Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY PERIOD ENDED June 30, 2017

Commission File Number 1-34073

Huntington Bancshares Incorporated

 

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

41 South High Street, Columbus, Ohio 43287

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

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

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

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

Large accelerated filer		x		Accelerated filer	¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)
				Smaller reporting company	¨
				Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

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

There were 1,090,016,469 shares of Registrant’s common stock ($0.01 par value) outstanding on June 30, 2017.

---

Table of Contents

HUNTINGTON BANCSHARES INCORPORATED

INDEX

 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	41
Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016	41
Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2017 and 2016	42
Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2017 and 2016	44
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2017 and 2016	45
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	46
Notes to Unaudited Condensed Consolidated Financial Statements	48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Executive Overview	7
Discussion of Results of Operations	7
Risk Management and Capital:	18
Credit Risk	19
Market Risk	28
Liquidity Risk	29
Operational Risk	30
Compliance Risk	31
Capital	31
Fair Value	33
Business Segment Discussion	33
Additional Disclosures	37
Item 3. Quantitative and Qualitative Disclosures about Market Risk	100
Item 4. Controls and Procedures	100
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	101
Item 1A. Risk Factors	101
Item 6. Exhibits	102
Signatures	104

2

---

Table of Contents

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		Bureau of Consumer Financial Protection
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
EFT		Electronic Fund Transfer
EPS		Earnings Per Share
EVE		Economic Value of Equity
FASB		Financial Accounting Standards Board
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

3

---

Table of Contents

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 Asset
HTM		Held-to-Maturity
IRS		Internal Revenue Service
LCR		Liquidity Coverage Ratio
LGD		Loss-Given-Default
LIBOR		London Interbank Offered Rate
LIHTC		Low Income Housing Tax Credit
LTV		Loan to Value
Macquarie		Macquarie Equipment Finance, Inc. (U.S. operations)
MBS		Mortgage-Backed Securities
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MSA		Metropolitan Statistical Area
MSR		Mortgage Servicing Rights
NAICS		North American Industry Classification System
NALs		Nonaccrual Loans
NCO		Net Charge-off
NII		Net Interest Income
NIM		Net Interest Margin
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
RBHPCG		Regional Banking and The Huntington Private Client Group
REIT		Real Estate Investment Trust

4

---

Table of Contents

ROC		Risk Oversight Committee
RWA		Risk-Weighted Assets
SAD		Special Assets Division
SBA		Small Business Administration
SEC		Securities and Exchange Commission
SERP		Supplemental Executive Retirement Plan
SRIP		Supplemental Retirement Income Plan
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
VIE		Variable Interest Entity
XBRL		eXtensible Business Reporting Language

5

---

Table of Contents

PART I. FINANCIAL INFORMATION

When we refer to “we”, “our”, and “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 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have over 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment leasing, investment management, trust services, brokerage services, insurance programs, and other financial products and services. Our 996 branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia, and Wisconsin. 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.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2016 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2016 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.

6

---

Table of Contents

EXECUTIVE OVERVIEW

Summary of 2017 Second Quarter Results Compared to 2016 Second Quarter

For the quarter, we reported net income of $272 million, or $0.23 per common share, compared with $175 million, or $0.19 per common share, in the year-ago quarter (see Table 1). Reported net income was impacted by FirstMerit acquisition-related net expenses totaling $50 million pre-tax, or $0.03 per common share.

Fully-taxable equivalent net interest income was $757 million, up $241 million, or 47%. The results reflected the benefit from a $23.9 billion, or 35%, increase in average earning assets and a 25 basis point improvement in the net interest margin to 3.31%. Average earning asset growth included a $15.4 billion, or 30%, increase in average loans and leases, and an $8.5 billion, or 56%, increase in average securities, both of which were impacted by the FirstMerit acquisition. The net interest margin expansion reflected a 34 basis point increase in earning asset yields, including an approximate 15 basis point impact of purchase accounting, and a 2 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 $25 million consistent with the year-ago quarter. NCOs increased $19 million to $36 million, primarily as a result of Consumer charge-offs on the acquired FirstMerit portfolio. NCOs represented an annualized 0.21% of average loans and leases, which remains below our long-term target of 35 to 55 basis points.

Noninterest income was $325 million, up $54 million, or 20%. The increase was primarily a result of the FirstMerit acquisition. In addition, card and payment processing income increased due to higher credit and debit card related income and underlying customer growth. Also, service charges on deposit accounts increased reflecting continued new customer acquisition.

