Huntington Bancshares Incorporated Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2016

LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES

LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES

Except for loans which are accounted for at fair value, loans are carried at the principal amount outstanding, net of unamortized premiums and discounts, deferred loan fees and costs and purchase accounting adjustments, which resulted in a net premium of $120 million and $262 million, at December 31, 2016 and 2015, respectively.

Loans and leases with a fair value of $15 billion were acquired by Huntington as part of the FirstMerit acquisition. The fair values of the loans were estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms (Level 3). Of the total acquired loans and leases, Huntington has elected the fair value option for $56 million of consumer loans. These loans will subsequently be measured at fair value with any changes in fair value recognized in noninterest income in the Consolidated Statements of Income.

Direct Financing Leases

Huntington’s loan and lease portfolio includes lease financing receivables consisting of direct financing leases on equipment, which are included in C&I loans. Net investments in lease financing receivables by category at December 31, 2016 and 2015 were as follows:



	At December 31,
(dollar amounts in thousands)	2016			2015
Commercial and industrial:
Lease payments receivable	$	1,881,596		$	1,551,885
Estimated residual value of leased assets	797,611			711,181
Gross investment in commercial lease financing receivables	2,679,207			2,263,066
Net deferred origination costs	12,683			7,068
Deferred fees	(253,423		)	(208,669		)
Total net investment in commercial lease financing receivables	$	2,438,467		$	2,061,465

The future lease rental payments due from customers on direct financing leases at December 31, 2016, totaled $1.9 billion and therefore were as follows: $0.6 billion in 2017, $0.5 billion in 2018, $0.3 billion in 2019, $0.2 billion in 2020, $0.1 billion in 2021, and $0.2 billion thereafter.

Purchased Credit-Impaired Loans

The following table reflects the contractually required payments receivable, cash flows expected to be collected, and fair value of the credit impaired FirstMerit loans at acquisition date:



(dollar amounts in thousands)	August 16, 2016
Contractually required payments including interest	$	283,947
Less: nonaccretable difference	(84,315		)
Cash flows expected to be collected	199,632
Less: accretable yield	(17,717		)
Fair value of loans acquired	$	181,915

The following table presents a rollforward of the accretable yield for purchased credit impaired FirstMerit loans for the year ended December 31, 2016: and 2015:



(dollar amounts in thousands)	2016
Balance, beginning of period	$	—
Impact of acquisition/purchase on August 16, 2016	17,717
Accretion	(5,401		)
Reclassification (to) from nonaccretable difference	24,353
Balance at December 31,	$	36,669

The following table reflects the ending and unpaid balances of the FirstMerit purchased credit-impaired loans at December 31, 2016: 2015



	December 31, 2016
(dollar amounts in thousands)	Ending Balance		Unpaid Balance
Commercial and industrial	$	68,338	$	100,031
Commercial real estate	34,042		56,320
Total	$	102,380	$	156,351

Loan Purchases and Sales

The following table summarizes significant portfolio loan purchase and sale activity for the years ended December 31, 2016 and 2015. The table below excludes mortgage loans originated for sale.



(dollar amounts in thousands)	2016				2015
Portfolio loans and leases purchased or transferred from held for sale:
Commercial and industrial	$	394,579			$	316,252
Commercial real estate	—				—
Automobile	—				—
Home equity	—				—
Residential mortgage	16,045				20,463
RV and marine finance	—				—
Other consumer	—				—
Total	$	410,624			$	336,715

Portfolio loans and leases sold or transferred to loans held for sale:
Commercial and industrial	$	1,293,711	(1	)	$	380,713
Commercial real estate	76,965		(2	)	—
Automobile	1,544,642				764,540		(3)
Home equity	—				96,786
Residential mortgage	—				—
RV and marine finance	—				—
Other consumer	—				—
Total	$	2,915,318			$	1,242,039

(1) Reflects the transfer of approximately $1.0 billion of loans to loans held-for-sale in the 2016 third quarter, net of approximately $341 million of loans transferred back to loans held for investment in the 2016 fourth quarter.

(2) Reflects the transfer of approximately $124 million of loans to loans held-for-sale in the 2016 third quarter, net of approximately $47 million of loans transferred back to loans held for investment in the 2016 fourth quarter.

