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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY PERIOD ENDED June 30, 2018

Commission File Number 1-34073

Huntington Bancshares Incorporated



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

Registrant's address: 41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number, including area code: (614) 480-2265

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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

There were 1,104,226,603 shares of the Registrant’s common stock ($0.01 par value) outstanding on June 30, 2018.

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HUNTINGTON BANCSHARES INCORPORATED

INDEX



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	37
Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017	38
Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2018 and 2017	39
Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2018 and 2017	41
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2018 and 2017	42
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017	43
Notes to Unaudited Condensed Consolidated Financial Statements	45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Executive Overview	5
Discussion of Results of Operations	6
Risk Management and Capital:	18
Credit Risk	18
Market Risk	27
Liquidity Risk	28
Operational Risk	29
Compliance Risk	30
Capital	30
Business Segment Discussion	31
Additional Disclosures	35
Item 3. Quantitative and Qualitative Disclosures about Market Risk	93
Item 4. Controls and Procedures	93
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	93
Item 1A. Risk Factors	93
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 6. Exhibits	93
Signatures	96

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Glossary of Acronyms and Terms

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



ACL		Allowance for Credit Losses
AFS		Available-for-Sale
ALLL		Allowance for Loan and Lease Losses
AOCI		Accumulated Other Comprehensive Income
ASC		Accounting Standards Codification
AULC		Allowance for Unfunded Loan Commitments
Basel III		Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013
C&I		Commercial and Industrial
CCAR		Comprehensive Capital Analysis and Review
CDs		Certificates of Deposit
CET1		Common equity tier 1 on a transitional Basel III basis
CFPB		Bureau of Consumer Financial Protection
CMO		Collateralized Mortgage Obligations
CRE		Commercial Real Estate
EPS		Earnings Per Share
EVE		Economic Value of Equity
FDIC		Federal Deposit Insurance Corporation
FHLB		Federal Home Loan Bank
FICO		Fair Isaac Corporation
FirstMerit		FirstMerit Corporation
FRB		Federal Reserve Bank
FTE		Fully-Taxable Equivalent
FTP		Funds Transfer Pricing
FVO		Fair Value Option
GAAP		Generally Accepted Accounting Principles in the United States of America
HTM		Held-to-Maturity
IRS		Internal Revenue Service
LCR		Liquidity Coverage Ratio
LIBOR		London Interbank Offered Rate
MBS		Mortgage-Backed Securities
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MSR		Mortgage Servicing Right
NAICS		North American Industry Classification System
NALs		Nonaccrual Loans
NCO		Net Charge-off
NII		Noninterest Income
NIM		Net Interest Margin
NPAs		Nonperforming Assets
NSF		Non-sufficient funds
OCC		Office of the Comptroller of the Currency
OCI		Other Comprehensive Income (Loss)
OCR		Optimal Customer Relationship
OLEM		Other Loans Especially Mentioned
OREO		Other Real Estate Owned
OTTI		Other-Than-Temporary Impairment

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Plan		Huntington Bancshares Retirement Plan
RBHPCG		Regional Banking and The Huntington Private Client Group
ROC		Risk Oversight Committee
SAD		Special Assets Division
SBA		Small Business Administration
SEC		Securities and Exchange Commission
TCJA		H.R. 1, Originally known as the Tax Cuts and Jobs Act
TDR		Troubled Debt Restructuring
U.S. Treasury		U.S. Department of the Treasury
UCS		Uniform Classification System
VIE		Variable Interest Entity
XBRL		eXtensible Business Reporting Language

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PART I. FINANCIAL INFORMATION

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

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

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have over 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment leasing, investment management, trust services, brokerage services, insurance programs, and other financial products and services. Our 968 branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia, and Wisconsin. Select financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio. Our foreign banking activities, in total or with any individual country, are not significant.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2017 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2017 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.

EXECUTIVE OVERVIEW

Summary of 2018 Second Quarter Results Compared to 2017 Second Quarter

For the quarter, we reported net income of $355 million, or $0.30 per common share, compared with $272 million, or $0.23 per common share, in the year-ago quarter (see Table 1).

Fully-taxable equivalent (FTE) net interest income was $791 million, up $34 million, or 4%. The results reflected the benefit from a $4.6 billion, or 5%, increase in average earning assets, partially offset by a two basis point decrease in the FTE net interest margin (NIM) to 3.29%. Average earning asset growth included a $4.5 billion, or 7%, increase in average loans and leases. Average earning asset yields increased 32 basis points year-over-year, driven by a 34 basis point improvement in loan yields. Average funding costs increased 44 basis points, although interest-bearing deposit costs only increased 28 basis points. The cost of short-term borrowings and long-term debt increased 104 basis points and 126 basis points, respectively. Embedded within these yields and costs, FTE net interest income during the 2018 second quarter included $19 million, or approximately 8 basis points, of purchase accounting impact compared to $34 million, or approximately 15 basis points, in the year-ago quarter.

The provision for credit losses increased $31 million year-over-year to $56 million in the 2018 second quarter. NCOs decreased $8 million to $28 million. NCOs represented an annualized 0.16% of average loans and leases, down from 0.21% in the year ago quarter.

Non-interest income was $336 million, up $11 million, or 3%, reflecting ongoing household / relationship acquisition and execution of our Optimal Customer Relationship (OCR) strategy. Trust and investment management services increased $5 million, or 14%, reflecting strong equity market performance. Other income decreased $5 million, or 10%, primarily reflecting a $3 million unfavorable Visa Class B derivative fair value adjustment.

Non-interest expense was $652 million, down $42 million, or 6%, due to the $50 million of acquisition-related Significant Items in the year-ago quarter compared with no Significant Items in the current quarter. Personnel costs increased $4 million, or 1%, primarily reflecting increased incentive compensation and benefits costs, partially offset by an $18 million decrease in acquisition-related Significant Items. Other expense decreased $10 million, or 17%, primarily reflecting a decrease in franchise taxes and $4 million of acquisition-related Significant Items in the year-ago quarter.

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The tangible common equity to tangible assets ratio was 7.78%, up 37 basis points from a year-ago. The CET1 risk-based capital ratio was 10.53% at June 30, 2018, compared to 9.88% a year ago. The regulatory Tier 1 risk-based capital ratio was 11.99% compared to 11.24% at June 30, 2017.

The Company did not repurchase any common stock during the 2018 second quarter. Under the 2017 CCAR capital plan executed over the past four quarters, the Company repurchased $308 million of common stock at an average cost of $13.71 per share.

Business Overview

General

Our general business objectives are:

1.Grow organic revenue across all business segments.

2.Invest in our businesses, particularly technology and risk management.

3.Deliver positive operating leverage.

4.Manage capital and liquidity positions consistent with our risk appetite.

Economy

The economies in our footprint continue to perform well, with strength across geographies, industries, and business stratifications. We are encouraged by the outlook for continued loan and deposit growth in coming quarters. While pipelines are steady and customer sentiment remains strong, some of our customers are monitoring international trade agreements and tariffs that could have a dampening effect on economic growth.

DISCUSSION OF RESULTS OF OPERATIONS

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

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Table 1 - Selected Quarterly Income Statement Data (1)
(dollar amounts in millions, except per share amounts)
	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2018			2018			2017			2017			2017
Interest income	$	972		$	914		$	894		$	873		$	846
Interest expense	188			144			124			115			101
Net interest income	784			770			770			758			745
Provision for credit losses	56			66			65			43			25
Net interest income after provision for credit losses	728			704			705			715			720
Service charges on deposit accounts	91			86			91			91			88
Cards and payment processing income	56			53			53			54			52
Trust and investment management services	42			44			41			39			37
Mortgage banking income	28			26			33			34			32
Insurance income	21			21			21			18			22
Capital markets fees	21			19			23			22			17
Bank owned life insurance income	17			15			18			16			15
Gain on sale of loans	15			8			17			14			12
Securities gains (losses)	—			—			(4		)	—			—
Other income	45			42			47			42			50
Total noninterest income	336			314			340			330			325
Personnel costs	396			376			373			377			392
Outside data processing and other services	69			73			71			80			75
Net occupancy	35			41			36			55			53
Equipment	38			40			36			45			43
Deposit and other insurance expense	18			18			19			19			20
Professional services	15			11			18			15			18
Marketing	18			8			10			17			19
Amortization of intangibles	13			14			14			14			14
Other expense	50			52			56			58			60
Total noninterest expense	652			633			633			680			694
Income before income taxes	412			385			412			365			351
Provision (benefit) for income taxes	57			59			(20		)	90			79
Net income	355			326			432			275			272
Dividends on preferred shares	21			12			19			19			19
Net income applicable to common shares	$	334		$	314		$	413		$	256		$	253

Average common shares—basic	1,103,337			1,083,836			1,077,397			1,086,038			1,088,934
Average common shares—diluted	1,122,612			1,124,778			1,130,117			1,106,491			1,108,527
Net income per common share—basic	$	0.30		$	0.29		$	0.38		$	0.24		$	0.23
Net income per common share—diluted	0.30			0.28			0.37			0.23			0.23
Cash dividends declared per common share	0.11			0.11			0.11			0.08			0.08
Return on average total assets	1.36		%	1.27		%	1.67		%	1.08		%	1.09		%
Return on average common shareholders’ equity	13.2			13.0			17.0			10.5			10.6
Return on average tangible common shareholders’ equity (2)	17.6			17.5			22.7			14.1			14.4
Net interest margin (3)	3.29			3.30			3.30			3.29			3.31
Efficiency ratio (4)	56.6			56.8			54.9			60.5			62.9
Effective tax rate	13.8			15.3			(4.8		)	24.7			22.4

Revenue—FTE
Net interest income	$	784		$	770		$	770		$	758		$	745
FTE adjustment	7			7			12			13			12
Net interest income (3)	791			777			782			771			757
Noninterest income	336			314			340			330			325
Total revenue (3)	$	1,127		$	1,091		$	1,122		$	1,101		$	1,082

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Table 2 - Selected Year to Date Income Statements (1)

	Six Months Ended June 30,				Change
(dollar amounts in millions, except per share amounts)	2018		2017		Amount			Percent
Interest income	$	1,886	$	1,667	$	219		13	%
Interest expense	332		192		140			73
Net interest income	1,554		1,475		79			5
Provision for credit losses	122		93		29			31
Net interest income after provision for credit losses	1,432		1,382		50			4
Service charges on deposit accounts	177		171		6			4
Cards and payment processing income	109		100		9			9
Trust and investment management services	86		76		10			13
Mortgage banking income	54		64		(10		)	(16	)
Insurance income	42		42		—			—
Capital markets fees	40		31		9			29
Bank owned life insurance income	32		33		(1		)	(3	)
Gain on sale of loans	23		25		(2		)	(8	)
Securities gains (losses)	—		—		—			—
Other noninterest income	87		96		(9		)	(9	)
Total noninterest income	650		638		12			2
Personnel costs	772		774		(2		)	—
Outside data processing and other services	142		162		(20		)	(12	)
Net occupancy	76		120		(44		)	(37	)
Equipment	78		90		(12		)	(13	)
Deposit and other insurance expense	36		41		(5		)	(12	)
Professional services	26		36		(10		)	(28	)
Marketing	26		33		(7		)	(21	)
Amortization of intangibles	27		29		(2		)	(7	)
Other noninterest expense	102		117		(15		)	(13	)
Total noninterest expense	1,285		1,402		(117		)	(8	)
Income before income taxes	797		618		179			29
Provision for income taxes	116		138		(22		)	(16	)
Net income	681		480		201			42
Dividends declared on preferred shares	33		38		(5		)	(13	)
Net income applicable to common shares	$	648	$	442	$	206		47	%

Average common shares—basic	1,093,587		1,087,654		5,933			1	%
Average common shares—diluted	1,123,646		1,108,572		15,074			1
Net income per common share—basic	$	0.59	$	0.41	$	0.18		44
Net income per common share—diluted	0.58		0.40		0.18			45
Cash dividends declared per common share	0.22		0.16		0.06			38

Revenue—FTE
Net interest income	$	1,554	$	1,475	$	79		5	%
FTE adjustment	14		24		(10		)	(42	)
Net interest income (3)	1,568		1,499		69			5
Noninterest income	650		638		12			2
Total revenue (3)	$	2,218	$	2,137	$	81		4	%


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

(2)

Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 21% tax rate and a 35% tax rate for periods prior to December 31, 2017.


(3)	On a fully-taxable equivalent (FTE) basis assuming a 21% tax rate and a 35% tax rate for periods prior to January 1, 2018.


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

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Significant Items

There were no Significant Items in the 2018 second quarter.

Earnings comparisons are impacted by the Significant Items summarized below:

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


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

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



Table 3 - Significant Items Influencing Earnings Performance Comparison
	Three Months Ended
	June 30, 2018				March 31, 2018				June 30, 2017
(dollar amounts in millions, except per share amounts)	Amount		EPS (1)		Amount		EPS (1)		Amount			EPS (1)
Net income	$	355			$	326			$	272
Earnings per share, after-tax			$	0.30			$	0.28				$	0.23

Significant Items—favorable (unfavorable) impact:	Earnings		EPS (1)		Earnings		EPS (1)		Earnings			EPS (1)
Mergers and acquisitions, net expenses	$	—			$	—			$	(50	)
Tax impact	—				—				17
Mergers and acquisitions, after-tax	$	—	$	—	$	—	$	—	$	(33	)	$	(0.03	)


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



	Six Months Ended
	June 30, 2018				June 30, 2017
(dollar amounts in millions, except per share amounts)	Amount		EPS (1)		Amount			EPS (1)
Net income	$	681			$	480
Earnings per share, after-tax			$	0.58				$	0.40

Significant Items—favorable (unfavorable) impact:	Earnings		EPS (1)		Earnings			EPS (1)
Mergers and acquisitions, net expenses	$	—			$	(121	)
Tax impact	—				42
Mergers and acquisitions, after-tax	$	—	$	—	$	(79	)	$	(0.07	)


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

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Net Interest Income / Average Balance Sheet

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



Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis

	Average Balances
	Three Months Ended															Change
	June 30,			March 31,			December 31,			September 30,			June 30,			2Q18 vs. 2Q17
(dollar amounts in millions)	2018			2018			2017			2017			2017			Amount			Percent
Assets:
Interest-bearing deposits in banks	$	84		$	90		$	90		$	102		$	102		$	(18	)	(18	)%
Securities:
Trading account securities	82			87			87			92			91			(9		)	(10	)
Available-for-sale securities:
Taxable	10,832			11,158			11,154			11,680			12,570			(1,738		)	(14	)
Tax-exempt	3,554			3,633			3,404			3,160			3,103			451			15
Total available-for-sale securities	14,386			14,791			14,558			14,840			15,673			(1,287		)	(8	)
Held-to-maturity securities—taxable	8,706			8,877			9,066			8,264			7,426			1,280			17
Other securities	599			605			598			597			566			33			6
Total securities	23,773			24,360			24,309			23,793			23,756			17			—
Loans held for sale	619			478			598			678			525			94			18
Loans and leases: (3)
Commercial:
Commercial and industrial	28,863			28,243			27,445			27,643			27,992			871			3
Commercial real estate:
Construction	1,126			1,189			1,199			1,152			1,130			(4		)	—
Commercial	6,233			6,142			5,997			6,064			5,940			293			5
Commercial real estate	7,359			7,331			7,196			7,216			7,070			289			4
Total commercial	36,222			35,574			34,641			34,859			35,062			1,160			3
Consumer:
Automobile	12,271			12,100			11,963			11,713			11,324			947			8
Home equity	9,941			10,040			10,027			9,960			9,958			(17		)	—
Residential mortgage	9,624			9,174			8,809			8,402			7,979			1,645			21
RV and marine finance	2,667			2,481			2,405			2,296			2,039			628			31
Other consumer	1,162			1,115			1,095			1,046			983			179			18
Total consumer	35,665			34,910			34,299			33,417			32,283			3,382			10
Total loans and leases	71,887			70,484			68,940			68,276			67,345			4,542			7
Allowance for loan and lease losses	(742		)	(709		)	(688		)	(672		)	(672		)	(70		)	(10	)
Net loans and leases	71,145			69,775			68,252			67,604			66,673			4,472			7
Total earning assets	96,363			95,412			93,937			92,849			91,728			4,635			5
Cash and due from banks	1,283			1,217			1,226			1,299			1,287			(4		)	—
Intangible assets	2,318			2,332			2,346			2,359			2,373			(55		)	(2	)
All other assets	5,599			5,596			5,481			5,455			5,405			194			4
Total assets	$	104,821		$	103,848		$	102,302		$	101,290		$	100,121		$	4,700		5	%
Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	20,382			20,572			21,745			21,723			21,599			$	(1,217	)	(6	)%
Demand deposits—interest-bearing	19,121			18,630			18,175			17,878			17,445			1,676			10
Total demand deposits	39,503			39,202			39,920			39,601			39,044			459			1
Money market deposits	20,943			20,678			20,731			20,314			19,212			1,731			9
Savings and other domestic deposits	11,146			11,219			11,348			11,590			11,889			(743		)	(6	)
Core certificates of deposit	3,794			2,293			1,947			2,044			2,146			1,648			77
Total core deposits	75,386			73,392			73,946			73,549			72,291			3,095			4
Other domestic time deposits of $250,000 or more	243			247			400			432			479			(236		)	(49	)
Brokered deposits and negotiable CDs	3,661			3,307			3,391			3,563			3,783			(122		)	(3	)
Total deposits	79,290			76,946			77,737			77,544			76,553			2,737			4
Short-term borrowings	3,082			5,228			2,837			2,391			2,687			395			15
Long-term debt	9,225			8,958			9,232			8,949			8,730			495			6
Total interest-bearing liabilities	71,215			70,560			68,061			67,161			66,371			4,844			7
All other liabilities	1,891			1,861			1,819			1,661			1,557			334			21
Shareholders’ equity	11,333			10,855			10,677			10,745			10,594			739			7
Total liabilities and shareholders’ equity	$	104,821		$	103,848		$	102,302		$	101,290		$	100,121		$	4,700		5	%

