Huntington Bancshares Incorporated Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES

LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2016

LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES

Loans and leases for which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. Except for loans which are accounted for at fair value, loans are carried at the principal amount outstanding, net of unamortized premiums and discounts and deferred loan fees and costs, which resulted in a net premium of $74 million and $262 million at September 30, 2016 and December 31, 2015, respectively.

Loans and leases with a fair value of $15.5 billion were acquired by Huntington as part of the FirstMerit acquisition. These loans were recorded at fair value. 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), and reflected an estimate of credit and other risk associated with the loans. 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 Unaudited Condensed Consolidated Statements of Income.

Loan and Lease Portfolio Composition

The following table provides a detailed listing of Huntington’s loan and lease portfolio at September 30, 2016 and December 31, 2015:



(dollar amounts in thousands)	September 30, 2016			December 31, 2015
Loans and leases:
Commercial and industrial	$	27,667,532		$	20,559,834
Commercial real estate	7,255,907			5,268,651
Automobile	10,791,351			9,480,678
Home equity	10,120,029			8,470,482
Residential mortgage	7,665,275			5,998,400
RV and marine finance	1,839,706			—
Other consumer	964,666			563,054
Loans and leases	66,304,466			50,341,099
Allowance for loan and lease losses	(616,898		)	(597,843		)
Net loans and leases	$	65,687,568		$	49,743,256

As shown in the table below, the primary loan and lease portfolios are: commercial and consumer. For ACL purposes, these portfolios are further disaggregated into classes. During the 2016 third quarter, in connection with the acquisition of FirstMerit, Huntington enhanced its portfolio and class structure. This structure corresponds with how the ACL is determined. The portfolios, and classes within each portfolio, are now as follows:



Portfolio	Class
Commercial	Commercial and industrial
	Commercial real estate

Consumer	Automobile
	Home equity
	Residential mortgage
	RV and marine finance
	Other consumer

Purchased Credit-Impaired Loans

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

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 loans for the three-month and nine-month periods ended September 30, 2016: and 2015




	Three Months Ended			Nine Months Ended
(dollar amounts in thousands)	September 30, 2016			September 30, 2016
FirstMerit
Balance, beginning of period	$	—		$	—
Impact of acquisition/purchase on August 16, 2016	17,717			17,717
Accretion	(1,091		)	(1,091		)
Reclassification (to) from nonaccretable difference	3,308			3,308
Balance, end of period	$	19,934		$	19,934

There was no allowance for loan losses recorded on the purchased credit-impaired loan portfolio at September 30, 2016. The following table reflects the ending and unpaid balances of all contractually required payments and carrying amounts of the acquired loans by acquisition at September 30, 2016:




	September 30, 2016
(dollar amounts in thousands)	Ending Balance		Unpaid Balance
FirstMerit
Commercial and industrial	$	104,560	$	148,243
Commercial real estate	49,135		64,146
Total	$	153,695	$	212,389

FDIC Acquired Loans Subject to Loss Share Agreements

In connection with the acquisition of FirstMerit, Huntington acquired loans subject to loss share agreements with the FDIC. The loss share agreements stipulate that the FDIC will reimburse Huntington for a portion of any amounts the Bank concludes are uncollectible, resulting in charge-offs. The agreements also stipulate that Huntington must repay the FDIC any related recoveries generated from the acquired loans. The reimbursements to Huntington are recorded as an indemnification asset and is recognized in Accrued income and other assets in the Unaudited Condensed Consolidated Balance Sheets. The obligation to the FDIC is recorded as a loss sharing liability and is recognized in Accrued expenses and other liabilities in the Unaudited Condensed Consolidated Balance Sheets.

The following table presents additional information relating to FDIC acquired loans subject to loss sharing agreements at September 30, 2016:



(dollar amounts in thousands)	September 30, 2016
FirstMerit
Outstanding balance of FDIC acquired loans	$	117,316
Indemnification asset	7,267
Loss sharing liability	5,897

Loan Purchases and Sales

The following table summarizes significant portfolio loan purchase and sale activity for the three-month and nine-month periods ended September 30, 2016 and 2015. The table below excludes mortgage loans originated for sale.