(3) Reflects the transfer of approximately $1.0 billion of loans to loans held-for-sale during the 2015 first quarter, net of approximately $262 million of loans transferred to loans and leases in the 2015 second quarter.

NALs and Past Due Loans

The following table presents NALs by loan class at December 31, 2016 and 2015:



	December 31,
(dollar amounts in thousands)	2016		2015
Commercial and industrial	$	234,184	$	175,195
Commercial real estate	20,508		28,984
Automobile	5,766		6,564
Home equity	71,798		66,278
Residential mortgage	90,502		94,560
RV and marine finance	245		—
Other consumer	—		—
Total nonaccrual loans	$	423,003	$	371,581

The amount of interest that would have been recorded under the original terms for total NAL loans was $24 million, $20 million, and $21 million for 2016, 2015, and 2014, respectively. The total amount of interest recorded to interest income for these loans was $17 million, $10 million, and $8 million in 2016, 2015, and 2014, respectively.

The following table presents an aging analysis of loans and leases, including past due loans and leases, by loan class at December 31, 2016 and 2015 (1):



	December 31, 2016
	Past Due												Loans Accounted for Under the Fair Value Option		Total Loans and Leases		90 or more days past due and accruing
(dollar amounts in thousands)	30-59 Days		60-89 Days		90 or more days		Total		Current		Purchased Credit Impaired		Loans Accounted for Under the Fair Value Option		Total Loans and Leases		90 or more days past due and accruing
Commercial and industrial	$	42,052	$	20,136	$	74,174	$	136,362	$	27,854,012	$	68,338	$	—	$	28,058,712	$	18,148	(2)
Commercial real estate	21,187		3,202		29,659		54,048		7,212,811		34,042		—		7,300,901		17,215
Automobile loans and leases	76,283		17,188		10,442		103,913		10,862,715		—		2,154		10,968,782		10,182
Home equity	38,899		23,903		53,002		115,804		9,986,697		—		3,273		10,105,774		11,508
Residential mortgage	122,469		37,460		116,682		276,611		7,373,414		—		74,936		7,724,961		66,952
RV and marine finance	10,009		2,230		1,566		13,805		1,831,123		—		1,519		1,846,447		1,462
Other consumer	9,442		4,324		3,894		17,660		938,322		—		437		956,419		3,895
Total loans and leases	$	320,341	$	108,443	$	289,419	$	718,203	$	66,059,094	$	102,380	$	82,319	$	66,961,996	$	129,362



	December 31, 2015
	Past Due										Total Loans and Leases		90 or more days past due and accruing
(dollar amounts in thousands)	30-59 Days		60-89 Days		90 or more days		Total		Current		Total Loans and Leases		90 or more days past due and accruing
Commercial and industrial	$	44,715	$	13,580	$	46,978	$	105,273	$	20,454,561	$	20,559,834	$	8,724	(2)
Commercial real estate	9,232		5,721		21,666		36,619		5,232,032		5,268,651		9,549
Automobile loans and leases	69,553		14,965		7,346		91,864		9,388,814		9,480,678		7,162
Home equity	36,477		16,905		56,300		109,682		8,360,800		8,470,482		9,044
Residential mortgage	102,773		34,298		119,354		256,425		5,741,975		5,998,400		69,917
RV and marine finance	—		—		—		—		—		—		—
Other consumer	6,469		1,852		1,395		9,716		553,338		563,054		1,394
Total loans and leases	$	269,219	$	87,321	$	253,039	$	609,579	$	49,731,520	$	50,341,099	$	105,790


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


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

Allowance for Credit Losses

The ACL is increased through a provision for credit losses that is charged to earnings, based on the Company’s quarterly evaluation of the factors disclosed in Note 1. Significant Accounting Policies and is reduced by charge-offs, net of recoveries, and the ACL associated with loans sold or transferred to held-for-sale.