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

	Average Yield Rates (2)
	Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,
Fully-taxable equivalent basis (1)	2018		2018		2017		2017		2017
Assets:
Interest-bearing deposits in banks	1.95	%	1.97	%	1.92	%	1.77	%	1.53	%
Securities:
Trading account securities	0.23		0.15		0.21		0.16		0.25
Available-for-sale securities:
Taxable	2.63		2.51		2.45		2.38		2.35
Tax-exempt	3.35		3.18		3.76		3.62		3.71
Total available-for-sale securities	2.81		2.67		2.75		2.64		2.62
Held-to-maturity securities—taxable	2.42		2.45		2.41		2.36		2.38
Other securities	4.58		3.98		3.86		3.35		3.18
Total securities	2.71		2.62		2.64		2.55		2.55
Loans held for sale	4.17		3.82		3.68		3.83		3.73
Loans and leases: (3)
Commercial:
Commercial and industrial	4.52		4.28		4.17		4.05		4.04
Commercial real estate:
Construction	5.26		4.73		4.47		4.55		4.26
Commercial	4.58		4.24		4.03		4.08		3.97
Commercial real estate	4.68		4.32		4.10		4.16		4.02
Total commercial	4.55		4.29		4.15		4.07		4.04
Consumer:
Automobile	3.63		3.56		3.61		3.60		3.55
Home equity	5.09		4.90		4.71		4.72		4.61
Residential mortgage	3.69		3.66		3.66		3.65		3.66
RV and marine finance	5.11		5.11		5.25		5.43		5.57
Other consumer	11.90		11.78		11.53		11.59		11.47
Total consumer	4.43		4.34		4.31		4.32		4.27
Total loans and leases	4.49		4.32		4.23		4.20		4.15
Total earning assets	4.07		3.91		3.83		3.78		3.75
Liabilities:
Deposits:
Demand deposits—noninterest-bearing	—		—		—		—		—
Demand deposits—interest-bearing	0.38		0.29		0.26		0.23		0.20
Total demand deposits	0.18		0.14		0.12		0.10		0.09
Money market deposits	0.60		0.45		0.40		0.36		0.31
Savings and other domestic deposits	0.21		0.20		0.20		0.20		0.21
Core certificates of deposit	1.56		1.01		0.75		0.73		0.56
Total core deposits	0.51		0.36		0.32		0.30		0.26
Other domestic time deposits of $250,000 or more	1.01		0.69		0.54		0.61		0.49
Brokered deposits and negotiable CDs	1.81		1.47		1.21		1.16		0.95
Total deposits	0.59		0.43		0.37		0.35		0.31
Short-term borrowings	1.82		1.47		1.15		0.95		0.78
Long-term debt	3.75		2.92		2.73		2.65		2.49
Total interest-bearing liabilities	1.05		0.82		0.73		0.68		0.61
Net interest rate spread	3.02		3.09		3.10		3.10		3.14
Impact of noninterest-bearing funds on margin	0.27		0.21		0.20		0.19		0.17
Net interest margin	3.29	%	3.30	%	3.30	%	3.29	%	3.31	%


(1)	FTE yields are calculated assuming a 21% tax rate and a 35% tax rate for periods prior to January 1, 2018.


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


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

Table of Contents

2018 Second Quarter versus 2017 Second Quarter

FTE net interest income for the 2018 second quarter increased $34 million, or 4%, from the 2017 second quarter. This reflected the benefit from the $4.6 billion, or 5%, increase in average earning assets, partially offset by a two basis point decrease in the FTE NIM to 3.29%. Average earning asset growth reflected a $4.5 billion, or 7%, increase in average loans and leases. Average earning asset yields increased 32 basis points year-over-year, driven by a 34 basis point improvement in loan yields. Average funding costs increased 44 basis points, although interest-bearing deposit costs only increased 28 basis points. The cost of short-term borrowings and long-term debt increased 104 basis points and 126 basis points, respectively. Embedded within these yields and costs, FTE net interest income during the 2018 second quarter included $19 million, or approximately 8 basis points, of purchase accounting impact compared to $34 million, or approximately 15 basis points, in the year-ago quarter.

Average earning assets for the 2018 second quarter increased $4.6 billion, or 5%, from the year-ago quarter, primarily reflecting a $4.5 billion, or 7%, increase in average loans and leases. Average residential mortgage loans increased $1.6 billion, or 21%, driven by an increase in lending officers and expansion into the Chicago market. Average automobile loans increased $0.9 billion, or 8%, driven by $6.2 billion of new production over the past year. Average commercial and industrial (C&I) loans increased $0.9 billion, or 3%, reflecting growth in middle market, asset finance, energy, and corporate banking. Average RV and marine finance loans increased $0.6 billion, or 31%, reflecting the success of the well-managed expansion of the acquired business into 17 new states over the past two years.

Average total interest-bearing liabilities increased $4.8 billion, or 7%, from the year-ago quarter. Average total deposits for the 2018 second quarter increased $2.7 billion, or 4%, from the year-ago quarter, while average total core deposits increased $3.1 billion, or 4%. Average money market deposits increased $1.7 billion, or 9%, primarily reflecting growth in certain specialty commercial deposits and continued shifting commercial customer preferences for higher yielding deposit products. Average core CDs increased $1.6 billion, or 77%, reflecting initiatives to grow fixed-rate, term consumer deposits in light of the rising interest rate environment. Average demand deposits increased $0.5 billion, or 1%, primarily driven by a $0.3 billion, or 1%, increase in average commercial demand deposits. Average long-term debt increased $0.5 billion, or 6%, reflecting the issuance of $2.0 billion and maturity of $1.3 billion of senior debt over the past four quarters. Partially offsetting these increases, average savings and other domestic deposits decreased $0.7 billion, or 6%, reflecting consumer migration into higher yielding deposit products, such as money market and CDs.

2018 Second Quarter versus 2018 First Quarter

Compared to the 2018 first quarter, FTE net interest income increased $14 million, or 2%, primarily reflecting growth in average earning assets and the impact of day count. Average earning assets increased $1.0 billion, or 1%, sequentially, driven by a $1.4 billion or 2%, increase in average loans, partially offset by a $0.6 billion, or 2%, decrease in average securities. The NIM decreased 1 basis point. Average earning asset yields increased 16 basis points sequentially, driven by a 17 basis point increase in loan yields. Average funding costs increased 23 basis points, primarily driven by higher cost of long-term debt (up 83 basis points) and short-term borrowings (up 35 basis points). The increase in long-term debt is primarily driven by higher rates on variable rate hedges against fixed rate debt, some of which were terminated in the quarter, as well as derivative hedging ineffectiveness recognized during the 2018 second quarter. Average interest-bearing deposit costs increased 16 basis points, while noninterest-bearing funding improved 6 basis points. Day count negatively impacted the NIM by 1 basis point on a linked quarter basis. The purchase accounting impact on the net interest margin was approximately 8 basis points in the 2018 second quarter, unchanged from the prior quarter.

Compared to the 2018 first quarter, average earning assets increased $1.0 billion, or 1%, reflecting the $1.4 billion, or 2%, increase in average loans and leases. Average C&I loans increased $0.6 billion, or 2%, reflecting broad-based growth in middle market, asset finance, energy, and specialty. Average residential mortgage loans increased $0.5 billion, or 5%, driven by seasonality and the expansion of our home lending business. Average securities decreased $0.6 billion, or 2%, primarily due to runoff in the portfolio.

Compared to the 2018 first quarter, average total core deposits increased $2.0 billion, or 3%, primarily reflecting a $1.5 billion, or 65%, increase in average core CDs. Average demand deposits increased $0.3 billion, or 1%, primarily driven by a $0.2 billion, or 2%, increase in average consumer demand deposits. Average short-term borrowings decreased $2.1 billion, or 41%, as continued growth in core deposits reduced reliance on wholesale funding.

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Table 5 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
(dollar amounts in millions)
	YTD Average Balances											YTD Average Rates (2)
	Six months ended June 30,						Change					Six months ended June 30,
Fully-taxable equivalent basis (1)	2018			2017			Amount			Percent		2018		2017
Assets:
Interest-bearing deposits in banks	$	87		$	101		$	(14	)	(14	)%	1.96	%	1.31	%
Securities:
Trading account securities	84			114			(30		)	(26	)	0.19		0.17
Available-for-sale securities:
Taxable	10,994			12,401			(1,407		)	(11	)	2.57		2.34
Tax-exempt	3,593			3,075			518			17		3.26		3.74
Total available-for-sale securities	14,587			15,476			(889		)	(6	)	2.74		2.62
Held-to-maturity securities—taxable	8,791			7,541			1,250			17		2.44		2.37
Other securities	602			569			33			6		4.28		3.23
Total securities	24,064			23,700			364			2		2.67		2.55
Loans held for sale	549			470			79			17		4.02		3.76
Loans and leases: (3)
Commercial:
Commercial and industrial	28,555			27,957			598			2		4.40		4.01
Commercial real estate:
Construction	1,157			1,221			(64		)	(5	)	4.99		4.09
Commercial	6,188			5,990			198			3		4.41		3.83
Commercial real estate	7,345			7,211			134			2		4.50		3.88
Total commercial	35,900			35,168			732			2		4.42		3.98
Consumer:
Automobile	12,186			11,194			992			9		3.60		3.55
Home equity	9,986			9,994			(8		)	—		4.99		4.54
Residential mortgage	9,401			7,879			1,522			19		3.68		3.65
RV and marine finance	2,574			1,957			617			32		5.11		5.60
Other consumer	1,143			972			171			18		11.80		11.49
Total consumer	35,290			31,996			3,294			10		4.39		4.25
Total loans and leases	71,190			67,164			4,026			6		4.41		4.11
Allowance for loan and lease losses	(726		)	(654		)	(72		)	11
Net loans and leases	70,464			66,510			3,954			6
Total earning assets	95,890			91,435			4,455			5		4.00	%	3.73	%
Cash and due from banks	1,250			1,647			(397		)	(24	)
Intangible assets	2,325			2,380			(55		)	(2	)
All other assets	5,598			5,424			174			3
Total assets	$	104,337		$	100,232		$	4,105		4	%
Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	20,477		$	21,664		$	(1,187	)	(5	)%	—	%	—	%
Demand deposits—interest-bearing	18,877			17,127			1,750			10		0.33		0.18
Total demand deposits	39,354			38,791			563			1		0.16		0.08
Money market deposits	20,811			18,934			1,877			10		0.52		0.29
Savings and other domestic deposits	11,182			11,930			(748		)	(6	)	0.20		0.21
Core certificates of deposit	3,048			2,243			805			36		1.35		0.47
Total core deposits	74,395			71,898			2,497			3		0.44		0.24
Other domestic time deposits of $250,000 or more	245			474			(229		)	(48	)	0.85		0.47
Brokered deposits and negotiable CDs	3,485			3,876			(391		)	(10	)	1.65		0.83
Total deposits	78,125			76,248			1,877			2		0.51		0.28
Short-term borrowings	4,149			3,236			913			28		1.60		0.69
Long-term debt	9,092			8,630			462			5		3.34		2.41
Total interest-bearing liabilities	70,889			66,450			4,439			7		0.94		0.58
All other liabilities	1,876			1,609			267			17
Shareholders’ equity	11,095			10,509			586			6
Total liabilities and shareholders’ equity	$	104,337		$	100,232		$	4,105		4	%
Net interest rate spread												3.06		3.15
Impact of noninterest-bearing funds on margin												0.24		0.16
Net interest margin												3.30	%	3.31	%


(1)	FTE yields are calculated assuming a 21% tax rate and a 35% tax rate for periods prior to January 1, 2018.


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


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

Table of Contents

2018 First Six Months versus 2017 First Six Months

FTE net interest income for the first six-month period of 2018 increased $69 million, or 5%. This reflected the benefit of a $4.5 billion, or 5%, increase in average total earning assets, partially offset by a basis point decrease in the FTE NIM to 3.30%. Average loans and leases increased $4.0 billion, or 6%, primarily reflecting an increase in C&I, automobile, residential mortgage and RV and marine finance lending. Average earning asset yields increased 27 basis points sequentially, driven by a 30 basis point increase in loan yields. Average funding costs increased 36 basis points, primarily driven by higher cost of short-term borrowings (up 91 basis points) and long-term debt (up 93 basis points). Average interest-bearing deposit costs increased 23 basis points, while noninterest-bearing funding improved 8 basis points.

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 for the 2018 second quarter was $56 million, which increased $31 million, or 124%, compared to the second quarter 2017. On a year-to-date basis, provision for credit losses for the first six-month period of 2018 was $122 million, an increase of $29 million, or 31%, compared to year-ago period. The increase from the 2018 first quarter and prior year-to-date provision for credit losses was primarily the result of allowance growth attributed to portfolio balance expansion and risk rating migration within the commercial loan portfolio, partially offset by lower NCOs.

Noninterest Income

The following table reflects noninterest income for each of the periods presented:



Table 6 - Noninterest Income
	Three Months Ended						2Q18 vs. 2Q17					2Q18 vs. 1Q18
	June 30,		March 31,		June 30,		Change					Change
(dollar amounts in millions)	2018		2018		2017		Amount			Percent		Amount			Percent
Service charges on deposit accounts	$	91	$	86	$	88	$	3		3	%	$	5		6	%
Cards and payment processing income	56		53		52		4			8		3			6
Trust and investment management services	42		44		37		5			14		(2		)	(5	)
Mortgage banking income	28		26		32		(4		)	(13	)	2			8
Insurance income	21		21		22		(1		)	(5	)	—			—
Capital markets fees	21		19		17		4			24		2			11
Bank owned life insurance income	17		15		15		2			13		2			13
Gain on sale of loans	15		8		12		3			25		7			88
Securities gains (losses)	—		—		—		—			—		—			—
Other income	45		42		50		(5		)	(10	)	3			7
Total noninterest income	$	336	$	314	$	325	$	11		3	%	$	22		7	%

2018 Second Quarter versus 2017 Second Quarter

Reported noninterest income for the 2018 second quarter increased $11 million, or 3%, from the year-ago quarter, reflecting ongoing household / relationship acquisition and execution of our Optimal Customer Relationship (OCR) strategy. Trust and investment management services increased $5 million, or 14%, reflecting strong equity market performance. Other income decreased $5 million, or 10%, primarily reflecting a $3 million unfavorable Visa Class B derivative fair value adjustment.

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2018 Second Quarter versus 2018 First Quarter

Compared to the 2018 first quarter, reported noninterest income increased $22 million, or 7%. Gain on sale of loans increased $7 million, or 88%, reflecting $5 million of gains on the sale of asset finance leases and the seasonal increase in SBA loan sales. Service charges on deposit accounts increased $5 million, or 6%, primarily reflecting seasonality in consumer service charges.



Table 7 - Noninterest Income—2018 First Six Months vs. 2017 First Six Months

	Six Months Ended June 30,				Change
(dollar amounts in thousands)	2018		2017		Amount			Percent
Service charges on deposit accounts	$	177	$	171	$	6		4	%
Cards and payment processing income	109		100		9			9
Trust and investment management services	86		76		10			13
Mortgage banking income	54		64		(10		)	(16	)
Insurance income	42		42		—			—
Capital markets fees	40		31		9			29
Bank owned life insurance income	32		33		(1		)	(3	)
Gain on sale of loans	23		25		(2		)	(8	)
Securities gains (losses)	—		—		—			—
Other income	87		96		(9		)	(9	)
Total noninterest income	$	650	$	638	$	12		2	%

Noninterest income for the first six-month period of 2018 increased $12 million, or 2%, from the year-ago period, primarily reflecting ongoing household / relationship acquisition and execution of our Optimal Customer Relationship (OCR) strategy. Trust and investment management services increased $10 million, or 13%, primarily reflecting continued growth of managed accounts and strong equity market performance. Capital market fees increased $9 million, or 29%, reflecting increased foreign exchange and interest rate derivative activity. Cards and payment processing income increased $9 million, or 9%, due to higher credit and debit card related income and underlying customer growth. Mortgage banking decreased $10 million, or 16%, driven by lower spreads on origination volume. Other income decreased $9 million, or 9%, reflecting an unfavorable Visa Class B derivative fair value adjustment.

