10-K 1 hban-2015x1231x10k.htm 10-K 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________
FORM 10-K
_______________________________________________
(Mark One)
x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015
or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 1-34073 
_______________________________________________
Huntington Bancshares Incorporated
(Exact name of registrant as specified in its charter)
_______________________________________________
Maryland
 
31-0724920
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
41 S. High Street, Columbus, Ohio
 
43287
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (614) 480-8300
Securities registered pursuant to Section 12(b) of the Act:
Title of class
 
Name of exchange on which registered
8.50% Series A non-voting, perpetual convertible preferred stock
 
NASDAQ
Common Stock—Par Value $0.01 per Share
 
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Floating Rate Series B Non-Cumulative Perpetual Preferred Stock

Depositary Shares (each representing a 1/40th interest in a share of Floating Rate Series B Non-Cumulative Perpetual Preferred Stock)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act.  x    Yes  ¨    No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  ¨    Yes  x    No
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 (or for such shorter period that the registrant was required to file such reports), 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)  ¨    Yes  x    No
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2015, determined by using a per share closing price of $11.31, as quoted by NASDAQ on that date, was $8,871,190,906. As of January 31, 2016, there were 795,025,143 shares of common stock with a par value of $0.01 outstanding.
Documents Incorporated By Reference
Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for the 2016 Annual Shareholders’ Meeting.




HUNTINGTON BANCSHARES INCORPORATED
INDEX
 
 
 
Part I.
 
 
Part II.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part III.
 
 







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
ABS
Asset-Backed Securities
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
BHC
Bank Holding Companies
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
E&P
Exploration and Production
EFT
Electronic Fund Transfer
EPS
Earnings Per Share
EVE
Economic Value of Equity
Fannie Mae
(see FNMA)
FASB
Financial Accounting Standards Board
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
GNMA
Government National Mortgage Association, or Ginnie Mae
HAA
Huntington Asset Advisors, Inc.
HAMP
Home Affordable Modification Program

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HARP
Home Affordable Refinance Program
HASI
Huntington Asset Services, Inc.
HIP
Huntington Investment and Tax Savings Plan
HQLA
High-Quality Liquid Assets
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
NAICS
North American Industry Classification System
Macquarie
Macquarie Equipment Finance, Inc. (U.S. Operations)
MBS
Mortgage-Backed Securities
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MSA
Metropolitan Statistical Area
MSR
Mortgage Servicing Rights
NALs
Nonaccrual Loans
NCO
Net Charge-off
NII
Noninterest Income
NIM
Net Interest Margin
NPAs
Nonperforming Assets
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
PD
Probability-Of-Default
Plan
Huntington Bancshares Retirement Plan
Problem Loans
Includes nonaccrual loans and leases (Table 11), accruing loans and leases past due 90 days or more (Table 12), troubled debt restructured loans (Table 13), and criticized commercial loans (credit quality indicators section of Footnote 3).
RBHPCG
Regional Banking and The Huntington Private Client Group
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
Unified
Unified Financial Securities, Inc.

5


UPB
Unpaid Principal Balance
USDA
U.S. Department of Agriculture
VA
U.S. Department of Veteran Affairs
VIE
Variable Interest Entity
XBRL
eXtensible Business Reporting Language

6


Huntington Bancshares Incorporated
PART I
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 1: Business
We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. We have 12,243 average full-time equivalent employees. Through the Bank, we have 150 years of serving the financial needs of our customers. We provide full-service commercial, small business, consumer, and mortgage banking services, as well as automobile financing, equipment leasing, investment management, trust services, brokerage services, insurance programs, and other financial products and services. The Bank, organized in 1866, is our only bank subsidiary. At December 31, 2015, the Bank had 15 private client group offices and 762 branches as follows:
 
 
•    406 branches in Ohio
  
•    45 branches in Indiana
 
 
•    222 branches in Michigan
  
•    31 branches in West Virginia
 
 
•    48 branches in Pennsylvania
  
•    10 branches in Kentucky
 
Select financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio, and a limited purpose office located in the Cayman Islands. Our foreign banking activities, in total or with any individual country, are not significant.
Our business segments are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. For each of our five business segments, we expect the combination of our business model and exceptional service to provide a competitive advantage that supports revenue and earnings growth. Our business model emphasizes the delivery of a complete set of banking products and services offered by larger banks, but distinguished by local delivery and customer service.
A key strategic emphasis has been for our business segments to operate in cooperation to provide products and services to our customers and to build stronger and more profitable relationships using our OCR sales and service process. The objectives of OCR are to:
1.Provide a consultative sales approach to provide solutions that are specific to each customer.
2.Leverage each business segment in terms of its products and expertise to benefit customers.
3.Target prospects who may want to have multiple products and services as part of their relationship with us.

Following is a description of our five business segments and a Treasury / Other function:
Retail and Business Banking – The Retail and Business Banking segment provides a wide array of financial products and services to consumer and small business customers including but not limited to checking accounts, savings accounts, money market accounts, certificates of deposit, consumer loans, and small business loans. Other financial services available to consumer and small business customers include investments, insurance, interest rate risk protection, foreign exchange, and treasury management. Huntington serves customers primarily through our network of branches in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. In addition to our extensive branch network, customers can access Huntington through online banking, mobile banking, telephone banking, and ATMs.
Huntington has established a "Fair Play" banking philosophy; providing differentiated products and services, built on a strong foundation of customer advocacy. Our brand resonates with consumers and is earning us more new customers and deeper relationships with our current customers.
Business Banking is a dynamic part of our business and we are committed to being the bank of choice for small businesses in our markets. Business Banking is defined as serving companies with revenues up to $20 million and consists of approximately 165,000 businesses. Huntington continues to develop products and services that are designed specifically to meet the needs of small business and look for ways to help companies find solutions to their financing needs.

7


Commercial Banking: Through a relationship banking model, this segment provides a wide array of products and services to the middle market, large corporate, and government public sector customers located primarily within our geographic footprint. The segment is divided into seven business units: middle market, large corporate, specialty banking, asset finance, capital markets, treasury management, and insurance.
Middle Market Banking primarily focuses on providing banking solutions to companies with annual revenues of $20 million to $500 million. Through a relationship management approach, various products, capabilities and solutions are seamlessly delivered in a client centric way.
Corporate Banking works with larger, often more complex companies with revenues greater than $500 million. These entities, many of which are publicly traded, require a different and customized approach to their banking needs.
Specialty Banking offers tailored products and services to select industries that have a foothold in the Midwest. Each banking team is comprised of industry experts with a dynamic understanding of the market and industry. Many of these industries are experiencing tremendous change, which creates opportunities for Huntington to leverage our expertise and help clients navigate, adapt, and succeed.
Asset Finance business is a combination of our Equipment Finance, Public Capital, Asset Based Lending, Technology and Healthcare Equipment Leasing, and Lender Finance divisions that focus on providing financing solutions against these respective asset classes.
Capital Markets has two distinct product capabilities: corporate risk management services and institutional sales, trading, and underwriting. The Capital Markets Group offers a full suite of risk management tools including commodities, foreign exchange, and interest rate hedging services. The Institutional Sales, Trading & Underwriting team provides access to capital and investment solutions for both municipal and corporate institutions.
Treasury Management teams help businesses manage their working capital programs and reduce expenses. Our liquidity solutions help customers save and invest wisely, while our payables and receivables capabilities help them manage purchases and the receipt of payments for goods and services. All of this is provided while helping customers take a sophisticated approach to managing their overhead, inventory, equipment, and labor.
Insurance brokerage business specializes in commercial property and casualty, employee benefits, personal lines, life and disability and specialty lines of insurance. The group also provides brokerage and agency services for residential and commercial title insurance and excess and surplus product lines of insurance. As an agent and broker, this business does not assume underwriting risks but alternatively provides our customers with quality, noninvestment insurance contracts.
Automobile Finance and Commercial Real Estate: This segment provides lending and other banking products and services to customers outside of our traditional retail and commercial banking segments. Our products and services include providing financing for the purchase of vehicles by customers at franchised automotive dealerships, financing the acquisition of new and used vehicle inventory of franchised automotive dealerships, and financing for land, buildings, and other commercial real estate owned or constructed by real estate developers, automobile dealerships, or other customers with real estate project financing needs. Products and services are delivered through highly specialized relationship-focused bankers and product partners. Huntington creates well-defined relationship plans which identify needs where solutions are developed and customer commitments are obtained.
The Automotive Finance team services automobile dealerships, its owners, and consumers buying automobiles through these franchised dealerships. Huntington has provided new and used automobile financing and dealer services throughout the Midwest since the early 1950s. This consistency in the market and our focus on working with strong dealerships has allowed us to expand into selected markets outside of the Midwest and to actively deepen relationships while building a strong reputation.
The Commercial Real Estate team serves real estate developers, REITs, and other customers with lending needs that are secured by commercial properties. Most of these customers are located within our footprint.
Within Commercial Real Estate, Huntington Community Development focuses on improving the quality of life for our communities and the residents of low-to moderate-income neighborhoods by developing and delivering innovative products and services to support affordable housing and neighborhood stabilization.
Regional Banking and The Huntington Private Client Group: Regional Banking and The Huntington Private Client Group is well positioned competitively as we have closely aligned with our eleven regional banking markets. A fundamental point of differentiation is our commitment to be actively engaged within our local markets - building

8


connections with community and business leaders and offering a uniquely personal experience delivered by colleagues working within those markets.
The Huntington Private Client Group is organized into units consisting of The Huntington Private Bank, The Huntington Trust, and The Huntington Investment Company. Our private banking, trust, and investment functions focus their efforts in our Midwest footprint and Florida.
The Huntington Private Bank provides high net-worth customers with deposit, lending (including specialized lending options), and banking services.
The Huntington Trust also serves high net-worth customers and delivers wealth management and legacy planning through investment and portfolio management, fiduciary administration, trust services, and trust operations. This group also provides retirement plan services and corporate trust to businesses and municipalities.
The Huntington Investment Company, a dually registered broker-dealer and registered investment adviser, employs representatives who work with our Retail and Private Bank to provide investment solutions for our customers. This team offers a wide range of products and services, including brokerage, annuities, advisory, and other investment products.
Huntington sold HAA, HASI, and Unified in the 2015 fourth quarter.
Home Lending: Home Lending originates and services consumer loans and mortgages for customers who are generally located in our primary banking markets. Consumer and mortgage lending products are primarily distributed through the Retail and Business Banking segment, as well as through commissioned loan originators. Home Lending earns interest on loans held in the warehouse and portfolio, earns fee income from the origination and servicing of mortgage loans, and recognizes gains or losses from the sale of mortgage loans. Home Lending supports the origination and servicing of mortgage loans across all segments.
The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.
The financial results for each of these business segments are included in Note 24 of Notes to Consolidated Financial Statements and are discussed in the Business Segment Discussion of our MD&A.
Pending Acquisition of FirstMerit Corporation
On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction expected to be valued at approximately $3.4 billion based on the closing stock price on the day preceding the announcement. FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, which reported assets of approximately $25.5 billion based on their December 31, 2015 unaudited balance sheet, and 366 banking offices and 400 ATM locations in Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania. First Merit Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations. Principal affiliates include: FirstMerit Bank, N.A. and First Merit Mortgage Corporation.
Under the terms of the agreement, shareholders of FirstMerit Corporation will receive 1.72 shares of Huntington common stock and $5.00 in cash for each share of FirstMerit Corporation common stock. The transaction is expected to be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Huntington and FirstMerit Corporation. 
Competition
We compete with other banks and financial services companies such as savings and loans, credit unions, and finance and trust companies, as well as mortgage banking companies, automobile and equipment financing companies (including captive automobile finance companies), insurance companies, mutual funds, investment advisors, and brokerage firms, both within and outside of our primary market areas. Internet companies are also providing nontraditional, but increasingly strong, competition for our borrowers, depositors, and other customers.
We compete for loans primarily on the basis of a combination of value and service by building customer relationships as a result of addressing our customers’ entire suite of banking needs, demonstrating expertise, and providing convenience to our customers. We also consider the competitive pricing pressures in each of our markets.
We compete for deposits similarly on a basis of a combination of value and service and by providing convenience through a banking network of branches and ATMs within our markets and our website at www.huntington.com. We have also instituted

9


customer friendly practices, such as our 24-Hour Grace® account feature, which gives customers an additional business day to cover overdrafts to their consumer account without being charged overdraft fees.
The table below shows our competitive ranking and market share based on deposits of FDIC-insured institutions as of June 30, 2015, in the top 10 metropolitan statistical areas (MSA) in which we compete:
 
MSA
Rank
 
Deposits (in
millions)
 
Market Share
Columbus, OH
1

 
$
17,450

 
30
%
Detroit, MI
7

 
5,163

 
4

Cleveland, OH
5

 
4,836

 
8

Indianapolis, IN
4

 
3,062

 
7

Pittsburgh, PA
8

 
2,782

 
2

Cincinnati, OH
4

 
2,577

 
3

Toledo, OH
1

 
2,354

 
24

Grand Rapids, MI
2

 
2,237

 
11

Youngstown, OH
1

 
2,019

 
22

Canton, OH
1

 
1,708

 
26

Source: FDIC.gov, based on June 30, 2015 survey.
 