Noninterest expense was $694 million, up $171 million, or 33%, primarily reflecting the impact of the FirstMerit acquisition. Personnel costs increased primarily reflecting an increase in average full-time equivalent employees and an increase in acquisition-related personnel expense. Further, deposit and other insurance expense increased, as a result of the larger assessment base as well as the FDIC Large Institution Surcharge implemented during the 2016 third quarter.

The tangible common equity to tangible assets ratio was 7.41%, down 55 basis points from a year-ago. The CET1 risk-based capital ratio was 9.88% at June 30, 2017, compared to 9.80% a year ago. The regulatory tier 1 risk-based capital ratio was 11.24% compared to 11.37% at June 30, 2016. Capital ratios were impacted by the goodwill created and the issuance 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 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 trust preferred securities during the 2016 third quarter and fourth quarter. In addition, certain trust preferred securities were acquired in the FirstMerit acquisition and subsequently were redeemed. There were no common shares repurchased over the past five quarters.

Business Overview

General

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

Economy

We expect ongoing consumer and business confidence to translate into private sector investment fueling continued economic momentum. We are seeing solid manufacturing and infrastructure growth in the Midwest. Businesses are adding jobs and investing more, and our pipelines have remained steady.

DISCUSSION OF RESULTS OF OPERATIONS

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

 

7

---

Table of Contents

Table 1 - Selected Quarterly Income Statement Data (1)
(dollar amounts in thousands, except per share amounts)
	Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,
	2017				2017				2016				2016				2016
Interest income	$	846,424			$	820,360			$	814,858			$	694,346			$	565,658
Interest expense	101,912				90,385				79,877				68,956				59,777
Net interest income	744,512				729,975				734,981				625,390				505,881
Provision for credit losses	24,978				67,638				74,906				63,805				24,509
Net interest income after provision for credit losses	719,534				662,337				660,075				561,585				481,372
Service charges on deposit accounts	87,582				83,420				91,577				86,847				75,613
Cards and payment processing income	52,485				47,169				49,113				44,320				39,184
Mortgage banking income	32,268				31,692				37,520				40,603				31,591
Trust and investment management services	32,232				33,869				34,016				28,923				22,497
Insurance income	15,843				15,264				16,486				15,865				15,947
Brokerage income	16,294				15,758				17,014				14,719				14,599
Capital markets fees	16,836				14,200				18,730				14,750				13,037
Bank owned life insurance income	15,322				17,542				17,067				14,452				12,536
Gain on sale of loans	12,002				12,822				24,987				7,506				9,265
Securities gains (losses)	135				(8		)		(1,771		)		1,031				656
Other Income	44,219				40,735				29,598				33,399				36,187
Total noninterest income	325,218				312,463				334,337				302,415				271,112
Personnel costs	391,997				382,000				359,755				405,024				298,949
Outside data processing and other services	75,169				87,202				88,695				91,133				63,037
Equipment	42,924				46,700				59,666				40,792				31,805
Net occupancy	52,613				67,700				49,450				41,460				30,704
Professional services	18,190				18,295				23,165				47,075				21,488
Marketing	18,843				13,923				21,478				14,438				14,773
Deposit and other insurance expense	20,418				20,099				15,772				14,940				12,187
Amortization of intangibles	14,242				14,355				14,099				9,046				3,600
Other expense	59,968				57,148				49,417				48,339				47,118
Total noninterest expense	694,364				707,422				681,497				712,247				523,661
Income before income taxes	350,388				267,378				312,915				151,753				228,823
Provision for income taxes	78,647				59,284				73,952				24,749				54,283
Net income	271,741				208,094				238,963				127,004				174,540
Dividends on preferred shares	18,889				18,878				18,865				18,537				19,874
Net income applicable to common shares	$	252,852			$	189,216			$	220,098			$	108,467			$	154,666
Average common shares—basic	1,088,934				1,086,374				1,085,253				938,578				798,167
Average common shares—diluted	1,108,527				1,108,617				1,104,358				952,081				810,371
Net income per common share—basic	$	0.23			$	0.17			$	0.20			$	0.12			$	0.19
Net income per common share—diluted	0.23				0.17				0.20				0.11				0.19
Cash dividends declared per common share	0.08				0.08				0.08				0.07				0.07
Return on average total assets	1.09		%		0.84		%		0.95		%		0.58		%		0.96		%
Return on average common shareholders’ equity	10.6				8.2				9.4				5.4				9.6
Return on average tangible common shareholders’ equity (2)	14.4				11.3				12.9				7.0				11.0
Net interest margin (3)	3.31				3.30				3.25				3.18				3.06
Efficiency ratio (4)	62.9				65.7				61.6				75.0				66.1
Effective tax rate	22.4				22.2				23.6				16.3				23.7
Revenue—FTE
Net interest income	$	744,512			$	729,975			$	734,981			$	625,390			$	505,881
FTE adjustment	12,069				12,058				12,560				10,598				10,091
Net interest income (3)	756,581				742,033				747,541				635,988				515,972
Noninterest income	325,218				312,463				334,337				302,415				271,112
Total revenue (3)	$	1,081,799			$	1,054,496			$	1,081,878			$	938,403			$	787,084