Noninterest Expense

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

The following table reflects noninterest expense for each of the periods presented:



Table 8 - Noninterest Expense
	Three Months Ended						2Q18 vs. 2Q17					2Q18 vs. 1Q18
	June 30,		March 31,		June 30,		Change					Change
(dollar amounts in millions)	2018		2018		2017		Amount			Percent		Amount			Percent
Personnel costs	$	396	$	376	$	392	$	4		1	%	$	20		5	%
Outside data processing and other services	69		73		75		(6		)	(8	)	(4		)	(5	)
Net occupancy	35		41		53		(18		)	(34	)	(6		)	(15	)
Equipment	38		40		43		(5		)	(12	)	(2		)	(5	)
Deposit and other insurance expense	18		18		20		(2		)	(10	)	—			—
Professional services	15		11		18		(3		)	(17	)	4			36
Marketing	18		8		19		(1		)	(5	)	10			125
Amortization of intangibles	13		14		14		(1		)	(7	)	(1		)	(7	)
Other noninterest expense	50		52		60		(10		)	(17	)	(2		)	(4	)
Total noninterest expense	$	652	$	633	$	694	$	(42	)	(6	)%	$	19		3	%
Number of employees (average full-time equivalent)	15,732		15,599		16,103		(371		)	(2	)%	133			1	%

Table of Contents

Impacts of Significant Items:



	Three Months Ended
	June 30,		March 31,		June 30,
(dollar amounts in millions)	2018		2018		2017
Personnel costs	$	—	$	—	$	18
Outside data processing and other services	—		—		6
Net occupancy	—		—		14
Equipment	—		—		4
Professional services	—		—		4
Marketing	—		—		—
Other noninterest expense	—		—		4
Total noninterest expense adjustments	$	—	$	—	$	50

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



	Three Months Ended						2Q18 vs. 2Q17					2Q18 vs. 1Q18
	June 30,		March 31,		June 30,		Change					Change
(dollar amounts in millions)	2018		2018		2017		Amount			Percent		Amount			Percent
Personnel costs	$	396	$	376	$	374	$	22		6	%	$	20		5	%
Outside data processing and other services	69		73		69		—			—		(4		)	(5	)
Net occupancy	35		41		39		(4		)	(10	)	(6		)	(15	)
Equipment	38		40		39		(1		)	(3	)	(2		)	(5	)
Deposit and other insurance expense	18		18		20		(2		)	(10	)	—			—
Professional services	15		11		14		1			7		4			36
Marketing	18		8		19		(1		)	(5	)	10			125
Amortization of intangibles	13		14		14		(1		)	(7	)	(1		)	(7	)
Other noninterest expense	50		52		56		(6		)	(11	)	(2		)	(4	)
Total adjusted noninterest expense (Non-GAAP)	$	652	$	633	$	644	$	8		1	%	$	19		3	%

2018 Second Quarter versus 2017 Second Quarter

Reported noninterest expense for the 2018 second quarter decreased $42 million, or 6%, from the year-ago quarter, primarily reflecting the $50 million of acquisition-related Significant Items in the year-ago quarter. Personnel costs increased $4 million, or 1%, primarily reflecting increased incentive compensation and benefits costs, partially offset by an $18 million decrease in acquisition-related Significant Items. Other expense decreased $10 million, or 17%, primarily reflecting a decrease in franchise taxes and $4 million of acquisition-related Significant Items in the year-ago quarter.

2018 Second Quarter versus 2018 First Quarter

Reported noninterest expense increased $19 million, or 3%, from the 2018 first quarter. Personnel costs increased $20 million, or 5%, reflecting the implementation of annual merit increases and grant of annual long-term equity incentive compensation, both in May. Marketing expense increased $10 million, or 125%, reflecting the timing of marketing campaigns and deposit promotions. Net occupancy expense decreased $6 million, or 15%, due to seasonality.

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Table 9 - Noninterest Expense—2018 First Six Months vs. 2017 First Six Months

	Six Months Ended June 30,				Change
(dollar amounts in thousands)	2018		2017		Amount			Percent
Personnel costs	$	772	$	774	$	(2	)	—	%
Outside data processing and other services	142		162		(20		)	(12	)
Net occupancy	76		120		(44		)	(37	)
Equipment	78		90		(12		)	(13	)
Deposit and other insurance expense	36		41		(5		)	(12	)
Professional services	26		36		(10		)	(28	)
Marketing	26		33		(7		)	(21	)
Amortization of intangibles	27		29		(2		)	(7	)
Other noninterest expense	102		117		(15		)	(13	)
Total noninterest expense	$	1,285	$	1,402	$	(117	)	(8	)%

Impacts of Significant Items:



	Six Months Ended June 30,
(dollar amounts in thousands)	2018		2017
Personnel costs	$	—	$	37
Outside data processing and other services	—		21
Net occupancy	—		38
Equipment	—		10
Professional services	—		8
Marketing	—		1
Other noninterest expense	—		9
Total noninterest expense adjustments	$	—	$	124

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



	Six Months Ended June 30,				Change
(dollar amounts in thousands)	2018		2017		Amount			Percent
Personnel costs	$	772	$	737	$	35		5	%
Outside data processing and other services	142		141		1			1
Net occupancy	76		82		(6		)	(7	)
Equipment	78		80		(2		)	(3	)
Deposit and other insurance expense	36		41		(5		)	(12	)
Professional services	26		28		(2		)	(7	)
Marketing	26		32		(6		)	(19	)
Amortization of intangibles	27		29		(2		)	(7	)
Other noninterest expense	102		108		(6		)	(6	)
Total adjusted noninterest expense (Non-GAAP)	$	1,285	$	1,278	$	7		1	%

Reported noninterest expense decreased $117 million, or 8%, from the year-ago period, primarily reflecting the $124 million of acquisition-related Significant Items in the year-ago period. Net occupancy expense decreased $44 million, or 37%, primarily reflecting $38 million of acquisition-related expense. Outside data processing and other services decreased $20 million, or 12%, reflecting $21 million of acquisition-related expense. Other noninterest expense decreased $15 million, or 13%, reflecting $9 million of acquisition-related expense. Equipment expense decreased $12 million, or 13%, primarily due to $10 million of acquisition-related expense. Professional services decreased $10 million, or 28%, primarily reflecting $8 million of acquisition-related expense in the year-ago period.

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Provision for Income Taxes

The provision for income taxes in the 2018 second quarter was $57 million. This compared with a provision for income taxes of $79 million in the 2017 second quarter and $59 million in the 2018 first quarter. The provision for income taxes for the six-month periods ended June 30, 2018 and June 30, 2017 was $116 million and $138 million, respectively. All periods 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. The 2018 second quarter and 2018 first quarter also included expense for nondeductible FDIC insurance premiums. The effective tax rates for the 2018 second quarter, 2017 second quarter, and 2018 first quarter were 13.8%, 22.4%, and 15.3%, respectively. The effective tax rates for the six month period ended June 30, 2018 and June 30, 2017 were 14.6% and 22.3%, respectively. The variance between the 2018 second quarter compared to the 2017 second quarter, and the six month period ended June 30, 2018 compared to the six month period ended June 30, 2017 in the provision for income taxes and effective tax rates relates primarily to the impact of the TCJA. The net federal deferred tax liability was $141 million and the net state deferred tax asset was $24 million at June 30, 2018.

We file income tax returns with the IRS and various state, city, and foreign jurisdictions. 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 has begun the examination of the 2015 federal income tax return in second quarter 2018. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, Wisconsin, and Illinois.

RISK MANAGEMENT AND CAPITAL

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

We believe that our primary risk exposures are credit, market, liquidity, operational and compliance. More information on risk can be found in the Risk Factors section included in Item 1A of our 2017 Form 10-K and subsequent filings with the SEC. The MD&A included in our 2017 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the Form 10-K. This MD&A should also be read in conjunction with the financial statements, notes and other information contained in this report. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 2017 Form 10-K.

Credit Risk

Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. We also have credit risk associated with our AFS, HTM, and other securities portfolios (see Note 4, Note 5, and Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. While there is credit risk associated with derivative activity, we believe this exposure is minimal.

We continue to focus on the identification, monitoring, and management 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.

Loan and Lease Credit Exposure Mix

Refer to the “Loan and Lease Credit Exposure Mix” section of our 2017 Form 10-K for a brief description of each portfolio segment.

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



Table 10 - Loan and Lease Portfolio Composition

(dollar amounts in millions)	June 30, 2018				March 31, 2018				December 31, 2017				September 30, 2017				June 30, 2017
Commercial:
Commercial and industrial	$	28,850	40	%	$	28,622	40	%	$	28,107	40	%	$	27,469	40	%	$	27,969	41	%
Commercial real estate:
Construction	1,083		1		1,167		2		1,217		2		1,182		2		1,145		2
Commercial	6,118		8		6,245		9		6,008		9		6,024		9		6,000		9
Commercial real estate	7,201		9		7,412		11		7,225		11		7,206		11		7,145		11
Total commercial	36,051		49		36,034		51		35,332		51		34,675		51		35,114		52
Consumer:
Automobile	12,390		17		12,146		17		12,100		17		11,876		17		11,555		17
Home equity	9,907		14		9,987		14		10,099		14		9,985		15		9,966		15
Residential mortgage	10,006		14		9,357		13		9,026		13		8,616		13		8,237		12
RV and marine finance	2,846		4		2,549		3		2,438		3		2,371		3		2,178		3
Other consumer	1,206		2		1,090		2		1,122		2		1,064		1		1,009		1
Total consumer	36,355		51		35,129		49		34,785		49		33,912		49		32,945		48
Total loans and leases	$	72,406	100	%	$	71,163	100	%	$	70,117	100	%	$	68,587	100	%	$	68,059	100	%

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.

Commercial Credit

Refer to the “Commercial Credit” section of our 2017 Form 10-K for our commercial credit underwriting and on-going credit management processes.

Consumer Credit

Refer to the “Consumer Credit” section of our 2017 Form 10-K for our consumer credit underwriting and on-going credit management processes.

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The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition from December 31, 2017 are consistent with the portfolio growth metrics.



Table 11 - Loan and Lease Portfolio by Industry Type

(dollar amounts in millions)	June 30, 2018				March 31, 2018				December 31, 2017				September 30, 2017				June 30, 2017
Commercial loans and leases:
Real estate and rental and leasing	$	7,314	10	%	$	7,509	11	%	$	7,378	11	%	$	7,461	11	%	$	7,588	12	%
Retail trade (1)	4,886		7		5,034		7		4,886		7		4,643		7		4,805		7
Manufacturing	4,867		7		4,780		7		4,791		7		4,874		7		4,916		7
Finance and insurance	3,188		4		3,216		5		3,044		4		2,900		4		3,051		4
Health care and social assistance	2,589		4		2,649		4		2,664		4		2,727		4		2,699		4
Wholesale trade	2,575		4		2,472		3		2,291		3		2,070		3		2,058		3
Accommodation and food services	1,657		2		1,675		2		1,617		2		1,653		2		1,660		2
Professional, scientific, and technical services	1,303		2		1,293		2		1,257		2		1,230		2		1,232		2
Other services	1,266		2		1,263		2		1,296		2		1,265		2		1,261		2
Transportation and warehousing	1,209		2		1,171		2		1,243		2		1,255		2		1,284		2
Construction	1,010		1		1,030		1		976		1		913		1		928		1
Mining, quarrying, and oil and gas extraction	899		1		780		1		694		1		619		1		501		1
Admin./Support/Waste Mgmt. and Remediation Services	611		1		551		1		561		1		484		1		444		1
Arts, entertainment, and recreation	503		1		525		1		593		1		530		1		469		1
Educational services	493		1		498		1		504		1		509		1		570		1
Utilities	417		—		410		—		389		1		431		1		433		1
Information	395		—		434		1		467		1		468		1		458		1
Unclassified/Other	336		—		244		—		163		—		122		—		183		—
Public administration	255		—		236		—		255		—		262		—		274		—
Agriculture, forestry, fishing and hunting	195		—		164		—		172		—		176		—		203		—
Management of companies and enterprises	83		—		100		—		91		—		83		—		97		—
Total commercial loans and leases by industry category	36,051		49		36,034		51		35,332		51		34,675		51		35,114		52
Automobile	12,390		17		12,146		17		12,100		17		11,876		17		11,555		17
Residential mortgage	10,006		14		9,357		13		9,026		13		8,616		13		8,237		12
Home Equity	9,907		14		9,987		14		10,099		14		9,985		15		9,966		15
RV and marine finance	2,846		4		2,549		3		2,438		3		2,371		3		2,178		3
Other consumer loans	1,206		2		1,090		2		1,122		2		1,064		1		1,009		1
Total loans and leases	$	72,406	100	%	$	71,163	100	%	$	70,117	100	%	$	68,587	100	%	$	68,059	100	%


(1)	Amounts include $3.2 billion, $3.4 billion, $3.2 billion, $3.0 billion and $3.2 billion of auto dealer services loans at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively.

Credit Quality

(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements.)

We believe the most meaningful way to assess overall credit quality performance is through an analysis of credit quality performance ratios. This approach forms the basis of most of the discussion in the sections immediately following: NPAs, NALs, and 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.

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Credit quality performance in the 2018 second quarter reflected continued overall positive results with continued low net charge-offs. Total NCOs were $28 million, or 0.16% annualized, of average total loans and leases. Net charge-offs decreased by $10 million from the prior quarter, due to a decrease in net charge-offs in the C&I and consumer portfolios. There was a 2% decline in NPAs from the prior quarter. NPAs to total loans and leases remains low at 0.57%. The ALLL to total loans and leases ratio increased 1 basis points to 1.02%. The ACL to total loans and leases ratio increased 2 basis points to 1.15%.

NPAs, NALs, AND TDRs

(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements and "Credit Quality" section of our 2017 Form 10-K.)

NPAs and NALs

Of the $232 million of C&I and CRE-related NALs at June 30, 2018, $152 million, or 66%, 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 generally charged-off at 120-days past due.

When, in our judgment, the borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status.

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



Table 12 - Nonaccrual Loans and Leases and Nonperforming Assets

(dollar amounts in millions)	June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017
Nonaccrual loans and leases (NALs):
Commercial and industrial	$	207		$	190		$	161		$	170		$	195
Commercial real estate	25			30			29			18			17
Automobile	4			5			6			4			4
Home equity	68			75			68			71			68
Residential mortgage	73			82			84			75			80
RV and marine finance	1			1			1			—			—
Other consumer	—			—			—			—			—
Total nonaccrual loans and leases	378			383			349			338			364
Other real estate, net:
Residential	23			23			24			26			27
Commercial	5			7			9			16			17
Total other real estate, net	28			30			33			42			44
Other NPAs (1)	6			7			7			7			7
Total nonperforming assets	$	412		$	420		$	389		$	387		$	415

Nonaccrual loans and leases as a % of total loans and leases	0.52		%	0.54		%	0.50		%	0.49		%	0.54		%
NPA ratio (2)	0.57			0.59			0.55			0.56			0.61


(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, other real estate owned, and other NPAs.

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2018 Second Quarter versus 2017 Fourth Quarter.

Total NPAs increased by $23 million, or 6%, compared with December 31, 2017 primarily related to an increase in the C&I portfolio, partially offset by a decrease in nonperforming loans secured by residential properties. The commercial increase was centered in a small number of credits from diverse industries.

TDR Loans

(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements and TDR Loans section of our 2017 Form 10-K.)

Over the past five quarters, the accruing component of the total TDR balance has been approximately 83%, indicating there is no identified credit loss and the borrowers continue to make their monthly payments. In fact, over 75% of the $479 million of accruing TDRs secured by residential real estate (Residential mortgage and Home equity in Table 13) are current on their required payments. In addition, over 60% of the accruing pool have had no delinquency in the past 12 months. There is limited migration from the accruing to non-accruing components, and virtually all of the charge-offs come from the non-accruing TDR balances.

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



Table 13 - Accruing and Nonaccruing Troubled Debt Restructured Loans

(dollar amounts in millions)	June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017		June 30, 2017
TDRs—accruing:
Commercial and industrial	$	314	$	316	$	300	$	268	$	270
Commercial real estate	65		76		78		80		74
Automobile	32		32		30		29		28
Home equity	258		261		265		265		269
Residential mortgage	221		224		224		235		238
RV and marine finance	1		1		1		1		1
Other consumer	9		6		8		7		4
Total TDRs—accruing	900		916		906		885		884
TDRs—nonaccruing:
Commercial and industrial	87		83		82		96		90
Commercial real estate	14		16		15		4		4
Automobile	3		3		4		4		4
Home equity	28		31		28		31		29
Residential mortgage	46		52		55		50		56
RV and marine finance	1		—		—		—		—
Other consumer	—		—		—		—		—
Total TDRs—nonaccruing	179		185		184		185		183
Total TDRs	$	1,079	$	1,101	$	1,090	$	1,070	$	1,067

Overall TDRs decreased slightly in the quarter. The Commercial accruing TDR level has increased over the five quarter period as Huntington continues to proactively work with our Commercial borrowing relationships that require assistance. The resulting loan structures enable our borrowers to meet their commitments and Huntington to retain earning assets. The accruing component of TDRs meet the well secured definition and have demonstrated a period of satisfactory payment performance.

ACL

(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements.)

Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. Our ACL methodology committee is responsible for developing the methodology, assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of losses inherent in the loan portfolio at the reported date. Additions to the ALLL result from recording provision expense for loan losses or increased risk levels resulting from loan risk-rating downgrades or qualitative adjustments, 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

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applying the same quantitative reserve determination process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation.

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, and net deferred loan fees and costs.

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.

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



Table 14 - Allocation of Allowance for Credit Losses (1)

(dollar amounts in millions)	June 30, 2018				March 31, 2018				December 31, 2017				September 30, 2017				June 30, 2017
ALLL
Commercial
Commercial and industrial	$	413	40	%	$	402	40	%	$	377	40	%	$	374	40	%	$	368	41	%
Commercial real estate	118		9		113		11		105		11		100		11		107		11
Total commercial	531		49		515		51		482		51		474		51		475		52
Consumer
Automobile	52		17		52		17		53		17		50		17		48		17
Home equity	55		14		57		14		60		14		58		15		63		15
Residential mortgage	24		14		24		13		21		13		29		13		33		12
RV and marine finance	17		4		16		3		15		3		13		3		8		3
Other consumer	62		2		57		2		60		2		51		1		41		1
Total consumer	210		51		206		49		209		49		201		49		193		48
Total ALLL	741		100	%	721		100	%	691		100	%	675		100	%	668		100	%
AULC	93				85				87				79				85
Total ACL	$	834			$	806			$	778			$	754			$	753
Total ALLL as a % of
Total loans and leases			1.02%				1.01%				0.99%				0.98%				0.98%
Nonaccrual loans and leases			197				188				198				200				183
NPAs			180				172				178				175				161
Total ACL as % of
Total loans and leases			1.15%				1.13%				1.11%				1.10%				1.11%


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

2018 Second Quarter versus 2017 Fourth Quarter

At June 30, 2018, the ALLL was $741 million, compared to $691 million at December 31, 2017. The $50 million, or 7%, increase in the ALLL relates to growth in reserve levels associated with new loan originations as well as an increase in NALs in the Commercial portfolio. The ALLL to total loans ratio was 1.02% at June 30, 2018 and 0.99% at December 31, 2017. The ACL to total loans ratio was 1.15% at June 30, 2018 and 1.11% at December 31, 2017. In addition to the ALLL contribution, the ACL increased primarily as the result of increased expectations on future line utilization within our commercial portfolio. We believe these ratios are appropriate given the overall moderate-to-low risk profile of our loan portfolio and its coverage levels reflect the quality of our portfolio and the current operating environment. We continue to focus on early identification of loans with changes in credit metrics and have proactive action plans for these loans.

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NCOs

A 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 by 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 fully 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 15 - Quarterly Net Charge-off Analysis
	Three Months Ended
	June 30,			March 31,			June 30,
(dollar amounts in millions)	2018			2018			2017
Net charge-offs (recoveries) by loan and lease type:
Commercial:
Commercial and industrial	$	3		$	17		$	13
Commercial real estate:
Construction	—			(1		)	—
Commercial	(1		)	(13		)	(4		)
Commercial real estate	(1		)	(14		)	(4		)
Total commercial	2			3			9
Consumer:
Automobile	7			10			9
Home equity	—			3			1
Residential mortgage	1			1			1
RV and marine finance	2			3			2
Other consumer	16			18			14
Total consumer	26			35			27
Total net charge-offs	$	28		$	38		$	36

	Three Months Ended
	June 30,			March 31,			June 30,
	2018			2018			2017
Net charge-offs (recoveries) - annualized percentages:
Commercial:
Commercial and industrial	0.04		%	0.24		%	0.18		%
Commercial real estate:
Construction	(0.22		)	(0.18		)	0.03
Commercial	(0.06		)	(0.80		)	(0.24		)
Commercial real estate	(0.08		)	(0.70		)	(0.20		)
Total commercial	0.02			0.04			0.11
Consumer:
Automobile	0.22			0.32			0.29
Home equity	0.01			0.11			0.05
Residential mortgage	0.04			0.04			0.05
RV and marine finance	0.34			0.42			0.37
Other consumer	5.60			6.51			5.81
Total consumer	0.30			0.39			0.33
Net charge-offs as a % of average loans	0.16		%	0.21		%	0.21		%

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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.

2018 Second Quarter versus 2018 First Quarter

NCOs were an annualized 0.16% of average loans and leases in the current quarter, a decrease from 0.21% in the 2018 first quarter, and below our average through-the-cycle target range of 0.35% - 0.55%. Annualized NCOs for the C&I portfolio decreased significantly to 0.04% in the current quarter compared to 2018 first quarter based on an increased level of recovery activity. Consumer charge-offs were lower for the quarter, primarily driven by seasonality trends across the consumer portfolio, consistent with our expectations. Given the low level of C&I and CRE NCOs, we have experienced and continue to expect some volatility on a quarter-to-quarter comparison basis.

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The table below reflects NCO detail for the six-month periods ended June 30, 2018 and 2017:



Table 16 - Year to Date Net Charge-off Analysis
	Six Months Ended June 30,
(dollar amounts in millions)	2018			2017
Net charge-offs (recoveries) by loan and lease type: (1)
Commercial:
Commercial and industrial	$	20		$	21
Commercial real estate:
Construction	(1		)	(3		)
Commercial	(14		)	(3		)
Commercial real estate	(15		)	(6		)
Total commercial	5			15
Consumer:
Automobile	17			21
Home equity	3			3
Residential mortgage	2			4
RV and marine finance	5			4
Other consumer	34			28
Total consumer	61			60
Total net charge-offs	$	66		$	75


	Six Months Ended June 30,
	2018			2017
Net charge-offs (recoveries) - annualized percentages:
Commercial:
Commercial and industrial	0.14		%	0.15		%
Commercial real estate:
Construction	(0.20		)	(0.50		)
Commercial	(0.42		)	(0.09		)
Commercial real estate	(0.39		)	(0.16		)
Total commercial	0.03			0.09
Consumer:
Automobile	0.27			0.37
Home equity	0.06			0.06
Residential mortgage	0.04			0.09
RV and marine finance	0.38			0.43
Other consumer	6.02			5.93
Total consumer	0.34			0.38
Net charge-offs as a % of average loans	0.19		%	0.22		%

(1) Amounts presented above exclude write-downs of loans transferred to loans held for sale.

2018 First Six Months versus 2017 First Six Months

NCOs were $66 million, a decline of $9 million when compared with the same period in the prior year. Given the low level of C&I and CRE NCO’s, we expect some continued volatility on a period-to-period comparison basis.

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Market Risk

(This section should be read in conjunction with the “Market Risk” section of our 2017 Form 10-K for our on-going market risk management processes.)

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from trading securities, securities owned by our broker-dealer subsidiary, foreign exchange positions, equity investments, and investments in securities backed by mortgage loans.

Interest Rate Risk



Table 17 - Net Interest Income at Risk
	Net Interest Income at Risk (%)
Basis point change scenario	-25		+100		+200
Board policy limits	—	%	-2.0	%	-4.0	%
June 30, 2018	-0.6	%	2.9	%	5.9	%
December 31, 2017	-0.6	%	2.5	%	4.8	%

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.

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 June 30, 2018, and December 31, 2017.



Table 18 - 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	%
June 30, 2018	-0.7	%	1.7	%	2.1	%
December 31, 2017	-0.5	%	1.9	%	1.9	%

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.

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 asset sensitive balance sheet profile, positioning us for rising interest rates.

MSRs

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

At June 30, 2018, we had a total of $215 million of capitalized MSRs representing the right to service $20 billion in mortgage loans. Of this $215 million, $11 million was recorded using the fair value method and $204 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 Unaudited Condensed Consolidated Financial Statements.

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Price Risk

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

(This section should be read in conjunction with the “Liquidity Risk” section of our 2017 Form 10-K for our on-going liquidity risk management processes.)

Our primary source of liquidity is our core deposit base. Core deposits comprised approximately 96% of total deposits at June 30, 2018. We also have available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets, and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $15.2 billion as of June 30, 2018.

Bank Liquidity and Sources of Funding

Our primary sources of funding for the Bank are retail and commercial core deposits. At June 30, 2018, these core deposits funded 72% 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 were $24 million and $22 million at June 30, 2018 and December 31, 2017, respectively.

The following table reflects deposit composition detail for each of the last five quarters:



Table 19 - Deposit Composition

	June 30,				March 31,				December 31,				September 30,				June 30,
(dollar amounts in millions)	2018				2018				2017				2017				2017
By Type:
Demand deposits—noninterest-bearing	$	20,353	26	%	$	20,807	26	%	$	21,546	28	%	$	22,225	28	%	$	21,420	28	%
Demand deposits—interest-bearing	19,026		24		19,337		25		18,001		23		18,343		23		17,113		23
Money market deposits	20,990		26		20,849		26		20,690		27		20,553		26		19,423		26
Savings and other domestic deposits	10,987		14		11,291		14		11,270		15		11,441		15		11,758		15
Core certificates of deposit	4,402		6		3,157		4		1,934		3		2,009		3		2,088		3
Total core deposits:	75,758		96		75,441		95		73,441		96		74,571		95		71,802		95
Other domestic deposits of $250,000 or more	265		—		228		—		239		—		418		1		441		1
Brokered deposits and negotiable CDs	3,564		4		3,802		5		3,361		4		3,456		4		3,690		4
Total deposits	$	79,587	100	%	$	79,471	100	%	$	77,041	100	%	$	78,445	100	%	$	75,933	100	%
Total core deposits:
Commercial	$	34,094	45	%	$	34,615	46	%	$	34,273	47	%	$	35,516	48	%	$	32,201	45	%
Consumer	41,664		55		40,826		54		39,168		53		39,055		52		39,601		55
Total core deposits	$	75,758	100	%	$	75,441	100	%	$	73,441	100	%	$	74,571	100	%	$	71,802	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 $34.1 billion and $31.7 billion at June 30, 2018 and December 31, 2017, 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, short-term borrowings, and long-term debt. At June 30, 2018, total wholesale funding was $16.0 billion, a decrease from $17.9 billion at December 31, 2017. The decrease from year-end primarily relates to a decrease in short-term borrowings.

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Liquidity Coverage Ratio

At June 30, 2018, the Bank is in compliance with the LCR requirements and management believes it has sufficient liquidity to meet its cash flow obligations for the foreseeable future.

Parent Company Liquidity

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

At June 30, 2018 and December 31, 2017, the parent company had $2.9 billion and $1.6 billion, respectively, in cash and cash equivalents.

During the 2018 first quarter, Huntington elected to effect the conversion of all of its outstanding 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock into common stock, and issued $500 million of Series E Preferred Stock. See Note 10 for further information.

On July 17, 2018, the board of directors declared a quarterly common stock cash dividend of $0.14 per common share. The dividend is payable on October 1, 2018, to shareholders of record on September 17, 2018. Based on the current quarterly dividend of $0.14 per common share, cash demands required for common stock dividends are estimated to be approximately $155 million per quarter. On July 17, 2018, the board of directors declared a quarterly Series B, Series C, Series D, and Series E Preferred Stock dividend payable on October 15, 2018 to shareholders of record on October 1, 2018. Cash demands required for Series B are expected to be less than $1 million per quarter. Cash demands required for Series C, Series D and Series E are expected to be approximately $2 million, $9 million and $7 million per quarter, respectively.

During the first six months of 2018, the Bank paid a preferred dividend of $22 million and common stock dividend of $549 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.

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 cyberattacks 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 an Operational Risk Committee, a Legal, Regulatory, and Compliance Committee, and a 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

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issues. In addition, we have a Model Risk Oversight Committee that is responsible for policies and procedures describing how model risk is evaluated and managed and the application of the governance process to implement these practices throughout the enterprise. These committees report any significant findings and recommendations to the Risk Management Committee. Potential concerns may be escalated to our ROC of the Board, as appropriate. Significant findings or issues are escalated by the Third Party Risk Management Committee to the Technology Committee of the Board, as appropriate.

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

Compliance Risk

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

Capital

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

The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the periods presented:



Table 20 - Regulatory Capital Data
		Basel III
(dollar amounts in millions)		June 30, 2018			March 31, 2018			June 30, 2017
Total risk-weighted assets	Consolidated	$	82,951		$	81,365		$	78,366
	Bank	83,051			81,478			78,489
CET I risk-based capital	Consolidated	8,737			8,504			7,740
	Bank	9,016			8,751			8,367
Tier 1 risk-based capital	Consolidated	9,944			9,712			8,809
	Bank	9,896			9,632			9,238
Tier 2 risk-based capital	Consolidated	1,643			1,610			1,640
	Bank	1,833			1,803			1,706
Total risk-based capital	Consolidated	11,587			11,322			10,449
	Bank	11,729			11,435			10,944
Tier 1 leverage ratio	Consolidated	9.65		%	9.53		%	8.98		%
	Bank	9.62			9.46			9.43
CET I risk-based capital ratio	Consolidated	10.53			10.45			9.88
	Bank	10.86			10.74			10.66
Tier 1 risk-based capital ratio	Consolidated	11.99			11.94			11.24
	Bank	11.92			11.82			11.77
Total risk-based capital ratio	Consolidated	13.97			13.92			13.33
	Bank	14.12			14.03			13.94

At June 30, 2018, we maintained Basel III transitional capital ratios in excess of the well-capitalized standards established by the FRB.

CET1 risk-based capital ratio was 10.53% at June 30, 2018, up from 10.45% at March 31, 2018. The regulatory Tier 1 risk-based capital ratio was 11.99% compared to 11.94% at March 31, 2018.

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Over the past four quarters, the Company repurchased $308 million of common stock at an average cost of $13.71 per share. In addition, during the 2018 first quarter, $363 million of 8.5% Series A preferred equity was converted into common equity, and subsequently $500 million of 5.7% Series E preferred equity was issued.

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 $11.5 billion at June 30, 2018, an increase of $0.7 billion when compared with December 31, 2017.

On June 28, 2018, 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 2018 CCAR. These actions included a 27% increase in quarterly dividend per common share to $0.14, starting in the third quarter of 2018, the repurchase of up to $1.068 billion of common stock over the next four quarters (July 1, 2018 through June 30, 2019), and maintaining dividends on the outstanding classes of preferred stock and trust preferred securities. Any capital actions, including those contemplated in the above announced actions, are subject to consideration and evaluation by Huntington’s Board of Directors.

On July 17, 2018, the Board authorized the repurchase of up to $1.068 billion of common shares over the four quarters through the 2019 second quarter.

On July 27, 2018, Huntington entered into an accelerated share repurchase agreement for the repurchase of approximately $400 million of its outstanding common shares.

Dividends

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

Share Repurchases

From time to time the board of directors authorizes the Company to repurchase shares of our common stock. Although we announce when the board of directors authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations, including the FRB’s response to our annual capital plan. Huntington repurchased 3.0 million shares during the first six-months of 2018. This completed the remaining repurchase of shares authorized by the Board of Directors on July 19, 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.

Business segment results are determined based upon our management practices, 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.

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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 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 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 six-month periods ending June 30, 2018 and June 30, 2017 is presented in the following table:



Table 21 - Net Income (Loss) by Business Segment
	Six Months Ended June 30,
(dollar amounts in millions)	2018		2017
Consumer and Business Banking	$	213	$	154
Commercial Banking	245		217
Vehicle Finance	85		77
RBHPCG	52		34
Treasury / Other	86		(2		)
Net income	$	681	$	480

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. Assets include investment securities and bank owned life insurance.

Net interest income includes the impact of administering our investment securities portfolios, the net impact of derivatives used to hedge interest rate sensitivity as well as the financial impact associated with our FTP methodology, as described above. Noninterest income includes miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income and securities and trading asset gains or losses. Noninterest expense includes 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 21% tax rate and a 35% percent tax rate for periods prior to January 1, 2018, although 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 at the time to allocate income taxes to the business segments.

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Consumer and Business Banking

Table 22 - Key Performance Indicators for Consumer and Business Banking
	Six Months Ended June 30,						Change
(dollar amounts in millions)	2018			2017			Amount			Percent
Net interest income	$	808		$	759		$	49		6	%
Provision for credit losses	59			51			8			16
Noninterest income	361			355			6			2
Noninterest expense	840			826			14			2
Provision for income taxes	57			83			(26		)	(31	)
Net income	$	213		$	154		$	59		38	%
Number of employees (average full-time equivalent)	8,430			8,816			(386		)	(4	)%
Total average assets	$	26,449		$	25,318		$	1,131		4
Total average loans/leases	21,542			20,514			1,028			5
Total average deposits	46,281			45,260			1,021			2
Net interest margin	3.62		%	3.48		%	0.14		%	4
NCOs	$	49		$	49		$	—		—
NCOs as a % of average loans and leases	0.45		%	0.47		%	(0.02		)%	(4	)

2018 First Six Months versus 2017 First Six Months

Consumer and Business Banking, including Home Lending, reported net income of $213 million in the first six-month period of 2018, an increase of $59 million, or 38%, compared to the year-ago period. Segment net interest income increased $49 million, or 6%, primarily due to an increase in total average loans and deposits. The provision for credit losses increased $8 million, or 16%. Noninterest income increased $6 million, or 2%, due to an increase in card and payment processing income and service charges on deposit accounts, as a result of higher card-related transaction volumes. Noninterest expense increased $14 million, or 2% due to increased personnel costs and allocated expenses.

