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, 2017



¨	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 (§229.405 of this chapter) 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. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth 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 13(a) of the Exchange Act. ¨

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, 2017, determined by using a per share closing price of $13.52, as quoted by NASDAQ on that date, was $14,498,375,048. As of January 31, 2018, there were 1,072,026,681 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 2018 Annual Shareholders’ Meeting.

Table of Contents

HUNTINGTON BANCSHARES INCORPORATED

INDEX




Part I.
Item 1.	Business	6
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	29
Item 4.	Mine Safety Disclosures	29
Part II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Introduction	34
	Executive Overview	34
	Discussion of Results of Operations	37
	Risk Management and Capital:	44
	Credit Risk	46
	Market Risk	58
	Liquidity Risk	59
	Operational Risk	64
	Compliance Risk	65
	Capital	65
	Business Segment Discussion	68
	Results for the Fourth Quarter	72
	Additional Disclosures	80
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	85
Item 8.	Financial Statements and Supplementary Data	85
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	164
Item 9A.	Controls and Procedures	164
Item 9B.	Other Information	164

Table of Contents



Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	164
Item 11.	Executive Compensation	164
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	164
Item 13.	Certain Relationships and Related Transactions, and Director Independence	164
Item 14.	Principal Accounting Fees and Services	165
Part IV.
Item 15.	Exhibits and Financial Statement Schedules	165
Item 16.	Form 10-K Summary	166
Signatures

Table of Contents

Glossary of Acronyms and Terms

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



ABL	Asset Based Lending
ABS	Asset-Backed Securities
ACL	Allowance for Credit Losses
AFS	Available-for-Sale
ALCO	Asset-Liability Management Committee
ALLL	Allowance for Loan and Lease Losses
AML	Anti-Money Laundering
ANPR	Advance Notice of Proposed Rulemaking
AOCI	Accumulated Other Comprehensive Income
ASC	Accounting Standards Codification
ATM	Automated Teller Machine
AULC	Allowance for Unfunded Loan Commitments
Bank Secrecy Act	Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970
BHC	Bank Holding Company
BHC Act	Bank Holding Company Act of 1956
C&I	Commercial and Industrial
CCAR	Comprehensive Capital Analysis and Review
CDO	Collateralized Debt Obligation
CDs	Certificates 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
DIF	Deposit Insurance Fund
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS	Earnings Per Share
EVE	Economic Value of Equity
FASB	Financial Accounting Standard Board
FCRA	Fair Credit Reporting Act
FDIA	Federal Deposit Insurance Act
FDIC	Federal Deposit Insurance Corporation
FHA	Federal Housing Administration
FHC	Financial Holding Company
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
FinCEN	Financial Crimes Enforcement Network
FINRA	Financial Industry Regulatory Authority, Inc.
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
GSE	Government Sponsored Enterprise
HMDA	Home Mortgage Disclosure Act
HTM	Held-to-Maturity
IRS	Internal Revenue Service

Table of Contents



LCR	Liquidity Coverage Ratio
LGD	Loss Given Default
LIBOR	London Interbank Offered Rate
LIHTC	Low Income Housing Tax Credit
LTD	Long Term Debt
LTV	Loan to Value
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	Noninterest Income
NIM	Net Interest Margin
NPAs	Nonperforming Assets
OCC	Office of the Comptroller of the Currency
OCI	Other Comprehensive Income (Loss)
OCR	Optimal Customer Relationship
OFAC	Office of Foreign Assets Control
OLEM	Other Loans Especially Mentioned
OREO	Other Real Estate Owned
OTTI	Other-Than-Temporary Impairment
Patriot Act	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PD	Probability Of Default
Plan	Huntington Bancshares Retirement Plan
Problem Loans	Includes nonaccrual loans and leases (Table 12), accruing loans and leases past due 90 days or more (Table 13), 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
Riegle-Neal Act	The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
ROC	Risk Oversight Committee
RWA	Risk-Weighted Assets
SAB	Staff Accounting Bulletin
SAD	Special Assets Division
SBA	Small Business Administration
SEC	Securities and Exchange Commission
SERP	Supplemental Executive Retirement Plan
SRIP	Supplemental Retirement Income Plan
TCJA	H.R. 1, Originally known as the Tax Cuts and Jobs Act
TDR	Troubled Debt Restructured loan
U.S. Basel III	Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013
U.S. Treasury	U.S. Department of the Treasury
UCS	Uniform Classification System
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 15,770 average full-time equivalent employees. Through the Bank, we have over 150 years of serving the financial needs of our customers. Through our subsidiaries, we provide full-service commercial, small business, 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, 2017, the Bank had 10 private client group offices and 956 branches as follows:



	• 458 branches in Ohio		• 37 branches in Illinois
	• 303 branches in Michigan		• 31 branches in Wisconsin
	• 50 branches in Pennsylvania		• 25 branches in West Virginia
	• 42 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 four 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:

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

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

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

Following is a description of our four 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.

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. 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.

Home Lending, an operating unit of Consumer and Business Banking, originates consumer loans and mortgages for customers who are generally located in our primary banking markets. Consumer and mortgage lending products are

Table of Contents

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 of mortgage loans across all segments.

•

Commercial Banking: Through a relationship banking model, this segment provides a wide array of products and services to the middle market, large corporate, real estate and government public sector customers located primarily within our geographic footprint. The segment is divided into six business units: Middle Market, Specialty Banking, Asset Finance, Capital Markets/ Institutional Corporate Banking, Commercial Real Estate and Treasury Management.

Middle Market 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.

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 Huntington Equipment Finance, Huntington Public Capital^®, Technology and Healthcare Equipment Leasing, and Lender Finance divisions that focus on providing financing solutions against these respective asset classes.

Capital Markets/Institutional Corporate Banking has three distinct product offerings: 1) corporate risk management services, 2) institutional sales, trading, and underwriting, 3) institutional corporate banking. 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. Institutional 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.

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.

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.

•

Vehicle Finance: Our products and services include providing financing to consumers for the purchase of automobiles, light-duty trucks, recreational vehicles and marine craft at franchised and other select dealerships, and providing financing to franchised dealerships for the acquisition of new and used inventory. 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 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. With the acquisition of FirstMerit, Huntington also provides financing for the purchase by consumers of recreational vehicles and marine craft 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

Table of Contents

businesses. The Huntington Private Client Group also provides corporate trust services and institutional and mutual fund custody services.

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.

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 also employ 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 competitive ranking and market share based on deposits of FDIC-insured institutions as of June 30, 2017, in the top 10 metropolitan statistical areas (MSA) in which we compete:



MSA	Rank	Deposits (in millions)		Market Share
Columbus, OH	1	$	22,332	34	%
Cleveland, OH	2	9,273		14
Detroit, MI	5	7,358		6
Akron, OH	1	3,864		29
Indianapolis, IN	4	3,285		7
Cincinnati, OH	4	2,623		2
Pittsburgh, PA	9	2,978		2
Chicago, IL	19	2,324		1
Toledo, OH	1	2,535		24
Grand Rapids, MI	2	2,367		11
Source: FDIC.gov, based on June 30, 2017 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 Companies, or FinTechs, continue to emerge 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 and 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

Regulatory Environment

Table of Contents

Banking statutes, regulations and policies are continually under review by Congress, state legislatures and federal and state regulatory agencies. In addition to laws and regulations, state and federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance applicable to Huntington and its subsidiaries. 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.

Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have increased in recent years in response to the financial crisis, as well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Act and its implementing regulations, most of which are now in place. President Trump has issued an executive order that sets forth principles for the reform of the federal financial regulatory framework, and the Republican majority in Congress has also suggested an agenda for financial regulatory change. It is too early to assess whether there will be any major changes in the regulatory environment or merely a rebalancing of the post financial crisis framework. The Company expects that its business will remain subject to extensive regulation and supervision.

We are also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC, as well as the rules of Nasdaq that apply to companies with securities listed on the Nasdaq Global Select Market.

The following discussion describes certain elements of the comprehensive regulatory framework applicable to us. This discussion is not intended to describe all laws and regulations applicable to Huntington, the Bank and Huntington’s other subsidiaries.

Huntington as a Bank Holding Company

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 permitted to engage in, and be affiliated with companies engaging in, a broader range of activities than those permitted for a BHC. BHCs are generally restricted to engaging in the business of banking, managing or controlling banks and certain other activities determined by the Federal Reserve to be closely related to banking. FHCs may also engage in activities that are considered to be financial in nature, as well as those incidental or complementary to financial activities, 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.

Huntington is subject to primary supervision, regulation and examination by the Federal Reserve, which 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 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.

The Bank as a National Bank

The Bank is a national banking association chartered under the laws of the United States. As a national bank, the activities of the Bank are limited to those specifically authorized under the National Bank Act and OCC regulations. The Bank is subject to comprehensive primary supervision, regulation and examination by the OCC. As a member of the DIF, the Bank is also subject to regulation and examination by the FDIC.

Supervision, Examination and Enforcement

A principal objective of the U.S. bank regulatory regime is to protect depositors and customers, the DIF, the U.S. banking and financial system, and financial markets as a whole by ensuring the financial safety and soundness of BHCs and banks, including Huntington and the Bank. Bank regulators regularly examine the operations of BHCs and banks. In addition, BHCs and banks are subject to periodic reporting and filing requirements.

The Federal Reserve, OCC and FDIC have broad supervisory and enforcement authority with regard to BHCs and banks, including the power to conduct examinations and investigations, impose nonpublic supervisory agreements, issue cease and desist orders, impose fines and other civil and criminal penalties, terminate deposit insurance and appoint a conservator or receiver. In addition, Huntington, the Bank and other Huntington subsidiaries are subject to supervision, regulation and examination by the CFPB, which is the primary administrator of most federal consumer financial statutes and Huntington’s primary consumer financial regulator. Supervision and examinations are confidential, and the outcomes of these actions may not be made public.

Bank regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization’s operations are unsatisfactory. The regulators may also take action if they determine that the banking organization or its management is violating or has violated any law or

Table of Contents

regulation. The regulators have the power to, among other things, prohibit unsafe or unsound practices, require affirmative actions to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and directors, and terminate deposit insurance.

Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject the Company, its subsidiaries and their respective officers, directors and institution-affiliated parties to the remedies described above and other sanctions. In addition, the FDIC may terminate a bank’s depository insurance upon a finding that the bank’s financial condition is unsafe or unsound or that the bank has engaged in unsafe or unsound practices or has violated an applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency.

Bank Acquisitions by Huntington

BHCs, such as Huntington, must obtain prior approval of the Federal Reserve in connection with any acquisition that results in the BHC owning or controlling 5% or more of any class of voting securities of a bank or another BHC.

Acquisitions of Ownership of the Company

Acquisitions of Huntington’s voting stock above certain thresholds are subject to prior regulatory notice or approval under federal banking laws, including the BHC Act and the Change in Bank Control Act of 1978. Under the Change in Bank Control Act, a person or entity generally must provide prior notice to the Federal Reserve before acquiring the power to vote 10% or more of our outstanding common stock. Investors should be aware of these requirements when acquiring shares in our stock.

Interstate Banking

Under the Riegle-Neal Act, a BHC may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the BHC not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the BHC’s initial entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. A national bank, such as the Bank, with the approval of the OCC may open a branch in any state if the law of that state would permit a state bank chartered in that state to establish the branch.

Regulatory Capital Requirements

Huntington and the Bank are subject to certain risk-based capital and leverage ratio requirements under the U.S. Basel III capital rules adopted by the Federal Reserve, for Huntington, and by the OCC, for the Bank. These rules implement the Basel III international regulatory capital standards in the United States, as well as certain provisions of the Dodd-Frank Act. These quantitative calculations are minimums, and the Federal Reserve and OCC may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner.

Under the U.S. Basel III capital rules, Huntington’s and the Bank’s assets, exposures and certain off-balance sheet items are subject to risk weights used to determine the institutions’ risk-weighted assets. These risk-weighted assets are used to calculate the following minimum capital ratios for Huntington and the Bank:


•	Tier 1 Leverage Ratio, equal to the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets and certain other deductions).

•

CET1 Risk-Based Capital Ratio, equal to the ratio of CET1 capital to risk-weighted assets. CET1 capital primarily includes common shareholders’ equity subject to certain regulatory adjustments and deductions, including with respect to goodwill, intangible assets, certain deferred tax assets and AOCI. Certain of these adjustments and deductions were subject to phase-in periods that began on January 1, 2015 and ended on January 1, 2018. Together with the FDIC, the Federal Reserve and OCC have issued proposed rules that would simplify the capital treatment of certain capital deductions and adjustments, and the final phase-in period for these capital deductions and adjustments has been indefinitely delayed.


•	Tier 1 Risk-Based Capital Ratio, equal to the ratio of Tier 1 capital to risk-weighted assets. Tier 1 capital is primarily comprised of CET1 capital, perpetual preferred stock and certain qualifying capital instruments.


•	Total Risk-Based Capital Ratio, equal to the ratio of total capital, including CET1 capital, Tier 1 capital and Tier 2 capital, to risk-weighted assets. Tier 2 capital primarily includes qualifying subordinated debt and qualifying ALLL. Tier 2 capital also includes, among other things, certain trust preferred securities.

The total minimum regulatory capital ratios and well-capitalized minimum ratios are reflected on the following page. The Federal Reserve has not yet revised the well-capitalized standard for BHCs to reflect the higher capital requirements imposed under the U.S. Basel III capital rules. For purposes of the Federal Reserve’s Regulation Y, including determining whether a BHC meets the requirements to be an FHC, BHCs, such as Huntington, must maintain a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a Total Risk-Based Capital Ratio of 10.0% or greater. If the Federal Reserve were to apply the same or a very similar

Table of Contents

well-capitalized standard to BHCs as that applicable to the Bank, Huntington’s capital ratios as of December 31, 2017 would exceed such revised well-capitalized standard. The Federal Reserve may require BHCs, including Huntington, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a BHC’s particular condition, risk profile and growth plans.

Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on Huntington’s or the Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications.

In addition to meeting the minimum capital requirements, under the U.S. Basel III capital rules Huntington and the Bank must also maintain the required Capital Conservation Buffer to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The Capital Conservation Buffer is calculated as a ratio of CET1 capital to risk-weighted assets, and it effectively increases the required minimum risk-based capital ratios. The Capital Conservation Buffer requirement is being phased in over a three-year period that began on January 1, 2016. When the phase-in period is complete on January 1, 2019, the Capital Conservation Buffer will be 2.5%. Throughout 2017, the required Capital Conservation Buffer was 1.25%, and the required Capital Conservation Buffer throughout 2018 will be 1.875%. The Tier 1 Leverage Ratio is not impacted by the Capital Conservation Buffer, and a banking institution may be considered well-capitalized while remaining out of compliance with the Capital Conservation Buffer.

The table below summarizes the capital requirements that Huntington and the Bank must satisfy to avoid limitations on capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the Capital Conservation Buffer) during the remaining transition period for the Capital Conservation Buffer:



	Minimum Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer
	January 1, 2017		January 1, 2018		January 1, 2019
CET 1 risk-based capital ratio	5.75	%	6.375	%	7.0	%
Tier 1 risk-based capital ratio	7.25		7.875		8.5
Total risk-based capital ratio	9.25		9.875		10.5

The following table presents the minimum regulatory capital ratios, minimum ratio plus capital conservation buffer, and well capitalized minimums compared with Huntington’s and the Bank’s regulatory capital ratios as of December 31, 2017, calculated using the regulatory capital methodology applicable during 2017.



		Minimum Regulatory Capital Ratio		Minimum Ratio + Capital Conservation Buffer (1)		Well-Capitalized Minimums (2)		At December 31, 2017
(dollar amounts in billions)		Minimum Regulatory Capital Ratio		Minimum Ratio + Capital Conservation Buffer (1)		Well-Capitalized Minimums (2)		Actual
Ratios:
Tier 1 leverage ratio	Consolidated	4.00	%	N/A		N/A		9.09	%
	Bank	4.00		N/A		5.00	%	9.70
CET 1 risk-based capital ratio	Consolidated	4.50		5.75	%	N/A		10.01
	Bank	4.50		5.75		6.50		11.02
Tier 1 risk-based capital ratio	Consolidated	6.00		7.25		6.00		11.34
	Bank	6.00		7.25		8.00		12.10
Total risk-based capital ratio	Consolidated	8.00		9.25		10.00		13.39
	Bank	8.00		9.25		10.00		14.33


(1)	Reflects the capital conservation buffer of 1.25% applicable during 2017. Huntington and the Bank already meet the Capital Conservation Buffer at the fully phased-in level of 2.5%


(2)	Reflects the well-capitalized standard applicable to Huntington and the well-capitalized standard applicable to the Bank under Federal Reserve Regulation Y.

Huntington has the ability to provide additional capital to the Bank to maintain the Bank’s risk-based capital ratios at levels which would be considered well-capitalized.

As of December 31, 2017, Huntington’s and the Bank’s regulatory capital ratios were above the well-capitalized standards and met the then-applicable Capital Conservation Buffer and the Capital Conservation Buffer on a fully phased-in basis. Based on current estimates, we believe that Huntington and the Bank will continue to exceed all applicable well-capitalized regulatory capital requirements and the Capital Conservation Buffer, on a fully phased-in basis.

Table of Contents

Liquidity Requirements

BHCs with total consolidated assets of $250 billion or more are subject to a minimum LCR, and BHCs with at least $50 billion but less than $250 billion in total consolidated assets, including Huntington, are subject to a less stringent modified version of the LCR. The LCR requires Huntington to meet certain liquidity measures by holding an adequate amount of unencumbered high-quality liquid assets, such as Treasury securities and other sovereign debt, to cover its projected net cash outflows over a 30 calendar-day stress scenario window. Because the LCR assigns less severe outflow assumptions to certain types of customer deposits, banks’ demand for and the cost of these deposits may increase. Additionally, the LCR 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 BHCs hold in their investment portfolios. Congress is considering a bill that would require the U.S. federal bank regulatory agencies to amend the LCR to treat certain investment grade municipal securities as high-quality liquid assets. It is too early to tell whether this bill will become law.

In addition, in May 2016, the federal bank regulatory agencies proposed a Net Stable Funding Ratio rule, which would require large financial firms to meet certain net stable funding measures by funding themselves with adequate amounts of medium- and long-term funding. If finalized as proposed, Huntington would be subject to a less stringent modified version of the Net Stable Funding Ratio.

Enhanced Prudential Standards

Under the Dodd-Frank Act, BHCs with consolidated assets of more than $50 billion, such as Huntington, are subject to certain enhanced prudential standards. As a result, Huntington is subject to more stringent standards, including liquidity and capital requirements, leverage limits, stress testing, resolution planning and risk management standards, than those applicable to smaller institutions. Rules to implement two other enhanced prudential standards—single-counterparty credit limits and early remediation requirements—are still under consideration by the Federal Reserve. Congress is considering a bill that, following an 18-month period, would exempt BHCs with consolidated assets between $100 billion and $250 billion, such as Huntington, from most enhanced prudential standards and would allow the Federal Reserve either to determine that some or all of these standards should be applied to some or all such BHCs or to subject such BHCs to less stringent versions of these standards. It is too early to tell whether this bill will become law and, if so, whether and how the Federal Reserve would exercise its authority.

Capital Planning

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 nine-quarter 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 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. This involves 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 the 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. 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.

Under revised CCAR rules that became effective on March 6, 2017, the Federal Reserve is no longer allowed to object to the capital plan of a large and non-complex BHC, such as Huntington, on a qualitative, as opposed to quantitative, basis. Instead, the Federal Reserve may evaluate the strength of Huntington’s qualitative capital planning process through the regular supervisory process and targeted horizontal reviews of particular aspects of capital planning.

Huntington submitted its 2017 capital plan to the Federal Reserve in April 2017. The Federal Reserve did not object to Huntington’s 2017 capital plan. Huntington is required and intends to submit to the Federal Reserve its capital plan for 2018 by no later than April 5, 2018. There can be no assurance that the Federal Reserve will respond favorably to Huntington’s 2018 capital plan, capital actions or stress test results.

Table of Contents

Stress Testing

Huntington is subject to annual supervisory stress tests. These supervisory stress tests are forward-looking quantitative evaluations of the impact of stressful economic and financial market conditions on Huntington's capital. Huntington also must conduct semi-annual company-run stress tests, the results of which are filed with the Federal Reserve and publicly disclosed. The Bank is also required 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 covered institutions have sufficient capital to continue operations throughout times of economic and financial stress. The results of these annual stress tests must be publicly disclosed.

Congress is considering a bill that would exempt BHCs with consolidated assets between $100 billion and $250 billion, such as Huntington, from company-run stress testing requirements as part of the exemption from enhanced prudential standards described above and allow the federal bank regulatory agencies to decrease the number of stress scenarios involved in the supervisory and company-run stress tests and to decrease the frequency of these stress tests. It is too early to tell whether this bill will become law and, if so, whether and how the federal bank regulatory agencies would exercise their authority in amending the stress test requirements.

Restrictions on Dividends

Huntington is a legal entity separate and distinct from its banking and non-banking subsidiaries. Since our consolidated net income consists largely of net income of Huntington’s subsidiaries, our ability to pay dividends and repurchase shares depends upon our receipt of dividends from these subsidiaries. Under federal law, there are various limitations on the extent to which the Bank can declare and pay dividends to Huntington, including those related to regulatory capital requirements, general regulatory oversight to prevent unsafe or unsound practices and federal banking law requirements concerning the payment of dividends out of net profits, surplus and available earnings. Certain contractual restrictions also may limit the ability of the Bank to pay dividends to Huntington. No assurances can be given that the Bank will, in any circumstances, pay dividends to Huntington.

Huntington’s ability to declare and pay dividends to our shareholders is similarly limited by federal banking law and Federal Reserve regulations and policy. As discussed in the Capital Planning section above, a BHC 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.

Huntington and the Bank must maintain the applicable CET1 Capital Conservation Buffer to avoid becoming subject to restrictions on capital distributions, including dividends. When fully phased in on January 1, 2019, the Capital Conservation Buffer will be 2.5%. For more information on the Capital Conservation Buffer, see the Regulatory Capital Requirements section above.

Federal Reserve policy provides that a BHC should not pay dividends unless (1) the BHC’s net income over the last four quarters (net of dividends paid) is sufficient to fully fund the dividends, (2) the prospective rate of earnings retention appears consistent with the capital needs, asset quality and overall financial condition of the BHC and its subsidiaries and (3) the BHC will continue to meet minimum required capital adequacy ratios. Accordingly, a BHC should not pay cash dividends that can only be funded in ways that weaken the BHC’s financial health, such as by borrowing. The policy also provides that a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the BHC’s capital structure. BHCs also are required to consult with the Federal Reserve before increasing dividends or redeeming or repurchasing capital instruments. Additionally, the Federal Reserve could prohibit or limit the payment of dividends by a BHC if it determines that payment of the dividend would constitute an unsafe or unsound practice.

Volcker Rule

Under the Volcker Rule, we are prohibited from (1) engaging in short-term proprietary trading for our own account and (2) having certain ownership interest in and relationships with hedge funds or private equity funds (covered funds). The Volcker Rule regulations contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations and also permit certain ownership interests in certain types of covered funds to be retained. They also permit the offering and sponsoring of covered funds under certain conditions. The Volcker Rule regulations impose significant compliance and reporting obligations on banking entities, such as us. We have put in place the compliance programs required by the Volcker Rule and have either divested or received extensions for any holdings in illiquid covered funds.

The five federal agencies implementing the Volcker Rule regulations have approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities 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. As of December 31, 2017, we had investments in two different pools of trust preferred securities. Both of our pools are included in the list of non-exclusive issuers. We have analyzed the pools and believe that we will continue to be able to own these investments under the final Volcker Rule regulations as well.

Table of Contents

Recovery and 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 resolution 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. 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. If we were to fail to address the deficiencies in our resolution plan when required, we could eventually be required to divest certain assets or operations. Huntington submitted its resolution plan to the Federal Reserve and the FDIC on December 21, 2017. In addition, the Bank is required to periodically to file a separate resolution plan with the FDIC. The public versions of the resolution plans previously submitted by Huntington and the Bank are available on the FDIC’s website and, in the case of Huntington’s resolution plans, also on the Federal Reserve’s website.

Under OCC guidelines that establish enforceable standards for recovery planning for insured national banks with average total consolidated assets of $50 billion or more, the Bank must 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. The Bank is required to comply with this recovery planning requirement by July 1, 2018.

Source of Strength

Huntington is required to serve as a source of financial and managerial strength to the Bank and, under appropriate conditions, 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 shareholders 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.

Under these requirements, Huntington may in the future be required to provide financial assistance to the Bank should it experience financial distress. Capital loans by Huntington to the Bank would be subordinate in right of payment to deposits and certain other debts of the Bank. In the event of Huntington’s bankruptcy, any commitment by Huntington to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee and entitled to a priority of payment.