8

---

Table of Contents

Table 2 - Selected Year to Date Income Statements (1)
(dollar amounts in thousands, except per share amounts)
	Six Months Ended June 30,								Change
	2017				2016				Amount				Percent
Interest income	$	1,666,784			$	1,122,909			$	543,875			48	%
Interest expense	192,297				113,962				78,335				69
Net interest income	1,474,487				1,008,947				465,540				46
Provision for credit losses	92,616				52,091				40,525				78
Net interest income after provision for credit losses	1,381,871				956,856				425,015				44
Service charges on deposit accounts	171,002				145,875				25,127				17
Cards and payment processing income	99,654				75,631				24,023				32
Mortgage banking income	63,960				50,134				13,826				28
Trust and investment management services	66,101				45,335				20,766				46
Insurance income	31,107				32,172				(1,065		)		(3	)
Brokerage income	32,052				30,101				1,951				6
Capital markets fees	31,036				26,047				4,989				19
Bank owned life insurance income	32,864				26,049				6,815				26
Gain on sale of loans	24,824				14,660				10,164				69
Securities gains	127				656				(529		)		(81	)
Other income	84,954				66,319				18,635				28
Total noninterest income	637,681				512,979				124,702				24
Personnel costs	773,997				584,346				189,651				32
Outside data processing and other services	162,371				124,915				37,456				30
Equipment	89,624				64,381				25,243				39
Net occupancy	120,313				62,180				58,133				93
Professional services	36,485				35,026				1,459				4
Marketing	32,766				27,041				5,725				21
Deposit and other insurance expense	40,517				23,395				17,122				73
Amortization of intangibles	28,597				7,312				21,285				291
Other expense	117,116				86,145				30,971				36
Total noninterest expense	1,401,786				1,014,741				387,045				38
Income before income taxes	617,766				455,094				162,672				36
Provision for income taxes	137,931				109,240				28,691				26
Net income	479,835				345,854				133,981				39
Dividends declared on preferred shares	37,767				27,872				9,895				36
Net income applicable to common shares	$	442,068			$	317,982			$	124,086			39	%
Average common shares—basic	1,087,654				796,961				290,693				36	%
Average common shares—diluted	1,108,572				809,360				299,212				37
Net income per common share—basic	$	0.41			$	0.40			$	0.01			3
Net income per common share—diluted	0.40				0.39				0.01				3
Cash dividends declared per common share	0.16				0.14				0.02				14
Revenue—FTE
Net interest income	$	1,474,487			$	1,008,947			$	465,540			46	%
FTE adjustment	24,127				19,250				4,877				25
Net interest income (3)	1,498,614				1,028,197				470,417				46
Noninterest income	637,681				512,979				124,702				24
Total revenue (3)	$	2,136,295			$	1,541,176			$	595,119			39	%

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

(2)

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

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

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

9

---

Table of Contents

Significant Items

Earnings comparisons are impacted by the Significant Items summarized below:

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

•	During the 2017 second quarter, $50 million of noninterest expense was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.03 per common share.

•	During the 2017 first quarter, $73 million of noninterest expense and $2 million of noninterest income was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.04 per common share.

