Companies: 10,652     total market cap: $140.488 T
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Huntington Bancshares
HBAN
#722
Rank
$35.03 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$17.26
Share price
-0.40%
Change (1 day)
4.29%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
Huntington Bancshares Incorporated is a bank holding company. The company's banking subsidiary, The Huntington National Bank, operates 920 banking offices in the U.S.
  1. Huntington Bancshares
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q3

Huntington Bancshares - 10-Q quarterly report FY2019 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
huntingtonlogo.jpg
Huntington Bancshares Incorporated
(Exact name of registrant as specified in its charter)
Maryland
1-34073
31-0724920
(State or other jurisdiction of
incorporation or organization)
(Commission
File Number)

(I.R.S. Employer
Identification No.)
Registrant's address: 41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number, including area code: (614) 480-2265
Securities registered pursuant to Section 12(b) of the Act
Title of class
Trading
Symbol(s)
Name of exchange on which registered
5.875% Series C Non-Cumulative, perpetual preferred stock
HBANN
NASDAQ
6.250% Series D Non-Cumulative, perpetual preferred stock
HBANO
NASDAQ
Common Stock—Par Value $0.01 per Share
HBAN
NASDAQ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     x  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
x
 
Accelerated filer
☐
 
 
 
 
 
 
Non-accelerated filer
☐
 
Smaller reporting company
☐
 
 
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     ☐  Yes    x  No
There were 1,032,755,207 shares of the Registrant’s common stock ($0.01 par value) outstanding on September 30, 2019.


HUNTINGTON BANCSHARES INCORPORATED
INDEX
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
36
Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018
36
Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2019 and 2018
37
Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2019 and 2018
38
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months and nine months ended September 30, 2019 and 2018
39
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
41
Notes to Unaudited Condensed Consolidated Financial Statements
43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
5
Executive Overview
5
Discussion of Results of Operations
6
Risk Management and Capital:
16
Credit Risk
16
Market Risk
25
Liquidity Risk
26
Operational Risk
28
Compliance Risk
28
Capital
29
Business Segment Discussion
30
Additional Disclosures
34
Item 3. Quantitative and Qualitative Disclosures about Market Risk
88
Item 4. Controls and Procedures
88
PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
89
Item 1A. Risk Factors
89
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
89
Item 6. Exhibits
89
Signatures
91

2

Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
 
ACL
  
Allowance for Credit Losses
AFS
  
Available-for-Sale
ALLL
  
Allowance for Loan and Lease Losses
AOCI
 
Accumulated Other Comprehensive Income
ASC
  
Accounting Standards Codification
AULC
  
Allowance for Unfunded Loan Commitments
Basel III
  
Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013
C&I
  
Commercial and Industrial
CCAR
  
Comprehensive Capital Analysis and Review
CDs
  
Certificates of Deposit
CECL
 
Current Expected Credit Loss

CET1
  
Common equity tier 1 on a transitional Basel III basis
CFPB
  
Bureau of Consumer Financial Protection
CMO
  
Collateralized Mortgage Obligations
CRE
  
Commercial Real Estate
EVE
  
Economic Value of Equity
FASB
 
Financial Accounting Standards Board
FDIC
  
Federal Deposit Insurance Corporation
FHLB
  
Federal Home Loan Bank of Cincinnati
FICO
  
Fair Isaac Corporation
FRB
  
Federal Reserve Bank
FTE
  
Fully-Taxable Equivalent
FTP
  
Funds Transfer Pricing
FVO
 
Fair Value Option
GAAP
  
Generally Accepted Accounting Principles in the United States of America
HTM
  
Held-to-Maturity
IRS
  
Internal Revenue Service
LCR
  
Liquidity Coverage Ratio
LIBOR
  
London Interbank Offered Rate
LIHTC
  
Low Income Housing Tax Credit
MBS
  
Mortgage-Backed Securities
MD&A
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MSR
  
Mortgage Servicing Right
NAICS
  
North American Industry Classification System
NALs
  
Nonaccrual Loans
NCO
  
Net Charge-off
NII
  
Noninterest Income
NIM
  
Net Interest Margin
NPAs
  
Nonperforming Assets
OCC
  
Office of the Comptroller of the Currency
OCI
  
Other Comprehensive Income (Loss)
OLEM
  
Other Loans Especially Mentioned
OREO
  
Other Real Estate Owned
OTTI
  
Other-Than-Temporary Impairment
PCD
 
Purchased-Credit-Deteriorated

3

RBHPCG
  
Regional Banking and The Huntington Private Client Group
ROC
 
Risk Oversight Committee
SEC
  
Securities and Exchange Commission
TDR
  
Troubled Debt Restructuring
U.S. Treasury
  
U.S. Department of the Treasury
UCS
  
Uniform Classification System
VIE
  
Variable Interest Entity
XBRL
  
eXtensible Business Reporting Language





4

PART I. FINANCIAL INFORMATION
When we refer to “we”, “our”, and “us”, "Huntington," and "the Company" in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.
 
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have over 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment financing, investment management, trust services, brokerage services, insurance products and services, and other financial products and services. Our 868 full-service branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. Select financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio. Our foreign banking activities, in total or with any individual country, are not significant.
This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2018 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2018 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.
EXECUTIVE OVERVIEW
Summary of 2019 Third Quarter Results Compared to 2018 Third Quarter
For the quarter, we reported net income of $372 million, or $0.34 per common share, compared with $378 million, or $0.33 per common share, in the year-ago quarter (see Table 1).
Fully-taxable equivalent net interest income was $805 million, down $5 million, or 1%. This reflected a 12 basis point decrease in the FTE net interest margin to 3.20%, partially offset by the benefit from the $2.9 billion, or 3%, increase in average earning assets.
The provision for credit losses increased $29 million year-over-year to $82 million in the 2019 third quarter. Net charge-offs increased $44 million to $73 million. The increase was centered in two specific energy credit relationships, which made up nearly three-fourths of the total commercial net charge-offs. Consumer charge-offs have remained consistent over the past year. NCOs represented an annualized 0.39% of average loans and leases in the current quarter, up from 0.16% in the year-ago quarter.
Non-interest income was $389 million, up $47 million, or 14%, from the year ago quarter. Mortgage banking income increased $23 million, or 74%, primarily reflecting higher overall salable spreads, and $8 million of income from net MSR risk management-related activities. Capital markets fees increased $10 million, or 38%, driven by increased underwriting activity primarily associated with the Hutchinson, Shockey, Erley & Co. acquisition. Card and payment processing income increased $7 million, or 12%, and service charges on deposit accounts increased $5 million, or 5%, both reflecting increased account activity.
Non-interest expense was $667 million, up $16 million, or 2%, from the year-ago quarter. Personnel costs increased $18 million, or 5%, primarily reflecting a shift to colleagues supporting our core strategies and the implementation of annual merit increases in the 2019 second quarter. Outside data processing and other services increased $18 million, or 26%, primarily driven by higher technology investment costs. Deposit and other insurance expense decreased $10 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter. Other expense decreased $9 million, or 16%, primarily as a result of operational losses in the third quarter 2018.
Common Equity Tier 1 risk-based capital ratio was 10.02%, up from 9.89% a year ago. The regulatory Tier 1 risk-based capital ratio was 11.41% compared to 11.33% at September 30, 2018. All capital ratios were impacted by the repurchase of 33.4 million common shares over the last four quarters.

5

Business Overview
General
Our general business objectives are:
•Consistent organic revenue and balance sheet growth.
•Invest in our businesses, particularly technology and risk management.
•Deliver positive operating leverage.
•Maintain aggregate moderate-to-low risk appetite.
•Disciplined capital management.
Economy
Consumer confidence remains at a high level, and consumers continue to perform well. We experienced strong origination activity in our home lending and auto finance businesses, while maintaining our underwriting discipline. Consistent with recent economic data pointing toward slowing growth, compounded by uncertainty related to trade and tariffs, we have seen a shift in tone from some of our manufacturing customers, which has impacted certain of their investments and expansions. While our commercial loan pipeline remains consistent with a year ago, providing us near-term confidence, we have a more measured outlook for commercial loan growth over the medium term.
As we have stated the past few quarters, we do not foresee a recession in the near term. Our core earnings power, strong capital, aggregate moderate-to-low risk appetite, and long-term strategic alignment position us to withstand economic headwinds should they emerge.
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion”.

6


Table 1 - Selected Quarterly Income Statement Data
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
(dollar amounts in millions, share amounts in thousands)
2019
 
2019
 
2019
 
2018
 
2018
Interest income
$
1,052

 
$
1,068

 
$
1,070

 
$
1,056

 
$
1,007

Interest expense
253

 
256

 
248

 
223

 
205

Net interest income
799

 
812

 
822

 
833

 
802

Provision for credit losses
82

 
59

 
67

 
60

 
53

Net interest income after provision for credit losses
717

 
753

 
755

 
773

 
749

Service charges on deposit accounts
98

 
92

 
87

 
94

 
93

Card and payment processing income
64

 
63

 
56

 
58

 
57

Trust and investment management services
44

 
43

 
44

 
42

 
43

Mortgage banking income
54

 
34

 
21

 
23

 
31

Capital markets fees
36

 
34

 
22

 
34

 
26

Insurance income
20

 
23

 
21

 
21

 
19

Bank owned life insurance income
18

 
15

 
16

 
16

 
19

Gain on sale of loans and leases
13

 
13

 
13

 
16

 
16

Securities gains (losses)
—

 
(2
)
 
—

 
(19
)
 
(2
)
Other income
42

 
59

 
39

 
44

 
40

Total noninterest income
389

 
374

 
319

 
329

 
342

Personnel costs
406

 
428

 
394

 
399

 
388

Outside data processing and other services
87

 
89

 
81

 
83

 
69

Net occupancy
38

 
38

 
42

 
70

 
38

Equipment
41

 
40

 
40

 
48

 
38

Deposit and other insurance expense
8

 
8

 
8

 
9

 
18

Professional services
16

 
12

 
12

 
17

 
17

Marketing
10

 
11

 
7

 
15

 
12

Amortization of intangibles
12

 
12

 
13

 
13

 
13

Other expense
49

 
62

 
56

 
57

 
58

Total noninterest expense
667

 
700

 
653

 
711

 
651

Income before income taxes
439

 
427

 
421

 
391

 
440

Provision for income taxes
67

 
63

 
63

 
57

 
62

Net income
372

 
364

 
358

 
334

 
378

Dividends on preferred shares
18

 
18

 
19

 
19

 
18

Net income applicable to common shares
$
354

 
$
346

 
$
339

 
$
315

 
$
360

 
 
 
 
 
 
 
 
 
 
Average common shares—basic
1,034,940

 
1,044,802

 
1,046,995

 
1,054,460

 
1,084,536

Average common shares—diluted
1,051,273

 
1,060,280

 
1,065,638

 
1,073,055

 
1,103,740

Net income per common share—basic
$
0.34

 
$
0.33

 
$
0.32

 
$
0.30

 
$
0.33

Net income per common share—diluted
0.34

 
0.33

 
0.32

 
0.29

 
0.33

Return on average total assets
1.37
%
 
1.36
%
 
1.35
%
 
1.25
%
 
1.42
%
Return on average common shareholders’ equity
13.4

 
13.5

 
13.8

 
12.9

 
14.3

Return on average tangible common shareholders’ equity (1)
17.3

 
17.7

 
18.3

 
17.3

 
19.0

Net interest margin (2)
3.20

 
3.31

 
3.39

 
3.41

 
3.32

Efficiency ratio (3)
54.7

 
57.6

 
55.8

 
58.7

 
55.3

Effective tax rate
15.4

 
14.6

 
15.0

 
14.6

 
14.1

 
 
 
 
 
 
 
 
 
 
Revenue—FTE
 
 
 
 
 
 
 
 
 
Net interest income
$
799

 
$
812

 
$
822

 
$
833

 
$
802

FTE adjustment
6

 
7

 
7

 
8

 
8

Net interest income (2)
805

 
819

 
829

 
841

 
810

Noninterest income
389

 
374

 
319

 
329

 
342

Total revenue (2)
$
1,194

 
$
1,193

 
$
1,148

 
$
1,170

 
$
1,152





7

 
 
 
 
 
 
 
 
Table 2 - Selected Year to Date Income Statements
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions, except per share amounts)
2019
 
2018
 
Amount
 
Percent
Interest income
$
3,190

 
$
2,893

 
$
297

 
10
 %
Interest expense
757

 
537

 
220

 
41

Net interest income
2,433

 
2,356

 
77

 
3

Provision for credit losses
208

 
175

 
33

 
19

Net interest income after provision for credit losses
2,225

 
2,181

 
44

 
2

Service charges on deposit accounts
277

 
270

 
7

 
3

Card and payment processing income
183

 
166

 
17

 
10

Trust and investment management services
131

 
129

 
2

 
2

Mortgage banking income
109

 
85

 
24

 
28

Capital markets fees
92

 
74

 
18

 
24

Insurance income
64

 
61

 
3

 
5

Bank owned life insurance income
49

 
51

 
(2
)
 
(4
)
Gain on sale of loans and leases
39

 
39

 
—

 
—

Securities gains (losses)
(2
)
 
(2
)
 
—

 
—

Other income
140

 
119

 
21

 
18

Total noninterest income
1,082

 
992

 
90

 
9

Personnel costs
1,228

 
1,160

 
68

 
6

Outside data processing and other services
257

 
211

 
46

 
22

Equipment
121

 
116

 
5

 
4

Net occupancy
118

 
114

 
4

 
4

Professional services
40

 
43

 
(3
)
 
(7
)
Marketing
28

 
38

 
(10
)
 
(26
)
Deposit and other insurance expense
24

 
54

 
(30
)
 
(56
)
Amortization of intangibles
37

 
40

 
(3
)
 
(8
)
Other expense
167

 
160

 
7

 
4

Total noninterest expense
2,020

 
1,936

 
84

 
4

Income before income taxes
1,287

 
1,237

 
50

 
4

Provision for income taxes
193

 
178

 
15

 
8

Net income
1,094

 
1,059

 
35

 
3

Dividends declared on preferred shares
55

 
51

 
4

 
8

Net income applicable to common shares
$
1,039

 
$
1,008

 
$
31

 
3
 %
 
 
 
 
 
 
 
 
Average common shares—basic
1,042,246

 
1,090,570

 
(48,324
)
 
(4
)%
Average common shares—diluted
1,059,064

 
1,116,978

 
(57,914
)
 
(5
)
Net income per common share—basic
$
1.00

 
$
0.92

 
$
0.08

 
9

Net income per common share—diluted
0.98

 
0.90

 
0.08

 
9

 
 
 
 
 
 
 
 
Revenue—FTE
 
 
 
 
 
 
 
Net interest income
$
2,433

 
$
2,356

 
$
77

 
3
 %
FTE adjustment
20

 
22

 
(2
)
 
(9
)
Net interest income (2)
2,453

 
2,378

 
75

 
3

Noninterest income
1,082

 
992

 
90

 
9

Total revenue (2)
$
3,535

 
$
3,370

 
$
165

 
5
 %
(1)
Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 21% tax rate.
(2)
On an FTE basis assuming a 21% tax rate.
(3)
Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains.