FDIC as Receiver or Conservator of Huntington

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. Under the Orderly Liquidation Authority, upon the insolvency of a BHC, such as Huntington, the FDIC may be appointed as conservator or receiver of the BHC, if certain findings are made by the FDIC, the Federal Reserve and the Secretary of the Treasury, in consultation with the President. Acting as a conservator or receiver, the FDIC would have broad powers to transfer any assets or liabilities of the institution without the approval of the institution’s creditors.

Depositor Preference

The FDIA provides that, in the event of the liquidation or other resolution of an insured depository institution, including the Bank, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver would have priority over other general unsecured claims against the institution. If the Bank were to fail, insured and uninsured depositors, along with the FDIC, would have priority in payment ahead of unsecured, non-deposit creditors, including Huntington, with respect to any extensions of credit they have made to such insured depository institution.

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. Federal banking laws also place similar restrictions on loans and other extensions of credit by FDIC-insured banks, such as the Bank, and their subsidiaries to their directors, executive officers and principal shareholders.

Table of Contents

Lending Standards and Guidance

The federal bank regulatory agencies have adopted uniform regulations prescribing standards for extensions of credit that are secured by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate. Under these regulations, all insured depository institutions, such as the Bank, must adopt and maintain written policies establishing appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the federal bank regulatory agencies’ Interagency Guidelines for Real Estate Lending Policies.

Heightened Governance and Risk Management Standards

The OCC has published guidelines to update expectations for the governance and risk management practices of certain large financial institutions, including the Bank. The guidelines require covered institutions 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. As discussed in the Risk Management and Capital section of the MDA, the Bank currently has a written governance framework and associated controls.

Anti-Money Laundering

The Bank Secrecy Act and the Patriot Act contain anti-money laundering and financial transparency provisions intended to detect, and prevent the use of the U.S. financial system for, money laundering and terrorist financing activities. The Bank Secrecy Act, as amended by the Patriot Act, requires depository institutions and their holding companies to undertake activities including maintaining an AML program, verifying the identity of clients, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. The Bank is subject to the Bank Secrecy Act and, therefore, is required to provide its employees with AML training, designate an AML compliance officer and undergo an annual, independent audit to assess the effectiveness of its AML program. The Bank has implemented policies, procedures and internal controls that are designed to comply with these AML requirements. In May 2016, FinCEN, which is a unit of the Treasury Department that drafts regulations implementing the Patriot Act and other AML legislation, issued final rules governing enhanced customer due diligence. The rules impose several new obligations on covered financial institutions with respect to their “legal entity customers,” including corporations, limited liability companies and other similar entities. For each such customer that opens an account (including an existing customer opening a new account), the covered financial institution must identify and verify the customer’s “beneficial owners,” who are specifically defined in the rules. The rules contain an exemption for insurance premium financing transactions, but cash refunds issued in connection with such transactions are not exempt, thus requiring verification of beneficial ownership before cash refunds may be issued to borrowers. Bank regulators are focusing their examinations on AML compliance, and we will continue to monitor and augment, where necessary, our AML compliance programs. The federal banking agencies are required, when reviewing bank and BHC acquisition or merger applications, to take into account the effectiveness of the AML activities of the applicant.

OFAC Regulation

OFAC is responsible for administering economic sanctions that affect transactions with designated foreign countries, nationals and others, as defined by various Executive Orders and in various legislation. OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) a blocking of assets in which the government or “specially designated nationals” of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. OFAC also publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. Blocked assets, for example property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.

Data Privacy

Federal and state law contains extensive consumer privacy protection provisions. The Gramm-Leach-Bliley Act requires financial institutions to periodically disclose their privacy policies and practices relating to sharing such information and enables retail customers to opt out of our ability to share information with unaffiliated third parties under certain circumstances. Other federal and state laws and regulations impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires financial institutions to implement a comprehensive information security program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy

Table of Contents

policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations. Federal law also 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.

Like other lenders, the Bank and other of our subsidiaries use credit bureau data in their underwriting activities. Use of such data is regulated under the FCRA, and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes. Similar state laws may impose additional requirements on us and our subsidiaries.

FDIC Insurance

The DIF provides insurance coverage for certain deposits, up to a standard maximum deposit insurance amount of $250,000 per depositor and is funded through assessments on insured depository institutions, based on the risk each institution poses to the DIF. The Bank accepts customer deposits that are insured by the DIF and therefore must pay insurance premiums. The FDIC may increase the Bank’s insurance premiums based on various factors, including the FDIC’s assessment of its risk profile. Currently, banks with $10 billion or more in total assets, such as the Bank, must pay an assessment surcharge. These banks will be required to pay this surcharge until the earlier of the quarter in which the FDIC’s reserve ratio reaches or exceeds 1.35% or December 31, 2018. Additionally, on December 22, 2017, the TCJA was enacted, which among other things, disallows the deduction of FDIC insurance premiums for tax purposes effective January 1, 2018, where previously FDIC insurance premiums were fully deductible for tax purposes.

The FDIC recently issued a rule that requires large insured depository institutions, including the Bank, to enhance their deposit account recordkeeping and related information technology system capabilities to facilitate prompt payment of insured deposits if such an institution were to fail. We must comply with these new requirements by April 1, 2020.

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 issued joint guidance on executive compensation designed to ensure that the incentive compensation policies of banking organizations, such as Huntington and the Bank, do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to issue regulations or guidelines requiring covered financial institutions, including Huntington and the Bank, to prohibit incentive-based payment arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to material financial loss to the institution. A proposed rule was issued in 2016. Also pursuant to the Dodd-Frank Act, in 2015, the SEC proposed rules that would direct stock exchanges to require listed companies to implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of certain financial restatements and would also require companies to disclose their clawback policies and their actions under those policies. Huntington continues to evaluate the proposed rules, both of which are subject to further rulemaking procedures.

Cybersecurity

The CISA is intended to improve cybersecurity 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.

In October 2016, the federal bank regulatory agencies issued an ANPR regarding enhanced cyber risk management standards which would apply to a wide range of large financial institutions and their third-party service providers, including us and the Bank. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management; management of internal and external dependencies; and incident response, cyber resilience and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.

Community Reinvestment Act

The CRA is intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and soundness practices. The relevant federal bank regulatory agency, the OCC in the

Table of Contents

Bank’s case, examines each bank and assigns it a public CRA rating. A bank’s record of fair lending compliance is part of the resulting CRA examination report.

The CRA requires the relevant federal bank regulatory agency to consider a bank’s CRA assessment when considering the bank’s application to conduct certain mergers or acquisitions or to open or relocate a branch office. The Federal Reserve also must consider the CRA record of each subsidiary bank of a BHC in connection with any acquisition or merger application filed by the BHC. An unsatisfactory CRA record could substantially delay or result in the denial of an approval or application by Huntington or the Bank.

The Bank received a CRA rating of "Outstanding" at its most recent examination.

Transaction Account Reserves

Federal Reserve rules require depository institutions to maintain reserves against their transaction accounts, primarily negotiable order of withdrawal (NOW) and regular checking accounts. For 2017, the first $16 million of covered balances are exempt from the reserve requirement, aggregate balances between $16 million and $122.3 million are subject to a 3% reserve requirement and aggregate balances above $122.3 million are subject to a 10% reserve requirement. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Bank is in compliance with these requirements.

Debit Interchange Fees

We are subject to a statutory requirement that interchange fees for electronic debit transactions that are paid to or charged by payment card issuers, including the Bank, be reasonable and proportional to the cost incurred by the issuer. Interchange fees for electronic debit transactions are limited to 21 cents plus .05% of the transaction, plus an additional one cent per transaction fraud adjustment. These fees impose requirements regarding routing and exclusivity of electronic debit transactions, and generally require that debit cards be usable in at least two unaffiliated networks.

Consumer Protection Regulation and Supervision

We are subject to supervision and regulation by the CFPB with respect to federal consumer protection laws. We are also subject to certain state consumer protection laws, and under the Dodd-Frank Act, state attorneys general and other state officials are empowered to enforce certain federal consumer protection laws and regulations. State authorities have recently increased their focus on and enforcement of consumer protection rules. These federal and state consumer protection laws apply to a broad range of our activities and to various aspects of our business and include laws relating to interest rates, fair lending, disclosures of credit terms and estimated transaction costs to consumer borrowers, debt collection practices, the use of and the provision of information to consumer reporting agencies, 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.

The CFPB has promulgated many mortgage-related final rules since it was established under the Dodd-Frank Act, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, HMDA requirements and appraisal and escrow standards for higher priced mortgages. Most of the provisions of these mortgage-related final rules are currently effective. In addition, several proposed revisions to mortgage-related rules are pending finalization. The mortgage-related final rules issued by the CFPB have materially restructured the origination, servicing and securitization of residential mortgages in the United States. These rules have impacted, and will continue to impact, the business practices of mortgage lenders, including the Company. For example, under the CFPB’s Ability to Repay and Qualified Mortgage rule, before making a mortgage loan, a lender must establish that a borrower has the ability to repay the mortgage. “Qualified mortgages”, as defined in the rule, are presumed to comply with this requirement and, as a result, present less litigation risk to lenders. For a loan to qualify as a qualified mortgage, the loan must satisfy certain limits on terms and conditions, pricing and a maximum debt-to-income ratio. Loans eligible for purchase, guarantee or insurance by a government agency or government-sponsored enterprise are exempt from some of these requirements. Satisfying the qualified mortgage standards, ensuring correct calculations are made for individual loans, recordkeeping and monitoring, as well as understanding the effect of the qualified mortgage standards on CRA obligations, impose significant new compliance obligations on, and involve compliance costs for, mortgage lenders, including the Company.

Federal regulators have promulgated a number of other rules governing the provision of credit to consumer borrowers. For example, the CFPB has issued guidance under the Equal Credit Opportunity Act for indirect automobile lenders that have a policy that permits dealers who originate automobile loans to increase the interest rate charged to a consumer and that compensates the dealer with a share of the increased interest revenue. These and other CFPB regulations involve compliance costs for automobile lenders, including the Company.

Federal regulators also have issued regulations that make it more difficult for financial institutions to collect debts owed to them. For example, in 2015, the Federal Communications Commission issued an order interpreting the Telephone Consumer Protection Act that affected the ability to financial institutions like the Company to place telephone calls to borrowers using automated dialing devices, which has increased both the cost of collection and the potential exposure of the Company to lawsuits

Table of Contents

for non-compliance with the Act. The CFPB also has indicated an interest in issuing other regulations that would restrict debt collection activities.

Available Information

We are subject to the informational requirements of the Exchange Act and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements, and other information with the SEC. 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, including any related amendments, filed by us with, or furnished by us to, the SEC are also available free of charge at our Internet web site as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. 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 10004.

Table of Contents

Item 1A: Risk Factors

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. Among these risks 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 our 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;


•	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; and


•	Reputation risk, which is the risk that negative publicity regarding an institution's business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.

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:

Our ACL level may prove to not be adequate 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 $778 million at December 31, 2017, represented Management’s estimate of probable losses inherent in our loan and lease portfolio (ALLL) as well as our unfunded loan commitments and letters of credit (AULC). 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.

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.

Table of Contents

Market Risks:

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. In addition, the Federal Reserve has stated its intention to end its quantitative easing program and has begun to reduce the size of its balance sheet by selling securities, which might 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. 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.

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. Technological advances have made it possible for our non-bank competitors to offer products and services that traditionally were banking products and for financial institutions and other companies to provide electronic and internet-based financial solutions, including online deposit accounts, electronic payment processing and marketplace lending, without having a physical presence where their customers are located. Our ability to compete successfully depends on a number of factors, including customer convenience, quality of service by investing in new products and services, electronic platforms, 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.

Uncertainty about the future of LIBOR may adversely affect our business.

On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after

Table of Contents

2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, including Huntington’s Series B preferred stock, certain of Huntington’s junior subordinated debentures, certain of the Bank’s senior notes, or other securities or financial arrangements, given LIBOR’s role in determining market interest rates globally. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and other interest rates. In the event that a published LIBOR rate is unavailable after 2021, the dividend rate on Huntington’s Series B preferred stock and the interest rate on Huntington’s and the Bank’s debentures and notes, which are currently based on the LIBOR rate, will be determined as set forth in the offering documents, and the value of such securities may be adversely affected. Currently, the manner and impact of this transition and related developments, as well as the effect of these developments on our funding costs, investment and trading securities portfolios and business, is uncertain.

Liquidity Risks:

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 LCR, etc.), changes in the financial condition of Huntington, other banks or the banking industry in general, 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.

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 to Huntington 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.

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.

Table of Contents

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:

Our operational or security systems or infrastructure, or those of third parties, could fail or be breached, which could disrupt our business and adversely impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.

The potential for operational risk exposure exists throughout our business and, as a result of our interactions with, and reliance on, third parties, is not limited to our own internal operational functions. Our operational and security systems and infrastructure, including our computer systems, data management, and internal processes, as well as those of third parties, are integral to our performance. We rely on our employees and third parties in our day-to-day and ongoing operations, who may, as a result of human error, misconduct, malfeasance or failure, or breach of our or of third-party systems or infrastructure, expose us to risk. For example, our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact or upon whom we rely. In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect to our own systems. Our financial, accounting, data processing, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control, which could adversely affect our ability to process transactions or provide services. Such events may include sudden increases in customer transaction volume; electrical, telecommunications or other major physical infrastructure outages; natural disasters such as earthquakes, tornadoes, hurricanes and floods; disease pandemics; cyber-attacks; and events arising from local or larger scale political or social matters, including wars and terrorist acts. In addition, we may need to take our systems offline if they become infected with malware or a computer virus or as a result of another form of cyber-attack. In the event that backup systems are utilized, they may not process data as quickly as our primary systems and some data might not have been saved to backup systems, potentially resulting in a temporary or permanent loss of such data. We frequently update our systems to support our operations and growth and to remain compliant with all applicable laws, rules and regulations. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interruptions. Implementation and testing of controls related to our computer systems, security monitoring and retaining and training personnel required to operate our systems also entail significant costs. Operational risk exposures could adversely impact our operations, liquidity and financial condition, as well as cause reputational harm. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption.

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 and those of third parties, on which we are highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Our business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.

We, our customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches. Cyber threats

Table of Contents

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.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity 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. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. 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. In such an attack, an attacker 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. 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 may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to our data may not be disclosed to us in a timely manner.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our business.

Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause us serious negative consequences, including our loss of customers and business opportunities, costs associated with maintaining business relationships after an attack or breach; significant business disruption to our operations and business, misappropriation, exposure, or destruction of our confidential information, intellectual property, funds, and/or those of our customers; or damage to our or our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition. In addition, we may not have adequate insurance coverage to compensate for losses from a cybersecurity event.

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 litigation.

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.

Table of Contents

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.

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.

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.

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

Table of Contents

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.

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. In June 2016, the FASB issued a new current expected credit loss rule, which will require banks to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the current practice of recording losses when it is probable that a loss event has occurred. Changes in accounting policies, standards and interpretations 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.

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, adversely impacting Huntington 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, the discount rates used in the income approach to fair value, 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, 2017, the book value of our goodwill was $2.0 billion, substantially 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.

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.

We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services.

We believe that our continued growth and future success will depend in large part on the skills of our management team and our ability to motivate and retain these individuals and other key personnel. The loss of service of one or more of our executive officers or key personnel could reduce our ability to successfully implement our long-term business strategy, our business could suffer and the value of our stock could be materially adversely affected. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe our management team possesses valuable knowledge about the banking industry and that their knowledge and relationships would be very difficult to replicate. Our success also depends on the experience of our branch managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. The loss of key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.

Table of Contents

Compliance Risks:

We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them, or our failure to comply with them, may adversely affect us.

The banking industry is highly regulated. 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 U.S. banking and financial system, and financial markets as a whole-not to protect shareholders. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities (including foreclosure and collection practices), limit the dividend or distributions that we can pay, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than accounting principles generally accepted in the United States. Compliance with laws and regulations can be difficult and costly and changes to laws and regulations often impose additional compliance costs. Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have increased in recent years in response to the financial crisis, as well as other factors such as technological and market changes. Such regulation and supervision may increase our costs and limit our ability to pursue business opportunities. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.

Bank regulations regarding capital and liquidity, including the annual CCAR assessment process and the U.S. 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 CCAR, an annual forward-looking quantitative assessment of Huntington’s capital adequacy and planned capital distributions and a review of the strength of Huntington’s practices to assess capital needs. 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. 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 after making all capital actions included in Huntington’s capital plan, under baseline and stressful conditions throughout a nine-quarter planning horizon. The Bank also must submit a capital plan to the OCC. There can be no assurance that the Federal Reserve or OCC will respond favorably to our capital plans, planned capital actions or stress test results, 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.

We are also required to maintain minimum capital ratios and the Federal Reserve and OCC may determine that Huntington and/or the Bank, based on size, complexity or risk profile, must maintain capital ratios above these minimums in order to operate in a safe and sound manner. In the event we are required to raise capital to maintain required minimum capital and leverage ratios or ratios above the required applicable minimums, we may be forced to do so in when market conditions are undesirable or on terms that are less favorable to us than we would otherwise require. Furthermore, in order to prevent becoming subject to restrictions on our ability to distribute capital or make certain discretionary bonus payments to management, we must maintain a Capital Conservation Buffer (of 1.875% in 2018), which is in addition to our required minimum capital ratios.

We are also subject to a modified LCR requirement that requires Huntington to maintain an adequate amount of unencumbered high-quality liquid assets, such as Treasury securities and other sovereign debt, to cover projected net cash outflows over a 30 calendar-day stress scenario window. Because the LCR assigns less severe outflow assumptions to certain types of customer deposits, banks’ demand for and the cost of these deposits may increase. Additionally, the LCR 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 BHCs hold in their investment portfolios.

For more information regarding CCAR, stress testing and capital and liquidity requirements, refer to Item 1. Regulatory Matters.

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, FINRA, 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,

Table of Contents

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 and Business Banking products and services are subject to heightened 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. Also, federal and state regulators have been increasingly focused on sales practices of branch personnel, including taking regulatory action against other financial institutions. 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, increase the cost of collection, cause harm to our reputation, or otherwise adversely affect our consumer businesses.

In addition, we are allowed to conduct certain activities that are financial in nature by virtue of Huntington’s status as an FHC, as discussed in more detail in Item 1. Regulatory Matters. If Huntington or the Bank cease to meet the requirements necessary for Huntington to continue to qualify as an FHC, 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 FHC. 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 a BHC but not an FHC.

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.

Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have increased in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Compliance with these laws and regulations have resulted in 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, especially those that apply to our consumer operations, which has been an area of heightened focus, 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.

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.

Huntington is required to submit annually to the Federal Reserve and the FDIC a resolution plan for its orderly resolution under the U.S. Bankruptcy Code. If the Federal Reserve and the FDIC jointly determine that our 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. If we were to fail to address deficiencies in our resolution plan when required, we could eventually be required to divest certain assets or operations in ways that could negatively impact its operations and strategy.

For more information regarding resolution planning requirements, refer to Item 1: Business - Regulatory Matters.

Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations could cause us material financial loss.

There is also increased scrutiny of compliance with the rules enforced by the OFAC. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain planned business activities, including acquisition plans, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

Table of Contents

For more information regarding the Bank Secrecy Act, Patriot Act, anti-money laundering requirements and OFAC-administered sanctions, refer to Item 1: Business - Regulatory Matters.

Cybersecurity and data privacy are areas of heightened legislative and regulatory focus.

As cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The federal bank regulatory agencies have proposed enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, including us and the Bank, and would focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience and situational awareness. Several states have also proposed or adopted cybersecurity legislation and regulations, which require, among other things, notification to affected individuals when there has been a security breach of their personal data.

We receive, maintain and store non-public personal information of our customers and counterparties, including, but not limited to, personally identifiable information and personal financial information. The sharing, use, disclosure and protection of this information are governed by federal and state law. Both personally identifiable information and personal financial information is increasingly subject to legislation and regulation, the intent of which is to protect the privacy of personal information that is collected and handled.

We may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally identifiable information and personal financial information or of any other information we may store or maintain. We could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or require changes to our business practices or privacy policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent with our current practices, we may be subject to fines, litigation or regulatory enforcement actions or ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.

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.

Table of Contents

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
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 (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 (ground lease / own 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 (ground lease / own building)	Flint, MI	ü
4 story office building	Melrose Park, IL		ü
Gateway Center building - operations center	Columbus, OH	ü

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.

Table of Contents

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, 2018, we had 30,059 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 37 and 39 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.

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, 2012, through December 31, 2017. 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, 2012, 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.



	2012	2013	2014	2015	2016	2017
HBAN	$100	$155	$172	$185	$227	$257
S&P 500	$100	$132	$150	$153	$171	$208
KBW Bank Index	$100	$138	$151	$151	$195	$231

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

The following table provides information regarding Huntington’s purchases of its Common Stock during the three-month period ended December 31, 2017.




Period	Total Number of Shares Purchased	Average Price Paid Per Share		Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs
October 1, 2017 to October 31, 2017	702,100	$	13.88	$	175,036,965
November 1, 2017 to November 30, 2017	5,349,756	13.58		102,298,891
December 1, 2017 to December 31, 2017	3,732,985	14.62		47,659,625
Total	9,784,841	$	14.00	$	47,659,625

Table of Contents

On June 28, 2017, Huntington was notified by the Federal Reserve that it had no objection to Huntington's proposed capital actions included in Huntington's capital plan submitted in the 2017 CCAR. These actions included a 38% increase in quarterly dividend per common share to $0.11, starting in the fourth quarter of 2017, the repurchase of up to $308 million of common stock over the next four quarters (July 1, 2017 through June 30, 2018), subject to authorization by the Board of Directors, and maintaining dividends on the outstanding classes of preferred stock and trust preferred securities.

Table of Contents



Item 6: Selected Financial Data

Table 1 - Selected Annual Income Statement Data (1)
(dollar amounts in millions, except per share amounts)	Year Ended December 31,
	2017			2016			2015			2014			2013
Interest income	$	3,433		$	2,632		$	2,115		$	1,976		$	1,861
Interest expense	431			263			164			139			156
Net interest income	3,002			2,369			1,951			1,837			1,705
Provision for credit losses	201			191			100			81			90
Net interest income after provision for credit losses	2,801			2,178			1,851			1,756			1,615
Noninterest income	1,307			1,150			1,039			979			1,012
Noninterest expense	2,714			2,408			1,976			1,882			1,758
Income before income taxes	1,394			920			914			853			869
Provision for income taxes	208			208			221			221			227
Net income	1,186			712			693			632			642
Dividends on preferred shares	76			65			32			32			32
Net income applicable to common shares	$	1,110		$	647		$	661		$	600		$	610
Net income per common share—basic	$	1.02		$	0.72		$	0.82		$	0.73		$	0.73
Net income per common share—diluted	1.00			0.70			0.81			0.72			0.72
Cash dividends declared per common share	0.35			0.29			0.25			0.21			0.19
Balance sheet highlights
Total assets (period end)	$	104,185		$	99,714		$	71,018		$	66,283		$	59,454
Total long-term debt (period end)	9,206			8,309			7,042			4,321			2,445
Total shareholders’ equity (period end)	10,814			10,308			6,595			6,328			6,090
Average total assets	101,021			83,054			68,560			62,483			56,289
Average total long-term debt	8,862			8,048			5,585			3,479			1,661
Average total shareholders’ equity	10,611			8,391			6,536			6,270			5,915
Key ratios and statistics
Margin analysis—as a % of average earnings assets
Interest income(2)	3.77		%	3.50		%	3.41		%	3.47		%	3.66		%
Interest expense	0.47			0.34			0.26			0.24			0.30
Net interest margin(2)	3.30		%	3.16		%	3.15		%	3.23		%	3.36		%
Return on average total assets	1.17		%	0.86		%	1.01		%	1.01		%	1.14		%
Return on average common shareholders’ equity	11.6			8.6			10.7			10.2			11.0
Return on average tangible common shareholders’ equity(3), (7)	15.7			10.7			12.4			11.8			12.7
Efficiency ratio(4)	60.9			66.8			64.5			65.1			62.6
Dividend payout ratio	34.3			40.3			30.5			28.8			26.0
Average shareholders’ equity to average assets	10.50			10.10			9.53			10.03			10.51
Effective tax rate	14.9			22.6			24.2			25.9			26.2
Non-regulatory capital
Tangible common equity to tangible assets (period end) (5), (7)	7.34			7.16			7.82			8.17			8.82
Tangible equity to tangible assets (period end)(6), (7)	8.39			8.26			8.37			8.76			9.48
Tier 1 common risk-based capital ratio (period end)(7), (8)	N.A.			N.A.			N.A.			10.23			10.90
Tier 1 leverage ratio (period end)(8)	N.A.			N.A.			N.A.			9.74			10.67
Tier 1 risk-based capital ratio (period end)(8)	N.A.			N.A.			N.A.			11.50			12.28
Total risk-based capital ratio (period end)(8)	N.A.			N.A.			N.A.			13.56			14.57
Capital under current regulatory standards (Basel III)
CET 1 risk-based capital ratio	10.01		%	9.56		%	9.79		%	N.A.			N.A.
Tier 1 leverage ratio (period end)	9.09			8.70			8.79			N.A.			N.A.
Tier 1 risk-based capital ratio (period end)	11.34			10.92			10.53			N.A.			N.A.
Total risk-based capital ratio (period end)	13.39			13.05			12.64			N.A.			N.A.
Other data
Full-time equivalent employees (average)	15,770			13,858			12,243			11,873			11,964
Domestic banking offices (period end)	966			1,115			777			729			711

Table of Contents


(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.