Home Lending, an operating unit of Consumer and Business Banking, reflects the result of the origination and servicing 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 a loss of $7 million in the first six-month period of 2018, a decrease of $12 million, or 240%, compared to the year-ago period. Noninterest expense increased $15 million, or 22%, as a result of higher allocated indirect costs and higher personnel and loan origination expense. This is the result of higher loan origination volume and increased headcount related to sales expansion initiatives. Total revenues remained largely unchanged due to an improvement in net interest income, offset by a reduction to noninterest income.



Commercial Banking

Table 23 - Key Performance Indicators for Commercial Banking
	Six Months Ended June 30,						Change
(dollar amounts in millions)	2018			2017			Amount			Percent
Net interest income	$	449		$	452		$	(3	)	(1	)%
Provision for credit losses	39			16			23			144
Noninterest income	149			134			15			11
Noninterest expense	249			236			13			6
Provision for income taxes	65			117			(52		)	(44	)
Net income	$	245		$	217		$	28		13	%
Number of employees (average full-time equivalent)	1,238			1,244			(6		)	—	%
Total average assets	$	32,731		$	31,338		$	1,393		4
Total average loans/leases	26,239			25,354			885			3
Total average deposits	21,675			20,276			1,399			7
Net interest margin	3.15		%	3.36		%	(0.21		)%	(6	)
NCOs (Recoveries)	$	(5	)	$	1		$	(6	)	(600	)
NCOs as a % of average loans and leases	(0.04		)%	0.01		%	(0.05		)%	(500	)

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2018 First Six Months versus 2017 First Six Months

Commercial Banking reported net income of $245 million in the first six-month period of 2018, an increase of $28 million, or 13%, compared to the year-ago period. Segment net interest income decreased $3 million, or 1%, primarily due to a 21 basis point decrease in net interest margin driven by a decline in loan and lease spreads partially offset by an increase in deposit spreads. Average deposits increased 7% and average loans and leases increased 3% . Noninterest income increased $15 million, or 11%, largely driven by an increase in capital markets related revenues, equipment finance related fee income, and loan commitment and other fees, partially offset by a reduction in operating lease income. Noninterest expense increased $13 million, or 6%, primarily due to personnel expense, allocated overhead, and SAD related losses, partially offset by a decrease in operating lease expense and outside data processing and other services.



Vehicle Finance

Table 24 - Key Performance Indicators for Vehicle Finance
	Six Months Ended June 30,						Change
(dollar amounts in millions)	2018			2017			Amount			Percent
Net interest income	$	199		$	210		$	(11	)	(5	)%
Provision for credit losses	23			26			(3		)	(12	)
Noninterest income	6			8			(2		)	(25	)
Noninterest expense	74			74			—			—
Provision for income taxes	23			41			(18		)	(44	)
Net income	$	85		$	77		$	8		10	%
Number of employees (average full-time equivalent)	262			246			16			7	%
Total average assets	$	18,080		$	16,529		$	1,551		9
Total average loans/leases	18,048			16,495			1,553			9
Total average deposits	338			328			10			3
Net interest margin	2.23		%	2.57		%	(0.34		)%	(13	)
NCOs	$	21		$	25		$	(4	)	(16	)
NCOs as a % of average loans and leases	0.23		%	0.30		%	(0.07		)%	(23	)

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2018 First Six Months versus 2017 First Six Months

Vehicle Finance reported net income of $85 million in the first six-month period of 2018, an increase of $8 million, or 10%, compared to the year-ago period, primarily reflecting the decrease in the provision for income taxes. Segment net interest income decreased $11 million or 5%, due to a 34 basis point decrease in the net interest margin primarily reflecting the continued run off of the acquired loan portfolios and the related purchase accounting impact. This decrease was offset in part by a $1.6 billion increase in average loan balances. Average automobile loans increased $1.0 billion, while average RV and marine finance loans increased $0.6 billion reflecting the expansion of this acquired business into 17 new states. Noninterest income decreased $2 million, or 25%, primarily due to lower recoveries of acquired loans that were charged-off prior to acquisition as well as a decrease in net servicing income on securitized automobile loans. Noninterest expense was unchanged from a year ago.



Regional Banking and The Huntington Private Client Group

Table 25 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group
	Six Months Ended June 30,						Change
(dollar amounts in millions)	2018			2017			Amount			Percent
Net interest income	$	91		$	83		$	8		10	%
Provision for credit losses	1			—			1			—
Noninterest income	98			94			4			4
Noninterest expense	123			124			(1		)	(1	)
Provision for income taxes	13			19			(6		)	(32	)
Net income	$	52		$	34		$	18		53	%
Number of employees (average full-time equivalent)	1,017			1,034			(17		)	(2	)%
Total average assets	$	5,931		$	5,404		$	527		10
Total average loans/leases	5,268			4,701			567			12
Total average deposits	5,910			6,076			(166		)	(3	)
Net interest margin	3.18		%	2.82		%	0.36		%	13
NCOs	$	—		$	1		$	(1	)	(100	)
NCOs as a % of average loans and leases	0.02		%	0.04		%	(0.02		)%	(50	)
Total assets under management (in billions)—eop	$	17.9		$	17.6		$	0.3		2
Total trust assets (in billions)—eop	122.5			101.6			20.9			21

eop - End of Period.

2018 First Six Months versus 2017 First Six Months

RBHPCG reported net income of $52 million in the first six-month period of 2018, an increase of $18 million, or 53%, compared to the year-ago period. Segment net interest income increased $8 million or 10% due to a 36 basis point increase in net interest margin and a 12% increase in average loans and leases. Noninterest income increased $4 million, or 4%, primarily reflecting increased trust and investment management revenue as a result of an increase in trust assets and assets under management. Noninterest expense decreased $1 million, or 1%, as a result of decreased legal and professional fees and amortization of intangibles.

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.

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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. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2017, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which are on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, http://www.huntington.com, under the heading “Publications and Filings” and in other documents we file with the SEC.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Non-GAAP Financial Measures

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

Significant Items

From time-to-time, revenue, expenses, or taxes are impacted by items judged by us to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by us at that time to be infrequent or short-term in nature. We refer to such items as Significant Items. Most often, these Significant Items result from factors originating outside the Company; e.g., regulatory actions / assessments, windfall gains, 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 21 percent and 35 percent for the 2018 and 2017 periods, respectively. We encourage readers to consider the consolidated financial statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.

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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 goodwill and other intangible assets, the nature and extent of which varies among different financial services companies. These ratios are not defined in GAAP or federal banking regulations. As a result, these non-regulatory capital ratios disclosed by the Company are considered non-GAAP financial measures.

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

Risk Factors

More information on risk is discussed in the Risk Factors section included in Item 1A of our 2017 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.

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 included in our December 31, 2017 Form 10-K, as supplemented by this report including this MD&A, describes the significant accounting policies we used 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. Our most significant accounting estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes, and deferred tax assets/liabilities. These significant accounting estimates and their related application are discussed in our December 31, 2017 Form 10-K.

Recent Accounting Pronouncements and Developments

Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements discusses new accounting pronouncements adopted during 2018 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affect financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Unaudited Condensed Consolidated Financial Statements.

Fair Value

At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. As necessary, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs at the measurement date. The fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs, can be found in Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements.

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Item 1: Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets

(Unaudited)



	June 30,			December 31,
(dollar amounts in millions, except number of shares)	2018			2017
Assets
Cash and due from banks	$	1,382		$	1,520
Interest-bearing deposits in banks	41			47
Trading account securities	85			86
Available-for-sale securities	14,070			14,869
Held-to-maturity securities	8,682			9,091
Other securities	597			600
Loans held for sale (includes $643 and $413 respectively, measured at fair value)(1)	709			488
Loans and leases (includes $84 and $93 respectively, measured at fair value)(1)	72,406			70,117
Allowance for loan and lease losses	(741		)	(691		)
Net loans and leases	71,665			69,426
Bank owned life insurance	2,488			2,466
Premises and equipment	840			864
Goodwill	1,993			1,993
Other intangible assets	319			346
Servicing rights	248			238
Accrued income and other assets	2,239			2,151
Total assets	$	105,358		$	104,185
Liabilities and shareholders’ equity
Liabilities
Deposits	$	79,587		$	77,041
Short-term borrowings	2,442			5,056
Long-term debt	9,726			9,206
Accrued expenses and other liabilities	2,131			2,068
Total liabilities	93,886			93,371
Commitments and contingencies (Note 17)
Shareholders’ equity
Preferred stock	1,203			1,071
Common stock	11			11
Capital surplus	10,038			9,707
Less treasury shares, at cost	(40		)	(35		)
Accumulated other comprehensive loss	(730		)	(528		)
Retained earnings	990			588
Total shareholders’ equity	11,472			10,814
Total liabilities and shareholders’ equity	$	105,358		$	104,185
Common shares authorized (par value of $0.01)	1,500,000,000			1,500,000,000
Common shares issued	1,107,817,801			1,075,294,946
Common shares outstanding	1,104,226,603			1,072,026,681
Treasury shares outstanding	3,591,198			3,268,265
Preferred stock, authorized shares	6,617,808			6,617,808
Preferred shares issued	2,707,571			2,702,571
Preferred shares outstanding	740,500			1,098,006


(1)	Amounts represent loans for which Huntington has elected the fair value option. See Note 14.

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
	Three Months Ended June 30,					Six Months Ended June 30,
(dollar amounts in millions)	2018		2017			2018		2017
Interest and fee income:
Loans and leases	$	810	$	700		$	1,566	$	1,376
Available-for-sale securities
Taxable	71		74			141		145
Tax-exempt	24		19			47		38
Held-to-maturity securities—taxable	53		44			107		89
Other securities
Taxable	7		4			13		9
Other	7		5			12		10
Total interest income	972		846			1,886		1,667
Interest expense:
Deposits	87		42			147		77
Short-term borrowings	14		5			33		11
Subordinated notes and other long-term debt	87		54			152		104
Total interest expense	188		101			332		192
Net interest income	784		745			1,554		1,475
Provision for credit losses	56		25			122		93
Net interest income after provision for credit losses	728		720			1,432		1,382
Service charges on deposit accounts	91		88			177		171
Cards and payment processing income	56		52			109		100
Trust and investment management services	42		37			86		76
Mortgage banking income	28		32			54		64
Insurance income	21		22			42		42
Capital markets fees	21		17			40		31
Bank owned life insurance income	17		15			32		33
Gain on sale of loans	15		12			23		25
Net gains on sales of securities	—		4			—		4
Impairment losses on available-for-sale securities	—		(4		)	—		(4		)
Other noninterest income	45		50			87		96
Total noninterest income	336		325			650		638
Personnel costs	396		392			772		774
Outside data processing and other services	69		75			142		162
Net occupancy	35		53			76		120
Equipment	38		43			78		90
Deposit and other insurance expense	18		20			36		41
Professional services	15		18			26		36
Marketing	18		19			26		33
Amortization of intangibles	13		14			27		29
Other noninterest expense	50		60			102		117
Total noninterest expense	652		694			1,285		1,402
Income before income taxes	412		351			797		618
Provision for income taxes	57		79			116		138
Net income	355		272			681		480
Dividends on preferred shares	21		19			33		38
Net income applicable to common shares	$	334	$	253		$	648	$	442

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	Three Months Ended June 30,					Six Months Ended June 30,
(dollar amounts in millions, except per share amounts)	2018		2017			2018		2017
Average common shares—basic	1,103,337		1,088,934			1,093,587		1,087,654
Average common shares—diluted	1,122,612		1,108,527			1,123,646		1,108,572
Per common share:
Net income—basic	$	0.30	$	0.23		$	0.59	$	0.41
Net income—diluted	0.30		0.23			0.58		0.40
Cash dividends declared	0.11		0.08			0.22		0.16
OTTI losses for the periods presented:
Total OTTI losses	$	—	$	(4	)	$	—	$	(4	)
Noncredit-related portion of loss recognized in OCI	—		—			—		—
Impairment losses recognized in earnings on available-for-sale securities	$	—	$	(4	)	$	—	$	(4	)

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
(dollar amounts in millions)	2018			2017		2018			2017
Net income	$	355		$	272	$	681		$	480
Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale securities:
Non-credit-related impairment recoveries (losses) on debt securities not expected to be sold	—			1		—			2
Unrealized net gains (losses) on available-for-sale securities arising during the period, net of reclassification for net realized gains and losses	(53		)	37		(203		)	47
Total unrealized gains (losses) on available-for-sale securities	(53		)	38		(203		)	49
Unrealized gains (losses) on cash flow hedging derivatives, net of reclassifications to income	—			1		—			1
Change in accumulated unrealized losses for pension and other post-retirement obligations	1			1		2			1
Other comprehensive income (loss), net of tax	(52		)	40		(201		)	51
Comprehensive income	$	303		$	312	$	480		$	531

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)



(dollar amounts in millions, except per share amounts)	Preferred Stock			Common Stock				Capital Surplus			Treasury Stock					Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)
	Amount			Shares		Amount					Shares		Amount									Total
Six Months Ended June 30, 2018
Balance, beginning of period	$	1,071		1,075,295		$	11	$	9,707		(3,268	)	$	(35	)	$	(528	)	$	588		$	10,814
Cumulative-effect adjustment (ASU 2016-01)																(1		)	1			—
Net income																			681			681
Other comprehensive income (loss)																(201		)				(201		)
Net proceeds from issuance of Preferred Series E Stock	495																					495
Repurchases of common stock				(3,007	)	—		(48		)												(48		)
Cash dividends declared:
Common ($0.22 per share)																			(243		)	(243		)
Preferred Series B ($23.67 per share)																			(1		)	(1		)
Preferred Series C ($29.38 per share)																			(3		)	(3		)
Preferred Series D ($31.25 per share)																			(19		)	(19		)
Preferred Series E ($2042.50 per share)																			(10		)	(10		)
Conversion of Preferred Series A Stock to Common Stock	(363		)	30,330				363														—
Recognition of the fair value of share-based compensation								44														44
Other share-based compensation activity				5,199		—		(28		)									(4		)	(32		)
Other								—			—		(5		)							(5		)
Balance, end of period	$	1,203		1,107,817		$	11	$	10,038		(3,268	)	$	(40	)	$	(730	)	$	990		$	11,472

Six Months Ended June 30, 2017
Balance, beginning of period	$	1,071		1,088,641		$	11	$	9,881		(2,953	)	$	(27	)	$	(401	)	$	(227	)	$	10,308
Net income																			480			480
Other comprehensive income (loss)																51						51
Cash dividends declared:
Common ($0.16 per share)																			(174		)	(174		)
Preferred Series A ($42.50 per share)																			(15		)	(15		)
Preferred Series B ($18.95 per share)																			(1		)	(1		)
Preferred Series C ($29.38 per share)																			(3		)	(3		)
Preferred Series D ($31.25 per share)																			(19		)	(19		)
Recognition of the fair value of share-based compensation								52														52
Other share-based compensation activity				4,514		—		(15		)									(7		)	(22		)
Other				7		—		1			(193	)	(4		)				—			(3		)
Balance, end of period	$	1,071		1,093,162		$	11	$	9,919		(3,146	)	$	(31	)	$	(350	)	$	34		$	10,654

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended June 30,
(dollar amounts in millions)	2018			2017
Operating activities
Net income	$	681		$	480
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	122			93
Depreciation and amortization	228			211
Share-based compensation expense	44			52
Deferred income tax expense	139			12
Net change in:
Trading account securities	1			39
Loans held for sale	(274		)	(221		)
Accrued income and other assets	(170		)	(58		)
Accrued expense and other liabilities	(33		)	(60		)
Other, net	(136		)	11
Net cash provided by (used in) operating activities	602			559
Investing activities
Change in interest bearing deposits in banks	56			19
Proceeds from:
Maturities and calls of available-for-sale securities	1,014			716
Maturities of held-to-maturity securities	350			523
Maturities and calls of other securities	5			—
Sales of available-for-sale securities	381			406
Sales of other securities	—			6
Purchases of available-for-sale securities	(771		)	(1,850		)
Purchases of held-to-maturity securities	(71		)	(9		)
Purchases of other securities	(2		)	(41		)
Net proceeds from sales of portfolio loans	310			259
Net loan and lease activity, excluding sales and purchases	(2,619		)	(1,429		)
Purchases of premises and equipment	(38		)	(113		)
Proceeds from sales of other real estate	13			18
Purchases of loans and leases	(104		)	(94		)
Other, net	18			9
Net cash provided by (used in) investing activities	(1,458		)	(1,580		)
Financing activities
Increase (decrease) in deposits	2,546			326
Increase (decrease) in short-term borrowings	(2,579		)	838
Net proceeds from issuance of long-term debt	1,331			1,061
Maturity/redemption of long-term debt	(734		)	(843		)
Dividends paid on preferred stock	(30		)	(38		)
Dividends paid on common stock	(240		)	(174		)
Repurchases of common stock	(48		)	—
Proceeds from stock options exercised	4			6
Net proceeds from issuance of preferred stock	495			—
Payments related to tax-withholding for share based compensation awards	(27		)	(25		)
Other, net	—			—
Net cash provided by (used for) financing activities	718			1,151
Increase (decrease) in cash a cash equivalents	(138		)	130
Cash and cash equivalents at beginning of period	1,520			1,385
Cash and cash equivalents at end of period	$	1,382		$	1,515

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	Six Months Ended June 30,
(dollar amounts in millions)	2018			2017
Supplemental disclosures:
Interest paid	$	320		$	185
Income taxes paid (refunded)	(113		)	54
Non-cash activities
Loans transferred to held-for-sale from portfolio	316			298
Loans transferred to portfolio from held-for-sale	34			1
Transfer of loans to OREO	10			17
Transfer of securities from held-to-maturity to available-for-sale	2,833			—
Transfer of securities from available-for-sale to held-to-maturity	2,707			993

See Notes to Unaudited Condensed Consolidated Financial Statements

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Huntington Bancshares Incorporated

Notes to Unaudited Condensed Consolidated Financial Statements

1. BASIS OF PRESENTATION

The accompanying Unaudited Condensed Consolidated Financial Statements of Huntington reflect all adjustments consisting of normal recurring accruals which are, in the opinion of Management, necessary for a fair statement of the consolidated financial position, the results of operations, and cash flows for the periods presented. These Unaudited Condensed Consolidated Financial Statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2017 Form 10-K, which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

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

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

Certain amounts reported in prior periods have been reclassified to conform to the current period presentation.