 
 
 
 
Many of our nonfinancial institution competitors have fewer regulatory constraints, broader geographic service areas, greater capital, and, in some cases, lower cost structures. In addition, competition for quality customers has intensified as a result of changes in regulation, advances in technology and product delivery systems, consolidation among financial service providers, bank failures, and the conversion of certain former investment banks to bank holding companies.
Financial Technology, or FinTech, startups are emerging in key areas of banking.  In response, we are monitoring activity in marketplace lending along with businesses engaged in money transfer, investment advice, and money management tools. Our strategy involves assessing the marketplace, determining our near term plan, while developing a longer term approach to effectively service our existing customers and attract new customers. This includes evaluating which products we develop in-house, as well as evaluating partnership options where applicable.
Regulatory Matters
We are subject to regulation by the SEC, the Federal Reserve, the OCC, the CFPB, and other federal and state regulators.
Because we are a public company, we are subject to regulation by the SEC. The SEC has established five categories of issuers for the purpose of filing periodic and annual reports. Under these regulations, we are considered to be a large accelerated filer and, as such, must comply with SEC accelerated reporting requirements.
The banking industry is highly regulated. We and the Bank are subject to extensive federal and state laws and regulations that govern many aspects of our operations and limit the businesses in which we may engage. These laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, the Deposit Insurance Fund, the stability of the financial system in the United States, and the health of the national economy, and are not designed primarily to benefit or protect our shareholders or creditors.
The following discussion is not intended to be a complete list of the activities regulated by the banking laws and regulations applicable to us or our Bank or the impact of such laws and regulations on us or the Bank. Changes in applicable laws or regulations, and in their interpretation and application by the bank regulatory agencies, cannot be predicted and may have a material effect on our business and results.
We are registered as a bank holding company with the Federal Reserve and qualify for and have elected to become a financial holding company under the Gramm-Leach-Bliley Act of 1999 ("GLBA"). We are subject to examination, regulation, and supervision by the Federal Reserve pursuant to the Bank Holding Company Act. We are required to file reports and other information regarding our business operations and the business operations of our subsidiaries with the Federal Reserve.
The Federal Reserve maintains a bank holding company rating system that emphasizes risk management, introduces a framework for analyzing and rating financial factors, and provides a framework for assessing and rating the potential impact of

10


non-depository entities of a holding company on its subsidiary depository institution(s). The ratings assigned to us, like those assigned to other financial institutions, are confidential and may not be disclosed, except to the extent required by law.
Under the Dodd-Frank Act, because we are a bank holding company with consolidated assets greater than $50 billion, we are subject to certain enhanced prudential standards. As a result, we expect to be subject to more stringent standards and requirements than those applicable to smaller institutions, including with respect to capital requirements, leverage limits, and stress testing. The Federal Reserve has issued supervisory guidance which sets forth an updated framework for the consolidated supervision of large financial institutions, including bank holding companies with consolidated assets of $50 billion or more. The objectives of the framework are to enhance the resilience of a firm, lower the probability of its failure, and reduce the impact on the financial system in the event of an institution’s failure. With regard to resiliency, each firm is expected to ensure that the consolidated organization and its core business lines can survive under a broad range of internal or external stresses. This requires financial resilience by maintaining sufficient capital and liquidity, and operational resilience by maintaining effective corporate governance, risk management, and recovery planning. With respect to lowering the probability of failure, each firm is expected to ensure the sustainability of its critical operations and banking offices under a broad range of internal or external stresses. This requires, among other things, that we have robust, forward-looking capital-planning processes that account for our unique risks.
The Bank, which is chartered by the OCC, is a national bank and our only bank subsidiary. It is subject to comprehensive examination, regulation and supervision primarily by the OCC and, with respect to Federal consumer protection laws, by the CFPB, which was established by the Dodd-Frank Act. In addition, as a member of the Federal Reserve System, the Bank is subject to certain rules and regulations of the Federal Reserve. As a FDIC member, the Bank is subject to deposit insurance assessments payable to the Deposit Insurance Fund and various FDIC requirements. The National Bank Act and the OCC regulations primarily govern the Bank’s permissible activities, capital requirements, branching, dividend limitations, investments, loans, and other matters. Our nonbank subsidiaries are also subject to examination and supervision by the Federal Reserve or, in the case of nonbank subsidiaries of the Bank, by the OCC. All subsidiaries are subject to examination and supervision by the CFPB to the extent they offer any consumer financial products or services. Our subsidiaries may be subject to examination by other federal and state regulators, including, in the case of certain securities and investment management activities, regulation by the SEC and the Financial Industry Regulatory Authority.
In September 2014, the OCC published final guidelines to strengthen the governance and risk management practices of certain large financial institutions, including national banks with $50 billion or more in average total consolidated assets, such as the Bank. The guidelines became effective November 10, 2014, and require covered banks to establish and adhere to a written governance framework in order to manage and control their risk-taking activities. In addition, the guidelines provide standards for the institutions’ boards of directors to oversee the risk governance framework. Given its size and the phased implementation schedule, the Bank is subject to these heightened standards effective May 2016. As discussed in Item 1A: Risk Factors, the Bank currently has a written governance framework and associated controls.
Legislative and regulatory reforms continue to have significant impacts throughout the financial services industry.
The Dodd-Frank Act, enacted in 2010, is complex and broad in scope and several of its provisions are still being implemented. The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services, and the Financial Stability Oversight Council, which has oversight authority for monitoring and regulating systemic risk. In addition, the Dodd-Frank Act altered the authority and duties of the federal banking and securities regulatory agencies, implemented certain corporate governance requirements for all public companies including financial institutions with regard to executive compensation, proxy access by shareholders, and certain whistleblower provisions, and restricted certain proprietary trading, and hedge fund and private equity activities of banks and their affiliates. The Dodd-Frank Act also required the issuance of numerous implementing regulations, many of which have not yet been issued. The regulations will continue to take effect over several more years, continuing to make it difficult to anticipate the overall impact to us, our customers, or the financial industry in general.
On October 3, 2015, the CFPB’s final rules on integrated mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act became effective. On January 1, 2016, most requirements of the OCC’s Final Rule in Loans in Areas Having Special Flood Hazards (the Flood Final Rule) became effective, including the requirement that flood insurance premiums and fees for most mortgage loans be escrowed subject to certain exceptions. The Flood Final Rule also incorporated other existing flood insurance requirements and exceptions (e.g. the exemption from flood insurance requirements for non-residential detached structures - a discretionary item) with those portions of the Flood Final Rule becoming effective on October 1, 2015. We continue to monitor, evaluate, and implement these new regulations.
Throughout 2015, the CFPB continued its focus on fair lending practices of indirect automobile lenders. This focus led to some lenders to enter into consent orders with the CFPB and Department of Justice. Indirect automobile lenders have also received continued pressure from the CFPB to limit or eliminate discretionary pricing by dealers. Finally, the CFPB has implemented its

11


larger participant rule for indirect automobile lending which brings larger non-bank indirect automobile lenders under CFPB supervision.
Banking regulatory agencies have increasingly used their authority under Section 5 of the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices (UDAP) by banks under standards developed many years ago by the Federal Trade Commission in order to address practices that may not necessarily fall within the scope of a specific banking or consumer finance law.  The Dodd-Frank Act also gave to the CFPB similar authority to take action in connection with unfair, deceptive, or abusive acts or practices (UDAAP) by entities subject to CFPB supervisory or enforcement authority.  Banks face considerable uncertainty as to the regulatory interpretation of “abusive” practices.
Financial services companies face increased regulation and exposure under the new Military Lending Act (MLA) final rules issued by the Department of Defense that become effective for new loans entered into on and after October 3, 2016. The new rules dramatically expand the scope of coverage of the MLA and compliance with the new rules will affect operations of more financial services companies than under the previous rules.
On July 10, 2015, the Federal Communication Commission, interpreting the Telephone Consumer Protection Act, issued an Omnibus Declaratory Ruling and Order that, among other things, restricted the use of automated telephone dialing machines. The ruling effectively increases the cost of collecting debts as well as increases the litigation risk associated with the use of auto-dialers.
Large bank holding companies and national banks are required to submit annual capital plans to the Federal Reserve and OCC, respectively, and conduct stress tests.
The Federal Reserve’s Regulation Y requires large bank holding companies to submit capital plans to the Federal Reserve on an annual basis and requires such bank holding companies to obtain approval from the Federal Reserve under certain circumstances before making a capital distribution. This rule applies to us and all other bank holding companies with $50 billion or more of total consolidated assets.
A large bank holding company’s capital plan must include an assessment of the expected uses and sources of capital over at least the next nine quarters, a description of all planned capital actions over the planning horizon, a detailed description of the entity’s process for assessing capital adequacy, the entity’s capital policy, and a discussion of any expected changes to the bank holding company’s business plan that are likely to have a material impact on the firm’s capital adequacy or liquidity. The planning horizon for the most recently completed capital planning and stress testing cycle encompasses the 2014 fourth quarter through the 2016 fourth quarter as was submitted in our capital plan in January 2015. Rules to implement the Basel III capital reforms in the United States were finalized in July 2013 and are being phased-in by us beginning with 1Q 2015 results under the standardized approach. Capital adequacy at large banking organizations, including us, is assessed against a minimum 4.5% CET1 ratio and a 4% tier 1 leverage ratio as determined by the Federal Reserve.
Capital plans for 2016 are required to be submitted to the Federal Reserve by April 5, 2016, and the Federal Reserve will either object to the capital plan and/or planned capital actions, or provide a notice of non-objection, no later than June 30, 2016. We intend to submit our capital plan to the Federal Reserve on or before April 5, 2016. There can be no assurance that the Federal Reserve will respond favorably to our capital plan, capital actions or stress test and the Federal Reserve, OCC, or other regulatory capital requirements may limit or otherwise restrict how we utilize our capital, including common stock dividends and stock repurchases.
In addition to the CCAR submission, section 165 of the Dodd-Frank Act requires that national banks, like The Huntington National Bank, conduct annual stress tests for submission beginning in January 2015. The results of the stress tests will provide the OCC with forward-looking information that will be used in bank supervision and will assist the agency in assessing a company’s risk profile and capital adequacy. We submitted our stress test results to the OCC in January 2015. We intend to submit our 2016 capital plan to the OCC on or before April 5, 2016.
The regulatory capital rules indicate that common stockholders’ equity should be the dominant element within tier 1 capital and that banking organizations should avoid overreliance on non-common equity elements. Under the Dodd-Frank Act, the ratio of common equity tier 1 to risk-weighted assets became significant as a measurement of the predominance of common equity in tier 1 capital and an indication of the quality of capital in accordance with their requirements.
Conforming Covered Activities to implement the Volcker Rule.
On December 10, 2013, the Federal Reserve, the OCC, the FDIC, the CFTC and the SEC issued final rules to implement the Volcker Rule contained in section 619 of the Dodd-Frank Act, and established July 21, 2015, as the end of the conformance period. Section 619 generally prohibits an insured depository institution, any company that controls an insured depository institution (such

12


as a bank holding company), and any of their subsidiaries and affiliates (collectively, "banking entities") from engaging in short-term proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund ("covered funds"). These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions. On December 18, 2014, the Federal Reserve announced it acted under Section 619 to give banking entities until July 21, 2016, to conform investments in and relationships with covered funds and foreign funds that were in place prior to December 31, 2013 (“legacy covered funds”). The Federal Reserve also announced its intention to act this year to grant banking entities an additional one-year extension of the conformance period until July 21, 2017, to conform ownership interests in and relationships with legacy covered funds. The Bank continues its “good faith” efforts to conform with proprietary trading prohibitions and associated compliance requirements. The Company does not expect Volcker compliance to have a material impact on its business model.
The Volcker Rule's prohibitions impact the ability of U.S. banking entities to provide investment management products and services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other than those specifically permitted for trading.
The final Volcker Rule regulations do provide certain exemptions allowing banking entities to continue underwriting, market-making, and hedging activities and trading certain government obligations, as well as various exemptions and exclusions from the definition of “covered funds”. The level of required compliance activity depends on the size of the banking entity and the extent of its trading. CEOs of larger banking entities, including Huntington, have to attest annually in writing that their organization has in place processes to establish, maintain, enforce, review, test, and modify compliance with the Volcker Rule regulations. Banking entities with significant permitted trading operations will have to report certain quantitative information, beginning between June 30, 2014 and December 31, 2016, depending on the size of the banking entity’s trading assets and liabilities.
On January 14, 2014, the five federal agencies approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of the Volcker Rule. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if certain qualifications are met. In addition, the agencies released a non-exclusive list of issuers that meet the requirements of the interim final rule. At December 31, 2015, we had investments in eight different pools of trust preferred securities. Seven of our pools are included in the list of non-exclusive issuers. We have analyzed the other pool that was not included on the list and believe that we will continue to be able to own this investment under the final Volcker Rule regulations.
There are restrictions on our ability to pay dividends.
Dividends from the Bank to the parent company are the primary source of funds for payment of dividends to our shareholders. However, there are statutory limits on the amount of dividends that the Bank can pay to the holding company. Regulatory approval is required prior to the declaration of any dividends in an amount greater than its undivided profits or if the total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained net income for the two preceding years, less any required transfers to surplus or common stock. The Bank is currently able to pay dividends to the holding company subject to these limitations.
If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. Depending on the financial condition of the Bank, the applicable regulatory authority might deem us to be engaged in an unsafe or unsound practice if the Bank were to pay dividends to the holding company.
The Federal Reserve and the OCC have issued policy statements that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Additionally, the Federal Reserve may prohibit or limit bank holding companies from making capital distributions, including payment of preferred and common dividends, as part of the annual capital plan approval process.
We are subject to the current capital requirements mandated by the Federal Reserve and Basel III capital and liquidity frameworks.
The Federal Reserve sets risk-based capital ratio and leverage ratio guidelines for bank holding companies. Under the guidelines and related policies, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and a leverage ratio test on a consolidated basis. The risk-based ratio is determined by allocating assets and specified off-balance sheet commitments into risk-weighted categories, with higher weighting assigned to categories perceived as representing greater risk. The risk-based ratio represents total capital divided by total risk-weighted assets. The leverage ratio is core capital divided by total assets adjusted as specified in the guidelines. The Bank is subject to substantially similar capital requirements.