(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.


(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. (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.

(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, regulatory capital data, tier 1 capital, tier 1 common equity, and risk-weighted assets have not been updated for the adoption of ASU 2014-01.


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.

Table of Contents

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

2017 Financial Performance Review

In 2017, we reported net income of $1.2 billion, a 67% increase from the prior year. Earnings per common share on a diluted basis for the year was $1.00, up 43% from the prior year. Reported net income was impacted by the FirstMerit acquisition with related expenses totaling $152 million pre-tax, or $0.09 per common share and federal tax reform-related tax benefit totaling $123 million, or $0.11 per common share.

Fully-taxable equivalent net interest income was $3.1 billion, up $0.6 billion, or 27%. This reflected the impact of 21% average earning asset growth, 24% average interest-bearing liability growth, and a 14 basis point increase in the NIM to 3.30%. The average earning asset growth included a $10.4 billion, or 18%, increase in average loans and leases and a $6.1 billion, or 34%, increase in average securities, both of which were affected by the full year impact of the FirstMerit acquisition. The net interest margin expansion reflected a 27 basis point positive impact from the mix and yield on earning assets and a 3 basis point increase in the benefit from noninterest-bearing funding, partially offset by a 16 basis point increase in funding costs.

The provision for credit losses was $201 million, up $10 million, or 5%. The increase in provision expense over the prior year was primarily the result of loan growth.

Noninterest income was $1.3 billion, up $157 million, or 14%, from the prior year reflecting the full year impact of the First Merit acquisition. Card and payment processing income increased $37 million, or 22%, due to higher credit and debit card related income and underlying customer growth. Trust and investment management services increased $33 million, or 27%, and service charges on deposit accounts increased $29 million, or 9%, reflecting the benefit of continued new customer acquisition. Other income increased $28 million, or 18%, primarily reflecting increases in servicing income, mezzanine lending, loan syndication fees and commitment fees. Capital markets fees increased $16 million, or 27%, reflecting our ongoing strategic focus on expanding the business. Bank owned life insurance increased $9 million, or 16%. Gain on sale of loans increased $9 million, or 19%, as a result of continued expansion of our SBA lending business during 2017 which more than offset gains in the prior year from our balance sheet optimization strategy and the auto securitization completed in the 2016 fourth quarter. These increases were partially offset by a $4 million decline in net securities gains and a $3 million decline in insurance income.

Noninterest expense was $2.7 billion, up $306 million, or 13%. Reported noninterest expense was impacted by FirstMerit acquisition-related expenses totaling $154 million. Personnel costs increased $175 million, or 13%, primarily reflecting the full year impact of the addition of colleagues from FirstMerit. Net occupancy expense increased $59 million, or 39%, primarily reflecting $52 million of acquisition-related expense. Other expense increased $47 million, or 26%, reflecting the full impact of the FirstMerit acquisition. Amortization of intangibles increased $26 million, or 87%, reflecting the full year impact of FirstMerit related intangibles. Deposit and other insurance expense increased $24 million, or 44%, reflecting the larger assessment base. Partially offsetting these increases, professional services decreased $36 million, or 34% reflecting a reduction in legal and consultation fees partially attributable to acquisition-related expense.

On December 22, 2017, the TCJA was enacted, which among other things, reduced the federal income tax rate for C Corporations from 35% to 21% effective January 1, 2018. A $123 million tax benefit related to the TCJA was recorded in the 2017 fourth quarter and full-year results, which was primarily attributable to the revaluation of net deferred tax liabilities at the lower statutory federal income tax rate. The provision for income taxes was $208 million and remained unchanged from the prior year. The effective tax rates for 2017 and 2016 were 14.9% and 22.6%, respectively. The 2017 full-year results for income taxes and effective tax rate reflect the tax benefit associated with the TCJA. In addition, 2017 and 2016 include the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, excess tax deductions for stock-based compensation, and capital losses. (This section should be read in conjunction with Note 1 and Note 17 of the Notes to Consolidated Financial Statements.)

Table of Contents

The tangible common equity to tangible assets ratio was 7.34%, up 18 basis points. The regulatory Common Equity Tier 1 (CET1) risk-based capital ratio was 10.01%, up 45 basis points. The regulatory Tier 1 risk-based capital ratio was 11.34%, up 42 basis points. All capital ratios were impacted by positive earnings including the one-time tax benefit (see Significant Items) which resulted in a favorable impact to the ratios, partially offset by loan growth and the repurchase of $260 million of common stock at an average cost of $13.38 per share during 2017, including $137 million of common stock at an average cost of $14.00 per share during the 2017 fourth quarter. There were 19.4 million common shares repurchased during 2017.

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.

Economy

We enter 2018 with optimism, fueled by both the improving macroeconomic environment and the continued execution of our core strategies to drive organic growth. The operating environment appears poised for further improvement given strong labor markets, the enactment of federal tax reform, and outlook for additional interest rate hikes by the Federal Reserve. Sentiment remains healthy among both our consumer and business customers. Commercial loan growth was particularly encouraging during the final few weeks of the year, and our commercial pipelines remain good as we start the new year. Consumer loan growth remained steady all year.

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.

Table of Contents



Table 2 - Selected Annual Income Statements (1)
(dollar amounts in millions, except per share amounts)
	Year Ended December 31,
				Change from 2016							Change from 2015
	2017			Amount			Percent		2016		Amount			Percent		2015
Interest income	$	3,433		$	801		30	%	$	2,632	$	517		24	%	$	2,115
Interest expense	431			168			64		263		99			60		164
Net interest income	3,002			633			27		2,369		418			21		1,951
Provision for credit losses	201			10			5		191		91			91		100
Net interest income after provision for credit losses	2,801			623			29		2,178		327			18		1,851
Service charges on deposit accounts	353			29			9		324		44			16		280
Cards and payment processing income	206			37			22		169		26			18		143
Trust and investment management services	156			33			27		123		7			6		116
Mortgage banking income	131			3			2		128		16			14		112
Insurance income	81			(3		)	(4	)	84		3			4		81
Capital markets fees	76			16			27		60		6			11		54
Bank owned life insurance income	67			9			16		58		6			12		52
Gain on sale of loans	56			9			19		47		14			42		33
Securities gains (losses)	(4		)	(4		)	(100	)	—		(1		)	(100	)	1
Other income	185			28			18		157		(10		)	(6	)	167
Total noninterest income	1,307			157			14		1,150		111			11		1,039
Personnel costs	1,524			175			13		1,349		227			20		1,122
Outside data processing and other services	313			8			3		305		74			32		231
Net occupancy	212			59			39		153		31			25		122
Equipment	171			6			4		165		40			32		125
Deposit and other insurance expense	78			24			44		54		9			20		45
Professional services	69			(36		)	(34	)	105		55			110		50
Marketing	60			(3		)	(5	)	63		11			21		52
Amortization of intangibles	56			26			87		30		2			7		28
Other expense	231			47			26		184		(17		)	(8	)	201
Total noninterest expense	2,714			306			13		2,408		432			22		1,976
Income before income taxes	1,394			474			52		920		6			1		914
Provision for income taxes	208			—			—		208		(13		)	(6	)	221
Net income	1,186			474			67		712		19			3		693
Dividends on preferred shares	76			11			17		65		33			103		32
Net income applicable to common shares	$	1,110		$	463		72	%	$	647	$	(14	)	(2	)%	$	661
Average common shares—basic (000)	1,084,686			180,248			20	%	904,438		101,026			13	%	803,412
Average common shares—diluted	1,136,186			217,396			24		918,790		101,661			12		817,129
Per common share:
Net income—basic	$	1.02		$	0.30		42	%	$	0.72	$	(0.10	)	(12	)%	$	0.82
Net income—diluted	1.00			0.30			43		0.70		(0.11		)	(14	)	0.81
Cash dividends declared	0.35			0.06			21		0.29		0.04			16		0.25
Revenue—FTE
Net interest income	$	3,002		$	633		27	%	$	2,369	$	418		21	%	$	1,951
FTE adjustment	50			7			16		43		11			34		32
Net interest income⁽²⁾	3,052			640			27		2,412		429			22		1,983
Noninterest income	1,307			157			14		1,150		111			11		1,039
Total revenue⁽²⁾	$	4,359		$	797		22	%	$	3,562	$	540		18	%	$	3,022


(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.

Table of Contents

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, 2017, 2016, and 2015 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 2017, $154 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 $0.09 per common share in 2017.


•	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, Inc., 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 Huntington Asset Advisors, Inc., Huntington Asset Services, Inc., and Unified Financial Services, Inc. This resulted in a net negative impact of $0.01 per common share in 2015.


2.	Federal tax reform-related tax benefit. Significant events relating to federal tax reform-related tax benefits, and the impacts of those events on our reported results, were as follows:


•	During 2017, $123 million of federal tax reform-related tax benefit was recorded as provision for income taxes. This resulted in a positive impact of $0.11 per common share in 2017.


3.	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, $38 million of net additions to litigation reserves were recorded as other noninterest expense. This resulted in a negative impact of $0.03 per common share in 2015.


4.	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 as non-interest expense. This resulted in a negative impact of $0.01 per common share in 2015.

Table of Contents

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 millions, except per share amounts)	2017						2016						2015
(dollar amounts in millions, except per share amounts)	Amount			EPS (1)			Amount			EPS (1)			Amount			EPS (1)
Net income	$	1,186					$	712					$	693
Earnings per share, after-tax				$	1.00					$	0.70					$	0.81

Significant items—favorable (unfavorable) impact:	Earnings			EPS			Earnings			EPS			Earnings			EPS

Federal tax reform-related tax benefit	$	—					$	—					$	—
Tax impact	123						—						—
Federal tax reform-related tax benefit, after-tax	$	123		$	0.11		$	—		$	—		$	—		$	—

Mergers and acquisitions, net expenses	$	(152	)				$	(282	)				$	(9	)
Tax impact	53						95						3
Mergers and acquisitions, after-tax	$	(99	)	$	(0.09	)	$	(187	)	$	(0.20	)	$	(6	)	$	(0.01	)

Litigation reserves	$	—					$	42					$	(38	)
Tax impact	—						(15		)				13
Litigation reserves, after-tax	$	—		$	—		$	27		$	0.03		$	(25	)	$	(0.03	)

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


(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.

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)
	2017								2016
(dollar amounts in millions)	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	$	423		$	234	$	657		$	332	$	88		$	420
Investment securities	157			6		163			105		(8		)	97
Other earning assets	(14		)	2		(12		)	12		(1		)	11
Total interest income from earning assets	566			242		808			449		79			528
Deposits	29			49		78			16		5			21
Short-term borrowings	7			13		20			—		3			3
Long-term debt	17			53		70			42		33			75
Total interest expense of interest-bearing liabilities	53			115		168			58		41			99
Net interest income	$	513		$	127	$	640		$	391	$	38		$	429


(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 of Contents



Table 5 - Consolidated Average Balance Sheet and Net Interest Margin Analysis
(dollar amounts in millions)	Average Balances
				Change from 2016								Change from 2015
Fully-taxable equivalent basis (1)	2017			Amount			Percent		2016			Amount			Percent		2015
Assets
Interest-bearing deposits in banks	$	99		$	(1	)	(1	)%	$	100		$	10		11	%	$	90
Securities:
Trading account securities	102			35			52		67			21			46		46
Available-for-sale and other securities:
Taxable	12,487			3,209			35		9,278			1,279			16		7,999
Tax-exempt	3,181			465			17		2,716			641			31		2,075
Total available-for-sale and other securities	15,668			3,674			31		11,994			1,920			19		10,074
Held-to-maturity securities—taxable	8,108			2,415			42		5,693			2,180			62		3,513
Total securities	23,878			6,124			34		17,754			4,121			30		13,633
Loans held for sale	555			(499		)	(47	)	1,054			400			61		654
Loans and leases: (2)
Commercial:
Commercial and industrial	27,749			4,065			17		23,684			3,950			20		19,734
Commercial real estate:
Construction	1,198			110			10		1,088			71			7		1,017
Commercial	6,010			1,091			22		4,919			709			17		4,210
Commercial real estate	7,208			1,201			20		6,007			780			15		5,227
Total commercial	34,957			5,266			18		29,691			4,730			19		24,961
Consumer:
Automobile loans and leases	11,519			979			9		10,540			1,780			20		8,760
Home equity	9,994			936			10		9,058			564			7		8,494
Residential mortgage	8,245			1,515			23		6,730			780			13		5,950
RV and marine finance	2,155			1,462			211		693			693			100		—
Other consumer	1,021			279			38		742			261			54		481
Total consumer	32,934			5,171			19		27,763			4,078			17		23,685
Total loans and leases	67,891			10,437			18		57,454			8,808			18		48,646
Allowance for loan and lease losses	(667		)	(53		)	9		(614		)	(8		)	1		(606		)
Net loans and leases	67,224			10,384			18		56,840			8,800			18		48,040
Total earning assets	92,423			16,061			21		76,362			13,339			21		63,023
Cash and due from banks	1,453			233			19		1,220			(3		)	—		1,223
Intangible assets	2,366			1,007			74		1,359			656			93		703
All other assets	5,446			719			15		4,727			510			12		4,217
Total assets	$	101,021		$	17,967		22	%	$	83,054		$	14,494		21	%	$	68,560
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits—noninterest-bearing	$	21,699		$	2,654		14	%	$	19,045		$	2,703		17	%	$	16,342
Demand deposits—interest-bearing	17,580			6,595			60		10,985			4,412			67		6,573
Total demand deposits	39,279			9,249			31		30,030			7,115			31		22,915
Money market deposits	19,735			666			3		19,069			(314		)	(2	)	19,383
Savings and other domestic deposits	11,697			3,716			47		7,981			2,761			53		5,220
Core certificates of deposit	2,119			(181		)	(8	)	2,300			(303		)	(12	)	2,603
Total core deposits	72,830			13,450			23		59,380			9,259			18		50,121
Other domestic time deposits of $250,000 or more	445			37			9		408			152			59		256
Brokered time deposits and negotiable CDs	3,675			176			5		3,499			746			27		2,753
Deposits in foreign offices	—			(204		)	(100	)	204			(298		)	(59	)	502
Total deposits	76,950			13,459			21		63,491			9,859			18		53,632
Short-term borrowings	2,923			1,393			91		1,530			184			14		1,346
Long-term debt	8,862			814			10		8,048			2,463			44		5,585
Total interest-bearing liabilities	67,036			13,012			24		54,024			9,803			22		44,221
All other liabilities	1,675			81			5		1,594			133			9		1,461
Shareholders’ equity	10,611			2,220			26		8,391			1,855			28		6,536
Total liabilities and shareholders’ equity	$	101,021		$	17,967		22	%	$	83,054		$	14,494		21	%	$	68,560


(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.

Table of Contents



Table 5 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)
(dollar amounts in millions)
	Interest Income / Expense						Average Rate (2)
Fully-taxable equivalent basis (1)	2017		2016		2015		2017		2016		2015
Assets
Interest-bearing deposits in banks	$	2	$	—	$	—	1.56	%	0.44	%	0.10	%
Securities:
Trading account securities	—		—		—		0.18		0.42		1.06
Available-for-sale and other securities:
Taxable	303		222		202		2.43		2.39		2.53
Tax-exempt	118		91		65		3.71		3.35		3.11
Total available-for-sale and other securities	421		313		267		2.69		2.61		2.65
Held-to-maturity securities—taxable	193		138		87		2.38		2.43		2.47
Total securities	614		451		354		2.57		2.54		2.60
Loans held for sale	21		35		24		3.75		3.27		3.64
Loans and leases: (2)
Commercial:
Commercial and industrial	1,142		879		700		4.12		3.71		3.55
Commercial real estate:
Construction	52		40		37		4.36		3.72		3.63
Commercial	240		176		147		4.00		3.57		3.48
Commercial real estate	292		216		184		4.06		3.60		3.51
Total commercial	1,434		1,095		884		4.11		3.69		3.54
Consumer:
Automobile loans and leases	412		351		282		3.58		3.32		3.22
Home equity	463		381		340		4.63		4.21		4.01
Residential mortgage	301		244		221		3.65		3.63		3.71
RV and marine finance	118		39		—		5.46		5.67		—
Other consumer	118		79		42		11.53		10.62		8.71
Total consumer	1,412		1,094		885		4.28		3.94		3.74
Total loans and leases	2,846		2,189		1,769		4.19		3.81		3.64
Total earning assets	$	3,483	$	2,675	$	2,147	3.77	%	3.50	%	3.41	%
Liabilities and Shareholders’ Equity
Deposits:
Demand deposits—noninterest-bearing	$	—	$	—	$	—	—	%	—	%	—	%
Demand deposits—interest-bearing	38		11		4		0.21		0.10		0.07
Total demand deposits	38		11		4		0.10		0.04		0.02
Money market deposits	66		46		43		0.33		0.24		0.22
Savings and other domestic deposits	24		15		7		0.21		0.19		0.14
Core certificates of deposit	13		13		21		0.60		0.56		0.79
Total core deposits	141		85		75		0.27		0.21		0.22
Other domestic time deposits of $250,000 or more	2		2		1		0.52		0.40		0.42
Brokered time deposits and negotiable CDs	37		15		5		1.00		0.43		0.17
Deposits in foreign offices	—		—		1		—		0.13		0.13
Total deposits	180		102		82		0.33		0.23		0.22
Short-term borrowings	25		5		2		0.86		0.34		0.12
Long-term debt	226		156		80		2.56		1.93		1.43
Total interest-bearing liabilities	431		263		164		0.64		0.48		0.37
Net interest income	$	3,052	$	2,412	$	1,983

Net interest rate spread							3.13		3.02		3.04
Impact of noninterest-bearing funds on margin							0.17		0.14		0.11
Net interest margin							3.30	%	3.16	%	3.15	%


(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.

Table of Contents

2017 versus 2016

Fully-taxable equivalent (FTE) net interest income for 2017 increased $640 million, or 27%, from 2016. This reflected the impact of 21% average earning asset growth, a 14 basis point increase in the NIM to 3.30%, partially offset by 24% average interest-bearing liability growth. Average earning asset growth included a $10.4 billion, or 18%, increase in average loans and leases and a $6.1 billion, or 34%, increase in average securities. The NIM expansion reflected a 27 basis point positive impact from the mix and yield on earning assets and a 3 basis point increase in the benefit from noninterest-bearing funding, partially offset by a 16 basis point increase in funding costs.

Average earning assets for 2017 increased $16.1 billion, or 21%, from the prior year, primarily reflecting the full year impact of the FirstMerit acquisition. Average loans and leases increased $10.4 billion, or 18%, including a $4.1 billion, or 17%, increase in average C&I loans and leases primarily driven by an increase in commercial middle market and specialty banking, a $1.5 billion, or 23%, increase in residential mortgage loans reflecting the benefit of the ongoing expansion of the home lending business, a $1.5 billion or 211%, increase in RV and marine finance loans reflecting the success of the well-managed expansion of the acquired business into 17 new states over the past year and a $1.0 billion, or 9%, increase in automobile loans reflecting continued strength in new and used automobile originations across our 23-state auto finance lending footprint. Average securities increased $6.1 billion, or 34%, which included $2.9 billion of direct purchase municipal instruments in our commercial banking segment, up from $2.1 billion in the year-ago period.

Average total deposits for 2017 increased $13.5 billion, or 21%, from the prior year, while average total core deposits increased $13.5 billion, or 23%, including a $9.2 billion, or 31%, increase in average demand deposits and a $3.7 billion, or 47%, increase in average savings and other domestic deposits. Average total interest-bearing liabilities increased $13.0 billion, or 24%, from the prior year. These increases primarily reflect the full year impact of the FirstMerit acquisition. Average long-term borrowings increased $0.8 billion, or 10%, reflecting the issuance of $1.7 billion and maturity of $0.8 billion of senior debt during 2017.

2016 versus 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 asset growth included $4.1 billion, or 30%, increase in average securities, a $4.0 billion, or 20% increase in average C&I loans and leases, and a $1.8 billion, or 20% increase in average automobile loans. The NIM expansion reflected a 9 basis point positive impact from the mix and yield on earning assets and a 3 basis point increase in the benefit from noninterest-bearing funding, partially offset by an 11 basis point increase in funding costs.

Average earning assets for 2016 increased $13.3 billion, or 21%, from the prior year, primarily reflecting the impact of the FirstMerit acquisition, as well as the reinvestment of cash flows and additional investment in LCR Level 1 qualifying securities. Average securities increased $4.1 billion, or 30%, which included $2.1 billion of direct purchase municipal instruments in our commercial banking segment, up from $1.7 billion in the year-ago period. Average C&I loans and leases increased $4.0 billion, or 20%, which reflected organic growth in equipment finance leases, automobile dealer floorplan lending, and corporate banking. Average automobile loans increased $1.8 billion, or 20% reflecting continued strength in new and used automobile originations, while maintaining our underwriting consistency and discipline. The increase 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%, from the prior year, while average total interest-bearing liabilities increased $9.8 billion, or 22%. Average interest-bearing demand deposits increased $4.4 billion, or 67%. Savings and other domestic deposits increased $2.8 billion, or 53%, reflecting continued banker focus across all segments on obtaining our customers' full deposit relationship. Average long-term debt increased $2.4 billion, or 44%, reflecting the issuance of $2.0 billion of senior debt during 2016, as well as $0.5 billion of subordinate debt assumed during the FirstMerit acquisition.

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 2017 was $201 million, up $10 million, or 5%, from 2016. The increase in provision expense over the prior year was primarily the result of loan growth.

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 continued transitioning of 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.

Table of Contents

Noninterest Income

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



Table 6 - Noninterest Income
	Year Ended December 31,
(dollar amounts in millions)				Change from 2016							Change from 2015
	2017			Amount			Percent		2016		Amount			Percent		2015
Service charges on deposit accounts	$	353		$	29		9	%	$	324	$	44		16	%	$	280
Cards and payment processing income	206			37			22		169		26			18		143
Trust and investment management services	156			33			27		123		7			6		116
Mortgage banking income	131			3			2		128		16			14		112
Insurance income	81			(3		)	(4	)	84		3			4		81
Capital markets fees	76			16			27		60		6			11		54
Bank owned life insurance income	67			9			16		58		6			12		52
Gain on sale of loans	56			9			19		47		14			42		33
Securities gains (losses)	(4		)	(4		)	(100	)	—		(1		)	(100	)	1
Other income	185			28			18		157		(10		)	(6	)	167
Total noninterest income	$	1,307		$	157		14	%	$	1,150	$	111		11	%	$	1,039

2017 versus 2016

Noninterest income for 2017 increased $157 million, or 14%, from the prior year, reflecting the full year impact of the FirstMerit acquisition. Card and payment processing income increased $37 million, or 22%, due to higher credit and debit card related income and underlying customer growth. Trust and investment management services increased $33 million, or 27%, and service charges on deposit accounts increased $29 million, or 9%, reflecting market growth and ongoing customer acquisition. Other income increased $28 million, or 18%, primarily reflecting increases in servicing income, mezzanine lending, loan syndication fees and commitment fees. Capital markets fees increased $16 million, or 27%, reflecting our ongoing strategic focus on expanding the business. Bank owned life insurance increased $9 million, or 16%. Gain on sale of loans increased $9 million, or 19%, as a result of continued expansion of our SBA lending business during 2017 which more than offset gains in the prior year from our balance sheet optimization strategy and the auto securitization completed in the 2016 fourth quarter. These increases were partially offset by a $4 million decline in securities gains and a $3 million decline in insurance income.

2016 versus 2015

Noninterest income for 2016 increased $111 million, or 11%, from the prior year, reflecting the impact of the FirstMerit acquisition. Service charges on deposit accounts increased $44 million, or 16%, reflecting the benefit of continued new customer acquisition. Card and payment processing income increased $26 million, or 18%, due to higher credit and debit card related income and underlying customer growth. Mortgage banking income increased $16 million, or 15%, reflecting a 24% increase in mortgage origination volume. Gain on sale of loans increased $14 million, or 43%, 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.