The following table presents ALLL and AULC activity by portfolio segment for the years ended December 31, 2016, 2015, and 2014:



(dollar amounts in thousands)	Commercial			Consumer			Total
Year ended December 31, 2016:
ALLL balance, beginning of period	$	398,753		$	199,090		$	597,843
Loan charge-offs	(91,914		)	(135,400		)	(227,314		)
Recoveries of loans previously charged-off	73,138			45,280			118,418
Provision (reduction in allowance) for loan and lease losses	84,381			85,026			169,407
Allowance for loans sold or transferred to loans held for sale	(13,267		)	(6,674		)	(19,941		)
ALLL balance, end of period	$	451,091		$	187,322		$	638,413
AULC balance, beginning of period	$	63,448		$	8,633		$	72,081
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	18,692			2,703			21,395
AULC recorded at acquisition	4,403			—			4,403
AULC balance, end of period	$	86,543		$	11,336		$	97,879
ACL balance, end of period	$	537,634		$	198,658		$	736,292

Year ended December 31, 2015:
ALLL balance, beginning of period	$	389,834		$	215,362		$	605,196
Loan charge-offs	(97,800		)	(120,081		)	(217,881		)
Recoveries of loans previously charged-off	86,419			43,669			130,088
Provision (reduction in allowance) for loan and lease losses	20,300			68,379			88,679
Allowance for loans sold or transferred to loans held for sale	—			(8,239		)	(8,239		)
ALLL balance, end of period	$	398,753		$	199,090		$	597,843
AULC balance, beginning of period	$	55,029		$	5,777		$	60,806
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	8,419			2,856			11,275
AULC recorded at acquisition	—			—			—
AULC balance, end of period	$	63,448		$	8,633		$	72,081
ACL balance, end of period	$	462,201		$	207,723		$	669,924

Year ended December 31, 2014:
ALLL balance, beginning of period	$	428,358		$	219,512		$	647,870
Loan charge-offs	(101,358		)	(145,243		)	(246,601		)
Recoveries of loans previously charged-off	78,602			43,372			121,974
Provision (reduction in allowance) for loan and lease losses	(15,768		)	98,850			83,082
Allowance for loans sold or transferred to loans held for sale	—			(1,129		)	(1,129		)
ALLL balance, end of period	$	389,834		$	215,362		$	605,196
AULC balance, beginning of period	$	59,487		$	3,412		$	62,899
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	(4,458		)	2,365			(2,093		)
AULC recorded at acquisition	—			—			—
AULC balance, end of period	$	55,029		$	5,777		$	60,806
ACL balance, end of period	$	444,863		$	221,139		$	666,002

Credit Quality Indicators

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

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

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

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

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

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

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

For all classes within consumer loan portfolios, each loan is assigned a specific PD factor that is partially based on the borrower’s most recent credit bureau score, which we update quarterly. A credit bureau score is a credit score developed by Fair Isaac

Corporation based on data provided by the credit bureaus. The credit bureau score is widely accepted as the standard measure of consumer credit risk used by lenders, regulators, rating agencies, and consumers. The higher the credit bureau score, the higher likelihood of repayment and therefore, an indicator of higher credit quality.

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

The following table presents each loan and lease class by credit quality indicator at December 31, 2016 and 2015:



	December 31, 2016
	Credit Risk Profile by UCS Classification
(dollar amounts in thousands)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial	$	26,211,885	$	810,287	$	1,028,819	$	7,721	$	28,058,712
Commercial real estate	7,042,304		96,975		159,098		2,524		7,300,901
	Credit Risk Profile by FICO Score (1), (2)
	750+		650-749		<650		Other (3)		Total
Automobile	5,369,085		4,043,611		1,298,460		255,472		10,966,628
Home equity	6,280,328		2,891,330		637,560		293,283		10,102,501
Residential mortgage	4,662,777		2,285,121		615,067		87,060		7,650,025
RV and marine finance	1,064,143		644,039		72,995		63,751		1,844,928
Other consumer	346,867		455,959		133,243		19,913		955,982



	December 31, 2015
	Credit Risk Profile by UCS Classification
(dollar amounts in thousands)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial	$	19,257,789	$	399,339	$	895,577	$	7,129	$	20,559,834
Commercial real estate	5,066,054		79,787		121,167		1,643		5,268,651
	Credit Risk Profile by FICO Score (1), (2)
	750+		650-749		<650		Other (3)		Total
Automobile	4,680,684		3,454,585		1,086,914		258,495		9,480,678
Home equity	5,210,741		2,466,425		582,326		210,990		8,470,482
Residential mortgage	3,564,064		1,813,779		567,984		52,573		5,998,400
RV and marine finance	—		—		—		—		—
Other consumer	233,969		269,746		49,650		9,689		563,054


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


(2)	Reflects most recent customer credit scores.