8

Net Interest Income / Average Balance Sheet
The following tables detail the change in our average balance sheet and the net interest margin:
Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis
 
Average Balances
 
 
 
 
 
Three Months Ended
 
Change
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
3Q19 vs. 3Q18
(dollar amounts in millions)
2019
 
2019
 
2019
 
2018
 
2018
 
Amount
 
Percent
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in Federal Reserve Bank (2)
$
514

 
$
518

 
$
501

 
$
483

 
$
—

 
$
514

 
100
 %
Interest-bearing deposits in banks
149

 
135

 
109

 
97

 
83

 
66

 
80

Securities:
 
 
 
 
 
 
 
 
 
 
 
 


Trading account securities
137

 
161

 
138

 
131

 
82

 
55

 
67

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 


Taxable
11,096

 
10,501

 
10,752

 
10,351

 
10,469

 
627

 
6

Tax-exempt
2,820

 
2,970

 
3,048

 
3,176

 
3,496

 
(676
)
 
(19
)
Total available-for-sale securities
13,916

 
13,471

 
13,800

 
13,527

 
13,965

 
(49
)
 
—

Held-to-maturity securities—taxable
8,566

 
8,771

 
8,653

 
8,433

 
8,560

 
6

 
—

Other securities
437

 
466

 
536

 
565

 
567

 
(130
)
 
(23
)
Total securities
23,056

 
22,869

 
23,127

 
22,656

 
23,174

 
(118
)
 
(1
)
Loans held for sale
877

 
734

 
700

 
694

 
745

 
132

 
18

Loans and leases: (4)
 
 
 
 
 
 
 
 
 
 
 
 


Commercial:
 
 
 
 
 
 
 
 
 
 
 
 


Commercial and industrial
30,632

 
30,644

 
30,546

 
29,557

 
28,870

 
1,762

 
6

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 


Construction
1,165

 
1,168

 
1,174

 
1,138

 
1,132

 
33

 
3

Commercial
5,762

 
5,732

 
5,686

 
5,806

 
6,019

 
(257
)
 
(4
)
Commercial real estate
6,927

 
6,900

 
6,860

 
6,944

 
7,151

 
(224
)
 
(3
)
Total commercial
37,559

 
37,544

 
37,406

 
36,501

 
36,021

 
1,538

 
4

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 


Automobile
12,181

 
12,219

 
12,361

 
12,423

 
12,368

 
(187
)
 
(2
)
Home equity
9,353

 
9,482

 
9,641

 
9,817

 
9,873

 
(520
)
 
(5
)
Residential mortgage
11,214

 
11,010

 
10,787

 
10,574

 
10,236

 
978

 
10

RV and marine
3,528

 
3,413

 
3,296

 
3,216

 
3,016

 
512

 
17

Other consumer
1,261

 
1,264

 
1,284

 
1,291

 
1,237

 
24

 
2

Total consumer
37,537

 
37,388

 
37,369

 
37,321

 
36,730

 
807

 
2

Total loans and leases
75,096

 
74,932

 
74,775

 
73,822

 
72,751

 
2,345

 
3

Allowance for loan and lease losses
(799
)
 
(778
)
 
(780
)
 
(777
)
 
(759
)
 
(40
)
 
(5
)
Net loans and leases
74,297

 
74,154

 
73,995

 
73,045

 
71,992

 
2,305

 
3

Total earning assets
99,692

 
99,188

 
99,212

 
97,752

 
96,753

 
2,939

 
3

Cash and due from banks
817

 
835

 
853

 
909

 
1,330

 
(513
)
 
(39
)
Intangible assets
2,240

 
2,252

 
2,265

 
2,288

 
2,305

 
(65
)
 
(3
)
All other assets
6,216

 
5,982

 
5,961

 
5,705

 
5,726

 
490

 
9

Total assets
$
108,166

 
$
107,479

 
$
107,511

 
$
105,877

 
$
105,355

 
$
2,811

 
3
 %
Liabilities and Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 


Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 


Demand deposits—interest-bearing
$
19,796

 
$
19,693

 
19,770

 
$
19,860

 
$
19,553

 
$
243

 
1
 %
Money market deposits
24,266

 
23,305

 
22,935

 
22,595

 
21,547

 
2,719

 
13

Savings and other domestic deposits
9,681

 
10,105

 
10,338

 
10,534

 
11,434

 
(1,753
)
 
(15
)
Core certificates of deposit (5)
5,666

 
5,860

 
6,052

 
5,705

 
4,916

 
750

 
15

Other domestic time deposits of $250,000 or more
315

 
310

 
335

 
346

 
285

 
30

 
11

Brokered deposits and negotiable CDs
2,599

 
2,685

 
3,404

 
3,507

 
3,533

 
(934
)
 
(26
)
Total interest-bearing deposits
62,323

 
61,958

 
62,834

 
62,547

 
61,268

 
1,055

 
2

Short-term borrowings
2,331

 
3,166

 
2,320

 
1,006

 
1,732

 
599

 
35

Long-term debt
9,536

 
8,914

 
8,979

 
8,871

 
8,915

 
621

 
7

Total interest-bearing liabilities
74,190

 
74,038

 
74,133

 
72,424

 
71,915

 
2,275

 
3

Demand deposits—noninterest-bearing
19,926

 
19,760

 
19,938

 
20,384

 
20,230

 
(304
)
 
(2
)
All other liabilities
2,336

 
2,206

 
2,284

 
2,180

 
2,054

 
282

 
14

Shareholders’ equity
11,714

 
11,475

 
11,156

 
10,889

 
11,156

 
558

 
5

Total liabilities and shareholders’ equity
$
108,166

 
$
107,479

 
$
107,511

 
$
105,877

 
$
105,355

 
$
2,811

 
3
 %

9

Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)
 
 
 
 
 
 
 
 
 
 
 
Average Yield Rates (3)
 
Three Months Ended
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
Fully-taxable equivalent basis (1)
2019
 
2019
 
2019
 
2018
 
2018
Assets:
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in Federal Reserve Bank (2)
2.19
%
 
2.38
%
 
2.40
%
 
2.33
%
 
—
%
Interest-bearing deposits in banks
2.38

 
2.08

 
1.75

 
1.97

 
1.95

Securities:
 
 
 
 
 
 
 
 
 
Trading account securities
2.36

 
1.92

 
2.03

 
1.94

 
0.26

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Taxable
2.67

 
2.73

 
2.82

 
2.71

 
2.61

Tax-exempt
3.63

 
3.66

 
3.69

 
4.12

 
3.53

Total available-for-sale securities
2.87

 
2.94

 
3.01

 
3.04

 
2.84

Held-to-maturity securities—taxable
2.51

 
2.54

 
2.52

 
2.45

 
2.43

Other securities
3.15

 
3.44

 
4.51

 
4.24

 
4.58

Total securities
2.74

 
2.79

 
2.86

 
2.84

 
2.73

Loans held for sale
3.69

 
4.00

 
4.07

 
4.04

 
4.45

Loans and leases: (4)
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
4.57

 
4.82

 
4.91

 
4.81

 
4.64

Commercial real estate:
 
 
 
 
 
 
 
 
 
Construction
5.50

 
5.59

 
5.58

 
5.47

 
5.31

Commercial
4.67

 
4.88

 
5.00

 
4.99

 
4.63

Commercial real estate
4.81

 
5.00

 
5.10

 
5.07

 
4.74

Total commercial
4.61

 
4.85

 
4.94

 
4.86

 
4.66

Consumer:
 
 
 
 
 
 
 
 
 
Automobile
4.09

 
4.02

 
3.95

 
3.88

 
3.75

Home equity
5.38

 
5.56

 
5.61

 
5.45

 
5.21

Residential mortgage
3.80

 
3.84

 
3.86

 
3.82

 
3.78

RV and marine
4.96

 
4.94

 
4.96

 
5.10

 
5.06

Other consumer
13.34

 
13.29

 
13.07

 
12.35

 
12.16

Total consumer
4.72

 
4.76

 
4.75

 
4.67

 
4.54

Total loans and leases
4.67

 
4.80

 
4.85

 
4.76

 
4.60

Total earning assets
4.21

 
4.35

 
4.40

 
4.32

 
4.16

Liabilities:
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
Demand deposits—interest-bearing
0.57

 
0.58

 
0.56

 
0.48

 
0.45

Money market deposits
1.20

 
1.15

 
1.04

 
0.91

 
0.77

Savings and other domestic deposits
0.22

 
0.23

 
0.23

 
0.23

 
0.24

Core certificates of deposit (5)
2.17

 
2.15

 
2.11

 
2.00

 
1.82

Other domestic time deposits of $250,000 or more
1.85

 
1.92

 
1.82

 
1.67

 
1.40

Brokered deposits and negotiable CDs
2.21

 
2.39

 
2.38

 
2.22

 
1.98

Total interest-bearing deposits
0.98

 
0.97

 
0.94

 
0.84

 
0.73

Short-term borrowings
2.28

 
2.41

 
2.41

 
2.49

 
1.98

Long-term debt
3.59

 
3.91

 
3.98

 
3.82

 
3.78

Total interest-bearing liabilities
1.36

 
1.39

 
1.35

 
1.23

 
1.13

Demand deposits—noninterest-bearing
—

 
—

 
—

 
—

 
—

Net interest rate spread
2.85

 
2.96

 
3.05

 
3.09

 
3.03

Impact of noninterest-bearing funds on margin
0.35

 
0.35

 
0.34

 
0.32

 
0.29

Net interest margin
3.20
%
 
3.31
%
 
3.39
%
 
3.41
%
 
3.32
%

(1)
FTE yields are calculated assuming a 21% tax rate.
(2)
Deposits in Federal Reserve Bank were treated as non-earning assets prior to 4Q 2018.
(3)
Loan and lease and deposit average yield rates include impact of applicable derivatives, non-deferrable fees, and amortized fees.
(4)
For purposes of this analysis, NALs are reflected in the average balances of loans.
(5)
Includes consumer certificates of deposit of $250,000 or more.


10

2019 Third Quarter versus 2018 Third Quarter
FTE net interest income for the 2019 third quarter decreased $5 million, or 1%, from the 2018 third quarter. This reflected a 12 basis point decrease in the NIM to 3.20%, partially offset by the benefit from the $2.9 billion, or 3%, increase in average earning assets. The NIM compression reflected a 23 basis point increase in average interest-bearing liability costs, partially offset by a 5 basis point year-over-year increase in average earning asset yields and a 6 basis point increase in the benefit from noninterest-bearing funds. The increase in average interest-bearing liability costs primarily reflects higher interest bearing deposit costs (up 25 basis points). The increase in earning asset yields was primarily driven by higher consumer loan yields as securities yields were relatively flat (up 1 basis point) and commercial loans decreased modestly (down 5 basis points). Embedded within these yields and costs, FTE net interest income during the 2019 third quarter included $11 million, or approximately 4 basis points, of purchase accounting impact compared to $17 million, or approximately 7 basis points, in the year-ago quarter.
Average earning assets for the 2019 third quarter increased $2.9 billion, or 3%, from the year-ago quarter, primarily reflecting a $2.3 billion, or 3%, increase in average loans and leases. Average C&I loans increased $1.8 billion, or 6%, reflecting growth in corporate banking, asset finance, and dealer floorplan. Average residential mortgage loans increased $1.0 billion, or 10%, driven by the successful expansion of our home lending business within our existing markets and the lower rate environment. Average RV and marine loans increased $0.5 billion, or 17%, reflecting market share increases across our markets, while maintaining our commitment to super prime originations. Held-for-sale and other earning assets increased $0.7 billion, or 86%, primarily due to the inclusion of deposits in Federal Reserve Bank balances. These balances were treated as non-earning assets prior to the fourth quarter 2018. Partially offsetting these increases, average home equity loans and lines of credit decreased $0.5 billion, or 5%, reflecting a shift in consumer preferences.
Average total interest-bearing liabilities for the 2019 third quarter increased $2.3 billion, or 3%, from the year-ago quarter. Average total deposits increased $0.8 billion, or 1%, from the year-ago quarter, while average total core deposits increased $1.7 billion, or 2%. Average money market deposits increased $2.7 billion, or 13%, reflecting the shift in promotional pricing to consumer money market accounts in mid-2018. Average core certificates of deposit increased $0.8 billion, or 15%, reflecting consumer deposit growth initiatives in the third quarter of 2018. Savings and other domestic deposits decreased $1.8 billion, or 15%, primarily reflecting a continued shift in consumer product mix. Average brokered deposits and negotiable CDs decreased $0.9 billion, or 26%, as growth in core deposits reduced reliance on wholesale funding.
2019 Third Quarter versus 2019 Second Quarter
Compared to the 2019 second quarter, FTE net interest income decreased $13 million, or 2%, primarily reflecting the NIM compression of 11 basis points, partially offset by a 1% increase in average earning assets. The NIM contraction reflected a 14 basis point decrease in average earning asset yields and a 3 basis point decrease in average interest-bearing liability costs. The decrease in earning asset yields was primarily driven by the impact of lower LIBOR rates in the quarter on commercial loan yields. The decrease in average interest-bearing liability costs primarily reflects lower short-term borrowing costs. The purchase accounting impact on the NIM was approximately 4 basis points in the 2019 third quarter, down 1 basis point from the prior quarter.
Average earning assets increased $0.5 billion, or 1%, from 2019 second quarter. Average consumer loans were relatively unchanged, as modest increases in residential mortgage and RV and marine loans were largely offset by a decline in home equity loans.
Average total interest-bearing liabilities increased $0.2 billion, or less than 1%. Average total deposits increased $0.5 billion, or 1%, as the $1.0 billion, or 4%, increase in money market accounts more than offset the $0.4 billion, or 4%, decrease in savings deposits, primarily reflecting promotional money market pricing and a continued shift in consumer product mix. Reflecting changes in the wholesale funding mix, average long-term debt increased $0.6 billion, or 7%, due to the $0.8 billion senior note issuance in August, while average short-term borrowings decreased $0.8 billion, or 26%.