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2. ACCOUNTING STANDARDS UPDATE



Accounting standards adopted in current period



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.	- Huntington adopted the new guidance on January 1, 2018 using the modified retrospective approach. - The update did not have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements. - See Footnote 12 for further detail impact on adoption.
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.	- Huntington adopted the new guidance in the on January 1, 2018 using the modified retrospective approach. - Amendments are applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. - Huntington reclassified $19 million of equity securities from AFS Securities to Other Securities on the Unaudited Condensed Consolidated Balance Sheets and reclassified unrealized gains of $1 million from AOCI to Retained Earnings. Prior periods have been adjusted to present these securities as Other Securities to facilitate comparison.
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.	- Huntington adopted the new guidance on January 1, 2018. - The update did not have a significant impact on Huntington's Unaudited Condensed 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.	- Huntington adopted the new guidance on January 1, 2018. - The update did not have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.

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Standard	Summary of guidance	Effects on 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.	- Huntington adopted the new guidance on January 1, 2018. - The update did not have a significant impact on Huntington's Unaudited Condensed Consolidated 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.	- For cash flow and net investment hedges, the cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness should be recognized in AOCI with a corresponding adjustment to retained earnings. - Huntington adopted the new guidance on January 1, 2018. Except as mentioned in the paragraph below, the update did not have a significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements. - Huntington reclassified $2.8 billion securities eligible to be hedged under the last-of-layer method from held-to-maturity to available-for-sale and recognized $26 million of fair value loss (net of tax) within OCI.
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 AOCI to retained earnings for stranded tax effects resulting from TCJA. - 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 December 15, 2018 and interim periods within those fiscal years with early adoption permitted. - Huntington early adopted the guidance effective 4Q 2017.

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Accounting standards yet to be adopted



Standard	Summary of guidance	Effects on 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 Unaudited Condensed 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. The amounts of right-of-use assets and corresponding lease liabilities recorded upon adoption will be based, primarily, on the present value of unpaid future minimum lease payments as of January 1, 2019. Those amounts will also be impacted by assumptions around renewals and/or extensions, and the interest rate used to discount those future lease obligations. As of December 31, 2017, the Company reported approximately $315 million in minimum lease payments due under such agreements January 1, 2019 forward. While these leases represent a majority of the leases within the scope of the standard, the lease portfolio is subject to change as a result of the execution of new leases and termination of existing leases prior to the effective date, as well as the identification of potential embedded and other leases.
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, finance, and risk management to evaluate the requirements of the new standard and the impact it will have on our processes. - Huntington is currently in the process of developing credit models as well as accounting, reporting, and governance processes to comply with the new credit reserve requirements.

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Standard	Summary of guidance	Effects on 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 Unaudited Condensed Consolidated Financial Statements.

3. 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 Unaudited Condensed Consolidated Balance Sheets as loans and leases. The total balance that is netted against the loans pertaining to unamortized premiums, discounts, fees, and costs are $372 million and $334 million at June 30, 2018 and December 31, 2017, respectively.

Loan and Lease Portfolio Composition

The following table provides a detailed listing of Huntington’s loan and lease portfolio at June 30, 2018 and December 31, 2017.



(dollar amounts in millions)	June 30, 2018			December 31, 2017
Loans and leases:
Commercial and industrial	$	28,850		$	28,107
Commercial real estate	7,201			7,225
Automobile	12,390			12,100
Home equity	9,907			10,099
Residential mortgage	10,006			9,026
RV and marine finance	2,846			2,438
Other consumer	1,206			1,122
Loans and leases	$	72,406		$	70,117
Allowance for loan and lease losses	(741		)	(691		)
Net loans and leases	$	71,665		$	69,426

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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. See Note 1 “Significant Accounting Policies” to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2017 for a description of the accounting policies related to the NALs.

The following table presents NALs by loan class at June 30, 2018 and December 31, 2017.



(dollar amounts in millions)	June 30, 2018		December 31, 2017
Commercial and industrial	$	207	$	161
Commercial real estate	25		29
Automobile	4		6
Home equity	68		68
Residential mortgage	73		84
RV and marine finance	1		1
Other consumer	—		—
Total nonaccrual loans	$	378	$	349

The following table presents an aging analysis of loans and leases, including past due loans and leases, by loan class at June 30, 2018 and December 31, 2017:



	June 30, 2018
	Past Due (1)										Loans Accounted for Under FVO		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		Loans Accounted for Under FVO		Total Loans and Leases		90 or more days past due and accruing
Commercial and industrial	$	47	$	28	$	63	$	138	$	28,712	$	—	$	28,850	$	9	(2)
Commercial real estate	2		12		6		20		7,181		—		7,201		—
Automobile	71		15		7		93		12,297		—		12,390		6
Home equity	44		19		59		122		9,783		2		9,907		16
Residential mortgage	108		40		133		281		9,644		81		10,006		96		(3)
RV and marine finance	8		2		1		11		2,834		1		2,846		1
Other consumer	12		6		4		22		1,184		—		1,206		4
Total loans and leases	$	292	$	122	$	273	$	687	$	71,635	$	84	$	72,406	$	132



	December 31, 2017
	Past Due (1)										Purchased Credit Impaired		Loans Accounted for Under FVO		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 FVO		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		(3)
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


(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.


(3)	Amounts include mortgage loans insured by U.S. government agencies.

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Allowance for Credit Losses

Huntington maintains two reserves, both of which reflect Management’s judgment regarding the appropriate level necessary to absorb probable and estimable credit losses inherent in our loan and lease portfolio as of the balance sheet date: 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. See Note 1 “Significant Accounting Policies” to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2017 for a description of the accounting policies related to the ACL.

The ALLL is increased through a provision for credit losses that is charged to earnings, based on Management’s quarterly evaluation and is reduced by charge-offs, net of recoveries.

The following table presents ALLL and AULC activity by portfolio segment for the three-month and six-month periods ended June 30, 2018 and 2017.



(dollar amounts in millions)	Commercial			Consumer			Total
Three-month period ended June 30, 2018:
ALLL balance, beginning of period	$	515		$	206		$	721
Loan charge-offs	(12		)	(41		)	(53		)
Recoveries of loans previously charged-off	10			15			25
Provision for loan and lease losses	18			30			48
ALLL balance, end of period	$	531		$	210		$	741
AULC balance, beginning of period	$	82		$	3		$	85
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	8			—			8
AULC balance, end of period	$	90		$	3		$	93
ACL balance, end of period	$	621		$	213		$	834
Six-month period ended June 30, 2018:
ALLL balance, beginning of period	$	482		$	209		$	691
Loan charge-offs	(35		)	(91		)	(126		)
Recoveries of loans previously charged-off	30			30			60
Provision for loan and lease losses	54			62			116
ALLL balance, end of period	$	531		$	210		$	741
AULC balance, beginning of period	$	84		$	3		$	87
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	6			—			6
AULC balance, end of period	$	90		$	3		$	93
ACL balance, end of period	$	621		$	213		$	834

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(dollar amounts in millions)	Commercial			Consumer			Total
Three-month period ended June 30, 2017:
ALLL balance, beginning of period	$	480		$	193		$	673
Loan charge-offs	(15		)	(42		)	(57		)
Recoveries of loans previously charged-off	6			15			21
Provision for loan and lease losses	4			27			31
ALLL balance, end of period	$	475		$	193		$	668
AULC balance, beginning of period	$	89		$	3		$	92
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	(7		)	—			(7		)
AULC balance, end of period	$	82		$	3		$	85
ACL balance, end of period	$	557		$	196		$	753
Six-month period ended June 30, 2017:
ALLL balance, beginning of period	$	451		$	187		$	638
Loan charge-offs	(39		)	(88		)	(127		)
Recoveries of loans previously charged-off	24			28			52
Provision for loan and lease losses	39			66			105
ALLL balance, end of period	$	475		$	193		$	668
AULC balance, beginning of period	$	87		$	11		$	98
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	(5		)	(8		)	(13		)
AULC balance, end of period	$	82		$	3		$	85
ACL balance, end of period	$	557		$	196		$	753

Credit Quality Indicators

See Note 4 “Loans / Leases and Allowance for Credit Losses” to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2017 for a description of the credit quality indicators Huntington utilizes for monitoring credit quality and for determining an appropriate ACL level.

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.

Loans are generally assigned a category of "Pass" rating upon initial approval and subsequently updated as appropriate based on the borrowers financial performance.

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

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The following table presents each loan and lease class by credit quality indicator at June 30, 2018 and December 31, 2017.



	June 30, 2018
(dollar amounts in millions)	Credit Risk Profile by UCS Classification
Commercial	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial	$	26,940	$	784	$	1,115	$	11	$	28,850
Commercial real estate	6,895		181		123		2		7,201

	Credit Risk Profile by FICO Score (1), (2)
Consumer	750+		650-749		<650		Other (3)		Total
Automobile	$	6,338	$	4,469	$	1,296	$	287	$	12,390
Home equity	6,219		3,014		601		71		9,905
Residential mortgage	6,579		2,598		592		156		9,925
RV and marine finance	1,805		887		96		57		2,845
Other consumer	452		580		116		58		1,206



	December 31, 2017
(dollar amounts in millions)	Credit Risk Profile by UCS Classification
Commercial	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)
Consumer	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


(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.

Impaired Loans

See Note 1 “Significant Accounting Policies” to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2017 for a description of accounting policies related to impaired loans.

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance at June 30, 2018 and December 31, 2017.



(dollar amounts in millions)	Commercial		Consumer		Total
ALLL at June 30, 2018:
Portion of ALLL balance:
Attributable to loans individually evaluated for impairment	$	39	$	10	$	49
Attributable to loans collectively evaluated for impairment	492		200		692
Total ALLL balance	$	531	$	210	$	741
Loan and Lease Ending Balances at June 30, 2018: (1)
Portion of loan and lease ending balance:
Individually evaluated for impairment	$	642	$	599	$	1,241
Collectively evaluated for impairment	35,409		35,672		71,081
Total loans and leases evaluated for impairment	$	36,051	$	36,271	$	72,322


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

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(dollar amounts in millions)	Commercial		Consumer		Total
ALLL at December 31, 2017:
Portion of ALLL balance:
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 balances:
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.

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: (1)



	June 30, 2018						Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(dollar amounts in millions)	Ending Balance		Unpaid Principal Balance (6)		Related Allowance		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	276	$	305	$	—	$	259	$	6	$	268	$	10
Commercial real estate	39		58		—		55		2		55		4
Automobile	—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—
Residential mortgage	—		—		—		—		—		—		—
RV and marine finance	—		—		—		—		—		—		—
Other consumer	—		—		—		—		—		—		—

With an allowance recorded:
Commercial and industrial	277		311		37		295		3		283		6
Commercial real estate	50		56		2		46		—		48		1
Automobile	36		40		2		37		1		36		1
Home equity	327		372		13		331		4		332		7
Residential mortgage	294		327		4		300		3		303		5
RV and marine finance	2		2		—		2		—		2		—
Other consumer	9		9		3		7		—		7		—

Total
Commercial and industrial (3)	553		616		37		554		9		551		16
Commercial real estate (4)	89		114		2		101		2		103		5
Automobile (2)	36		40		2		37		1		36		1
Home equity (5)	327		372		13		331		4		332		7
Residential mortgage (5)	294		327		4		300		3		303		5
RV and marine finance (2)	2		2		—		2		—		2		—
Other consumer (2)	9		9		3		7		—		7		—

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	December 31, 2017						Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
(dollar amounts in millions)	Ending Balance		Unpaid Principal Balance (6)		Related Allowance		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	284	$	311	$	—	$	263	$	5	$	268	$	9
Commercial real estate	56		81		—		82		2		85		4
Automobile	—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—
Residential mortgage	—		—		—		—		—		—		—
RV and marine finance	—		—		—		—		—		—		—
Other consumer	—		—		—		—		—		—		—

With an allowance recorded:
Commercial and industrial	257		280		29		258		2		311		4
Commercial real estate	51		51		3		39		—		58		1
Automobile	36		40		2		33		1		32		1
Home equity	334		385		14		326		4		324		8
Residential mortgage	308		338		4		339		3		335		6
RV and marine finance	2		3		—		1		—		1		—
Other consumer	8		8		2		4		—		4		—

Total
Commercial and industrial (3)	541		591		29		521		7		579		13
Commercial real estate (4)	107		132		3		121		2		143		5
Automobile (2)	36		40		2		33		1		32		1
Home equity (5)	334		385		14		326		4		324		8
Residential mortgage (5)	308		338		4		339		3		335		6
RV and marine finance (2)	2		3		—		1		—		1		—
Other consumer (2)	8		8		2		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 June 30, 2018 and December 31, 2017, C&I loans of $401 million and $382 million, respectively, were considered impaired due to their status as a TDR.


(4)	At June 30, 2018 and December 31, 2017, CRE loans of $79 million and $93 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

TDRs are modified loans where a concession was provided 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. See Note 4 “Loans / Leases and Allowance for Credit Losses” to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2017 for an additional discussion of TDRs.

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The following table presents, by class and modification type, the number of contracts, post-modification outstanding balance, and the financial effects of the modification for the three-month and six-month periods ended June 30, 2018 and 2017.



	New Troubled Debt Restructurings During The Three-Month Period Ended (1)
	June 30, 2018				June 30, 2017
(dollar amounts in millions)	Number of Contracts	Post-modification Outstanding Balance (2)	Financial effects of modification (3)		Number of Contracts	Post-modification Outstanding Balance (2)		Financial effects of modification (3)
Commercial and industrial:
Interest rate reduction	4	—	—		1	$	—	$	—
Amortization or maturity date change	264	171	(6	)	228	168		(7		)
Other	1	—	—		1	—		—
Total Commercial and industrial	269	171	(6	)	230	168		(7		)
Commercial real estate:
Interest rate reduction	—	—	—		—	—		—
Amortization or maturity date change	36	43	(1	)	19	25		—
Other	2	—	—		—	—		—
Total commercial real estate:	38	43	(1	)	19	25		—
Automobile:
Interest rate reduction	10	—	—		5	—		—
Amortization or maturity date change	382	3	—		334	3		—
Chapter 7 bankruptcy	221	2	—		198	1		—
Other	—	—	—		—	—		—
Total Automobile	613	5	—		537	4		—
Home equity:
Interest rate reduction	—	—	—		9	—		—
Amortization or maturity date change	113	8	—		135	8		(1		)
Chapter 7 bankruptcy	56	2	—		77	3		1
Other	—	—	—		12	1		—
Total Home equity	169	10	—		233	12		—
Residential mortgage:
Interest rate reduction	4	—	—		—	—		—
Amortization or maturity date change	107	12	—		81	8		(1		)
Chapter 7 bankruptcy	7	—	—		25	2		—
Other	1	—	—		5	1		—
Total Residential mortgage	119	12	—		111	11		(1		)
RV and marine finance:
Interest rate reduction	—	—	—		—	—		—
Amortization or maturity date change	14	—	—		10	—		—
Chapter 7 bankruptcy	26	—	—		34	1		—
Other	—	—	—		—	—		—
Total RV and marine finance	40	—	—		44	1		—
Other consumer:
Interest rate reduction	491	4	—		—	—		—
Amortization or maturity date change	1	—	—		2	—		—
Chapter 7 bankruptcy	1	—	—		2	—		—
Other	—	—	—		—	—		—
Total Other consumer	493	4	—		4	—		—
Total new troubled debt restructurings	1,741	245	(7	)	1,178	$	221	$	(8	)


(1)	TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.


(2)	Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of a restructuring are not significant.


(3)	Amount represents the financial impact via provision for loan and lease losses as a result of the modification.