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

Impaired Loans

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

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

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance for the years ended December 31, 2016 and 2015:



(dollar amounts in thousands)	Commercial		Consumer		Total
ALLL at December 31, 2016:
Portion of ALLL balance:
Attributable to loans individually evaluated for impairment	$	10,525	$	11,021	$	21,546
Attributable to loans collectively evaluated for impairment	440,566		176,301		616,867
Total ALLL balance	$	451,091	$	187,322	$	638,413
Loan and Lease Ending Balances at December 31, 2016: (1)
Portion of loan and lease ending balance:
Attributable to purchased credit-impaired loans	$	102,380	$	—	$	102,380
Individually evaluated for impairment	415,624		457,890		873,514
Collectively evaluated for impairment	34,841,609		31,062,174		65,903,783
Total loans and leases evaluated for impairment	$	35,359,613	$	31,520,064	$	66,879,677


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



(dollar amounts in thousands)	Commercial		Consumer		Total
ALLL at December 31, 2015:
Portion of ALLL balance:
Attributable to purchased credit-impaired loans	$	2,602	$	127	$	2,729
Attributable to loans individually evaluated for impairment	27,428		35,008		62,436
Attributable to loans collectively evaluated for impairment	368,723		163,955		532,678
Total ALLL balance:	$	398,753	$	199,090	$	597,843
Loan and Lease Ending Balances at December 31, 2015: (1)
Portion of loan and lease ending balances:
Attributable to purchased credit-impaired loans	$	34,775	$	1,506	$	36,281
Individually evaluated for impairment	626,010		651,778		1,277,788
Collectively evaluated for impairment	25,167,700		23,859,330		49,027,030
Total loans and leases evaluated for impairment	$	25,828,485	$	24,512,614	$	50,341,099


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

The following tables present by class the ending, unpaid principal balance, and the related ALLL, along with the average balance and interest income recognized only for impaired loans and leases and purchased credit-impaired loans for the years ended December 31, 2016 and 2015 (1):



							Year Ended
	December 31, 2016						December 31, 2016
(dollar amounts in thousands)	Ending Balance		Unpaid Principal Balance (4)		Related Allowance		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	299,606	$	358,712	$	—	$	292,567	$	9,401
Commercial real estate	88,817		126,152		—		73,040		4,191
Automobile	—		—		—		—		—
Home equity	—		—		—		—		—
Residential mortgage	—		—		—		—		—
RV and marine finance	—		—		—		—		—
Other consumer	—		—		—		—		—

With an allowance recorded:
Commercial and industrial (2)	406,243		448,121		22,259		301,598		8,124
Commercial real estate (3)	97,238		107,512		3,434		68,865		2,978
Automobile	30,961		31,298		1,850		31,722		2,162
Home equity	319,404		352,722		15,032		277,692		13,410
Residential mortgage (5)	327,753		363,099		12,849		348,158		11,945
RV and marine finance	—		—		—		—		—
Other consumer	3,897		3,897		260		4,481		233

Total
Commercial and industrial	705,849		806,833		22,259		594,165		17,525
Commercial real estate	186,055		233,664		3,434		141,905		7,169
Automobile	30,961		31,298		1,850		31,722		2,162
Home equity	319,404		352,722		15,032		277,692		13,410
Residential mortgage	327,753		363,099		12,849		348,158		11,945
RV and marine finance	—		—		—		—		—
Other consumer	3,897		3,897		260		4,481		233



							Year Ended
	December 31, 2015						December 31, 2015
(dollar amounts in thousands)	Ending Balance		Unpaid Principal Balance (4)		Related Allowance		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	255,801	$	279,551	$	—	$	114,389	$	2,584
Commercial real estate	68,260		125,814		—		88,173		7,199
Automobile	—		—		—		—		—
Home equity	—		—		—		—		—
Residential mortgage	—		—		—		—		—
RV and marine finance	—		—		—		—		—
Other consumer	52		101		—		51		17