11

Table 4 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
(dollar amounts in millions)
 
 
 
 
 
 
 
 
 
 
 
 
YTD Average Balances
 
YTD Average Rates (3)
 
Nine Months Ended September 30,
 
Change
 
Nine Months Ended September 30,
Fully-taxable equivalent basis (1)
2019
 
2018
 
Amount
 
Percent
 
2019
 
2018
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in Federal Reserve Bank (2)
$
511

 
$
—

 
$
511

 
100
 %
 
2.32
%
 
—
%
Interest-bearing deposits in banks
131

 
86

 
45

 
52

 
2.10

 
1.95

Securities:
 
 
 
 


 


 
 
 
 
Trading account securities
146

 
84

 
62

 
74

 
2.10

 
0.21

Available-for-sale securities:
 
 
 
 


 


 
 
 
 
Taxable
10,784

 
10,817

 
(33
)
 
—

 
2.74

 
2.58

Tax-exempt
2,945

 
3,561

 
(616
)
 
(17
)
 
3.66

 
3.35

Total available-for-sale securities
13,729

 
14,378

 
(649
)
 
(5
)
 
2.94

 
2.77

Held-to-maturity securities—taxable
8,663

 
8,713

 
(50
)
 
(1
)
 
2.52

 
2.43

Other securities
479

 
590

 
(111
)
 
(19
)
 
3.75

 
4.38

Total securities
23,017

 
23,765

 
(748
)
 
(3
)
 
2.79

 
2.69

Loans held for sale
771

 
615

 
156

 
25

 
3.90

 
4.19

Loans and leases: (4)
 
 
 
 
 
 


 
 
 
 
Commercial:
 
 
 
 
 
 


 
 
 
 
Commercial and industrial
30,608

 
28,661

 
1,947

 
7

 
4.77

 
4.48

Commercial real estate:
 
 
 
 
 
 


 
 
 
 
Construction
1,169

 
1,149

 
20

 
2

 
5.56

 
5.09

Commercial
5,727

 
6,131

 
(404
)
 
(7
)
 
4.85

 
4.49

Commercial real estate
6,896

 
7,280

 
(384
)
 
(5
)
 
4.97

 
4.58

Total commercial
37,504

 
35,941

 
1,563

 
4

 
4.80

 
4.50

Consumer:
 
 
 
 
 
 


 
 
 
 
Automobile
12,253

 
12,247

 
6

 
—

 
4.02

 
3.65

Home equity
9,491

 
9,948

 
(457
)
 
(5
)
 
5.51

 
5.07

Residential mortgage
11,005

 
9,682

 
1,323

 
14

 
3.83

 
3.71

RV and marine
3,413

 
2,723

 
690

 
25

 
4.95

 
5.09

Other consumer
1,270

 
1,175

 
95

 
8

 
13.29

 
11.91

Total consumer
37,432

 
35,775

 
1,657

 
5

 
4.74

 
4.44

Total loans and leases
74,936

 
71,716

 
3,220

 
4

 
4.77

 
4.47

Allowance for loan and lease losses
(786
)
 
(737
)
 
(49
)
 
(7
)
 
 
 
 
Net loans and leases
74,150

 
70,979

 
3,171

 
4

 
 
 
 
Total earning assets
99,366

 
96,182

 
3,184

 
3

 
4.32
%
 
4.05
%
Cash and due from banks
835

 
1,277

 
(442
)
 
(35
)
 
 
 
 
Intangible assets
2,252

 
2,318

 
(66
)
 
(3
)
 
 
 
 
All other assets
6,054

 
5,640

 
414

 
7

 
 
 
 
Total assets
$
107,721

 
$
104,680

 
$
3,041

 
3
 %
 
 
 
 
Liabilities and Shareholders’ Equity:
 
 
 
 
 
 


 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 


 
 
 
 
Demand deposits—interest-bearing
$
19,763

 
$
19,105

 
$
658

 
3
 %
 
0.57
%
 
0.37
%
Money market deposits
23,507

 
21,059

 
2,448

 
12

 
1.13

 
0.61

Savings and other domestic deposits
10,039

 
11,267

 
(1,228
)
 
(11
)
 
0.23

 
0.22

Core certificates of deposit (5)
5,858

 
3,677

 
2,181

 
59

 
2.14

 
1.57

Other domestic time deposits of $250,000 or more
320

 
259

 
61

 
24

 
1.86

 
1.05

Brokered deposits and negotiable CDs
2,893

 
3,501

 
(608
)
 
(17
)
 
2.33

 
1.76

Total interest-bearing deposits
62,380

 
58,868

 
3,512

 
6

 
0.96

 
0.59

Short-term borrowings
2,605

 
3,335

 
(730
)
 
(22
)
 
2.37

 
1.67

Long-term debt
9,145

 
9,033

 
112

 
1

 
3.82

 
3.48

Total interest-bearing liabilities
74,130

 
71,236

 
2,894

 
4

 
1.36

 
1.01

Demand deposits—noninterest-bearing
$
19,864

 
$
20,393

 
(529
)
 
(3
)
 
—

 
—

All other liabilities
2,277

 
1,935

 
342

 
18

 
 
 
 
Shareholders’ equity
11,450

 
11,116

 
334

 
3

 
 
 
 
Total liabilities and shareholders’ equity
$
107,721

 
$
104,680

 
$
3,041

 
3
 %
 
 
 
 
Net interest rate spread
 
 
 
 
 
 
 
 
2.96

 
3.05

Impact of noninterest-bearing funds on margin
 
 
 
 
 
 
 
 
0.34

 
0.26

Net interest margin
 
 
 
 
 
 
 
 
3.30
%
 
3.31
%

(1)
FTE yields are calculated assuming a 21% tax rate.
(2)
Deposits in Federal Reserve Bank were treated as non-earning assets prior to 4Q 2018
(3)
Loan and lease and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized fees.
(4)
For purposes of this analysis, NALs are reflected in the average balances of loans.
(5)
Includes consumer certificates of deposit of $250,000 or more.

12

2019 First Nine Months versus 2018 First Nine Months
FTE net interest income for the first nine-month period of 2019 increased $75 million, or 3%. This reflected the benefit of a $3.2 billion, or 3%, increase in average total earning assets and a 1 basis point decrease in the FTE NIM to 3.30%. Average loans and leases increased $3.2 billion, or 4%, primarily reflecting an increase in C&I, residential mortgage and RV and marine lending. Average earning asset yields increased 27 basis points sequentially, driven by a 30 basis point increase in loan yields. Average funding costs increased 35 basis points, primarily driven by higher cost of interest-bearing deposits (up 37 basis points) and long-term debt (up 34 basis points). Average short-term borrowing costs increased 70 basis points, while the benefit from noninterest-bearing funding improved 8 basis points.
Provision for Credit Losses
(This section should be read in conjunction with the "Credit Risk" section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels appropriate to absorb our estimate of credit losses inherent in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.
The provision for credit losses for the 2019 third quarter was $82 million, which increased $29 million, or 55%, compared to the third quarter 2018. On a year-to-date basis, provision for credit losses for the first nine-month period of 2019 was $208 million, an increase of $33 million, or 19%, compared to the year-ago period. The increase from the 2018 third quarter and prior year-to-date provision for credit losses is attributed to higher commercial losses.
Noninterest Income
The following table reflects noninterest income for each of the periods presented: 
Table 5 - Noninterest Income
 
Three Months Ended
 
3Q19 vs. 3Q18
 
3Q19 vs. 2Q19
 
September 30,
 
June 30,
 
September 30,
 
Change
 
Change
(dollar amounts in millions)
2019
 
2019
 
2018
 
Amount
 
Percent
 
Amount
 
Percent
Service charges on deposit accounts
$
98

 
$
92

 
$
93

 
$
5

 
5
 %
 
$
6

 
7
 %
Card and payment processing income
64

 
63

 
57

 
7

 
12

 
1

 
2

Trust and investment management services
44

 
43

 
43

 
1

 
2

 
1

 
2

Mortgage banking income
54

 
34

 
31

 
23

 
74

 
20

 
59

Capital markets fees
36

 
34

 
26

 
10

 
38

 
2

 
6

Insurance income
20

 
23

 
19

 
1

 
5

 
(3
)
 
(13
)
Bank owned life insurance income
18

 
15

 
19

 
(1
)
 
(5
)
 
3

 
20

Gain on sale of loans and leases
13

 
13

 
16

 
(3
)
 
(19
)
 
—

 
—

Securities gains (losses)
—

 
(2
)
 
(2
)
 
2

 
100

 
2

 
100

Other income
42

 
59

 
40

 
2

 
5

 
(17
)
 
(29
)
Total noninterest income
$
389

 
$
374

 
$
342

 
$
47

 
14
 %
 
$
15

 
4
 %
2019 Third Quarter versus 2018 Third Quarter
Total noninterest income for the 2019 third quarter increased $47 million, or 14%, from the year-ago quarter. Mortgage banking income increased $23 million, or 74%, primarily reflecting higher overall salable spreads and $8 million from net MSR risk management. Capital markets fees increased $10 million, or 38%, driven by increased underwriting activity associated with the Hutchinson, Shockey, Erley & Co. acquisition. Card and payment processing income increased $7 million, or 12%, and service charges on deposit accounts increased $5 million, or 5%, both primarily reflecting increased account activity.
2019 Third Quarter versus 2019 Second Quarter
Compared to the 2019 second quarter, total noninterest income increased $15 million, or 4%. Mortgage banking income increased $20 million, or 59%, primarily reflecting higher overall salable spreads and a $10 million increase in net MSR risk management. Service charges on deposit accounts increased $6 million, or 7%, primarily reflecting seasonality. Partially offsetting these increases, other income decreased $17 million, or 29%, primarily reflecting the $15 million gain on the sale of the Wisconsin retail branches and a $5 million mark-to-market adjustment on economic hedges in the 2019 second quarter, whereas the 2019 third quarter included a $6 million increase in mezzanine gains.

13

Table 6 - Noninterest Income—2019 First Nine Months Ended vs. 2018 First Nine Months Ended
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions)
2019
 
2018
 
Amount
 
Percent
Service charges on deposit accounts
$
277

 
$
270

 
$
7

 
3
 %
Card and payment processing income
183

 
166

 
17

 
10

Trust and investment management services
131

 
129

 
2

 
2

Mortgage banking income
109

 
85

 
24

 
28

Capital markets fees
92

 
74

 
18

 
24

Insurance income
64

 
61

 
3

 
5

Bank owned life insurance income
49

 
51

 
(2
)
 
(4
)
Gain on sale of loans and leases
39

 
39

 
—

 
—

Securities gains (losses)
(2
)
 
(2
)
 
—

 
—

Other income
140

 
119

 
21

 
18

Total noninterest income
$
1,082

 
$
992

 
$
90

 
9
 %
Noninterest income for the first nine-month period of 2019 increased $90 million, or 9%, from the year-ago period. Mortgage banking income increased $24 million or 28%, driven by higher salable spreads. Other income increased $21 million, or 18%, as a result of the gain on the sale of the Wisconsin retail branches and the impact of the new lease accounting standard with regard to the presentation of income for personal property tax on leased assets. Capital market fees increased $18 million, or 24%, driven by increased underwriting activity primarily associated with the Hutchinson, Shockey, Erley & Co. acquisition. Cards and payment processing income increased $17 million, or 10%, primarily reflecting increased account activity.
Noninterest Expense
The following table reflects noninterest expense for each of the periods presented: 
Table 7 - Noninterest Expense
 
Three Months Ended
 
3Q19 vs. 3Q18
 
3Q19 vs. 2Q19
 
September 30,
 
June 30,
 
September 30,
 
Change
 
Change
(dollar amounts in millions)
2019
 
2019
 
2018
 
Amount
 
Percent
 
Amount
 
Percent
Personnel costs
$
406

 
$
428

 
$
388

 
$
18

 
5
 %
 
$
(22
)
 
(5
)%
Outside data processing and other services
87

 
89

 
69

 
18

 
26

 
(2
)
 
(2
)
Net occupancy
38

 
38

 
38

 
—

 
—

 
—

 
—

Equipment
41

 
40

 
38

 
3

 
8

 
1

 
3

Deposit and other insurance expense
8

 
8

 
18

 
(10
)
 
(56
)
 
—

 
—

Professional services
16

 
12

 
17

 
(1
)
 
(6
)
 
4

 
33

Marketing
10

 
11

 
12

 
(2
)
 
(17
)
 
(1
)
 
(9
)
Amortization of intangibles
12

 
12

 
13

 
(1
)
 
(8
)
 
—

 
—

Other expense
49

 
62

 
58

 
(9
)
 
(16
)
 
(13
)
 
(21
)
Total noninterest expense
$
667

 
$
700

 
$
651

 
$
16

 
2
 %
 
$
(33
)
 
(5
)%
Number of employees (average full-time equivalent)
15,659

 
15,780

 
15,772

 
(113
)
 
(1
)%
 
(121
)
 
(1
)%


14

2019 Third Quarter versus 2018 Third Quarter
Total noninterest expense for the 2019 third quarter increased $16 million, or 2%, from the year-ago quarter. Personnel costs increased $18 million, or 5%, primarily reflecting the shift toward colleagues supporting our core strategies and the implementation of annual merit increases in the 2019 second quarter. Outside data processing and other services increased $18 million, or 26%, primarily driven by higher technology investment costs. Deposit and other insurance expense decreased $10 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter. Other expense decreased $9 million, or 16%, primarily as a result of operational losses in the third quarter 2018 and reduced OREO and other credit-related expense.
2019 Third Quarter versus 2019 Second Quarter
Total noninterest expense decreased $33 million, or 5%, from the 2019 second quarter. Personnel costs decreased $22 million, or 5%, primarily reflecting the timing of equity compensation expense in the second quarter and lower benefits expense. Other expense decreased $13 million, or 21%, primarily as a result of a $5 million Columbus Foundation donation and other discretionary spend in the 2019 second quarter.
Table 8 - Noninterest Expense—2019 First Nine Months Ended vs. 2018 First Nine Months Ended
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions)
2019
 
2018
 
Amount
 
Percent
Personnel costs
$
1,228

 
$
1,160

 
$
68

 
6
 %
Outside data processing and other services
257

 
211

 
46

 
22

Net occupancy
118

 
114

 
4

 
4

Equipment
121

 
116

 
5

 
4

Deposit and other insurance expense
24

 
54

 
(30
)
 
(56
)
Professional services
40

 
43

 
(3
)
 
(7
)
Marketing
28

 
38

 
(10
)
 
(26
)
Amortization of intangibles
37

 
40

 
(3
)
 
(8
)
Other expense
167

 
160

 
7

 
4

Total noninterest expense
$
2,020

 
$
1,936

 
$
84

 
4
 %
Noninterest expense increased $84 million, or 4%, from the year-ago period. Personnel costs increased $68 million, or 6%, primarily reflecting the shift toward colleagues supporting our core strategies, and annual merit increases. Outside data processing and other services increased $46 million, or 22%, primarily driven by higher technology investment costs. Other expense increased $7 million, or 4%, primarily as a result of a Columbus Foundation donation in the 2019 second quarter and the impact of the new lease accounting standard on personal property tax expense and increased operational losses. Offsetting these increases, deposit and other insurance expense decreased $30 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter and marketing expense decreased $10 million, or 26%, reflecting the number and timing of marketing campaigns and deposit promotions.

15

Provision for Income Taxes
The provision for income taxes in the 2019 third quarter was $67 million. This compared with a provision for income taxes of $62 million in the 2018 third quarter and $63 million in the 2019 second quarter. The provision for income taxes for the nine-month periods ended September 30, 2019 and September 30, 2018 was $193 million and $178 million, respectively. All periods included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, stock-based compensation, and capital losses. The effective tax rates for the 2019 third quarter, 2018 third quarter, and 2019 second quarter were 15.4%, 14.1%, and 14.6%, respectively. The effective tax rates for the nine-month periods ended September 30, 2019 and September 30, 2018 were 15.0% and 14.4%, respectively. The variance between the 2019 third quarter compared to the 2018 third quarter, and the nine month period ended September 30, 2019 compared to the nine month period ended September 30, 2018 in the provision for income taxes and effective tax rates relates primarily to activity in stock-based compensation. The net federal deferred tax liability was $213 million and the net state deferred tax asset was $34 million at September 30, 2019.
We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. Certain proposed adjustments resulting from the IRS examination of our 2010 through 2011 tax returns have been settled, subject to final approval by the Joint Committee on Taxation of the U.S. Congress. While the statute of limitations remains open for tax years 2012 through 2017, the IRS has advised that tax years 2012 through 2014 will not be audited, and is currently examining the 2015 and 2016 federal income tax returns. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, Wisconsin, and Illinois.
RISK MANAGEMENT AND CAPITAL
We use a multi-faceted approach to risk governance. It begins with the Board of Directors defining our risk appetite as aggregate moderate-to-low. Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. Controls include, among others, effective segregation of duties, access, authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.
We believe that our primary risk exposures are credit, market, liquidity, operational and compliance. More information on risk can be found in the Risk Factors section included in Item 1A of our 2018 Form 10-K and subsequent filings with the SEC. The MD&A included in our 2018 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 2018 Form 10-K.
Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. We also have credit risk associated with our investment securities portfolios (see Note 4 "Investment Securities and Other Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. A variety of derivative financial instruments, principally interest rate swaps, caps, floors, and collars, are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. Huntington also uses derivatives, principally loan sale commitments, in hedging its mortgage loan interest rate lock commitments and its mortgage loans held for sale. While there is credit risk associated with derivative activity, we believe this exposure is minimal.
We continue to focus on the identification, monitoring, and management of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use quantitative measurement capabilities utilizing external data sources, enhanced modeling technology, and internal stress testing processes. Our portfolio management resources demonstrate our commitment to maintaining an aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have focused on product design features, origination policies, and solutions for delinquent or stressed borrowers.

