Banking

Table 37 - Key Performance Indicators for Commercial Banking
(dollar amounts in thousands unless otherwise noted)
	Year ended December 31,						Change from 2015
	2016			2015			Amount			Percent		2014
Net interest income	$	512,995		$	379,409		$	133,586		35	%	$	306,434
Provision for credit losses	98,816			49,534			49,282			99		31,521
Noninterest income	275,258			258,778			16,480			6		209,238
Noninterest expense	385,783			284,026			101,757			36		249,300
Provision for income taxes	106,279			106,619			(340		)	—		82,198
Net income	$	197,375		$	198,008		$	(633	)	—	%	$	152,653
Number of employees (average full-time equivalent)	1,307			1,208			99			8	%	1,026
Total average assets (in millions)	$	20,373		$	16,123		$	4,250		26		$	14,145
Total average loans/leases (in millions)	15,936			12,844			3,092			24		11,901
Total average deposits (in millions)	12,964			11,410			1,554			14		10,207
Net interest margin	2.95		%	2.77		%	0.18		%	6		2.53		%
NCOs	$	27,237		$	22,226		$	5,011		23		$	7,852
NCOs as a % of average loans and leases	0.17		%	0.17		%	—		%	—	%	0.07		%

2016 vs. 2015

Commercial Banking reported net income of $197 million in 2016. This was a decrease of $1 million, or less than one percent, compared to the year-ago period. The decrease in net income reflected a combination of factors described below.

The increase in net interest income from the year-ago period reflected:


•	$3.1 billion, or 24%, increase in average loans/leases.


•	$0.7 billion, or 41%, increase in average available-for-sale securities, primarily related to direct purchase municipal securities.


•	$1.6 billion, or 14%, increase in average total deposits.


•	18 basis point increase in the net interest margin due to a 13 basis point increase in the mix and yield on earning assets, of which 5 basis point increase in the net interest margin attributed to the mix in deposits stemming from a growth of $1.0 billion, or 18%, in average non-interest bearing demand deposits.

The increase in the provision for credit losses from the year-ago period reflected:


•	The migration of the acquired portfolio to the originated portfolio, which required a reserve build, portfolio growth, and a$5 million, or 23%, increase in NCOs.

The increase in total average assets from the year-ago period reflected:


•	The third quarter 2016 acquisition of FirstMerit.


•	$0.7 billion, or 19%, increase in the Equipment Finance loan and bond financing portfolio, which primarily reflected our focus on developing vertical strategies in Huntington Public Capital, business aircraft, rail industry, lender finance, and syndications, as well as the 2015 first quarter acquisition of Huntington Technology Finance.


•	$0.4 billion, or 15%, increase in the Corporate Banking loan portfolio due to establishing relationships with targeted prospects within our footprint.

The increase in total average deposits from the year-ago period reflected:


•	$1.6 billion, or 15%, increase in core deposits, which primarily reflected a $1.0 billion, or 18%, increase in noninterest-bearing demand deposits. Middle market accounts contributed $1.3 billion of the overall balance growth, while large corporate accounts declined $0.3 billion.

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The increase in noninterest income from the year-ago period reflected:


•	$11 million, or 31%, increase in commitment and other loan related fees, such as syndication fees.


•	$10 million, or 17%, increase in service charges on deposit accounts and other treasury management related revenue, primarily due to growth in commercial card revenue, merchant services revenue, and cash management services.


•	$5 million, or 12%, increase in capital market fees, primarily due to growth in customer interest rate derivative contracts, foreign exchange, and commodities, partially offset by a decrease in underwriting fees.

Partially offset by:


•	$3 million, or 7%, decrease in equipment and technology finance related fee income, primarily reflecting reduced gains on the sale of loans/leases and income on terminated leases.


•	$3 million, or 5%, decrease in Insurance related fee income, primarily reflecting a decrease in property & casualty insurance, as well as an increase in fee sharing to other business segments.


•	$2 million, or 15%, decrease in International fee income, primarily reflecting a decrease in bankers' acceptances.


•	$1 million, or 6%, decrease in all other income, primarily reflecting a decrease in fee sharing from other business segments.

The increase in noninterest expense from the year-ago period reflected:


•	$58 million, or 189%, increase in allocated overhead expense.


•	$31 million, or 18%, increase in personnel expense, primarily reflecting the 2016 third quarter acquisition of FirstMerit. The increase also reflects additional cost from annual merit salary adjustments and incentives.


•	$5 million, or 63%, increase in FDIC insurance premiums, primarily reflecting the 2016 third quarter acquisition of FirstMerit.


•	$7 million, or 10%, increase in all other expense, primarily reflecting the 2016 third quarter acquisition of FirstMerit.

2015 vs. 2014

Commercial Banking reported net income of $198 million in 2015, compared with net income of $153 million in 2014. The $45 million increase included a $73 million, or 24%, increase in net interest income, a $50 million, or 24%, increase in noninterest income, and a $35 million, or 14%, increase in noninterest expense partially offset by $24 million, or 30%, increase in provision for income taxes and a $18 million, or 57%, increase in provision for credit losses.



Commercial Real Estate and Vehicle Finance

Table 38 - Commercial Real Estate and Vehicle Finance
(dollar amounts in thousands unless otherwise noted)
	Year ended December 31,						Change from 2015
	2016			2015			Amount			Percent		2014
Net interest income	$	468,969		$	381,231		$	87,738		23	%	$	379,363
Provision (reduction in allowance) for credit losses	26,922			4,890			22,032			451		(52,843		)
Noninterest income	40,582			29,254			11,328			39		26,628
Noninterest expense	170,276			152,010			18,266			12		156,715
Provision for income taxes	109,324			88,755			20,569			23		105,742
Net income	$	203,029		$	164,830		$	38,199		23	%	$	196,377
Number of employees (average full-time equivalent)	346			302			44			15	%	271
Total average assets (in millions)	$	20,753		$	16,894		$	3,859		23		$	14,591
Total average loans/leases (in millions)	19,386			15,812			3,574			23		14,224
Total average deposits (in millions)	1,719			1,496			223			15		1,204
Net interest margin	2.33		%	2.34		%	(0.01		)%	—		2.61		%
NCOs	$	9,460		$	(8,027	)	$	17,487		N.R.		$	2,100
NCOs as a % of average loans and leases	0.05		%	(0.05		)%	0.10		%	N.R.		0.01		%

N.R. - Not relevant.

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2016 vs. 2015

CREVF reported net income of $203 million in 2016. This was an increase of $38 million, or 23%, compared to the year-ago period. The increase in net income reflected a combination of factors described below.

The increase in net interest income from the year-ago period reflected:


•	$1.8 billion, or 20%, increase in average automobile loans, primarily due to continued strong origination volume, which has exceeded $1.0 billion for each of the last 8 quarters. This increase also reflected $0.6 billion of indirect automobile loans acquired from FirstMerit and the $0.8 billion automobile securitization and sale completed in 2015 second quarter.


•	$0.7 billion indirect recreational loans acquired from FirstMerit.


•	$1.1 billion, or 16%, increase in commercial loans primarily due to an increase in automobile floor plan balances and commercial real estate loans acquired from FirstMerit.

Partially offset by:


•	A 1 basis point decrease in the net interest margin as the impact of competitive pricing pressures was mostly offset by higher spreads on the acquired FirstMerit portfolios.

The increase in the provision for credit losses from the year-ago period reflected:


•	$17 million increase in NCOs incurred with the Mezzanine portfolio.

