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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 March 31, 2015

Commission File Number 1-34073

Huntington Bancshares Incorporated

Maryland

31-0724920

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

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

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

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

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

There were 808,528,243 shares of Registrant’s common stock ($0.01 par value) outstanding on March 31, 2015.

HUNTINGTON BANCSHARES INCORPORATED

INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014	55

	Condensed Consolidated Statements of Income for the three months ended March 31, 2015 and 2014	56

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014	57

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2015 and 2014	58

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	59

	Notes to Unaudited Condensed Consolidated Financial Statements	61

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

	Executive Overview	7

	Discussion of Results of Operations	9

	Risk Management and Capital:
	Credit Risk	18
	Market Risk	30
	Liquidity Risk	31
	Operational Risk	35
	Compliance Risk	37
	Capital	37
	Fair Value	41

	Business Segment Discussion	42

	Additional Disclosures	53

Item 3. Quantitative and Qualitative Disclosures about Market Risk		132

Item 4. Controls and Procedures		132

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		132

Item 1A. Risk Factors		132

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		133

Item 6. Exhibits		133

Signatures		135

Glossary of Acronyms and Terms

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



ABL		Asset Based Lending

ACL		Allowance for Credit Losses

AFCRE		Automobile Finance and Commercial Real Estate

AFS		Available-for-Sale

ALCO		Asset-Liability Management Committee

ALLL		Allowance for Loan and Lease Losses

ARM		Adjustable Rate Mortgage

ASC		Accounting Standards Codification

ASU		Accounting Standards Update

ATM		Automated Teller Machine

AULC		Allowance for Unfunded Loan Commitments

Basel III		Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013

C&I		Commercial and Industrial

Camco Financial		Camco Financial Corp.

CCAR		Comprehensive Capital Analysis and Review

CDO		Collateralized Debt Obligations

CDs		Certificate of Deposit

CET1		Common equity tier 1 on a transitional Basel III basis

CFPB		Bureau of Consumer Financial Protection

CFTC		Commodity Futures Trading Commission

CMO		Collateralized Mortgage Obligations

CRE		Commercial Real Estate

Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act

DTA/DTL		Deferred Tax Asset/Deferred Tax Liability

EFT		Electronic Fund Transfer

EPS		Earnings Per Share

EVE		Economic Value of Equity

FASB		Financial Accounting Standards Board

Fannie Mae		(see FNMA)

FDIC		Federal Deposit Insurance Corporation

FDICIA		Federal Deposit Insurance Corporation Improvement Act of 1991

FHA		Federal Housing Administration

FHLB		Federal Home Loan Bank

FHLMC		Federal Home Loan Mortgage Corporation

FICO		Fair Isaac Corporation

FNMA		Federal National Mortgage Association

FRB		Federal Reserve Bank

Freddie Mac		(see FHLMC)

FTE		Fully-Taxable Equivalent

FTP		Funds Transfer Pricing

GAAP		Generally Accepted Accounting Principles in the United States of America

HAMP		Home Affordable Modification Program

HARP		Home Affordable Refinance Program



HIP		Huntington Investment and Tax Savings Plan

HQLA		High Quality Liquid Asset

HTM		Held-to-Maturity

IRS		Internal Revenue Service

LCR		Liquidity Coverage Ratio

LIBOR		London Interbank Offered Rate

LGD		Loss-Given-Default

LIHTC		Low Income Housing Tax Credit

LTV		Loan to Value

Macquarie		Macquarie Equipment Finance, Inc. (U.S. operations)

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

MSA		Metropolitan Statistical Area

MSR		Mortgage Servicing Rights

NAICS		North American Industry Classification System

NALs		Nonaccrual Loans

NCO		Net Charge-off

NII		Net Interest Income

NIM		Net Interest Margin

NCO		Net Charge-off

NIM		Net Interest Margin

NPA		Nonperforming Asset

N.R.		Not relevant. Denominator of calculation is a gain in the current period compared with a loss in the prior period, or vice-versa

OCC		Office of the Comptroller of the Currency

OCI		Other Comprehensive Income (Loss)

OCR		Optimal Customer Relationship

OLEM		Other Loans Especially Mentioned

OREO		Other Real Estate Owned

OTTI		Other-Than-Temporary Impairment

Plan		Huntington Bancshares Retirement Plan

Problem Loans		Includes nonaccrual loans and leases (Table 11), troubled debt restructured loans (Table 12), accruing loans and leases past due 90 days or more (aging analysis section of Footnote 3), and Criticized commercial loans (credit quality indicators section of Footnote 3).

RBHPCG		Regional Banking and The Huntington Private Client Group

RCSA		Risk and Control Self-Assessments

REIT		Real Estate Investment Trust

ROC		Risk Oversight Committee

RWA		Risk-Weighted Assets

SAD		Special Assets Division

SBA		Small Business Administration

SEC		Securities and Exchange Commission

SERP		Supplemental Executive Retirement Plan

SRIP		Supplemental Retirement Income Plan

SSFA		Simplified Supervisory Formula Approach

TCE		Tangible Common Equity

TDR		Troubled Debt Restructured Loan

U.S. Treasury		U.S. Department of the Treasury

UCS		Uniform Classification System



UDAP		Unfair or Deceptive Acts or Practices

UPB		Unpaid Principal Balance

USDA		U.S. Department of Agriculture

VIE		Variable Interest Entity

XBRL		eXtensible Business Reporting Language

PART I. FINANCIAL INFORMATION

When we refer to “we”, “our”, and “us” 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 149 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, equipment leasing, investment management, trust services, brokerage services, insurance service programs, and other financial products and services. Our 733 branches are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio and a limited purpose office located in the Cayman Islands and another limited purpose office located in Hong Kong. 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 2014 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2014 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.

Our discussion is divided into key segments:

•

Executive Overview—Provides a summary of our current financial performance and business overview, including our thoughts on the impact of the economy, legislative and regulatory initiatives, and recent industry developments. This section also provides our outlook regarding our expectations for the next several quarters.

•

Discussion of Results of Operations—Reviews financial performance from a consolidated Company perspective. It also includes a Significant Items section that summarizes key issues helpful for understanding performance trends. Key consolidated average balance sheet and income statement trends are also discussed in this section.

•

Risk Management and Capital—Discusses credit, market, liquidity, operational, and compliance risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we obtain funding, and related performance. In addition, there is a discussion of guarantees and / or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.

•

Business Segment Discussion—Provides an overview of financial performance for each of our major business segments and provides additional discussion of trends underlying consolidated financial performance.

•

Additional Disclosures—Provides comments on important matters including forward-looking statements, critical accounting policies and use of significant estimates, and recent accounting pronouncements and developments.

A reading of each section is important to understand fully the nature of our financial performance and prospects.

EXECUTIVE OVERVIEW

Summary of 2015 First Quarter Results

For the quarter, we reported net income of $165.9 million, or $0.19 per common share, compared with $149.1 million, or $0.17 per common share, in the year-ago quarter (see Table 1).

Fully-taxable equivalent net interest income was $475.2 million for the quarter, up $31.9 million, or 7%, from the year-ago quarter. The results reflected a $6.2 billion, or 11%, increase in average earning assets, including a $4.4 billion, or 10%, increase in average loans and leases, as well as a $1.8 billion, or 16%, increase in average securities. The impact of these balance increases was partially offset by a 12 basis point decrease in the net interest margin. The primary items affecting the net interest margin were a 15 basis point negative impact from the mix and yield of earning assets and a 1 basis point reduction in the benefit from the impact of noninterest-bearing funds, partially offset by a 4 basis point reduction in funding costs.

The provision for credit losses decreased $4.0 million from the year-ago quarter to $20.6 million in the 2015 first quarter. NCOs decreased $18.6 million, or 43%, to $24.4 million. NCOs represented an annualized 0.20% of average loans and leases in the current quarter consistent with the prior quarter results, and down substantially from the 0.40% in the year-ago quarter. Residential and home equity NCOs continued to show a declining trend over the last five quarters. Commercial NCOs have been relatively consistent over the period with relatively low levels creating some quarter-to-quarter volatility.

Noninterest income decreased $16.9 million, or 7%, from the year-ago quarter. The year-over-year decrease primarily reflected the $17.0 million of securities gains realized in the 2014 first quarter compared to none in the current quarter. In addition, capital market fees increased $4.7 million, or 51%, primarily related to income from customer interest rate derivative products and underwriting fees. Electronic banking increased $3.8 million, or 16%, due to higher card related income and underlying customer growth. Service charges on deposit accounts decreased $2.4 million, or 4%, reflecting the decline from the late July 2014 implementation of changes in consumer products, partially offset by a 9% increase in consumer households and changing customer usage patterns.