	Three Months Ended September 30,						Nine Months Ended September 30,
(dollar amounts in thousands)	2016				2015		2016				2015
Portfolio loans and leases purchased or transferred from held for sale:
Commercial and industrial	$	16,498			$	180,036	$	354,670			$	224,532
Commercial real estate	—				—		—				—
Automobile	—				—		—				—
Home equity	81,080		(1	)	—		81,080		(1	)	—
Residential mortgage	725				11,284		4,538				17,921
RV and marine finance	—				—		—				—
Other consumer	—				—		—				—
Total	$	98,303			$	191,320	$	440,288			$	242,453

Portfolio loans and leases sold or transferred to loans held for sale:
Commercial and industrial	$	1,140,096			$	98,117	$	1,380,893			$	284,019
Commercial real estate	124,231				—		124,231				—
Automobile	1,541,250				—		1,541,250				764,158		(2)
Home equity	—				96,786		—				96,786
Residential mortgage	—				—		—				—
RV and marine finance	—				—		—				—
Other consumer	—				—		—				—
Total	$	2,805,577			$	194,903	$	3,046,374			$	1,144,963


(1)	Reflects the transfer of approximately $81 million home equity loans transferred back to loans and leases in the 2016 third quarter.


(2)	Reflects the transfer of approximately $1.0 billion automobile loans to loans held for sale at March 31, 2015, net of approximately $262 million of automobile loans transferred back to loans and leases in the 2015 second quarter.

NALs and Past Due Loans

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

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

All classes within the Commercial portfolio (except for purchased credit-impaired loans) are placed on nonaccrual status at 90-days past due. Residential mortgage loans are placed on nonaccrual status at 150-days past due, with the exception of residential mortgages guaranteed by government organizations. First-lien home equity loans are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile, RV and marine finance and other consumer loans are generally charged-off when the loan is 120-days past due.

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

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

Regarding all classes within the Commercial portfolio, the determination of a borrower’s ability to make the required principal and interest payments is based on an examination of the borrower’s current financial statements, industry, management capabilities, and other qualitative measures. For all classes within the consumer loan portfolio, the determination of a borrower’s ability to make the required principal and interest payments is based on multiple factors, including number of days past due and, in some instances, an evaluation of the borrower’s financial condition. When, in Management’s judgment, the borrower’s ability to make required principal and interest payments resumes and collectability is no longer in doubt, supported by sustained repayment history, the loan or lease is returned to accrual status. For these loans that have been returned to accrual status, cash receipts are applied according to the contractual terms of the loan.

The following table presents NALs by loan class at September 30, 2016 and December 31, 2015:



(dollar amounts in thousands)	September 30, 2016		December 31, 2015
Commercial and industrial	$	220,862	$	175,195
Commercial real estate	21,300		28,984
Automobile	4,777		6,564
Home equity	69,044		66,278
Residential mortgage	88,155		94,560
RV and marine finance	96		—
Other consumer	—		—
Total nonaccrual loans	$	404,234	$	371,581

The following table presents an aging analysis of loans and leases, including past due loans, by loan class at September 30, 2016 and December 31, 2015: (1)



	September 30, 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	$	34,066	$	13,379	$	69,766	$	117,211	$	27,445,761	$	104,560	$	—	$	27,667,532	$	20,188	(2)
Commercial real estate	7,890		1,991		35,428		45,309		7,161,463		49,135		—		7,255,907		21,260
Automobile loans and leases	64,668		15,582		8,244		88,494		10,699,599		—		3,258		10,791,351		7,871
Home equity	36,728		20,799		53,279		110,806		10,005,280		—		3,943		10,120,029		12,997
Residential mortgage	113,184		38,867		111,540		263,591		7,322,416		—		79,268		7,665,275		68,329		(3)
RV and marine finance	6,754		2,042		1,048		9,844		1,827,721		—		2,141		1,839,706		1,043
Other consumer	8,731		3,284		2,997		15,012		949,074		—		580		964,666		2,988
Total loans and leases	$	272,021	$	95,944	$	282,302	$	650,267	$	65,411,314	$	153,695	$	89,190	$	66,304,466	$	134,676



	December 31, 2015
	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	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		(4)
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.