The increase in noninterest income from the year-ago period reflected:


•	$5 million, or 26%, increase in other income primarily related to fee sharing income from derivative product sales.


•	$2 million, 46%, increase in gains on sales of loans related to 2016 fourth quarter balance sheet optimization strategies.


•	$3 million increase in securities gains.

The increase in noninterest expense from the year-ago period reflected:


•	$7 million, or 21%, increase in personnel costs due to a higher number of employees, resulting from higher production and business development activities as well as additional colleagues added from FirstMerit.


•	$6 million, or 6%, increase in other noninterest expense, primarily due to an increase in allocated expenses.


•	$5 million increase in allocated FDIC insurance expense.

2015 vs. 2014

CREVF reported net income of $165 million in 2015, compared with a net income of $196 million in 2014. The $31 million decrease included a $58 million, or 109%, increase in the provision for credit losses, $3 million, or 10%, increase in noninterest income partially offset by a $2 million, or less than one percent, increase in net interest income and a $17 million, or 16%, decrease in provision for income taxes.

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Regional Banking and The Huntington Private Client Group

Table 39 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group
(dollar amounts in thousands unless otherwise noted)
	Year ended December 31,						Change from 2015
	2016			2015			Amount			Percent		2014
Net interest income	$	177,431		$	139,188		$	38,243		27	%	$	101,839
Provision (reduction in allowance) for credit losses	(3,467		)	87			(3,554		)	N.R.		4,893
Noninterest income	120,687			114,814			5,873			5		173,550
Noninterest expense	196,194			195,667			527			—		236,634
Provision for income taxes	36,887			20,387			16,500			81		11,852
Net income	$	68,504		$	37,861		$	30,643		81	%	$	22,010
Number of employees (average full-time equivalent)	630			651			(21		)	(3	)%	1,022
Total average assets (in millions)	$	4,805		$	4,213		$	592		14		$	3,812
Total average loans/leases (in millions)	4,187			3,785			402			11		2,894
Total average deposits (in millions)	8,076			7,130			946			13		6,029
Net interest margin	2.26		%	1.97		%	0.29		%	15		1.75		%
NCOs	$	(2,153	)	$	4,808		$	(6,961	)	N.R.		$	8,143
NCOs as a % of average loans and leases	(0.05		)%	0.13		%	(0.18		)%	N.R.		0.28		%
Total assets under management (in billions)—eop	$	16.9		$	16.3		$	0.6		4		$	14.8
Total trust assets (in billions)—eop	94.7			84.1			10.6			13		81.5

N.R. - Not relevant.

eop—End of Period.

2016 vs. 2015

RBHPCG reported net income of $69 million in 2016. This was an increase of $31 million, or 81%, when compared to the year-ago period. The increase in net income reflected a combination of factors described below.

The increase in net interest income from the year-ago period reflected:

•

$0.9 billion, or 13%, increase in average total deposits combined with a $0.4 billion, or 11% increase in average total loans primarily due to the FirstMerit acquisition. In addition, the deposit balance increase reflected strong growth in the new Private Client Account interest checking product as well as commercial deposit balances, while the loan balance increase reflected strong growth in both commercial loans and portfolio mortgage loans.

The decrease in the provision for credit losses reflected from the year-ago period reflected:


•	$7 million decrease in NCOs incurred during the year.

The increase in noninterest income from the year-ago period reflected:


•	$4 million, or 4%, increase in trust services, due to increased revenue from the FirstMerit acquisition, partially offset by the reduction in revenue resulting from the sale of HASI and HAA in the 2015 fourth quarter.

The increase in noninterest expense from the year-ago period reflected:


•	$3 million, or 66%, increase in amortization of intangible assets, primarily due to the FirstMerit acquisition.

Partially offset by:


•	$2 million, or 47%, decrease in professional services related from the 2015 fourth quarter sale of HASI and HAA.

2015 vs. 2014

RBHPCG reported net income of $38 million in 2015, compared with a net income of $22 million in 2014. The $16 million increase included a $59 million, or 34%, decrease in noninterest income, a $5 million decrease in the provision for credit losses, a $41 million, or 17% decrease in noninterest expense, partially offset by a $37 million, or 37%, increase in net interest income and a $9 million, or 72% increase in provision for income taxes.

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Home Lending

Table 40 - Key Performance Indicators for Home Lending
(dollar amounts in thousands unless otherwise noted)
	Year ended December 31,						Change from 2015
	2016			2015			Amount			Percent		2014
Net interest income	$	58,354		$	50,404		$	7,950		16	%	$	58,015
Provision (reduction in allowance) for credit losses	(3,412		)	2,671			(6,083		)	(228	)	21,889
Noninterest income	90,358			87,021			3,337			4		69,899
Noninterest expense	124,683			144,848			(20,165		)	(14	)	136,374
Provision for income taxes	9,604			(3,533		)	13,137			(372	)	(10,622		)
Net income (loss)	$	17,837		$	(6,561	)	$	24,398		(372	)%	$	(19,727	)
Number of employees (average full-time equivalent)	1,071			952			119			13	%	971
Total average assets (in millions)	$	3,303		$	3,145		$	158		5		$	3,810
Total average loans/leases (in millions)	2,649			2,551			98			4		3,298
Total average deposits (in millions)	438			350			88			25		292
Net interest margin	1.87		%	1.71		%	0.16		%	9		1.61		%
NCOs	$	4,213		$	5,758		$	(1,545	)	(27	)	$	15,900
NCOs as a % of average loans and leases	0.16		%	0.23		%	(0.07		)%	(30	)	0.48		%
Mortgage banking origination volume (in millions)	$	5,822		$	4,705		$	1,117		24		$	3,558

2016 vs. 2015

Home Lending reported a net income of $18 million in 2016. This was an improvement of $24 million, when compared to the year-ago period. The increase in net income reflected a combination of factors described below.

The increase in net interest income from the year-ago period reflected:


•	16 basis point increase in the net interest margin, primarily due to an increase in loan spreads on consumer loans driven by lower funding costs and a $98 million increase in total loan balances.

The decrease in provision for credit losses from the year-ago period reflected:


•	$2 million, or 27%, decrease in NCOs and continued improvement in credit performance during the year.

The increase in noninterest income from the year-ago period reflected:


•	$2 million, or 2%, increase in mortgage banking income, primarily due to production revenue driven by higher origination volume and the impact of the net MSR hedge results, partially offset by higher fee sharing sent to other business segments.

The decrease in noninterest expense from the year-ago period reflected:


•	$38 million, or 177%, decrease in other noninterest expense, primarily related to lower allocated expenses.

Partially offset by:


•	$14 million, or 15%, increase in personnel costs due to incentive expense related to higher origination volume.

2015 vs. 2014

Home Lending reported a net loss of $7 million in 2015, compared to net loss of $20 million in 2014. The $13 million improvement included a $17 million, or 24%, increase in noninterest income and a $19 million, or 88%, decrease in reduction in allowance for credit losses partially offset by a $7 million increase in provision for income taxes, $8 million, or 13%, decrease in net interest income, and an $8 million, or 6%, increase in noninterest expense.

RESULTS FOR THE FOURTH QUARTER

Earnings Discussion

In the 2016 fourth quarter, we reported net income of $239 million, an increase of $61 million, or 34%, from the 2015 fourth quarter. Earnings per common share for the 2016 fourth quarter were $0.20, a decrease of $0.01 from the year-ago quarter.