16

Loan and Lease Credit Exposure Mix
Refer to the “Loan and Lease Credit Exposure Mix” section of our 2018 Form 10-K for a brief description of each portfolio segment.
The table below provides the composition of our total loan and lease portfolio: 
Table 9 - Loan and Lease Portfolio Composition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
30,394

 
41
%
 
$
30,608

 
41
%
 
$
30,972

 
41
%
 
$
30,605

 
41
%
 
$
29,196

 
40
%
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction
1,157

 
2

 
1,146

 
1

 
1,152

 
2

 
1,185

 
2

 
1,111

 
2

Commercial
5,698

 
8

 
5,742

 
8

 
5,643

 
8

 
5,657

 
8

 
5,962

 
8

Commercial real estate
6,855

 
10

 
6,888

 
9

 
6,795

 
10

 
6,842

 
10

 
7,073

 
10

Total commercial
37,249

 
51

 
37,496

 
50

 
37,767

 
51

 
37,447

 
51

 
36,269

 
50

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
12,292

 
15

 
12,173

 
16

 
12,272

 
16

 
12,429

 
16

 
12,375

 
17

Home equity
9,300

 
12

 
9,419

 
12

 
9,551

 
13

 
9,722

 
13

 
9,850

 
13

Residential mortgage
11,247

 
15

 
11,182

 
15

 
10,885

 
14

 
10,728

 
14

 
10,459

 
14

RV and marine
3,553

 
5

 
3,492

 
5

 
3,344

 
4

 
3,254

 
4

 
3,152

 
4

Other consumer
1,251

 
2

 
1,271

 
2

 
1,260

 
2

 
1,320

 
2

 
1,265

 
2

Total consumer
37,643

 
49

 
37,537

 
50

 
37,312

 
49

 
37,453

 
49

 
37,101

 
50

Total loans and leases
$
74,892

 
100
%
 
$
75,033

 
100
%
 
$
75,079

 
100
%
 
$
74,900

 
100
%
 
$
73,370

 
100
%
Our loan portfolio is composed of a managed mix of consumer and commercial credits. At the corporate level, we manage the overall credit exposure and portfolio composition via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE project types, loans secured by residential real estate, large dollar exposures, and designated high risk loan definitions represent examples of specifically tracked components of our concentration management process. There are no identified concentrations that exceed the assigned exposure limit. Our concentration management policy is approved by the ROC of the Board of Directors and is one of the strategies used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile. Changes to existing concentration limits require the approval of the ROC prior to implementation, incorporating specific information relating to the potential impact on the overall portfolio composition and performance metrics.
Commercial Credit
Refer to the “Commercial Credit” section of our 2018 Form 10-K for our commercial credit underwriting and on-going credit management processes.
Consumer Credit
Refer to the “Consumer Credit” section of our 2018 Form 10-K for our consumer credit underwriting and on-going credit management processes.

17

The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition from December 31, 2018 are consistent with the portfolio growth metrics.
Table 10 - Loan and Lease Portfolio by Industry Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate and rental and leasing
$
6,826

 
9
%
 
$
6,983

 
9
%
 
$
6,955

 
9
%
 
$
6,964

 
9
%
 
$
7,187

 
10
%
Manufacturing
5,141

 
7

 
5,329

 
7

 
5,338

 
7

 
5,140

 
7

 
4,817

 
7

Retail trade (1)
5,031

 
7

 
5,161

 
7

 
5,266

 
7

 
5,337

 
7

 
4,987

 
7

Finance and insurance
3,308

 
4

 
3,473

 
5

 
3,457

 
5

 
3,377

 
5

 
3,345

 
5

Health care and social assistance
2,604

 
3

 
2,497

 
3

 
2,575

 
3

 
2,533

 
3

 
2,582

 
4

Wholesale trade
2,449

 
3

 
2,604

 
3

 
2,725

 
4

 
2,830

 
4

 
2,609

 
4

Accommodation and food services
2,008

 
3

 
1,868

 
2

 
1,782

 
2

 
1,709

 
2

 
1,636

 
2

Mining, quarrying, and oil and gas extraction
1,375

 
2

 
1,310

 
2

 
1,306

 
2

 
1,286

 
2

 
1,045

 
1

Professional, scientific, and technical services
1,347

 
2

 
1,336

 
2

 
1,401

 
2

 
1,344

 
2

 
1,269

 
2

Other services
1,324

 
2

 
1,360

 
2

 
1,243

 
2

 
1,290

 
2

 
1,312

 
2

Transportation and warehousing
1,242

 
2

 
1,240

 
2

 
1,323

 
2

 
1,320

 
2

 
1,176

 
2

Construction
973

 
1

 
892

 
1

 
973

 
1

 
924

 
1

 
986

 
1

Admin./Support/Waste Mgmt. and Remediation Services
687

 
1

 
681

 
1

 
690

 
1

 
737

 
1

 
664

 
1

Arts, entertainment, and recreation
654

 
1

 
617

 
1

 
585

 
1

 
599

 
1

 
585

 
1

Information
619

 
1

 
527

 
1

 
522

 
1

 
441

 
1

 
346

 
—

Educational services
467

 
1

 
481

 
1

 
478

 
1

 
473

 
1

 
482

 
1

Utilities
419

 
1

 
445

 
1

 
428

 
1

 
454

 
1

 
459

 
—

Unclassified/Other
254

 
—

 
168

 
—

 
187

 
—

 
174

 
—

 
266

 
—

Public administration
237

 
1

 
247

 
—

 
249

 
—

 
253

 
—

 
253

 
—

Agriculture, forestry, fishing and hunting
172

 
—

 
174

 
—

 
171

 
—

 
174

 
—

 
178

 
—

Management of companies and enterprises
112

 
—

 
103

 
—

 
113

 
—

 
88

 
—

 
85

 
—

Total commercial loans and leases by industry category
37,249

 
51

 
37,496

 
50

 
37,767

 
51

 
37,447

 
51

 
36,269

 
50

Automobile
12,292

 
16

 
12,173

 
16

 
12,272

 
16

 
12,429

 
16

 
12,375

 
17

Home equity
9,300

 
12

 
9,419

 
12

 
9,551

 
13

 
9,722

 
13

 
9,850

 
13

Residential mortgage
11,247

 
15

 
11,182

 
15

 
10,885

 
14

 
10,728

 
14

 
10,459

 
14

RV and marine
3,553

 
5

 
3,492

 
5

 
3,344

 
4

 
3,254

 
4

 
3,152

 
4

Other consumer loans
1,251

 
1

 
1,271

 
2

 
1,260

 
2

 
1,320

 
2

 
1,265

 
2

Total loans and leases
74,892

 
100
%
 
$
75,033

 
100
%
 
$
75,079

 
100
%
 
$
74,900

 
100
%
 
$
73,370

 
100
%
(1)
Amounts include $3.5 billion, $3.6 billion, $3.6 billion, $3.6 billion and $3.3 billion of auto dealer services loans at September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively.
Credit Quality
(This section should be read in conjunction with Note 3 "Loans / Leases and Allowance for Credit Losses" of the Notes to Unaudited Condensed Consolidated Financial Statements.)
We believe the most meaningful way to assess overall credit quality performance is through an analysis of specific performance ratios. This approach forms the basis of the discussion in the sections immediately following: NPAs, NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, product segmentation, and origination trends in the analysis of our credit quality performance.

18

Credit quality performance in the 2019 third quarter reflected total NCOs as a percent of average loans, annualized, of 0.39%, an increase from 0.16% in the prior year quarter, resulting from higher commercial net charge-offs. Consumer NCOs have remained consistent with the prior year quarter. Total NCOs were $73 million. On a linked quarter basis, NCOs increased $25 million from the prior quarter, with $20 million of the increase within the commercial portfolio. NPAs increased from the prior quarter by $22 million due to few high dollar credits. NPAs to total loans and leases remains low at 0.64%. The ALLL to total loans and leases ratio increased 2 basis points to 1.05%.
NPAs, NALs, AND TDRs
(This section should be read in conjunction with Note 3 "Loans / Leases and Allowance for Credit Losses" of the Notes to Unaudited Condensed Consolidated Financial Statements and "Credit Quality" section of our 2018 Form 10-K.)
NPAs and NALs
Commercial loans are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt. Of the $303 million of commercial related NALs at September 30, 2019, $221 million, or 73%, represented loans that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management. With the exception of residential mortgage loans guaranteed by government organizations which continue to accrue interest, first-lien loans secured by residential mortgage collateral are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile, RV and marine, and other consumer loans are generally fully charged-off at 120-days past due.
When loans are placed on nonaccrual, accrued interest income is reversed with current year accruals charged to interest income and prior year amounts generally charged-off as a credit loss. When, in our judgment, the borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status.
The following table reflects period-end NALs and NPAs detail for each of the last five quarters:
Table 11 - Nonaccrual Loans and Leases and Nonperforming Assets
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
Nonaccrual loans and leases (NALs):
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
291

 
$
281

 
$
271

 
$
188

 
$
211

Commercial real estate
12

 
17

 
9

 
15

 
19

Automobile
5

 
4

 
4

 
5

 
5

Home equity
60

 
60

 
64

 
62

 
67

Residential mortgage
69

 
62

 
68

 
69

 
67

RV and marine
1

 
1

 
1

 
1

 
1

Other consumer
—

 
—

 
—

 
—

 
—

Total nonaccrual loans and leases
438

 
425

 
417

 
340

 
370

Other real estate, net:
 
 
 
 
 
 
 
 
 
Residential
10

 
10

 
14

 
19

 
22

Commercial
2

 
4

 
4

 
4

 
5

Total other real estate, net
12

 
14

 
18

 
23

 
27

Other NPAs (1)
32

 
21

 
26

 
24

 
6

Total nonperforming assets
$
482

 
$
460

 
$
461

 
$
387

 
$
403

 
 
 
 
 
 
 
 
 
 
Nonaccrual loans and leases as a % of total loans and leases
0.58
%
 
0.57
%
 
0.56
%
 
0.45
%
 
0.50
%
NPA ratio (2)
0.64

 
0.61

 
0.61

 
0.52

 
0.55

 
(1)
Other nonperforming assets include certain impaired investment securities and/or nonaccrual loans held-for-sale.
(2)
Nonperforming assets divided by the sum of loans and leases, other real estate owned, and other NPAs.

19

2019 Third Quarter versus 2018 Fourth Quarter.
Total NPAs increased by $95 million, or 25%, compared with December 31, 2018, driven by an increase in the commercial portfolio, predominately C&I.
TDR Loans
(This section should be read in conjunction with Note 3 "Loans / Leases and Allowance for Credit Losses" of the Notes to Unaudited Condensed Consolidated Financial Statements and TDR Loans section of our 2018 Form 10-K.)
Over the past five quarters, the accruing component of the total TDR balance has been consistently over 80%, indicating there is no identified credit loss and the borrowers continue to make their monthly payments. As of September 30, 2019, over 79% of the $454 million of accruing TDRs secured by residential real estate (residential mortgage and home equity in Table 12) are current on their required payments, with over 63% of the accruing pool having had no delinquency in the past 12 months. There is limited migration from the accruing to non-accruing components, and virtually all of the charge-offs come from the non-accruing TDR balances.
The table below presents our accruing and nonaccruing TDRs at period-end for each of the past five quarters:
Table 12 - Accruing and Nonaccruing Troubled Debt Restructured Loans
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
TDRs—accruing:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
225

 
$
245

 
$
270

 
$
269

 
$
308

Commercial real estate
40

 
48

 
60

 
54

 
60

Automobile
39

 
37

 
37

 
35

 
34

Home equity
233

 
241

 
247

 
252

 
257

Residential mortgage
221

 
221

 
219

 
218

 
219

RV and marine
3

 
2

 
2

 
2

 
2

Other consumer
10

 
10

 
9

 
9

 
10

Total TDRs—accruing
771

 
804

 
844

 
839

 
890

TDRs—nonaccruing:
 
 
 
 
 
 
 
 
 
Commercial and industrial
84

 
88

 
86

 
97

 
100

Commercial real estate
6

 
6

 
6

 
6

 
8

Automobile
3

 
3

 
3

 
3

 
3

Home equity
26

 
26

 
28

 
28

 
28

Residential mortgage
44

 
43

 
43

 
44

 
46

RV and marine
1

 
1

 
1

 
—

 
1

Other consumer
—

 
—

 
—

 
—

 
—

Total TDRs—nonaccruing
164

 
167

 
167

 
178

 
186

Total TDRs
$
935

 
$
971

 
$
1,011

 
$
1,017

 
$
1,076

Overall TDRs decreased slightly in the quarter. Huntington continues to proactively work with our borrowing relationships that require assistance. The resulting loan structures enable our borrowers to meet their commitments and Huntington to retain earning assets. The accruing TDRs meet the well secured definition and have demonstrated a period of satisfactory payment performance.

20

ACL
(This section should be read in conjunction with Note 3 "Loans / Leases and Allowance for Credit Losses" of the Notes to Unaudited Condensed Consolidated Financial Statements.)
Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. Our ACL methodology committee is responsible for developing the methodology, assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of incurred losses in the loan portfolio at the reported date. Additions to the ALLL result from recording provision expense for loan losses or increased risk levels resulting from loan risk-rating downgrades or qualitative adjustments, while reductions reflect charge-offs (net of recoveries), decreased risk levels resulting from loan risk-rating upgrades, or the sale of loans. The AULC is determined by applying the same quantitative reserve determination process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation.
Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. While the total ACL balance increased year over year, all of the relevant benchmarks remain strong.
The table below reflects the allocation of our ALLL among our various loan categories during each of the past five quarters: 
Table 13 - Allocation of Allowance for Credit Losses (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
ALLL
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
441

 
41
%
 
$
455

 
41
%
 
$
437

 
41
%
 
$
422

 
41
%
 
$
419

 
40
%
Commercial real estate
120

 
10

 
105

 
9

 
108

 
10

 
120

 
10

 
124

 
10

Total commercial
561

 
51

 
560

 
50

 
545

 
51

 
542

 
51

 
543

 
50

Consumer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
54

 
15

 
53

 
16

 
53

 
16

 
56

 
16

 
52

 
17

Home equity
47

 
12

 
47

 
12

 
53

 
13

 
55

 
13

 
54

 
13

Residential mortgage
22

 
15

 
22

 
15

 
23

 
14

 
25

 
14

 
24

 
14

RV and marine
20

 
5

 
18

 
5

 
20

 
4

 
20

 
4

 
18

 
4

Other consumer
79

 
2

 
74

 
2

 
70

 
2

 
74

 
2

 
70

 
2

Total consumer
222

 
49

 
214

 
50

 
219

 
49

 
230

 
49

 
218

 
50

Total ALLL
783

 
100
%
 
774

 
100
%
 
764

 
100
%
 
772

 
100
%
 
761

 
100
%
AULC
101

 
 
 
101

 
 
 
100

 
 
 
96

 
 
 
97

 
 
Total ACL
$
884

 
 
 
$
875

 
 
 
$
864

 
 
 
$
868

 
 
 
$
858

 
 
Total ALLL as a % of
Total loans and leases
 
 
1.05%
 
 
 
1.03%
 
 
 
1.02%
 
 
 
1.03%
 
 
 
1.04%
Nonaccrual loans and leases
 
 
179
 
 
 
182
 
 
 
183
 
 
 
228
 
 
 
206
NPAs
 
 
163
 
 
 
168
 
 
 
166
 
 
 
200
 
 
 
189
(1)
Percentages represent the percentage of each loan and lease category to total loans and leases.
2019 Third Quarter versus 2018 Fourth Quarter
At September 30, 2019, the ALLL was $783 million, compared to $772 million at December 31, 2018. The $11 million increase in the ALLL relates to the growth in the commercial ALLL levels since the prior year end, partially offset by reductions in consumer ALLL. The ALLL to total loans ratio was 1.05% at September 30, 2019 and 1.03% at December 31, 2018. We believe the ratio is appropriate given the overall moderate-to-low risk profile of our loan portfolio and the coverage levels reflect the quality of our portfolio and the current operating environment. We continue to focus on early identification of loans with changes in credit metrics and have proactive action plans for these loans.