Table of Contents



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 7 - Noninterest Expense
	Year Ended December 31,
(dollar amounts in millions)			Change from 2016							Change from 2015
	2017		Amount			Percent		2016		Amount			Percent		2015
Personnel costs	$	1,524	$	175		13	%	$	1,349	$	227		20	%	$	1,122
Outside data processing and other services	313		8			3		305		74			32		231
Net occupancy	212		59			39		153		31			25		122
Equipment	171		6			4		165		40			32		125
Deposit and other insurance expense	78		24			44		54		9			20		45
Professional services	69		(36		)	(34	)	105		55			110		50
Marketing	60		(3		)	(5	)	63		11			21		52
Amortization of intangibles	56		26			87		30		2			7		28
Other expense	231		47			26		184		(17		)	(8	)	201
Total noninterest expense	$	2,714	$	306		13	%	$	2,408	$	432		22	%	$	1,976
Number of employees (average full-time equivalent)	15,770		1,912			14	%	13,858		1,615			13	%	12,243



Impact of Significant Items:
	Year Ended December 31,
(dollar amounts in millions)	2017		2016		2015
Personnel costs	$	42	$	76	$	5
Outside data processing and other services	24		46		4
Net occupancy	52		15		5
Equipment	16		25		—
Professional services	10		58		5
Marketing	1		5		—
Other expense	9		14		39
Total impact of significant items on noninterest expense	$	154	$	239	$	58



Adjusted Noninterest Expense (See Non-GAAP Financial Measures in the Additional Disclosures section):
	Year Ended December 31,
			Change from 2016						Change from 2015
(dollar amounts in millions)	2017		Amount		Percent		2016		Amount		Percent		2015
Personnel costs	$	1,482	$	209	16	%	$	1,273	$	156	14	%	$	1,117
Outside data processing and other services	289		30		12		259		32		14		227
Net occupancy	160		22		16		138		21		18		117
Equipment	155		15		11		140		15		12		125
Deposit and other insurance expense	78		24		44		54		9		20		45
Professional services	59		12		26		47		2		4		45
Marketing	59		1		2		58		6		12		52
Amortization of intangibles	56		26		87		30		2		7		28
Other expense	222		52		31		170		8		5		162
Total adjusted noninterest expense (Non-GAAP)	$	2,560	$	391	18	%	$	2,169	$	251	13	%	$	1,918

Table of Contents

2017 versus 2016

Reported noninterest expense for 2017 increased $306 million, or 13%, from the prior year, reflecting the full year impact of the First Merit acquisition. Personnel costs increased $175 million, or 13%, primarily reflecting the full year impact of the addition of colleagues from FirstMerit. Net occupancy expense increased $59 million, or 39%, primarily reflecting $52 million of acquisition-related expense. Other expense increased $47 million, or 26%, reflecting the full impact of FirstMerit. Amortization of intangibles increased $26 million, or 87%, reflecting the full year impact of amortizing FirstMerit related intangibles. Deposit and other insurance expense increased $24 million, or 44%, reflecting the increase in the assessment base. Partially offsetting these increases, professional services decreased $36 million, or 34% reflecting a reduction in legal and consultation fees partially attributable to acquisition-related expense.

2016 versus 2015

Reported noninterest expense for 2016 increased $432 million, or 22%, from the prior year. Personnel costs increased $227 million, or 20%, reflecting an 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. Outside data processing and other services increased $74 million, or 32%, reflecting $46 million of acquisition-related expense and ongoing technology investments. Professional services increased $55 million, or 110%, reflecting $58 million of acquisition-related expense. Equipment expense increased $40 million, or 32%, reflecting $25 million of acquisition-related expense. Net occupancy expense increased $31 million, or 25%, reflecting $15 million of acquisition-related expense. Partially offsetting these increases, other expense decreased $17 million, or 8% reflecting a $42 million reduction to litigation reserves which was predominately offset by a $40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to FirstMerit.

Provision for Income Taxes

(This section should be read in conjunction with Note 1 and Note 17 of the Notes to Consolidated Financial Statements.)

2017 versus 2016

The provision for income taxes was $208 million for 2017 and 2016. Both years included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, excess tax deductions for stock-based compensation, and capital losses. 2017 also includes a $123 million tax benefit related to the federal tax reform enacted on December 22, 2017, which is primarily attributed to the revaluation of net deferred tax liabilities at the lower statutory federal income tax rate. As of December 31, 2017 and 2016 there was no valuation allowance on federal deferred taxes. In 2017 and 2016 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, 2017, we had a net federal deferred tax liability of $57 million and a net state deferred tax asset of $25 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. While the statute of limitations remains open for tax years 2012 through 2016, the IRS has advised that tax years 2012 through 2014 will not be audited, and plans to begin the examination of the 2015 federal income tax return during the 2018 first quarter. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, Wisconsin and Illinois.

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, there was no valuation allowance on federal deferred taxes. In 2015, a $69 million reduction in the 2015 provision for federal income taxes was recorded for the portion of federal capital loss carryforward deferred tax assets 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 taxes, for the portion of state deferred tax assets and state net operating loss carryforwards that are more likely than not to be realized.

RISK MANAGEMENT AND CAPITAL

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.

Table of Contents

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

•

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.

•

The Risk Oversight Committee (ROC) 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.

•

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, information 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.

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.

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.

Table of Contents

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, 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 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.

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, 2017, our loans and leases totaled $70.1 billion, representing a $3.2 billion, or 5%, increase compared to $67.0 billion at December 31, 2016.

Total commercial loans and leases were $35.3 billion at December 31, 2017, and represented 51% 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.

Table of Contents

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 $34.8 billion at December 31, 2017, and represented 49% of our total loan and lease credit exposure. The consumer portfolio is comprised primarily of automobile loans, home equity 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 20% 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.

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 converts 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 34 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 credit cards, personal unsecured loans, and overdraft balances. We originate these products within our established set of credit policies and guidelines.

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



Table 8 - Loan and Lease Portfolio Composition
	At December 31,
(dollar amounts in millions)	2017				2016				2015				2014				2013
Commercial:
Commercial and industrial	$	28,107	40	%	$	28,059	42	%	$	20,560	41	%	$	19,033	40	%	$	17,594	41	%
Commercial real estate:
Construction	1,217		2		1,446		2		1,031		2		875		2		557		1
Commercial	6,008		9		5,855		9		4,237		8		4,322		9		4,293		10
Commercial real estate	7,225		11		7,301		11		5,268		10		5,197		11		4,850		11
Total commercial	35,332		51		35,360		53		25,828		51		24,230		51		22,444		52
Consumer:
Automobile	12,100		17		10,969		16		9,481		19		8,690		18		6,639		15
Home equity	10,099		14		10,106		15		8,471		17		8,491		18		8,336		19
Residential mortgage	9,026		13		7,725		12		5,998		12		5,831		12		5,321		12
RV and marine finance	2,438		3		1,846		3		—		—		—		—		—		—
Other consumer	1,122		2		956		1		563		1		414		1		380		2
Total consumer	34,785		49		31,602		47		24,513		49		23,426		49		20,676		48
Total loans and leases	$	70,117	100	%	$	66,962	100	%	$	50,341	100	%	$	47,656	100	%	$	43,120	100	%

Table of Contents

Our loan portfolio is composed of a managed mix of consumer and commercial credits. At the corporate level, we manage the overall 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 maximum exposure limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE 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. There are no identified concentrations that exceed the assigned exposure limit. 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 industry type. The changes in industry composition from December 31, 2016 are consistent with the portfolio growth metrics.



Table 9 - Loan and Lease Portfolio by Industry Type
(dollar amounts in millions)	December 31, 2017				December 31, 2016
Commercial loans and leases:
Real estate and rental and leasing	$	7,378	11	%	$	7,545	11	%
Retail trade (1)	4,886		7		4,758		7
Manufacturing	4,791		7		4,937		7
Finance and insurance	3,044		4		2,010		3
Health care and social assistance	2,664		4		2,729		4
Wholesale trade	2,291		3		2,071		3
Accommodation and food services	1,617		2		1,678		3
Other services	1,296		2		1,223		2
Professional, scientific, and technical services	1,257		2		1,264		2
Transportation and warehousing	1,243		2		1,366		2
Construction	976		1		875		1
Mining, quarrying, and oil and gas extraction	694		1		668		1
Arts, entertainment, and recreation	593		1		556		1
Admin./Support/Waste Mgmt. and Remediation Services	561		1		429		1
Educational services	504		1		501		1
Information	467		1		473		1
Utilities	389		1		470		1
Public administration	255		—		272		—
Agriculture, forestry, fishing and hunting	172		—		151		—
Unclassified/Other	163		—		1,288		2
Management of companies and enterprises	91		—		96		—
Total commercial loans and leases by industry category	35,332		51	%	35,360		53	%
Automobile	12,100		17		10,969		16
Home Equity	10,099		14		10,106		15
Residential mortgage	9,026		13		7,725		12
RV and marine finance	2,438		3		1,846		3
Other consumer loans	1,122		2		956		1
Total loans and leases	$	70,117	100	%	$	66,962	100	%


(1)	Amounts include $3.2 billion of auto dealer services loans at both December 31, 2017 and December 31, 2016.

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 centralized preview and loan approval committees, led by our credit officers. The risk rating (see next paragraph), size, and complexity of the credit determines the threshold for approval. For loans not requiring 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

Table of Contents

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.

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.

The C&I portfolio continues to have solid origination activity while we maintain a focus on high quality originations. Problem loans had trended downward over the last several years, reflecting a combination of proactive risk identification and effective workout strategies implemented by the SAD department. 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 pre-leased. 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

Table of Contents

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.

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.

Huntington underwrites all residential mortgage 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.

Table of Contents

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 2017 reflected continued overall positive results with stable levels of delinquencies and a 19% decline in NPAs from the prior year. Total NCOs were $159 million or 0.23% of average total loans and leases, an increase from $109 million or 0.19% in the prior year. This was driven by an increase in losses in the Consumer portfolio, as expected based on portfolio growth. The ALLL to total loans and leases ratio increased by 4 basis points to 0.99% while the ACL to total loans and leases ratio increased by 1 basis point to 1.11%, reflecting 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 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 $190 million of CRE and C&I-related NALs at December 31, 2017, $108 million, or 57%, 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, RV and marine finance 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 10 - Nonaccrual Loans and Leases and Nonperforming Assets
	December 31,
(dollar amounts in millions)	2017			2016			2015			2014			2013
Nonaccrual loans and leases (NALs):
Commercial and industrial	$	161		$	234		$	175		$	72		$	57
Commercial real estate	29			20			29			48			73
Automobile	6			6			7			5			6
Residential mortgage	84			91			95			96			120
RV and marine finance	1			—			—			—			—
Home equity	68			72			66			79			66
Other consumer	—			—			—			—			—
Total nonaccrual loans and leases	349			423			372			300			322
Other real estate, net:
Residential	24			31			24			29			23
Commercial	9			20			3			6			4
Total other real estate, net	33			51			27			35			27
Other NPAs (1)	7			7			—			3			3
Total nonperforming assets	$	389		$	481		$	399		$	338		$	352

Nonaccrual loans and leases as a % of total loans and leases	0.50		%	0.63		%	0.74		%	0.63		%	0.75		%
NPA ratio (2)	0.55			0.72			0.79			0.71			0.82


(1)	Other nonperforming assets represent an investment security backed by a municipal bond for all periods presented.


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

2017 versus 2016

Total NPAs decreased by $92 million, or 19%, compared with December 31, 2016 primarily as a result of a $73 million, or 31%, decline in C&I NALs and a $18 million, or 35%, decline in OREO. The C&I decline was a result of payoffs and return to accrual of

Table of Contents

large relationships that were identified as NAL in the fourth quarter of 2016. The OREO decline was a result of reductions in both Commercial and Residential OREO properties.

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



Table 11 - Accruing Past Due Loans and Leases
	December 31,
(dollar amounts in millions)	2017			2016			2015			2014			2013
Accruing loans and leases past due 90 days or more:
Commercial and industrial (1)	$	9		$	18		$	9		$	5		$	15
Commercial real estate (2)	3			17			10			19			39
Automobile	7			10			7			5			5
Residential mortgage (excluding loans guaranteed by the U.S. Government)	21			15			14			33			2
RV and marine finance	1			1			—			—			—
Home equity	18			12			9			12			14
Other consumer	5			4			1			1			1
Total, excl. loans guaranteed by the U.S. Government	64			77			50			75			76
Add: loans guaranteed by U.S. Government	51			52			56			55			88
Total accruing loans and leases past due 90 days or more, including loans guaranteed by the U.S. Government	$	115		$	129		$	106		$	130		$	164
Ratios:
Excluding loans guaranteed by the U.S. Government, as a percent of total loans and leases	0.09		%	0.12		%	0.10		%	0.16		%	0.18		%
Guaranteed by U.S. Government, as a percent of total loans and leases	0.07			0.08			0.11			0.12			0.20
Including loans guaranteed by the U.S. Government, as a percent of total loans and leases	0.16			0.19			0.21			0.27			0.38


(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 75% of the $489 million of accruing TDRs secured by residential real estate (Residential mortgage and Home equity in Table 12) are current on their required payments. There is very limited migration from the accruing to non-accruing components, and virtually all of the charge-offs come from the non-accruing TDR balances.

Table of Contents

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



Table 12 - Accruing and Nonaccruing Troubled Debt Restructured Loans
(dollar amounts in millions)	December 31,
	2017		2016		2015		2014		2013
TDRs—accruing:
Commercial and industrial	$	300	$	210	$	236	$	117	$	84
Commercial real estate	78		77		115		177		205
Automobile	30		26		25		26		31
Home equity	265		270		199		252		188
Residential mortgage	224		243		265		265		305
RV and marine finance	1		—		—		—		—
Other consumer	8		4		4		4		1
Total TDRs—accruing	906		830		844		841		814
TDRs—nonaccruing:
Commercial and industrial	82		107		57		21		7
Commercial real estate	15		5		17		25		24
Automobile	4		5		6		5		6
Home equity	28		28		21		27		21
Residential mortgage	55		59		72		69		83
RV and marine finance	—		—		—		—		—
Other consumer	—		—		—		—		—
Total TDRs—nonaccruing	184		204		173		147		141
Total TDRs	$	1,090	$	1,034	$	1,017	$	988	$	955

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 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.

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

Table of Contents

unfunded portion of the loan exposures adjusted by an applicable funding expectation. (see Note 1 of the Notes to Consolidated Financial Statements).

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 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.

Table of Contents

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



Table 13 - Summary of Allowance for Credit Losses
(dollar amounts in millions)	Year Ended December 31,
	2017			2016			2015			2014			2013
ALLL, beginning of year	$	638		$	598		$	605		$	648		$	769
Loan and lease charge-offs
Commercial:
Commercial and industrial	(68		)	(77		)	(80		)	(77		)	(46		)
Commercial real estate:
Construction	2			(2		)	(2		)	(6		)	(10		)
Commercial	(6		)	(14		)	(16		)	(19		)	(61		)
Commercial real estate	(4		)	(16		)	(18		)	(25		)	(71		)
Total commercial	(72		)	(93		)	(98		)	(102		)	(117		)
Consumer:
Automobile	(64		)	(50		)	(36		)	(30		)	(24		)
Home equity	(20		)	(26		)	(36		)	(54		)	(98		)
Residential mortgage	(11		)	(11		)	(16		)	(26		)	(34		)
RV and marine finance	(13		)	(3		)	—			—			—
Other consumer	(72		)	(44		)	(32		)	(35		)	(34		)
Total consumer	(180		)	(134		)	(120		)	(145		)	(190		)
Total charge-offs	(252		)	(227		)	(218		)	(247		)	(307		)
Recoveries of loan and lease charge-offs
Commercial:
Commercial and industrial	26			32			52			45			30
Commercial real estate:
Construction	3			4			3			4			3
Commercial	12			38			31			30			42
Total commercial real estate	15			42			34			34			45
Total commercial	41			74			86			79			75
Consumer:
Automobile	22			18			16			13			13
Home equity	15			17			16			18			16
Residential mortgage	5			5			6			6			7
RV and marine finance	3			—			—			—			—
Other consumer	7			4			6			6			7
Total consumer	52			44			44			43			43
Total recoveries	93			118			130			122			118
Net loan and lease charge-offs	(159		)	(109		)	(88		)	(125		)	(189		)
Provision for loan and lease losses	212			169			89			83			68
Allowance for assets sold and securitized or transferred to loans held for sale	—			(20		)	(8		)	(1		)	—
ALLL, end of year	691			638			598			605			648
AULC, beginning of year	98			72			61			63			41
(Reduction in) Provision for unfunded loan commitments and letters of credit losses	(11		)	22			11			(2		)	22
AULC recorded at acquisition	—			4			—			—			—
AULC, end of year	87			98			72			61			63
ACL, end of year	$	778		$	736		$	670		$	666		$	711

Table of Contents

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



Table 14 - Allocation of Allowance for Credit Losses (1)
(dollar amounts in millions)	December 31,
	2017				2016				2015				2014				2013
ACL
Commercial
Commercial and industrial	$	377	40	%	$	356	42	%	$	299	41	%	$	287	40	%	$	266	41	%
Commercial real estate	105		11		95		11		100		10		103		11		162		11
Total commercial	482		51		451		53		399		51		390		51		428		52
Consumer
Automobile	53		17		48		16		50		19		33		18		31		15
Home equity	60		14		65		15		84		17		96		18		111		19
Residential mortgage	21		13		33		12		42		12		47		12		40		12
RV and marine finance	15		3		5		3		—		—		—		—		—		—
Other consumer	60		2		36		1		23		1		39		1		38		2
Total consumer	209		49		187		47		199		49		215		49		220		48
Total ALLL	691		100	%	638		100	%	598		100	%	605		100	%	648		100	%
AULC	87				98				72				61				63
Total ACL	$	778			$	736			$	670			$	666			$	711
Total ALLL as % of:
Total loans and leases			0.99	%			0.95	%			1.19	%			1.27	%			1.50	%
Nonaccrual loans and leases			198				151				161				202				201
NPAs			178				133				150				179				184
Total ACL as % of:
Total loans and leases			1.11	%			1.10	%			1.33	%			1.40	%			1.65	%
Nonaccrual loans and leases			223				174				180				222				221
NPAs			200				153				168				197				202


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

2017 versus 2016

At December 31, 2017, the ALLL was $691 million or 0.99% of total loans and leases, compared to $638 million or 0.95% at December 31, 2016. The $53 million, or 8%, increase in the ALLL relates to a slight increase in Criticized/Classified loans in the Commercial portfolio coupled with the accounting treatment of the acquired portfolio, as well as increasing reserve levels related to growth and seasoning of the Other Consumer portfolio.

The ACL to total loans increased to 1.11% at December 31, 2017, compared to 1.10% at December 31, 2016. 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. The remaining balance is in delinquent status until a modification can be completed, or the loan goes through the foreclosure process.

Table of Contents

The following table reflects NCO detail for each of the last five years:



Table 15 - Net Loan and Lease Charge-offs
(dollar amounts in millions)	Year Ended December 31,
	2017			2016			2015			2014			2013
Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial	$	42		$	45		$	28		$	32		$	16
Commercial real estate:
Construction	(5		)	(2		)	(1		)	2			7
Commercial	(6		)	(24		)	(15		)	(11		)	19
Commercial real estate	(11		)	(26		)	(16		)	(9		)	26
Total commercial	31			19			12			23			42
Consumer:
Automobile	42			32			20			17			11
Home equity	5			9			20			37			82
Residential mortgage	6			6			10			20			27
RV and marine finance	10			2			—			—			—
Other consumer	65			41			26			28			27
Total consumer	128			90			76			102			147
Total net charge-offs	$	159		$	109		$	88		$	125		$	189

Net charge-offs - annualized percentages:
Commercial:
Commercial and industrial	0.15		%	0.19		%	0.14		%	0.18		%	0.10		%
Commercial real estate:
Construction	(0.36		)	(0.19		)	(0.08		)	0.16			1.10
Commercial	(0.10		)	(0.49		)	(0.37		)	(0.25		)	0.42
Commercial real estate	(0.15		)	(0.44		)	(0.32		)	(0.19		)	0.49
Total commercial	0.09			0.06			0.05			0.10			0.19
Consumer:
Automobile	0.36			0.30			0.23			0.23			0.19
Home equity	0.05			0.10			0.23			0.44			0.99
Residential mortgage	0.08			0.09			0.17			0.35			0.52
RV and marine finance	0.48			0.33			—			—			—
Other consumer	6.36			5.53			5.44			6.99			6.30
Total consumer	0.39			0.32			0.32			0.46			0.75
Net charge-offs as a % of average loans	0.23		%	0.19		%	0.18		%	0.27		%	0.45		%

In assessing NCO trends, it is helpful to understand the process of how commercial loans are treated as they deteriorate over time. The ALLL is established consistent with the level of risk associated with the commercial portfolio's original underwriting. As a part of our normal portfolio management process for commercial loans, loans within the portfolio are periodically reviewed and the ALLL is increased or decreased based on the updated risk ratings. For TDRs and individually assessed impaired loans, a specific reserve is established based on the discounted projected cash flows or collateral value of the specific loan. Charge-offs, if necessary, are generally recognized in a period after the specific ALLL is established. 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, except for TDRs. 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.

2017 versus 2016

NCOs increased $50 million, or 46%, in 2017. The increase was a function of expected higher losses in the Other Consumer portfolio and lower CRE recoveries. 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.

Table of Contents

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 and equity investments.

Interest Rate Risk

We actively manage interest rate risk, as changes in market interest rates may 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. The ALCO oversees market risk management, as well as the establishment of 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 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 risks.

Interest rate risk measurement is calculated and reported to the ALCO monthly and ROC at least quarterly. The reported information 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 economic value of equity at risk modeling sensitivity analysis (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 group. The treasury group uses a data warehouse to study interest rate risk at a transactional level and uses various ad-hoc reports to continuously refine assumptions. Assumptions and methodologies regarding administered rate liabilities (e.g., savings accounts, money market accounts 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. The ALCO uses EVE to study the impact of long-term cash flows on earnings and on capital. EVE involves discounting present values of all cash flows of on 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 16 - 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, 2017	-0.6	%	2.5	%	4.8	%
December 31, 2016	-1.0	%	2.7	%	5.6	%

Table of Contents

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.

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 shows that our balance sheet is asset sensitive at both December 31, 2017 and December 31, 2016.

As of December 31, 2017, we had $8.4 billion of notional value in receive-fixed cash flow swaps, which we use for asset and liability management purposes.



Table 17 - 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, 2017	-0.5	%	1.9	%	1.9	%
December 31, 2016	-0.6	%	0.9	%	0.2	%

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 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, 2017, we had a total of $202 million of capitalized MSRs representing the right to service $20.0 billion in mortgage loans. Of this $202 million, $11 million was recorded using the fair value method and $191 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 changes in the MSR value net of hedge-related trading activity in the mortgage banking income category of noninterest income. Changes in fair value between reporting dates are recognized 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, which may result in a lower probability of prepayments or impairment. MSR assets are included in servicing rights in the Consolidated Financial Statements.

Price Risk

Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, securities owned by our broker-dealer subsidiary, foreign exchange positions and equity investments. 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,

Table of Contents

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 96% of total deposits at December 31, 2017. 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 $14.1 billion as of December 31, 2017. 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 18 - Available-for-sale and other securities Portfolio Summary at Fair Value
(dollar amounts in millions)	At December 31,
	2017		2016		2015
U.S. Treasury, Federal agency, and other agency securities	$	10,413	$	10,752	$	4,643
Other	5,056		4,811		4,132
Total available-for-sale and other securities	$	15,469	$	15,563	$	8,775
Duration in years (1)	4.9		4.7		5.2


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

Table of Contents



Table 19 - Available-for-sale and other securities Portfolio Composition and Maturity
(dollar amounts in millions)	At December 31, 2017
	Amortized
	Cost		Fair Value		Yield (1)
U.S. Treasury, Federal agency, and other agency securities:
U.S. Treasury:
1 year or less	$	5	$	5	1.69	%
After 1 year through 5 years	—		—		—
After 5 years through 10 years	—		—		—
After 10 years	—		—		—
Total U.S. Treasury	5		5		1.69
Federal agencies:
Residential CMO
1 year or less	—		—		—
After 1 year through 5 years	1		1		2.87
After 5 years through 10 years	90		89		2.77
After 10 years	6,570		6,394		2.24
Total Residential CMO	6,661		6,484		2.25
Residential MBS
1 year or less	—		—		—
After 1 year through 5 years	6		6		3.60
After 5 years through 10 years	7		8		3.74
After 10 years	1,358		1,353		2.84
Residential MBS	1,371		1,367		2.84
Commercial MBS:
1 year or less	—		—		—
After 1 year through 5 years	23		22		1.92
After 5 years through 10 years	151		148		2.46
After 10 years	2,365		2,317		2.41
Commercial MBS	2,539		2,487		2.41
Other agencies:
1 year or less	2		2		2.83
After 1 year through 5 years	9		9		2.73
After 5 years through 10 years	58		59		2.58
After 10 years	—		—		—
Total other agencies	69		70		2.60
Total U.S. Treasury, Federal agency, and other agency securities	10,645		10,413		2.36
Municipal securities:
1 year or less	103		103		4.62
After 1 year through 5 years	1,140		1,134		3.58
After 5 years through 10 years	1,709		1,704		3.85
After 10 years	940		937		4.24
Total municipal securities	3,892		3,878		3.89
Asset-backed securities:
1 year or less	—		—		—
After 1 year through 5 years	80		80		2.55
After 5 years through 10 years	53		54		3.78
After 10 years	349		333		2.93
Total asset-backed securities	482		467		2.96
Corporate debt:
1 year or less	—		—		—
After 1 year through 5 years	73		74		3.59
After 5 years through 10 years	20		21		3.42
After 10 years	13		14		3.39
Total corporate debt	106		109		3.53
Other:
1 year or less	1		1		2.62
After 1 year through 5 years	1		1		3.01
After 5 years through 10 years	—		—		N/A
After 10 years	—		—		N/A
Non-marketable equity securities (2)	581		581		3.69
Mutual funds	18		18		N/A
Marketable equity securities (3)	1		1		N/A
Total other	602		602		3.57
Total available-for-sale and other securities	$	15,727	$	15,469	2.81	%

Table of Contents


(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 2017, the Federal Reserve reduced the dividend rate on FRB stock from 6% to 2.41%, 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.