Noninterest expense decreased $1.3 million, or less than 1%, from the year-ago quarter. Noninterest expense in the year-ago quarter included several Significant Items, which are further described in the “Discussion of Results of Operations” section. The results reflected a $15.0 million, or 29%, decrease in other expense (excluding the impact of Significant Items, other expenses decreased $4.6 million, or 11%), and a $3.6 million, or 26%, decrease in deposit and other insurance expense, primarily reflecting the benefit of $1.8 billion of bank-level debt issued over the past year. This was partially offset by a $15.4 million, or 6%, increase in personnel costs (excluding the impact of Significant Items, personnel costs increased $17.8 million, or 7%, primarily related to a $13.8 million increase in salaries reflecting a 1% increase in the number of full-time equivalent employees and a $4.0 million increase in benefits expense).

The tangible common equity to tangible assets ratio was 7.95% at March 31, 2015, down 68 basis points from a year ago. On a Basel III transitional basis, the regulatory common equity tier 1 (CET1) risk-based capital ratio was 9.51% at March 31, 2015, and the regulatory tier 1 risk-based capital ratio was 10.22%. On a Basel I basis, the tier 1 common risk-based capital ratio was 10.60% at March 31, 2014, and the regulatory tier 1 risk-based capital ratio was 11.95%. All capital ratios were impacted by the repurchase of 26.1 million common shares over the last four quarters.

Business Overview

General

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

Ongoing improvement in our expense control environment, continuing good core deposit growth, and strong mortgage and capital markets results were highlights for the quarter. In addition, we completed the successful close of our acquisition of Macquarie Equipment Finance, Inc. on March 31, 2015, and look forward to transitioning to the Huntington Technology Finance brand to align our enhanced capabilities with our combined customer base and prospects. Also in the quarter, we continued to expand within our core footprint via the launch of our previously announced 2015 in-store build out, enhancing our full-service branch network in a cost-efficient manner.

On April 21, 2015, the board of directors approved two capital actions. First, the board declared a quarterly cash dividend on the Company’s common stock of $0.06 per common share. The dividend is payable July 1, 2015, to shareholders of record on June 17, 2015. Second, the board authorized the repurchase of up to $366 million of common shares over the five quarters through the 2016 second quarter. Both actions were proposed in the January 2015 CCAR capital plan, which received no objections from the Federal Reserve. Purchases of common stock may include open market purchases, privately negotiated transactions, and accelerated repurchase programs. During the 2015 first quarter, the Company repurchased 4.9 million common shares at an average price of $10.45 per share, which completed our previous repurchase authorization.

Economy

The automobile industry is expected to provide continued impetus for regional manufacturing growth and capital spending in 2015, offsetting slower anticipated growth in energy and non-transportation exports. Manufacturing employment growth and activity spurs employment growth directly in manufacturing and indirectly in service sectors as evidenced by the drop in unemployment rates during the recovery in our footprint states.

Home purchase prices are rising in our footprint states and the nation. In addition, office vacancy rates in our largest MSAs are down substantially during the economic recovery-to-date. Further, industrial vacancy rates in most of our largest footprint MSAs have been below the national average, reflecting generally healthy industrial real estate markets.

Legislative and Regulatory

Regulatory reforms continue to be adopted, including the 2015 first quarter implementation of the Basel III regulatory capital requirements.

Basel III Regulatory Capital Requirements—In 2013, the Federal Reserve voted to adopt final capital rules implementing Basel III requirements for U.S. Banking organizations, which were effective for us beginning January 1, 2015. The final rules establish an integrated regulatory capital framework and implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Consistent with the international Basel framework, the final rule includes a new regulatory minimum ratio of common equity tier 1 capital to risk-weighted assets. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets and includes a minimum leverage ratio of 4%. The Basel III capital rules establish two methodologies for calculating risk-weighted assets, the advanced and standardized approaches. We are subject to the standardized approach for calculating risk-weighted assets. The implementation of the Basel III capital requirements is transitional and phases-in through the end of 2018.

Expectations – 2015

We remain committed to delivering solid results in a flat interest rate environment. We have built our budget around the current rate environment and our planned results are not dependent on a rate hike. While our customer activity levels, our pipelines and our balance sheet are strong, we will continue to be disciplined in growing our commercial real estate and C&I portfolios. We will continue disciplined execution of our strategic focus on investment in the business, controlled expenses and delivering full-year positive operating leverage.

On March 31, 2015, we completed our acquisition of Macquarie in a cash transaction valued at $457.8 million. Macquarie is the largest standalone, vendor independent provider of specialized technology financing with customer-centric asset management services in the United States. The acquisition gives us the ability to drive added growth to our national equipment finance business as well as additional health care and small business finance capabilities. We expect Macquarie, which added over 165 positions to our colleague base, to generate approximately $500 million in annual lease originations and approximately $75 million to $85 million in annualized revenue.

Excluding Significant Items and net MSR activity, we expect to deliver positive operating leverage in 2015, with and without the run rate impact of the Macquarie acquisition. Achieving annual positive operating leverage is a long-term strategic goal and we are committed to managing expenses in conjunction with our revenue outlook to achieve that goal. We expect noninterest expense growth of 2-4%, excluding Significant Items and the recurring expense related to the Macquarie acquisition.

Overall, asset quality metrics are expected to remain near current levels, although moderate quarterly volatility also is expected, given the absolute low level of problem assets and credit costs. We anticipate NCOs will remain within or below our long-term normalized range of 35 to 55 basis points.

The effective tax rate for 2015 is expected to be in the range of 24% to 27%.

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.”

Table 1—Selected Quarterly Income Statement Data (1)


	2015			2014
(dollar amounts in thousands, except per share amounts)	First			Fourth			Third			Second			First
Interest income	$	502,096		$	507,625		$	501,060		$	495,322		$	472,455
Interest expense		34,411			34,373			34,725			35,274			34,949

Net interest income		467,685			473,252			466,335			460,048			437,506
Provision for credit losses		20,591			2,494			24,480			29,385			24,630

Net interest income after provision for credit losses		447,094			470,758			441,855			430,663			412,876

Service charges on deposit accounts		62,220			67,408			69,118			72,633			64,582
Trust services		29,039			28,781			28,045			29,581			29,565
Electronic banking		27,398			27,993			27,275			26,491			23,642
Mortgage banking income		22,961			14,030			25,051			22,717			23,089
Brokerage income		15,500			16,050			17,155			17,905			17,167
Insurance income		15,895			16,252			16,729			15,996			16,496
Bank owned life insurance income		13,025			14,988			14,888			13,865			13,307
Capital markets fees		13,905			13,791			10,246			10,500			9,194
Gain on sale of loans		4,589			5,408			8,199			3,914			3,570
Securities gains (losses)		—			(104	)		198			490			16,970
Other income		27,091			28,681			30,445			35,975			30,903

Total noninterest income		231,623			233,278			247,349			250,067			248,485

Personnel costs		264,916			263,289			275,409			260,600			249,477
Outside data processing and other services		50,535			53,685			53,073			54,338			51,490
Net occupancy		31,020			31,565			34,405			28,673			33,433
Equipment		30,249			31,981			30,183			28,749			28,750
Professional services		12,727			15,665			13,763			17,896			12,231
Marketing		12,975			12,466			12,576			14,832			10,686
Deposit and other insurance expense		10,167			13,099			11,628			10,599			13,718
Amortization of intangibles		10,206			10,653			9,813			9,520			9,291
Other expense		36,062			50,868			39,468			33,429			51,045

Total noninterest expense		458,857			483,271			480,318			458,636			460,121

Income before income taxes		219,860			220,765			208,886			222,094			201,240
Provision for income taxes		54,006			57,151			53,870			57,475			52,097

Net income	$	165,854		$	163,614		$	155,016		$	164,619		$	149,143

Dividends on preferred shares		7,965			7,963			7,964			7,963			7,964

Net income applicable to common shares	$	157,889		$	155,651		$	147,052		$	156,656		$	141,179