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Table 41 - Significant Items Influencing Earnings Performance Comparison
(dollar amounts in millions, except per share amounts)

Three Months Ended:	Amount			EPS (1)
December 31, 2016—Net income	$	239
Earnings per share, after-tax				$	0.20

Mergers and acquisitions	$	(96	)
Tax impact	33
Mergers and acquisitions, after-tax	$	(63	)	$	(0.06	)

Litigation reserves	$	42
Tax impact	(15		)
Litigation reserves, after-tax	$	27		$	0.02

	Amount			EPS (1)
December 31, 2015—Net income	$	178
Earnings per share, after-tax				$	0.21

Franchise repositioning related expense	$	(8	)
Tax impact	3
Franchise repositioning related expense, after-tax	$	(5	)	$	(0.01	)


(1)	Based on average outstanding diluted common shares.

Net Interest Income / Average Balance Sheet

FTE net interest income for the 2016 fourth quarter increased $242 million, or 48%, from the 2015 fourth quarter. This reflected the benefit from the $26.5 billion, or 41%, increase in average earning assets partially coupled with a 16 basis point improvement in the FTE NIM to 3.25%. Average earning asset growth included a $16.6 billion, or 33%, increase in average loans and leases and a $7.9 billion, or 54%, increase in average securities. The NIM expansion reflected a 23 basis point increase related to the mix and yield of earning assets, partially offset by a 7 basis point increase in funding costs. FTE net interest income during the 2016 fourth quarter included $42 million, or approximately 18 basis points, of purchase accounting impact.

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Table 42 - Average Earning Assets - 2016 Fourth Quarter vs. 2015 Fourth Quarter
(dollar amounts in thousands)
	Fourth Quarter				Change
	2016		2015		Amount		Percent
Loans/Leases
Commercial and industrial	$	27,727	$	20,186	$	7,541	37	%
Commercial real estate	7,218		5,266		1,952		37
Total commercial	34,945		25,452		9,493		37
Automobile	10,866		9,286		1,580		17
Home equity	10,101		8,463		1,638		19
Residential mortgage	7,690		6,079		1,611		27
RV and marine finance	1,844		—		1,844		—
Other consumer	959		547		412		75
Total consumer	31,460		24,375		7,085		29
Total loans/leases	66,405		49,827		16,578		33
Total securities	22,441		14,543		7,898		54
Loans held-for-sale and other earning assets	2,617		591		2,026		343
Total earning assets	$	91,463	$	64,961	$	26,502	41	%

Average earning assets for the 2016 fourth quarter increased $26.5 billion, or 41%, from the year-ago quarter. The increase was driven by:


•	$7.9 billion, or 54%, increase in average securities, primarily reflecting the FirstMerit acquisition, as well as the reinvestment in cash flows and additional investment in LCR Level 1 qualifying securities. The 2016 fourth quarter average balance included $2.9 billion of direct purchase municipal instruments in our Commercial Banking segment, up from $2.0 billion in the year-ago quarter.


•	$7.5 billion, or 37%, increase in average C&I loans and leases, primarily reflecting the impact of the FirstMerit acquisition, the $0.6 billion increase in automobile dealer floorplan loans, and the $0.4 billion increase in corporate banking.


•	$2.0 billion, or 37%, increase in commercial real estate (CRE) loans, primarily reflecting the FirstMerit acquisition.


•	$1.8 billion increase in average RV and marine finance loans, a new product offering for us as a result of the FirstMerit acquisition.


•	$1.6 billion, or 17%, increase in average automobile loans, primarily reflecting the addition of the FirstMerit portfolio. The increase also reflects continued strength in new and used automobile originations, while maintaining our underwriting consistency and discipline, partially offset by the impact of the $1.5 billion auto loan securitization.


•	$1.6 billion, or 19%, increase in average home equity loans and lines of credit, primarily reflecting the FirstMerit acquisition.


•	$1.6 billion, or 27%, increase in average residential mortgage loans, reflecting increased demand for residential mortgage loans across our footprint and the addition of the FirstMerit portfolio.

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Table 43 - Average Interest-Bearing Liabilities - 2016 Fourth Quarter vs. 2015 Fourth Quarter
(dollar amounts in millions)
	Fourth Quarter				Change
	2016		2015		Amount			Percent
Deposits
Demand deposits: noninterest-bearing	$	23,250	$	17,174	$	6,076		35	%
Demand deposits: interest-bearing	15,294		6,923		8,371			121
Total demand deposits	38,544		24,097		14,447			60
Money market deposits	18,618		19,843		(1,225		)	(6	)
Savings and other domestic deposits	12,272		5,215		7,057			135
Core certificates of deposit	2,636		2,430		206			9
Total core deposits	72,070		51,585		20,485			40
Other domestic deposits of $250,000 or more	391		426		(35		)	(8	)
Brokered deposits and negotiable CDs	4,273		2,929		1,344			46
Deposits in foreign offices	152		398		(246		)	(62	)
Total deposits	76,886		55,338		21,548			39
Short-term borrowings	2,628		524		2,104			402
Long-term debt	8,594		6,788		1,806			27
Total interest-bearing liabilities	$	64,858	$	45,476	$	19,382		43	%

Average total deposits for the 2016 fourth quarter increased $21.5 billion, or 39%, from the year-ago quarter, including a $20.5 billion, or 40%, increase in average total core deposits. The growth in average total core deposits more than fully funded the year-over-year increase in average total loans and leases. Average total interest-bearing liabilities increased $19.4 billion, or 43%, from the year-ago quarter. Including the impact of the FirstMerit acquisition, year-over-year changes in average total deposits and average total debt included:

•

$14.4 billion, or 60%, increase in average total demand deposits, including a $6.1 billion, or 35%, increase in average noninterest-bearing demand deposits and an $8.4 billion, or 121%, increase in average interest-bearing demand deposits. The increase in average total demand deposits was comprised of a $9.8 billion, or 62%, increase in average commercial demand deposits and a $4.6 billion, or 55%, increase in average consumer demand deposits.


•	$6.8 billion, or 158%, increase in average savings deposits, reflecting continued banker focus across all segments on obtaining our customers' full deposit relationship.


•	$3.9 billion, or 53%, increase in average total debt, reflecting a $2.1 billion, or 402%, increase in average short-term borrowings and a $1.8 billion, or 27%, increase in average long-term debt. The increase in average long-term debt reflected the issuance of $2.0 billion of holding company-level senior debt during 2016.


•	$1.3 billion, or 46%, increase in average brokered deposits and negotiable CDs, impacted by the FirstMerit acquisition.

Partially offset by:


•	$1.2 billion, or 6%, decrease in average money market deposits. During the 2016 third quarter, changes to commercial accounts resulted in the reclassification of $2.8 billion of deposits from money market into interest bearing demand deposits. This decrease was partially offset by the impact of the FirstMerit acquisition.

Provision for Credit Losses

The provision for credit losses increased to $75 million in the 2016 fourth quarter compared to $36 million in the 2015 fourth quarter.

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Noninterest Income



Table 44 - Noninterest Income - 2016 Fourth Quarter vs. 2015 Fourth Quarter
(dollar amounts in thousands)
	Fourth Quarter					Change
	2016			2015		Amount			Percent
Service charges on deposit accounts	$	91,577		$	72,854	$	18,723		26	%
Cards and payment processing income	49,113			37,594		11,519			31
Mortgage banking income	37,520			31,418		6,102			19
Trust services	34,016			25,272		8,744			35
Insurance income	16,486			15,528		958			6
Brokerage income	17,014			14,462		2,552			18
Capital markets fees	18,730			13,778		4,952			36
Bank owned life insurance income	17,067			13,441		3,626			27
Gain on sale of loans	24,987			10,122		14,865			147
Securities gains (losses)	(1,771		)	474		(2,245		)	N.R.
Other income	29,598			37,272		(7,674		)	(21	)
Total noninterest income	$	334,337		$	272,215	$	62,122		23	%

N.R. - Not relevant.