(3)	Includes $53 million guaranteed by the U.S. government.


(4)	Includes $56 million guaranteed by the U.S. government.

Allowance for Credit Losses

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

The appropriateness of the ACL is based on Management’s current judgments about the credit quality of the loan portfolio. These judgments consider on-going evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. Further, Management evaluates the 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 segments such as healthcare, ABL, and energy, and the overall condition of the manufacturing industry. Management’s determinations regarding the appropriateness of the ACL are reviewed and approved by the Company’s board of directors.

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

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

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

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

The acquired loans were recorded at their fair value as of the acquisition date and the prior ALLL was eliminated. An ALLL for acquired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized.

The ACL is increased through a provision for credit losses that is charged to earnings, based on Management’s quarterly evaluation of the factors previously mentioned, and is reduced by charge-offs, net of recoveries, and the ACL associated with loans transferred to loans held for sale, securitized or sold.

The following table presents ALLL and AULC activity by portfolio segment for the three-month and nine-month periods ended September 30, 2016 and 2015:



(dollar amounts in thousands)	Commercial			Consumer			Total
Three-month period ended September 30, 2016:
ALLL balance, beginning of period	$	424,507		$	198,557		$	623,064
Loan charge-offs	(24,839		)	(34,429		)	(59,268		)
Recoveries of loans previously charged-off	8,312			10,891			19,203
Provision (reduction in allowance) for loan and lease losses	36,689			16,834			53,523
Allowance for loans sold or transferred to loans held for sale	(12,874		)	(6,750		)	(19,624		)
ALLL balance, end of period	$	431,795		$	185,103		$	616,898
AULC balance, beginning of period	$	63,717		$	10,031		$	73,748
Provision (reduction in allowance) for unfunded loan commitments and letters of credit	9,739			543			10,282
Fair value of acquired AULC	4,403			—			4,403
AULC balance, end of period	$	77,859		$	10,574		$	88,433
ACL balance, end of period	$	509,654		$	195,677		$	705,331
Nine-month period ended September 30, 2016:
ALLL balance, beginning of period	$	398,753		$	199,090		$	597,843
Loan charge-offs	(70,721		)	(91,784		)	(162,505		)
Recoveries of loans previously charged-off	62,127			35,006			97,133
Provision (reduction in allowance) for loan and lease losses	54,510			49,437			103,947
Allowance for loans sold or transferred to loans held for sale	(12,874		)	(6,646		)	(19,520		)
ALLL balance, end of period	$	431,795		$	185,103		$	616,898
AULC balance, beginning of period	$	63,448		$	8,633		$	72,081
Provision for (reduction in allowance) unfunded loan commitments and letters of credit	10,008			1,941			11,949
Fair value of acquired AULC	4,403			—			4,403
AULC balance, end of period	$	77,859		$	10,574		$	88,433
ACL balance, end of period	$	509,654		$	195,677		$	705,331



(dollar amounts in thousands)	Commercial			Consumer			Total
Three-month period ended September 30, 2015:
ALLL balance, beginning of period	$	377,101		$	222,441		$	599,542
Loan charge-offs	(29,992		)	(30,883		)	(60,875		)
Recoveries of loans previously charged-off	33,955			10,757			44,712
Provision for (reduction in allowance) loan and lease losses	13,232			392			13,624
Allowance for loans sold or transferred to loans held for sale	—			(5,065		)	(5,065		)
ALLL balance, end of period	$	394,296		$	197,642		$	591,938
AULC balance, beginning of period	$	47,627		$	7,744		$	55,371
Provision for (reduction in allowance) unfunded loan commitments and letters of credit	8,759			93			8,852
Fair value of acquired AULC	—			—			—
AULC balance, end of period	$	56,386		$	7,837		$	64,223
ACL balance, end of period	$	450,682		$	205,479		$	656,161
Nine-month period ended September 30, 2015:
ALLL balance, beginning of period	$	389,834		$	215,362		$	605,196
Loan charge-offs	(77,118		)	(85,802		)	(162,920		)
Recoveries of loans previously charged-off	63,754			33,196			96,950
Provision for (reduction in allowance) loan and lease losses	17,826			42,243			60,069
Allowance for loans sold or transferred to loans held for sale	—			(7,357		)	(7,357		)
ALLL balance, end of period	$	394,296		$	197,642		$	591,938
AULC balance, beginning of period	$	55,029		$	5,777		$	60,806
Provision for (reduction in allowance) unfunded loan commitments and letters of credit	1,357			2,060			3,417
Fair value of acquired AULC	—			—			—
AULC balance, end of period	$	56,386		$	7,837		$	64,223
ACL balance, end of period	$	450,682		$	205,479		$	656,161

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.