Average common shares—basic		809,778			811,967			816,497			821,546			829,659
Average common shares—diluted		823,809			825,338			829,623			834,687			842,677
Net income per common share—basic	$	0.19		$	0.19		$	0.18		$	0.19		$	0.17
Net income per common share—diluted		0.19			0.19			0.18			0.19			0.17
Cash dividends declared per common share		0.06			0.06			0.05			0.05			0.05
Return on average total assets		1.02	%		1.00	%		0.97	%		1.07	%		1.01	%
Return on average common shareholders’ equity		10.6			10.3			9.9			10.8			9.9
Return on average tangible common shareholders’ equity (2)		12.2			11.9			11.4			12.4			11.4
Net interest margin (3)		3.15			3.18			3.20			3.28			3.27
Efficiency ratio (4)		63.5			66.2			65.3			62.7			66.4
Effective tax rate		24.6			25.9			25.8			25.9			25.9
Revenue—FTE

Net interest income	$	467,685		$	473,252		$	466,335		$	460,048		$	437,506
FTE adjustment		7,560			7,522			7,506			6,637			5,885

Net interest income (3)		475,245			480,774			473,841			466,685			443,391
Noninterest income		231,623			233,278			247,349			250,067			248,485

Total revenue (3)	$	706,868		$	714,052		$	721,190		$	716,752		$	691,876

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

⁽²⁾

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

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

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

Significant Items

Definition of Significant Items

From time-to-time, revenue, expenses, or taxes are impacted by items judged by us to be outside of ordinary banking activities and / or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by us at that time to be infrequent or short-term in nature. We refer to such items as Significant Items. Most often, these Significant Items result from factors originating outside the Company; e.g., regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions associated with significant corporate actions outside of the ordinary course of business; e.g., merger / restructuring charges, recapitalization actions, goodwill impairment, etc.

Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not define a Significant Item. For example, changes in the provision for credit losses, gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary banking activities and are, therefore, typically excluded from consideration as a Significant Item.

We believe the disclosure of Significant Items provides a better understanding of our performance and trends to ascertain which of such items, if any, to include or exclude from an analysis of our performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance accordingly. To this end, we adopted a practice of listing Significant Items in our external disclosure documents; e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K.

Significant Items for any particular period are not intended to be a complete list of items that may materially impact current or future period performance.

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons were impacted by the Significant Items summarized below:

1.	Franchise Repositioning Related Expense. During the 2014 fourth quarter, $8.6 million of franchise repositioning related expense was recorded for the consolidation of 26 branches and organizational actions. This resulted in a negative impact of $0.01 per common share.

Litigation Reserve. $11.9 million and $9.0 million of net additions to litigation reserves were recorded as other noninterest expense during the 2014 fourth quarter and 2014 first quarter, respectively. This resulted in a negative impact of $0.01 per common share in the 2014 fourth quarter and 2014 first quarter.

3.	Merger and Acquisition. During the 2014 first quarter, $11.8 million of net noninterest expense was recorded related to the acquisition of Camco Financial. This resulted in a negative impact of $0.01 per common share.

The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected by this Results of Operations discussion:

Table 2—Significant Items Influencing Earnings Performance Comparison


	Three Months Ended
	March 31, 2015 (4)				December 31, 2014						March 31, 2014
(dollar amounts in thousands, except per share amounts)	After-tax		EPS (2)(3)		After-tax			EPS (2)(3)			After-tax			EPS (2)(3)
Net income	$	165,854			$	163,614					$	149,143
Earnings per share, after-tax			$	0.19				$	0.19					$	0.17

Significant Items—favorable (unfavorable) impact:	Earnings (1)		EPS (2)(3)		Earnings (1)			EPS (2)(3)			Earnings (1)			EPS (2)(3)
Franchise repositioning related expense	$	—	$	—	$	(8,643	)	$	(0.01	)	$	—		$	—
Net additions to litigation reserve		—		—		(11,909	)		(0.01	)		(9,000	)		(0.01	)
Mergers and acquisitions, net		—		—		—			—			(11,823	)		(0.01	)

⁽¹⁾

Pretax.

⁽²⁾	Based on average outstanding diluted common shares.

⁽³⁾	After-tax.

⁽⁴⁾	Quarter included $3.4 million of merger-related expense that was not a Significant Item for the quarter, but merger-related expense may be a Significant Item for the 2015 full year.

Net Interest Income / Average Balance Sheet

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

Table 3—Consolidated Quarterly Average Balance Sheets


	Average Balances															Change
	2015			2014												1Q15 vs. 1Q14
(dollar amounts in millions)	First			Fourth			Third			Second			First			Amount			Percent
Assets:
Interest-bearing deposits in banks	$	94		$	85		$	82		$	91		$	83		$	11			13	%
Loans held for sale		381			374			351			288			279			102			37
Securities:
Available-for-sale and other securities:
Taxable		7,664			7,291			6,935			6,662			6,240			1,424			23
Tax-exempt		1,874			1,684			1,620			1,290			1,115			759			68

Total available-for-sale and other securities		9,538			8,975			8,555			7,952			7,355			2,183			30
Trading account securities		53			49			50			45			38			15			39
Held-to-maturity securities—taxable		3,347			3,435			3,556			3,677			3,783			(436	)		(12	)

Total securities		12,938			12,459			12,161			11,674			11,176			1,762			16

Loans and leases: (1)
Commercial:
Commercial and industrial		19,116			18,880			18,581			18,262			17,631			1,485			8
Commercial real estate:
Construction		887			822			775			702			612			275			45
Commercial		4,275			4,262			4,188			4,345			4,289			(14	)		—

Commercial real estate		5,162			5,084			4,963			5,047			4,901			261			5

Total commercial		24,278			23,964			23,544			23,309			22,532			1,746			8

Consumer:
Automobile		8,783			8,512			8,012			7,349			6,786			1,997			29
Home equity		8,484			8,452			8,412			8,376			8,340			144			2
Residential mortgage		5,810			5,751			5,747			5,608			5,379			431			8
Other consumer		425			413			398			382			386			39			10

Total consumer		23,502			23,128			22,569			21,715			20,891			2,611			12

Total loans and leases		47,780			47,092			46,113			45,024			43,423			4,357			10
Allowance for loan and lease losses		(612	)		(631	)		(633	)		(642	)		(649	)		37			(6	)

Net loans and leases		47,168			46,461			45,480			44,382			42,774			4,394			10

Total earning assets		61,193			60,010			58,707			57,077			54,961			6,232			11

Cash and due from banks		935			929			887			872			904			31			3
Intangible assets		593			602			583			591			535			58			11
All other assets		4,142			4,022			3,929			3,932			3,941			201			5

Total assets	$	66,251		$	64,932		$	63,473		$	61,830		$	59,692		$	6,559			11	%

Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	15,253		$	15,179		$	14,090		$	13,466		$	13,192		$	2,061			16	%
Demand deposits—interest-bearing		6,173			5,948			5,913			5,945			5,775			398			7

Total demand deposits		21,426			21,127			20,003			19,411			18,967			2,459			13
Money market deposits		19,368			18,401			17,929			17,680			17,648			1,720			10
Savings and other domestic deposits		5,169			5,052			5,020			5,086			4,967			202			4
Core certificates of deposit		2,814			3,058			3,167			3,434			3,613			(799	)		(22	)

Total core deposits		48,777			47,638			46,119			45,611			45,195			3,582			8
Other domestic time deposits of $250,000 or more		195			201			223			262			284			(89	)		(31	)
Brokered deposits and negotiable CDs		2,600			2,434			2,262			2,070			1,782			818			46
Deposits in foreign offices		557			479			374			315			328			229			70

Total deposits		52,129			50,752			48,978			48,258			47,589			4,540			10
Short-term borrowings		1,882			2,682			3,192			2,788			2,372			(490	)		(21	)
Long-term debt		4,374			3,956			3,968			3,523			2,513			1,861			74

Total interest-bearing liabilities		43,132			42,211			42,048			41,103			39,282			3,850			10

All other liabilities		1,450			1,168			1,043			1,033			1,035			415			40
Shareholders’ equity		6,416			6,374			6,292			6,228			6,183			233			4

Total liabilities and shareholders’ equity	$	66,251		$	64,932		$	63,473		$	61,830		$	59,692		$	6,559			11	%

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

Table 4—Consolidated Quarterly Net Interest Margin Analysis


	Average Rates (2)
	2015			2014
Fully-taxable equivalent basis (1)	First			Fourth			Third			Second			First
Assets:
Interest-bearing deposits in banks		0.18	%		0.23	%		0.19	%		0.04	%		0.03	%
Loans held for sale		3.69			3.82			3.98			4.27			3.74
Securities:
Available-for-sale and other securities:
Taxable		2.50			2.61			2.48			2.52			2.47
Tax-exempt		3.05			3.26			3.02			3.15			3.03