21

NCOs
A loan in any portfolio may be charged-off prior to the policies described below if a loss confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a collateral deficiency where that asset is the sole source of repayment. Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a charge-off to estimated collateral value, less anticipated selling costs at the time of discharge.
Commercial loans are either charged-off or written down to net realizable value by 90-days past due with the exception of administrative small ticket lease delinquencies. Automobile loans, RV and marine, and other consumer loans are generally fully charged-off at 120-days past due. First-lien and junior-lien home equity loans are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due and 120-days past due, respectively. Residential mortgages are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due. The remaining balance is in delinquent status until a modification can be completed, or the loan goes through the foreclosure process.
Table 14 - Quarterly Net Charge-off Analysis
 
Three Months Ended
 
September 30,
 
June 30,
 
September 30,
(dollar amounts in millions)
2019
 
2019
 
2018
Net charge-offs (recoveries) by loan and lease type:
Commercial:
 
 
 
 
 
Commercial and industrial
$
40

 
$
21

 
$
(1
)
Commercial real estate:
 
 
 
 
 
Construction
(1
)
 
(1
)
 
—

Commercial
(1
)
 
(2
)
 
(3
)
Commercial real estate
(2
)
 
(3
)
 
(3
)
Total commercial
38

 
18

 
(4
)
Consumer:
 
 
 
 
 
Automobile
8

 
5

 
8

Home equity
2

 
2

 
1

Residential mortgage
1

 
1

 
2

RV and marine
2

 
2

 
2

Other consumer
22

 
20

 
20

Total consumer
35

 
30

 
33

Total net charge-offs
$
73

 
$
48

 
$
29

 
 
 
 
 
 
Net charge-offs (recoveries) - annualized percentages:
Commercial:
 
 
 
 
 
Commercial and industrial
0.52
 %
 
0.27
 %
 
(0.01
)%
Commercial real estate:
 
 
 
 
 
Construction
(0.40
)
 
(0.08
)
 
(0.01
)
Commercial
(0.09
)
 
(0.12
)
 
(0.18
)
Commercial real estate
(0.14
)
 
(0.12
)
 
(0.15
)
Total commercial
0.40

 
0.20

 
(0.04
)
Consumer:
 
 
 
 
 
Automobile
0.26

 
0.17

 
0.26

Home equity
0.11

 
0.07

 
0.06

Residential mortgage
0.03

 
0.05

 
0.07

RV and marine
0.23

 
0.25

 
0.25

Other consumer
7.07

 
6.02

 
6.32

Total consumer
0.38

 
0.31

 
0.36

Net charge-offs as a % of average loans
0.39
 %
 
0.25
 %
 
0.16
 %

22

In assessing NCO trends, it is helpful to understand the process of how commercial loans are treated as they deteriorate over time. The ALLL is established consistent with the level of risk associated with the commercial portfolio's original underwriting. As a part of our normal portfolio management process for commercial loans, loans within the portfolio are periodically reviewed and the ALLL is increased or decreased based on the updated risk ratings. For TDRs and individually assessed impaired loans, a specific reserve is established based on the discounted projected cash flows or collateral value of the specific loan. Charge-offs, if necessary, are generally recognized in a period after the specific ALLL is established. Consumer loans are treated in much the same manner as commercial loans, with increasing reserve factors applied based on the risk characteristics of the loan, although specific reserves are not identified for consumer loans, except for TDRs. In summary, if loan quality deteriorates, the typical credit sequence would be periods of reserve building, followed by periods of higher NCOs as the previously established ALLL is utilized. Additionally, an increase in the ALLL either precedes or is in conjunction with increases in NALs. When a loan is classified as NAL, it is evaluated for specific ALLL or charge-off. As a result, an increase in NALs does not necessarily result in an increase in the ALLL or an expectation of higher future NCOs.

2019 Third Quarter versus 2019 Second Quarter
NCOs were an annualized 0.39% of average loans and leases in the current quarter, increasing from 0.25% in the 2019 second quarter, and within our average through-the-cycle target range of 0.35% - 0.55%. Annualized NCOs for the commercial portfolios were 0.40% in the current quarter compared to 0.20% in 2019 second quarter. The increase in commercial NCOs was centered in our energy portfolio. Consumer charge-offs were slightly higher for the quarter, primarily driven by seasonality trends across the consumer portfolio, consistent with our expectations. Given the relatively low level of NCOs we have experienced on an overall portfolio basis, we would expect to see some continued volatility on a quarter-to-quarter basis, largely driven by the performance of the commercial portfolios.

23

The table below reflects NCO detail for the nine-month periods ended September 30, 2019 and 2018:
Table 15 - Year to Date Net Charge-off Analysis
 
Nine Months Ended September 30,
(dollar amounts in millions)
2019
 
2018
Net charge-offs (recoveries) by loan and lease type:
 
 
 
Commercial:
 
 
 
Commercial and industrial
$
92

 
$
19

Commercial real estate:
 
 
 
Construction
(2
)
 
(1
)
Commercial
(1
)
 
(17
)
Commercial real estate
(3
)
 
(18
)
Total commercial
89

 
1

Consumer:
 
 
 
Automobile
23

 
25

Home equity
7

 
4

Residential mortgage
5

 
4

RV and marine
7

 
7

Other consumer
61

 
54

Total consumer
103

 
94

Total net charge-offs
$
192

 
$
95

 
 
 
 
Net charge-offs (recoveries) - annualized percentages:
 
 
 
Commercial:
 
 
 
Commercial and industrial
0.40
 %
 
0.09
 %
Commercial real estate:
 
 
 
Construction
(0.19
)
 
(0.14
)
Commercial
(0.03
)
 
(0.34
)
Commercial real estate
(0.06
)
 
(0.31
)
Total commercial
0.32

 
0.01

Consumer:
 
 
 
Automobile
0.25

 
0.27

Home equity
0.10

 
0.06

Residential mortgage
0.06

 
0.05

RV and marine
0.29

 
0.33

Other consumer
6.41

 
6.12

Total consumer
0.37

 
0.35

Net charge-offs as a % of average loans
0.34
 %
 
0.18
 %
2019 First Nine Months versus 2018 First Nine Months
NCOs increased $97 million in the first nine-month period of 2019 to $192 million. The increase from the year-ago period was primarily centered in the commercial portfolio. The 2018 commercial NCOs of $1 million included substantial recovery activity whereas, 2019 commercial NCOs were largely driven by a few energy credits. The results in the consumer portfolio were consistent with expectations across all segments. Given the low level of C&I and CRE NCOs, there will continue to be some volatility on a period-to-period comparison basis.

24

Market Risk
(This section should be read in conjunction with the “Market Risk” section of our 2018 Form 10-K for our on-going market risk management processes.)
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from trading securities, securities owned by our broker-dealer subsidiaries, foreign exchange positions, equity investments, and investments in securities backed by mortgage loans.
Table 16 - Net Interest Income at Risk
 
Net Interest Income at Risk (%)
Basis point change scenario
-100

 
+100

 
+200

Board policy limits (1)
-2.0
 %
 
-2.0
 %
 
-4.0
 %
September 30, 2019
-1.4
 %
 
0.8
 %
 
2.0
 %
December 31, 2018
-2.9
 %
 
2.7
 %
 
5.8
 %
(1)
The policy limit for the -100 basis point scenario changed from -4.0%, which was in effect at December 31, 2018, to -2.0% as of September 30, 2019.

The NII at Risk results included in the table above reflect the analysis used monthly by management. It models gradual -100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. The decrease in sensitivity was driven by the purchase of interest rate floors as well as additional interest rate swaps, changes to the actual and forecasted portfolio composition, and the change in forecasted rates from an expectation of rising rates to declining rates.
Our NII at Risk is within our Board of Directors’ policy limits for the -100, +100 and +200 basis point scenarios. The NII at Risk shows that our balance sheet is asset sensitive at both September 30, 2019, and December 31, 2018.
Table 17 - Economic Value of Equity at Risk
 
Economic Value of Equity at Risk (%)
Basis point change scenario
-100

 
+100

 
+200

Board policy limits
-6.0
 %
 
-6.0
 %
 
-12.0
 %
September 30, 2019
-6.0
 %
 
1.4
 %
 
—
 %
December 31, 2018
-5.8
 %
 
2.3
 %
 
3.1
 %
The EVE results included in the table above reflect the analysis used monthly by management. It models immediate -100, +100 and +200 basis point parallel shifts in market interest rates.
We are within our Board of Directors’ policy limits for the -100, +100 and +200 basis point scenarios. The EVE depicts a slightly asset sensitive balance sheet profile with additional convexity in the +200 basis point scenario. The decline in asset sensitivity was driven by slower security prepayments, deposit composition changes, and the addition of interest rate swaps and floors mentioned above.

25

MSRs
(This section should be read in conjunction with Note 5 "Mortgage Loan Sales and Servicing Rights" of Notes to the Unaudited Condensed Consolidated Financial Statements.)
At September 30, 2019, we had a total of $180 million of capitalized MSRs representing the right to service $22 billion in mortgage loans. Of this $180 million, $8 million was recorded using the fair value method and $172 million was recorded using the amortization method.
MSR fair values are sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. We also employ hedging strategies to reduce the risk of MSR fair value changes or impairment. However, volatile changes in interest rates can diminish the effectiveness of these economic hedges. We report changes in the MSR value net of hedge-related trading activity in the mortgage banking income category of noninterest income. Decreases in fair value of the MSR, below amortized costs, would be recognized as a decrease in mortgage banking income. Any increase in the fair value, to the extent of prior impairment, would be recognized as an increase in mortgage banking income.
MSR assets are included in servicing rights and other intangible assets in the Unaudited Condensed Consolidated Financial Statements.

Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, securities owned by our broker-dealer subsidiaries, foreign exchange positions, derivative instruments, and equity investments. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained, and on the amount of marketable equity securities that can be held.
Liquidity Risk
(This section should be read in conjunction with the “Liquidity Risk” section of our 2018 Form 10-K for our on-going liquidity risk management processes.)
Our primary source of liquidity is our core deposit base. Core deposits comprised approximately 97% of total deposits at September 30, 2019. We also have available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets, and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $19.0 billion as of September 30, 2019.
Bank Liquidity and Sources of Funding
Our primary sources of funding for the Bank are retail and commercial core deposits. At September 30, 2019, these core deposits funded 73% of total assets (106% of total loans). Other sources of liquidity include non-core deposits, FHLB advances, wholesale debt instruments, and securitizations. Demand deposit overdrafts that have been reclassified as loan balances were $22 million and $23 million at September 30, 2019 and December 31, 2018, respectively.

26

The following table reflects deposit composition detail for each of the last five quarters:
Table 18 - Deposit Composition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
(dollar amounts in millions)
2019
 
2019
 
2019 (1)
 
2018 (2)
 
2018
By Type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits—noninterest-bearing
$
20,553

 
25
%
 
$
19,383

 
24
%
 
$
20,036

 
24
%
 
$
21,783

 
26
%
 
$
19,863

 
24
%
Demand deposits—interest-bearing
19,976

 
24

 
19,085

 
24

 
19,906

 
24

 
20,042

 
24

 
19,615

 
24

Money market deposits
23,977

 
29

 
23,952

 
30

 
22,931

 
28

 
22,721

 
27

 
21,411

 
26

Savings and other domestic deposits
9,566

 
12

 
9,803

 
12

 
10,277

 
13

 
10,451

 
12

 
11,604

 
14

Core certificates of deposit (3)
5,443

 
7

 
5,703

 
7

 
6,007

 
7

 
5,924

 
7

 
5,358

 
7

Total core deposits:
79,515

 
97

 
77,926

 
97

 
79,157

 
96

 
80,921

 
96

 
77,851

 
95

Other domestic deposits of $250,000 or more
326

 
—

 
316

 
—

 
313

 
1

 
337

 
—

 
318

 
1

Brokered deposits and negotiable CDs
2,554

 
3

 
2,640

 
3

 
2,685

 
3

 
3,516

 
4

 
3,520

 
4

Total deposits
$
82,395

 
100
%
 
$
80,882

 
100
%
 
$
82,155

 
100
%
 
$
84,774

 
100
%
 
$
81,689

 
100
%
Total core deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
35,247

 
44
%
 
$
33,371

 
43
%
 
$
33,546

 
42
%
 
$
37,268

 
46
%
 
$
35,455

 
46
%
Consumer
44,268

 
56

 
44,555

 
57

 
45,611

 
58

 
43,653

 
54

 
42,396

 
54

Total core deposits
$
79,515

 
100
%
 
$
77,926

 
100
%
 
$
79,157

 
100
%
 
$
80,921

 
100
%
 
$
77,851

 
100
%
(1)
March 31, 2019 includes $845 million of deposits classified as held-for-sale.
(2)
December 31, 2018 includes $872 million of deposits classified as held-for-sale.
(3)
Includes consumer certificates of deposit of $250,000 or more.
The Bank maintains borrowing capacity at the FHLB and the Federal Reserve Bank Discount Window. The Bank does not consider borrowing capacity from the Federal Reserve Bank Discount Window as a primary source of liquidity. Total loans and securities pledged to the Federal Reserve Discount Window and the FHLB are $38.2 billion and $46.5 billion at September 30, 2019 and December 31, 2018, respectively.
To the extent we are unable to obtain sufficient liquidity through core deposits, we may meet our liquidity needs through sources of wholesale funding, asset securitization or sale. Sources of wholesale funding include other domestic deposits of $250,000 or more, brokered deposits and negotiable CDs, short-term borrowings, and long-term debt. At September 30, 2019, total wholesale funding was $14.9 billion, an increase from $14.5 billion at December 31, 2018. The increase from year-end primarily relates to an increase in short-term borrowings and issuance of long-term debt, partially offset by a decrease in brokered deposits and negotiable CDs.
Liquidity Coverage Ratio
At September 30, 2019, the Bank is in compliance with the LCR requirements and we believe the Bank has sufficient liquidity to meet its cash flow obligations for the foreseeable future.
Parent Company Liquidity
The parent company’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of nonbank subsidiaries, repurchases of our stock, and acquisitions. The parent company obtains funding to meet obligations from dividends and interest received from the Bank, interest and dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the federal consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities.
At September 30, 2019 and December 31, 2018, the parent company had $3.6 billion and $2.4 billion, respectively, in cash and cash equivalents.
On October 23, 2019, the Board of Directors declared a quarterly common stock cash dividend of $0.15 per common share. The dividend is payable on January 2, 2020, to shareholders of record on December 18, 2019. Based on the current quarterly dividend of $0.15 per common share, cash demands required for common stock dividends are estimated to be approximately $155 million per quarter. On October 23, 2019, the Board of Directors declared a quarterly Series B, Series C, Series D, and Series E Preferred Stock dividend payable on January 15, 2020 to shareholders of record on January 1, 2020. Cash demands required for Series B are expected to be less than $1 million per quarter. Cash demands required for Series C, Series D and Series E are expected to be approximately $2 million, $9 million and $7 million per quarter, respectively.