Commercial loans are either fully or partially charged-off at 90-days past due. Automobile, RV and marine finance 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.

Credit Quality Indicators

To facilitate the monitoring of credit quality for Commercial loans, and for purposes of determining an appropriate ACL level for these loans, Huntington utilizes the following 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 also considered Classified loans.

For all classes within the Consumer loan portfolio, 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. Future performance of the consumer portfolios is not solely based on the FICO score distribution. Huntington utilizes a custom scorecard in the credit decisioning process for Indirect Auto and Home Equity to provide a proprietary assessment of expected performance at the loan level.

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 September 30, 2016 and December 31, 2015:



	September 30, 2016
	Credit Risk Profile by UCS Classification
(dollar amounts in thousands)	Pass		OLEM		Substandard		Doubtful		Total
Commercial and industrial	$	25,922,981	$	591,927	$	1,128,765	$	23,859	$	27,667,532
Commercial real estate	6,977,718		120,371		155,607		2,211		7,255,907

	Credit Risk Profile by FICO Score (1), (2)
	750+		650-749		<650		Other (3)		Total
Automobile	$	5,430,033	$	3,933,502	$	1,229,856	$	194,702	$	10,788,093
Home equity	6,295,798		2,895,693		636,889		287,706		10,116,086
Residential mortgage	4,609,160		2,219,426		625,144		132,277		7,586,007
RV and marine finance	1,027,428		633,849		70,189		106,099		1,837,565
Other consumer	336,081		430,994		120,132		76,879		964,086



	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 Commercial portfolio, all loans with an obligor balance of $1 million or greater are considered for individual evaluation on a quarterly basis for impairment. Generally, consumer loans within any class are not individually evaluated on a regular basis for impairment. However, certain home equity and residential mortgage loans are measured for impairment based on the underlying collateral value. 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.

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

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

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance at September 30, 2016 and December 31, 2015:



(dollar amounts in thousands)	Commercial		Consumer		Total
ALLL at September 30, 2016:
Portion of ALLL balance:
Purchased credit-impaired loans	$	—	$	—	$	—
Attributable to loans individually evaluated for impairment	17,246		11,603		28,849
Attributable to loans collectively evaluated for impairment	414,549		173,500		588,049
Total ALLL balance	$	431,795	$	185,103	$	616,898
Loan and Lease Ending Balances at September 30, 2016: (1)
Portion of loan and lease ending balance:
Purchased credit-impaired loans	$	153,695	$	—	$	153,695
Individually evaluated for impairment	470,134		476,422		946,556
Collectively evaluated for impairment	34,299,610		30,815,415		65,115,025
Total loans and leases evaluated for impairment	$	34,923,439	$	31,291,837	$	66,215,276



(dollar amounts in thousands)	Commercial		Consumer		Total
ALLL at December 31, 2015
Portion of ALLL balance:
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:
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 loans and leases individually evaluated for impairment and purchased credit-impaired loans: (1), (2)



	September 30, 2016						Three Months Ended September 30, 2016				Nine Months Ended September 30,
(dollar amounts in thousands)	Ending Balance		Unpaid Principal Balance (5)		Related Allowance		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	356,398	$	418,304	$	—	$	305,956	$	2,235	$	290,163	$	4,858
Commercial real estate	103,705		133,670		—		80,000		907		58,666		2,257
Automobile	—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—
Residential mortgage	—		—		—		—		—		—		—
RV and marine finance	—		—		—		—		—		—		—
Other consumer	—		—		—		—		—		—		—