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

The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected:

 

Table 3 - Significant Items Influencing Earnings Performance Comparison
(dollar amounts in thousands, except per share amounts)
	Three Months Ended
	June 30, 2017								March 31, 2017								June 30, 2016
	Amount				EPS (1)				Amount				EPS (1)				Amount				EPS (1)
Net income	$	271,741							$	208,094							$	174,540
Earnings per share, after-tax					$	0.23							$	0.17							$	0.19
Significant Items—favorable (unfavorable) impact:	Earnings				EPS (1)				Earnings				EPS (1)				Earnings				EPS (1)
Mergers and acquisitions, net expenses	$	(50,243	)						$	(71,145	)						$	(20,789	)
Tax impact	17,585								24,901								7,213
Mergers and acquisitions, after-tax	$	(32,658	)		$	(0.03	)		$	(46,244	)		$	(0.04	)		$	(13,576	)		$	(0.02	)

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

	Six Months Ended
	June 30, 2017								June 30, 2016
	After-tax				EPS (1)				After-tax				EPS (1)
Net income	$	479,835							$	345,854
Earnings per share, after-tax					$	0.40							$	0.39
Significant Items—favorable (unfavorable) impact:	Earnings				EPS (1)				Earnings				EPS (1)
Mergers and acquisitions, net expenses	$	(121,388	)						$	(27,195	)
Tax impact	42,486								9,219
Mergers and acquisitions, after-tax	$	(78,902	)		$	(0.07	)		$	(17,976	)		$	(0.03	)

(1)	Based upon the year to date average outstanding diluted common shares.

10

---

Table of Contents

Net Interest Income / Average Balance Sheet

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

Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis
(dollar amounts in millions)
	Average Balances
	Three Months Ended																				Change
	June 30,				March 31,				December 31,				September 30,				June 30,				2Q17 vs. 2Q16
	2017				2017				2016				2016				2016				Amount				Percent
Assets:
Interest-bearing deposits in banks	$	102			$	100			$	110			$	95			$	99			$	3			4	%
Loans held for sale	525				415				2,507				695				571				(46		)		(8	)
Securities:
Available-for-sale and other securities:
Taxable	13,135				12,801				13,734				9,785				6,904				6,231				90
Tax-exempt	3,104				3,049				3,136				2,854				2,510				594				24
Total available-for-sale and other securities	16,239				15,850				16,870				12,639				9,414				6,825				72
Trading account securities	91				137				139				49				41				50				121
Held-to-maturity securities—taxable	7,427				7,656				5,432				5,487				5,806				1,621				28
Total securities	23,756				23,643				22,441				18,175				15,261				8,495				56
Loans and leases: (1)
Commercial:
Commercial and industrial	27,992				27,922				27,727				24,957				21,344				6,648				31
Commercial real estate:
Construction	1,130				1,314				1,413				1,132				881				249				28
Commercial	5,940				6,039				5,805				5,227				4,345				1,595				37
Commercial real estate	7,070				7,353				7,218				6,359				5,226				1,844				35
Total commercial	35,062				35,276				34,945				31,316				26,570				8,492				32
Consumer:
Automobile	11,324				11,063				10,866				11,402				10,146				1,178				12
Home equity	9,958				10,072				10,101				9,260				8,416				1,542				18
Residential mortgage	7,979				7,777				7,690				7,012				6,187				1,792				29
RV and marine finance	2,039				1,874				1,844				915				—				N.R.				N.R.
Other consumer	983				919				959				817				613				370				60
Total consumer	32,283				31,705				31,460				29,406				25,362				6,921				27
Total loans and leases	67,345				66,981				66,405				60,722				51,932				15,413				30
Allowance for loan and lease losses	(672		)		(636		)		(614		)		(623		)		(616		)		(56		)		9
Net loans and leases	66,673				66,345				65,791				60,099				51,316				15,357				30
Total earning assets	91,728				91,139				91,463				79,687				67,863				23,865				35
Cash and due from banks	1,287				2,011				1,538				1,325				1,001				286				29
Intangible assets	2,373				2,387				2,421				1,547				726				1,647				227
All other assets	5,405				5,442				5,559				4,962				4,149				1,256				30
Total assets	$	100,121			$	100,343			$	100,367			$	86,898			$	73,123			$	26,998			37	%
Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	21,599			$	21,730			$	23,250			$	20,033			$	16,507			$	5,092			31	%
Demand deposits—interest-bearing	17,445				16,805				15,294				12,362				8,445				9,000				107
Total demand deposits	39,044				38,535				38,544				32,395				24,952				14,092				56
Money market deposits	19,212				18,653				18,618				18,453				19,534				(322		)		(2	)
Savings and other domestic deposits	11,889				11,970				12,272				8,889				5,402				6,487				120
Core certificates of deposit	2,146				2,342				2,636				2,285				2,007				139				7
Total core deposits	72,291				71,500				72,070				62,022				51,895				20,396				39
Other domestic time deposits of $250,000 or more	479				470				391				382				402				77				19
Brokered deposits and negotiable CDs	3,783				3,969				4,273				3,904				2,909				874				30
Deposits in foreign offices	—				—				152				194				208				(208		)		—
Total deposits	76,553				75,939				76,886				66,502				55,414				21,139				38
Short-term borrowings	2,687				3,792				2,628				1,306				1,032				1,655				160
Long-term debt	8,730				8,529				8,594				8,488				7,899				831				11
Total interest-bearing liabilities	66,371				66,530				64,858				56,263				47,838				18,533				39
All other liabilities	1,557				1,661				1,833				1,608				1,416				141				10
Shareholders’ equity	10,594				10,422				10,426				8,994				7,362				3,232				44
Total liabilities and shareholders’ equity	$	100,121			$	100,343			$	100,367			$	86,898			$	73,123			$	26,998			37	%