Bank Liquidity and Sources of Funding

Our primary sources of funding for the Bank are retail and commercial core deposits. At December 31, 2017, these core deposits funded 70% of total assets (105% 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 $22 million and $23 million at December 31, 2017 and December 31, 2016, 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, 2017.



Table 20 - Maturity Schedule of time deposits, brokered deposits, and negotiable CDs
(dollar amounts in millions)	At December 31, 2017
	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	$	3,396	$	137	$	67	$	—	$	3,600
Other domestic time deposits of $100,000 or more and brokered deposits and negotiable CDs	$	3,575	$	198	$	194	$	186	$	4,153

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



Table 21 - Deposit Composition
(dollar amounts in millions)	At December 31,
	2017				2016				2015
By Type:
Demand deposits—noninterest-bearing	$	21,546	28	%	$	22,836	30	%	$	16,480	30	%
Demand deposits—interest-bearing	18,001		23		15,676		21		7,682		14
Money market deposits	20,690		27		18,407		24		19,792		36
Savings and other domestic deposits	11,270		15		11,975		16		5,246		9
Core certificates of deposit	1,934		3		2,535		3		2,382		4
Total core deposits:	73,441		96		71,429		94		51,582		93
Other domestic deposits of $250,000 or more	239		—		395		1		501		1
Brokered deposits and negotiable CDs	3,361		4		3,784		5		2,944		5
Deposits in foreign offices	—		—		—		—		268		1
Total deposits	$	77,041	100	%	$	75,608	100	%	$	55,295	100	%
Total core deposits:
Commercial	$	34,273	47	%	$	31,887	45	%	$	24,474	47	%
Consumer	39,168		53		39,542		55		27,108		53
Total core deposits	$	73,441	100	%	$	71,429	100	%	$	51,582	100	%

The Bank maintains borrowing capacity at the FHLB and the Federal Reserve Bank Discount Window. The Bank does not consider borrowing capacity from the Federal Reserve Bank Discount Window as a primary source of liquidity. Total loans pledged to the Federal Reserve Discount Window and the FHLB are $31.7 billion and $19.7 billion at December 31, 2017 and December 31, 2016, respectively.

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, 2017, total wholesale funding was $17.9 billion, an increase from $16.2 billion at December 31, 2016. The increase from prior year-end primarily relates to an increase in short-term borrowings and long-term debt, partially offset by a decrease in brokered time deposits and negotiable CDs, and domestic time deposits of $250,000 or more.

Table of Contents

Liquidity Coverage Ratio

At December 31, 2017, 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 22 - Maturity Schedule of Commercial Loans
(dollar amounts in millions)	At December 31, 2017
	One Year or Less			One to Five Years			After Five Years			Total			Percent of total
Commercial and industrial	$	7,334		$	15,829		$	4,944		$	28,107		80	%
Commercial real estate—construction	500			682			35			1,217			3
Commercial real estate—commercial	1,407			3,693			908			6,008			17
Total	$	9,241		$	20,204		$	5,887		$	35,332		100	%
Variable-interest rates	$	8,013		$	16,452		$	3,186		$	27,651		78	%
Fixed-interest rates	1,228			3,752			2,701			7,681			22
Total	$	9,241		$	20,204		$	5,887		$	35,332		100	%
Percent of total	26		%	57		%	17		%	100		%

At December 31, 2017, 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 $6.1 billion. There were no securities of a non-governmental single issuer that exceeded 10% of shareholders’ equity at December 31, 2017.

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, 2017 and December 31, 2016, the parent company had $1.6 billion and $1.8 billion, respectively, in cash and cash equivalents.

On January 17, 2018, the board of directors declared a quarterly common stock cash dividend of $0.11 per common share. The dividend is payable on April 2, 2018, to shareholders of record on March 19, 2018. Based on the current quarterly dividend of $0.11 per common share, cash demands required for common stock dividends are estimated to be approximately $118 million per quarter. On January 17, 2018, the board of directors declared a quarterly Series A, Series, B, Series, C, and Series D Preferred Stock dividend payable on April 16, 2018 to shareholders of record on April 1, 2018. 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 2017, the Bank returned capital totaling $426 million. Additionally, the Bank paid a preferred dividend of $45 million and common stock dividend of $254 million to the holding company. To meet any additional liquidity needs, the parent company may issue debt or equity securities from time to time.

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.

Table of Contents

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.



Table 23 - Contractual Obligations (1)
(dollar amounts in millions)	At December 31, 2017
	One Year or Less		1 to 3 Years		3 to 5 Years		More than 5 Years		Total
Deposits without a stated maturity	$	70,554	$	—	$	—	$	—	$	70,554
Certificates of deposit and other time deposits	4,016		1,314		962		195		6,487
Short-term borrowings	5,056		—		—		—		5,056
Long-term debt	2,688		3,016		2,798		833		9,335
Operating lease obligations	59		108		72		135		374
Purchase commitments	90		92		25		19		226


(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 a senior management Legal, Regulatory, and Compliance Committee and a senior level Third Party Risk Management 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

Table of Contents

Risk Management Committee. Potential concerns may be escalated to our ROC, as appropriate. Significant findings or issues are escalated by the Third Party Risk Management Committee to the Technology Committee.

The FirstMerit integration was inherently large and complex. Our objective for managing execution risk was to minimize impacts to daily operations. We established an 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 was established to assist in the oversight of the integration of people, systems, and processes of FirstMerit with Huntington. The systems' conversion is now complete.

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

Compliance Risk

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

Capital

(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.

Table of Contents

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.



Table 24 - Capital Under Current Regulatory Standards (transitional Basel III basis) (Non-GAAP)
(dollar amounts in millions, except per share amounts)	At December 31,
	2017			2016
CET 1 risk-based capital ratio:
Total shareholders’ equity	$	10,814		$	10,308
Regulatory capital adjustments:
Shareholders’ preferred equity and related surplus	(1,076		)	(1,076		)
Accumulated other comprehensive loss (income) offset	528			401
Goodwill and other intangibles, net of taxes	(2,200		)	(2,126		)
Deferred tax assets that arise from tax loss and credit carryforwards	(25		)	(21		)
CET 1 capital	8,041			7,486
Additional tier 1 capital
Shareholders’ preferred equity	1,076			1,076
Other	(7		)	(15		)
Tier 1 capital	9,110			8,547
LTD and other tier 2 qualifying instruments	869			932
Qualifying allowance for loan and lease losses	778			736
Tier 2 capital	1,647			1,668
Total risk-based capital	$	10,757		$	10,215
Risk-weighted assets (RWA)	$	80,340		$	78,263
CET 1 risk-based capital ratio	10.01		%	9.56		%
Other regulatory capital data:
Tier 1 leverage ratio	9.09			8.70
Tier 1 risk-based capital ratio	11.34			10.92
Total risk-based capital ratio	13.39			13.05
Tangible common equity / RWA ratio	9.31			8.92



Table 25 - Capital Adequacy—Non-Regulatory (Non-GAAP)
(dollar amounts in millions)	At December 31,
	2017			2016
Consolidated capital calculations:
Common shareholders’ equity	$	9,743		$	9,237
Preferred shareholders’ equity	1,071			1,071
Total shareholders’ equity	10,814			10,308
Goodwill	(1,993		)	(1,993		)
Other intangible assets	(346		)	(402		)
Other intangible asset deferred tax liability (1)	73			141
Total tangible equity	8,548			8,054
Preferred shareholders’ equity	(1,071		)	(1,071		)
Total tangible common equity	$	7,477		$	6,983
Total assets	$	104,185		$	99,714
Goodwill	(1,993		)	(1,993		)
Other intangible assets	(346		)	(402		)
Other intangible asset deferred tax liability (1)	73			141
Total tangible assets	$	101,919		$	97,460
Tangible equity / tangible asset ratio	8.39		%	8.26		%
Tangible common equity / tangible asset ratio	7.34			7.16


(1)	Other intangible assets are net of deferred tax liability.

Table of Contents

The following table presents certain regulatory capital data at both the consolidated and Bank levels for the past two years:



Table 26 - Regulatory Capital Data
		At December 31,
(dollar amounts in millions)		Basel III
		2017			2016
Total risk-weighted assets	Consolidated	$	80,340		$	78,263
	Bank	80,383			78,242
CET 1 risk-based capital	Consolidated	8,041			7,486
	Bank	8,856			8,153
Tier 1 risk-based capital	Consolidated	9,110			8,547
	Bank	9,727			9,086
Tier 2 risk-based capital	Consolidated	1,647			1,668
	Bank	1,790			1,732
Total risk-based capital	Consolidated	10,757			10,215
	Bank	11,517			10,818
Tier 1 leverage ratio	Consolidated	9.09		%	8.70		%
	Bank	9.70			9.29
CET 1 risk-based capital ratio	Consolidated	10.01			9.56
	Bank	11.02			10.42
Tier 1 risk-based capital ratio	Consolidated	11.34			10.92
	Bank	12.10			11.61
Total risk-based capital ratio	Consolidated	13.39			13.05
	Bank	14.33			13.83

At December 31, 2017, we maintained Basel III transitional capital ratios in excess of the well-capitalized standards established by the FRB.

CET1 risk-based capital ratio was 10.01% at December 31, 2017, up from 9.56% at December 31, 2016. The regulatory Tier 1 risk-based capital ratio was 11.34% compared to 10.92% at December 31, 2016. All capital ratios were impacted by positive earnings including the one-time tax benefit (see Significant Items) which resulted in a favorable impact on the ratios, partially offset by loan growth and the repurchase of $260 million of common stock during 2017.

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 $10.8 billion at December 31, 2017, an increase of $0.5 billion when compared with December 31, 2016.

On June 28, 2017, Huntington was notified by the Federal Reserve that it had no objection to Huntington's proposed capital actions included in Huntington's capital plan submitted in the 2017 CCAR. These actions included a 38% increase in quarterly dividend per common share to $0.11, starting in the fourth quarter of 2017, the repurchase of up to $308 million of common stock over the next four quarters (July 1, 2017 through June 30, 2018), subject to authorization by the board of directors, and maintaining dividends on the outstanding classes of preferred stock and trust preferred securities.

On July 19, 2017, the Board authorized the repurchase of up to $308 million of common stock over the four quarters through the 2018 second quarter. During 2017, Huntington purchased $260 million of common stock at an average cost of $13.38 per share. Purchases of common stock under the authorization may include open market purchases, privately negotiated transactions, and accelerated repurchase programs.

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

Table of Contents

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. There were 19.4 million common shares repurchased during 2017.

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 four major business segments: Consumer and Business Banking, Commercial Banking, Vehicle Finance, and Regional Banking and The Huntington Private Client Group (RBHPCG). The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.

We announced a change in our executive leadership team, which became effective at the end of 2017. As a result, Commercial Real Estate is now included as an operating unit in the Commercial Banking segment. During the 2017 second quarter, the previously reported Home Lending segment was included as an operating unit within the Consumer and Business Banking segment. Additionally, the Insurance operating unit previously included in Commercial Banking was realigned to RBHPCG during second quarter. Prior period results have been reclassified to conform to the current period presentation.

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

Revenue Sharing

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

Expense Allocation

The management accounting process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all four 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 four business segments.

Funds Transfer Pricing (FTP)

We use an active and centralized FTP methodology to attribute appropriate net interest 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). A new methodology for establishing FTP rates was adopted in 2017, therefore, prior period amounts have been restated to reflect the new methodology.

Net Income by Business Segment

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



Table 27 - Net Income (Loss) by Business Segment
	Year Ended December 31,
(dollar amounts in millions)	2017		2016			2015
Consumer and Business Banking	$	346	$	304		$	211
Commercial Banking	439		320			270
Vehicle Finance	146		126			93
RBHPCG	84		67			37
Treasury / Other	171		(105		)	82
Net income	$	1,186	$	712		$	693

Table of Contents

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 four 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 including the impact of our investment securities portfolios and the net impact of derivatives used to hedge interest rate sensitivity. Noninterest expense includes $154 million of FirstMerit acquisition-related expense, $123 million of Federal tax reform-related tax benefit, 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 28 - Key Performance Indicators for Consumer and Business Banking
	Year Ended December 31,						Change from 2016
(dollar amounts in millions unless otherwise noted)	2017			2016			Amount			Percent		2015
Net interest income	$	1,555		$	1,224		$	331		27	%	$	995
Provision for credit losses	110			68			42			62		45
Noninterest income	735			650			85			13		566
Noninterest expense	1,647			1,338			309			23		1,192
Provision for income taxes	187			164			23			14		113
Net income	$	346		$	304		$	42		14	%	$	211
Number of employees (average full-time equivalent)	8,616			7,466			1,150			15	%	6,523
Total average assets	$	25,620		$	21,291		$	4,329		20		$	18,744
Total average loans/leases	20,708			17,835			2,873			16		16,103
Total average deposits	45,515			36,726			8,789			24		30,396
Net interest margin	3.51		%	3.41		%	0.10		%	3		3.33		%
NCOs	$	104		$	74		$	30		41		$	68
NCOs as a % of average loans and leases	0.50		%	0.42		%	0.08		%	19	%	0.43		%

2017 versus 2016

Consumer and Business Banking, including Home Lending, reported net income of $346 million in 2017, an increase of $42 million, or 14%, compared to the prior year. Results reflect the full year impact of the FirstMerit acquisition. Segment net interest income increased $331 million, or 27%, primarily due to an increase in total average loans and deposits. The provision for credit losses increased $42 million, or 62%, driven by increased NCOs, as well as an increase in the allowance, primarily related to the other consumer loan and business banking portfolios. Noninterest income increased $85 million, or 13%, due to an increase in card and payment processing income and service charges on deposit accounts, which were driven by higher debit card-related transaction volumes and an increase in the number of households served. In addition, SBA loan sales gains contributed to improved noninterest income. Noninterest expense increased $309 million, or 23%, due to an increase in personnel and occupancy expense related to the full year impact from adding FirstMerit branches and colleagues. Higher processing costs related to transaction volumes, along with allocated expenses, also contributed to the increase in noninterest expense.

Home Lending, an operating unit of Consumer and Business Banking, reflects the result of the origination of mortgage loans less referral fees and net interest income for mortgage banking products distributed by the retail branch network and other business segments. Home Lending reported net income of $15 million in 2017, a decrease of $8 million, or 35%, compared to the year-ago period. While total revenues increased $8 million, or 5%, largely due to higher residential loan balances, this increase was offset by an increase in noninterest expenses of $18 million, or 15%, as a result of higher personnel costs related to the FirstMerit acquisition and higher origination volume. Income from lower origination spreads offset income from higher origination volume.

2016 versus 2015

Consumer and Business Banking reported net income of $304 million in 2016, compared with a net income of $211 million in 2015. The $93 million increase included a $23 million, or 51%, increase in provision for credit losses, an $84 million, or 15%, increase noninterest income, and a $229 million, or 23%, increase in net interest income partially offset by a $51 million, or 45%, increase in provision for income taxes and a $146 million, or 12%, increase in noninterest expense.

Home Lending reported net income of $23 million in 2016, an increase of $27 million, compared to the year-ago period. The $27 million increase included an $8 million, or 14% increase in net interest income, a $6 million decrease in provision for credit losses, and a $4 million, or 5% increase in noninterest income. Total noninterest expense decreased $24 million, or 16%, and provision for income taxes increased by $15 million. Results were impacted by the FirstMerit acquisition.

Table of Contents



Commercial Banking

Table 29 - Key Performance Indicators for Commercial Banking
	Year Ended December 31,						Change from 2016
(dollar amounts in millions unless otherwise noted)	2017			2016			Amount			Percent		2015
Net interest income	$	899		$	725		$	174		24	%	$	560
Provision for credit losses	28			79			(51		)	(65	)	16
Noninterest income	278			244			34			14		214
Noninterest expense	474			398			76			19		343
Provision for income taxes	236			172			64			37		145
Net income	$	439		$	320		$	119		37	%	$	270
Number of employees (average full-time equivalent)	1,227			1,075			152			14	%	896
Total average assets	$	31,363		$	26,899		$	4,464		17		$	21,652
Total average loans/leases	25,299			21,282			4,017			19		17,545
Total average deposits	21,116			17,355			3,761			22		15,273
Net interest margin	3.17		%	2.98		%	0.19		%	6		2.85		%
NCOs	$	1		$	2		$	(1	)	(50	)	$	(6	)
NCOs as a % of average loans and leases	—		%	0.01		%	(0.01		)%	(100	)%	(0.03		)%

2017 versus 2016

Commercial Banking reported net income of $439 million in 2017, an increase of $119 million, or 37%, compared with net income of $320 million in 2016. Results reflect the full year impact of the FirstMerit acquisition. Segment net interest income increased $174 million, or 24%, primarily due to an increase in both average loans and deposits combined with a 19 basis point increase in net interest margin. The provision for credit losses decreased $51 million, or 65%, driven by an improvement in energy related credits and a reduction in NCOs. Noninterest income increased $34 million, or 14%, largely driven by an increase in capital markets related revenues, equipment finance fee income net of a reduction in operating lease income and deposit service charges and other treasury management related income. Noninterest expense increased $76 million, or 19%, primarily due to an increase in personnel expense, allocated expenses, and amortization of intangibles, partially offset by a decrease in operating lease expense.

2016 versus 2015

Commercial Banking reported net income of $320 million in 2016, compared with net income of $270 million in 2015. The $50 million increase included a $165 million, or 29%, increase in net interest income, $30 million, or 14% increase in noninterest income, offset by a $55 million, or 16%, increase in noninterest expense and a $63 million, or 394%, increase in provision for credit losses.



Vehicle Finance

Table 30 - Key Performance Indicators for Vehicle Finance
	Year Ended December 31,						Change from 2016
(dollar amounts in millions unless otherwise noted)	2017			2016			Amount			Percent		2015
Net interest income	$	424		$	345		$	79		23	%	$	262
Provision (reduction in allowance) for credit losses	63			47			16			34		39
Noninterest income	14			14			—			—		13
Noninterest expense	150			118			32			27		93
Provision for income taxes	79			68			11			16		50
Net income	$	146		$	126		$	20		16	%	$	93
Number of employees (average full-time equivalent)	253			211			42			20	%	174
Total average assets	$	16,966		$	14,369		$	2,597		18		$	11,367
Total average loans/leases	16,936			14,089			2,847			20		11,138
Total average deposits	310			275			35			13		238
Net interest margin	2.50		%	2.40		%	0.10		%	4		2.31		%
NCOs	$	52		$	34		$	18		53		$	20
NCOs as a % of average loans and leases	0.31		%	0.24		%	0.07		%	29		0.18		%

Table of Contents

2017 versus 2016

Vehicle Finance reported net income of $146 million in 2017, an increase of $20 million, or 16%, compared with net income of $126 million in 2016. Results reflect the full year impact of the FirstMerit acquisition, partially offset by a higher provision for credit losses primarily reflecting the $18 million increase in NCOs compared to the prior year. Segment net interest income increased $79 million or 23%, due to both higher loan balances and a 10 basis point increase in the net interest margin reflecting the purchase accounting impact of the acquired loan portfolios. Noninterest income remained flat, while noninterest expense increased $32 million, or 27%, primarily due to an increase in personnel costs associated with retained FirstMerit colleagues and other allocated costs attributed to higher production and portfolio balance levels.

2016 versus 2015

Vehicle Finance reported net income of $126 million in 2016, compared with net income of $93 million in 2015. The $33 million increase included an $83 million, or 32%, increase in net interest income primarily due to a 26% increase in average loans and a 9 basis point increase in the net interest margin. This increase was partially offset by an $8 million, or 21%, increase in the provision for credit losses and an $18 million, or 36%, increase in the provision for income taxes.



Regional Banking and The Huntington Private Client Group

Table 31 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group
	Year Ended December 31,						Change from 2016
(dollar amounts in millions unless otherwise noted)	2017			2016			Amount			Percent		2015
Net interest income	$	184		$	152		$	32		21	%	$	125
Provision (reduction in allowance) for credit losses	—			(3		)	3			100		—
Noninterest income	188			177			11			6		174
Noninterest expense	243			229			14			6		241
Provision for income taxes	45			36			9			25		21
Net income	$	84		$	67		$	17		25	%	$	37
Number of employees (average full-time equivalent)	1,023			977			46			5	%	1,019
Total average assets	$	5,538		$	4,637		$	901		19		$	4,187
Total average loans/leases	4,853			4,141			712			17		3,763
Total average deposits	5,882			5,274			608			12		4,671
Net interest margin	3.21		%	2.91		%	0.30		%	10		2.66		%
NCOs	$	2		$	(2	)	$	4		200		$	5
NCOs as a % of average loans and leases	0.04		%	(0.05		)%	0.09		%	180		0.13		%
Total assets under management (in billions)—eop	$	18.3		$	16.9		$	1.4		8		$	16.3
Total trust assets (in billions)—eop	110.1			94.7			15.4			16		84.1

eop—End of Period.

2017 versus 2016

RBHPCG reported net income of $84 million in 2017, an increase of $17 million, or 25%, compared with a net income of $67 million in 2016. Results reflect the full year impact of the FirstMerit acquisition. Net interest income increased $32 million, or 21%, due to an increase in average total deposits and loans combined with a 30 basis point increase in net interest margin. The increase in average total loans was due to growth in commercial and portfolio mortgage loans, while the increase in average total deposits was due to growth in both interest checking accounts and balances. The provision for credit losses increased by $3 million, or 100%. Noninterest income increased $11 million, or 6%, primarily reflecting increased trust and investment management revenue as a result of an increase in trust assets and assets under management, largely from the FirstMerit acquisition. Noninterest expense increased $14 million, or 6%, as a result of increased personnel expenses and amortization of intangibles resulting from the FirstMerit acquisition.

2016 versus 2015

RBHPCG reported net income of $67 million in 2016, compared with a net income of $37 million in 2015. The $30 million increase included a $3 million, or 2%, increase in noninterest income, a $3 million decrease in the provision for credit losses, a $12 million, or 5% decrease in noninterest expense, partially offset by a $27 million, or 22%, increase in net interest income and a $15 million, or 71%, increase in provision for income taxes.

Table of Contents

RESULTS FOR THE FOURTH QUARTER

Earnings Discussion

In the 2017 fourth quarter, we reported net income of $432 million, an increase of $193 million, or 81%, from the 2016 fourth quarter. Diluted earnings per common share for the 2017 fourth quarter were $0.37, an increase of $0.17 from the year-ago quarter.



Table 32 - Significant Items Influencing Earnings Performance Comparison
(dollar amounts in millions, except per share amounts)

Three Months Ended:	Amount			EPS (1)
December 31, 2017—Net income	$	432
Earnings per share, after-tax				$	0.37

Federal tax reform-related tax benefit	$	—
Tax impact	123
Federal tax reform-related tax benefit, after-tax	$	123		$	0.11

	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


(1)	Based on average outstanding diluted common shares.

Net Interest Income / Average Balance Sheet

Fully-taxable equivalent (FTE) net interest income for the 2017 fourth quarter increased $34 million, or 5%, from the 2016 fourth quarter. This reflected the benefit from the $2.5 billion, or 3%, increase in average earning assets partially coupled with a 5 basis point improvement in the FTE net interest margin (NIM) to 3.30%. Average earning asset growth included a $2.5 billion, or 4%, increase in average loans and leases and a $1.9 billion, or 8%, increase in average securities, partially offset by a $1.9 billion, or 76%, decrease in average loans held for sale related to the balance sheet optimization activities executed in the year-ago quarter. The NIM expansion reflected a 23 basis point increase in earning asset yields and a 7 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 25 basis point increase in funding costs. The cost of interest-bearing deposits increased 14 basis points from the year-ago quarter. FTE net interest income during the 2017 fourth quarter included $24 million, or approximately 10 basis points, of purchase accounting impact compared to $42 million, or approximately 18 basis points, in the year-ago quarter.