Total available-for-sale and other securities		2.61			2.73			2.59			2.63			2.55
Trading account securities		1.17			1.05			0.85			0.70			1.12
Held-to-maturity securities—taxable		2.47			2.45			2.45			2.46			2.47

Total securities		2.57			2.65			2.54			2.57			2.52

Loans and leases: (3)
Commercial:
Commercial and industrial		3.33			3.35			3.45			3.49			3.56
Commercial real estate:
Construction		3.81			4.30			4.38			4.29			3.99
Commercial		3.57			3.47			3.60			4.16			3.84

Commercial real estate		3.62			3.60			3.72			4.17			3.86

Total commercial		3.39			3.40			3.51			3.64			3.63

Consumer:
Automobile		3.24			3.33			3.41			3.47			3.54
Home equity		4.03			4.05			4.07			4.12			4.12
Residential mortgage		3.75			3.84			3.78			3.77			3.78
Other consumer		8.20			7.68			7.31			7.34			6.82

Total consumer		3.74			3.80			3.82			3.87			3.89

Total loans and leases		3.56			3.60			3.66			3.75			3.75

Total earning assets		3.38	%		3.41	%		3.44	%		3.53	%		3.53	%

Liabilities:
Deposits:
Demand deposits—noninterest-bearing		—	%		—	%		—	%		—	%		—	%
Demand deposits—interest-bearing		0.05			0.04			0.04			0.04			0.04

Total demand deposits		0.01			0.01			0.01			0.01			0.01
Money market deposits		0.21			0.22			0.23			0.24			0.25
Savings and other domestic deposits		0.15			0.16			0.16			0.17			0.20
Core certificates of deposit		0.76			0.75			0.74			0.81			0.94

Total core deposits		0.22			0.23			0.23			0.25			0.28
Other domestic time deposits of $250,000 or more		0.42			0.43			0.44			0.43			0.41
Brokered deposits and negotiable CDs		0.17			0.18			0.20			0.24			0.28
Deposits in foreign offices		0.13			0.13			0.13			0.13			0.13

Total deposits		0.22			0.23			0.23			0.25			0.28
Short-term borrowings		0.12			0.12			0.11			0.10			0.09
Long-term debt		1.31			1.35			1.35			1.44			1.67

Total interest-bearing liabilities		0.32	%		0.32	%		0.33	%		0.34	%		0.36	%

Net interest rate spread		3.06	%		3.09	%		3.11	%		3.19	%		3.17	%
Impact of noninterest-bearing funds on margin		0.09			0.09			0.09			0.09			0.10

Net interest margin		3.15	%		3.18	%		3.20	%		3.28	%		3.27	%

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

⁽²⁾	Loan, 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.

2015 First Quarter versus 2014 First Quarter

Fully-taxable equivalent net interest income increased $31.9 million, or 7%, from the 2014 first quarter. This reflected the benefit from the $6.2 billion, or 11%, increase in average earning assets partially offset by a 12 basis point reduction in the FTE NIM to 3.15%. Average earning asset growth included a $4.4 billion, or 10%, increase in average loans and leases and a $1.8 billion, or 16%, increase in average securities. The NIM contraction reflected a 15 basis point decrease related to the mix and yield of earning assets and 1 basis point reduction in benefit from the impact of noninterest-bearing funds, partially offset by the 4 basis point reduction in funding costs.

Average earning assets increased $6.2 billion, or 11%, from the year-ago quarter, driven by:

•

$2.0 billion, or 29%, increase in average Automobile loans, as the 2015 first quarter represented the fifth consecutive quarter of greater than $1.0 billion in automobile loan originations.

•

$1.8 billion, or 16%, increase in average securities, reflecting an increase of $1.8 billion of LCR Level 1 qualified securities.

•

$1.5 billion, or 8%, increase in average C&I loans and leases, primarily reflecting growth in trade finance in support of our middle market and corporate customers, asset finance, automobile dealer floorplan lending, and corporate banking.

•

$0.4 billion, or 8%, increase in average Residential mortgage loans as a result of the Camco acquisition in the year-ago quarter and a decrease in the rate of payoffs due to lower levels of refinancing.

While not affecting average balances, $1.0 billion of automobile loans were transferred to loans held-for-sale on March 31, 2015 in anticipation of a future loan securitization. In addition, on March 31, 2015, the Company completed the previously announced acquisition of Macquarie subsequently rebranded as Huntington Technology Finance. The acquisition included $0.8 billion of equipment finance leases.

Average total deposits increased $4.5 billion, or 10%, from the year-ago quarter, including a $3.6 billion, or 8%, increase in average total core deposits. The increase in total deposits included $1.0 billion of deposits acquired in the Camco and Bank of America branch acquisitions. Average total liabilities increased $6.3 billion, or 12%, from the year-ago quarter, reflecting:

•

$2.1 billion, or 16%, increase in noninterest-bearing deposits, reflecting the strategic focus on consumer checking account household and commercial checking account relationship growth.

•

$1.7 billion, or 10%, increase in money market deposits, reflecting consumer and commercial relationship growth as well as strong sales execution.

•

$1.9 billion, or 74%, increase in long-term borrowings, primarily reflecting a cost-effective method of funding incremental LCR-related securities growth including the issuance of $1.8 billion of bank-level senior debt over the past year. While not affecting average balances, the Macquarie acquisition included $0.5 billion of assumed debt.

•

$0.8 billion, or 46%, increase in brokered deposits and negotiable CDs, which were used to efficiently finance balance sheet growth while continuing to manage the overall cost of funds.

Partially offset by:

•

$0.8 billion, or 22%, decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to no-cost demand deposits and lower-cost money market deposits.

2015 First Quarter versus 2014 Fourth Quarter

Compared to the 2014 fourth quarter, fully-taxable equivalent net interest income decreased $5.5 million, or 1% annualized. While average earning assets increased $1.2 billion, or 2%, sequentially, the 3 basis point decrease in the NIM coupled with two fewer days in the 2015 first quarter more than offset the benefit of the larger balance sheet.

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

The provision for credit losses for the 2015 first quarter was $20.6 million compared with $2.5 million for the 2014 fourth quarter and $24.6 million for the 2014 first quarter. NCOs compared to the 2014 fourth quarter remained relatively stable. The 2015 first quarter provision for credit losses was impacted by the extension of our consumer loss emergence periods and increases to our reserve factors for high dollar value commercial credits, partially offset by our decision to no longer utilize separate methods to estimate economic risks inherent in our portfolios. (See Credit Quality discussion). Given the low level of the provision for credit losses and the uneven nature of commercial charge-offs and recoveries, some degree of volatility on a quarter-to-quarter basis is expected.

Noninterest Income

The following table reflects noninterest income for each of the past five quarters:

Table 5—Noninterest Income


	2015		2014									1Q15 vs 4Q14						1Q15 vs 1Q14
(dollar amounts in thousands)	First		Fourth			Third		Second		First		Amount			Percent			Amount			Percent
Service charges on deposit accounts	$	62,220	$	67,408		$	69,118	$	72,633	$	64,582	$	(5,188	)		(8	)%	$	(2,362	)		(4	)%
Trust services		29,039		28,781			28,045		29,581		29,565		258			1			(526	)		(2	)
Electronic banking		27,398		27,993			27,275		26,491		23,642		(595	)		(2	)		3,756			16
Mortgage banking income		22,961		14,030			25,051		22,717		23,089		8,931			64			(128	)		(1	)
Brokerage income		15,500		16,050			17,155		17,905		17,167		(550	)		(3	)		(1,667	)		(10	)
Insurance income		15,895		16,252			16,729		15,996		16,496		(357	)		(2	)		(601	)		(4	)
Bank owned life insurance income		13,025		14,988			14,888		13,865		13,307		(1,963	)		(13	)		(282	)		(2	)
Capital markets fees		13,905		13,791			10,246		10,500		9,194		114			1			4,711			51
Gain on sale of loans		4,589		5,408			8,199		3,914		3,570		(819	)		(15	)		1,019			29
Securities gains (losses)		—		(104	)		198		490		16,970		104			(100	)		(16,970	)		(100	)
Other income		27,091		28,681			30,445		35,975		30,903		(1,590	)		(6	)		(3,812	)		(12	)

Total noninterest income	$	231,623	$	233,278		$	247,349	$	250,067	$	248,485	$	(1,655	)		(1	)%	$	(16,862	)		(7	)%

2015 First Quarter versus 2014 First Quarter

•

$4.7 million, or 51%, increase in capital market fees primarily related to income from customer interest rate derivative products and underwriting fees.