27

During the first nine months of 2019, the Bank paid a preferred and common dividends of $34 million and $430 million, respectively. During the first nine months of 2019, the Bank also repaid subordinate debt of $683 million to the holding company. To meet any additional liquidity needs, the parent company may issue debt or equity securities from time to time.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include commitments to extend credit, interest rate swaps and floors, financial guarantees contained in standby letters-of-credit issued by the Bank, and commitments by the Bank to sell mortgage loans.
Operational Risk
Operational risk is the risk of loss due to human error, inadequate or failed internal systems and controls, including the use of financial or other quantitative methodologies that may not adequately predict future results; violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards; and external influences such as market conditions, fraudulent activities, disasters, and security risks. We continuously strive to strengthen our system of internal controls to ensure compliance with laws, rules, and regulations, and to improve the oversight of our operational risk. We actively monitor cyberattacks such as attempts related to online deception and loss of sensitive customer data. We evaluate internal systems, processes and controls to mitigate loss from cyber-attacks and, to date, have not experienced any material losses.
Our objective for managing cyber security risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate our systems. We work to achieve this objective by hardening networks and systems against attack, and by diligently managing visibility and monitoring controls within our data and communications environment to recognize events and respond before the attacker has the opportunity to plan and execute on its own goals. To this end we employ a set of defense in-depth strategies, which include efforts to make us less attractive as a target and less vulnerable to threats, while investing in threat analytic capabilities for rapid detection and response. Potential concerns related to cyber security may be escalated to our board-level Technology Committee, as appropriate. As a complement to the overall cyber security risk management, we use a number of internal training methods, both formally through mandatory courses and informally through written communications and other updates. Internal policies and procedures have been implemented to encourage the reporting of potential phishing attacks or other security risks. We also use third-party services to test the effectiveness of our cyber security risk management framework, and any such third parties are required to comply with our policies regarding information security and confidentiality.
To mitigate operational risks, we have an Operational Risk Committee, a Legal, Regulatory, and Compliance Committee, Funds Movement Committee and a Third Party Risk Management Committee. The responsibilities of these committees, among other duties, include establishing and maintaining management information systems to monitor material risks and to identify potential concerns, risks, or trends that may have a significant impact and ensuring that recommendations are developed to address the identified issues. In addition, we have a Model Risk Oversight Committee that is responsible for policies and procedures describing how model risk is evaluated and managed and the application of the governance process to implement these practices throughout the enterprise. These committees report any significant findings and recommendations to the Risk Management Committee. Potential concerns may be escalated to our ROC and the Audit Committee, as appropriate. Significant findings or issues are escalated by the Third Party Risk Management Committee to the Technology Committee of the Board, as appropriate.
The goal of this framework is to implement effective operational risk techniques and strategies; minimize operational, fraud, and legal losses; minimize the impact of inadequately designed models and enhance our overall performance.
Compliance Risk
Financial institutions are subject to many laws, rules, and regulations at both the federal and state levels. These broad-based laws, rules, and regulations include, but are not limited to, expectations relating to anti-money laundering, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices, protections for military members as they enter active duty, and community reinvestment. The volume and complexity of recent regulatory changes have increased our overall compliance risk. As such, we utilize various resources to help ensure expectations are met, including a team of compliance experts dedicated to ensuring our conformance with all applicable laws, rules, and regulations. Our colleagues receive training for several broad-based laws and regulations including, but not limited to, anti-money laundering and customer privacy. Additionally, colleagues engaged in lending activities receive training for laws and regulations related to flood disaster protection, equal credit opportunity, fair lending, and/or other courses related to the extension of credit. We set a high standard of expectation for adherence to compliance management and seek to continuously enhance our performance.


28

Capital
Both regulatory capital and shareholders’ equity are managed at the Bank and on a consolidated basis. We have an active program for managing capital and maintain a comprehensive process for assessing the Company’s overall capital adequacy. We believe our current levels of both regulatory capital and shareholders’ equity are adequate.
The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the periods presented:
Table 19 - Regulatory Capital Data
 
 
 
 
 
 
 
 
 
 
Basel III
(dollar amounts in millions)
 
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
Total risk-weighted assets
Consolidated
 
$
86,719

 
$
86,332

 
$
83,580

 
Bank
 
86,831

 
86,410

 
83,847

CET I risk-based capital
Consolidated
 
8,685

 
8,530

 
8,263

 
Bank
 
9,590

 
9,583

 
8,601

Tier 1 risk-based capital
Consolidated
 
9,893

 
9,737

 
9,470

 
Bank
 
10,466

 
10,460

 
9,480

Tier 2 risk-based capital
Consolidated
 
1,634

 
1,602

 
1,697

 
Bank
 
1,255

 
1,296

 
1,895

Total risk-based capital
Consolidated
 
11,527

 
11,339

 
11,167

 
Bank
 
11,721

 
11,756

 
11,375

CET I risk-based capital ratio
Consolidated
 
10.02
%
 
9.88
%
 
9.89
%
 
Bank
 
11.05

 
11.09

 
10.26

Tier 1 risk-based capital ratio
Consolidated
 
11.41

 
11.28

 
11.33

 
Bank
 
12.05

 
12.11

 
11.31

Total risk-based capital ratio
Consolidated
 
13.29

 
13.13

 
13.36

 
Bank
 
13.50

 
13.60

 
13.57

Tier 1 leverage ratio
Consolidated
 
9.34

 
9.24

 
9.14

 
Bank
 
9.88

 
9.93

 
9.15

At September 30, 2019, we maintained Basel III capital ratios in excess of the well-capitalized standards established by the FRB. All capital ratios were impacted by the repurchase of 33.4 million common shares over the last four quarters.
Shareholders’ Equity
We generate shareholders’ equity primarily through the retention of earnings, net of dividends and share repurchases. Other potential sources of shareholders’ equity include issuances of common and preferred stock. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, to meet both regulatory and market expectations, and to provide the flexibility needed for future growth and business opportunities.
Shareholders’ equity totaled $11.9 billion at September 30, 2019, an increase of $0.8 billion when compared with December 31, 2018.
On June 27, 2019, Huntington announced proposed capital actions included in Huntington's 2019 capital plan. These actions include a 7% increase in the quarterly dividend per common share to $0.15, starting in the third quarter of 2019, the repurchase of up to $513 million of common stock over the next four quarters (July 1, 2019 through June 30, 2020), and maintaining dividends on the outstanding classes of preferred stock and trust preferred securities. Any capital actions, including those contemplated above, are subject to approval by Huntington’s Board of Directors.
On July 17, 2019, the Board of Directors authorized the repurchase of up to $513 million of common shares over the four quarters through the 2020 second quarter. Purchases of common stock under the authorization may include open market purchases, privately negotiated transactions, and accelerated repurchase programs.
Dividends
We consider disciplined capital management as a key objective, with dividends representing one component. Our strong capital ratios and expectations for continued earnings growth positions us to continue to actively explore additional capital management opportunities.

29

Share Repurchases
From time to time the Board of Directors authorizes the Company to repurchase shares of our common stock. Although we announce when the Board of Directors authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations. During the 2019 third quarter, Huntington repurchased a total of 5.2 million shares at a weighted average share price of $13.02
BUSINESS SEGMENT DISCUSSION
Overview
Our business segments are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. We have four major business segments: Consumer and Business Banking, Commercial Banking, Vehicle Finance, and Regional Banking and The Huntington Private Client Group (RBHPCG). The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.
Business segment results are determined based upon our management practices, which assigns balance sheet and income statement items to each of the business segments. The process is designed around our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.
Revenue Sharing
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing service to customers. Results of operations for the business segments reflect these fee sharing allocations.
Expense Allocation
The management process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all four business segments from Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, if any, and a small amount of other residual unallocated expenses, are allocated to the four business segments.
Funds Transfer Pricing (FTP)
We use an active and centralized FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). During 2019, the Company updated and refined its FTP methodology primarily related to the allocation of deposit funding costs.  Prior period amounts presented below have been restated to reflect the new methodology.

30

Net Income by Business Segment
Net income by business segment for the nine-month periods ending September 30, 2019 and September 30, 2018 is presented in the following table:
Table 20 - Net Income by Business Segment
 
Nine Months Ended September 30,
(dollar amounts in millions)
2019
 
2018
Consumer and Business Banking
$
505

 
$
355

Commercial Banking
421

 
453

Vehicle Finance
128

 
127

RBHPCG
87

 
90

Treasury / Other
(47
)
 
34

Net income
$
1,094

 
$
1,059

Treasury / Other
The Treasury / Other function includes revenue and expense related to assets, liabilities, and equity not directly assigned or allocated to one of the four business segments. Assets include investment securities and bank owned life insurance.
Net interest income includes the impact of administering our investment securities portfolios, the net impact of derivatives used to hedge interest rate sensitivity as well as the financial impact associated with our FTP methodology, as described above. Noninterest income includes miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income and securities and trading asset gains or losses. Noninterest expense includes certain corporate administrative, and other miscellaneous expenses not allocated to other business segments. The provision for income taxes for the business segments is calculated at a statutory 21% tax rate, although our overall effective tax rate is lower. As a result, Treasury / Other reflects a credit for income taxes representing the difference between the lower effective tax rate and the statutory tax rate used at the time to allocate income taxes to the business segments.

Consumer and Business Banking
 
 
 
 
 
 
 
 
Table 21 - Key Performance Indicators for Consumer and Business Banking
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions)
2019
 
2018
 
Amount
 
Percent
Net interest income
$
1,371

 
$
1,254

 
$
117

 
9
 %
Provision for credit losses
81

 
98

 
(17
)
 
(17
)
Noninterest income
596

 
557

 
39

 
7

Noninterest expense
1,247

 
1,263

 
(16
)
 
(1
)
Provision for income taxes
134

 
95

 
39

 
41

Net income
$
505

 
$
355

 
$
150

 
42
 %
Number of employees (average full-time equivalent)
8,015

 
8,374

 
(359
)
 
(4
)%
Total average assets
$
25,486

 
$
24,995

 
$
491

 
2

Total average loans/leases
22,226

 
21,892

 
334

 
2

Total average deposits
51,505

 
47,032

 
4,473

 
10

Net interest margin
3.51
%
 
3.52
%
 
(0.01
)%
 
—

NCOs
$
97

 
$
75

 
$
22

 
29

NCOs as a % of average loans and leases
0.58
%
 
0.46
%
 
0.12
 %
 
26

2019 First Nine Months versus 2018 First Nine Months
Consumer and Business Banking, including Home Lending, reported net income of $505 million in the first nine-month period of 2019, an increase of $150 million, or 42%, compared to the year-ago period. Segment net interest income increased $117 million, or 9%, driven by the higher value of deposits, along with a 10% increase in average deposits. The provision for credit losses decreased $17 million, or 17%. Noninterest income increased $39 million, or 7%, primarily due to increased mortgage banking income, card interchange income from higher transaction volumes, along with increased service charge income on deposit accounts. Noninterest expense decreased $16 million, or 1%, due to decreased personnel, occupancy, and equipment expense as a result of branch consolidations and divestitures, along with reduced FDIC insurance expense.

31

Home Lending, an operating unit of Consumer and Business Banking, reflects the result of the origination, sale, and servicing of mortgage loans less referral fees and net interest income for mortgage banking products distributed by the retail branch network and other business segments. Home Lending reported a gain of $9 million in the first nine-month period of 2019, compared with a net loss of $3 million in the year-ago period. Noninterest income increased $26 million, or 43%, driven primarily by higher salable spreads partially offset by lower net servicing revenue. Noninterest expense increased $13 million, or 11%, as a result of higher allocated indirect costs partially offset by lower personnel expense.

Commercial Banking
 
 
 
 
 
 
 
 
Table 22 - Key Performance Indicators for Commercial Banking
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions)
2019
 
2018
 
Amount
 
Percent
Net interest income
$
798

 
$
744

 
$
54

 
7
 %
Provision for credit losses
103

 
41

 
62

 
151

Noninterest income
266

 
234

 
32

 
14

Noninterest expense
427

 
364

 
63

 
17

Provision for income taxes
113

 
120

 
(7
)
 
(6
)
Net income
$
421

 
$
453

 
$
(32
)
 
(7
)%
Number of employees (average full-time equivalent)
1,323

 
1,240

 
83

 
7
 %
Total average assets
$
33,678

 
$
30,954

 
$
2,724

 
9

Total average loans/leases
27,204

 
26,094

 
1,110

 
4

Total average deposits
21,105

 
22,041

 
(936
)
 
(4
)
Net interest margin
3.58
%
 
3.47
 %
 
0.11
%
 
3

NCOs (Recoveries)
$
65

 
$
(12
)
 
$
77

 
642

NCOs as a % of average loans and leases
0.32
%
 
(0.06
)%
 
0.38
%
 
633

2019 First Nine Months versus 2018 First Nine Months
Commercial Banking reported net income of $421 million in the first nine-month period of 2019, a decrease of $32 million, or 7%, compared to the year-ago period. Provision for credit losses increased $62 million, or 151%, primarily due to net charge offs of $65 million compared to a net recovery of $12 million in the prior year. Segment net interest income increased $54 million, or 7%, primarily due to an 11 basis point increase in net interest margin driven by a higher value of deposits and a 4% growth in average loans, partially offset by a decrease in loan spread. Noninterest income increased $32 million, or 14%, largely driven by higher capital markets related revenue due to increased underwriting activity, customer interest rate derivatives, and foreign exchange revenue. Noninterest expense increased $63 million, or 17%, primarily due to allocated overhead and personnel expense, which was driven by the acquisition of Hutchinson, Shockey, and Erly & Co. in the 2018 third quarter, and other taxes related to the adoption of the new lease accounting standard, partially offset by lower FDIC insurance expense.  