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In 2013, the Federal Reserve and the OCC adopted final capital rules implementing Basel III requirements for U.S. Banking organizations. 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. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the final rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets and a capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets and includes a minimum leverage ratio of 4%. These new minimum capital ratios were effective for us on January 1, 2015, and will be fully phased-in on January 1, 2019.
The following are the Basel III regulatory capital levels that we must satisfy to avoid limitations on capital distributions and discretionary bonus payments during the applicable transition period, from January 1, 2015, until January 1, 2019:
 
 
Basel III Regulatory Capital Levels
 
January 1,
2015
 
January 1,
2016
 
January 1,
2017
 
January 1,
2018
 
January 1,
2019
Common equity tier 1 risk-based capital ratio
4.5
%
 
5.125
%
 
5.75
%
 
6.375
%
 
7.0
%
Tier 1 risk-based capital ratio
6.0
%
 
6.625
%
 
7.25
%
 
7.875
%
 
8.5
%
Total risk-based capital ratio
8.0
%
 
8.625
%
 
9.25
%
 
9.875
%
 
10.5
%
The final rule emphasizes CET1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The final rule also improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Banks and regulators use risk weighting to assign different levels of risk to different classes of assets.
Based on the final Basel III rule, banking organizations with more than $15 billion in total consolidated assets are required to phase-out of additional tier 1 capital any non-qualifying capital instruments (such as trust preferred securities and cumulative preferred shares) issued before September 12, 2010. We began the additional tier 1 capital phase-out of our trust preferred securities in 2015, but will be able to include these instruments in tier 2 capital as a non-advanced approaches institution.
Under Basel III, CET1 predominantly includes common stockholders’ equity, less certain deductions for goodwill and other intangible assets net of related taxes, over-funded net pension fund assets, and DTAs that arise from tax loss and credit carryforwards.  We elected to exclude accumulated other comprehensive income from CET1 as permitted in the final rule. Tier 1 capital is predominantly comprised of CET1 as well as perpetual preferred stock and qualifying minority interests.  Total capital predominantly includes tier 1 capital as well as certain long-term debt and allowance for credit losses qualifying for tier 2 capital. The calculations of CET1, tier 1 capital, and tier 2 capital include phase-out periods for certain instruments from January 2015 through December 2017.  The primary items subject to the phase-out from capital for us are other intangible assets, DTAs that arise from tax loss and credit carryforwards, and trust preferred securities.
Risk-weighted assets under the Basel III Standardized Approach are generally based on supervisory risk weightings that vary only by counterparty type and asset class. The revisions to supervisory risk weightings for Basel III enhance risk sensitivity and include alternatives to the use of credit ratings when calculating the risk weight for certain assets. Specifically, Basel III includes a more risk-sensitive treatment for past due and nonaccrual loans, certain commercial loans, MSRs, and certain unfunded commitments.  Basel III also prescribes a new formulaic approach for calculating the risk weight of securitization exposures that is also more risk sensitive.
Failure to meet applicable capital guidelines could subject the financial institution to a variety of enforcement remedies available to the federal regulatory authorities. These include limitations on the ability to pay dividends, the issuance by the regulatory authority of a directive to increase capital, and the termination of deposit insurance by the FDIC. In addition, the financial institution could be subject to the measures described below under Prompt Corrective Action as applicable to under-capitalized institutions.
The risk-based capital standards of the Federal Reserve, the OCC, and the FDIC specify that evaluations by the banking agencies of a bank’s capital adequacy will include an assessment of the exposure to declines in the economic value of a bank’s capital due to changes in interest rates. These banking agencies issued a joint policy statement on interest rate risk describing prudent methods for monitoring such risk that rely principally on internal measures of exposure and active oversight of risk management activities by senior management.

14


FDICIA requires federal banking regulatory authorities to take Prompt Corrective Action with respect to depository institutions that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized.
Throughout 2015, our regulatory capital ratios and those of the Bank were in excess of the levels established for well-capitalized institutions. An institution is deemed to be well-capitalized if it meets or exceeds the well-capitalized minimums listed below, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.
 
 
 
 
 
 
At December 31, 2015
(dollar amounts in billions)
 
 
Well-capitalized minimums
 
Actual
 
Excess
Capital (1)
Ratios:
 
 
 
 
 
 
 
Tier 1 leverage ratio
Consolidated
 
N/A

 
8.79
%
 
N/A

 
Bank
 
5.00
%
 
8.21

 
$
2.2

Common equity tier 1 risk-based capital ratio
Consolidated
 
N/A

 
9.79

 
N/A

 
Bank
 
6.50

 
9.46

 
1.7

Tier 1 risk-based capital ratio
Consolidated
 
6.00

 
10.53

 
2.0

 
Bank
 
8.00

 
9.83

 
0.1

Total risk-based capital ratio
Consolidated
 
10.00

 
12.64

 
1.5

 
Bank
 
10.00

 
11.74

 
1.0

(1)
Amount greater than the well-capitalized minimum percentage.
FDICIA generally prohibits a depository institution from making any capital distribution, including payment of a cash dividend or paying any management fee to its holding company, if the depository institution would become under-capitalized after such payment. Under-capitalized institutions are also subject to growth limitations and are required by the appropriate federal banking agency to submit a capital restoration plan. If any depository institution subsidiary of a holding company is required to submit a capital restoration plan, the holding company would be required to provide a limited guarantee regarding compliance with the plan as a condition of approval of such plan.
Depending upon the severity of the under capitalization, the under-capitalized institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately-capitalized, requirements to reduce total assets, cessation of receipt of deposits from correspondent banks, and restrictions on making any payment of principal or interest on their subordinated debt. Critically under-capitalized institutions are subject to appointment of a receiver or conservator within 90 days of becoming so classified.
Under FDICIA, a well-capitalized bank may accept brokered deposits without prior regulatory approval. A depository institution that is not well-capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. Since the Bank is well-capitalized, the FDICIA brokered deposit rule did not adversely affect its ability to accept brokered deposits. The Bank had $2.9 billion of such brokered deposits at December 31, 2015.
On September 3, 2014, the U.S. banking regulators approved a final rule to implement the U.S. version of the Basel Committee's minimum liquidity coverage ratio (LCR) requirement for banking organizations with total consolidated assets of $250 billion or more, and a less stringent modified LCR requirement to depository institution holding companies below the threshold but with total consolidated assets of $50 billion or more. The LCR requires covered banking organizations to maintain an amount of unencumbered HQLA equal to projected stressed cash outflows over a 30 calendar-day stress scenario. We are covered by the modified LCR requirement and therefore subject to the initial phase-in of the rule beginning in January 2016, with the requirement fully phased-in January 2017. We will also be required to calculate the LCR monthly. The modified LCR is a minimum requirement, and the Federal Reserve can impose additional liquidity requirements as a supervisory matter.
We are required to submit annual resolution plans
As a bank holding company with greater than $50 billion of assets, we are required annually to submit to the Federal Reserve and the FDIC a resolution plan for the rapid and orderly resolution of the Company in the event of material financial distress or failure. If both the Federal Reserve and the FDIC determine that our plan is not credible and the deficiencies are not cured in a timely manner, the Federal Reserve and the FDIC may jointly impose on us more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations.

15


The FDIC separately has adopted a final rule requiring an insured depository institution with $50 billion or more in total assets, such as the Bank, to submit periodically to the FDIC a resolution plan for the resolution of such institution in the event of its failure. The FDIC rule requires each covered institution to provide a resolution plan that should enable the FDIC as receiver to resolve the institution in an orderly manner that enables prompt access of insured deposits; maximizes the return from the failed institution’s assets; and minimizes losses realized by creditors and the Deposit Insurance Fund.
We filed our resolution plans pursuant to each rule in December 2015.
As a bank holding company, we must act as a source of financial and managerial strength to the Bank.
Under the Dodd-Frank Act, a bank holding company must act as a source of financial and managerial strength to each of its subsidiary banks and must commit resources to support each such subsidiary bank. The Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank. It may charge the bank holding company with engaging in unsafe and unsound practices if the bank holding company fails to commit resources to such a subsidiary bank or if it undertakes actions that the Federal Reserve believes might jeopardize the bank holding company’s ability to commit resources to such subsidiary bank.
Any loans by a holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, an appointed bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, the bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations.
Federal law permits the OCC to order the pro-rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank’s capital stock. This statute also provides for the enforcement of any such pro-rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock owned by any assessed shareholder failing to pay the assessment. As the sole shareholder of the Bank, we are subject to such provisions.
Moreover, the claims of a receiver of an insured depository institution for administrative expenses and the claims of holders of deposit liabilities of such an institution are accorded priority over the claims of general unsecured creditors of such an institution, including the holders of the institution’s note obligations, in the event of liquidation or other resolution of such institution. Claims of a receiver for administrative expenses and claims of holders of deposit liabilities of the Bank, including the FDIC as the insurer of such holders, would receive priority over the holders of notes and other senior debt of the Bank in the event of liquidation or other resolution and over our interests as sole shareholder of the Bank.
Transactions between the Bank and its affiliates are restricted.
Federal banking law and regulation imposes qualitative standards and quantitative limitations upon certain transactions by a bank with its affiliates, including the bank’s bank holding company and certain companies the bank holding company may be deemed to control for these purposes. Transactions covered by these provisions must be on arm’s-length terms, and cannot exceed certain amounts which are determined with reference to the bank’s regulatory capital. Moreover, if the transaction is a loan or other extension of credit, it must be secured by collateral in an amount and quality expressly prescribed by statute, and if the affiliate is unable to pledge sufficient collateral, the bank holding company may be required to provide it.
Provisions added by the Dodd-Frank Act expanded the scope of (i) the definition of affiliate to include any investment fund having any bank or BHC-affiliated company as an investment advisor, (ii) credit exposures subject to the prohibition on the acceptance of low-quality assets or securities issued by an affiliate as collateral, the quantitative limits, and the collateralization requirements to now include credit exposures arising out of derivative, repurchase agreement, and securities lending/borrowing transactions, and (iii) transactions subject to quantitative limits to now also include credit collateralized by affiliate-issued debt obligations that are not securities. In addition, these provisions require that a credit extension to an affiliate remain secured in accordance with the collateral requirements at all times that it is outstanding, rather than the previous requirement of only at the inception or upon material modification of the transaction. They also raise significantly the procedural and substantive hurdles required to obtain a regulatory exemption from the affiliate transaction requirements. While these provisions became effective on July 21, 2012, the Federal Reserve has not yet issued a proposed rule to implement them.
As a financial holding company, we are subject to additional laws and regulations.
As a financial holding company we are permitted to engage in, and affiliate with financial companies engaging in, a broader range of activities than would otherwise be permitted for a bank holding company. In order to maintain our status as a financial holding company, we and the Bank must each remain “well-capitalized” and “well-managed.” In addition, the Bank must receive