•

$3.8 million, or 16%, increase in electronic banking due to higher card related income and underlying customer growth.

•

$2.4 million, or 4%, decrease in service charges on deposit accounts reflecting the decline from the late July 2014 implementation of changes in consumer products, partially offset by a 9% increase in consumer households and changing customer usage patterns.

2015 First Quarter versus 2014 Fourth Quarter

Noninterest income decreased $1.7 million, or 1%, from the 2014 fourth quarter, reflecting typical seasonality within service charges on deposit accounts, which decreased $5.2 million, or 8 %. This was offset by an $8.9 million, or 64%, increase in mortgage banking income, primarily driven by higher gain on sale margin, a higher percentage of loans originated for sale, and a 6% increase in origination volume.

Noninterest Expense

(This section should be read in conjunction with Significant Item 1, 2, and 3.)

The following table reflects noninterest expense for each of the past five quarters:

Table 6—Noninterest Expense


	2015		2014								1Q15 vs 1Q14						1Q15 vs 4Q14
(dollar amounts in thousands)	First		Fourth		Third		Second		First		Amount			Percent			Amount			Percent
Personnel costs	$	264,916	$	263,289	$	275,409	$	260,600	$	249,477	$	15,439			6	%	$	1,627			1	%
Outside data processing and other services		50,535		53,685		53,073		54,338		51,490		(955	)		(2	)		(3,150	)		(6	)
Net occupancy		31,020		31,565		34,405		28,673		33,433		(2,413	)		(7	)		(545	)		(2	)
Equipment		30,249		31,981		30,183		28,749		28,750		1,499			5			(1,732	)		(5	)
Professional services		12,727		15,665		13,763		17,896		12,231		496			4			(2,938	)		(19	)
Marketing		12,975		12,466		12,576		14,832		10,686		2,289			21			509			4
Deposit and other insurance expense		10,167		13,099		11,628		10,599		13,718		(3,551	)		(26	)		(2,932	)		(22	)
Amortization of intangibles		10,206		10,653		9,813		9,520		9,291		915			10			(447	)		(4	)
Other expense		36,062		50,868		39,468		33,429		51,045		(14,983	)		(29	)		(14,806	)		(29	)

Total noninterest expense	$	458,857	$	483,271	$	480,318	$	458,636	$	460,121	$	(1,264	)		—	%	$	(24,414	)		(5	)%

Number of employees (average full-time equivalent)		11,914		11,875		11,946		12,000		11,848		66			1			39			—

Impacts of Significant Items:


	2015		2014
(dollar amounts in thousands)	First (1)		Fourth		First
Personnel costs	$	1	$	2,165	$	2,341
Outside data processing and other services		51		306		4,291
Net occupancy		—		4,150		1,742
Equipment		—		2,003		134
Professional services		3,286		—		2,172
Marketing		1		14		530
Other expense		12		11,644		10,393

Total noninterest expense adjustments	$	3,351	$	20,282	$	21,603

Adjusted Noninterest Expense (Non-GAAP):


	2015		2014				1Q15 vs 1Q14						1Q15 vs 4Q14
(dollar amounts in thousands)	First (1)		Fourth		First		Amount			Percent			Amount			Percent
Personnel costs	$	264,915	$	261,124	$	247,136	$	17,779			7	%	$	3,791			1	%
Outside data processing and other services		50,484		53,379		47,199		3,285			7			(2,895	)		(5	)
Net occupancy		31,020		27,415		31,691		(671	)		(2	)		3,605			13
Equipment		30,249		29,978		28,616		1,633			6			271			1
Professional services		9,441		15,665		10,059		(618	)		(6	)		(6,224	)		(40	)
Marketing		12,974		12,452		10,156		2,818			28			522			4
Deposit and other insurance expense		10,167		13,099		13,718		(3,551	)		(26	)		(2,932	)		(22	)
Amortization of intangibles		10,206		10,653		9,291		915			10			(447	)		(4	)
Other expense		36,050		39,224		40,652		(4,602	)		(11	)		(3,174	)		(8	)

Total adjusted noninterest expense	$	455,506	$	462,989	$	438,518	$	16,988			4	%	$	(7,483	)		(2	)%

⁽¹⁾	Includes $3.4 million of merger-related expense that was not a Significant Item for the quarter, but may be a Significant Item for the 2015 full year.

2015 First Quarter versus 2014 First Quarter

Reported noninterest expense decreased $1.3 million, or less than 1%, from the year-ago quarter. Excluding the impact of Significant Items, noninterest expense increased $17.0 million, or 4%, as we continued to invest in the growth of the franchise, including the Camco, Bank of America branch, and Macquarie acquisitions, as well as the ongoing expansion of our retail branch distribution through our in-store strategy, and investments in technology and data analytics. Changes in reported noninterest expense primarily reflect:

•

$15.0 million, or 29%, decrease in other expense. Excluding the impact of Significant Items, other expenses decreased $4.6 million, or 11%, primarily related to $3.0 million of goodwill impairment in the 2014 first quarter and a $2.0 million, or 40%, decrease in state franchise taxes and protective advances.

•

$3.6 million, or 26%, decrease in deposit and other insurance expense, primarily reflecting the benefit of $1.8 billion of bank-level debt issued over the past year.

Partially offset by

•

$15.4 million, or 6%, increase in personnel costs. Excluding the impact of Significant Items, personnel costs increased $17.8 million, or 7%, primarily related to a $13.8 million increase in salaries reflecting a 1% increase in the number of full-time equivalent employees and a $4.0 million increase in benefits expense.

2015 First Quarter versus 2014 Fourth Quarter

Reported noninterest expense decreased $24.4 million, or 5%, from the 2014 fourth quarter. Excluding the impact of Significant Items, noninterest expense decreased $7.5 million, or 2%. On a reported basis, other expense decreased $14.8 million, or 29%, largely reflecting the prior quarter’s $11.9 million net increase to litigation reserves. Other notable noninterest comparisons include a $3.1 million, or 6%, decrease in outside data processing and other services, a $2.9 million, or 19%, decrease in professional services, and a $2.9 million, or 22%, decrease in deposit and other insurance. Professional services during the 2015 first quarter included $3.3 million of expense related to the Macquarie acquisition.

Provision for Income Taxes

The provision for income taxes in the 2015 first quarter was $54.0 million. This compared with a provision for income taxes of $57.2 million in the 2014 fourth quarter and $52.1 million in the 2014 first quarter. All three quarters included the benefits from tax-exempt income, tax-advantaged investments, general business credits, and investments in qualified affordable housing projects. In prior periods, a valuation allowance was established against the capital loss carryforwards. The federal valuation allowance was based on the uncertainty of forecasted taxable income expected of the required character in order to utilize the capital loss carryforward. Based on current analysis of both positive and negative evidence and projected forecasted taxable income of the appropriate character, we believe it is more likely than not the capital loss carryforward deferred tax asset will be realized within the carryforward period. At March 31, 2015 there is no capital loss carryforward valuation allowance remaining. The net federal deferred tax asset was $54.7 million and the net state deferred tax asset was $43.7 million at March 31, 2015.

We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. In the first quarter of 2013, the IRS began an examination of our 2010 and 2011 consolidated federal income tax returns. Certain proposed adjustments resulting from the IRS examination of our 2005 through 2009 tax returns have been settled with the IRS Appeals Office, subject to final approval by the Joint Committee on Taxation of the U.S. Congress. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, 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 identify primary risks, and the sources of those risks, across the Company. We utilize Risk and Control Self-Assessments (RCSA) to identify exposure risks. Through this RCSA process, we continually assess the effectiveness of controls associated with the identified risks, regularly monitor risk profiles and material exposure to losses, and identify stress events and scenarios to which we may be exposed. Our chief risk officer is responsible for ensuring that appropriate systems of controls are in place for managing and monitoring risk across the Company. Potential risk concerns are shared with the Risk Management Committee, Risk Oversight Committee, and the board of directors, as appropriate. Our internal audit department performs on-going independent reviews of the risk management process and ensures the adequacy of documentation. The results of these reviews are regularly reported to the audit committee and board of directors. In addition, our Credit Review group performs ongoing independent testing of our loan portfolio, the results of which are regularly reviewed with our Risk Oversight Committee.

