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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.



Table of Contents

HUNTINGTON BANCSHARES INCORPORATED
INDEX
 
 
 


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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
 %


10

Table of Contents

Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)
 
 
 
 
 
 
 
 
 
 
 
Average Yield Rates (2)
 
Three Months Ended
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
Fully-taxable equivalent basis (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.



11

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.


12

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
Table 5 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
(dollar amounts in millions)
 
 
 
 
 
 
 
 
 
 
 
 
YTD Average Balances
 
YTD Average Rates (2)
 
Six months ended June 30,
 
Change
 
Six months ended June 30,
Fully-taxable equivalent basis (1)
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.


13

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.

14

Table of Contents

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
 %

15

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.



16

Table of Contents

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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Table of Contents

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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Table of Contents

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.


19

Table of Contents

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.

20

Table of Contents

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.

21

Table of Contents

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

29

Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

39

Table of Contents

 
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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Table of Contents

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


41

Table of Contents

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

42

Table of Contents

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


43

Table of Contents


 
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

44

Table of Contents

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.

45

Table of Contents

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.

46

Table of Contents

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.

















47

Table of Contents

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.

48

Table of Contents

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


49

Table of Contents

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
 
 
 
 
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
 
 
 
 
 
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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Table of Contents

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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Table of Contents

(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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Table of Contents

(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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Table of Contents

 
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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Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
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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Table of Contents

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