16


a Community Reinvestment Act ("CRA") rating of at least “Satisfactory” at its most recent examination for us to engage in the full range of activities permissible for financial holding companies. Pursuant to CRA, the OCC examines the Bank to assess the Bank’s record in meeting the credit needs of the communities served by the Bank and assigns a rating based on that assessment. The CRA assessment and rating is reviewed by the Federal Reserve in evaluating a variety of applications including to merge or consolidate with or acquire the assets or assume the liabilities of other institutions, or to open or relocate a branch office.
Financial holding company powers relate to financial activities that are specified in the Bank Holding Company Act or determined by the Federal Reserve, in coordination with the Secretary of the Treasury, to be financial in nature, incidental to an activity that is financial in nature, or complementary to a financial activity, provided that the complementary activity does not pose a safety and soundness risk. In addition, we are required by the Bank Holding Company Act to obtain Federal Reserve approval prior to acquiring, directly or indirectly, ownership or control of voting shares of any bank, if, after such acquisition, we would own or control more than 5% of its voting stock. Furthermore, the Dodd-Frank Act added a new provision to the Bank Holding Company Act, which requires bank holding companies with total consolidated assets equal to or greater than $50 billion to obtain prior approval from the Federal Reserve to acquire a nondepository company having total consolidated assets of $10 billion or more.
We also must comply with anti-money laundering and customer privacy regulations, as well as corporate governance, accounting, and reporting requirements.
The USA Patriot Act of 2001 and its related regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. The Financial Crimes Enforcement Network has proposed a rule for those same entities, and, if adopted, the proposal will prescribe customer due diligence requirements, including a new regulatory mandate to identify the beneficial owners of legal entities which are customers.
Pursuant to Title V of the Gramm-Leach-Bliley Act, we, like all other financial institutions, are required to:
provide notice to our customers regarding privacy policies and practices,
inform our customers regarding the conditions under which their nonpublic personal information may be disclosed to nonaffiliated third parties, and
give our customers an option to prevent certain disclosure of such information to nonaffiliated third parties.
The Sarbanes-Oxley Act of 2002 imposed new or revised corporate governance, accounting, and reporting requirements on us. In addition to a requirement that chief executive officers and chief financial officers certify financial statements in writing, the statute imposed requirements affecting, among other matters, the composition and activities of audit committees, disclosures relating to corporate insiders and insider transactions, code of ethics, and the effectiveness of internal controls over financial reporting.
The Federal Reserve, jointly with the OCC and FDIC, has issued guidance to ensure that incentive compensation arrangements at financial institutions take into account risk and are consistent with safe and sound practices. In addition, the federal financial regulators issued a proposed rule in April 2011 pursuant to the Dodd-Frank Act to adopt standards for determining whether an incentive-based compensation arrangement may encourage inappropriate risk-taking that are consistent with the key principles established for incentive compensation in the guidance. The proposed rule would apply to financial institutions with $1 billion or more in assets, with heightened standards for financial institutions with $50 billion or more in assets. The guidance from the regulators on compensation is still evolving.
Available Information
This information may be read and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet web site that contains reports, proxy statements, and other information about issuers, like us, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by us with the SEC are also available free of charge at our Internet web site. The address of the site is http://www.huntington.com. Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those web sites is not part of this report. You also should be able to inspect reports, proxy statements, and other information about us at the offices of the NASDAQ National Market at 33 Whitehall Street, New York, New York.


17


Item 1A: Risk Factors
Risk Governance
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. This does not preclude engagement in select higher risk activities. Rather, the definition is intended to represent an aggregate view of where we want our overall risk to be managed.
Three board committees primarily oversee implementation of this desired risk appetite and monitoring of our risk profile:
The Audit Committee oversees the integrity of the consolidated financial statements, including policies, procedures, and practices regarding the preparation of financial statements, the financial reporting process, disclosures, and internal control over financial reporting. The Audit Committee also provides assistance to the board in overseeing the internal audit division and the independent registered public accounting firm’s qualifications and independence; compliance with our Financial Code of Ethics for the chief executive officer and senior financial officers; and compliance with corporate securities trading policies.
The Risk Oversight Committee assists the board of directors in overseeing management of material risks, the approval and monitoring of the Company’s capital position and plan supporting our overall aggregate moderate-to-low risk profile, the risk governance structure, compliance with applicable laws and regulations, and determining adherence to the board’s stated risk appetite. The committee has oversight responsibility with respect to the full range of inherent risks: market, credit, liquidity, legal, compliance/regulatory, operational, strategic, and reputational. This committee also oversees our capital management and planning process, ensures that the amount and quality of capital are adequate in relation to expected and unexpected risks, and that our capital levels exceed “well-capitalized” requirements.
The Technology Committee assists the board of directors in fulfilling its oversight responsibilities with respect to all technology, cyber security, and third-party risk management strategies and plans. The committee is charged with evaluating Huntington’s capability to properly perform all technology functions necessary for its business plan, including projected growth, technology capacity, planning, operational execution, product development, and management capacity. The committee provides oversight of the technology segment investments and plans to drive efficiency as well as to meet defined standards for risk, security, and redundancy. The Committee oversees the allocation of technology costs and ensures that they are understood by the board of directors. The Technology Committee monitors and evaluates innovation and technology trends that may affect the Company’s strategic plans, including monitoring of overall industry trends. The Technology Committee reviews and provides oversight of the company’s continuity and disaster recovery planning and preparedness.
The Audit and Risk Oversight Committees routinely hold executive sessions with our key officers engaged in accounting and risk management. On a periodic basis, the two committees meet in joint session to cover matters relevant to both, such as the construct and appropriateness of the ACL, which is reviewed quarterly. All directors have access to information provided to each committee and all scheduled meetings are open to all directors.
Further, through its Compensation Committee, the board of directors seeks to ensure its system of rewards is risk-sensitive and aligns the interests of management, creditors, and shareholders. We utilize a variety of compensation-related tools to induce appropriate behavior, including common stock ownership thresholds for the chief executive officer and certain members of senior management, a requirement to hold until retirement or exit from the Company, a portion of net shares received upon exercise of stock options or release of restricted stock awards (50% for executive officers and 25% for other award recipients), equity deferrals, recoupment provisions, and the right to terminate compensation plans at any time.
Management has implemented an Enterprise Risk Management and Risk Appetite Framework. Critically important is our self-assessment process, in which each business segment produces an analysis of its risks and the strength of its risk controls. The segment analyses are combined with assessments by our risk management organization of major risk sectors (e.g., credit, market, liquidity, operational, legal, compliance, reputational, and strategic) to produce an overall enterprise risk assessment. Outcomes of the process include a determination of the quality of the overall control process, the direction of risk, and our position compared to the defined risk appetite.
Management also utilizes a wide series of metrics (key risk indicators) to monitor risk positions throughout the Company. In general, a range for each metric is established, which allows the Company, in aggregate, to operate within an aggregate moderate-to-low risk profile. Deviations from the range will indicate if the risk being measured exceeds desired tolerance, which may then necessitate corrective action.
We also have four executive level committees to manage risk: ALCO, Credit Policy and Strategy, Risk Management, and Capital Management. Each committee focuses on specific categories of risk and is supported by a series of subcommittees that are tactical in nature. We believe this structure helps ensure appropriate escalation of issues and overall communication of strategies.

18


Huntington utilizes three lines of defense with regard to risk management: (1) business segments, (2) corporate risk management, and (3) internal audit and credit review. To induce greater ownership of risk within its business segments, segment risk officers have been embedded to identify and monitor risk, elevate and remediate issues, establish controls, perform self-testing, and oversee the self-assessment process. Corporate Risk Management establishes policies, sets operating limits, reviews new or modified products/processes, ensures consistency and quality assurance within the segments, and produces the enterprise risk assessment. The Chief Risk Officer has significant input into the design and outcome of incentive compensation plans as they apply to risk. Internal Audit and Credit Review provide additional assurance that risk-related functions are operating as intended.
Risk Overview
We, like other financial companies, are subject to a number of risks that may adversely affect our financial condition or results of operations, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are:
Credit risk, which is the risk of loss due to loan and lease customers or other counterparties not being able to meet their financial obligations under agreed upon terms;
Market risk, which occurs when fluctuations in interest rates impact earnings and capital. Financial impacts are realized through changes in the interest rates of balance sheet assets and liabilities (net interest margin) or directly through valuation changes of capitalized MSR and/or trading assets (noninterest income);
Liquidity risk, which is the risk to current or anticipated earnings or capital arising from an inability to meet obligations when they come due. Liquidity risk includes the inability to access funding sources or manage fluctuations in funding levels. Liquidity risk also results from the failure to recognize or address changes in market conditions that affect the Bank’s ability to liquidate assets quickly and with minimal loss in value;
Operational and legal risk, which is the risk of loss arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events. Operational losses result from internal fraud; external fraud, inadequate or inappropriate employment practices and workplace safety, failure to meet professional obligations involving customers, products, and business practices, damage to physical assets, business disruption and systems failures, and failures in execution, delivery, and process management.  Legal risk includes, but is not limited to, exposure to orders, fines, penalties, or punitive damages resulting from litigation, as well as regulatory actions; and
Compliance risk, which exposes us to money penalties, enforcement actions or other sanctions as a result of nonconformance with laws, rules, and regulations that apply to the financial services industry.
We also expend considerable effort to contain risk which emanates from execution of our business processes and strategies and work relentlessly to protect the Company’s reputation. Strategic risk and reputational risk do not easily lend themselves to traditional methods of measurement. Rather, we closely monitor them through processes such as new product / initiative reviews, frequent financial performance reviews, colleague and client surveys, monitoring market intelligence, periodic discussions between management and our board, and other such efforts.
In addition to the other information included or incorporated by reference into this report, readers should carefully consider that the following important factors, among others, could negatively impact our business, future results of operations, and future cash flows materially.
Credit Risks:
1. Our ACL level may prove to be inappropriate or be negatively affected by credit risk exposures which could materially adversely affect our net income and capital.
Our business depends on the creditworthiness of our customers. Our ACL of $670 million at December 31, 2015, represented Management’s estimate of probable losses inherent in our loan and lease portfolio as well as our unfunded loan commitments and letters of credit. We periodically review our ACL for appropriateness. In doing so, we consider economic conditions and trends, collateral values, and credit quality indicators, such as past charge-off experience, levels of past due loans, and NPAs. There is no certainty that our ACL will be appropriate over time to cover losses in the portfolio because of unanticipated adverse changes in the economy, market conditions, or events adversely affecting specific customers, industries, or markets. If the credit quality of our customer base materially decreases, if the risk profile of a market, industry, or group of customers changes materially, or if the ACL is not appropriate, our net income and capital could be materially adversely affected, which could have a material adverse effect on our financial condition and results of operations.
In addition, regulatory review of risk ratings and loan and lease losses may impact the level of the ACL and could have a material adverse effect on our financial condition and results of operations.

19


2. Weakness in economic conditions could materially adversely affect our business.
Our performance could be negatively affected to the extent there is deterioration in business and economic conditions which have direct or indirect material adverse impacts on us, our customers, and our counterparties. These conditions could result in one or more of the following:
A decrease in the demand for loans and other products and services offered by us;
A decrease in customer savings generally and in the demand for savings and investment products offered by us; and
An increase in the number of customers and counterparties who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to us.
An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of NPAs, NCOs, provision for credit losses, and valuation adjustments on loans held for sale. The markets we serve are dependent on industrial and manufacturing businesses and, thus, are particularly vulnerable to adverse changes in economic conditions affecting these sectors.
Market Risks:
1. Changes in interest rates could reduce our net interest income, reduce transactional income, and negatively impact the value of our loans, securities, and other assets. This could have a material adverse impact on our cash flows, financial condition, results of operations, and capital.
Our results of operations depend substantially on net interest income, which is the difference between interest earned on interest earning assets (such as investments and loans) and interest paid on interest bearing liabilities (such as deposits and borrowings). Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Conditions such as inflation, deflation, recession, unemployment, money supply, and other factors beyond our control may also affect interest rates. If our interest earning assets mature or reprice faster than interest bearing liabilities in a declining interest rate environment, net interest income could be materially adversely impacted. Likewise, if interest bearing liabilities mature or reprice more quickly than interest earning assets in a rising interest rate environment, net interest income could be adversely impacted. The continuation of the current low interest rate environment or a deflationary environment with negative interest rates could affect consumer and business behavior in ways that are adverse to us and could also constrict our net interest income margin which may restrict our ability to increase net interest income.
Changes in interest rates can affect the value of loans, securities, assets under management, and other assets, including mortgage and nonmortgage servicing rights. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans and leases may lead to an increase in NPAs and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. When we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. However, we continue to incur interest expense as a cost of funding NALs without any corresponding interest income. In addition, transactional income, including trust income, brokerage income, and gain on sales of loans can vary significantly from period-to-period based on a number of factors, including the interest rate environment. A decline in interest rates along with a flattening yield curve limits our ability to reprice deposits given the current historically low level of interest rates and could result in declining net interest margins if longer duration assets reprice faster than deposits.
Rising interest rates reduce the value of our fixed-rate securities and cash flow hedging derivatives portfolio. Any unrealized loss from these portfolios impacts OCI, shareholders’ equity, and the Tangible Common Equity ratio. Any realized loss from these portfolios impacts regulatory capital ratios. In a rising interest rate environment, pension and other post-retirement obligations somewhat mitigate negative OCI impacts from securities and financial instruments. For more information, refer to “Market Risk” of the MD&A.
Certain investment securities, notably mortgage-backed securities, are very sensitive to rising and falling rates. Generally, when rates rise, prepayments of principal and interest will decrease and the duration of mortgage-backed securities will increase. Conversely, when rates fall, prepayments of principal and interest will increase and the duration of mortgage-backed securities will decrease. In either case, interest rates have a significant impact on the value of mortgage-backed securities.
The value of our MSR asset is also a function of changes in interest rates and prepayment expectations. Declining interest rates primarily in the longer end of the yield curve reduces the value of the MSR asset.
In addition to volatility associated with interest rates, the Company also has exposure to equity markets related to the investments within the benefit plans and other income from client based transactions.