We believe that our primary risk exposures are credit, market, liquidity, operational, and compliance oriented. More information on risk can be found in the Risk Factors section included in Item 1A of our 2014 Form 10-K and subsequent filings with the SEC. The MD&A included in our 2014 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 2014 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 and HTM securities portfolios (see Note 4 and Note 5 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 managing of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use additional quantitative measurement capabilities utilizing external data sources, enhanced use of modeling technology, and internal stress testing processes. Our portfolio management resources demonstrate our commitment to maintaining an aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have focused on product design features, origination policies, and treatment strategies for delinquent or stressed borrowers.

Loan and Lease Credit Exposure Mix

At March 31, 2015, loans and leases totaled $47.7 billion, relatively unchanged from December 31, 2014. There was continued growth in the C&I portfolio, primarily as a result of an increase in equipment leases of $0.8 billion related to the acquisition of Macquarie. This was offset by a reduction in the auto portfolio. The reduction reflected a transfer of approximately $1.0 billion in automobile loans to loans held-for-sale in anticipation of a future loan securitization. The CRE portfolio remained relatively consistent, as a result of continued runoff offset by new production within the requirements associated with achieving an acceptable return, our internal concentration limits and increased competition for projects sponsored by high quality developers.

At March 31, 2015, commercial loans and leases totaled $25.2 billion and represented 53% of our total loans and lease credit exposure. Our commercial portfolio is diversified along product type, customer size, and geography within our footprint, and is comprised of the following (see Commercial Credit discussion).

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

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

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

Total consumer loans and leases were $22.5 billion at March 31, 2015, and represented 47% of our total loan and lease credit exposure. The consumer portfolio is comprised primarily of automobile loans, home equity loans and lines-of-credit, and residential mortgages (see Consumer Credit discussion). The decrease from December 31, 2014, primarily relates to the transfer of automobile loans to loans held-for-sale as discussed above.

Automobile—Automobile loans are comprised primarily of loans made through automotive dealerships and include exposure in selected states outside of our primary banking markets. The exposure outside of our primary banking markets represents 20% of the total exposure, with no individual state representing more than 6%. Applications are underwritten utilizing an automated underwriting system that applies consistent policies and processes across the portfolio.

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

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

Other consumer—Primarily consists of consumer loans not secured by real estate, including personal unsecured loans, overdraft balances, and credit cards. We introduced a consumer credit card product during 2013, utilizing a centralized underwriting system with an initial focus on existing Huntington customers.

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

Table 7—Loan and Lease Portfolio Composition


	2015				2014
(dollar amounts in millions)	March 31,				December 31,				September 30,				June 30,				March 31,
Commercial:
Commercial and industrial	$	20,109	42	%	$	19,033	40	%	$	18,791	40	%	$	18,899	41	%	$	18,046	41	%
Commercial real estate:
Construction		910	2			875	2			850	2			757	2			692	2
Commercial		4,157	9			4,322	9			4,141	9			4,233	9			4,339	10

Total commercial real estate		5,067	11			5,197	11			4,991	11			4,990	11			5,031	12

Total commercial		25,176	53			24,230	51			23,782	51			23,889	52			23,077	53

Consumer:
Automobile		7,803	16			8,690	18			8,322	18			7,686	17			6,999	16
Home equity		8,492	18			8,491	17			8,436	18			8,405	18			8,373	19
Residential mortgage		5,795	12			5,831	12			5,788	12			5,707	12			5,542	12
Other consumer		430	1			414	2			395	1			393	1			363	—

Total consumer		22,520	47			23,426	49			22,941	49			22,191	48			21,277	47

Total loans and leases	$	47,696	100	%	$	47,656	100	%	$	46,723	100	%	$	46,080	100	%	$	44,354	100	%

As shown in the table above, our loan portfolio is diversified by consumer and commercial credit. At the corporate level, we manage the credit exposure in part via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE primary project types, loans secured by residential real estate, shared national credit exposure, and designated high risk loan definitions represent examples of specifically tracked components of our concentration management process. Currently there are no identified concentrations that exceed the established limit. Our concentration management process is approved by the Risk Oversight Committee of our Board and is one of the strategies utilized to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile.

The table below provides our total loan and lease portfolio segregated by the type of collateral securing the loan or lease. The changes in the collateral composition are consistent with the portfolio growth metrics, with increases noted in the residential and vehicle categories.

Table 8—Loan and Lease Portfolio by Collateral Type


	2015					2014
(dollar amounts in millions)	March 31,					December 31,				September 30,				June 30,				March 31,
Secured loans:
Real estate—commercial	$	8,463		18	%	$	8,631	18	%	$	8,628	18	%	$	8,617	19	%	$	8,612	19	%
Real estate—consumer		14,287		30			14,322	30			14,224	30			14,113	31			13,916	31
Vehicles		9,938	⁽¹⁾	21			10,932	23			10,268	22			9,782	21			9,270	21
Receivables/Inventory		6,090		13			5,968	13			6,023	13			5,932	13			5,717	13
Machinery/Equipment		4,708	⁽²⁾	10			3,863	8			3,305	7			3,267	7			2,930	7
Securities/Deposits		956		2			964	2			1,232	3			1,349	3			1,064	2
Other		1,167		2			919	2			918	2			940	2			870	3

Total secured loans and leases		45,609		96			45,599	96			44,598	95			44,000	96			42,379	96
Unsecured loans and leases		2,087		4			2,057	4			2,125	5			2,080	4			1,975	4

Total loans and leases	$	47,696		100	%	$	47,656	100	%	$	46,723	100	%	$	46,080	100	%	$	44,354	100	%

(1)	Reflects the transfer of approximately $1.0 billion in automobile loans to loans held-for-sale.

(2)	Reflects the addition of approximately $0.8 billion in equipment leases related to the acquisition of Macquarie.

Commercial Credit

Refer to the “Commercial Credit” section of our 2014 Form 10-K for our commercial credit underwriting and on-going credit management processes.

C&I PORTFOLIO

The C&I portfolio continues to have strong origination activity as evidenced by the growth over the past 12 months. The credit quality of the portfolio remains strong as we maintain a focus on high quality originations. Problem loans have trended downward over the last several years, reflecting a combination of proactive risk identification and effective workout strategies implemented by the SAD. However, over the past year, C&I Problem Loans have begun to increase as the portfolio has increased in size. We continue to maintain a proactive approach to identifying borrowers that may be facing financial difficulty in order to maximize the potential solutions.

CRE PORTFOLIO

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

Dedicated real estate professionals originate and manage the portfolio. The portfolio is diversified by project type and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this portfolio. Subsequent to the origination of the loan, the Credit Review group provides an independent review and assessment of the quality of the underwriting and risk of new loan originations.

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

Consumer Credit

Refer to the “Consumer Credit” section of our 2014 Form 10-K for our consumer credit underwriting and on-going credit management processes.

AUTOMOBILE PORTFOLIO

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

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

RESIDENTIAL REAL ESTATE SECURED PORTFOLIOS

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

Table 9—Selected Home Equity and Residential Mortgage Portfolio Data

(dollar amounts in millions)


	Home Equity												Residential Mortgage
	Secured by first-lien						Secured by junior-lien
	03/31/15			12/31/14			03/31/15			12/31/14			03/31/15			12/31/14
Ending balance	$	5,155		$	5,129		$	3,338		$	3,362		$	5,795		$	5,831
Portfolio weighted average LTV ratio⁽¹⁾		72	%		71	%		81	%		81	%		75	%		74	%
Portfolio weighted average FICO score⁽²⁾		763			759			750			752			751			752

	Home Equity												Residential Mortgage (3)
	Secured by first-lien						Secured by junior-lien
	Three Months Ended March 31,
	2015			2014			2015			2014			2015			2014
Originations	$	376		$	300		$	185		$	163		$	231		$	198
Origination weighted average LTV ratio⁽¹⁾		73	%		72	%		84	%		83	%		81	%		81	%
Origination weighted average FICO score⁽²⁾		780			763			769			756			751			752

(1)	The LTV ratios for home equity loans and home equity lines-of-credit are cumulative and reflect the balance of any senior loans. LTV ratios reflect collateral values at the time of loan origination.

(2)	Portfolio weighted average FICO scores reflect currently updated customer credit scores whereas origination weighted average FICO scores reflect the customer credit scores at the time of loan origination.

(3)	Represents only owned-portfolio originations.

Home Equity Portfolio

Within the home equity portfolio, the standard product is a 10-year interest-only draw period with a 20-year fully amortizing term at the end of the draw period. Prior to 2007, the standard product was a 10-year draw period with a balloon payment. In either case, after the 10-year draw period, the borrower must reapply, subject to full underwriting guidelines, to continue with the interest only revolving structure or begin repaying the debt in a term structure.