Table of Contents



Table 33 - Average Earning Assets - 2017 Fourth Quarter vs. 2016 Fourth Quarter
	Fourth Quarter				Change
(dollar amounts in millions)	2017		2016		Amount			Percent
Loans/Leases
Commercial and industrial	$	27,445	$	27,727	$	(282	)	(1	)%
Commercial real estate	7,196		7,218		(22		)	—
Total commercial	34,641		34,945		(304		)	(1	)
Automobile	11,963		10,866		1,097			10
Home equity	10,027		10,101		(74		)	(1	)
Residential mortgage	8,809		7,690		1,119			15
RV and marine finance	2,405		1,844		561			30
Other consumer	1,095		959		136			14
Total consumer	34,299		31,460		2,839			9
Total loans/leases	68,940		66,405		2,535			4
Total securities	24,309		22,441		1,868			8
Loans held-for-sale and other earning assets	688		2,617		(1,929		)	(74	)
Total earning assets	$	93,937	$	91,463	$	2,474		3	%

Average earning assets for the 2017 fourth quarter increased $2.5 billion, or 3%, from the year-ago quarter. Average securities increased $1.9 billion, or 8%, primarily reflecting the reinvestment of proceeds of the $1.5 billion auto loan securitization completed in the year-ago quarter. Average total loans and leases increased $2.5 billion, or 4%. Average residential mortgage loans increased $1.1 billion, or 15%, reflecting the benefit of the ongoing expansion of the home lending business. Average automobile loans increased $1.1 billion, or 10%, reflecting continued strength in new and used automobile originations across our 23-state auto finance lending footprint. Average RV and marine finance loans increased $0.6 billion, or 30%, reflecting the success of the well-managed expansion of the acquired business into 17 new states over the past year. Partially offsetting these increases, average loans held for sale and other earning assets decreased $1.9 billion, or 74%, reflecting the balance sheet optimization strategy executed in the year-ago quarter.



Table 34 - Average Interest-Bearing Liabilities - 2017 Fourth Quarter vs. 2016 Fourth Quarter
	Fourth Quarter				Change
(dollar amounts in millions)	2017		2016		Amount			Percent
Deposits
Demand deposits: noninterest-bearing	$	21,745	$	23,250	$	(1,505	)	(6	)%
Demand deposits: interest-bearing	18,175		15,294		2,881			19
Total demand deposits	39,920		38,544		1,376			4
Money market deposits	20,731		18,618		2,113			11
Savings and other domestic deposits	11,348		12,272		(924		)	(8	)
Core certificates of deposit	1,947		2,636		(689		)	(26	)
Total core deposits	73,946		72,070		1,876			3
Other domestic deposits of $250,000 or more	400		391		9			2
Brokered deposits and negotiable CDs	3,391		4,273		(882		)	(21	)
Deposits in foreign offices	—		152		(152		)	(100	)
Total deposits	77,737		76,886		851			1
Short-term borrowings	2,837		2,628		209			8
Long-term debt	9,232		8,594		638			7
Total interest-bearing liabilities	$	68,061	$	64,858	$	3,203		5	%

Average total deposits for the 2017 fourth quarter increased $0.9 billion, or 1%, from the year-ago quarter, while average total core deposits increased $1.9 billion, or 3%. Average total interest-bearing liabilities increased $3.2 billion, or 5%, from the year-ago quarter. Average money market deposits increased $2.1 billion, or 11%, reflecting certain specialty banking relationships with expected deposit fluctuations and continued deepening of consumer relationships. Average demand deposits increased $1.4 billion, or 4%, comprised of a $1.3 billion, or 5%, increase in average commercial demand deposits and a $0.1 billion, or 1%, increase in average consumer demand deposits. The growth in commercial demand deposits reflected growth within interest bearing demand deposits. Average long-term debt increased $0.6 billion, or 7%, reflecting the issuance of $1.7 billion and maturity of $1.2 billion of senior debt over the past five quarters. On the other hand, average savings deposits

Table of Contents

decreased $0.9 billion, or 8%, primarily reflecting the deposit and branch divestiture completed during the year-ago quarter and runoff in acquired FirstMerit deposits. Average brokered deposits and negotiable CDs decreased $0.9 billion, or 21%.

Provision for Credit Losses

The provision for credit losses decreased to $65 million in the 2017 fourth quarter compared to $75 million in the 2016 fourth quarter.



Noninterest Income

Table 35 - Noninterest Income - 2017 Fourth Quarter vs. 2016 Fourth Quarter
	Fourth Quarter						Change
(dollar amounts in millions)	2017			2016			Amount			Percent
Service charges on deposit accounts	$	91		$	92		$	(1	)	(1	)%
Cards and payment processing income	53			49			4			8
Trust and management investment services	41			39			2			5
Mortgage banking income	33			38			(5		)	(13	)
Insurance income	21			21			—			—
Capital markets fees	23			19			4			21
Bank owned life insurance income	18			17			1			6
Gain on sale of loans	17			25			(8		)	(32	)
Securities gains (losses)	(4		)	(2		)	(2		)	(100	)
Other income	47			36			11			31
Total noninterest income	$	340		$	334		$	6		2	%

Noninterest income for the 2017 fourth quarter increased $6 million, or 2%, from the year-ago quarter. Other income increased $11 million, or 31%, primarily reflecting a $10 million benefit related to elevated derivative ineffectiveness recognized in the year-ago quarter and a $5 million increase in servicing income. Gain on sale of loans decreased $8 million, or 32%, primarily reflecting the $11 million of gains related to the balance sheet optimization strategy completed in the 2016 fourth quarter. Mortgage banking income decreased $5 million, or 13%, primarily reflecting a $6 million decrease from net mortgage servicing rights (MSR) risk management-related activities.

Table of Contents



Noninterest Expense

Table 36 - Noninterest Expense - 2017 Fourth Quarter vs. 2016 Fourth Quarter
	Fourth Quarter				Change
(dollar amounts in millions)	2017		2016		Amount			Percent
Personnel costs	$	373	$	360	$	13		4	%
Outside data processing and other services	71		89		(18		)	(20	)
Net occupancy	36		49		(13		)	(27	)
Equipment	36		60		(24		)	(40	)
Deposit and other insurance expense	19		16		3			19
Professional services	18		23		(5		)	(22	)
Marketing	10		21		(11		)	(52	)
Amortization of intangibles	14		14		—			—
Other expense	56		49		7			14
Total noninterest expense	$	633	$	681	$	(48	)	(7	)%
Number of employees (average full-time equivalent)	15,375		15,993		(618		)	(4	)%



Impacts of Significant Items:	Fourth Quarter
(dollar amounts in millions)	2017		2016
Personnel costs	$	—	$	(5	)
Outside data processing and other services	—		15
Net occupancy	—		7
Equipment	—		20
Professional services	—		9
Marketing	—		4
Other expense	—		3
Total noninterest expense adjustments	$	—	$	53



Adjusted Noninterest Expense (Non-GAAP):
	Fourth Quarter				Change
(dollar amounts in millions)	2017		2016		Amount			Percent
Personnel costs	$	373	$	365	$	8		2	%
Outside data processing and other services	71		74		(3		)	(4	)
Net occupancy	36		42		(6		)	(14	)
Equipment	36		40		(4		)	(10	)
Deposit and other insurance expense	19		16		3			19
Professional services	18		14		4			29
Marketing	10		17		(7		)	(41	)
Amortization of intangibles	14		14		—			—
Other expense	56		46		10			22
Total adjusted noninterest expense (Non-GAAP)	$	633	$	628	$	5		1	%

Reported noninterest expense for the 2017 fourth quarter decreased $48 million, or 7%, from the year-ago quarter, primarily reflecting the impact of Significant Items in the year-ago quarter. Net occupancy costs decreased $13 million, or 27%, primarily reflecting $7 million of acquisition-related Significant Items in the 2016 fourth quarter and the benefit of branch and corporate office consolidations completed during the past year. Marketing decreased $11 million, or 52%, primarily reflecting elevated marketing activities in the year-ago quarter related to the FirstMerit acquisition and timing of marketing campaigns within the 2017 calendar year. Personnel costs increased $13 million, or 4%, reflecting annual merit increases, higher medical claims, and $5 million of acquisition-related expense reversals in the year ago quarter. Other expense increased $7 million, or 14%, primarily reflecting the $6 million benefit related to the extinguishment of trust preferred securities in the 2016 fourth quarter.

Provision for Income Taxes

(This section should be read in conjunction with Note 1 and Note 17 of the Notes to Consolidated Financial Statements.)

The provision for income taxes in the 2017 fourth quarter was a $20 million benefit compared to $74 million expense in the 2016 fourth quarter. The effective tax rates for the 2017 fourth quarter and 2016 fourth quarter were (4.8%) and 23.6%

Table of Contents

respectively. Included in the 2017 fourth quarter results is $123 million tax benefit related to the TCJA enacted on December 22, 2017, primarily attributed to the revaluation of net deferred tax liabilities at the lower statutory federal income tax rate. At December 31, 2017, we had a net federal deferred tax liability of $57 million and a net state deferred tax asset of $25 million.

Credit Quality

NCOs

Net charge-offs (NCOs) decreased $3 million, or 7%, to $41 million. NCOs represented an annualized 0.24% of average loans and leases in the current quarter, down from 0.26% 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. The overall consumer credit metrics continue to perform as expected, with a modest seasonal impact evident across the portfolios. The commercial portfolios have performed consistently, with some quarter-to-quarter volatility as a result of the absolute low level of problem loans.

Nonaccrual loans and leases (NALs) of $349 million represented 0.50% of total loans and leases, down from 0.63% a year ago. The decrease in the NAL ratio reflected a 17% year-over-year decrease in NALs, more than offset by the impact of the 5% year-over-year increase in total loans. Nonperforming assets (NPAs) of $389 million represented 0.55% of total loans and leases and OREO, down from 0.72% a year ago. These ratios remained stable sequentially as the NAL ratio increased 1 basis point from the prior quarter, while the NPA ratio decreased 1 basis point.

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 increased to 1.11% from 1.10% a year ago, while the ACL as a percentage of period-end total NALs increased to 223% from 174%. We believe the level of the ACL is appropriate given the consistent improvement in the credit quality metrics and the current composition of the overall loan and lease portfolio.

Table of Contents



Table 37 - Selected Quarterly Financial Information (1)
	Three Months Ended
(dollar amounts in millions, except per share amounts)	December 31,			September 30,			June 30,			March 31,
	2017			2017			2017			2017
Interest income	$	894		$	873		$	846		$	820
Interest expense	124			115			101			91
Net interest income	770			758			745			729
Provision for credit losses	65			43			25			68
Net interest income after provision for credit losses	705			715			720			661
Total noninterest income	340			330			325			312
Total noninterest expense	633			680			694			707
Income before income taxes	412			365			351			266
Provision (benefit) for income taxes	(20		)	90			79			59
Net income	432			275			272			207
Dividends on preferred shares	19			19			19			19
Net income applicable to common shares	$	413		$	256		$	253		$	188
Common shares outstanding (000)
Average—basic	1,077,397			1,086,038			1,088,934			1,086,374
Average—diluted(2)	1,130,117			1,106,491			1,108,527			1,108,617
Ending	1,072,027			1,080,946			1,090,016			1,087,120
Book value per common share	$	9.09		$	8.91		$	8.79		$	8.62
Tangible book value per common share(3)	6.97			6.85			6.74			6.55
Per common share
Net income—basic	$	0.38		$	0.24		$	0.23		$	0.17
Net income—diluted	0.37			0.23			0.23			0.17
Cash dividends declared	0.11			0.08			0.08			0.08
Common stock price, per share
High(4)	$	14.93		$	14.05		$	13.79		$	14.74
Low(4)	13.04			12.14			12.23			12.37
Close	14.56			13.96			13.52			13.39
Average closing price	13.47			13.15			12.95			13.66
Return on average total assets	1.67		%	1.08		%	1.09		%	0.84		%
Return on average common shareholders’ equity	17.0			10.5			10.6			8.2
Return on average tangible common shareholders’ equity(5)	22.7			14.1			14.4			11.3
Efficiency ratio(6)	54.9			60.5			62.9			65.7
Effective tax rate	(4.8		)	24.7			22.4			22.2
Margin analysis-as a % of average earning assets(7)
Interest income(7)	3.83		%	3.78		%	3.75		%	3.70		%
Interest expense	0.53			0.49			0.44			0.40
Net interest margin(7)	3.30		%	3.29		%	3.31		%	3.30		%
Revenue—FTE
Net interest income	$	770		$	758		$	745		$	729
FTE adjustment	12			13			12			13
Net interest income(7)	782			771			757			742
Noninterest income	340			330			325			312
Total revenue(7)	$	1,122		$	1,101		$	1,082		$	1,054

Table of Contents



Table 38 - Selected Quarterly Capital Data (1)
	2017
Capital adequacy	December 31,			September 30,			June 30,			March 31,
Total risk-weighted assets(10)	$	80,340		$	78,631		$	78,366		$	77,559
Tier 1 leverage ratio (period end)(10)	9.09		%	8.96		%	8.98		%	8.76		%
CET 1 risk-based capital ratio(10)	10.01			9.94			9.88			9.74
Tier 1 risk-based capital ratio (period end)(10)	11.34			11.30			11.24			11.11
Total risk-based capital ratio (period end)(10)	13.39			13.39			13.33			13.26
Tangible common equity / tangible asset ratio(8)	7.34			7.42			7.41			7.28
Tangible equity / tangible asset ratio(9)	8.39			8.49			8.49			8.38
Tangible common equity / risk-weighted assets ratio(10)	9.31			9.41			9.37			9.18


(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 prior to December 31, 2017, 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)	Other intangible assets are net of deferred tax liability.


(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 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.


(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. (Non-GAAP)


(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.


(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.

Table of Contents



Table 39 - Selected Quarterly Financial Information (1)
	Three Months Ended
(dollar amounts in millions, except per share amounts)	December 31,			September 30,			June 30,			March 31,
	2016			2016			2016			2016
Interest income	$	815		$	694		$	566		$	557
Interest expense	80			69			60			54
Net interest income	735			625			506			503
Provision for credit losses	75			63			25			28
Net interest income after provision for credit losses	660			562			481			475
Total noninterest income	334			303			271			242
Total noninterest expense	681			713			523			491
Income before income taxes	313			152			229			226
Provision for income taxes	74			25			54			55
Net income	239			127			175			171
Dividends on preferred shares	19			18			20			8
Net income applicable to common shares	$	220		$	109		$	155		$	163
Common shares outstanding (000)
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 share	$	8.51		$	8.59		$	8.18		$	8.01
Tangible book value per 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	$	735		$	625		$	506		$	503
FTE adjustment	13			11			10			9
Net interest income(7)	748			636			516			512
Noninterest income	334			302			271			242
Total revenue(7)	$	1,082		$	938		$	787		$	754

Table of Contents



Table 40 - 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(10)	8.70		%	9.89		%	9.55		%	9.29		%
Tier 1 risk-based capital ratio(10)	9.56			9.09			9.80			9.73
Total risk-based capital ratio(10)	10.92			10.40			11.37			10.99
Tier 1 common risk-based capital ratio(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


(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 prior to December 31, 2017, 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)	Other intangible assets are net of deferred tax.


(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 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.


(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. (Non-GAAP)


(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.


(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.

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 Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; and 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.

Table of Contents

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, 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 periods through December 31, 2017. 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.

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.

Table of Contents

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 $778 million at December 31, 2017, 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, MSRs, derivatives, and certain short-term borrowings. At December 31, 2017, approximately $15.5 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 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.

Table of Contents

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 CDO preferred securities portfolio is subjected to a quarterly review of the projected cash flows. This review is supported with analysis from independent third parties, and is 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 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.

Table of Contents

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

(This section should be read in conjunction with Note 1 and Note 17 of the Notes to Consolidated Financial Statements.)

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; (2) our deferred federal and state income tax and related valuation accounts, 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. The net receivable balance and deferred tax accounts are presented as components of accrued income and other assets or accrued expenses and other liabilities in accordance with the asset or liability balance of the account.

On December 22, 2017, the President of the United States signed into law the TCJA. The legislation significantly changes U.S. tax law by, among other things, lowering the corporate income tax rate and changes to business-related exclusions. The TCJA permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. Accordingly, in the fourth quarter 2017 a tax benefit was recorded, based on estimates, for the effects of the TCJA.

The SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. SAB 118 describes three scenarios associated with a company’s status of accounting for the TCJA income tax reform: (1) a company reflects the income tax effects of the Act in which the accounting under ASC 740 is complete, (2) a company is able to determine a reasonable estimate for certain effects of tax reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply ASC 740, Income Taxes, based on the provisions of the tax laws in effect immediately prior to tax reform being enacted.

In the consolidated financial statements for the year ended December 31, 2017, the Company has recorded a benefit of $161 million for the effects of the change in tax law including all materially impacted items and for which the accounting under ASC 740 is complete. The Company made reasonable estimates resulting in $38 million of expense reported as a provisional amount. Provisional amounts would include, for example, reasonable estimates that give rise to new current or deferred taxes based on certain provisions within the TCJA, as well as adjustments to existing current or deferred taxes that existed prior to the TCJA’s enactment date. There were no items for which the Company was unable to make reasonable estimates for effects of the tax law change. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete no later than one year from date of enactment of the TCJA.

The impact of the TCJA was calculated using a process taking into account all available information. The amounts are considered to be estimates. Updates to the estimate will occur in the normal course, including as the Company receives additional information, upon the issuance of relevant tax legislative guidance, and resulting from actions the Company may take as a result of the TCJA.

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

Table of Contents

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.

Deferred Tax Assets

At December 31, 2017, we had a net federal deferred tax liability of $57 million and a net state deferred tax asset of $25 million. The federal net deferred tax liability includes a non-cash estimated write-down of our deferred tax liabilities and deferred tax assets as a result of the TCJA. 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, 2017, 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 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 2017 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.

Table of Contents

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 2017, 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, 2017. 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, 2017, 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, 2017 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 16, 2018

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Huntington Bancshares Incorporated

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Huntington Bancshares Incorporated and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 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, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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.

Table of Contents

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 16, 2018

We have served as the Company’s auditor since 2015.

Table of Contents

Huntington Bancshares Incorporated

Consolidated Balance Sheets



	December 31,
(dollar amounts in millions, except per share amounts)	2017			2016
Assets
Cash and due from banks	$	1,520		$	1,385
Interest-bearing deposits in banks	47			58
Trading account securities	86			133
Available-for-sale and other securities	15,469			15,563
Held-to-maturity securities	9,091			7,807
Loans held for sale (includes $413 and $438 respectively, measured at fair value)(1)	488			513
Loans and leases (includes $93 and $82 respectively, measured at fair value)(1)	70,117			66,962
Allowance for loan and lease losses	(691		)	(638		)
Net loans and leases	69,426			66,324
Bank owned life insurance	2,466			2,432
Premises and equipment	864			816
Goodwill	1,993			1,993
Other intangible assets	346			402
Servicing rights	238			226
Accrued income and other assets	2,151			2,062
Total assets	$	104,185		$	99,714
Liabilities and shareholders’ equity
Liabilities
Deposits in domestic offices
Demand deposits—noninterest-bearing	$	21,546		$	22,836
Interest-bearing	55,495			52,772
Deposits	77,041			75,608
Short-term borrowings	5,056			3,693
Long-term debt	9,206			8,309
Accrued expenses and other liabilities	2,068			1,796
Total liabilities	93,371			89,406
Commitments and contingencies (Note 21)
Shareholders’ equity
Preferred stock	1,071			1,071
Common stock	11			11
Capital surplus	9,707			9,881
Less treasury shares, at cost	(35		)	(27		)
Accumulated other comprehensive loss	(528		)	(401		)
Retained earnings (deficit)	588			(227		)
Total shareholders’ equity	10,814			10,308
Total liabilities and shareholders’ equity	$	104,185		$	99,714
Common shares authorized (par value of $0.01)	1,500,000,000			1,500,000,000
Common shares issued	1,075,294,946			1,088,641,251
Common shares outstanding	1,072,026,681			1,085,688,538
Treasury shares outstanding	3,268,265			2,952,713
Preferred stock, authorized shares	6,617,808			6,617,808
Preferred shares issued	2,702,571			2,702,571
Preferred shares outstanding	1,098,006			1,098,006


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

See Notes to Consolidated Financial Statements

Table of Contents

Huntington Bancshares Incorporated

Consolidated Statements of Income



	Year Ended December 31,
(dollar amounts in millions, except per share amounts)	2017			2016			2015
Interest and fee income:
Loans and leases	$	2,838		$	2,178		$	1,760
Available-for-sale and other securities
Taxable	303			223			202
Tax-exempt	77			59			42
Held-to-maturity securities	193			138			87
Other	22			34			24
Total interest income	3,433			2,632			2,115
Interest expense
Deposits	180			102			82
Short-term borrowings	25			5			2
Federal Home Loan Bank advances	—			—			1
Subordinated notes and other long-term debt	226			156			79
Total interest expense	431			263			164
Net interest income	3,002			2,369			1,951
Provision for credit losses	201			191			100
Net interest income after provision for credit losses	2,801			2,178			1,851
Service charges on deposit accounts	353			324			280
Cards and payment processing income	206			169			143
Trust and investment management services	156			123			116
Mortgage banking income	131			128			112
Insurance income	81			84			81
Capital markets fees	76			60			54
Bank owned life insurance income	67			58			52
Gain on sale of loans	56			47			33
Net gains on sales of securities	—			2			3
Impairment losses recognized in earnings on available-for-sale securities (a)	(4		)	(2		)	(2		)
Other Income	185			157			167
Total noninterest income	1,307			1,150			1,039
Personnel costs	1,524			1,349			1,122
Outside data processing and other services	313			305			231
Net occupancy	212			153			122
Equipment	171			165			125
Deposit and other insurance expense	78			54			45
Professional services	69			105			50
Marketing	60			63			52
Amortization of intangibles	56			30			28
Other expense	231			184			201
Total noninterest expense	2,714			2,408			1,976
Income before income taxes	1,394			920			914
Provision for income taxes	208			208			221
Net income	1,186			712			693
Dividends on preferred shares	76			65			32
Net income applicable to common shares	$	1,110		$	647		$	661
Average common shares—basic	1,084,686			904,438			803,412
Average common shares—diluted	1,136,186			918,790			817,129
Per common share:
Net income—basic	$	1.02		$	0.72		$	0.82
Net income—diluted	1.00			0.70			0.81
Cash dividends declared	0.35			0.29			0.25


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



Total OTTI losses	$	(4	)	$	(6	)	$	(3	)
Noncredit-related portion of loss recognized in OCI	—			4			1
Net impairment credit losses recognized in earnings	$	(4	)	$	(2	)	$	(2	)

See Notes to Consolidated Financial Statements

Table of Contents

Huntington Bancshares Incorporated

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
(dollar amounts in millions)	2017			2016			2015
Net income	$	1,186		$	712		$	693
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	2			1			13
Unrealized net gains (losses) on available-for-sale and other securities arising during the period, net of reclassification for net realized gains and losses	(39		)	(202		)	(20		)
Total unrealized gains (losses) on available-for-sale securities	(37		)	(201		)	(7		)
Unrealized gains on cash flow hedging derivatives, net of reclassifications to income	3			1			8
Change in accumulated unrealized gains (losses) for pension and other post-retirement obligations	—			25			(5		)
Other comprehensive loss, net of tax	(34		)	(175		)	(4		)
Comprehensive income	$	1,152		$	537		$	689

See Notes to Consolidated Financial Statements

Table of Contents

Huntington Bancshares Incorporated

Consolidated Statements of Changes in Shareholders’ Equity



															Accumulated
															Other			Retained
(dollar amounts in millions, 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, 2017
Balance, beginning of year	$	1,071	1,088,641		$	11	$	9,881		(2,953	)	$	(27	)	$	(401	)	$	(227	)	$	10,308
Net income																		1,186			1,186
Other comprehensive income (loss)															(34		)				(34		)
Repurchases of common stock			(19,430	)	—		(260		)												(260		)
Cash dividends declared:
Common ($0.35 per share)																		(379		)	(379		)
Preferred Series A ($85.00 per share)																		(31		)	(31		)
Preferred Series B ($39.11 per share)																		(1		)	(1		)
Preferred Series C ($58.76 per share)																		(6		)	(6		)
Preferred Series D ($62.50 per share)																		(38		)	(38		)
Recognition of the fair value of share-based compensation							92														92
Other share-based compensation activity			5,923		—		(10		)									(9		)	(19		)
TCJA, Reclassification from accumulated OCI to retained earnings															(93		)	93			—
Other			161		—		4			(315	)	(8		)				—			(4		)
Balance, end of year	$	1,071	1,075,295		$	11	$	9,707		(3,268	)	$	(35	)	$	(528	)	$	588		$	10,814