20


2. Industry competition may have an adverse effect on our success.
Our profitability depends on our ability to compete successfully. We operate in a highly competitive environment, and we expect competition to intensify due in part to the sustained low interest rate and ongoing low-growth economic environment. Certain of our competitors are larger and have more resources than we do, enabling them to be more aggressive than us in competing for loans and deposits. In our market areas, we face competition from other banks and financial service companies that offer similar services. Some of our non-bank competitors are not subject to the same extensive regulations we are and, therefore, may have greater flexibility in competing for business. Our ability to compete successfully depends on a number of factors, including customer convenience, quality of service by investing in new products and services, personal contacts, pricing, and range of products. If we are unable to successfully compete for new customers and retain our current customers, our business, financial condition, or results of operations may be adversely affected. In particular, if we experience an outflow of deposits as a result of our customers seeking investments with higher yields or greater financial stability, or a desire to do business with our competitors, we may be forced to rely more heavily on borrowings and other sources of funding to operate our business and meet withdrawal demands, thereby adversely affecting our net interest margin.  For more information, refer to “Competition” section of Item 1: Business.
Liquidity Risks:
1. Changes in either Huntington’s financial condition or in the general banking industry could result in a loss of depositor confidence.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The Bank uses its liquidity to extend credit and to repay liabilities as they become due or as demanded by customers. The board of directors establishes liquidity policies and limits and management establishes operating guidelines for liquidity.
Our primary source of liquidity is our large supply of deposits from consumer and commercial customers. The continued availability of this supply depends on customer willingness to maintain deposit balances with banks in general and us in particular. The availability of deposits can also be impacted by regulatory changes (e.g. changes in FDIC insurance, the Liquidity Coverage Ratio, etc.), and other events which can impact the perceived safety or economic benefits of bank deposits. While we make significant efforts to consider and plan for hypothetical disruptions in our deposit funding, market related, geopolitical, or other events could impact the liquidity derived from deposits.
2. If we lose access to capital markets, we may not be able to meet the cash flow requirements of our depositors, creditors, and borrowers, or have the operating cash needed to fund corporate expansion and other corporate activities.
Wholesale funding sources include securitization, federal funds purchased, securities sold under repurchase agreements, non-core deposits, and long-term debt. The Bank is also a member of the Federal Home Loan Bank of Cincinnati, which provides members access to funding through advances collateralized with mortgage-related assets. We maintain a portfolio of highly-rated, marketable securities that is available as a source of liquidity.
Capital markets disruptions can directly impact the liquidity of the Bank and Corporation. The inability to access capital markets funding sources as needed could adversely impact our financial condition, results of operations, cash flows, and level of regulatory-qualifying capital. We may, from time-to-time, consider using our existing liquidity position to opportunistically retire outstanding securities in privately negotiated or open market transactions.
Operational and Legal Risks:
1. We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.
Our computer systems and network infrastructure are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions, including us. None of these events against us resulted in a breach of our client data or account information; however, the performance of our website, www.huntington.com, was adversely affected, and in some instances customers were prevented from accessing our website. We expect to be subject to similar attacks in the future. While events to date primarily resulted in inconvenience, future cyber-attacks could be more disruptive and damaging. Hacking and identity theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

21


Despite efforts to ensure the integrity of our systems, we may not be able to anticipate all security breaches of these types, nor may we be able to implement guaranteed preventive measures against such security breaches. Persistent attackers may succeed in penetrating defenses given enough resources, time and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments. These risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications.
Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and "spear phishing" attacks are becoming more sophisticated and are extremely difficult to prevent. The successful social engineer will attempt to fraudulently induce colleagues, customers or other users of our systems to disclose sensitive information in order to gain access to its data or that of its clients.
A successful penetration or circumvention of system security could cause us serious negative consequences, including significant disruption of operations, misappropriation of confidential information, or damage to our computers or systems or those of our customers and counterparties. A successful security breach could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on the Company.
2. The resolution of significant pending litigation, if unfavorable, could have a material adverse effect on our results of operations for a particular period.
We face legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. Substantial legal liability against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. It is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular reporting period.
Note 20 of the Notes to Consolidated Financial Statements updates the status of certain material litigation including litigation related to the bankruptcy of Cyberco Holdings, Inc.
3. We face significant operational risks which could lead to financial loss, expensive litigation, and loss of confidence by our customers, regulators, and capital markets.
We are exposed to many types of operational risks, including the risk of fraud or theft by colleagues or outsiders, unauthorized transactions by colleagues or outsiders, operational errors by colleagues, business disruption, and system failures. Huntington executes against a significant number of controls, a large percent of which are manual and dependent on adequate execution by colleagues and third-party service providers. There is inherent risk that unknown single points of failure through the execution chain could give rise to material loss through inadvertent errors or malicious attack. These operational risks could lead to financial loss, expensive litigation, and loss of confidence by our customers, regulators, and the capital markets.
Moreover, negative public opinion can result from our actual or alleged conduct in any number of activities, including clients, products and business practices; corporate governance; acquisitions; and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to attract and retain customers and can also expose us to litigation and regulatory action.
Relative to acquisitions, we incur risks and challenges associated with the integration of acquired businesses and institutions in a timely and efficient manner, and we cannot guarantee that we will be successful in retaining existing customer relationships or achieving anticipated operating efficiencies expected from such acquisitions (including our pending acquisition of FirstMerit Corporation).  Acquisitions may be subject to, and our pending acquisition of FirstMerit Corporation is subject to, the receipt of approvals from certain governmental authorities, including the Federal Reserve, the OCC, and the United States Department of Justice, as well as the approval of our shareholders and the shareholders of companies that we seek to acquire. These approvals for acquisitions may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the acquisitions. Subject to requisite regulatory approvals, future business acquisitions may result in the issuance and payment of additional shares of stock, which would dilute current shareholders’ ownership interests.  Additionally, acquisitions may also involve the payment of a premium over book and market values. Therefore, dilution of our tangible book value and net income per common share could occur in connection with any future transaction.

22


4. Failure to maintain effective internal controls over financial reporting in the future could impair our ability to accurately and timely report our financial results or prevent fraud, resulting in loss of investor confidence and adversely affecting our business and our stock price.
Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. As a financial holding company, we are subject to regulation that focuses on effective internal controls and procedures. Such controls and procedures are modified, supplemented, and changed from time-to-time as necessitated by our growth and in reaction to external events and developments. Any failure to maintain, in the future, an effective internal control environment could impact our ability to report our financial results on an accurate and timely basis, which could result in regulatory actions, loss of investor confidence, and an adverse impact on our business and our stock price.
5. We rely on quantitative models to measure risks and to estimate certain financial values.
Quantitative models may be used to help manage certain aspects of our business and to assist with certain business decisions, including estimating probable loan losses, measuring the fair value of financial instruments when reliable market prices are unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of operations, managing risk, and for capital planning purposes (including during the CCAR capital planning and capital adequacy process). Our measurement methodologies rely on many assumptions, historical analyses, and correlations. These assumptions may not capture or fully incorporate conditions leading to losses, particularly in times of market distress, and the historical correlations on which we rely may no longer be relevant. Additionally, as businesses and markets evolve, our measurements may not accurately reflect this evolution. Even if the underlying assumptions and historical correlations used in our models are adequate, our models may be deficient due to errors in computer code, bad data, misuse of data, or the use of a model for a purpose outside the scope of the model’s design.
All models have certain limitations. Reliance on models presents the risk that our business decisions based on information incorporated from models will be adversely affected due to incorrect, missing, or misleading information. In addition, our models may not capture or fully express the risks we face, may suggest that we have sufficient capitalization when we do not, or may lead us to misjudge the business and economic environment in which we will operate. If our models fail to produce reliable results on an ongoing basis, we may not make appropriate risk management, capital planning, or other business or financial decisions. Strategies that we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable. Also, information that we provide to the public or regulators based on poorly designed models could be inaccurate or misleading.
Banking regulators continue to focus on the models used by banks and bank holding companies in their businesses. Some of our decisions that the regulators evaluate, including distributions to our shareholders, could be affected adversely due to their perception that the quality of the models used to generate the relevant information is insufficient.
6. We rely on third parties to provide key components of our business infrastructure.
We rely on third-party service providers to leverage subject matter expertise and industry best practice, provide enhanced products and services, and reduce costs. Although there are benefits in entering into third-party relationships with vendors and others, there are risks associated with such activities. When entering a third-party relationship, the risks associated with that activity are not passed to the third-party but remain our responsibility. The Technology Committee of the board of directors provides oversight related to the overall risk management process associated with third-party relationships. Management is accountable for the review and evaluation of all new and existing third-party relationships. Management is responsible for ensuring that adequate controls are in place to protect us and our customers from the risks associated with vendor relationships.
Increased risk could occur based on poor planning, oversight, and control and inferior performance or service on the part of the third-party, and may result in legal costs or loss of business. While we have implemented a vendor management program to actively manage the risks associated with the use of third-party service providers, any problems caused by third-party service providers could adversely affect our ability to deliver products and services to our customers and to conduct our business. Replacing a third-party service provider could also take a long period of time and result in increased expenses.
7. Changes in accounting policies, standards, and interpretations could materially affect how we report our financial condition and results of operations.
The FASB, regulatory agencies, and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of our financial statements. Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC, and banking regulators) may change prior interpretations or positions on how these standards should be applied. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. The FASB is currently close to issuing several new accounting standards that will have significant impacts on the banking industry.  Most notably, new guidance on the calculation of credit reserves using expected losses (Current Expected Credit Losses) versus incurred losses is close to being finalized and, upon implementation, could

23


significantly impact our required credit reserves.  Other impacts to capital levels, profit and loss, and various financial metrics will also result.
Compliance Risks:
1. Bank regulations regarding capital and liquidity, including the annual CCAR assessment process and the Basel III capital and liquidity standards, could require higher levels of capital and liquidity. Among other things, these regulations could impact our ability to pay common stock dividends, repurchase common stock, attract cost-effective sources of deposits, or require the retention of higher amounts of low yielding securities.
The Federal Reserve administers the annual CCAR, an assessment of the capital adequacy of bank holding companies with consolidated assets of $50 billion or more and of the practices used by covered banks to assess capital needs. Under CCAR, the Federal Reserve makes a qualitative assessment of capital adequacy on a forward-looking basis and reviews the strength of a bank holding company’s capital adequacy process. The Federal Reserve also makes a quantitative assessment of capital based on supervisory-run stress tests that assess the ability to maintain capital levels above each minimum regulatory capital ratio and above a CET1 ratio of 4.5%, after making all capital actions included in a bank holding company’s capital plan, under baseline and stressful conditions throughout a nine-quarter planning horizon. Capital plans for 2016 are required to be submitted by April 5, 2016, and the Federal Reserve will either object to the capital plan and/or planned capital actions, or provide a notice of non-objection, no later than June 30, 2016. We intend to submit our capital plan to the Federal Reserve on or before April 5, 2016. The Bank also must submit a capital plan to the OCC on or before April 5, 2016. There can be no assurance that the Federal Reserve will respond favorably to our capital plan, capital actions or stress test and the Federal Reserve, OCC, or other regulatory capital requirements may limit or otherwise restrict how we utilize our capital, including common stock dividends and stock repurchases.
In 2013, the Federal Reserve and the OCC adopted final rules to implement the Basel III capital rules for U.S. Banking organizations. The final rules establish an integrated regulatory capital framework and will 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. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. As a Standardized Approach institution, the Basel III minimum capital requirements became effective for us on January 1, 2015, and will be fully phased-in on January 1, 2019.
On September 3, 2014, the U.S. banking regulators approved a final rule to implement a minimum liquidity coverage ratio (LCR) requirement for banking organizations with total consolidated assets of $250 billion or more, and a less stringent modified LCR requirement to depository institution holding companies below the threshold but with total consolidated assets of $50 billion or more. The LCR requires covered banking organizations to maintain HQLA equal to projected stressed cash outflows over a 30 calendar-day stress scenario. We are covered by the modified LCR requirement and therefore subject to the phase-in of the rule beginning January 2016 at 90% and January 2017 at 100%. We will also be required to calculate the LCR monthly. The LCR assigns less severe outflow assumptions to certain types of customer deposits, which should increase the demand, and perhaps the cost, among banks for these deposits. Additionally, the HQLA requirements will increase the demand for direct US government and US government- guaranteed debt that, while high quality, generally carry lower yields than other securities that banks hold in their investment portfolios.
2. If our regulators deem it appropriate, they can take regulatory actions that could result in a material adverse impact on our financial results, ability to compete for new business, or preclude mergers or acquisitions. In addition, regulatory actions could constrain our ability to fund our liquidity needs or pay dividends. Any of these actions could increase the cost of our services.
We are subject to the supervision and regulation of various state and federal regulators, including the OCC, Federal Reserve, FDIC, SEC, CFPB, Financial Industry Regulatory Authority, and various state regulatory agencies. As such, we are subject to a wide variety of laws and regulations, many of which are discussed in the Regulatory Matters section. As part of their supervisory process, which includes periodic examinations and continuous monitoring, the regulators have the authority to impose restrictions or conditions on our activities and the manner in which we manage the organization. Such actions could negatively impact us in a variety of ways, including charging monetary fines, impacting our ability to pay dividends, precluding mergers or acquisitions, limiting our ability to offer certain products or services, or imposing additional capital requirements.
With the addition of the CFPB, our consumer products and services are subject to increasing regulatory oversight and scrutiny with respect to compliance under consumer laws and regulations. We may face a greater number or wider scope of investigations, enforcement actions, and litigation in the future related to consumer practices, thereby increasing costs associated with responding to or defending such actions. In addition, increased regulatory inquiries and investigations, as well as any additional legislative or regulatory developments affecting our consumer businesses, and any required changes to our business operations resulting from these developments, could result in significant loss of revenue, require remuneration to our customers, trigger fines or penalties, limit the products or services we offer, require us to increase our prices and, therefore, reduce demand for our products, impose additional compliance costs on us, cause harm to our reputation, or otherwise adversely affect our consumer businesses.