32

Vehicle Finance
 
 
 
 
 
 
 
 
Table 23 - Key Performance Indicators for Vehicle Finance
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions)
2019
 
2018
 
Amount
 
Percent
Net interest income
$
291

 
$
294

 
$
(3
)
 
(1
)%
Provision for credit losses
27

 
36

 
(9
)
 
(25
)
Noninterest income
9

 
9

 
—

 
—

Noninterest expense
112

 
106

 
6

 
6

Provision for income taxes
33

 
34

 
(1
)
 
(3
)
Net income
$
128

 
$
127

 
$
1

 
1
 %
Number of employees (average full-time equivalent)
266

 
263

 
3

 
1
 %
Total average assets
$
19,264

 
$
18,200

 
$
1,064

 
6

Total average loans/leases
19,336

 
18,250

 
1,086

 
6

Total average deposits
329

 
339

 
(10
)
 
(3
)
Net interest margin
2.01
%
 
2.15
%
 
(0.14
)%
 
(7
)
NCOs
$
30

 
$
31

 
$
(1
)
 
(3
)
NCOs as a % of average loans and leases
0.21
%
 
0.23
%
 
(0.02
)%
 
(9
)
2019 First Nine Months versus 2018 First Nine Months
Vehicle Finance reported net income of $128 million in the first nine-month period of 2019, an increase of $1 million, or 1%, compared to the year-ago period. Segment net interest income decreased $3 million or 1%, due to a 14 basis point decrease in the net interest margin, which continues to primarily reflect the run off of the higher yielding acquired loan portfolios, the related purchase accounting impact, and higher funding costs. This decrease was offset in part by a $1.1 billion, or 6%, increase in average loan balances primarily reflecting the success of the geographic expansion of RV and marine loans over the past two years, as well as growth of floor plan and other commercial balances. Noninterest income was unchanged, while noninterest expense increased $6 million, or 6%, primarily reflecting higher allocated costs attributed to the increases in loan balances and associated portfolio management and servicing activities.

Regional Banking and The Huntington Private Client Group
 
 
 
 
 
 
 
 
Table 24 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group
 
Nine Months Ended September 30,
 
Change
(dollar amounts in millions)
2019
 
2018
 
Amount
 
Percent
Net interest income
$
153

 
$
148

 
$
5

 
3
 %
Provision for credit losses
(3
)
 
—

 
(3
)
 
(100
)
Noninterest income
147

 
146

 
1

 
1

Noninterest expense
193

 
180

 
13

 
7

Provision for income taxes
23

 
24

 
(1
)
 
(4
)
Net income
$
87

 
$
90

 
$
(3
)
 
(3
)%
Number of employees (average full-time equivalent)
1,059

 
1,022

 
37

 
4
 %
Total average assets
$
6,377

 
$
5,703

 
$
674

 
12

Total average loans/leases
6,071

 
5,386

 
685

 
13

Total average deposits
5,939

 
5,908

 
31

 
1

Net interest margin
3.31
%
 
3.25
%
 
0.06
 %
 
2

NCOs
$
—

 
$
—

 
$
—

 
—

NCOs as a % of average loans and leases
—
%
 
0.01
%
 
(0.01
)%
 
(100
)
Total assets under management (in billions)—eop
$
16.8

 
$
17.2

 
$
(0.4
)
 
(2
)
Total trust assets (in billions)—eop
117.6

 
114.3

 
3.3

 
3

eop - End of Period.

33

2019 First Nine Months versus 2018 First Nine Months
RBHPCG reported net income of $87 million in the first nine-month period of 2019, a decrease of $3 million, or 3%, compared to the year-ago period. Segment net interest income increased $5 million, or 3%, due to a 6 basis point increase in net interest margin, reflecting higher deposit spreads, partially offset by a decrease in loan spreads. Average loans increased $0.7 billion, or 13%, primarily due to residential real estate mortgage loans, while average deposits remained relatively flat. Noninterest income increased $1 million, or 1%, due to increased insurance income resulting from life insurance agency sales. Noninterest expense increased $13 million, or 7%, primarily due to strategic hires and increased product allocation costs.
ADDITIONAL DISCLOSURES
Forward-Looking Statements
This report, including MD&A, contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.
While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; movements in interest rates; reform of LIBOR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services implementing our “Fair Play” banking philosophy; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; and other factors that may affect our future results.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Non-GAAP Financial Measures
This document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding our results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.
Fully-Taxable Equivalent Basis
Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21 percent. We encourage readers to consider the Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Non-Regulatory Capital Ratios
In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:
•
Tangible common equity to tangible assets,
•
Tangible equity to tangible assets, and
•
Tangible common equity to risk-weighted assets using Basel III definitions.
These non-regulatory capital ratios are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market conditions. Additionally, presentation of these ratios allows readers to

34

compare our capitalization to other financial services companies. These ratios differ from capital ratios defined by banking regulators principally in that the numerator excludes goodwill and other intangible assets, the nature and extent of which varies among different financial services companies. These ratios are not defined in GAAP or federal banking regulations. As a result, these non-regulatory capital ratios disclosed by the Company are considered non-GAAP financial measures.
Because there are no standardized definitions for these non-regulatory capital ratios, the Company’s calculation methods may differ from those used by other financial services companies. Also, there may be limits in the usefulness of these measures to investors. As a result, we encourage readers to consider the Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Risk Factors
More information on risk is discussed in the Risk Factors section included in Item 1A of our 2018 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.
Critical Accounting Policies and Use of Significant Estimates
Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our Consolidated Financial Statements. Note 1 of the Notes to Consolidated Financial Statements included in our December 31, 2018 Form 10-K, as supplemented by this report including this MD&A, describes the significant accounting policies we used in our Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the Consolidated Financial Statements. Estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce results substantially different from those estimates. Our most significant accounting estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes, and deferred tax assets/liabilities. These significant accounting estimates and their related application are discussed in our December 31, 2018 Form 10-K.
Recent Accounting Pronouncements and Developments
Note 2 "Accounting Standards Update" of the Notes to Unaudited Condensed Consolidated Financial Statements discusses new accounting pronouncements adopted during 2019 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Unaudited Condensed Consolidated Financial Statements.
Fair Value
At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. As necessary, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs at the measurement date. The fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs, can be found in Note 11 "Fair Values of Assets and Liabilities" of the Notes to Unaudited Condensed Consolidated Financial Statements.


35

Item 1: Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 30,
 
December 31,
(dollar amounts in millions)
2019
 
2018
Assets
 
 
 
Cash and due from banks
$
1,018

 
$
1,108

Interest-bearing deposits at Federal Reserve Bank
618

 
1,564

Interest-bearing deposits in banks
122

 
53

Trading account securities
118

 
105

Available-for-sale securities
14,286

 
13,780

Held-to-maturity securities
8,430

 
8,565

Other securities
455

 
565

Loans held for sale (includes $963 and $613 respectively, measured at fair value)(1)
1,064

 
804

Loans and leases (includes $80 and $79 respectively, measured at fair value)(1)
74,892

 
74,900

Allowance for loan and lease losses
(783
)
 
(772
)
Net loans and leases
74,109

 
74,128

Bank owned life insurance
2,532

 
2,507

Premises and equipment
775

 
790

Goodwill
1,990

 
1,989

Servicing rights and other intangible assets
455

 
535

Other assets
2,763

 
2,288

Total assets
$
108,735

 
$
108,781

Liabilities and shareholders’ equity
 
 
 
Liabilities
 
 
 
Deposits (includes $0 and $872 respectively, classified as held-for-sale)
$
82,395

 
$
84,774

Short-term borrowings
2,173

 
2,017

Long-term debt
9,874

 
8,625

Other liabilities
2,384

 
2,263

Total liabilities
96,826

 
97,679

Commitments and contingencies (Note 14)
 
 
 
Shareholders’ equity
 
 
 
Preferred stock
1,203

 
1,203

Common stock
10

 
11

Capital surplus
8,980

 
9,181

Less treasury shares, at cost
(55
)
 
(45
)
Accumulated other comprehensive loss
(175
)
 
(609
)
Retained earnings
1,946

 
1,361

Total shareholders’ equity
11,909

 
11,102

Total liabilities and shareholders’ equity
$
108,735

 
$
108,781

Common shares authorized (par value of $0.01)
1,500,000,000

 
1,500,000,000

Common shares outstanding
1,032,755,207

 
1,046,767,252

Treasury shares outstanding
4,548,310

 
3,817,385

Preferred stock, authorized shares
6,617,808

 
6,617,808

Preferred shares outstanding
740,500

 
740,500


(1)
Amounts represent loans for which Huntington has elected the fair value option. See Note 11 "Fair Values of Assets and Liabilities".
See Notes to Unaudited Condensed Consolidated Financial Statements

36

Huntington Bancshares Incorporated
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income
 
 
 
 
 
 
 
(Unaudited)
 
 
 
 
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions, share amounts in thousands)
2019
 
2018
 
2019
 
2018
Interest and fee income:
 
 
 
 
 
 
 
Loans and leases
$
889

 
$
848

 
$
2,692

 
$
2,414

Available-for-sale securities
 
 
 
 
 
 
 
Taxable
74

 
68

 
222

 
209

Tax-exempt
20

 
24

 
64

 
71

Held-to-maturity securities—taxable
54

 
52

 
164

 
159

Other securities—taxable
3

 
6

 
13

 
19

Other
12

 
9

 
35

 
21

Total interest income
1,052

 
1,007

 
3,190

 
2,893

Interest expense:
 
 
 
 
 
 
 
Deposits
154

 
112

 
449

 
259

Short-term borrowings
13

 
9

 
46

 
42

Subordinated notes and other long-term debt
86

 
84

 
262

 
236

Total interest expense
253

 
205

 
757

 
537

Net interest income
799

 
802

 
2,433

 
2,356

Provision for credit losses
82

 
53

 
208

 
175

Net interest income after provision for credit losses
717

 
749

 
2,225

 
2,181

Service charges on deposit accounts
98

 
93

 
277

 
270

Cards and payment processing income
64

 
57

 
183

 
166

Trust and investment management services
44

 
43

 
131

 
129

Mortgage banking income
54

 
31

 
109

 
85

Capital markets fees
36

 
26

 
92

 
74

Insurance income
20

 
19

 
64

 
61

Bank owned life insurance income
18

 
19

 
49

 
51

Gain on sale of loans and leases
13

 
16

 
39

 
39

Net (losses) gains on sales of securities
—

 
(2
)
 
(2
)
 
(2
)
Other noninterest income
42

 
40

 
140

 
119

Total noninterest income
389

 
342

 
1,082

 
992

Personnel costs
406

 
388

 
1,228

 
1,160

Outside data processing and other services
87

 
69

 
257

 
211

Net occupancy
38

 
38

 
118

 
114

Equipment
41

 
38

 
121

 
116

Deposit and other insurance expense
8

 
18

 
24

 
54

Professional services
16

 
17

 
40

 
43

Marketing
10

 
12

 
28

 
38

Amortization of intangibles
12

 
13

 
37

 
40

Other noninterest expense
49

 
58

 
167

 
160

Total noninterest expense
667

 
651

 
2,020

 
1,936

Income before income taxes
439

 
440

 
1,287

 
1,237

Provision for income taxes
67

 
62

 
193

 
178

Net income
372

 
378

 
1,094

 
1,059

Dividends on preferred shares
18

 
18

 
55

 
51

Net income applicable to common shares
$
354

 
$
360

 
$
1,039

 
$
1,008

Average common shares—basic
1,034,940

 
1,084,536

 
1,042,246

 
1,090,570

Average common shares—diluted
1,051,273

 
1,103,740

 
1,059,064

 
1,116,978

Per common share:
 
 
 
 
 
 
 
Net income—basic
$
0.34

 
$
0.33

 
$
1.00

 
$
0.92

Net income—diluted
0.34

 
0.33

 
0.98

 
0.90

 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements

37

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
2019
 
2018
 
2019
 
2018
Net income
$
372

 
$
378

 
$
1,094

 
$
1,059

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized net gains (losses) on available-for-sale securities arising during the period, net of reclassification for net realized gains and losses
69

 
(62
)
 
349

 
(264
)
Total unrealized gains (losses) on available-for-sale securities
69

 
(62
)
 
349

 
(264
)
Change in fair value related to cash flow hedges
28

 
—

 
82

 
—

Change in accumulated unrealized losses for pension and other post-retirement obligations
1

 
1

 
3

 
3

Other comprehensive income (loss), net of tax
98

 
(61
)
 
434

 
(261
)
Comprehensive income
$
470

 
$
317

 
$
1,528

 
$
798

See Notes to Unaudited Condensed Consolidated Financial Statements


38

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(dollar amounts in millions, share amounts in thousands)
Preferred Stock
 
Common Stock
 
Capital Surplus
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Total
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,203

 
1,042,140

 
$
10

 
$
9,030

 
(4,299
)
 
$
(52
)
 
$
(273
)
 
$
1,750

 
$
11,668

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
372

 
372

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
98

 
 
 
98

Repurchases of common stock
 
 
(5,213
)
 
—

 
(68
)
 
 
 
 
 
 
 
 
 
(68
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common ($0.15 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(158
)
 
(158
)
Preferred Series B ($12.51 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
—

Preferred Series C ($14.69 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Preferred Series D ($15.63 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10
)
 
(10
)
Preferred Series E ($1,425.00 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(7
)
 
(7
)
Recognition of the fair value of share-based compensation
 
 
 
 
 
 
16

 
 
 
 
 
 
 
 
 
16

Other share-based compensation activity
 
 
376

 
—

 
2

 
 
 
 
 
 
 


 
2

Other
 
 
 
 
 
 
 
 
(249
)
 
(3
)
 


 


 
(3
)
Balance, end of period
$
1,203

 
1,037,303

 
$
10

 
$
8,980

 
(4,548
)
 
$
(55
)
 
$
(175
)
 
$
1,946

 
$
11,909

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,203

 
1,107,817

 
$
11

 
$
10,038

 
(3,268
)
 
$
(40
)
 
$
(730
)
 
$
990

 
$
11,472

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
378

 
378

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(61
)
 
 
 
(61
)
Repurchase of common stock
 
 
(43,670
)
 
—

 
(691
)
 
 
 
 
 
 
 
 
 
(691
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common ($0.14 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(150
)
 
(150
)
Preferred Series B ($12.84 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Preferred Series C ($14.69 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Preferred Series D ($15.63 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9
)
 
(9
)
Preferred Series E ($1,425.00 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(7
)
 
(7
)
Recognition of the fair value of share-based compensation
 
 
 
 
 
 
15

 
 
 
 
 
 
 
 
 
15

Other share-based compensation activity
 
 
1,104

 
—

 
(4
)
 
 
 
 
 
 
 
(4
)
 
(8
)
Other
 
 
 
 
 
 
 
 
(454
)
 
(4
)
 
1

 
 
 
(3
)
Balance, end of period
$
1,203

 
1,065,251

 
$
11

 
$
9,358

 
(3,722
)
 
$
(44
)
 
$
(790
)
 
$
1,196

 
$
10,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


39

(dollar amounts in millions, share amounts in thousands)
Preferred Stock
 
Common Stock
 
Capital Surplus
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Total
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,203

 
1,050,584

 
$
11

 
$
9,181

 
(3,817
)
 
$
(45
)
 
$
(609
)
 
$
1,361

 
$
11,102

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,094

 
1,094

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
434

 
 
 
434

Repurchases of common stock
 
 
(18,390
)
 
(1
)
 
(244
)
 
 
 
 
 
 
 
 
 
(245
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common ($0.43 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(455
)
 
(455
)
Preferred Series B ($39.47 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Preferred Series C ($44.07 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4
)
 
(4
)
Preferred Series D ($46.88 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(29
)
 
(29
)
Preferred Series E ($4,275.00 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(21
)
 
(21
)
Recognition of the fair value of share-based compensation
 
 
 
 
 
 
64

 
 
 
 
 
 
 
 
 
64

Other share-based compensation activity
 
 
5,109

 
—

 
(21
)
 
 
 
 
 
 
 


 
(21
)
Other
 
 
 
 
 
 
—

 
(731
)
 
(10
)
 


 
1

 
(9
)
Balance, end of period
$
1,203

 
1,037,303

 
$
10

 
$
8,980

 
(4,548
)
 