With an allowance recorded:
Commercial and industrial (2)	246,249		274,203		21,916		267,662		15,110
Commercial real estate (3)	90,475		104,930		8,114		114,019		4,833
Automobile	31,304		31,878		1,779		30,163		2,224
Home equity	248,839		284,957		16,242		292,014		13,092
Residential mortgage (5)	368,449		411,114		16,938		373,573		12,889
RV and marine finance	—		—		—		—		—
Other consumer	4,640		4,649		176		4,675		254

Total
Commercial and industrial	502,050		553,754		21,916		382,051		17,694
Commercial real estate	158,735		230,744		8,114		202,192		12,032
Automobile	31,304		31,878		1,779		30,163		2,224
Home equity	248,839		284,957		16,242		292,014		13,092
Residential mortgage	368,449		411,114		16,938		373,573		12,889
RV and marine finance	—		—		—		—		—
Other consumer	4,692		4,750		176		4,726		271


(1)	All automobile, home equity, residential mortgage, and other consumer impaired loans included in these tables are considered impaired due to their status as a TDR.


(2)	At December 31, 2016, $293 million of the $406 million C&I loans with an allowance recorded were considered impaired due to their status as a TDR. At December 31, 2015, $91 million of the $246 million C&I loans with an allowance recorded were considered impaired due to their status as a TDR.


(3)	At December 31, 2016, $81 million of the $97 million CRE loans with an allowance recorded were considered impaired due to their status as a TDR. At December 31, 2015, $35 million of the $90 million CRE loans with an allowance recorded were considered impaired due to their status as a TDR.


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


(5)	At December 31, 2016, $29 million of the $328 million residential mortgage loans with an allowance recorded were guaranteed by the U.S. government. At December 31, 2015, $29 million of the $368 million residential mortgage loans with an allowance recorded were guaranteed by the U.S. government.

TDR Loans

The amount of interest that would have been recorded under the original terms for total accruing TDR loans was $49 million, $46 million, and $45 million for 2016, 2015, and 2014, respectively. The total amount of actual interest recorded to interest income for these loans was $40 million, $41 million, and $39 million for 2016, 2015, and 2014, respectively.

TDR Concession Types

The Company’s standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analyses, and collateral valuations. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances at a point in time. All commercial TDRs are reviewed and approved by our SAD. The types of concessions provided to borrowers include:


•	Interest rate reduction: A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt.


•	Amortization or maturity date change beyond what the collateral supports, including any of the following:


•	Lengthens the amortization period of the amortized principal beyond market terms. This concession reduces the minimum monthly payment and could increase the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.


•	Reduces the amount of loan principal to be amortized and increases the amount of the balloon payment at the end of the term of the loan. This concession also reduces the minimum monthly payment. Principal is generally not forgiven.


•	Extends the maturity date or dates of the debt beyond what the collateral supports. This concession generally applies to loans without a balloon payment at the end of the term of the loan.


•	Chapter 7 bankruptcy: A bankruptcy court’s discharge of a borrower’s debt is considered a concession when the borrower does not reaffirm the discharged debt.

•

Other: A concession that is not categorized as one of the concessions described above. These concessions include, but are not limited to: principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest. Principal forgiveness may result from any TDR modification of any concession type. However, the aggregate amount of principal forgiven as a result of loans modified as TDRs during the years ended December 31, 2016 and 2015, was not significant.

Following is a description of TDRs by the different loan types:

Commercial loan TDRs – Commercial accruing TDRs often result from loans receiving a concession with terms that are not considered a market transaction to Huntington. The TDR remains in accruing status as long as the customer is less than 90-days past due on payments per the restructured loan terms and no loss is expected.

Commercial nonaccrual TDRs result from either: (1) an accruing commercial TDR being placed on nonaccrual status, or (2) a workout where an existing commercial NAL is restructured and a concession is given. At times, these workouts restructure the NAL so that two or more new notes are created. The primary note is underwritten based upon our normal underwriting standards and is sized so projected cash flows are sufficient to repay contractual principal and interest. The terms on the secondary note(s) vary by situation, and may include notes that defer principal and interest payments until after the primary note is repaid. Creating two or more notes often allows the borrower to continue a project and allows Huntington to right-size a loan based upon the current expectations for a borrower’s or project’s performance.