Noninterest income for the 2016 fourth quarter increased $62 million, or 23%, from the year-ago quarter. The year-over-year increase primarily reflected:


•	$19 million, or 26%, increase in service charges on deposit accounts, reflecting the benefit of continued new customer acquisition. Of the increase, $12 million was attributable to consumer deposit accounts, while $7 million was attributable to commercial deposit accounts.


•	$15 million, or 147%, increase in gain on sale of loans, reflecting a $6 million auto loan securitization gain and $5 million of gains on non-relationship C&I and CRE loan sales, both of which were related to the balance sheet optimization strategy completed in the 2016 fourth quarter.


•	$12 million, or 31%, increase in cards and payment processing income, due to higher card-related income and underlying customer growth.


•	$9 million, or 35%, increase in trust services, primarily related to the FirstMerit acquisition.


•	$6 million, or 19%, increase in mortgage banking income, reflecting a $7 million increase from net mortgage servicing rights (MSR) hedging-related activities.

Partially offset by:


•	$8 million, or 21%, decrease in other income, reflecting $8 million unfavorable impact related to ineffectiveness of derivatives used to hedge fixed-rate, long-term debt.

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Noninterest Expense

Table 45 - Noninterest Expense - 2016 Fourth Quarter vs. 2015 Fourth Quarter
(dollar amounts in thousands)
	Fourth Quarter				Change
	2016		2015		Amount		Percent
Personnel costs	$	359,755	$	288,861	$	70,894	25	%
Outside data processing and other services	88,695		63,775		24,920		39
Equipment	59,666		31,711		27,955		88
Net occupancy	49,450		32,939		16,511		50
Professional services	23,165		13,010		10,154		78
Marketing	21,478		12,035		9,443		78
Deposit and other insurance expense	15,772		11,105		4,667		42
Amortization of intangibles	14,099		3,788		10,311		272
Other expense	49,417		41,542		7,875		19
Total noninterest expense	$	681,497	$	498,766	$	182,731	37	%
Number of employees (average full-time equivalent)	15,993		12,418		3,575		29	%



Impacts of Significant Items:	Fourth Quarter
(dollar amounts in thousands)	2016			2015
Personnel costs	$	(5,385	)	$	2,332
Outside data processing and other services	15,420			1,990
Equipment	20,000			4,587
Net occupancy	7,146			110
Professional services	9,141			1,153
Marketing	4,340			—
Other expense	2,742			318
Total noninterest expense adjustments	$	53,404		$	10,490



Adjusted Noninterest Expense (Non-GAAP):
(dollar amounts in thousands)	Fourth Quarter				Change
	2016		2015		Amount		Percent
Personnel costs	$	365,140	$	286,529	$	78,611	27	%
Outside data processing and other services	73,275		61,785		11,490		19
Equipment	39,666		27,124		12,542		46
Net occupancy	42,304		32,829		9,475		29
Professional services	14,024		11,857		2,167		18
Marketing	17,138		12,035		5,103		42
Deposit and other insurance expense	15,772		11,105		4,667		42
Amortization of intangibles	14,099		3,788		10,311		272
Other expense	46,675		41,224		5,451		13
Total adjusted noninterest expense (Non-GAAP)	$	628,093	$	488,276	$	139,817	29	%

Reported noninterest expense for the 2016 fourth quarter increased $183 million, or 37%, from the year-ago quarter. Including the impact of the FirstMerit acquisition, changes in reported noninterest expense primarily reflect:

•

$71 million, or 25%, increase in personnel costs, reflecting an $84 million increase in salaries related to the May implementation of annual merit increases and a 29% increase in the number of average full-time equivalent employees, partially offset by a $13 million decrease in benefits expense related to an $18 million gain on the settlement of a portion of the FirstMerit pension plan liability during the 2016 fourth quarter.

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•	$8 million, or 19%, increase in other expense, primarily reflecting a $42 million reduction to litigation reserves, which was mostly offset by a $40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to FirstMerit.


•	$28 million, or 88%, increase in equipment expense, reflecting the impact of the FirstMerit acquisition.


•	$25 million, or 39%, increase in outside data processing and other services expense, primarily related to ongoing technology investments and the impact of the FirstMerit acquisition.


•	$17 million, or 50%, increase in net occupancy costs, reflecting the FirstMerit acquisition.


•	$10 million, or 272%, increase in amortization of intangibles reflecting the FirstMerit acquisition.


•	$10 million, or 78%, increase in professional services, primarily related to $9 million of acquisition-related Significant Items in the 2016 fourth quarter.


•	$9 million, or 78%, increase in marketing, related to the FirstMerit acquisition.

Provision for Income Taxes

The provision for income taxes in the 2016 fourth quarter was $74 million and $56 million in the 2015 fourth quarter. The effective tax rates for the 2016 fourth quarter and 2015 fourth quarter were 23.6% and 23.8%, respectively. At December 31, 2016, we had a net federal deferred tax asset of $76 million and a net state deferred tax asset of $41 million.

Credit Quality

NCOs

Net charge-offs (NCOs) increased $22 million, or 99%, to $44 million. NCOs represented an annualized 0.26% of average loans and leases in the current quarter, unchanged from the prior quarter but up from 0.18% in the year-ago quarter. Commercial charge-offs continued to be positively impacted by recoveries in the CRE portfolio and broader continued successful workout strategies, while consumer charge-offs remained within our expected range.

NALs

Overall asset quality remains strong, with modest volatility. Overall consumer credit metrics, led by the Home Equity and Residential 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. The FirstMerit portfolio quality, composition, and geographic distribution was similar to the legacy Huntington portfolio. The only new loan classification is the RV/marine portfolio.

Nonaccrual loans and leases (NALs) of $423 million represented 0.63% of total loans and leases, down from 0.74% a year ago. The decrease in the NAL ratio reflected a 14% year-over-year increase in NALs, more than offset by the impact of the 33% year-over-year increase in total loans. Nonperforming assets (NPAs) of $481 million represented 0.72% of total loans and leases and OREO, down from 0.79% a year ago. The NAL ratio increased 2 basis points from the prior quarter, while the NPA ratio remained unchanged.

ACL

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

The period-end allowance for credit losses (ACL) as a percentage of total loans and leases decreased to 1.10% from 1.33% a year ago, while the ACL as a percentage of period-end total NALs decreased to 174% from 180%. The decline in the coverage ratios is primarily a function of the purchase accounting impact associated with FirstMerit.