11

---

Table of Contents

Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)
	Average Yield Rates (2)
	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
Fully-taxable equivalent basis (3)	2017			2017			2016			2016			2016
Assets:
Interest-bearing deposits in banks	1.53	%		1.09	%		0.64	%		0.64	%		0.25	%
Loans held for sale	3.73			3.82			2.95			3.53			3.89
Securities:
Available-for-sale and other securities:
Taxable	2.38			2.38			2.43			2.35			2.37
Tax-exempt	3.71			3.77			3.60			3.01			3.38
Total available-for-sale and other securities	2.64			2.65			2.65			2.50			2.64
Trading account securities	0.25			0.11			0.18			0.58			0.98
Held-to-maturity securities—taxable	2.38			2.36			2.43			2.41			2.44
Total securities	2.55			2.54			2.58			2.47			2.56
Loans and leases: (1)
Commercial:
Commercial and industrial	4.04			3.98			3.83			3.68			3.49
Commercial real estate:
Construction	4.26			3.95			3.65			3.76			3.70
Commercial	3.97			3.69			3.54			3.54			3.35
Commercial real estate	4.02			3.74			3.56			3.58			3.41
Total commercial	4.04			3.93			3.78			3.66			3.47
Consumer:
Automobile	3.55			3.55			3.57			3.37			3.15
Home equity	4.61			4.45			4.24			4.21			4.17
Residential mortgage	3.66			3.63			3.58			3.61			3.65
RV and marine finance	5.57			5.63			5.64			5.70			—
Other consumer	11.47			12.05			10.91			10.93			10.28
Total consumer	4.27			4.23			4.13			3.97			3.79
Total loans and leases	4.15			4.07			3.95			3.81			3.63
Total earning assets	3.75			3.70			3.60			3.52			3.41
Liabilities:
Deposits:
Demand deposits—noninterest-bearing	—			—			—			—			—
Demand deposits—interest-bearing	0.20			0.15			0.11			0.11			0.09
Total demand deposits	0.09			0.07			0.04			0.04			0.03
Money market deposits	0.31			0.26			0.24			0.24			0.24
Savings and other domestic deposits	0.21			0.22			0.25			0.21			0.11
Core certificates of deposit	0.56			0.39			0.29			0.43			0.79
Total core deposits	0.26			0.22			0.20			0.20			0.22
Other domestic time deposits of $250,000 or more	0.49			0.45			0.39			0.40			0.40
Brokered deposits and negotiable CDs	0.95			0.72			0.48			0.44			0.40
Deposits in foreign offices	—			—			0.13			0.13			0.13
Total deposits	0.31			0.26			0.23			0.22			0.23
Short-term borrowings	0.78			0.63			0.36			0.29			0.36
Long-term debt	2.49			2.33			2.19			1.97			1.85
Total interest-bearing liabilities	0.61			0.54			0.48			0.49			0.50
Net interest rate spread	3.14			3.16			3.12			3.03			2.91
Impact of noninterest-bearing funds on margin	0.17			0.14			0.13			0.15			0.15
Net interest margin	3.31	%		3.30	%		3.25	%		3.18	%		3.06	%

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

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

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

N.R. - Not relevant.