24


3. Legislative and regulatory actions taken now or in the future that impact the financial industry may materially adversely affect us by increasing our costs, adding complexity in doing business, impeding the efficiency of our internal business processes, negatively impacting the recoverability of certain of our recorded assets, requiring us to increase our regulatory capital, limiting our ability to pursue business opportunities, and otherwise resulting in a material adverse impact on our financial condition, results of operation, liquidity, or stock price.
The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States, establishes the CFPB, and requires the bureau and other federal agencies to implement many new and significant rules and regulations. It is not possible to predict the full extent to which the Dodd-Frank Act, or the resulting rules and regulations in their entirety, will impact our business. Compliance with these new laws and regulations have and will continue to result in additional costs, which could be significant, and may have a material and adverse effect on our results of operations. In addition, if we do not appropriately comply with current or future legislation and regulations that apply to our consumer operations, we may be subject to fines, penalties or judgments, or material regulatory restrictions on our businesses, which could adversely affect operations and, in turn, financial results.
4. We may become subject to more stringent regulatory requirements and activity restrictions if the Federal Reserve and FDIC determine that our resolution plan is not credible.
The Dodd-Frank Act and implementing regulations jointly issued by Federal Reserve and the FDIC require bank holding companies with more than $50 billion in assets to annually submit a resolution plan to the Federal Reserve and the FDIC that, in the event of material financial distress or failure, establish the rapid, orderly resolution of the Company under the U.S. Bankruptcy Code. If the Federal Reserve and the FDIC jointly determine that our 2015 resolution plan is not “credible,” we could become subjected to more stringent capital, leverage or liquidity requirements or restrictions, or restrictions on our growth, activities or operations, and could eventually be required to divest certain assets or operations in ways that could negatively impact its operations and strategy.
5. Our business, financial condition, and results of operations could be adversely affected if we lose our financial holding company status.
In order for us to maintain our status as a financial holding company, we and the Bank must remain “well capitalized,” and “well managed.” If we or our Bank cease to meet the requirements necessary for us to continue to qualify as a financial holding company, the Federal Reserve may impose upon us corrective capital and managerial requirements, and may place limitations on our ability to conduct all of the business activities that we conduct as a financial holding company. If the failure to meet these standards persists, we could be required to divest our Bank, or cease all activities other than those activities that may be conducted by bank holding companies that are not financial holding companies. In addition, our ability to commence or engage in certain activities as a financial holding company will be restricted if the Bank fails to maintain at least a “Satisfactory” rating on its most recent Community Reinvestment Act examination.

Item 1B: Unresolved Staff Comments
None.

Item 2: Properties
Our headquarters, as well as the Bank’s, is located in the Huntington Center, a thirty seven story office building located in Columbus, Ohio. Of the building’s total office space available, we lease approximately 28%. The lease term expires in 2030, with six five-year renewal options for up to 30 years but with no purchase option. The Bank has an indirect minority equity interest of 18.4% in the building.
Our other major properties consist of the following: 
 
 
 
 
 
 
Description
Location
 
Own
 
Lease
13 story office building, located adjacent to the Huntington Center
Columbus, Ohio
 
ü
 
 
12 story office building, located adjacent to the Huntington Center
Columbus, Ohio
 
ü
 
 
3 story office building - the Crosswoods building
Columbus, Ohio
 
 
 
ü
A portion of 200 Public Square Building
Cleveland, Ohio
 
 
 
ü
12 story office building
Youngstown, Ohio
 
ü
 
 
10 story office building
Warren, Ohio
 
 
 
ü
10 story office building
Toledo, Ohio
 
ü
 
 
A portion of the Grant Building
Pittsburgh, Pennsylvania
 
 
 
ü
18 story office building
Charleston, West Virginia
 
 
 
ü
3 story office building
Holland, Michigan
 
 
 
ü
2 building office complex
Troy, Michigan
 
 
 
ü
Data processing and operations center (Easton)
Columbus, Ohio
 
ü
 
 
Data processing and operations center (Northland)
Columbus, Ohio
 
 
 
ü
Data processing and operations center (Parma)
Cleveland, Ohio
 
 
 
ü
8 story office building
Indianapolis, Indiana
 
ü
 
 

Item 3: Legal Proceedings
Information required by this item is set forth in Note 20 of the Notes to Consolidated Financial Statements under the caption "Litigation" and is incorporated into this Item by reference.

25


Item 4: Mine Safety Disclosures
Not applicable.
PART II
Item 5: Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
The common stock of Huntington Bancshares Incorporated is traded on the NASDAQ Stock Market under the symbol “HBAN”. The stock is listed as “HuntgBcshr” or “HuntBanc” in most newspapers. As of January 31, 2016, we had 26,750 shareholders of record.
Information regarding the high and low sale prices of our common stock and cash dividends declared on such shares, as required by this Item, is set forth in Tables 45 and 47 - Selected Quarterly Income Statement Data and is incorporated into this Item by reference. Information regarding restrictions on dividends, as required by this Item, is set forth in Item 1: Business - Regulatory Matters and in Note 21 of the Notes to Consolidated Financial Statements and incorporated into this Item by reference.
The following graph shows the changes, over the five-year period, in the value of $100 invested in (i) shares of Huntington’s Common Stock; (ii) the Standard & Poor’s 500 Stock Index (the “S&P 500 Index”) and (iii) Keefe, Bruyette & Woods Bank Index (the “KBW Bank Index”), for the period December 31, 2010, through December 31, 2015. The KBW Bank Index is a market capitalization-weighted bank stock index published by Keefe, Bruyette & Woods. The index is composed of the largest banking companies and includes all money center banks and regional banks, including Huntington. An investment of $100 on December 31, 2010, and the reinvestment of all dividends, are assumed. The plotted points represent the closing price on the last trading day of the fiscal year indicated.

 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
HBAN
$100
 
$81
 
$97
 
$150
 
$167
 
$180
S&P 500
$100
 
$102
 
$118
 
$157
 
$178
 
$181
KBW Bank Index
$100
 
$77
 
$102
 
$141
 
$154
 
$155
For information regarding securities authorized for issuance under Huntington's equity compensation plans, see Part III, Item 12.
The following table provides information regarding Huntington’s purchases of its Common Stock during the three-month period ended December 31, 2015:

26


 
Period
Total Number
of Shares
Purchased (1)
 
Average
Price Paid
Per Share
 
Maximum Number of Shares (or
Approximate Dollar Value) that
May Yet Be Purchased Under
the Plans or Programs (2)
October 1, 2015 to October 31, 2015
205,067

 
$
10.33

 
$
192,778,303

November 1, 2015 to November 30, 2015
1,710,500

 
11.69

 
172,782,558

December 1, 2015 to December 31, 2015
574,000

 
11.74

 
166,043,798

Total
2,489,567

 
$
11.59

 
$
166,043,798

 
(1)
The reported shares were repurchased pursuant to Huntington’s publicly announced stock repurchase authorization.
(2)
The number shown represents, as of the end of each period, the maximum number of shares (approximate dollar value) of Common Stock that may yet be purchased under publicly announced stock repurchase authorizations.
On March 11, 2015, Huntington announced that the Federal Reserve did not object to the proposed capital actions included in Huntington’s capital plan submitted to the Federal Reserve in January 2015. These actions included a potential repurchase of up to $366 million of common stock from the second quarter of 2015 through the second quarter of 2016. Purchases of common stock may include open market purchases, privately negotiated transactions, and accelerated repurchase programs. Huntington’s board of directors authorized a share repurchase program consistent with Huntington’s capital plan. This program replaced the previously authorized share repurchase program authorized by Huntington’s board of directors in 2014.
On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction. The transaction is expected to be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Huntington and FirstMerit Corporation. As a result, Huntington no longer has the intent to repurchase shares under the current authorization.

27



 
Item 6: Selected Financial Data
 
 
 
 
 
 
 
 
 
 
Table 1 - Selected Financial Data (1)
(dollar amounts in thousands, except per share amounts)
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Interest income
$
2,114,521

 
$
1,976,462

 
$
1,860,637

 
$
1,930,263

 
$
1,970,226

Interest expense
163,784

 
139,321

 
156,029

 
219,739

 
341,056

Net interest income
1,950,737

 
1,837,141

 
1,704,608

 
1,710,524

 
1,629,170

Provision for credit losses
99,954

 
80,989

 
90,045

 
147,388

 
174,059

Net interest income after provision for credit losses
1,850,783

 
1,756,152

 
1,614,563

 
1,563,136

 
1,455,111

Noninterest income
1,038,730

 
979,179

 
1,012,196

 
1,106,321

 
992,317

Noninterest expense
1,975,908

 
1,882,346

 
1,758,003

 
1,835,876

 
1,728,500

Income before income taxes
913,605

 
852,985

 
868,756

 
833,581

 
718,928

Provision for income taxes
220,648

 
220,593

 
227,474

 
202,291

 
172,555

Net income
692,957

 
632,392

 
641,282

 
631,290

 
546,373

Dividends on preferred shares
31,873

 
31,854

 
31,869

 
31,989

 
30,813

Net income applicable to common shares
$
661,084

 
$
600,538

 
$
609,413

 
$
599,301

 
$
515,560

Net income per common share—basic
$
0.82

 
$
0.73

 
$
0.73

 
$
0.70

 
$
0.60

Net income per common share—diluted
0.81

 
0.72

 
0.72

 
0.69

 
0.59

Cash dividends declared per common share
0.25

 
0.21

 
0.19

 
0.16

 
0.10

Balance sheet highlights
 
 
 
 
 
 
 
 
 
Total assets (period end)
$
71,044,551

 
$
66,298,010

 
$
59,467,174

 
$
56,141,474

 
$
54,448,673

Total long-term debt (period end)
7,067,614

 
4,335,962

 
2,458,272

 
1,364,834

 
2,747,857

Total shareholders’ equity (period end)
6,594,606

 
6,328,170

 
6,090,153

 
5,778,500

 
5,416,121

Average total assets
68,580,526

 
62,498,880

 
56,299,313

 
55,673,599

 
53,750,054

Average total long-term debt
5,605,960

 
3,494,987

 
1,670,502

 
1,986,612

 
3,182,899

Average total shareholders’ equity
6,536,018

 
6,269,884

 
5,914,914

 
5,671,455

 
5,237,541

Key ratios and statistics
 
 
 
 
 
 
 
 
 
Margin analysis—as a % of average earnings assets
 
 
 
 
 
 
 
 
 
Interest income(2)
3.41
%
 
3.47
%
 
3.66
%
 
3.85
%
 
4.09
%
Interest expense
0.26

 
0.24

 
0.30

 
0.44

 
0.71

Net interest margin(2)
3.15
%
 
3.23
%
 
3.36
%
 
3.41
%
 
3.38
%
Return on average total assets
1.01
%
 
1.01
%
 
1.14
%
 
1.13
%
 
1.02
%
Return on average common shareholders’ equity
10.7

 
10.2

 
11.0

 
11.3

 
10.6

Return on average tangible common shareholders’ equity(3), (7)
12.4

 
11.8

 
12.7

 
13.3

 
12.8

Efficiency ratio(4)
64.5

 
65.1

 
62.6

 
63.2

 
63.5

Dividend payout ratio
30.5

 
28.8


26.0


22.9


16.7

Average shareholders’ equity to average assets
9.53

 
10.03

 
10.51

 
10.19

 
9.74

Effective tax rate
24.2

 
25.9

 
26.2

 
24.3

 
24.0

Non-regulatory capital
 
 
 
 
 
 
 
 
 
Tangible common equity to tangible assets (period end) (5), (7)
7.81

 
8.17

 
8.82

 
8.74

 
8.30

Tangible equity to tangible assets (period end)(6), (7)
8.36

 
8.76

 
9.47

 
9.44

 
9.01

Tier 1 common risk-based capital ratio (period end)(7), (8)
N.A.