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Table 46 - Selected Quarterly Financial Information (1)
(dollar amounts in thousands, except per share amounts)
	Three months ended
	December 31,			September 30,			June 30,			March 31,
	2016			2016			2016			2016
Interest income	$	814,858		$	694,346		$	565,658		$	557,251
Interest expense	79,877			68,956			59,777			54,185
Net interest income	734,981			625,390			505,881			503,066
Provision for credit losses	74,906			63,805			24,509			27,582
Net interest income after provision for credit losses	660,075			561,585			481,372			475,484
Total noninterest income	334,337			302,415			271,112			241,867
Total noninterest expense	681,497			712,247			523,661			491,080
Income before income taxes	312,915			151,753			228,823			226,271
Provision for income taxes	73,952			24,749			54,283			54,957
Net income	238,963			127,004			174,540			171,314
Dividends on preferred shares	18,865			18,537			19,874			7,998
Net income applicable to common shares	$	220,098		$	108,467		$	154,666		$	163,316
Common shares outstanding
Average—basic	1,085,253			938,578			798,167			795,755
Average—diluted(2)	1,104,358			952,081			810,371			808,349
Ending	1,085,688			1,084,783			799,154			796,689
Book value per common share	$	8.51		$	8.59		$	8.18		$	8.01
Tangible book value per common share(3)	6.43			6.48			7.29			7.12
Per common share
Net income—basic	$	0.20		$	0.12		$	0.19		$	0.21
Net income—diluted	0.20			0.11			0.19			0.20
Cash dividends declared	0.08			0.07			0.07			0.07
Common stock price, per share
High(4)	$	13.64		$	10.11		$	10.65		$	10.81
Low(4)	9.57			8.23			8.05			7.83
Close	13.22			9.86			8.94			9.54
Average closing price	11.63			9.52			9.83			9.22
Return on average total assets	0.95		%	0.58		%	0.96		%	0.96		%
Return on average common shareholders’ equity	9.4			5.4			9.6			10.4
Return on average tangible common shareholders’ equity(5)	12.9			7.0			11.0			11.9
Efficiency ratio(6)	61.6			75.0			66.1			64.6
Effective tax rate	23.6			16.3			23.7			24.3
Margin analysis-as a % of average earning assets(7)
Interest income(7)	3.60		%	3.52		%	3.41		%	3.44		%
Interest expense	0.35			0.34			0.35			0.33
Net interest margin(7)	3.25		%	3.18		%	3.06		%	3.11		%
Revenue—FTE
Net interest income	$	734,981		$	625,390		$	505,881		$	503,066
FTE adjustment	12,560			10,598			10,091			9,159
Net interest income(7)	747,541			635,988			515,972			512,225
Noninterest income	334,337			302,415			271,112			241,867
Total revenue(7)	$	1,081,878		$	938,403		$	787,084		$	754,092

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Table 47 - Selected Quarterly Capital Data (1)

	2016
Capital adequacy	December 31,			September 30,			June 30,			March 31,
Total risk-weighted assets(10)	$	78,263		$	80,513		$	60,721		$	59,798
Tier 1 leverage ratio (period end)(10)	8.70		%	9.89		%	9.55		%	9.29		%
Common equity tier 1 risk-based capital ratio(10)	9.56			9.09			9.80			9.73
Tier 1 risk-based capital ratio (period end)(10)	10.92			10.40			11.37			10.99
Total risk-based capital ratio (period end)(10)	13.05			12.56			13.49			13.17
Tangible common equity / tangible asset ratio(8)	7.16			7.14			7.96			7.89
Tangible equity / tangible asset ratio(9)	8.26			8.23			9.28			8.96
Tangible common equity / risk-weighted assets ratio(10)	8.92			8.74			9.60			9.49

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Table 48 - Selected Quarterly Financial Information (1)
(dollar amounts in thousands, except per share amounts)
	Three months ended
	December 31,			September 30,			June 30,			March 31,
	2015			2015			2015			2015
Interest income	$	544,153		$	538,477		$	529,795		$	502,096
Interest expense	47,242			43,022			39,109			34,411
Net interest income	496,911			495,455			490,686			467,685
Provision for credit losses	36,468			22,476			20,419			20,591
Net interest income after provision for credit losses	460,443			472,979			470,267			447,094
Total noninterest income	272,215			253,119			281,773			231,623
Total noninterest expense	498,766			526,508			491,777			458,857
Income before income taxes	233,892			199,590			260,263			219,860
Provision for income taxes	55,583			47,002			64,057			54,006
Net income	178,309			152,588			196,206			165,854
Dividends on preferred shares	7,972			7,968			7,968			7,965
Net income applicable to common shares	$	170,337		$	144,620		$	188,238		$	157,889
Common shares outstanding
Average—basic	796,095			800,883			806,891			809,778
Average—diluted(2)	810,143			814,326			820,238			823,809
Ending	794,929			796,659			803,066			808,528
Book value per share	$	7.81		$	7.78		$	7.61		$	7.51
Tangible book value per share(3)	6.91			6.88			6.71			6.62
Per common share
Net income—basic	$	0.21		$	0.18		$	0.23		$	0.19
Net income —diluted	0.21			0.18			0.23			0.19
Cash dividends declared	0.07			0.06			0.06			0.06
Common stock price, per share
High(4)	$	11.87		$	11.90		$	11.72		$	11.30
Low(4)	10.21			10.00			10.67			9.63
Close	11.06			10.60			11.31			11.05
Average closing price	11.18			11.16			11.19			10.56
Return on average total assets	1.00		%	0.87		%	1.16		%	1.02		%
Return on average common shareholders’ equity	10.8			9.3			12.3			10.6
Return on average tangible common shareholders’ equity(5)	12.4			10.7			14.4			12.2
Efficiency ratio(6)	63.7			69.1			61.7			63.5
Effective tax rate	23.8			23.5			24.6			24.6
Margin analysis-as a % of average earning assets(7)
Interest income(7)	3.37		%	3.42		%	3.45		%	3.38		%
Interest expense	0.28			0.26			0.25			0.23
Net interest margin(7)	3.09		%	3.16		%	3.20		%	3.15		%
Revenue—FTE
Net interest income	$	496,911		$	495,455		$	490,686		$	467,685
FTE adjustment	8,425			8,168			7,962			7,560
Net interest income(7)	505,336			503,623			498,648			475,245
Noninterest income	272,215			253,119			281,773			231,623
Total revenue(7)	$	777,551		$	756,742		$	780,421		$	706,868

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Table 49 - Selected Quarterly Capital Data (1)

	2015
Capital adequacy	December 31,			September 30,			June 30,			March 31,
Total risk-weighted assets(11)	$	58,420		$	57,839		$	57,850		$	57,840
Tier 1 leverage ratio(11)	8.79		%	8.85		%	8.98		%	9.04		%
Tier 1 risk-based capital ratio(11)	9.79			9.72			9.65			9.51
Total risk-based capital ratio(11)	10.53			10.49			10.41			10.22
Tier 1 common risk-based capital ratio(11)	12.64			12.70			12.62			12.48
Tangible common equity / tangible asset ratio(8)	7.81			7.89			7.91			7.95
Tangible equity / tangible asset ratio(9)	8.36			8.44			8.48			8.53
Tangible common equity / risk-weighted assets ratio(11)	9.41			9.48			9.32			9.25


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


(2)	For all quarterly periods presented above, the impact of the convertible preferred stock issued in April of 2008 was excluded from the diluted share calculation because the result would have been higher than basic earnings per common share (anti-dilutive) for the periods.


(3)	Deferred tax liability related to other intangible assets is calculated assuming a 35% tax rate.


(4)	High and low stock prices are intra-day quotes obtained from Bloomberg.

(5)

Net income applicable to common shares 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.


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


(7)	Presented on a FTE basis assuming a 35% tax rate.


(8)	Tangible common equity (total common equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax, and calculated assuming a 35% tax rate.


(9)	Tangible equity (total equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax, and calculated assuming a 35% tax rate.


(10)	On January 1, 2015, we became subject to the Basel III capital requirements and the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule.