With an allowance recorded:
Commercial and industrial (3)	255,894		270,828		25,850		281,934		1,631		274,262		5,460
Commercial real estate (4)	46,388		57,405		3,242		49,140		521		49,587		1,895
Automobile	32,279		32,644		1,802		31,540		541		31,912		1,643
Home equity	324,106		357,649		14,803		284,512		3,453		267,264		9,382
Residential mortgage (6)	341,063		378,500		14,818		344,237		2,978		353,259		9,041
RV and marine finance	—		—		—		—		—		—		—
Other consumer	4,244		4,244		302		4,454		58		4,627		178



	December 31, 2015						Three Months Ended September 30, 2015				Nine Months Ended September 30,
(dollar amounts in thousands)	Ending Balance		Unpaid Principal Balance (5)		Related Allowance		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	255,801	$	279,551	$	—	$	133,022	$	710	$	93,256	$	1,694
Commercial real estate	68,260		125,814		—		56,927		590		61,767		1,734
Automobile	—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—
Residential mortgage	—		—		—		—		—		—		—
RV and marine finance	—		—		—		—		—		—		—
Other consumer	52		101		—		50		3		51		11

With an allowance recorded:
Commercial and industrial (3)	246,249		274,203		21,916		298,417		3,420		260,987		9,688
Commercial real estate (4)	90,475		104,930		8,114		126,694		2,695		158,621		9,612
Automobile	31,304		31,878		1,779		29,371		554		29,878		1,659
Home equity	248,839		284,957		16,242		288,685		2,725		302,808		10,241
Residential mortgage (6)	368,449		411,114		16,938		376,026		3,303		374,854		9,630
RV and marine finance	—		—		—		—		—		—		—
Other consumer	4,640		4,649		176		4,801		64		4,683		191


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


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


(3)	At September 30, 2016, $111 million of the $256 million commercial and industrial 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 commercial and industrial loans with an allowance recorded were considered impaired due to their status as a TDR.


(4)	At September 30, 2016, $28 million of the $46 million commercial real estate 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 commercial real estate loans with an allowance recorded were considered impaired due to their status as a TDR.


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


(6)	At September 30, 2016, $29 million of the $341 million residential mortgages 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

TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs. Acquired, non-purchased credit impaired loan are only considered for TDR reporting for modifications made subsequent to acquisition.

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:


(1)	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.


(2)	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.


(3)	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 three-month and nine-month periods ended September 30, 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 time to improve their financial position and remain our customer through refinancing their notes according to market terms and conditions in the future or to refinance elsewhere. 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 it 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 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.

Our TDRs may include multiple concessions and the disclosure classifications are presented based on the primary concession provided to the borrower. The majority of our concessions for the Commercial portfolio are the extension of the maturity date.

TDR concessions may also result in the reduction of the ALLL within the Commercial portfolio. This reduction is derived from payments and the resulting application of the reserve calculation within the ALLL. The transaction reserve for non-TDR Commercial loans is calculated based upon several estimated probability factors, such as PD and LGD, both of which were previously discussed. Upon the occurrence of a TDR in our Commercial portfolio, 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 Commercial 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. 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 minimum 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 tables present 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 three-month and nine-month periods ended September 30, 2016 an 2015:




	New Troubled Debt Restructurings During The Three-Month Period Ended (1)
	September 30, 2016						September 30, 2015
(dollar amounts in thousands)	Number of Contracts	Post-modification Outstanding Ending Balance		Financial effects of modification (2)			Number of Contracts	Post-modification Outstanding Ending Balance		Financial effects of modification (2)
Commercial and industrial:
Interest rate reduction	2	$	122	$	6		2	$	89	$	(7	)
Amortization or maturity date change	246	89,100		(1,450		)	217	134,356		4,826
Other	6	711		(2		)	2	338		4
Total Commercial and industrial	254	89,933		(1,446		)	221	134,783		4,823
Commercial real estate:
Interest rate reduction	—	—		—			1	356		6