 
10.23

 
10.90

 
10.48

 
10.00

Tier 1 leverage ratio (period end)(9), (10)
N.A.

 
9.74

 
10.67

 
10.36

 
10.28

Tier 1 risk-based capital ratio (period end)(9), (10)
N.A.

 
11.50

 
12.28

 
12.02

 
12.11

Total risk-based capital ratio (period end)(9), (10)
N.A.

 
13.56

 
14.57

 
14.50

 
14.77

Capital under current regulatory standards (Basel III)
 
 
 
 
 
 
 
 
 
Common equity tier 1 risk-based capital ratio
9.79

 
N.A.

 
N.A.

 
N.A.

 
N.A.

Tier 1 leverage ratio (period end)
8.79

 
N.A.

 
N.A.

 
N.A.

 
N.A.

Tier 1 risk-based capital ratio (period end)
10.53

 
N.A.

 
N.A.

 
N.A.

 
N.A.

Total risk-based capital ratio (period end)
12.64

 
N.A.

 
N.A.

 
N.A.

 
N.A.

Other data
 
 
 
 
 
 
 
 
 
Full-time equivalent employees (average)
12,243

 
11,873

 
11,964

 
11,494

 
11,398

Domestic banking offices (period end)
777

 
729

 
711

 
705

 
668


28


(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)
On an FTE basis assuming a 35% tax rate.
(3)
Net income applicable to common shares excluding expense for amortization of intangibles for the period divided by average tangible shareholders’ equity. Average tangible shareholders’ equity equals average total 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.
(4)
Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest income excluding securities gains.
(5)
Tangible common equity (total common equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax and calculated assuming a 35% tax rate.
(6)
Tangible equity (total equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax and calculated assuming a 35% tax rate.
(7)
Tier 1 common equity, tangible equity, tangible common equity, and tangible assets are non-GAAP financial measures. Additionally, any ratios utilizing these financial measures are also non-GAAP. These financial measures have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength. Other companies may calculate these financial measures differently.
(8)
In accordance with applicable regulatory reporting guidance, we are not required to retrospectively update historical filings for newly adopted accounting principles. Therefore, tier 1 capital, tier 1 common equity, and risk-weighted assets have not been updated for the adoption of ASU 2014-01.
(9)
In accordance with applicable regulatory reporting guidance, we are not required to retrospectively update historical filings for newly adopted accounting principles. Therefore, regulatory capital data has not been updated for the adoption of ASU 2014-01.
(10)
Ratios are calculated on the Basel I basis.
N.A.
On January 1, 2015, we became subject to the Basel III capital requirements and the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule.

29


Item 7: 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 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, insurance service programs, and other financial products and services. Our 777 branches and private client group offices 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. 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 should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements, and other information contained in this report. The forward-looking statements in this section and other parts of this report involve assumptions, risks, uncertainties, and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as result of factors set forth under the caption "Forward-Looking Statements" and those set forth in Item 1A.
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.
Results for the Fourth Quarter – Provides a discussion of results for the 2015 fourth quarter compared with the 2014 fourth quarter.
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
2015 Financial Performance Review
In 2015, we reported net income of $693 million, or a 10% increase from the prior year. Earnings per common share for the year were $0.81, up 13% from the prior year. This resulted in a 1.01% return on average assets and a 12.4% return on average tangible common equity. In addition, we grew our base of consumer and business customers as we increased 2015 average earning assets by $5.3 billion, or 9%, over the prior year. Our strategic business investments and OCR sales approach continued to generate positive results in 2015. (Also, see Significant Items Influencing Financial Performance Comparisons within the Discussion of Results of Operations.)
Fully-taxable equivalent net interest income was $2.0 billion in 2015, an increase of $118 million, or 6%, compared with 2014. This reflected the impact of 9% earning asset growth, 7% interest-bearing liability growth, and an 8 basis point decrease in the NIM to 3.15%. The earning asset growth reflected a $3.2 billion, or 7%, increase in average loans and leases and a $1.8 billion, or 15%, increase in average securities. The increase in average loans and leases primarily reflected growth in C&I related to the acquisition of Huntington Technology Finance and automobile loans, as originations remained strong. The increase in average securities primarily reflected the additional investment in LCR Level 1 qualifying securities and the ongoing origination of direct purchase municipal instruments. The increase in interest-bearing liabilities primarily reflected growth in money market deposits related to continued

30


banker focus across all segments on obtaining our customers' full deposit relationship, an increase in total debt related to the issuance of bank-level senior debt during 2015, and an increase in brokered deposits and negotiated CDs, which were used to efficiently finance balance sheet growth while continuing to manage the overall cost of funds. This was partially offset by a decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to low and no cost demand deposits and money market deposits. The NIM contraction reflected a 6 basis point decrease related to the mix and yield of earning assets and a 3 basis point increase in funding costs, partially offset by the 1 basis point increase in the benefit to the margin from the impact of noninterest-bearing funds.
Overall asset quality remains strong, with modest volatility based on the absolute low level of problem credits. The provision for credit losses was $100 million in 2015, an increase of $19 million, or 23%, compared with 2014. NALs increased $71 million, or 24%, from the prior year to $372 million, or 0.74% of total loans and leases. The increase was centered in the Commercial portfolio and was comprised of several large oil and gas exploration and production relationships. NPAs increased $61 million, or 18%, from the prior year to $399 million, or 0.79% of total loans and leases and net OREO. NCOs decreased $37 million, or 30%, from the prior year to $88 million. NCOs represented an annualized 0.18% of average loans and leases in the current year compared to 0.27% in 2014. We continue to be pleased with the net charge-off performance across the entire portfolio, as we remain below our targeted range. Overall consumer credit metrics, led by the Home Equity portfolio, continue to show an improving trend, while the commercial portfolios continue to experience some quarter-to-quarter volatility based on the absolute low level of problem loans. ACL as a percentage of total loans and leases decreased to 1.33% from 1.40% a year ago, while the ACL as a percentage of period-end total NALs decreased to 180% from 222%. Management believes the level of the ACL is appropriate given the current composition of the overall loan and lease portfolio.
Noninterest income was $1.0 billion in 2015, an increase of $60 million, or 6%, compared with 2014. This reflected an increase in cards and payment processing income, mortgage banking income, and gain on sale of loans. Cards and payment processing income increased due to higher card related income and underlying customer growth. The increase in mortgage banking income was primarily driven by a $33 million, or 58%, increase in origination and secondary marketing revenue. Gain on sale of loans increased due to an automobile loan securitization during 2015. These increases were partially offset by a decrease in securities gains and trust services. In 2014, we adjusted the mix of our securities portfolio to prepare for the LCR requirements, which resulted in securities gains. The decrease in trust services primarily related to our fiduciary trust businesses moving to a more open architecture platform and a decline in assets under management in proprietary mutual funds. During the 2015 fourth quarter, Huntington sold HAA, HASI, and Unified.
Noninterest expense was $2.0 billion in 2015, an increase of $94 million, or 5%, compared with 2014. This reflected an increase in personnel costs, other expense, and outside data processing and other services. Personnel costs increased primarily due to an increase in salaries related to annual merit increases, the addition of Huntington Technology Finance, and a 3% increase in the number of average full-time equivalent employees, largely related to the build-out of the in-store strategy. Other noninterest expense increased due to an increase in operating lease expense related to Huntington Technology Finance. Outside data processing and other services increased, primarily reflecting higher debit and credit card processing costs and increased other technology investment expense, as we continue to invest in technology supporting our products, services, and our Continuous Improvement initiatives. These increases were partially offset by a decrease in amortization of intangibles reflecting the full amortization of the core deposit intangible from the Sky Financial acquisition.
The tangible common equity to tangible assets ratio at December 31, 2015, was 7.81%, down 36 basis points from a year ago. On a Basel III basis, the regulatory CET1 risk-based capital ratio was 9.79% at December 31, 2015, and the regulatory tier 1 risk-based capital ratio was 10.53%. On a Basel I basis, the tier 1 common risk-based capital ratio was 10.23% at December 31, 2014, and the regulatory tier 1 risk-based capital ratio was 11.50%. All capital ratios were impacted by the repurchase of 23.0 million common shares over the last four quarters. During the 2015 fourth quarter, the Company repurchased 2.5 million common shares at an average price of $11.59 per share under the $366 million repurchase authorization included in the 2015 CCAR capital plan.
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 (5) maintain capital and liquidity positions consistent with our risk appetite.
We are pleased with our 2015 performance. We delivered full-year revenue growth, disciplined expense control, strong net income, and EPS growth for our shareholders. Our consistent execution of disciplined lending and investment within a risk-balanced environment continues to pay off. We also took proactive steps to better position the Company moving into 2016 by investing in key growth drivers, such as technology and our in-store strategy, while exiting some non-core businesses. Furthermore, the finalization of our in-store branch expansion is also visibly supporting our deposit and loan growth.

31


Economy
Our small and medium sized commercial customers continue to express confidence in their businesses, while consumers continue to benefit from recovering real estate markets, low energy prices, and early signs of wage inflation in certain markets. The auto industry is an important component of the economy in our footprint, and it appears poised for another good year in 2016. Other industries that contribute meaningfully to the regional economy, such as health care, medical devices and medical technology, and higher education, among others, also remain positive. Conversely, the low energy prices have negatively impacted certain sectors of the energy industry, including oil exploration and production firms.
The state leading economic indices, as reported by the Federal Reserve Bank of Philadelphia for our six state footprint, are all projected to be positive over the next six months, including West Virginia, which had been hard hit of late from the impact of declining coal prices.
Unemployment rates in our footprint states continue to trend positively and most remain in line with or better than the national average. There is also a positive trend for our ten largest deposit markets, which collectively account for more than 80% of our total deposit franchise. Almost all of these markets continue to trend favorably, and seven of the ten markets currently have unemployment rates below the national average.
Legislative and Regulatory
A comprehensive discussion of legislative and regulatory matters affecting us can be found in the Regulatory Matters section included in Item 1 of this Form 10-K.
2016 Expectations
We are well positioned starting the new year. We continue to budget for unchanged interest rates through 2016. We will continue to execute our core strategies to deepen and grow customer relationships while carefully managing expenses to stay on course for 2016 performance.
Excluding Significant Items and net MSR activity, we expect full-year revenue growth will be consistent with our long-term financial goal of 4-6%. While continuing to proactively invest in the franchise, we will manage the expense base to reflect the revenue environment.
Overall, asset quality metrics are expected to remain near current levels, although moderate quarterly volatility also is expected, given the quickly evolving macroeconomic conditions, commodities, and currency market volatility. Although we expect a gradual return to normalized credit costs, we anticipate NCOs will remain below our long-term normalized range of 35 to 55 basis points.
The effective tax rate for 2016 is expected to be in the range of 25% to 28%.
Pending Acquisition of FirstMerit Corporation
On January 26, 2016, Huntington announced the signing of a definitive merger agreement under which Ohio-based FirstMerit Corporation, the parent company of FirstMerit Bank, will merge into Huntington in a stock and cash transaction expected to be valued at approximately $3.4 billion based on the closing stock price on the day preceding the announcement. FirstMerit Corporation is a diversified financial services company headquartered in Akron, Ohio, which reported assets of approximately $25.5 billion based on their December 31, 2015 unaudited balance sheet, and 366 banking offices and 400 ATM locations in Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania. First Merit Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations. Principal affiliates include: FirstMerit Bank, N.A. and First Merit Mortgage Corporation.
Under the terms of the agreement, shareholders of FirstMerit Corporation will receive 1.72 shares of Huntington common stock and $5.00 in cash for each share of FirstMerit Corporation common stock. The transaction is expected to be completed in the 2016 third quarter, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Huntington and FirstMerit Corporation. 