(11)	Ratios are calculated on the Basel I basis.

ADDITIONAL DISCLOSURES

Forward-Looking Statements

This report, including MD&A, contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and 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 our business strategies, including market acceptance of any new products or services implementing our “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

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Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; the possibility that the anticipated benefits of the merger with FirstMerit Corporation 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 we do business; 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 completion of the merger with FirstMerit Corporation; our ability to complete the integration of FirstMerit Corporation successfully; and other factors that may affect our future results.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not assume 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 an insightful 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 statements and other financial information contained in this Form 10-K 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.

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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-K in their entirety, and not to rely on any single financial measure.

Risk Factors

More information on risk is set forth under the heading Risk Factors included in Item 1A and incorporated by reference into this MD&A. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion, as well as the Regulatory Matters section included in Item 1 and incorporated by reference into the MD&A.

Critical Accounting Policies and Use of Significant Estimates

Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our Consolidated Financial Statements. Note 1 of the Notes to Consolidated Financial Statements, which is incorporated by reference into this MD&A, describes the significant accounting policies we use in our Consolidated Financial Statements.

An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the Consolidated Financial Statements. Estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce results substantially different from those estimates. The most significant accounting policies and estimates and their related application are discussed below.

Allowance for Credit Losses

Our ACL of $0.7 billion at December 31, 2016, represents our estimate of probable credit losses inherent in our loan and lease portfolio and our unfunded loan commitments and letters of credit. We regularly review our ACL for appropriateness by performing on-going evaluations of the loan and lease portfolio. In doing so, we consider factors such as the differing economic risk 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. We also 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. There is no certainty that our ACL will be appropriate over time to cover losses in the portfolio because of unanticipated adverse changes in the economy, market conditions, or events adversely affecting specific customers, industries, or markets. If the credit quality of our customer base materially deteriorates, the risk profile of a market, industry, or group of customers changes materially, or if the ACL is not appropriate, our net income and capital could be materially adversely affected which, in turn, could have a material adverse effect on our financial condition and results of operations.

Valuation of Financial Instruments

Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Assets measured at fair value include certain loans held for sale, loans held for investment, available-for-sale and trading securities, certain securitized automobile loans, MSRs, derivatives, and certain short-term borrowings. At December 31, 2016, approximately $15.8 billion of our assets and $0.1 billion of our liabilities were recorded at fair value on a recurring basis. In addition to the above mentioned on-going fair value measurements, fair value is also used for recording business combinations and measuring other non-recurring financial assets and liabilities.

At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured at fair value. As necessary, assets or liabilities may be transferred within fair value hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date.

Where available, we use quoted market prices to determine fair value. If quoted market prices are not available, fair value is determined, using either internally developed or independent third-party valuation models, based on inputs that are either directly observable or derived from market data. These inputs include, but are not limited to, interest rate yield curves, option volatilities, or option adjusted spreads. Where neither quoted market prices nor observable market data are available, fair value is determined using valuation models that feature one or more significant unobservable inputs based on management’s expectation that market participants

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would use in determining the fair value of the asset or liability. The determination of appropriate unobservable inputs requires exercise of significant judgment. A significant portion of our assets and liabilities that are reported at fair value are measured based on quoted market prices or observable market/ independent inputs.

The following is a description of the significant estimates used in the valuation of financial assets and liabilities for which quoted market prices and observable market parameters are not available.

Municipal and asset-backed securities

The municipal securities portion that is classified as Level 3 uses significant estimates to determine the fair value of these securities which results in greater subjectivity. The fair value is determined by utilizing third-party valuation services. The third-party service provider reviews credit worthiness, prevailing market rates, analysis of similar securities, and projected cash flows. The third-party service provider also incorporates industry and general economic conditions into their analysis. Huntington evaluates the analysis provided for reasonableness.

Our CDO preferred securities portfolios are measured at fair value using a valuation methodology involving use of significant unobservable inputs and are thus, classified as Level 3 in the fair value hierarchy. The private label CMO securities portfolio is subjected to a monthly review of the projected cash flows, while the cash flows of our CDO preferred securities portfolio is reviewed quarterly. These reviews are supported with analysis from independent third parties, and are used as a basis for impairment analysis.

CDO preferred securities are CDOs backed by a pool of debt securities issued by financial institutions. The collateral generally consists of trust-preferred securities and subordinated debt securities issued by banks, bank holding companies, and insurance companies. A full cash flow analysis is used to estimate fair values and assess impairment for each security within this portfolio. We engage a third-party pricing specialist with direct industry experience in pooled-trust-preferred securities valuations to provide assistance in estimating the fair value and expected cash flows for each security in this portfolio. The PD of each issuer and the market discount rate are the most significant inputs in determining fair value. Management evaluates the PD assumptions provided by the third-party pricing specialist by comparing the current PD to the assumptions used the previous quarter, actual defaults and deferrals in the current period, and trend data on certain financial ratios of the issuers. Huntington also evaluates the assumptions related to discount rates. Relying on cash flows is necessary because there was a lack of observable transactions in the market and many of the original sponsors or dealers for these securities are no longer able to provide a fair value that is compliant with ASC 820.

Derivatives used for hedging purposes

Derivatives designated as qualified hedges are tested for hedge effectiveness on a quarterly basis. Assessments are made at the inception of the hedge and on a recurring basis to determine whether the derivative used in the hedging transaction has been and is expected to continue to be highly effective in offsetting changes in fair values or cash flows of the hedged item. A statistical regression analysis is performed to measure the effectiveness.

If, based on the assessment, a derivative is not expected to be a highly effective hedge or it has ceased to be a highly effective hedge, hedge accounting is discontinued as of the quarter the hedge is not highly effective. As the statistical regression analysis requires the use of estimates regarding the amount and timing of future cash flows which are sensitive to significant changes in future periods based on changes in market rates; we consider this a critical accounting estimate.

Loans held for sale

Huntington has elected to apply the fair value option to certain residential mortgage loans that are classified as held for sale at origination. The fair value of such loans is estimated based on the inputs that include prices of mortgage backed securities adjusted for other variables such as, interest rates, expected credit defaults and market discount rates. The adjusted value reflects the price we expect to receive from the sale of such loans.

Certain consumer and commercial loans are classified as held for sale and are accounted for at the lower of amortized cost or fair value. The determination of fair value for these consumer loans is based on observable prices for similar products or discounted expected cash flows, which takes into consideration factors such as future interest rates, prepayment speeds, default and loss curves, and market discount rates.

Mortgage Servicing Rights

Retained rights to service mortgage loans are recognized as a separate and distinct asset at the time the loans are sold. Mortgage servicing rights (“MSRs”) are initially recorded at fair value at the time the related loans are sold and subsequently re-measured at each reporting date under either the fair value or amortization method. The election of the fair value or amortization method is made at the time each servicing asset is established. All newly created MSRs since 2009 are recorded using the amortization method. Any increase or decrease in fair value of MSRs accounted for under the fair value method, as well as any amortization and/or impairment of MSRs recorded under the amortization method, is reflected in earnings in the period that the changes occur. MSRs are subject to

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interest rate risk in that their fair value will fluctuate as a result of changes in the interest rate environment. Fair value is determined based upon the application of an income approach valuation model. We use an independent third-party valuation model, which incorporates assumptions in estimating future cash flows. These assumptions include prepayment speeds, payoffs, and changes in valuation inputs and assumptions. The reasonableness of these pricing models is validated on a minimum of a quarterly basis by at least one independent external service broker valuation. Because the fair values of MSRs are significantly impacted by the use of estimates, the use of different assumptions can result in different estimated fair values of those MSRs.