Amortization or maturity date change	30	11,183		(546		)	30	35,541		383
Other	—	—		—			—	—		—
Total commercial real estate:	30	11,183		(546		)	31	35,897		389
Automobile:
Interest rate reduction	4	26		3			5	6		—
Amortization or maturity date change	452	4,438		559			401	3,445		157
Chapter 7 bankruptcy	236	1,840		157			331	2,585		84
Other	—	—		—			—	—		—
Total Automobile	692	6,304		719			737	6,036		241
Home equity:
Interest rate reduction	14	352		10			18	1,101		60
Amortization or maturity date change	110	6,740		(574		)	421	18,842		(2,176		)
Chapter 7 bankruptcy	70	2,395		1,327			101	2,840		1,134
Other	—	—		—			—	—		—
Total Home equity	194	9,487		763			540	22,783		(982		)
Residential mortgage:
Interest rate reduction	2	134		(2		)	3	686		(4		)
Amortization or maturity date change	77	7,988		(220		)	261	27,553		(147		)
Chapter 7 bankruptcy	17	1,105		(63		)	37	3,888		5
Other	3	260		—			3	254		—
Total Residential mortgage	99	9,487		(285		)	304	32,381		(146		)
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	1	16		—			1	2		—
Chapter 7 bankruptcy	1	6		—			2	13		—
Other	—	—		—			—	—		—
Total Other consumer	2	22		—			4	111		3
Total new troubled debt restructurings	1,271	$	126,416	$	(795	)	1,837	$	231,991	$	4,328


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


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

New Troubled Debt Restructurings During The Nine-Month Period Ended (1)

September 30, 2016

September 30, 2015



(dollar amounts in thousands)	Number of Contracts	Post-modification Outstanding Ending Balance		Financial effects of modification (2)			Number of Contracts	Post-modification Outstanding Ending Balance		Financial effects of modification (2)
Commercial and industrial:
Interest rate reduction	4	$	161	$	5		10	$	759	$	1
Amortization or maturity date change	629	345,691		(4,368		)	588	417,548		(77,877		)
Other	16	1,801		(4		)	11	29,463		(459		)
Total Commercial and industrial	649	347,653		(4,367		)	609	447,770		(78,335		)
Commercial real estate:
Interest rate reduction	1	84		—			3	2,103		(4		)
Amortization or maturity date change	90	60,995		(1,828		)	106	97,940		(990		)
Other	4	315		16			11	480		(30		)
Total commercial real estate:	95	61,394		(1,812		)	120	100,523		(1,024		)
Automobile:
Interest rate reduction	11	132		10			30	48		2
Amortization or maturity date change	1,159	11,002		981			1,213	8,929		411
Chapter 7 bankruptcy	797	6,384		386			621	4,946		245
Other	—	—		—			—	—		—
Total Automobile	1,967	17,518		1,377			1,864	13,923		658
Home equity:
Interest rate reduction	43	2,363		103			47	4,029		149
Amortization or maturity date change	466	25,031		(2,592		)	1,301	63,469		(8,355		)
Chapter 7 bankruptcy	215	8,106		2,327			257	7,120		3,513
Other	—	—		—			—	—		—
Total Home equity	724	35,500		(162		)	1,605	74,618		(4,693		)
Residential mortgage:
Interest rate reduction	12	1,195		(17		)	12	1,423		(60		)
Amortization or maturity date change	277	29,388		(1,217		)	454	50,827		(342		)
Chapter 7 bankruptcy	40	3,788		(42		)	106	10,948		(126		)
Other	4	424		—			9	962		—
Total Residential mortgage	333	34,795		(1,276		)	581	64,160		(528		)
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			7	130		6
Chapter 7 bankruptcy	8	72		7			7	58		9
Other	—	—		—			—	—		—



Total Other consumer	14	647		31			15	284		18
Total new troubled debt restructurings	3,782	$	497,507	$	(6,209	)	4,794	$	701,278	$	(83,904	)


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


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

Pledged Loans and Leases

At September 30, 2016, the Bank has access to the Federal Reserve’s discount window and advances from the FHLB – Cincinnati. As of September 30, 2016, these borrowings and advances are secured by $19.2 billion of loans and securities.

On March 31, 2015, Huntington completed its acquisition of Macquarie Equipment Finance, which we have re-branded Huntington Technology Finance. Huntington assumed debt associated with two securitizations. As of September 30, 2016, the debt is secured by $87 million of leases held by the trusts.