See Notes to Consolidated Financial Statements

Table of Contents

Huntington Bancshares Incorporated

Consolidated Statements of Changes in Shareholders’ Equity



													Accumulated
													Other			Retained
(dollar amounts in millions, 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	796,970	$	8	$	7,039	(2,041	)	$	(18	)	$	(226	)	$	(594	)	$	6,595
Net income																712			712
Other comprehensive income (loss)													(175		)				(175		)
FirstMerit Acquisition:
Issuance of common stock			285,425	3		2,764													2,767
Issuance of Series C preferred stock	100					4													104
Net proceeds from issuance of Series D preferred stock	585																		585
Cash dividends declared:
Common ($0.29 per share)																(275		)	(275		)
Preferred Series A ($85.00 per share)																(31		)	(31		)
Preferred Series B ($34.03 per share)																(1		)	(1		)
Preferred Series C ($26.28 per share)																(3		)	(3		)
Preferred Series D ($51.04 per share)																(31		)	(31		)
Recognition of the fair value of share-based compensation						66													66
Other share-based compensation activity			5,924	—		5										(4		)	1
Other			322	—		3		(912	)	(9		)				—			(6		)
Balance, end of year	$	1,071	1,088,641	$	11	$	9,881	(2,953	)	$	(27	)	$	(401	)	$	(227	)	$	10,308

See Notes to Consolidated Financial Statements

Table of Contents

Huntington Bancshares Incorporated

Consolidated Statements of Changes in Shareholders’ Equity



															Accumulated
															Other			Retained
(dollar amounts in millions, 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, 2015
Balance, beginning of year	$	386	813,136		$	8	$	7,222		(1,682	)	$	(14	)	$	(222	)	$	(1,052	)	$	6,328
Net income																		693			693
Other comprehensive income (loss)															(4		)				(4		)
Repurchase of common stock			(23,036	)	—		(252		)												(252		)
Cash dividends declared:
Common ($0.25 per share)																		(200		)	(200		)
Preferred Series A ($85.00 per share)																		(31		)	(31		)
Preferred Series B ($29.84 per share)																		(1		)	(1		)
Recognition of the fair value of share-based compensation							51														51
Other share-based compensation activity			6,784		—		16											(3		)	13
Other			86		—		2			(359	)	(4		)				—			(2		)
Balance, end of year	$	386	796,970		$	8	$	7,039		(2,041	)	$	(18	)	$	(226	)	$	(594	)	$	6,595

See Notes to Consolidated Financial Statements

Table of Contents

Huntington Bancshares Incorporated

Consolidated Statements of Cash Flows



	Year Ended December 31,
(dollar amounts in millions)	2017			2016			2015
Operating activities
Net income	$	1,186		$	712		$	693
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for credit losses	201			191			100
Depreciation and amortization	413			380			341
Share-based compensation expense	92			66			51
Deferred income tax expense	168			165			69
Net gains on sales of securities	—			(2		)	(3		)
Impairment losses recognized in earnings on available-for-sale securities	4			2			2
Net Change in:
Trading account securities	47			(96		)	5
Loans held for sale	12			(123		)	54
Accrued income and other assets	(420		)	(96		)	(234		)
Accrued expense and other liabilities	233			4			(35		)
Other, net	18			12			(10		)
Net cash provided by (used in) operating activities	1,954			1,215			1,033
Investing activities
Change in interest bearing deposits in banks	39			26			13
Cash paid for acquisition of a business, net of cash received	—			(133		)	(458		)
Proceeds from:
Maturities and calls of available-for-sale and other securities	1,946			2,113			1,908
Maturities and calls of held-to-maturity securities	1,054			1,212			595
Sales of available-for-sale securities	2,490			6,154			163
Purchases of available-for-sale securities	(5,418		)	(10,888		)	(4,507		)
Purchases of held-to-maturity securities	(1,356		)	—			(379		)
Net proceeds from sales of portfolio loans	603			2,981			1,304
Net loan and lease activity, excluding sales and purchases	(3,680		)	(3,951		)	(3,187		)
Purchases of premises and equipment	(194		)	(120		)	(93		)
Proceeds from sales of other real estate	38			50			36
Purchases of loans and leases	(405		)	(411		)	(334		)
Net cash paid for branch divestiture	—			(480		)	—
Other, net	17			2			10
Net cash provided by (used in) investing activities	(4,866		)	(3,445		)	(4,929		)
Financing activities
Increase (decrease) in deposits	1,433			(292		)	3,644
Increase (decrease) in short-term borrowings	1,371			1,900			(1,819		)
Sale of deposits	—			—			(48		)
Net proceeds from issuance of long-term debt	1,816			2,128			3,232
Maturity/redemption of long-term debt	(948		)	(1,275		)	(1,037		)
Dividends paid on preferred stock	(76		)	(54		)	(32		)
Dividends paid on common stock	(349		)	(245		)	(193		)
Repurchases of common stock	(260		)	—			(252		)
Proceeds from stock options exercised	11			17			19
Net proceeds from issuance of preferred stock	—			585			—
Net proceeds from issuance of secured financing	75			—			—
Payments related to tax-withholding for share based compensation awards	(26		)	—			—
Other, net	—			4			8
Net cash provided by (used) financing activities	3,047			2,768			3,522
Increase (decrease) in cash and cash equivalents	135			538			(374		)
Cash and cash equivalents at beginning of period	1,385			847			1,221
Cash and cash equivalents at end of period	$	1,520		$	1,385		$	847


	Year Ended December 31,
(dollar amounts in millions)	2017			2016			2015
Supplemental disclosures:
Interest paid	$	409		$	241		$	150
Income taxes paid	84			5			154
Non-cash activities:
Common stock issued to acquire FirstMerit	—			2,767			—
Preferred stock issued to acquire FirstMerit	—			104			—
Loans transferred to held-for-sale from portfolio	660			3,437			1,727
Loans transferred to portfolio from held-for-sale	12			482			278
Transfer of loans to OREO	29			79			25
Transfer of securities to held-to-maturity from available-for-sale	993			2,870			3,000

Table of Contents

Huntington Bancshares Incorporated

Notes to Consolidated Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations — Huntington Bancshares Incorporated (Huntington or the Company) is a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries, including its bank subsidiary, The Huntington National Bank (the Bank), Huntington is engaged in providing full-service commercial, small business, consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment leasing, investment management, trust services, brokerage services, customized insurance programs, and other financial products and services. Huntington’s banking offices are located in Ohio, Illinois, Michigan, Pennsylvania, Indiana, West Virginia, Wisconsin and 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.

Basis of Presentation — The Consolidated Financial Statements include the accounts of Huntington and its majority-owned subsidiaries and are presented in accordance with GAAP. All intercompany transactions and balances have been eliminated in consolidation. Companies in which Huntington holds more than a 50% voting equity interest, or a controlling financial interest, or are a VIE in which Huntington has the power to direct the activities of an entity that most significantly impact the entity’s economic performance and has an obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE are consolidated. VIEs are legal entities with insubstantial equity, whose equity investors lack the ability to make decisions about the entity’s activities, or whose equity investors do not have the obligation to absorb losses or the right to receive the residual returns of the entity if they occur. VIEs in which Huntington does not hold the power to direct the activities of the entity that most significantly impact the entity’s economic performance or does not have an obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE are not consolidated. For consolidated entities where Huntington holds less than a 100% interest, Huntington recognizes non-controlling interest (included in shareholders’ equity) for the equity held by others and non-controlling profit or loss (included in noninterest expense) for the portion of the entity’s earnings attributable to other’s interests. Investments in companies that are not consolidated are accounted for using the equity method when Huntington has the ability to exert significant influence. Those investments in nonmarketable securities for which Huntington does not have the ability to exert significant influence are generally accounted for using the cost method. Investments in private investment partnerships that are accounted for under the equity method or the cost method are included in Accrued income and other assets and Huntington’s proportional interest in the equity investments’ earnings are included in other noninterest income. Investment interests accounted for under the cost and equity methods are periodically evaluated for impairment.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that significantly affect amounts reported in the Consolidated Financial Statements. Huntington utilizes processes that involve the use of significant estimates and the judgments of management in determining the amount of its allowance for credit losses, income taxes, deferred tax, and contingent liabilities, as well as fair value measurements of investment securities, derivatives, goodwill, other intangible assets, pension assets and liabilities, short-term borrowings, mortgage servicing rights, and loans held for sale. As with any estimate, actual results could differ from those estimates.

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

Certain prior period amounts have been reclassified to conform to the current year’s presentation.

Resale and Repurchase Agreements — Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The fair value of collateral either received from or provided to a third-party is continually monitored and additional collateral is obtained or requested to be returned to Huntington in accordance with the agreement.

Securities — Securities purchased with the intention of recognizing short-term profits or which are actively bought and sold are classified as trading account securities and reported at fair value. The unrealized gains or losses on trading account securities are recorded in other noninterest income, except for gains and losses on trading account securities used to economically hedge the fair value of MSRs, which are included in mortgage banking income. Debt securities purchased in which Huntington has the positive intent and ability to hold to their maturity are classified as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost. All other debt and equity securities are classified as available-for-sale and other securities. Unrealized gains or losses on available-for-sale and other securities are reported as a separate component of accumulated OCI in the Consolidated Statements of Changes in Shareholders’ Equity. Credit-related declines in the value of debt securities that are considered OTTI are recorded in noninterest income.

Huntington evaluates its investment securities portfolio on a quarterly basis for indicators of OTTI. Huntington assesses whether OTTI has occurred when the fair value of a debt security is less than the amortized cost basis at the balance sheet date. Management reviews the amount of unrealized loss, the length of time the security has been in an unrealized loss position, the credit rating history,

Table of Contents

market trends of similar security classes, time remaining to maturity, and the source of both interest and principal payments to identify securities which could potentially be impaired. For those debt securities that Huntington intends to sell or is more likely than not required to sell, before the recovery of their amortized cost bases, the difference between fair value and amortized cost is considered to be OTTI and is recognized in noninterest income. For those debt securities that Huntington does not intend to sell or is not more likely than not required to sell, prior to expected recovery of amortized cost bases, the credit portion of the OTTI is recognized in noninterest income while the noncredit portion is recognized on OCI. In determining the credit portion, Huntington uses a discounted cash flow analysis, which includes evaluating the timing and amount of the expected cash flows. Non-credit-related OTTI results from other factors, including increased liquidity spreads and higher interest rates. Presentation of OTTI is made in the Consolidated Statements of Income on a gross basis with a reduction for the amount of OTTI recognized in OCI.

Securities transactions are recognized on the trade date (the date the order to buy or sell is executed). The carrying value plus any related accumulated OCI balance of sold securities is used to compute realized gains and losses. Interest and dividends on securities, including amortization of premiums and accretion of discounts using the effective interest method over the period to maturity, are included in interest income.

Nonmarketable equity securities include stock acquired for regulatory purposes, such as FHLB stock and FRB stock. These securities are accounted for at cost, evaluated for impairment, and included in available-for-sale and other securities.

Loans and Leases — Loans and direct financing leases for which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Consolidated Balance Sheets as loans and leases. Except for purchase credit impaired loans and loans for which the fair value option has been elected, loans and leases are carried at the principal amount outstanding, net of charge-offs, unamortized deferred loan origination fees and costs, premiums and discounts, and unearned income. Direct financing leases are reported at the aggregate of lease payments receivable and estimated residual values, net of unearned and deferred income. Interest income is accrued as earned using the interest method based on unpaid principal balances. Huntington defers the fees it receives from the origination of loans and leases, as well as the direct costs of those activities. Huntington also acquires loans at a premium and at a discount to their contractual values. Except for purchased credit impaired loans, Huntington amortizes loan discounts, premiums, and net loan origination fees and costs over the contractual lives of the related loans using the effective interest method.

Troubled debt restructurings are loans for which the original contractual terms have been modified to provide a concession to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs. Modifications resulting in troubled debt restructurings may include changes to one or more terms of the loan, including but not limited to, a change in interest rate, an extension of the repayment period, a reduction in payment amount, and partial forgiveness or deferment of principal or accrued interest.

Residual values on leased equipment are evaluated quarterly for impairment. Impairment of the residual values of direct financing leases determined to be other than temporary is recognized by writing the leases down to fair value with a charge to other noninterest expense. Leased equipment residual value impairment will arise if the expected fair value is less than the carrying amount, net of estimated amounts reimbursable by the lessee. Future declines in the expected residual value of the leased equipment would result in expected losses of the leased equipment.

For leased equipment, the residual component of a direct financing lease represents the estimated fair value of the leased equipment at the end of the lease term. Huntington uses industry data, historical experience, and independent appraisals to establish these residual value estimates. Additional information regarding product life cycle, product upgrades, as well as insight into competing products are obtained through relationships with industry contacts and are factored into residual value estimates where applicable.

Loans Held for Sale — Loans in which Huntington does not have the intent and ability to hold for the foreseeable future are classified as loans held for sale. Loans held for sale (excluding loans originated or acquired with the intent to sell, which are carried at fair value) are carried at the lower of cost or fair value less cost to sell. The fair value option is generally elected for mortgage loans held for sale to facilitate hedging of the loans. 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.

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

The appropriateness of the ACL is based on management’s current judgments about the credit quality of the loan portfolio. These judgments consider on-going evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. Further, management evaluates the

Table of Contents

impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet their financial obligations when quantifying our exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In addition to general economic conditions and the other factors described above, additional factors also considered include: the impact of increasing or decreasing commercial real estate values and the development of new or expanded Commercial business segments.

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

In the case of more homogeneous portfolios, such as automobile loans, home equity loans, and residential mortgage loans, the determination of the transaction reserve also incorporates PD and LGD factors. The estimate of loss is based on pools of loans and leases with similar characteristics. The PD factor considers current credit scores unless the account is delinquent, in which case a higher PD factor is used driven by the associated delinquency status. The credit score provides a basis for understanding the borrower’s past and current payment performance, and this information is used to estimate expected losses over the emergence period. The performance of first-lien loans ahead of our junior-lien loans is available to use as part of our updated score process. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. Credit scores, models, analyses, and other factors used to determine both the PD and LGD factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as required.

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

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

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

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

All classes within the C&I and CRE portfolios (except for purchased credit-impaired loans) are placed on nonaccrual status at 90-days past due. First-lien home equity loans are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile, RV and marine finance and other consumer loans are placed on non-accrual if not charged off when the loan is 120-days past due. Residential mortgage loans are placed on nonaccrual status at 150-days past due, with the exception of residential mortgages guaranteed by government agencies which continue to accrue interest at the rate guaranteed by the government agency. Huntington is reimbursed from the government agency for reasonable expenses incurred in servicing loans.

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

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

Regarding all classes within the C&I and CRE portfolios, the determination of a borrower’s ability to make the required principal and interest payments is based on an examination of the borrower’s current financial statements, industry, management capabilities, and other qualitative measures. For all classes within the consumer loan portfolio, the determination of a borrower’s

Table of Contents

ability to make the required principal and interest payments is based on multiple factors, including number of days past due and, in some instances, an evaluation of the borrower’s financial condition. When, in management’s judgment, the borrower’s ability to make required principal and interest payments resumes and collectability is no longer in doubt, supported by sustained repayment history, the loan is returned to accrual status. For these loans that have been returned to accrual status, cash receipts are applied according to the contractual terms of the loan.

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

C&I and CRE loans are either charged-off or written down to net realizable value at 90-days past due. Automobile, 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 at 150-days past due.

Impaired Loans — For all classes within the C&I and CRE portfolios, all loans with an obligor balance of $1 million or greater are evaluated on a quarterly basis for impairment. Except for TDRs, consumer loans within any class are generally not individually evaluated on a regular basis for impairment. All TDRs, regardless of the outstanding balance amount, are also considered to be impaired. Loans acquired with evidence of deterioration in credit quality since origination for which it is probable at acquisition that all contractually required payments will not be collected are also considered to be impaired.

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

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

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

Purchased Credit-Impaired Loans — Purchased loans with evidence of deterioration in credit quality since origination, for which it is probable at acquisition that we will be unable to collect all contractually required payments, are considered to be credit impaired. Purchased credit-impaired loans are initially recorded at fair value, which is estimated by discounting the cash flows expected to be collected at the acquisition date. Because the estimate of expected cash flows reflects an estimate of future credit losses expected to be incurred over the life of the loans, an allowance for credit losses is not recorded at the acquisition date. The excess of cash flows expected at acquisition over the estimated fair value, referred to as the accretable yield, is recognized in interest income over the remaining life of the loan, or pool of loans, on a level-yield basis. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. A subsequent decrease in the estimate of cash flows expected to be received on purchased credit-impaired loans generally results in the recognition of an allowance for credit losses. Subsequent increases in cash flows result in reversal of any nonaccretable difference (or allowance for loan and lease losses to the extent one has been recorded) with a positive impact on interest income subsequently recognized. The measurement of cash flows involves assumptions and judgments for interest rates, prepayments, default rates, loss severity, and collateral values. All of these factors are inherently subjective and significant changes in the cash flow estimates over the life of the loan can result.

Transfers of Financial Assets and Securitizations — Transfers of financial assets in which we have surrendered control over the transferred assets are accounted for as sales. In assessing whether control has been surrendered, we consider whether the transferee would be a consolidated affiliate, the existence and extent of any continuing involvement in the transferred financial assets, and the impact of all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not

Table of Contents

entered into at the time of transfer. Control is generally considered to have been surrendered when (i) the transferred assets have been legally isolated from us or any of our consolidated affiliates, even in bankruptcy or other receivership, (ii) the transferee (or, if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing that is constrained from pledging or exchanging the assets it receives, each third-party holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received without any constraints that provide more than a trivial benefit to us, and (iii) neither we nor our consolidated affiliates and agents have (a) both the right and obligation under any agreement to repurchase or redeem the transferred assets before their maturity, (b) the unilateral ability to cause the holder to return specific financial assets that also provides us with a more-than-trivial benefit (other than through a cleanup call) or (c) an agreement that permits the transferee to require us to repurchase the transferred assets at a price so favorable that it is probable that it will require us to repurchase them.

If the sale criteria are met, the transferred financial assets are removed from our balance sheet and a gain or loss on sale is recognized. If the sale criteria are not met, the transfer is recorded as a secured borrowing in which the assets remain on our balance sheet and the proceeds from the transaction are recognized as a liability. For the majority of financial asset transfers, it is clear whether or not we have surrendered control. For other transfers, such as in connection with complex transactions or where we have continuing involvement, we generally obtain a legal opinion as to whether the transfer results in a true sale by law.

From time to time we securitize certain automobile loans. Gains and losses on the loans and leases sold and servicing rights associated with loan and lease sales are determined when the related loans or leases are sold to either a securitization trust or third-party. For loan or lease sales with servicing retained, a servicing asset is recorded at fair value for the right to service the loans sold.

Derivative Financial Instruments — A variety of derivative financial instruments, principally interest rate swaps, caps, floors, and collars, are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. These instruments provide flexibility in adjusting Huntington’s sensitivity to changes in interest rates without exposure to loss of principal and higher funding requirements.

Huntington also uses derivatives, principally loan sale commitments, in hedging its mortgage loan interest rate lock commitments and its mortgage loans held for sale. Mortgage loan sale commitments and the related interest rate lock commitments are carried at fair value on the Consolidated Balance Sheets with changes in fair value reflected in mortgage banking income. Huntington also uses certain derivative financial instruments to offset changes in value of its MSRs. These derivatives consist primarily of forward interest rate agreements and forward mortgage contracts. The derivative instruments used are not designated as qualifying hedges. Accordingly, such derivatives are recorded at fair value with changes in fair value reflected in mortgage banking income.

Derivative financial instruments are recorded in the Consolidated Balance Sheets as either an asset or a liability (in accrued income and other assets or accrued expenses and other liabilities, respectively) and measured at fair value. On the date a derivative contract is entered into, we designate it as either:


•	a qualifying hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge);


•	a qualifying hedge of the variability of cash flows to be received or paid related to a recognized asset liability or forecasted transaction (cash flow hedge); or


•	a trading instrument or a non-qualifying (economic) hedge.

Changes in the fair value of a derivative that has been designated and qualifies as a fair value hedge, along with the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of a derivative that has been designated and qualifies as a cash flow hedge, to the extent effective as a hedge, are recorded in accumulated other comprehensive income, net of income taxes, and reclassified into earnings in the period during which the hedged item affects earnings. Ineffectiveness in the hedging relationship is reflected in current period earnings. Changes in the fair value of derivatives held for trading purposes or which do not qualify for hedge accounting are reported in current period earnings.

For those derivatives to which hedge accounting is applied, Huntington formally documents the hedging relationship and the risk management objective and strategy for undertaking the hedge. This documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, and, unless the hedge meets all of the criteria to assume there is no ineffectiveness, the method that will be used to assess the effectiveness of the hedging instrument and how ineffectiveness will be measured. The methods utilized to assess retrospective hedge effectiveness, as well as the frequency of testing, vary based on the type of item being hedged and the designated hedge period. For specifically designated fair value hedges of certain fixed-rate debt, Huntington utilizes the short-cut method when certain criteria are met. For other fair value hedges of fixed-rate debt, including certificates of deposit, Huntington utilizes the regression method to evaluate hedge effectiveness on a quarterly basis. For fair value hedges of portfolio loans, the regression method is used to evaluate effectiveness on a daily basis. For cash flow hedges, the regression method is applied on a quarterly basis.

Hedge accounting is discontinued prospectively when:


•	the derivative is no longer effective or expected to be effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions);


•	the derivative expires or is sold, terminated, or exercised;


•	the forecasted transaction is no longer probable of occurring;

100

Table of Contents


•	the hedged firm commitment no longer meets the definition of a firm commitment; or


•	the designation of the derivative as a hedging instrument is removed.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value or cash flow hedge, the derivative will continue to be carried on the balance sheet at fair value.

In the case of a discontinued fair value hedge of a recognized asset or liability, as long as the hedged item continues to exist on the balance sheet, the hedged item will no longer be adjusted for changes in fair value. The basis adjustment that had previously been recorded to the hedged item during the period from the hedge designation date to the hedge discontinuation date is recognized as an adjustment to the yield of the hedged item over the remaining life of the hedged item.

In the case of a discontinued cash flow hedge of a recognized asset or liability, as long as the hedged item continues to exist on the balance sheet, the effective portion of the changes in fair value of the hedging derivative will no longer be recorded to other comprehensive income. The balance applicable to the discontinued hedging relationship will be recognized in earnings over the remaining life of the hedged item as an adjustment to yield. If the discontinued hedged item was a forecasted transaction that is not expected to occur, any amounts recorded on the balance sheet related to the hedged item, including any amounts recorded in accumulated other comprehensive income, are immediately reclassified to current period earnings.

In the case of either a fair value hedge or a cash flow hedge, if the previously hedged item is sold or extinguished, the basis adjustment to the underlying asset or liability or any remaining unamortized AOCI balance will be recognized in the current period earnings.

In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value on the consolidated balance sheets, with changes in its fair value recognized in current period earnings unless re-designated as a qualifying hedge.

Like other financial instruments, derivatives contain an element of credit risk, which is the possibility that Huntington will incur a loss because the counterparty fails to meet its contractual obligations. Notional values of interest rate swaps and other off-balance sheet financial instruments significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. Potential credit losses are mitigated through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements, and other contract provisions. Huntington considers the value of collateral held and collateral provided in determining the net carrying value of derivatives.

Huntington offsets the fair value amounts recognized for derivative instruments and the fair value for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instrument(s) recognized at fair value executed with the same counterparty under a master netting arrangement.

Repossessed Collateral — Repossessed collateral, also referred to as OREO, is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations, and is carried at fair value. Collateral obtained in satisfaction of a loan is recorded at the estimated fair value less anticipated selling costs based upon the property’s appraised value at the date of foreclosure, with any difference between the fair value of the property and the carrying value of the loan recorded as a charge-off. If the fair value is higher than the carrying amount of the loan the excess is recognized first as a recovery and then as noninterest income. Subsequent declines in value are reported as adjustments to the carrying amount and are recorded in noninterest expense. Gains or losses resulting from the sale of collateral are recognized in noninterest expense at the date of sale.

Collateral — We pledge assets as collateral as required for various transactions including security repurchase agreements, public deposits, loan notes, derivative financial instruments, short-term borrowings and long-term borrowings. Assets that have been pledged as collateral, including those that can be sold or repledged by the secured party, continue to be reported on our Consolidated Balance Sheets.

We also accept collateral, primarily as part of various transactions including derivative and security resale agreements. Collateral accepted by us, including collateral that we can sell or repledge, is excluded from our Consolidated Balance Sheets.

The market value of collateral we have accepted or pledged is regularly monitored and additional collateral is obtained or provided as necessary to ensure appropriate collateral coverage in these transactions.

Premises and Equipment — Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the related assets. Buildings and building improvements are depreciated over an average of 30 to 40 years and 10 to 30 years, respectively. Land improvements and furniture and fixtures are depreciated over an average of 5 to 20 years, while equipment is depreciated over a range of 3 to 10 years. Leasehold improvements are amortized over the lesser of the asset’s useful life or the lease term, including any renewal periods for which renewal is reasonably assured. Maintenance and repairs are charged to expense as incurred, while improvements that extend the useful life of an asset are capitalized and depreciated over the remaining useful life. Premises and equipment is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

101

Table of Contents

Mortgage Servicing Rights — Huntington recognizes the rights to service mortgage loans as separate assets, which are included in Servicing Rights in the Consolidated Balance Sheets when purchased, or when servicing is contractually separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained.