Contingent Liabilities

We are a party to various claims, litigation, and legal proceedings resulting from ordinary business activities relating to our current and/or former operations. We estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. Significant judgment is required in making these estimates and our final liabilities may ultimately be more or less than the current estimate. Our total estimated liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Litigation exposure represents a key area of judgment and is subject to uncertainty and certain factors outside of our control.

Income Taxes

The calculation of our provision for income taxes is complex and requires the use of estimates and judgments. We have two accruals for income taxes: (1) our income tax payable represents the estimated net amount currently due to the federal, state, and local taxing jurisdictions, net of any reserve for potential audit issues and any tax refunds and the net receivable balance is reported as a component of accrued income and other assets in our consolidated balance sheet; (2) our deferred federal and state income tax and related valuation accounts, reported as a component of accrued income and other assets, represents the estimated impact of temporary differences between how we recognize our assets and liabilities under GAAP, and how such assets and liabilities are recognized under federal and state tax law.

In the ordinary course of business, we operate in various taxing jurisdictions and are subject to income and non-income taxes. The effective tax rate is based in part on our interpretation of the relevant current tax laws. We believe the aggregate liabilities related to taxes are appropriately reflected in the consolidated financial statements. We review the appropriate tax treatment of all transactions taking into consideration statutory, judicial, and regulatory guidance in the context of our tax positions. In addition, we rely on various tax opinions, recent tax audits, and historical experience.

From time-to-time, we engage in business transactions that may affect our tax liabilities. Where appropriate, we obtain opinions of outside experts and assess the relative merits and risks of the appropriate tax treatment of business transactions taking into account statutory, judicial, and regulatory guidance in the context of the tax position. However, changes to our estimates of accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities regarding previously taken tax positions, and newly enacted statutory, judicial, and regulatory guidance. Such changes could affect the amount of our accrued taxes and could be material to our financial position and/or results of operations. (See Note 17 of the Notes to Consolidated Financial Statements.)

Deferred Tax Assets

At December 31, 2016, we had a net federal deferred tax asset of $76 million and a net state deferred tax asset of $41 million. A valuation allowance is provided when it is more-likely-than-not some portion of the deferred tax asset will not be realized. All available evidence, both positive and negative, was considered to determine whether, based on the weight of that evidence, impairment should be recognized. Our forecast process includes judgmental and quantitative elements that may be subject to significant change. If our forecast of taxable income within the carryforward periods available under applicable law is not sufficient to cover the amount of net deferred tax assets, such assets may be impaired. Based on our analysis of both positive and negative evidence and our ability to offset the net deferred tax assets against our forecasted future taxable income, there was no impairment of the net deferred tax assets at December 31, 2016, other than a valuation allowance relating to state net operating loss carryovers.

Goodwill and Intangible Assets

The acquisition method of accounting requires that acquired assets and liabilities are recorded at their fair values as of the date of acquisition. This often involves estimates based on third party valuations or internal valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective. Acquisitions typically result in goodwill, the amount by which the cost of net assets acquired in a business combination exceeds their fair value, which is subject to impairment testing at least annually. The amortization of identified intangible assets recognized in a business combination is based upon the estimated economic benefits to be received over their economic life, which is also subjective. Customer attrition rates that are based on historical

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experience are used to determine the estimated economic life of certain intangibles assets, including but not limited to, customer deposit intangibles. Refer to Note 8 of the Notes to Consolidated Financial Statements for further information regarding these items.

Recent Accounting Pronouncements and Developments

Note 2 to 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 Consolidated Financial Statements.

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is set forth under the heading of “Market Risk” in Item 7 (MD&A), which is incorporated by reference into this item.

Item 8: Financial Statements and Supplementary Data

Information required by this item is set forth in the Reports of Independent Registered Public Accounting Firm, Consolidated Financial Statements and Notes, and Selected Annual Income Statements.

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REPORT OF MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Management of Huntington Bancshares Incorporated (Huntington or the Company) is responsible for the financial information and representations contained in the Consolidated Financial Statements and other sections of this report. The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States. In all material respects, they reflect the substance of transactions that should be included based on informed judgments, estimates, and currently available information. Management maintains a system of internal accounting controls, which includes the careful selection and training of qualified personnel, appropriate segregation of responsibilities, communication of written policies and procedures, and a broad program of internal audits. The costs of the controls are balanced against the expected benefits. During 2016, the audit committee of the board of directors met regularly with Management, Huntington’s internal auditors, and the independent registered public accounting firm, PricewaterhouseCoopers LLP, to review the scope of the audits and to discuss the evaluation of internal accounting controls and financial reporting matters. The independent registered public accounting firm and the internal auditors have free access to, and meet confidentially with, the audit committee to discuss appropriate matters. Also, Huntington maintains a disclosure review committee. This committee’s purpose is to design and maintain disclosure controls and procedures to ensure that material information relating to the financial and operating condition of Huntington is properly reported to its chief executive officer, chief financial officer, internal auditors, and the audit committee of the board of directors in connection with the preparation and filing of periodic reports and the certification of those reports by the chief executive officer and the chief financial officer.

REPORT OF MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Huntington’s Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment, Management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting is effective based on those criteria. The Company’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on the next page.

Stephen D. Steinour – Chairman, President, and Chief Executive Officer

Howell D. McCullough III – Senior Executive Vice President and Chief Financial Officer

February 22, 2017

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Huntington Bancshares Incorporated

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Huntington Bancshares Incorporated and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Columbus, Ohio

February 22, 2017

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Huntington Bancshares Incorporated

Columbus, Ohio

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2014 of Huntington Bancshares Incorporated and subsidiaries (the “Company”). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements of Huntington Bancshares Incorporated and subsidiaries present fairly, in all material respects, the results of their operations and their cash flows for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

Columbus, Ohio

February 13, 2015

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Huntington Bancshares Incorporated

Consolidated Balance Sheets



	December 31,
(dollar amounts in thousands, except per share amounts)	2016			2015
Assets
Cash and due from banks	$	1,384,770		$	847,156
Interest-bearing deposits in banks	58,267			51,838
Trading account securities	133,295			36,997
Loans held for sale	512,951			474,621
(includes $438,224 and $337,577 respectively, measured at fair value)(1)
Available-for-sale and other securities	15,562,837			8,775,441
Held-to-maturity securities	7,806,939			6,159,590
Loans and leases (includes $82,319 and $34,637 respectively, measured at fair value)(1)
Commercial and industrial loans and leases	28,058,712			20,559,834
Commercial real estate loans	7,300,901			5,268,651
Automobile loans	10,968,782			9,480,678
Home equity loans	10,105,774			8,470,482
Residential mortgage loans	7,724,961			5,998,400
RV and marine finance loans	1,846,447			—
Other consumer loans	956,419			563,054
Loans and leases	66,961,996			50,341,099
Allowance for loan and lease losses	(638,413		)	(597,843		)
Net loans and leases	66,323,583			49,743,256
Bank owned life insurance	2,432,086			1,757,668
Premises and equipment	815,508			620,540
Goodwill	1,992,849			676,869
Other intangible assets	402,458			54,978
Servicing rights	225,578			189,237
Accrued income and other assets	2,062,976			1,630,110
Total assets	$	99,714,097		$	71,018,301
Liabilities and shareholders’ equity
Liabilities
Deposits in domestic offices
Demand deposits—noninterest-bearing	$	22,835,798		$	16,479,984
Interest-bearing	52,771,919			38,547,587
Deposits in foreign offices	—			267,408
Deposits	75,607,717			55,294,979
Short-term borrowings	3,692,654			615,279
Long-term debt	8,309,159			7,041,364
Accrued expenses and other liabilities	1,796,421			1,472,073
Total liabilities	89,405,951			64,423,695
Commitments and contingencies (Note 21)
Shareholders’ equity
Preferred stock	1,071,227			386,291
Common stock	10,886			7,970
Capital surplus	9,881,277			7,038,502
Less treasury shares, at cost	(27,384		)	(17,932		)
Accumulated other comprehensive loss	(401,016		)	(226,158		)
Retained (deficit) earnings	(226,844		)	(594,067		)
Total shareholders’ equity	10,308,146			6,594,606
Total liabilities and shareholders’ equity	$	99,714,097		$	71,018,301
Common shares authorized (par value of $0.01)	1,500,000,000			1,500,000,000
Common shares issued	1,088,641,251			796,969,694
Common shares outstanding	1,085,688,538			794,928,886
Treasury shares outstanding	2,952,713			2,040,808
Preferred stock, authorized shares	6,617,808			6,617,808
Preferred shares issued	2,702,571			1,967,071
Preferred shares outstanding	1,098,006			398,006