Our strategy involving TDR borrowers includes working with these borrowers to allow them to refinance elsewhere, as well as allow them time to improve their financial position and remain a Huntington customer through refinancing their notes according to market terms and conditions in the future. A subsequent refinancing or modification of a loan may occur when either the loan matures according to the terms of the TDR-modified agreement or the borrower requests a change to the loan agreements. At that time, the loan is evaluated to determine if the borrower is creditworthy. It is subjected to the normal underwriting standards and processes for other similar credit extensions, both new and existing. 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, whereas a continuation of the prior note requires a continuation of the TDR designation. In order for a TDR designation to be removed, the borrower must no longer be experiencing financial difficulties and the terms of the refinanced loan must not represent a concession.

Consumer loan TDRs – Residential mortgage TDRs represent loan modifications associated with traditional first-lien mortgage loans in which a concession has been provided to the borrower. The primary concessions given to residential mortgage borrowers are amortization or maturity date changes and interest rate reductions. Residential mortgages identified as TDRs involve borrowers unable to refinance their mortgages through the Company’s normal mortgage origination channels or through other independent sources. Some, but not all, of the loans may be delinquent. The Company may make similar interest rate, term, and principal concessions for Automobile, Home Equity, RV and Marine Finance and Other Consumer loan TDRs.

TDR Impact on Credit Quality

Huntington’s ALLL is largely determined by updated risk ratings assigned to commercial loans, updated borrower credit scores on consumer loans, and borrower delinquency history in both the commercial and consumer portfolios. These updated risk ratings and credit scores consider the default history of the borrower, including payment redefaults. As such, the provision for credit losses is impacted primarily by changes in borrower payment performance rather than the TDR classification. 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.

The Company's TDRs may include multiple concessions and the disclosure classifications are presented based on the primary concession provided to the borrower. The majority of the concessions for the C&I and CRE portfolios are the extension of the maturity date, but could also include an increase in the interest rate. In these instances, the primary concession is the maturity date extension.

TDR concessions may also result in the reduction of the ALLL within the C&I and CRE portfolios. This reduction is derived from payments and the resulting application of the reserve calculation within the ALLL. The transaction reserve for non-TDR C&I and CRE loans is calculated based upon several estimated probability factors, such as PD and LGD. Upon the occurrence of a TDR in our C&I and CRE portfolios, the reserve is measured based on discounted expected cash flows or collateral value, less anticipated selling costs, of the modified loan in accordance with ASC 310-10. The resulting TDR ALLL calculation often results in a lower ALLL amount because (1) the discounted expected cash flows or collateral value, less anticipated selling costs, indicate a lower estimated loss, (2) if the modification includes a rate increase, the discounting of the cash flows on the modified loan, using the pre-modification interest rate, exceeds the carrying value of the loan, or (3) payments may occur as part of the modification. The ALLL for C&I and CRE loans may increase as a result of the modification, as the discounted cash flow analysis may indicate additional reserves are required.

TDR concessions on consumer loans may increase the ALLL. The concessions made to these borrowers often include interest rate reductions, and therefore, the TDR ALLL calculation results in a greater ALLL compared with the non-TDR calculation as the reserve is measured based on the estimation of the discounted expected cash flows or collateral value, less anticipated selling costs, on the modified loan in accordance with ASC 310-10. The resulting TDR ALLL calculation often results in a higher ALLL amount because (1) the discounted expected cash flows or collateral value, less anticipated selling costs, indicate a higher estimated loss or, (2) due to the rate decrease, the discounting of the cash flows on the modified loan, using the pre-modification interest rate, indicates a reduction in the present value of expected cash flows or collateral value, less anticipated selling costs. However, in certain instances, the ALLL may decrease as a result of payments made in connection with the modification.

Commercial loan TDRs – In instances where the bank substantiates that it will collect its outstanding balance in full, the note is considered for return to accrual status upon the borrower showing a sustained period of repayment performance for a six-month period of time. This six-month period could extend before or after the restructure date. If a charge-off was taken as part of the restructuring, any interest or principal payments received on that note are applied to first reduce the bank’s outstanding book balance and then to recoveries of charged-off principal, unpaid interest, and/or fee expenses while the TDR is in nonaccrual status.