32



Table 2 - Selected Annual Income Statements(1)
(dollar amounts in thousands, except per share amounts)
 
Year Ended December 31,
 
 
 
Change from 2014
 
 
 
Change from 2013
 
 
 
2015
 
Amount
 
Percent
 
2014
 
Amount
 
Percent
 
2013
Interest income
$
2,114,521

 
$
138,059

 
7
 %
 
$
1,976,462

 
$
115,825

 
6
 %
 
$
1,860,637

Interest expense
163,784

 
24,463

 
18

 
139,321

 
(16,708
)
 
(11
)
 
156,029

Net interest income
1,950,737

 
113,596

 
6

 
1,837,141

 
132,533

 
8

 
1,704,608

Provision for credit losses
99,954

 
18,965

 
23

 
80,989

 
(9,056
)
 
(10
)
 
90,045

Net interest income after provision for credit losses
1,850,783

 
94,631

 
5

 
1,756,152

 
141,589

 
9

 
1,614,563

Service charges on deposit accounts
280,349

 
6,608

 
2

 
273,741

 
1,939

 
1

 
271,802

Cards and payment processing income
142,715

 
37,314

 
35

 
105,401

 
12,810

 
14

 
92,591

Mortgage banking income
111,853

 
26,966

 
32

 
84,887

 
(41,968
)
 
(33
)
 
126,855

Trust services
105,833

 
(10,139
)
 
(9
)
 
115,972

 
(7,035
)
 
(6
)
 
123,007

Insurance income
65,264

 
(209
)
 

 
65,473

 
(3,791
)
 
(5
)
 
69,264

Brokerage income
60,205

 
(8,072
)
 
(12
)
 
68,277

 
(1,347
)
 
(2
)
 
69,624

Capital markets fees
53,616

 
9,885

 
23

 
43,731

 
(1,489
)
 
(3
)
 
45,220

Bank owned life insurance income
52,400

 
(4,648
)
 
(8
)
 
57,048

 
629

 
1

 
56,419

Gain on sale of loans
33,037

 
11,946

 
57

 
21,091

 
2,920

 
16

 
18,171

Securities gains (losses)
744

 
(16,810
)
 
(96
)
 
17,554

 
17,136

 
4,100

 
418

Other income
132,714

 
6,710

 
5

 
126,004

 
(12,821
)
 
(9
)
 
138,825

Total noninterest income
1,038,730

 
59,551

 
6

 
979,179

 
(33,017
)
 
(3
)
 
1,012,196

Personnel costs
1,122,182

 
73,407

 
7

 
1,048,775

 
47,138

 
5

 
1,001,637

Outside data processing and other services
231,353

 
18,767

 
9

 
212,586

 
13,039

 
7

 
199,547

Equipment
124,957

 
5,294

 
4

 
119,663

 
12,870

 
12

 
106,793

Net occupancy
121,881

 
(6,195
)
 
(5
)
 
128,076

 
2,732

 
2

 
125,344

Marketing
52,213

 
1,653

 
3

 
50,560

 
(625
)
 
(1
)
 
51,185

Professional services
50,291

 
(9,264
)
 
(16
)
 
59,555

 
18,968

 
47

 
40,587

Deposit and other insurance expense
44,609

 
(4,435
)
 
(9
)
 
49,044

 
(1,117
)
 
(2
)
 
50,161

Amortization of intangibles
27,867

 
(11,410
)
 
(29
)
 
39,277

 
(2,087
)
 
(5
)
 
41,364

Other expense
200,555

 
25,745

 
15

 
174,810

 
33,425

 
24

 
141,385

Total noninterest expense
1,975,908

 
93,562

 
5

 
1,882,346

 
124,343

 
7

 
1,758,003

Income before income taxes
913,605

 
60,620

 
7

 
852,985

 
(15,771
)
 
(2
)
 
868,756

Provision for income taxes
220,648

 
55

 

 
220,593

 
(6,881
)
 
(3
)
 
227,474

Net income
692,957

 
60,565

 
10

 
632,392

 
(8,890
)
 
(1
)
 
641,282

Dividends on preferred shares
31,873

 
19

 

 
31,854

 
(15
)
 

 
31,869

Net income applicable to common shares
$
661,084

 
$
60,546

 
10
 %
 
$
600,538

 
$
(8,875
)
 
(1
)%
 
$
609,413

Average common shares—basic
803,412

 
(16,505
)
 
(2
)%
 
819,917

 
(14,288
)
 
(2
)%
 
834,205

Average common shares—diluted
817,129

 
(15,952
)
 
(2
)
 
833,081

 
(10,893
)
 
(1
)
 
843,974

Per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income—basic
$
0.82

 
$
0.09

 
12
 %
 
$
0.73

 
$

 
 %
 
$
0.73

Net income—diluted
0.81

 
0.09

 
13

 
0.72

 

 

 
0.72

Cash dividends declared
0.25

 
0.04

 
19

 
0.21

 
0.02

 
11

 
0.19

Revenue—FTE
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
1,950,737

 
$
113,596

 
6
 %
 
$
1,837,141

 
$
132,533

 
8
 %
 
$
1,704,608

FTE adjustment
32,115

 
4,565

 
17

 
27,550

 
210

 
1

 
27,340

Net interest income(2)
1,982,852

 
118,161

 
6

 
1,864,691

 
132,743

 
8

 
1,731,948

Noninterest income
1,038,730

 
59,551

 
6

 
979,179

 
(33,017
)
 
(3
)
 
1,012,196

Total revenue(2)
$
3,021,582

 
$
177,712

 
6
 %
 
$
2,843,870

 
$
99,726

 
4
 %
 
$
2,744,144


(1)
Comparisons for presented periods are impacted by a number of factors. Refer to “Significant Items”.
(2)
On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.


33


DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section (See Non-GAAP Financial Measures) that summarizes key issues important for a complete understanding of performance trends. Key consolidated balance sheet and income statement 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.”
Significant Items
Earnings comparisons among the three years ended December 31, 2015, 2014, and 2013 were impacted by a number of Significant Items summarized below.
1.
Litigation Reserve. $38 million and $21 million of net additions to litigation reserves were recorded as other noninterest expense in 2015 and 2014, respectively. This resulted in a negative impact of $0.03 and $0.02 per common share in 2015 and 2014, respectively.
2.
Mergers and Acquisitions. Significant events relating to mergers and acquisitions, and the impacts of those events on our reported results, were as follows:
During 2015, $9 million of noninterest expense was recorded related to the acquisition of Macquarie Equipment Finance, which was rebranded Huntington Technology Finance. Also during 2015, $4 million of noninterest expense and $3 million of noninterest income was recorded related to the sale of HAA, HASI, and Unified. This resulted in a negative impact of $0.01 per common share in 2015.
During 2014, $16 million of net noninterest expense was recorded related to the acquisition of 24 Bank of America branches and Camco Financial. This resulted in a net negative impact of $0.01 per common share in 2014.
3.
Franchise Repositioning Related Expense. Significant events relating to franchise repositioning, and the impacts of those events on our reported results, were as follows:
During 2015, $8 million of franchise repositioning related expense was recorded. This resulted in a negative impact of $0.01 per common share in 2015.
During 2014, $28 million of franchise repositioning related expense was recorded. This resulted in a negative impact of $0.02 per common share in 2014.
During 2013, $23 million of franchise repositioning related expense was recorded. This resulted in a negative impact of $0.02 per common share in 2013.
4.
Pension Curtailment Gain. During 2013, a $34 million pension curtailment gain was recorded in personnel costs. This resulted in a positive impact of $0.03 per common share in 2013.
The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected by this Results of Operations discussion:
 
Table 3 - Significant Items Influencing Earnings Performance Comparison
(dollar amounts in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
2014
 
2013
 
After-tax
 
EPS
 
After-tax
 
EPS
 
After-tax
 
EPS
Net income—GAAP
$
692,957

 
 
 
$
632,392

 
 
 
$
641,282

 
 
Earnings per share, after-tax
 
$
0.81

 
 
 
$
0.72

 
 
 
$
0.72

Significant items—favorable (unfavorable) impact:
Earnings (1)
 
EPS (2)(3)
 
Earnings (1)
 
EPS (2)(3)
 
Earnings (1)
 
EPS (2)(3)
Net additions to litigation reserve
$
(38,186
)
 
$
(0.03
)
 
$
(20,909
)
 
$
(0.02
)
 
$

 
$

Mergers and acquisitions, net
(9,323
)
 
(0.01
)
 
(15,818
)
 
(0.01
)
 

 

Franchise repositioning related expense
(7,588
)
 
(0.01
)
 
(27,976
)
 
(0.02
)
 
(23,461
)
 
(0.02
)
Pension curtailment gain

 

 

 

 
33,926

 
0.03



34


(1)
Pretax unless otherwise noted.
(2)
Based upon the annual average outstanding diluted common shares.
(3)
After-tax.
Net Interest Income / Average Balance Sheet
Our primary source of revenue is net interest income, which is the difference between interest income from earning assets (primarily loans, securities, and direct financing leases), and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Earning asset balances and related funding sources, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest-bearing sources of funds, often referred to as “free” funds, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis, which means that tax-free interest income has been adjusted to a pretax equivalent income, assuming a 35% tax rate.
The following table shows changes in fully-taxable equivalent interest income, interest expense, and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities:

 
Table 4 - Change in Net Interest Income Due to Changes in Average Volume and Interest Rates (1)
 (dollar amounts in millions)
 
2015
 
2014
 
Increase (Decrease) From
Previous Year Due To
 
Increase (Decrease) From
Previous Year Due To
Fully-taxable equivalent basis(2)
Volume
 
Yield/
Rate
 
Total
 
Volume
 
Yield/
Rate
 
Total
Loans and leases
$
117.6

 
$
(35.1
)
 
$
82.5

 
$
136.7

 
$
(94.5
)
 
$
42.2

Investment securities
45.8

 
3.2

 
49.0

 
69.7

 
10.2

 
79.9

Other earning assets
10.4

 
0.7

 
11.1

 
(6.3
)
 
0.2

 
(6.1
)
Total interest income from earning assets
173.8

 
(31.2
)
 
142.6

 
200.1

 
(84.1
)
 
116.0

Deposits
5.6

 
(9.9
)
 
(4.3
)
 
5.2

 
(35.0
)
 
(29.8
)
Short-term borrowings
(1.6
)
 
0.3

 
(1.3
)
 
1.5

 

 
1.5

Long-term debt
30.1

 

 
30.1

 
30.1

 
(18.5
)
 
11.6

Total interest expense of interest-bearing liabilities
34.1

 
(9.6
)
 
24.5

 
36.8

 
(53.5
)
 
(16.7
)
Net interest income
$
139.7

 
$
(21.6
)
 
$
118.1

 
$
163.3

 
$
(30.6
)
 
$
132.7


(1)
The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.
(2)
Calculated assuming a 35% tax rate.
 
Table 5 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (3)
(dollar amounts in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Balances
 
 
 
Change from 2014
 
 
 
Change from 2013
 
 
Fully-taxable equivalent basis (1)
2015
 
Amount
 
Percent
 
2014
 
Amount
 
Percent
 
2013
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in banks
$
90

 
$
5

 
6
 %
 
$
85

 
$
15

 
21
 %
 
$
70

Loans held for sale
654

 
331

 
102

 
323

 
(198
)
 
(38
)
 
521

Available-for-sale and other securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
7,999

 
1,214

 
18

 
6,785

 
402

 
6

 
6,383

Tax-exempt
2,075

 
646

 
45

 
1,429

 
866

 
154

 
563

Total available-for-sale and other securities
10,074

 
1,860

 
23

 
8,214

 
1,268

 
18

 
6,946


35


Trading account securities
46

 

 

 
46

 
(34
)
 
(43
)
 
80

Held-to-maturity securities—taxable
3,513

 
(99
)
 
(3
)
 
3,612

 
1,457

 
68

 
2,155

Total securities
13,633

 
1,761

 
15

 
11,872

 
2,691

 
29

 
9,181

Loans and leases: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
19,734

 
1,392

 
8

 
18,342

 
1,168

 
7

 
17,174

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction
1,017

 
289

 
40

 
728

 
148

 
26

 
580

Commercial
4,210

 
(61
)
 
(1
)
 
4,271

 
(178
)
 
(4
)
 
4,449

Commercial real estate
5,227

 
228

 
5

 
4,999

 
(30
)
 
(1
)
 
5,029

Total commercial
24,961

 
1,620

 
7

 
23,341

 
1,138

 
5

 
22,203

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Automobile loans and leases
8,760

 
1,090

 
14

 
7,670

 
1,991

 
35

 
5,679

Home equity
8,494

 
99

 
1

 
8,395

 
85

 
1

 
8,310

Residential mortgage
5,950

 
327

 
6

 
5,623

 
425

 
8

 
5,198

Other consumer
481

 
85

 
21

 
396

 
(40
)
 
(9
)
 
436

Total consumer
23,685

 
1,601

 
7

 
22,084

 
2,461

 
13

 
19,623

Total loans and leases
48,646

 
3,221

 
7

 
45,425

 
3,599

 
9

 
41,826

Allowance for loan and lease losses
(606
)
 
32

 
(5
)
 
(638
)
 
87

 
(12
)
 
(725
)
Net loans and leases
48,040

 
3,253

 
7

 
44,787

 
3,686

 
9

 
41,101

Total earning assets
63,023

 
5,318

 
9

 
57,705

 
6,107

 
12

 
51,598

Cash and due from banks
1,223

 
325

 
36

 
898

 
(10
)
 
(1
)
 
908

Intangible assets
703

 
125

 
22

 
578

 
21

 
4

 
557

All other assets