For loan sales with servicing retained, a servicing asset is recorded on the day of the sale at fair value for the right to service the loans sold. To determine the fair value of a MSR, Huntington uses an option adjusted spread cash flow analysis incorporating market implied forward interest rates to estimate the future direction of mortgage and market interest rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. The current and projected mortgage interest rate influences the prepayment rate and, therefore, the timing and magnitude of the cash flows associated with the MSR. Servicing revenues on mortgage loans are included in mortgage banking income.

At the time of initial capitalization, MSRs may be grouped into servicing classes based on the availability of market inputs used in determining fair value and the method used for managing the risks of the servicing assets. MSR assets are recorded using the fair value method or the amortization method. The election of the fair value or amortization method is made at the time each servicing class is established. All newly created MSRs since 2009 were recorded using the amortization method. Any change in the fair value of MSRs carried under the fair value method, as well as amortization and impairment of MSRs under the amortization method, during the period is recorded in mortgage banking income, which is reflected in the Consolidated Statements of Income. Huntington economically hedges the value of certain MSRs using derivative instruments and trading securities. Changes in fair value of these derivatives and trading securities are reported as a component of mortgage banking income.

Goodwill and Other Intangible Assets — Under the acquisition method of accounting, the net assets of entities acquired by

Huntington are recorded at their estimated fair value at the date of acquisition. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. Other intangible assets with finite useful lives are amortized either on an accelerated or straight-line basis over their estimated useful lives. Goodwill is evaluated for impairment on an annual basis at October 1^st of each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Pension and Other Postretirement Benefits — Huntington recognizes the funded status of the postretirement benefit plans on the Consolidated Balance Sheets. Net postretirement benefit cost charged to current earnings related to these plans is predominantly based on various actuarial assumptions regarding expected future experience.

Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans. Contributions to defined contribution plans are charged to current earnings.

In addition, we maintain a 401(k) plan covering substantially all employees. Employer contributions to the plan, which are charged to current earnings, are based on employee contributions.

Share-Based Compensation — Huntington uses the fair value based method of accounting for awards of HBAN stock granted to employees under various share-based compensation plans. Share-based compensation costs are recognized prospectively for all new awards granted under these plans. Compensation expense relating to stock options is calculated using a methodology that is based on the underlying assumptions of the Black-Scholes option pricing model and is charged to expense over the requisite service period (e.g. vesting period). Compensation expense relating to restricted stock awards is based upon the fair value of the awards on the date of grant and is charged to earnings over the requisite service period (e.g., vesting period) of the award.

Stock Repurchases — Acquisitions of Huntington stock are recorded at cost. The re-issuance of shares is recorded at weighted-average cost.

Income Taxes — Income taxes are accounted for under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future book and tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. In the fourth quarter 2017, the TCJA was signed into law which requires the deferred tax assets and liabilities to be revalued using the 21% federal tax rate enacted. The effect was recorded in the fourth quarter tax provision.

Any interest or penalties due for payment of income taxes are included in the provision for income taxes. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is recorded. All positive and negative evidence is reviewed when determining how much of a valuation allowance is recognized on a quarterly basis. In determining the requirements for a valuation allowance, sources of possible taxable income are evaluated including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in appropriate carryback years, and tax-planning strategies. Huntington applies a more likely than not recognition threshold for all tax uncertainties.

102

Table of Contents

Bank Owned Life Insurance — Huntington’s bank owned life insurance policies are recorded at their cash surrender value. Huntington recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits. A portion of the cash surrender value is supported by holdings in separate accounts. Book value protection for the separate accounts is provided by the insurance carriers and a highly rated major bank.

Fair Value Measurements — The Company records or discloses certain of its assets and liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are classified within one of three levels in a valuation hierarchy based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:


•	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Segment Results — Accounting policies for the business segments are the same as those used in the preparation of the Consolidated Financial Statements with respect to activities specifically attributable to each business segment. However, the preparation of business segment results requires management to establish methodologies to allocate funding costs and benefits, expenses, and other financial elements to each business segment, which are described in Note 24.

103

Table of Contents

2. ACCOUNTING STANDARDS UPDATE



Standard	Summary of guidance	Effects on financial statements
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): Issued May 2014	- Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. - Requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. - Also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers - Guidance sets forth a five step approach for revenue recognition.	- Effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Management adopted the new guidance on January 1, 2018 using the modified retrospective approach. - Management's analysis includes: (a) Identification of all revenue streams included in the financial statements; (b) Determination of scope exclusions to identify ‘in-scope’ revenue streams; (c) Determination of size, timing, and amount of revenue recognition for in-scope items; (d) Identification of contracts for further analysis; and (e) Completion of review of certain contracts to evaluate the potential impact of the new guidance. - Key revenue streams identified include service charges, credit card and payment processing fees, trust services fees, insurance income, brokerage services, and mortgage banking income. - The Update did not have a significant impact on Huntington’s Consolidated Financial Statements.
ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities. Issued January 2016	- Improvements to GAAP disclosures including requiring an entity to: (a) Measure its equity investments with changes in the fair value recognized in the income statement. (b) Present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments (i.e., FVO liability). (c) Use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. (d) Assess deferred tax assets related to a net unrealized loss on AFS securities in combination with the entity’s other deferred tax assets.	- Effective for the fiscal period beginning after December 15, 2017, including interim periods within those fiscal years. - Amendments are applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. - The amendment did not have a significant impact on Huntington's Consolidated Financial Statements.
ASU 2016-02 - Leases. Issued February 2016	- New lease accounting model for lessors and lessees. For lessees, virtually all leases will be required to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is classified as an operating lease or a finance lease. - Accounting applied by a lessor is largely unchanged from that applied under the existing guidance. - Requires additional qualitative and quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.	- Effective for the fiscal period beginning after December 15, 2018, with early application permitted. - Management intends to adopt the guidance on January 1, 2019, and has formed a working group comprised of associates from different disciplines, including Procurement, Real Estate, and Credit Administration, to evaluate the impact of the standard where Huntington is a lessee or lessor, as well as any impact to borrower’s financial statements. - Management is currently assessing the impact of the new guidance on Huntington's Consolidated Financial Statements, including working with associates engaged in the procurement of goods and services used in the entity’s operations, and reviewing contractual arrangements for embedded leases in an effort to identify Huntington’s full lease population. - Huntington will recognize right-of-use assets and lease liabilities for virtually all of its operating lease commitments.

104

Table of Contents



Standard	Summary of guidance	Effects on financial statements
ASU 2016-13 - Financial Instruments - Credit Losses. Issued June 2016	- Eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost. - Requires those financial assets to be presented at the net amount expected to be collected (i.e., net of expected credit losses). - Measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.	- Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. - Adoption will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. - Management intends to adopt the guidance on January 1, 2020 and has formed a working group comprised of teams from different disciplines including credit and finance to evaluate the requirements of the new standard and the impact it will have on our processes. - The early stages of this evaluation include a review of existing credit models to identify areas where existing credit models used to comply with other regulatory requirements may be leveraged and areas where new impairment models may be required.
ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments. Issued August 2016	- Clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. - Provides consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows to reduce diversity in practice with respect to several types of cash flows.	- Effective using a retrospective transition approach for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. - Huntington adopted the new guidance on January 1, 2018. The Update did not have a significant impact on Huntington's Consolidated Financial Statements.
ASU 2017-04 - Simplifying the Test for Goodwill Impairment. Issued January 2017	- Simplifies the goodwill impairment test by eliminating Step 2 of the goodwill impairment process, which requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities. - Entities will instead recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. - Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.	- Effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted. - The amendment is not expected to have a significant impact on Huntington's Consolidated Financial Statements.
ASU 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Periodic Postretirement Benefit Cost. Issued March 2017	- Requires that an employer report the service cost component of the pension cost and postretirement benefit cost in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. - Other components of the net benefit cost should be presented or disclosed separately in the income statement from the service cost component.	- Effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. - Huntington adopted the new guidance on January 1, 2018. The Update did not have a significant impact on Huntington's Consolidated Financial Statements.
ASU 2017-09 - Stock Compensation Modification Accounting. Issued May 2017	- Reduces the current diversity in practice and provides explicit guidance pertaining to the provisions of modification accounting. - Clarifies that an entity should account for effects of modification unless the fair value, vesting conditions and the classification of the modified award are the same as the original awards immediately before the original award is modified.	- Effective prospectively for annual periods and interim periods within those annual periods, beginning after December 15, 2017. - Huntington adopted the new guidance on January 1, 2018. The Update did not have a significant impact on Huntington's Consolidated Financial Statements.

105

Table of Contents



Standard	Summary of guidance	Effects on financial statements
ASU 2017-12 - Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities. Issued August 2017	- Aligns the entity’s risk management activities and financial reporting for hedging relationships. - Requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. - Refines measurement techniques for hedges of benchmark interest rate risk. - Eliminates the separate measurement and reporting of hedge ineffectiveness. - Allows stated amount of assets in a closed portfolio to be fair value hedged by excluding proportion of hedged item related to prepayments, defaults and other events. - Eases hedge effectiveness testing including an option to perform qualitative testing.	- Effective for annual periods and interim periods within those annual periods, beginning after December 15, 2018. For cash flow and net investment hedges, cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness should be recognized in AOCI with a corresponding adjustment to retained earnings. Earlier application is permitted. - Huntington adopted the new guidance on January 1, 2018. The Update did not have a significant impact on Huntington's Consolidated Financial Statements.
ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220) Issued Feb 2018	- Allows an entity to elect a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. - The amount of that reclassification should include the effect of changes of tax rate on the deferred tax amount, any related valuation allowance and other income tax effects on the items in AOCI. - Requires an entity to state if an election to reclassify the tax effect to retained earnings is made along with the description of other income tax effects that are reclassified from AOCI.	- Effective for fiscal years beginning after Dec 15, 2018 and interim periods within those fiscal years with early adoption permitted. - Huntington has elected to reclassify $93 million from AOCI to retained earnings in the current period.

3. ACQUISITION OF FIRSTMERIT CORPORATION

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-merger, Huntington now operates across an eight-state Midwestern footprint. The merger 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.

Under the terms of the agreement, shareholders of FirstMerit Corporation received 1.72 shares of Huntington common stock, and $5.00 in cash, for each share of FirstMerit Corporation common stock. The aggregate purchase price was $3.7 billion, including $0.8 billion of cash, $2.8 billion of common stock, and $0.1 billion of preferred stock. Huntington issued 285 million shares of common stock that had a total fair value of $2.8 billion based on the closing market price of $9.68 per share on August 15, 2016.

The acquisition of FirstMerit constituted a business combination. The FirstMerit merger has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. As of December 31, 2016, Management completed its review of information relating to events or circumstances existing at the acquisition date.

4. LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES

Loans and leases which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Consolidated Balance Sheets as loans and leases. Except for loans which are either accounted for at fair value or purchased credit-impaired, loans are carried at the principal amount outstanding, net of unamortized premiums and discounts and deferred loan fees and costs , which resulted in a net balance of $334 million and $120 million, at December 31, 2017 and 2016, respectively.

106

Table of Contents

Loan and Lease Portfolio Composition

The following table provides a detailed listing of Huntington’s loan and lease portfolio at December 31, 2017 and December 31, 2016.



	At December 31,
(dollar amounts in millions)	2017			2016
Loans and leases:
Commercial and industrial	$	28,107		$	28,059
Commercial real estate	7,225			7,301
Automobile	12,100			10,969
Home equity	10,099			10,106
Residential mortgage	9,026			7,725
RV and marine finance	2,438			1,846
Other consumer	1,122			956
Loans and leases	70,117			66,962
Allowance for loan and lease losses	(691		)	(638		)
Net loans and leases	$	69,426		$	66,324

Direct Financing Leases

Huntington’s loan and lease portfolio includes lease financing receivables consisting of direct financing leases on equipment, which are included in C&I loans. Net investments in lease financing receivables by category at December 31, 2017 and 2016 were as follows:



	At December 31,
(dollar amounts in millions)	2017			2016
Commercial and industrial:
Lease payments receivable	$	1,645		$	1,881
Estimated residual value of leased assets	755			798
Gross investment in commercial lease financing receivables	2,400			2,679
Deferred origination costs	18			13
Deferred fees	(225		)	(254		)
Total net investment in commercial lease financing receivables	$	2,193		$	2,438

The future lease rental payments due from customers on direct financing leases at December 31, 2017, totaled $1.7 billion and were due as follows: $0.6 billion in 2018, $0.4 billion in 2019, $0.3 billion in 2020, $0.1 billion in 2021, $0.1 billion in 2022, and $0.2 billion thereafter.

Purchased Credit-Impaired Loans

The following table presents a rollforward of the accretable yield for purchased credit impaired loans for the year ended December 31, 2017 and 2016:



	At December 31,
(dollar amounts in millions)	2017			2016
Balance, beginning of period	$	37		$	—
Impact of acquisition/purchase on August 16, 2016	—			18
Accretion	(18		)	(5		)
Reclassification from nonaccretable difference	14			24
Balance at December 31,	$	33		$	37

107

Table of Contents

The following table reflects the ending and unpaid balances of the purchased credit-impaired loans at December 31, 2017 and 2016:



	December 31, 2017				December 31, 2016
(dollar amounts in millions)	Ending Balance		Unpaid Principal Balance		Ending Balance		Unpaid Principal Balance
Commercial and industrial	$	39	$	61	$	68	$	100
Commercial real estate	2		15		34		56
Total	$	41	$	76	$	102	$	156

Nonaccrual and Past Due Loans

The following table presents NALs by loan class at December 31, 2017 and 2016:



	December 31,
(dollar amounts in millions)	2017		2016
Commercial and industrial	$	161	$	234
Commercial real estate	29		20
Automobile	6		6
Home equity	68		72
Residential mortgage	84		91
RV and marine finance	1		—
Other consumer	—		—
Total nonaccrual loans	$	349	$	423

The amount of interest that would have been recorded under the original terms for total NAL loans was $21 million, $24 million, and $20 million for 2017, 2016, and 2015, respectively. The total amount of interest recorded to interest income for these loans was $18 million, $17 million, and $10 million in 2017, 2016, and 2015, respectively.

108

Table of Contents

The following table presents an aging analysis of loans and leases, including past due loans and leases, by loan class at December 31, 2017 and 2016 (1):



	December 31, 2017
	Past Due										Purchased Credit Impaired		Loans Accounted for Under the Fair Value Option		Total Loans and Leases		90 or more days past due and accruing
(dollar amounts in millions)	30-59 Days		60-89 Days		90 or more days		Total		Current		Purchased Credit Impaired		Loans Accounted for Under the Fair Value Option		Total Loans and Leases		90 or more days past due and accruing
Commercial and industrial	$	35	$	14	$	65	$	114	$	27,954	$	39	$	—	$	28,107	$	9	(2)
Commercial real estate	10		1		11		22		7,201		2		—		7,225		3
Automobile	89		18		10		117		11,982		—		1		12,100		7
Home equity	49		19		60		128		9,969		—		2		10,099		18
Residential mortgage	129		48		118		295		8,642		—		89		9,026		72
RV and marine finance	11		3		2		16		2,421		—		1		2,438		1
Other consumer	12		5		5		22		1,100		—		—		1,122		5
Total loans and leases	$	335	$	108	$	271	$	714	$	69,269	$	41	$	93	$	70,117	$	115



	December 31, 2016
	Past Due												Loans Accounted for Under the Fair Value Option		Total Loans and Leases		90 or more days past due and accruing
(dollar amounts in millions)	30-59 Days		60-89 Days		90 or more days		Total		Current		Purchased Credit Impaired		Loans Accounted for Under the Fair Value Option		Total Loans and Leases		90 or more days past due and accruing
Commercial and industrial	$	42	$	20	$	74	$	136	$	27,855	68		—		$	28,059	$	18	(2)
Commercial real estate	21		3		30		54		7,213		34		—		7,301		17
Automobile	76		17		10		103		10,864		—		2		10,969		10
Home equity	39		24		53		116		9,987		—		3		10,106		12
Residential mortgage	122		37		117		276		7,374		—		75		7,725		67
RV and marine finance	10		2		2		14		1,830		—		2		1,846		1
Other consumer	11		6		3		20		936		—		—		956		4
Total loans and leases	$	321	$	109	$	289	$	719	$	66,059	$	102	$	82	$	66,962	$	129


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


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

109

Table of Contents

Allowance for Credit Losses

The following table presents ALLL and AULC activity by portfolio segment for the years ended December 31, 2017, 2016, and 2015:



(dollar amounts in millions)	Commercial			Consumer			Total
Year ended December 31, 2017:
ALLL balance, beginning of period	$	451		$	187		$	638
Loan charge-offs	(72		)	(180		)	(252		)
Recoveries of loans previously charged-off	41			52			93
Provision for loan and lease losses	62			150			212
Allowance for loans sold or transferred to loans held for sale	—			—			—
ALLL balance, end of period	$	482		$	209		$	691
AULC balance, beginning of period	$	87		$	11		$	98
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	(3		)	(8		)	(11		)
AULC recorded at acquisition	—			—			—
AULC balance, end of period	$	84		$	3		$	87
ACL balance, end of period	$	566		$	212		$	778

Year ended December 31, 2016:
ALLL balance, beginning of period	$	399		$	199		$	598
Loan charge-offs	(92		)	(135		)	(227		)
Recoveries of loans previously charged-off	73			45			118
Provision for loan and lease losses	85			84			169
Allowance for loans sold or transferred to loans held for sale	(14		)	(6		)	(20		)
ALLL balance, end of period	$	451		$	187		$	638
AULC balance, beginning of period	$	64		$	8		$	72
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	19			3			22
AULC recorded at acquisition	4			—			4
AULC balance, end of period	$	87		$	11		$	98
ACL balance, end of period	$	538		$	198		$	736

Year ended December 31, 2015:
ALLL balance, beginning of period	$	390		$	215		$	605
Loan charge-offs	(98		)	(120		)	(218		)
Recoveries of loans previously charged-off	86			44			130
Provision for loan and lease losses	21			68			89
Allowance for loans sold or transferred to loans held for sale	—			(8		)	(8		)
ALLL balance, end of period	$	399		$	199		$	598
AULC balance, beginning of period	$	55		$	6		$	61
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	9			2			11
AULC recorded at acquisition	—			—			—
AULC balance, end of period	$	64		$	8		$	72
ACL balance, end of period	$	463		$	207		$	670

110

Table of Contents

Credit Quality Indicators

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


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


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


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


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

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

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

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

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

The following table presents each loan and lease class by credit quality indicator at December 31, 2017 and 2016:



	December 31, 2017
	Credit Risk Profile by UCS Classification
(dollar amounts in millions)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial	$	26,268	$	694	$	1,116	$	29	$	28,107
Commercial real estate	6,909		200		115		1		7,225
	Credit Risk Profile by FICO Score (1), (2)
	750+		650-749		<650		Other (3)		Total
Automobile	6,102		4,312		1,390		295		12,099
Home equity	6,352		3,024		617		104		10,097
Residential mortgage	5,697		2,581		605		54		8,937
RV and marine finance	1,433		863		96		45		2,437
Other consumer	428		540		143		11		1,122



	December 31, 2016
	Credit Risk Profile by UCS Classification
(dollar amounts in millions)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial	$	26,212	$	810	$	1,029	$	8	$	28,059
Commercial real estate	7,042		97		159		3		7,301
	Credit Risk Profile by FICO Score (1), (2)
	750+		650-749		<650		Other (3)		Total
Automobile	5,369		4,044		1,298		256		$	10,967
Home equity	6,280		2,891		638		294		10,103
Residential mortgage	4,663		2,285		615		87		7,650
RV and marine finance	1,064		644		73		64		1,845
Other consumer	347		456		133		20		956


(1)	Excludes loans accounted for under the fair value option.


(2)	Reflects updated customer credit scores.


(3)	Reflects deferred fees and costs, loans in process, etc.

111

Table of Contents

Impaired Loans

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

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance for the years ended December 31, 2017 and 2016:



(dollar amounts in millions)	Commercial		Consumer		Total
ALLL at December 31, 2017:
Portion of ALLL balance:
Attributable to purchased credit-impaired loans	$	—	$	—	$	—
Attributable to loans individually evaluated for impairment	$	32	$	9	$	41
Attributable to loans collectively evaluated for impairment	450		200		650
Total ALLL balance	$	482	$	209	$	691
Loan and Lease Ending Balances at December 31, 2017: (1)
Portion of loan and lease ending balance:
Attributable to purchased credit-impaired loans	$	41	$	—	$	41
Individually evaluated for impairment	607		616		1,223
Collectively evaluated for impairment	34,684		34,076		68,760
Total loans and leases evaluated for impairment	$	35,332	$	34,692	$	70,024


(1)	Excludes loans accounted for under the fair value option.



(dollar amounts in millions)	Commercial		Consumer		Total
ALLL at December 31, 2016:
Portion of ALLL balance:
Attributable to purchased credit-impaired loans	$	—	$	—	$	—
Attributable to loans individually evaluated for impairment	11		11		22
Attributable to loans collectively evaluated for impairment	440		176		616
Total ALLL balance:	$	451	$	187	$	638
Loan and Lease Ending Balances at December 31, 2016: (1)
Portion of loan and lease ending balances:
Attributable to purchased credit-impaired loans	$	102	$	—	$	102
Individually evaluated for impairment	416		458		874
Collectively evaluated for impairment	34,842		31,062		65,904
Total loans and leases evaluated for impairment	$	35,360	$	31,520	$	66,880


(1)	Excludes loans accounted for under the fair value option.

112

Table of Contents

The following tables present by class the ending, unpaid principal balance, and the related ALLL, along with the average balance and interest income recognized only for impaired loans and leases and purchased credit-impaired loans for the years ended December 31, 2017 and 2016 (1) (2):



							Year Ended
	December 31, 2017						December 31, 2017
(dollar amounts in millions)	Ending Balance		Unpaid Principal Balance (6)		Related Allowance		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	284	$	311	$	—	$	206	$	12
Commercial real estate	56		81		—		64		8
Automobile	—		—		—		—		—
Home equity	—		—		—		—		—
Residential mortgage	—		—		—		—		—
RV and marine finance	—		—		—		—		—
Other consumer	—		—		—		—		—

With an allowance recorded:
Commercial and industrial	257		280		29		292		16
Commercial real estate	51		51		3		52		2
Automobile	36		40		2		33		2
Home equity	334		385		14		329		15
Residential mortgage	308		338		4		325		12
RV and marine finance	2		3		—		1		—
Other consumer	8		8		2		5		—

Total
Commercial and industrial (3)	541		591		29		498		28
Commercial real estate (4)	107		132		3		116		10
Automobile (2)	36		40		2		33		2
Home equity (5)	334		385		14		329		15
Residential mortgage (5)	308		338		4		325		12
RV and marine finance (2)	2		3		—		1		—
Other consumer (2)	8		8		2		5		—

113

Table of Contents



							Year Ended
	December 31, 2016						December 31, 2016
(dollar amounts in millions)	Ending Balance		Unpaid Principal Balance (6)		Related Allowance		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	300	$	359	$	—	$	293	$	9
Commercial real estate	89		126		—		73		4
Automobile	—		—		—		—		—
Home equity	—		—		—		—		—
Residential mortgage	—		—		—		—		—
RV and marine finance	—		—		—		—		—
Other consumer	—		—		—		—		—

With an allowance recorded:
Commercial and industrial	406		448		22		302		8
Commercial real estate	97		108		3		69		3
Automobile	31		31		2		32		2
Home equity	319		353		15		278		13
Residential mortgage	328		363		13		348		12
RV and marine finance	—		—		—		—		—
Other consumer	4		4		—		4		—

Total
Commercial and industrial (3)	706		807		22		595		17
Commercial real estate (4)	186		234		3		142		7
Automobile (2)	31		31		2		32		2
Home equity (5)	319		353		15		278		13
Residential mortgage (5)	328		363		13		348		12
RV and marine finance (2)	—		—		—		—		—
Other consumer (2)	4		4		—		4		—


(1)	These tables do not include loans fully charged-off.


(2)	All automobile, RV and marine finance and other consumer impaired loans included in these tables are considered impaired due to their status as a TDR.


(3)	At December 31, 2017 and December 31, 2016, commercial and industrial loans of $382 million and $317 million, respectively, were considered impaired due to their status as a TDR.


(4)	At December 31, 2017 and December 31, 2016, commercial real estate loans of $93 million and $82 million, respectively, were considered impaired due to their status as a TDR.


(5)	Includes home equity and residential mortgages considered to be collateral dependent due to their non-accrual status as well as home equity and mortgage loans considered impaired due to their status as a TDR.


(6)	The differences between the ending balance and unpaid principal balance amounts represent partial charge-offs.

TDR Loans

The amount of interest that would have been recorded under the original terms for total accruing TDR loans was $49 million, $49 million, and $46 million for 2017, 2016, and 2015, respectively. The total amount of actual interest recorded to interest income for these loans was $45 million, $40 million, and $41 million for 2017, 2016, and 2015, respectively.

TDR Concession Types