Consumer loan TDRs – Modified consumer loans identified as TDRs are aggregated into pools for analysis. Cash flows and weighted average interest rates are used to calculate impairment at the pooled-loan level. Once the loans are aggregated into the pool, they continue to be classified as TDRs until contractually repaid or charged-off.

Residential mortgage loans not guaranteed by a U.S. government agency such as the FHA, VA, and the USDA, including TDR loans, are reported as accrual or nonaccrual based upon delinquency status. Nonaccrual TDRs are those that are greater than 150-days contractually past due. Loans guaranteed by U.S. government organizations continue to accrue interest on guaranteed rates upon delinquency.

The following table presents by class and by the reason for the modification the number of contracts, post-modification outstanding balance, and the financial effects of the modification for the years ended December 31, 2016 and 2015:



	New Troubled Debt Restructurings During The Year Ended (1)
	December 31, 2016						December 31, 2015
(dollar amounts in thousands)	Number of Contracts	Post-modification Outstanding Balance (2)		Financial effects of modification (3)			Number of Contracts	Post-modification Outstanding Balance (2)		Financial effects of modification (3)
Commercial and industrial:
Interest rate reduction	4	161		5			13	8,243		(1,042		)
Amortization or maturity date change	872	490,488		(8,751		)	765	524,356		(5,853		)
Other	20	1,951		(13.996		)	16	29,842		(449		)
Total Commercial and industrial	896	492,600		(8,760		)	794	562,441		(7,344		)
Commercial real estate:
Interest rate reduction	2	223		—			4	2,249		(4		)
Amortization or maturity date change	111	69,192		(1,868		)	143	141,238		(1,249		)
Other	4	315		16			11	480		(30		)
Total commercial real estate:	117	69,730		(1,852		)	158	143,967		(1,283		)
Automobile:
Interest rate reduction	17	212		12			41	121		5
Amortization or maturity date change	1,593	14,542		1,065			1,591	12,268		533
Chapter 7 bankruptcy	1,059	8,418		400			926	7,390		423
Other	—	—		—			—	—		—
Total Automobile	2,669	23,172		1,477			2,558	19,779		961
Home equity:
Interest rate reduction	55	2,928		110			55	4,399		161
Amortization or maturity date change	578	32,006		(3,709		)	1,591	79,023		(10,639		)
Chapter 7 bankruptcy	282	10,035		2,819			330	9,855		4,271
Other	—	—		—			—	—		—
Total Home equity	915	44,969		(780		)	1,976	93,277		(6,207		)
Residential mortgage:
Interest rate reduction	13	1,287		(18		)	15	1,565		(61		)
Amortization or maturity date change	363	39,170		(1,650		)	518	57,859		(455		)
Chapter 7 bankruptcy	62	5,715		(86		)	139	14,183		(164		)
Other	4	424		—			11	1,266		—
Total Residential mortgage	442	46,596		(1,754		)	683	74,873		(680		)
RV and marine finance:
Interest rate reduction	—	—		—			—	—		—
Amortization or maturity date change	—	—		—			—	—		—
Chapter 7 bankruptcy	—	—		—			—	—		—
Other	—	—		—			—	—		—
Total RV and marine finance	—	—		—			—	—		—
Other consumer:
Interest rate reduction	—	—		—			1	96		3
Amortization or maturity date change	6	575		24			10	198		8
Chapter 7 bankruptcy	8	72		7			11	69		9
Other	—	—		—			—	—		—
Total Other consumer	14	647		31			22	363		20
Total new troubled debt restructurings	5,053	$	677,714	$	(11,638	)	6,191	$	894,700	$	(14,533	)


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


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


(3)	Amounts represent the financial impact via provision (recovery) for loan and lease losses as a result of the modification.

Pledged Loans and Leases

The Bank has access to the Federal Reserve’s discount window and advances from the FHLB – Cincinnati. As of December 31, 2016 and 2015, these borrowings and advances are secured by $19.7 billion and $17.5 billion, respectively of loans and securities.

On March 31, 2015, Huntington completed its acquisition of Macquarie Equipment Finance, which was re-branded Huntington Technology Finance. Huntington assumed debt associated with two securitizations. As of December 31, 2016, the debt is secured by $70 million of on balance sheet leases held by the trusts.