The principal and interest payment associated with the term structure will be higher than the interest-only payment, resulting in maturity risk. Our maturity risk can be segregated into two distinct segments: (1) home equity lines-of-credit underwritten with a balloon payment at maturity and (2) home equity lines-of-credit with an automatic conversion to a 20-year amortizing loan. We manage this risk based on both the actual maturity date of the line-of-credit structure and at the end of the 10-year draw period. This maturity risk is embedded in the portfolio which we address with proactive contact strategies beginning one year prior to maturity. In certain circumstances, our Home Saver group is able to provide payment and structure relief to borrowers experiencing significant financial hardship associated with the payment adjustment. Our existing home equity line-of-credit (HELOC) maturity strategy is consistent with all recent regulatory guidance.

The table below summarizes our home equity line-of-credit portfolio by maturity date based on the balloon structure described above:

Table 10—Maturity Schedule of Home Equity Line-of-Credit Portfolio


	March 31, 2015
(dollar amounts in millions)	1 year or less		1 to 2 years		2 to 3 years		3 to 4 years		More than 4 years		Total
Secured by first-lien	$	20	$	2	$	1	$	2	$	2,931	$	2,956
Secured by junior-lien		163		117		82		16		2,584		2,962

Total home equity line-of-credit	$	183	$	119	$	83	$	18	$	5,515	$	5,918

The reduction in maturities presented in over 1-year categories is a result of our change to a product with a 20-year amortization period after 10-year draw period structure. Home equity lines-of-credit with balloon payment risk are essentially eliminated after 2015. The amounts maturing in more than four years primarily consist of exposure with a 20-year amortization period after the 10-year draw period.

Historically, less than 30% of our home equity lines-of-credit that are one year or less from maturity actually reach the maturity date.

Residential Mortgages Portfolio

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

Several government programs continued to impact the residential mortgage portfolio, including various refinance programs such as HARP and HAMP, which positively affected the availability of credit for the industry. During the three-month period ended March 31, 2015, we closed $62 million in HARP residential mortgages and $1.6 million in HAMP residential mortgages. The HARP and HAMP residential mortgage loans are part of our residential mortgage portfolio or serviced for others.

We are subject to repurchase risk associated with residential mortgage loans sold in the secondary market. An appropriate level of reserve for representations and warranties related to residential mortgage loans sold has been established to address this repurchase risk inherent in the portfolio (see Operational Risk discussion).

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 and NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, and product segmentation in the analysis of our credit quality performance.

Credit quality performance in the 2015 first quarter reflected continued strong performance in the net charge-offs and overall consumer performance metrics, as evidenced by recoveries in the CRE portfolio and lower losses across the consumer portfolio. This was partially offset by some deterioration in the C&I metrics. NPA’s increased 19% to $400.8 million at March 31, 2015, with the majority of the increase centered in one large C&I relationship. NCOs increased by $1.5 million or 6% from the prior quarter, as a result of a significant increase related to the same C&I relationship. Total criticized loans increased in the C&I segment for the fourth consecutive quarter. As a result of the overall continued credit quality improvement, the ACL to total loans ratio declined slightly by 2 basis points to 1.38%.

NPAs, NALs, AND TDRs

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

NPAs and NALs

NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2) OREO properties, and (3) other NPAs. Any loan in our portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. Also, when a borrower with discharged non-reaffirmed debt in a Chapter 7 bankruptcy is identified and the loan is determined to be collateral dependent, the loan is placed on nonaccrual status.

C&I and CRE loans (except for purchased credit impaired loans) are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt.

Of the $182.6 million of CRE and C&I-related NALs at March 31, 2015, $126.1 million, or 69%, represented loans that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management. With the exception of residential mortgage loans guaranteed by government organizations which continue to accrue interest, first-lien loans secured by residential mortgage collateral are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile and other consumer loans are generally charged-off prior to the loan reaching 120-days past due.

When loans are placed on nonaccrual, accrued interest income is reversed with current year accruals charged to interest income and prior year amounts generally charged-off as a credit loss. When, in our judgment, the borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status.

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

Table 11—Nonaccrual Loans and Leases and Nonperforming Assets


	2015			2014
(dollar amounts in thousands)	March 31,			December 31,			September 30,			June 30,			March 31,
Nonaccrual loans and leases:
Commercial and industrial	$	133,363		$	71,974		$	90,265		$	75,274		$	57,053
Commercial real estate		49,263			48,523			59,812			65,398			71,344
Automobile		4,448			4,623			4,834			4,384			6,218
Residential mortgage		98,093			96,564			98,139			110,635			121,681
Home equity		79,246			78,560			72,715			69,266			70,862

Total nonaccrual loans and leases		364,413			300,244			325,765			324,957			327,158
Other real estate owned, net
Residential		30,544			29,291			30,661			31,761			30,581
Commercial		3,407			5,748			5,609			2,934			5,110

Total other real estate owned, net		33,951			35,039			36,270			34,695			35,691
Other nonperforming assets⁽¹⁾		2,440			2,440			2,440			2,440			2,440

Total nonperforming assets	$	400,804		$	337,723		$	364,475		$	362,092		$	365,289

Nonaccrual loans as a % of total loans and leases		0.76	%		0.63	%		0.70	%		0.71	%		0.74	%
Nonperforming assets ratio⁽²⁾		0.84			0.71			0.78			0.79			0.82
(NPA+90days)/(Loan+OREO)⁽³⁾		1.08			0.98			1.08			1.08			1.17

(1)	Other nonperforming assets includes certain impaired investment securities.

(2)	This ratio is calculated as nonperforming assets divided by the sum of loans and leases, other nonperforming assets, and net other real estate owned.

(3)	This ratio is calculated as the sum of nonperforming assets and total accruing loans and leases past due 90 days or more divided by the sum of loans and leases and net other real estate owned.

2015 First Quarter versus 2014 Fourth Quarter

The $63.1 million, or 19%, increase in NPAs compared with December 31, 2014, represents the net impact of increases in the commercial portfolio:

•

$61.4 million, or 85%, increase in C&I NALs, primarily reflecting the addition of one large C&I relationship to nonaccrual status. Given the absolute low level of problem credits in the portfolio, some volatility should be expected.

TDR Loans

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

TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. TDRs can be classified as either accrual or nonaccrual loans. Nonaccrual TDRs are included in NALs whereas accruing TDRs are excluded from NALs, as it is probable that all contractual principal and interest due under the restructured terms will be collected. TDRs primarily reflect our loss mitigation efforts to proactively work with borrowers in financial difficulty or regulatory regulations regarding the treatment of certain bankruptcy filing situations.

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

Table 12—Accruing and Nonaccruing Troubled Debt Restructured Loans


	2015		2014
(dollar amounts in thousands)	March 31,		December 31,		September 30,		June 30,		March 31,
Troubled debt restructured loans—accruing:
Commercial and industrial	$	162,207	$	116,331	$	89,783	$	90,604	$	102,970
Commercial real estate		161,515		177,156		186,542		212,736		210,876
Automobile		25,876		26,060		31,480		31,833		27,393
Home equity		265,207		252,084		229,500		221,539		202,044
Residential mortgage		268,441		265,084		271,762		289,239		284,194
Other consumer		4,879		4,018		3,313		3,496		1,727

Total troubled debt restructured loans—accruing		888,125		840,733		812,380		849,447		829,204
Troubled debt restructured loans—nonaccruing:
Commercial and industrial		21,246		20,580		19,110		6,677		7,197
Commercial real estate		28,676		24,964		28,618		24,396		27,972
Automobile		4,283		4,552		4,817		4,287		5,676
Home equity		26,379		27,224		25,149		22,264		20,992
Residential mortgage		69,799		69,305		72,729		81,546		84,441
Other consumer		165		70		74		120		120

Total troubled debt restructured loans—nonaccruing		150,548		146,695		150,497		139,290		146,398

Total troubled debt restructured loans	$	1,038,673	$	987,428	$	962,877	$	988,737	$	975,602

Our strategy is to structure TDRs in a manner that avoids new concessions subsequent to the initial TDR terms. However, there are times when subsequent modifications are required, such as when the modified loan matures. Often the loans are performing in accordance with the TDR terms, and a new note is originated with similar modified terms. These loans are subjected to the normal underwriting standards and processes for other similar credit extensions, both new and existing. If the loan is not performing in accordance with the existing TDR terms, typically an individualized approach to repayment is established. In accordance with ASC 310-20-35, the refinanced note is evaluated to determine if it is considered a new loan or a continuation of the prior loan. A new loan is considered for removal of the TDR designation. A continuation of the prior note requires the continuation of the TDR designation, and because the refinanced note constitutes a new or amended debt instrument, it is included in our TDR activity table (below) as a new TDR and a restructured TDR removal during the period. The types of concessions granted are consistent with those granted on new TDRs and include interest rate reductions, amortization or maturity date changes beyond what the collateral supports, and principal forgiveness based on the borrower’s specific needs at a point in time. Our policy does not limit the number of times a loan may be modified. A loan may be modified multiple times if it is considered to be in the best interest of both the borrower and Huntington.