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	New Troubled Debt Restructurings During The Six-Month Period Ended (1)
	June 30, 2018				June 30, 2017
(dollar amounts in millions)	Number of Contracts	Post-modification Outstanding Ending Balance (2)	Financial effects of modification (3)		Number of Contracts	Post-modification Outstanding Ending Balance (2)		Financial effects of modification (3)
Commercial and industrial:
Interest rate reduction	5	—	—		2	$	—	$	—
Amortization or maturity date change	502	267	(8	)	464	281		(8		)
Other	3	—	—		4	—		—
Total Commercial and industrial	510	267	(8	)	470	281		(8		)
Commercial real estate:
Interest rate reduction	—	—	—		—	—		—
Amortization or maturity date change	84	74	(1	)	43	56		(1		)
Other	2	—	—		—	—		—
Total commercial real estate:	86	74	(1	)	43	56		(1		)
Automobile:
Interest rate reduction	26	—	—		19	—		—
Amortization or maturity date change	793	7	—		811	7		—
Chapter 7 bankruptcy	421	4	—		438	4		—
Other	—	—	—		—	—		—
Total Automobile	1,240	11	—		1,268	11		—
Home equity:
Interest rate reduction	1	—	—		17	1		—
Amortization or maturity date change	212	14	(1	)	241	14		(1		)
Chapter 7 bankruptcy	105	5	—		164	6		1
Other	7	1	—		70	4		—
Total Home equity	325	20	(1	)	492	25		—
Residential mortgage:
Interest rate reduction	4	—	—		2	—		—
Amortization or maturity date change	179	20	—		180	19		—
Chapter 7 bankruptcy	17	1	—		49	5		—
Other	2	—	—		21	3		—
Total Residential mortgage	202	21	—		252	27		—
RV and marine finance:
Interest rate reduction	—	—	—		—	—		—
Amortization or maturity date change	17	—	—		24	—		—
Chapter 7 bankruptcy	42	1	—		49	1		—
Other	—	—	—		—	—		—
Total RV and marine finance	59	1	—		73	1		—
Other consumer:
Interest rate reduction	931	4	—		1	—		—
Amortization or maturity date change	1	—	—		4	—		—
Chapter 7 bankruptcy	2	—	—		3	—		—
Other	—	—	—		—	—		—
Total Other consumer	934	4	—		8	—		—
Total new troubled debt restructurings	3,356	398	(10	)	2,606	$	401	$	(9	)


(1)	TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.


(2)	Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of a restructuring are not significant.


(3)	Amount represents the financial impact via provision for loan and lease losses as a result of the modification.

Pledged Loans and Leases

The Bank has access to the Federal Reserve’s discount window and advances from the FHLB of Cincinnati. As of June 30, 2018 and December 31, 2017, these borrowings and advances are secured by $34.1 billion and $31.7 billion of loans and securities, respectively.

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4. AVAILABLE-FOR-SALE SECURITIES

Contractual maturities of available-for-sale securities at June 30, 2018 and December 31, 2017 were:



	June 30, 2018				December 31, 2017
(dollar amounts in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Treasury, Federal agency, and other agency securities:
U.S. Treasury:
1 year or less	$	6	$	6	$	5	$	5
Total U.S. Treasury	6		6		5		5
Federal agencies:
Residential CMO:
After 1 year through 5 years	—		—		1		1
After 5 years through 10 years	44		42		90		89
After 10 years	7,510		7,208		6,570		6,394
Total Residential CMO	7,554		7,250		6,661		6,484
Residential MBS:
After 1 year through 5 years	4		4		6		6
After 5 years through 10 years	31		30		7		8
After 10 years	643		625		1,358		1,353
Total Residential MBS	678		659		1,371		1,367
Commercial MBS:
After 1 year through 5 years	69		66		23		22
After 5 years through 10 years	9		8		151		148
After 10 years	1,737		1,669		2,365		2,317
Total Commercial MBS	1,815		1,743		2,539		2,487
Other agencies:
1 year or less	1		1		2		2
After 1 year through 5 years	8		8		9		9
After 5 years through 10 years	179		174		58		59
Total other agencies	188		183		69		70
Total U.S. Treasury, Federal agency, and other agency securities	10,241		9,841		10,645		10,413
Municipal securities:
1 year or less	164		164		103		103
After 1 year through 5 years	1,115		1,105		1,140		1,134
After 5 years through 10 years	1,702		1,674		1,709		1,704
After 10 years	845		822		940		937
Total municipal securities	3,826		3,765		3,892		3,878
Asset-backed securities:
After 1 year through 5 years	40		39		80		80
After 5 years through 10 years	46		46		53		54
After 10 years	295		288		349		333
Total asset-backed securities	381		373		482		467
Corporate debt:
1 year or less	1		1		—		—
After 1 year through 5 years	75		74		73		74
After 5 years through 10 years	11		12		20		21
After 10 years	—		—		13		14
Total corporate debt	87		87		106		109
Other securities/Sovereign debt:
1 year or less	—		—		1		1
After 1 year through 5 years	4		4		1		1
Total other securities/Sovereign debt	4		4		2		2
Total available-for-sale securities	$	14,539	$	14,070	$	15,127	$	14,869

The following tables provide amortized cost, fair value, and gross unrealized gains and losses recognized in OCI by investment category at June 30, 2018 and December 31, 2017:

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			Unrealized
(dollar amounts in millions)	Amortized Cost		Gross Gains		Gross Losses			Fair Value
June 30, 2018
U.S. Treasury	$	6	$	—	$	—		$	6
Federal agencies:
Residential CMO	7,554		—		(304		)	7,250
Residential MBS	678		—		(19		)	659
Commercial MBS	1,815		—		(72		)	1,743
Other agencies	188		—		(5		)	183
Total U.S. Treasury, Federal agency and other agency securities	10,241		—		(400		)	9,841
Municipal securities	3,826		12		(73		)	3,765
Asset-backed securities	381		—		(8		)	373
Corporate debt	87		1		(1		)	87
Other securities/Sovereign debt	4		—		—			4
Total available-for-sale securities	$	14,539	$	13	$	(482	)	$	14,070



			Unrealized
(dollar amounts in millions)	Amortized Cost		Gross Gains		Gross Losses			Fair Value
December 31, 2017
U.S. Treasury	$	5	$	—	$	—		$	5
Federal agencies:
Residential CMO	6,661		1		(178		)	6,484
Residential MBS	1,371		1		(5		)	1,367
Commercial MBS	2,539		—		(52		)	2,487
Other agencies	69		1		—			70
Total U.S. Treasury, Federal agency and other agency securities	10,645		3		(235		)	10,413
Municipal securities	3,892		21		(35		)	3,878
Asset-backed securities	482		1		(16		)	467
Corporate debt	106		3		—			109
Other securities/Sovereign debt	2		—		—			2
Total available-for-sale securities	$	15,127	$	28	$	(286	)	$	14,869

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The following tables provide detail on investment securities with unrealized losses aggregated by investment category and the length of time the individual securities have been in a continuous loss position as of June 30, 2018 and December 31, 2017.



	Less than 12 Months					Over 12 Months					Total
(dollar amounts in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
June 30, 2018
Federal agencies:
Residential CMO	$	3,217	$	(86	)	$	3,988	$	(218	)	$	7,205	$	(304	)
Residential MBS	638		(19		)	12		—			650		(19		)
Commercial MBS	285		(9		)	1,458		(63		)	1,743		(72		)
Other agencies	88		(2		)	85		(3		)	173		(5		)
Total Federal Agency and other agency securities	4,228		(116		)	5,543		(284		)	9,771		(400		)
Municipal securities	2,306		(49		)	723		(24		)	3,029		(73		)
Asset-backed securities	210		(4		)	102		(4		)	312		(8		)
Corporate debt	61		(1		)	—		—			61		(1		)
Other securities/Sovereign debt	—		—			—		—			—		—
Total temporarily impaired securities	$	6,805	$	(170	)	$	6,368	$	(312	)	$	13,173	$	(482	)



	Less than 12 Months					Over 12 Months					Total
(dollar amounts in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2017
Federal agencies:
Residential CMO	$	1,660	$	(19	)	$	4,520	$	(159	)	$	6,180	$	(178	)
Residential MBS	1,078		(5		)	11		—			1,089		(5		)
Commercial MBS	960		(15		)	1,527		(37		)	2,487		(52		)
Other agencies	39		—			—		—			39		—
Total Federal Agency and other agency securities	3,737		(39		)	6,058		(196		)	9,795		(235		)
Municipal securities	1,681		(21		)	497		(14		)	2,178		(35		)
Asset-backed securities	127		(1		)	173		(15		)	300		(16		)
Total temporarily impaired securities	$	5,545	$	(61	)	$	6,728	$	(225	)	$	12,273	$	(286	)

At June 30, 2018 and 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 $4.7 billion and $6.1 billion, respectively. There were no securities of a single issuer, which are not governmental or government-sponsored, that exceeded 10% of shareholders’ equity at either June 30, 2018 or December 31, 2017.

The following table is a summary of realized securities gains and losses for the three-month and six-month periods ended June 30, 2018 and 2017, respectively.



	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in millions)	2018			2017			2018			2017
Gross gains on sales of securities	$	1		$	4		$	6		$	5
Gross (losses) on sales of securities	(1		)	—			(6		)	(1		)
Net gain on sales of securities	$	—		$	4		$	—		$	4
OTTI recognized in earnings	—			(4		)	—			(4		)
Net securities gains (losses)	$	—		$	—		$	—		$	—

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Security Impairment

Huntington evaluates the available-for-sale securities portfolio for impairment on a quarterly basis by conducting a comprehensive security-level assessment on all available-for-sale securities. Impairment would exist when the present value of the expected cash flows are not sufficient to recover the entire amortized cost basis at the balance sheet date. Under these circumstances, any credit impairment would be recognized in earnings. As of June 30, 2018, Huntington has evaluated available-for-sale securities with gross unrealized losses for impairment and concluded no OTTI is required.

5. HELD-TO-MATURITY SECURITIES

These are debt securities that Huntington has the intent and ability to hold until maturity. The debt securities are carried at amortized cost and adjusted for amortization of premiums and accretion of discounts using the interest method.

Listed below are the contractual maturities of held-to-maturity securities at June 30, 2018 and December 31, 2017.



	June 30, 2018				December 31, 2017
(dollar amounts in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Federal agencies:
Residential CMO:
After 5 years through 10 years	37		37		—		—
After 10 years	2,262		2,185		3,714		3,657
Total Residential CMO	2,299		2,222		3,714		3,657
Residential MBS:
After 5 years through 10 years	—		—		28		28
After 10 years	1,677		1,623		1,021		1,016
Total Residential MBS	1,677		1,623		1,049		1,044
Commercial MBS:
After 1 year through 5 years	—		—		38		37
After 5 years through 10 years	130		127		1		1
After 10 years	4,196		4,047		3,752		3,698
Total Commercial MBS	4,326		4,174		3,791		3,736
Other agencies:
After 1 year through 5 years	13		13		7		8
After 5 years through 10 years	211		206		362		360
After 10 years	151		148		163		161
Total other agencies	375		367		532		529
Total Federal agencies and other agencies	8,677		8,386		9,086		8,966
Municipal securities:
After 10 years	5		5		5		5
Total municipal securities	5		5		5		5
Total held-to-maturity securities	$	8,682	$	8,391	$	9,091	$	8,971

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The following table provides amortized cost, gross unrealized gains and losses, and fair value by investment category at June 30, 2018 and December 31, 2017.



			Unrealized
(dollar amounts in millions)	Amortized Cost		Gross Gains		Gross Losses			Fair Value
June 30, 2018
Federal agencies:
Residential CMO	$	2,299	$	—	$	(77	)	$	2,222
Residential MBS	1,677		—		(54		)	1,623
Commercial MBS	4,326		—		(152		)	4,174
Other agencies	375		—		(8		)	367
Total Federal agencies and other agencies	8,677		—		(291		)	8,386
Municipal securities	5		—		—			5
Total held-to-maturity securities	$	8,682	$	—	$	(291	)	$	8,391



			Unrealized
(dollar amounts in millions)	Amortized Cost		Gross Gains		Gross Losses			Fair Value
December 31, 2017
Federal agencies:
Residential CMO	$	3,714	$	1	$	(58	)	$	3,657
Residential MBS	1,049		2		(7		)	1,044
Commercial MBS	3,791		—		(55		)	3,736
Other agencies	532		1		(4		)	529
Total Federal agencies and other agencies	9,086		4		(124		)	8,966
Municipal securities	5		—		—			5
Total held-to-maturity securities	$	9,091	$	4	$	(124	)	$	8,971

The following tables provide detail on HTM securities with unrealized losses aggregated by investment category and the length of time the individual securities have been in a continuous loss position, at June 30, 2018 and December 31, 2017.



	Less than 12 Months					Over 12 Months					Total
(dollar amounts in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
June 30, 2018
Federal agencies:
Residential CMO	$	958	$	(29	)	$	1,264	$	(48	)	$	2,222	$	(77	)
Residential MBS	1,552		(54		)	—		—			1,552		(54		)
Commercial MBS	3,458		(134		)	716		(18		)	4,174		(152		)
Other agencies	281		(6		)	64		(2		)	345		(8		)
Total Federal agencies and other agencies	6,249		(223		)	2,044		(68		)	8,293		(291		)
Municipal securities	—		—			5		—			5		—
Total temporarily impaired securities	$	6,249	$	(223	)	$	2,049	$	(68	)	$	8,298	$	(291	)

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	Less than 12 Months					Over 12 Months					Total
(dollar amounts in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2017
Federal agencies:
Residential CMO	$	2,369	$	(26	)	$	1,019	$	(32	)	$	3,388	$	(58	)
Residential MBS	974		(7		)	—		—			974		(7		)
Commercial MBS	3,456		(49		)	253		(6		)	3,709		(55		)
Other agencies	249		(2		)	139		(2		)	388		(4		)
Total Federal agencies and other agencies	7,048		(84		)	1,411		(40		)	8,459		(124		)
Municipal securities	—		—			5		—			5		—
Total temporarily impaired securities	$	7,048	$	(84	)	$	1,416	$	(40	)	$	8,464	$	(124	)

Security Impairment

Huntington evaluates the held-to-maturity securities portfolio on a quarterly basis for impairment. Impairment would exist when the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis at the balance sheet date. Under these circumstances, any impairment would be recognized in earnings. As of June 30, 2018, Huntington has evaluated held-to-maturity securities with gross unrealized losses for impairment and concluded no OTTI is required.

6. OTHER SECURITIES



	June 30, 2018				December 31, 2017
(dollar amounts in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Other securities, at cost
Non-marketable equity securities:
Federal Home Loan Bank stock	282		282		287		287
Federal Reserve Bank stock	294		294		294		294
Other securities, at fair value
Mutual funds	19		19		18		18
Marketable equity securities	1		2		1		1
Total other securities	$	596	$	597	$	600	$	600

Other securities are primarily composed of FHLB stock and FRB stock (which are carried at cost) and mutual funds and other marketable equity securities (which are carried at fair value, with changes in fair value recognized in other noninterest income). Other securities that are carried at cost are reviewed at least annually for impairment, with valuation adjustments recognized in other noninterest income.

7. LOAN SALES AND SECURITIZATIONS

Residential Mortgage Portfolio

The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the three-month and six-month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30,				Six Months Ended June 30,
(dollar amounts in millions)	2018		2017		2018		2017
Residential mortgage loans sold with servicing retained	$	897	$	798	$	1,740	$	1,646
Pretax gains resulting from above loan sales (1)	19		17		40		39


(1)	Recorded in mortgage banking income.

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The following table summarizes the changes in MSRs recorded using the amortization method for the three-month and six-month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in millions)	2018			2017			2018			2017
Carrying value, beginning of period	$	200		$	178		$	191		$	172
New servicing assets created	11			8			20			18
Impairment recovery (charge)	—			(3		)	7			(1		)
Amortization	(7		)	(7		)	(14		)	(13		)
Carrying value, end of period	$	204		$	176		$	204		$	176
Fair value, end of period	$	212		$	177		$	212		$	177
Weighted-average life (years)	7.0			7.1			7.0			7.1

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. The model considers portfolio characteristics, contractually specified servicing fees and assumptions related to prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other economic factors. Changes in the assumptions used may have a significant impact on the valuation of MSRs.

MSR values are highly sensitive to movement in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. Huntington economically hedges the value of certain MSRs against changes in value attributable to changes in interest rates using a combination of derivative instruments and trading securities.

For MSRs under the amortization method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at June 30, 2018, and December 31, 2017 follows:



	June 30, 2018								December 31, 2017
			Decline in fair value due to								Decline in fair value due to
(dollar amounts in millions)	Actual		10% adverse change			20% adverse change			Actual		10% adverse change			20% adverse change
Constant prepayment rate (annualized)	8.50	%	$	(5	)	$	(10	)	8.30	%	$	(5	)	$	(10	)
Spread over forward interest rate swap rates	952	bps	(8		)	(15		)	1,049	bps	(7		)	(13		)

Additionally, at June 30, 2018 and 2017, Huntington held MSRs recorded using the fair value method of $11 million and $13 million, respectively.