(1)	Amounts represent loans for which Huntington has elected the fair value option. See Note 18.

See Notes to Consolidated Financial Statements

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Huntington Bancshares Incorporated

Consolidated Statements of Income



	Year Ended December 31,
(dollar amounts in thousands, except per share amounts)	2016			2015			2014
Interest and fee income:
Loans and leases	$	2,178,044		$	1,759,525		$	1,674,563
Available-for-sale and other securities
Taxable	221,782			202,104			171,080
Tax-exempt	58,853			42,014			28,965
Held-to-maturity securities	138,312			86,614			88,724
Other	35,122			24,264			13,130
Total interest income	2,632,113			2,114,521			1,976,462
Interest expense
Deposits	102,005			82,175			86,453
Short-term borrowings	5,140			1,584			2,940
Federal Home Loan Bank advances	274			586			1,011
Subordinated notes and other long-term debt	155,376			79,439			48,917
Total interest expense	262,795			163,784			139,321
Net interest income	2,369,318			1,950,737			1,837,141
Provision for credit losses	190,802			99,954			80,989
Net interest income after provision for credit losses	2,178,516			1,850,783			1,756,152
Service charges on deposit accounts	324,299			280,349			273,741
Cards and payment processing income	169,064			142,715			105,401
Mortgage banking income	128,257			111,853			84,887
Trust services	108,274			105,833			115,972
Insurance income	64,523			65,264			65,473
Brokerage income	61,834			60,205			68,277
Capital markets fees	59,527			53,616			43,731
Bank owned life insurance income	57,567			52,400			57,048
Gain on sale of loans	47,153			33,037			21,091
Net gains on sales of securities	2,035			3,184			17,554
Impairment losses recognized in earnings on available-for-sale securities (a)	(2,119		)	(2,440		)	—
Other income	129,317			132,714			126,004
Total noninterest income	1,149,731			1,038,730			979,179
Personnel costs	1,349,124			1,122,182			1,048,775
Outside data processing and other services	304,743			231,353			212,586
Equipment	164,839			124,957			119,663
Net occupancy	153,090			121,881			128,076
Professional services	105,266			50,291			59,555
Marketing	62,957			52,213			50,560
Deposit and other insurance expense	54,107			44,609			49,044
Amortization of intangibles	30,456			27,867			39,277
Other expense	183,903			200,555			174,810
Total noninterest expense	2,408,485			1,975,908			1,882,346
Income before income taxes	919,762			913,605			852,985
Provision for income taxes	207,941			220,648			220,593
Net income	711,821			692,957			632,392
Dividends on preferred shares	65,274			31,873			31,854
Net income applicable to common shares	$	646,547		$	661,084		$	600,538
Average common shares—basic	904,438			803,412			819,917

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Average common shares—diluted	918,790		817,129		833,081
Per common share:
Net income—basic	$	0.72	$	0.82	$	0.73
Net income—diluted	0.70		0.81		0.72
Cash dividends declared	0.29		0.25		0.21


(a)	The following OTTI losses are included in securities losses for the periods presented:



Total OTTI losses	$	(5,851	)	$	(3,144	)	$	—
Noncredit-related portion of loss recognized in OCI	3,732			704			—
Net impairment credit losses recognized in earnings	$	(2,119	)	$	(2,440	)	$	—

See Notes to Consolidated Financial Statements

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Huntington Bancshares Incorporated

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
(dollar amounts in thousands)	2016			2015			2014
Net income	$	711,821		$	692,957		$	632,392
Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale and other securities:
Non-credit-related impairment recoveries on debt securities not expected to be sold	585			12,673			8,780
Unrealized net gains (losses) on available-for-sale and other securities arising during the period, net of reclassification for net realized gains and losses	(201,599		)	(19,757		)	45,783
Total unrealized gains (losses) on available-for-sale securities	(201,014		)	(7,084		)	54,563
Unrealized gains on cash flow hedging derivatives, net of reclassifications to income	1,314			8,285			6,611
Change in accumulated unrealized gains (losses) for pension and other post-retirement obligations	24,842			(5,067		)	(69,457		)
Other comprehensive loss, net of tax	(174,858		)	(3,866		)	(8,283		)
Comprehensive income	$	536,963		$	689,091		$	624,109

See Notes to Consolidated Financial Statements

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Huntington Bancshares Incorporated

Consolidated Statements of Changes in Shareholders’ Equity



													Accumulated
													Other			Retained
(dollar amounts in thousands, except per share amounts)	Preferred Stock		Common Stock			Capital		Treasury Stock					Comprehensive			Earnings
	Amount		Shares	Amount		Surplus		Shares		Amount			Loss			(Deficit)			Total
Year Ended December 31, 2016
Balance, beginning of year	$	386,291	796,970	$	7,970	$	7,038,502	(2,041	)	$	(17,932	)	$	(226,158	)	$	(594,067	)	$	6,594,606
Net income																711,821			711,821
Other comprehensive income (loss)													(174,858		)				(174,858		)
FirstMerit Acquisition:
Issuance of common stock			285,425	2,854		2,763,919													2,766,773
Issuance of Series C preferred stock	100,000					4,320													104,320
Net proceeds from issuance of Series D preferred stock	584,936																		584,936
Cash dividends declared:
Common ($0.29 per share)																(274,780		)	(274,780		)
Preferred Series A ($85.00 per share)																(30,813		)	(30,813		)
Preferred Series B ($34.03 per share)																(1,208		)	(1,208		)
Preferred Series C ($26.28 per share)																(2,628		)	(2,628		)
Preferred Series D ($51.04 per share)																(30,625		)	(30,625		)
Recognition of the fair value of share-based compensation						65,608													65,608
Other share-based compensation activity			5,924	59		5,483										(4,554		)	988
Other			322	3		3,445		(912	)	(9,452		)				10			(5,994		)
Balance, end of year	$	1,071,227	1,088,641	$	10,886	$	9,881,277	(2,953	)	$	(27,384	)	$	(401,016	)	$	(226,844	)	$	10,308,146

See Notes to Consolidated Financial Statements

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Consolidated Statements of Changes in Shareholders’ Equity

Accumulated