12

---

Table of Contents

2017 Second Quarter versus 2016 Second Quarter

FTE net interest income for the 2017 second quarter increased $241 million, or 47%, from the 2016 second quarter. This reflected the benefit from the $23.9 billion, or 35%, increase in average earning assets coupled with a 25 basis point improvement in the FTE net interest margin to 3.31%. The NIM expansion reflected a 34 basis point increase related to the mix and yield of earning assets and a 2 basis point increase in the benefit from noninterest-bearing funds, partially offset by an 11 basis point increase in funding costs. FTE net interest income during the 2017 second quarter included $34 million, or approximately 15 basis points, of purchase accounting impact.

Average earning assets for the 2017 second quarter increased $23.9 billion, or 35%, from the year-ago quarter, primarily reflecting the impact of the FirstMerit acquisition. Average earning asset growth included a $15.4 billion, or 30%, increase in average loans and leases and an $8.5 billion, or 56%, increase in average securities. Average securities included $2.9 billion of direct purchase municipal instruments in our commercial banking segment compared to $2.3 billion in the year-ago quarter. Average residential mortgage loans increased $1.8 billion, or 29%, as we continue to see increased demand for residential mortgage loans across our footprint.

Average total deposits for the 2017 second quarter increased $21.1 billion, or 38%, from the year-ago quarter, while average total core deposits increased $20.4 billion, or 39%. Average total interest-bearing liabilities increased $18.5 billion, or 39%, from the year-ago quarter. These increases primarily reflect the impact of the FirstMerit acquisition. Average demand deposits increased $14.1 billion, or 56%, comprised of a $9.9 billion, or 62%, increase in average commercial demand deposits and a $4.2 billion, or 46%, increase in average consumer demand deposits. Average long-term borrowings increased $0.8 billion, or 11%, reflecting the issuance of $2.0 billion and maturity of $1.6 billion of senior debt over the past five quarters.

2017 Second Quarter versus 2017 First Quarter

Compared to the 2017 first quarter, FTE net interest income increased $15 million, or 2%. The increase in the NIM reflected a 5 basis point increase in earning asset yields and a 3 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 7 basis point increase in the cost of interest-bearing liabilities. The purchase accounting impact on the net interest margin was approximately 15 basis points in the 2017 second quarter compared to approximately 16 basis points in the prior quarter.

Average earning assets increased $0.6 billion, or less than 1% from the 2017 first quarter. Average loans and leases increased $0.4 billion, or less than 1%, primarily reflecting growth in residential mortgage, automobile, and RV and marine loans partially offset by a decline in average commercial real estate loans. Total commercial lending was impacted by anticipated FirstMerit-related runoff and lower utilization.

Average total core deposits increased $0.8 billion, or 1%, primarily reflecting a $0.6 billion, or 3%, increase in money market deposits and a $0.5 billion, or 1%, increase in average demand deposits. Average total debt decreased $0.9 billion, or 7%, driven by a $1.1 billion, or 29%, decrease in short-term borrowings, reflecting the maintenance of excess liquidity surrounding the branch conversion during the 2017 first quarter.

13

---

Table of Contents

Table 5 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
(dollar amounts in millions)
	YTD Average Balances															YTD Average Rates (2)
	Six Months Ended June 30,								Change							Six Months Ended June 30,
Fully-taxable equivalent basis (1)	2017				2016				Amount				Percent			2017			2016
Assets:
Interest-bearing deposits in banks	$	101			$	98			$	3			3	%		1.31	%		0.23	%
Loans held for sale	470				502				(32		)		(6	)		3.76			3.93
Securities:
Available-for-sale and other securities:
Taxable	12,969				6,768				6,201				92			2.38			2.38
Tax-exempt	3,076				2,434				642				26			3.74			3.39
Total available-for-sale and other securities	16,045				9,202				6,843				74			2.64			2.65
Trading account securities	114				40				74				185			0.17			0.75
Held-to-maturity securities—taxable	7,541				5,930				1,611				27			2.37			2.44
Total securities	23,700				15,172				8,528				56			2.55			2.56
Loans and leases: (3)
Commercial:
Commercial and industrial	27,957				20,996				6,961				33			4.01			3.51
Commercial real estate:
Construction	1,221				902				319				35			4.09			3.60
Commercial	5,990				4,314				1,676				39			3.83			3.47
Commercial real estate	7,211				5,216				1,995				38