Total servicing, late and other ancillary fees included in mortgage banking income were $15 million and $14 million for the three-month periods ended June 30, 2018 and 2017, respectively. For the six-month periods ended June 30, 2018 and 2017, total servicing, late and other ancillary fees included in mortgage banking income were $29 million and $28 million. The unpaid principal balance of residential mortgage loans serviced for third parties was $20.2 billion and $19.8 billion at June 30, 2018 and December 31, 2017, respectively.

Automobile Loans

Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees and other ancillary fees on the outstanding loan balances. Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoffs are faster than expected, then future value could be impaired.

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Changes in the carrying value of automobile loan servicing rights for the three-month and six-month periods ended June 30, 2018 and 2017, and the fair value at the end of each period were as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in millions)	2018			2017			2018			2017
Carrying value, beginning of period	$	6		$	15		$	8		$	18
Amortization	(1		)	(3		)	(3		)	(6		)
Carrying value, end of period	$	5		$	12		$	5		$	12
Fair value, end of period	$	5		$	12		$	5		$	12
Weighted-average contractual life (years)	3.2			3.8			3.2			3.8

Servicing income amounted to $3 million and $5 million for the three-month periods ending June 30, 2018, and 2017. For the six-month periods ended June 30, 2018 and 2017, servicing income was $6 million and $10 million, respectively. The unpaid principal balance of automobile loans serviced for third parties was $0.8 billion and $1.0 billion at June 30, 2018 and December 31, 2017, respectively.

Small Business Association (SBA) Portfolio

The following table summarizes activity relating to SBA loans sold with servicing retained for the three-month and six-month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30,				Six Months Ended June 30,
(dollar amounts in millions)	2018		2017		2018		2017
SBA loans sold with servicing retained	$	97	$	88	$	161	$	165
Pretax gains resulting from above loan sales (1)	10		7		17		13


(1)	Recorded in gain on sale of loans.

Huntington has retained servicing responsibilities on sold SBA loans and receives annual servicing fees on the outstanding loan balances. SBA loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale using a discounted future cash flow model. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows.

The following table summarizes the changes in the carrying value of the servicing asset for the three-month and six-month periods ended June 30, 2018 and 2017:



	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in millions)	2018			2017			2018			2017
Carrying value, beginning of period	$	28		$	21		$	27		$	21
New servicing assets created	3			4			5			6
Amortization	(3		)	(2		)	(4		)	(4		)
Carrying value, end of period	$	28		$	23		$	28		$	23
Fair value, end of period	$	33		$	27		$	33		$	27
Weighted-average life (years)	3.4			3.3			3.4			3.3

Servicing income amounted to $3 million and $3 million for the three-month periods ending June 30, 2018, and 2017, respectively. For the six-month periods ended June 30, 2018 and 2017, servicing income was $6 million and $5 million, respectively. The unpaid principal balance of SBA loans serviced for third parties was $1.5 billion and $1.4 billion at June 30, 2018 and December 31, 2017, respectively.

8. LONG-TERM DEBT

In May 2018, Huntington issued $500 million of senior notes at 99.686% of face value. The senior notes mature on May 15, 2025 and have a fixed coupon rate of 4.00%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest. At June 30, 2018, debt issuance costs of $1 million related to the note are reported on the balance sheet as a direct deduction from the face of the note.

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In May 2018, the Bank issued $750 million of senior notes at 99.774% of face value. The senior notes mature on May 14, 2021 and have a fixed coupon rate of 3.25%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest. At June 30, 2018, debt issuance costs of $2 million related to the note are reported on the balance sheet as a direct deduction from the face of the note.

9. OTHER COMPREHENSIVE INCOME

The components of Huntington's OCI for the three-month and six-month periods ended June 30, 2018 and 2017, were as follows:



	Three Months Ended June 30, 2018
				Tax (Expense)
(dollar amounts in millions)	Pretax			Benefit		After-tax
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold	$	—		$	—	$	—
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period	(71		)	15		(56		)
Less: Reclassification adjustment for net losses (gains) included in net income	3			—		3
Net change in unrealized holding gains (losses) on available-for-sale debt securities	(68		)	15		(53		)
Net change in pension and other post-retirement obligations	1			—		1
Total other comprehensive income (loss)	$	(67	)	$	15	$	(52	)



	Three Months Ended June 30, 2017
	Tax (Expense)
(dollar amounts in millions)	Pretax		Benefit			After-tax
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold	$	2	$	(1	)	$	1
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period	53		(19		)	34
Less: Reclassification adjustment for net losses (gains) included in net income	4		(1		)	3
Net change in unrealized holding gains (losses) on available-for-sale debt securities	59		(21		)	38
Unrealized gains (losses) on derivatives used in cash flow hedging relationships arising during the period	2		(1		)	1
Less: Reclassification adjustment for net (gains) losses included in net income	—		—			—
Net change in unrealized gains (losses) on derivatives used in cash flow hedging relationships	2		(1		)	1
Net change in pension and other post-retirement obligations	1		—			1
Total other comprehensive income (loss)	$	62	$	(22	)	$	40



	Six Months Ended June 30, 2018
				Tax (expense)
(dollar amounts in millions)	Pretax			Benefit			After-tax
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold	$	—		$	—		$	—
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period	(277		)	59			(218		)
Less: Reclassification adjustment for net losses (gains) included in net income	18			(3		)	15
Net change in unrealized holding gains (losses) on available-for-sale debt securities	(259		)	56			(203		)
Net change in pension and other post-retirement obligations	2			—			2
Total other comprehensive income (loss)	$	(257	)	$	56		$	(201	)

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	Six Months Ended June 30, 2017
	Tax (expense)
(dollar amounts in millions)	Pretax		Benefit			After-tax
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold	$	3	$	(1	)	$	2
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period	62		(22		)	40
Less: Reclassification adjustment for net losses (gains) included in net income	10		(3		)	7
Net change in unrealized holding gains (losses) on available-for-sale debt securities	75		(26		)	49
Unrealized gains (losses) on derivatives used in cash flow hedging relationships arising during the period	—		—			—
Less: Reclassification adjustment for net (gains) losses included in net income	1		—			1
Net change in unrealized gains (losses) on derivatives used in cash flow hedging relationships	1		—			1
Net change in pension and other post-retirement obligations	2		(1		)	1
Total other comprehensive income (loss)	$	78	$	(27	)	$	51

Activity in accumulated OCI for the six-month periods ended June 30, 2018 and 2017, were as follows:



(dollar amounts in millions)	Unrealized gains and (losses) on debt securities (1)			Unrealized gains and (losses) on cash flow hedging derivatives			Unrealized gains (losses) for pension and other post- retirement obligations			Total
December 31, 2016	$	(193	)	$	(3	)	$	(205	)	$	(401	)
Other comprehensive income before reclassifications	42			—			—			42
Amounts reclassified from accumulated OCI to earnings	7			1			1			9
Period change	49			1			1			51
June 30, 2017	$	(144	)	$	(2	)	$	(204	)	$	(350	)

December 31, 2017	$	(278	)	$	—		$	(250	)	$	(528	)
Cumulative-effect adjustments (ASU 2016-01)	(1		)	—			—			(1		)
Other comprehensive income before reclassifications	(218		)	—			—			(218		)
Amounts reclassified from accumulated OCI to earnings	15			—			2			17
Period change	(203		)	—			2			(201		)
June 30, 2018	$	(482	)	$	—		$	(248	)	$	(730	)

(1)

AOCI amounts at June 30, 2018, December 31, 2017 and June 30, 2017 include $144 million, $95 million and $98 million, respectively, of net unrealized gains on securities transferred from the available-for-sale securities portfolio to the held-to-maturity securities portfolio. The net unrealized gains will be recognized in earnings over the remaining life of the security using the effective interest method.

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The following table presents the reclassification adjustments out of accumulated OCI included in net income and the impacted line items as listed on the Unaudited Condensed Consolidated Statements of Income for the three-month and six-month periods ended June 30, 2018 and 2017:



	Reclassifications out of accumulated OCI
Accumulated OCI components	Amounts reclassified from accumulated OCI						Location of net gain (loss) reclassified from accumulated OCI into earnings
	Three Months Ended
(dollar amounts in millions)	June 30, 2018			June 30, 2017
Gains (losses) on debt securities:
Amortization of unrealized gains (losses)	$	(3	)	$	(2	)	Interest income - held-to-maturity securities - taxable
Realized gain (loss) on sale of securities	—			2			Noninterest income - net gains (losses) on sale of securities
OTTI recorded	—			(4		)	Noninterest income - net gains (losses) on sale of securities
Total before tax	(3		)	(4		)
Tax (expense) benefit	—			1
Net of tax	$	(3	)	$	(3	)
Amortization of defined benefit pension and post-retirement items:
Actuarial gains (losses)	$	(1	)	$	(2	)	Noninterest income / expense (1)
Net periodic benefit costs	—			1			Noninterest income / expense (1)
Total before tax	(1		)	(1		)
Tax (expense) benefit	—			—
Net of tax	$	(1	)	$	(1	)




	Reclassifications out of accumulated OCI
Accumulated OCI components	Amounts reclassified from accumulated OCI						Location of net gain (loss) reclassified from accumulated OCI into earnings
	Six Months Ended
(dollar amounts in millions)	June 30, 2018			June 30, 2017
Gains (losses) on debt securities:
Amortization of unrealized gains (losses)	$	(6	)	$	(6	)	Interest income - held-to-maturity securities - taxable
Realized gain (loss) on sale of securities	(12		)	—			Noninterest income - net gains (losses) on sale of securities
OTTI recorded	—			(4		)	Noninterest income - net gains (losses) on sale of securities
	(18		)	(10		)	Total before tax
	3			3			Tax (expense) benefit
	$	(15	)	$	(7	)	Net of tax
Gains (losses) on cash flow hedging relationships:
Interest rate contracts	$	—		$	(1	)	Interest income - loans and leases
Interest rate contracts	—			—			Noninterest income - other income
	—			(1		)	Total before tax
	—			—			Tax (expense) benefit
	$	—		$	(1	)	Net of tax
Amortization of defined benefit pension and post-retirement items:
Actuarial gains (losses)	$	(3	)	$	(3	)	Noninterest income / expense (1)
Net periodic benefit costs	1			1			Noninterest income / expense (1)
	(2		)	(2		)	Total before tax
	—			1			Tax (expense) benefit
	$	(2	)	$	(1	)	Net of tax


(1)	The activity for 2018 and 2017 is recorded in Noninterest Income - other noninterest income and Noninterest Expense - personnel costs on the Condensed Consolidated Statements of Income, respectively.

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10. SHAREHOLDERS’ EQUITY

The following is a summary of Huntington's non-cumulative perpetual preferred stock outstanding as of June 30, 2018.



(dollar amounts in millions, except per share amounts)
Series	Description	Issuance Date	Total Shares Outstanding	Carrying Amount	Dividend Rate		Earliest Redemption Date
Series B	Non-cumulative, non-voting, perpetual	12/28/2011	35,500	23	3-mo. LIBOR + 270 bps		1/15/2017
Series D	Non-cumulative, non-voting, perpetual	3/21/2016	400,000	386	6.25	%	7/15/2021
Series D	Non-cumulative, non-voting, perpetual	5/5/2016	200,000	199	6.25	%	7/15/2021
Series C	Non-cumulative, non-voting, perpetual	8/16/2016	100,000	100	5.875	%	1/15/2022
Series E	Non-cumulative, non-voting, perpetual	2/27/2018	5,000	495	5.700	%	4/15/2023
Total			740,500	1,203

Series B, D and C of preferred stock has a liquidation value and redemption price per share of $1,000, plus any declared and unpaid dividends. Series E stock has a liquidation value and redemption price per share of $100,000, plus any declared and unpaid dividends. All preferred stock has no stated maturity and redemption is solely at the option of the Company. Under current rules, any redemption of the preferred stock is subject to prior approval of the FRB.

Preferred A Stock conversion

On February 21, 2018, Huntington elected to effect the conversion of all of its outstanding 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock into common stock pursuant to the terms of the Series A Preferred Stock. On February 22, 2018, each share of Series A Preferred Stock was converted into 83.668 shares of Common Stock. Upon conversion, the Series A Preferred Stock is no longer outstanding and all rights with respect to the Series A Preferred Stock were ceased and terminated, except the right to receive the number of whole shares and any required cash-in-lieu of fractional shares of Common Stock. Following the conversion, the Series A Preferred Stock shares were delisted from trading on NASDAQ.

Preferred E Stock issued and outstanding

During the 2018 first quarter, Huntington issued $500 million of preferred stock. Huntington issued 500,000 depositary shares, each depositary shares representing a 1/100th ownership interest in a share of 5.700% Series E Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock (Preferred E Stock), par value $0.01 per share, with a liquidation preference of $100,000 per share (equivalent to $1,000 per depositary share). Each holder of a depositary share will be entitled to all proportional rights and preferences of the Preferred E Stock (including dividend, voting, redemption, and liquidation rights). Costs of $5 million related to the issuance of the Preferred E Stock are reported as a direct deduction from the face amount of the stock.

Dividends on the Preferred E Stock will be non-cumulative and payable quarterly in arrears, when, as and if authorized by the Company's board of directors or a duly authorized committee of the board and declared by the Company, at an annual rate of 5.700% per year on the liquidation preference of $100,000 per share, equivalent to $1,000 per depositary share. The dividend payment dates will be the fifteenth day of each January, April, July and October, commencing on July 15, 2018, or the next business day if any such day is not a business day.

The Preferred E Stock has no maturity date. Huntington may redeem the Preferred E Stock at its option, (i) in whole or in part, from time to time, on any dividend payment date on or after April 15, 2023 or (ii) in whole but not in part, within 90 days following a change in laws or regulations, in each case, at a redemption price equal to $100,000 per share (equivalent to $1,000 per depositary share), plus any declared and unpaid dividends, without regard to any undeclared dividends, on the Series E Preferred Stock prior to the date fixed for redemption. If Huntington redeems the Preferred E Stock, the depositary will redeem a proportional number of depositary shares. Neither the holders of Preferred E Stock nor holders of depositary shares will have the right to require the redemption or repurchase of the Preferred E Stock or the depositary shares. Any redemption of the Preferred E Stock is subject to Huntington's receipt of any required prior approval by the Board of Governors of the Federal Reserve System.

11. EARNINGS PER SHARE

Basic earnings per share is the amount of earnings (adjusted for dividends declared on preferred stock) available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options, restricted stock units and awards, distributions from deferred compensation plans, and the conversion of the Company’s convertible preferred stock.

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Potentially dilutive common shares are excluded from the computation of diluted earnings per share during periods in which the effect would be antidilutive.

On February 22, 2018, Huntington converted all its outstanding 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock to 30.3 million shares of common stock. Following the conversion, the additional shares were included in average common shares issued and outstanding. The 2018 total diluted average common shares issued and outstanding was impacted by using the if-converted method. The calculation of basic and diluted earnings per share for the three and six-month periods ended June 30, 2018 and 2017 was as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in millions, except per share amounts)	2018			2017			2018			2017
Basic earnings per common share:
Net income	$	355		$	272		$	681		$	480
Preferred stock dividends	(21		)	(19		)	(33		)	(38		)
Net income available to common shareholders	$	334		$	253		$	648		$	442
Average common shares issued and outstanding (000)	1,103,337			1,088,934			1,093,587			1,087,654
Basic earnings per common share	$	0.30		$	0.23		$	0.59		$	0.41
Diluted earnings per common share:
Net income available to common shareholders	$	334		$	253		$	648		$	442
Effect of assumed preferred stock conversion	—			—			—			—
Net income applicable to diluted earnings per share	$	334		$	253		$	648		$	442
Average common shares issued and outstanding (000)	1,103,337			1,088,934			1,093,587			1,087,654
Dilutive potential common shares:
Stock options and restricted stock units and awards	15,803			16,329			17,830			17,734
Shares held in deferred compensation plans	3,472			3,108			3,350			3,030
Dilutive impact of Preferred Stock	—			—			8,879			—
Other	—			156			—			154
Dilutive potential common shares	19,275			19,593			30,059			20,918
Total diluted average common shares issued and outstanding (000)	1,122,612			1,108,527			1,123,646			1,108,572
Diluted earnings per common share	$	0.30		$	0.23		$	0.58		$	0.40

There were approximately 2.5 million and 2.6 million of options to purchase shares of common stock outstanding for the three-month periods ended June 30, 2018 and 2017, respectively. There were approximately 1.6 million and 1.8 million of options to purchase shares of common stock outstanding for the six-month periods ended June 30, 2018 and 2017. These options were not included in the computation of diluted earnings per share because the effect would be antidilutive.

12. NONINTEREST INCOME

Huntington earns a variety of revenue including interest and fees from customers as well as revenues from non-customers. Certain sources of revenue are recognized within interest or fee income and are outside of the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Other sources of revenue fall within the scope of ASC 606 and are generally recognized within ‘noninterest income’. These revenues are included within various sections of the consolidated financial statements. The following table shows Huntington’s total noninterest income segregated between contracts with customers within the scope of ASC 606 and those within the scope of other GAAP Topics.



(dollar amounts in millions)	Three Months Ended June 30, 2018	Six Months Ended June 30, 2018
Noninterest income