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

TDRs in the home equity and residential mortgage portfolio may continue to increase in the near term as we continue to appropriately manage the portfolio and work with our borrowers. Any granted change in terms or conditions that are not readily available in the market for that borrower, requires the designation as a TDR. There are no provisions for the removal of the TDR designation based on payment activity for consumer loans. A loan may be returned to accrual status when all contractually due interest and principal has been paid and the borrower demonstrates the financial capacity to continue to pay as agreed, with the risk of loss diminished.

The following table reflects TDR activity for each of the past five quarters:

Table 13—Troubled Debt Restructured Loan Activity


	2015			2014
(dollar amounts in thousands)	First			Fourth			Third			Second			First
TDRs, beginning of period	$	987,428		$	962,877		$	988,737		$	975,602		$	954,841
New TDRs		209,376			137,397			126,238			184,025			219,656
Payments		(35,272	)		(51,908	)		(78,717	)		(66,530	)		(55,130	)
Charge-offs		(8,364	)		(8,611	)		(10,631	)		(5,134	)		(10,774	)
Sales		(5,148	)		(3,303	)		(1,951	)		(4,001	)		(14,169	)
Transfer to OREO		(2,369	)		(2,978	)		(3,554	)		(3,539	)		(2,597	)
Restructured TDRs—accruing⁽¹⁾		(85,700	)		(26,350	)		(47,277	)		(83,586	)		(86,012	)
Restructured TDRs—nonaccruing⁽¹⁾		(20,849	)		(16,309	)		(2,212	)		(4,146	)		(23,038	)
Other		(429	)		(3,387	)		(7,756	)		(3,954	)		(7,175	)

TDRs, end of period	$	1,038,673		$	987,428		$	962,877		$	988,737		$	975,602

(1)	Represents existing TDRs that were re-underwritten with new terms providing a concession. A corresponding amount is included in the New TDRs amount above.

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 Credit Administration group is responsible for developing the methodology, assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of losses inherent in the loan portfolio at the reported date. Additions to the ALLL result from recording provision expense for loan losses or increased risk levels resulting from loan risk-rating downgrades, while reductions reflect charge-offs (net of recoveries), decreased risk levels resulting from loan risk-rating upgrades, or the sale of loans. The AULC is determined by applying the transaction reserve process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation.

During the 2015 first quarter, we reviewed our existing commercial and consumer credit models and enhanced certain processes and methods of ACL estimation. During this review, we analyzed the loss emergence periods used for consumer receivables collectively evaluated for impairment and, as a result, extended our loss emergence periods for products within these portfolios. As part of these enhancements to our credit reserve process, we evaluated the methods used to separately estimate economic risks inherent in our portfolios and decided to no longer utilize these separate estimation techniques. Economic risks are incorporated in our loss estimates elsewhere in our reserve calculation. The enhancements made to our credit reserve processes during the quarter allow for increased segmentation and analysis of the estimated incurred losses within our loan portfolios. The net ACL impact of these enhancements was immaterial.

We regularly evaluate the appropriateness of the ACL by performing on-going evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. We evaluate the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet their financial obligations when quantifying our exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In addition to general economic conditions and the other factors described above, additional factors also considered include: the impact of increasing or decreasing residential real estate values; the diversification of CRE loans; the development of new or expanded Commercial business verticals such as healthcare, ABL, and energy, and the overall condition of the manufacturing industry. A provision for credit losses is recorded to adjust the ACL to the level we have determined to be appropriate to absorb credit losses inherent in our loan and lease portfolio.

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 has declined in recent quarters, all of the relevant benchmarks remain strong.

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

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


	2015				2014
(dollar amounts in thousands)	March 31,				December 31,				September 30,				June 30,				March 31,
Commercial
Commercial and industrial	$	284,573	42	%	$	286,995	40	%	$	291,401	40	%	$	278,512	41	%	$	266,979	41	%
Commercial real estate		100,752	11			102,839	11			115,472	11			137,346	11			160,306	12

Total commercial		385,325	53			389,834	51			406,873	51			415,858	52			427,285	53

Consumer
Automobile		37,125	16			33,466	18			30,732	18			27,158	17			25,178	16
Home equity		110,280	18			96,413	18			100,375	18			105,943	18			113,177	19
Residential mortgage		55,380	12			47,211	12			52,658	12			47,191	12			39,068	12
Other consumer		17,016	1			38,272	1			40,398	1			38,951	1			27,210	—

Total consumer		219,801	47			215,362	49			224,163	49			219,243	48			204,633	47

Total allowance for loan and lease losses		605,126	100	%		605,196	100	%		631,036	100	%		635,101	100	%		631,918	100	%

Allowance for unfunded loan commitments		54,742				60,806				55,449				56,927				59,368

Total allowance for credit losses	$	659,868			$	666,002			$	686,485			$	692,028			$	691,286

Total allowance for loan and leases losses as % of:
Total loans and leases			1.27	%			1.27	%			1.35%				1.38	%			1.42	%
Nonaccrual loans and leases			166				202				194				195				193
Nonperforming assets			151				179				173				175				174
Total allowance for credit losses as % of:
Total loans and leases			1.38	%			1.40	%			1.47%				1.50	%			1.56	%
Nonaccrual loans and leases			181				222				211				213				211
Nonperforming assets			165				197				188				191				191

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

2015 First Quarter versus 2014 Fourth Quarter

The $6.1 million, or 1%, decline in the ACL compared with December 31, 2014, was driven by:

•

$21.3 million or 56% decline in the other consumer portfolio, primarily driven by our assessment of consumer overdraft reserve factors, lower consumer overdraft balances, and the impact of no longer utilizing separate methods to estimate economic risks inherent in our portfolios.

•

$2.4 million or 1% decline in the C&I portfolios. The decline was driven by the decision to no longer utilize separate methods to estimate economic risks inherent in our portfolio. However, the impact was largely offset by the increases to our reserve factors for high dollar value C&I credits.

•

$2.1 million or 2% decline in the CRE portfolio. The decline was driven by the decision to no longer utilize separate methods to estimate economic risks inherent in our portfolio. However, the impact was largely offset by the increases to our reserve factors for high dollar value CRE credits.

Partially offset by:

•

$13.9 million or 14% increase in the home equity portfolio. The increase was driven by the extension of loss emergence periods associated with our home equity products. It was partially offset by the impact of no longer utilizing separate methods to estimate economic risks inherent in our portfolio.

•

$8.2 million or 17% increase in the residential mortgage portfolio. The increase was driven by the extension of loss emergence periods associated with the residential mortgage products. It was partially offset by the impact of no longer utilizing separate methods to estimate economic risks inherent in our portfolio.

•

$3.7 million, or 11% increase in the automobile portfolio. The increase was driven by the extension of loss emergence periods associated with the automobile products. It was partially offset by the impact of no longer utilizing separate methods to estimate economic risks inherent in our portfolio.

The ACL to total loans declined to 1.38% at March 31, 2015, compared to 1.40% at December 31, 2014. Management believes the decline in the ratio is appropriate given the continued improvement in the risk profile of our loan portfolio. Further, the continued focus on early identification of loans with changes in credit metrics and proactive action plans for these loans, originating high quality new loans and SAD resolutions, will contribute to maintaining our strong key credit quality metrics.

Given the combination of these noted positive and negative factors, we believe that our ACL is appropriate and its coverage level is reflective of the quality of our portfolio and the current operating environment.

NCOs

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

C&I and CRE loans are either charged-off or written down to net realizable value at 90-days past due. Automobile loans and other consumer loans are 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 following table reflects NCO detail for each of the last five quarters:

Table 15—Quarterly Net Charge-off Analysis

2015

2014

(dollar amounts in thousands)

First

Fourth

Third

Second

First

Net charge-offs (recoveries) by loan and lease type:

Commercial:

Commercial and industrial

11,403

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company