$
(55
)
 
$
(175
)
 
$
1,946

 
$
11,909

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,071

 
1,075,295

 
$
11

 
$
9,707

 
(3,268
)
 
$
(35
)
 
$
(528
)
 
$
588

 
$
10,814

Cumulative-effect adjustment (ASU 2016-01)
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
1

 
—

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,059

 
1,059

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(261
)
 
 
 
(261
)
Net proceeds from issuance of Preferred Series E Stock
495

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
495

Repurchases of common stock
 
 
(46,677
)
 
—

 
(739
)
 
 
 
 
 
 
 
 
 
(739
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common ($0.36 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(393
)
 
(393
)
Preferred Series B ($36.51 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2
)
 
(2
)
Preferred Series C ($44.07 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4
)
 
(4
)
Preferred Series D ($46.88 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(28
)
 
(28
)
Preferred Series E ($3,467.50 per share)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(17
)
 
(17
)
Conversion of Preferred Series A Stock to Common Stock
(363
)
 
30,330

 
 
 
363

 
 
 
 
 
 
 
 
 
—

Recognition of the fair value of share-based compensation
 
 
 
 
 
 
59

 
 
 
 
 
 
 
 
 
59

Other share-based compensation activity
 
 
6,303

 
—

 
(32
)
 
 
 
 
 
 
 
(8
)
 
(40
)
Other
 
 


 


 
—

 
(454
)
 
(9
)
 
 
 


 
(9
)
Balance, end of period
$
1,203

 
1,065,251

 
$
11

 
$
9,358

 
(3,722
)
 
$
(44
)
 
$
(790
)
 
$
1,196

 
$
10,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements

40

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
(dollar amounts in millions)
2019
 
2018
Operating activities
 
Net income
$
1,094

 
$
1,059

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
Provision for credit losses
208

 
175

Depreciation and amortization
308

 
350

Share-based compensation expense
64

 
59

Deferred income tax expense
(6
)
 
125

Net change in:
 
 
 
Trading account securities
(51
)
 
3

Loans held for sale
(356
)
 
(384
)
Other assets
(662
)
 
(325
)
Other liabilities
297

 
215

Other, net
2

 
(133
)
Net cash provided by (used in) operating activities
898

 
1,144

Investing activities
 
Change in interest bearing deposits in banks
(121
)
 
62

Proceeds from:
 
 
 
Maturities and calls of available-for-sale securities
1,338

 
1,539

Maturities and calls of held-to-maturity securities
656

 
573

Maturities and calls of other securities
153

 
40

Sales of available-for-sale securities
1,746

 
381

Purchases of available-for-sale securities
(3,174
)
 
(1,044
)
Purchases of held-to-maturity securities
(516
)
 
(71
)
Purchases of other securities
(5
)
 
(5
)
Net proceeds from sales of portfolio loans
670

 
461

Principal payments received under direct finance and sales-type leases
544

 
—

Net loan and lease activity, excluding sales and purchases
(1,162
)
 
(3,583
)
Purchases of premises and equipment
(82
)
 
(62
)
Purchases of loans and leases
(311
)
 
(318
)
Net cash paid for branch disposition
(548
)
 
—

Other, net
49

 
50

Net cash provided by (used in) investing activities
(763
)
 
(1,977
)
Financing activities
 
 
 
Increase (decrease) in deposits
(1,654
)
 
4,648

Increase (decrease) in short-term borrowings
196

 
(3,613
)
Net proceeds from issuance of long-term debt
1,737

 
2,171

Maturity/redemption of long-term debt
(684
)
 
(1,915
)
Dividends paid on preferred stock
(55
)
 
(51
)
Dividends paid on common stock
(442
)
 
(362
)
Repurchases of common stock
(245
)
 
(739
)
Net proceeds from issuance of preferred stock
—

 
495

Payments related to tax-withholding for share based compensation awards
(26
)
 
(27
)
Other, net
2

 
5

Net cash provided by (used for) financing activities
(1,171
)
 
612

Increase (decrease) in cash and cash equivalents
(1,036
)
 
(221
)
Cash and cash equivalents at beginning of period
2,672

 
1,520

Cash and cash equivalents at end of period
$
1,636

 
$
1,299



41

 
Nine Months Ended September 30,
(dollar amounts in millions)
2019
 
2018
Supplemental disclosures:
 
Interest paid
$
758

 
$
527

Income taxes paid (refunded)
54

 
(112
)
Non-cash activities
 
Loans transferred to held-for-sale from portfolio
744

 
470

Loans transferred to portfolio from held-for-sale
14

 
49

Transfer of loans to OREO
16

 
15

Transfer of securities from held-to-maturity to available-for-sale
—

 
2,833

Transfer of securities from available-for-sale to held-to-maturity
—

 
2,707

See Notes to Unaudited Condensed Consolidated Financial Statements

42

Huntington Bancshares Incorporated
Notes to Unaudited Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying Unaudited Condensed Consolidated Financial Statements of Huntington reflect all adjustments consisting of normal recurring accruals which are, in the opinion of Management, necessary for a fair statement of the consolidated financial position, the results of operations, and cash flows for the periods presented. These Unaudited Condensed Consolidated Financial Statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2018 Form 10-K, which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.
For statement of cash flow purposes, cash and cash equivalents are defined as the sum of Cash and due from banks and Interest-bearing deposits at Federal Reserve Bank.
In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the Unaudited Condensed Consolidated Financial Statements or disclosed in the Notes to Unaudited Condensed Consolidated Financial Statements. No subsequent events were disclosed for the current period.
Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. During the first quarter of 2019, Huntington reclassified loan syndication fees into capital markets fees from other noninterest income. There was no material effect on capital market fees or other noninterest income and no effect on net income as a result of this reclassification.

43

2. ACCOUNTING STANDARDS UPDATE
Accounting standards adopted in current period
Standard
Summary of guidance
Effects on financial statements
ASU 2016-02 - Leases.
Issued February 2016

- New lease accounting model for lessees and lessors. For lessees, virtually all leases will be required to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is classified as an operating lease or a finance lease.

- Accounting applied by a lessor is largely unchanged from that applied under previous guidance.

- Requires additional qualitative and quantitative disclosures with the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
-  Management adopted the guidance on January 1, 2019, and elected certain practical expedients offered by the FASB, including foregoing the restatement of comparative periods upon adoption. Management also excluded short-term leases from the recognition of right-of-use asset and lease liabilities. Additionally, Huntington elected the transition relief allowed by FASB in foregoing reassessment of the following: whether any existing contracts were or contained leases, the classification of existing leases, and the determination of initial direct costs for existing leases.

- Huntington recognized right-of-use assets of approximately $200 million offset by lease liabilities of approximately $250 million upon adoption, representing substantially all of its operating lease commitments, with the difference attributable to transition adjustments required by ASC Topic 842 relating to previously recognized amounts for deferred rent and lease exit costs (recorded pursuant to ASC Topic 420). Right-of-use assets and lease liabilities were based, primarily, on the present value of unpaid future minimum lease payments. Additionally, the amounts were impacted by assumptions around renewals and/or extensions, and the interest rate used to discount those future lease obligations. Impact to the income statement was not material in the period of adoption.

- Existing sale and leaseback guidance, including the detailed guidance applicable to sale-leasebacks of real estate, was replaced with a new model applicable to all assets, which will apply equally to both lessees and lessors. Under the new standard, if the transaction meets sale criteria, the seller-lessee will recognize the sale based on the new revenue recognition standard (when control transfers to the buyer-lessor), derecognizing the asset sold and replacing it with a right-of-use asset and lease liability for the leaseback. If the transaction is at fair value, the seller-lessee shall recognize a gain or loss on sale at that time.

- Costs related to exiting an operating lease before the end of its contractual term have been historically accounted for pursuant to ASC Topic 420, with the recognition of a liability measured at the present value of remaining lease payments reduced by any expected sublease income upon the exit of that space. ASC Topic 842 changes the accounting for such costs, with entities evaluating the impairment of right-of-use assets using the guidance in ASC Topic 360. Such an impairment analysis would occur once the entity commits to a plan to abandon the space, which may accelerate the timing of these costs.

- The new standard defines initial direct costs as those that would not have been incurred if the lease had not been obtained. Certain incremental costs previously eligible for capitalization, such as internal overhead, will now be expensed.

44

Standard
Summary of guidance
Effects on financial statements
ASU 2019-01 -
Leases (ASC Topic 842): Codification Improvements
Issued: March 2019
- Notes that lessors that are not manufacturers or dealers will apply the fair value exception in a manner similar to what they did prior to the implementation of ASC Topic 842.

- Clarifies that lessors in the scope of ASC Topic 942 (Financial Services - Depository & Lending) must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows.

- Eliminates certain interim transition disclosure requirements related to the effect of an accounting change on certain interim period financial information.
- The amendments relating to lessor accounting are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

- Huntington adopted the guidance concurrent with the adoption of ASU 2016-02 on January 1, 2019. The amendment did not have a material impact on Huntington's Unaudited Condensed Consolidated Financial Statements.






45


Accounting standards yet to be adopted
Standard
Summary of guidance
Effects on financial statements
ASU 2016-13 - Financial Instruments - Credit Losses.
Issued June 2016
- Eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost, replacing the current incurred loss model with an expected credit loss model.

- Requires those financial assets subject to the new standard to be presented at the net amount expected to be collected (i.e., net of expected credit losses).

- Measurement of expected credit losses should be based on relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.

–
The standard will require additional quantitative and qualitative disclosures related to the credit risk inherent in Huntington’s portfolio and how management monitors the portfolio’s credit quality. 
- Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

- Adoption will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

- Management will adopt the guidance on January 1, 2020 and formed a working group in 2017 comprised of teams from different disciplines including credit, finance, and risk management that has evaluated the requirements of the new standard and the impact it will have on our processes, systems and controls. This group is in the later stages of implementing those identified process, system and control changes.

- Huntington has completed the process of developing credit models with model implementation and validation substantially completed during the third quarter of 2019. In addition, management is in the later stages of implementing the accounting, reporting, and governance processes to comply with the new standard.

- Based on the portfolio composition as of September 30, 2019, management estimates the adoption of CECL on January 1, 2020 could result in an overall allowance increase of 40% to 50% compared to current ACL levels. The estimated increase in the allowance is largely attributable to the consumer portfolio, given the longer asset duration associated with many of these products. It is important to note that this is still an estimated impact range. The final adoption impact will be heavily dependent on management's view of existing and forecasted economic conditions and also the composition of the portfolio at the date of adoption.

–
The standard eliminates the current accounting model for purchased-credit-impaired loans, but requires an allowance to be recognized for purchased-credit-deteriorated (PCD) assets (those that have experienced more-than-insignificant deterioration in credit quality since origination). Huntington does not expect a material impact from PCD assets upon adoption.

–
Upon adoption, Huntington does not expect to record a material allowance with respect to HTM and AFS securities as the portfolios consist primarily of agency-backed securities that inherently have minimal nonpayment risk.
ASU 2017-04 - Simplifying the Test for Goodwill Impairment.
Issued January 2017
- Simplifies the goodwill impairment test by eliminating Step 2 of the goodwill impairment process, which requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities.

- Entities will instead recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.

- Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
- Effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted.

- The amendment is not expected to have a material impact on Huntington's Unaudited Condensed Consolidated Financial Statements.


46

Standard
Summary of guidance
Effects on financial statements
ASU 2019-04 -
Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Issued: April 2019
 - Clarifies various implementation issues related to Recognition and Measurement of Financial Instruments (ASC Topic 825), Current Expected Credit Losses (ASC Topic 326) and Derivatives and Hedging (ASC Topic 815).

 - Provides additional implementation guidance on CECL issues that include, among others, (a) measurement of credit allowance on accrued interest; (b) treatment of credit allowance upon transfers between classifications or categories for loans and debt securities; (c) inclusion of recoveries in determining credit allowance amounts; (d) using projections of rate change for variable rate instruments; (e) vintage disclosures for lines-of-credit; (f) contractual extensions and renewals; (g) consideration of prepayments in calculating effective interest rate; and (h) consideration of costs to sell if the entity intends to sell the collateral when foreclosure is probable.

 - Clarifies for Topic 815, among others, that (a) only interest rate risk may be hedged in a partial-term fair value hedge; (b) amortization of fair value basis adjustment may begin before the fair value hedge is discontinued; (c) hedged AFS securities should be disclosed at amortized cost for disclosures related to hedged assets; and (d) contractually specified interest rate should be considered when applying hypothetical derivative method while assessing hedge effectiveness.

 - Clarifies for Topic 326, among others, that (a) using observable price under measurement alternative provided by ASC Topic 820 is a non-recurring fair value measurement and entities should adhere to non-recurring fair value disclosure requirements; and (b) equity securities without readily determinable fair value accounted for under measurement alternative should be remeasured using historical exchange rates.
 - Effective dates and transition requirements for amendments related to CECL (ASC Topic 326) are the same as effective dates and transition requirements for ASU 2016-13.

 - Amendments related to Derivatives and Hedging (ASC Topic 815) are effective as of the beginning of first annual period after the issuance date of the Update (ASU 2019-04). Earlier adoption is permitted, including adoption on any date on or after the issuance of the Update.

 - Amendment related to Recognition and Measurement of Financial Instruments (ASC Topic 825) should be applied on a modified-retrospective basis effective for fiscal years, including interim period within those fiscal years, beginning after December 15, 2019. Earlier adoption is permitted.

 - Amendments in the Update are not expected to have a material impact on Huntington's Unaudited Condensed Consolidated Financial Statements.
ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
Issued: May 2019
 - Provides entities that have certain instruments within the scope of ASC Subtopic 326-20 with an option to irrevocably elect fair value option, applied on instrument-by-instrument basis. The fair value option does not apply to held-to-maturity debt securities.
 - Effective dates for the amendment is the same as effective dates in ASU 2016-13. The amendment will be applied on a modified-retrospective basis.

 - The amendment is not expected to have a material impact on Huntington's Unaudited Condensed Consolidated Financial Statements.


47

3. LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES
Loans and leases which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. The total balance of unamortized premiums, discounts, fees, and costs, recognized as part of loans and leases, was a net premium of $490 million and $428 million at September 30, 2019 and December 31, 2018, respectively.
Loan and Lease Portfolio Composition
The following table provides a detailed listing of Huntington’s loan and lease portfolio at September 30, 2019 and December 31, 2018.
(dollar amounts in millions)
September 30, 2019
 
December 31, 2018
Loans and leases:
 
 
 
Commercial and industrial
$
30,394

 
$
30,605

Commercial real estate
6,855

 
6,842

Automobile
12,292

 
12,429

Home equity
9,300

 
9,722

Residential mortgage
11,247

 
10,728

RV and marine
3,553

 
3,254

Other consumer
1,251

 
1,320

Loans and leases
$
74,892

 
$
74,900

Allowance for loan and lease losses
(783
)
 
(772
)
Net loans and leases
$
74,109

 
$
74,128


Equipment Leases
Huntington leases equipment to customers, and substantially all such arrangements are classified as either sales-type or direct financing leases, which are included in C&I loans. These leases are reported at the aggregate of lease payments receivable and estimated residual values, net of unearned and deferred income, and any initial direct costs incurred to originate these leases. Renewal options for leases are at the option of the lessee, and are not included in the measurement of lease receivables as they are not considered reasonably certain of exercise. Purchase options are typically at fair value, and as such those options are not considered in the measurement of lease receivables or in lease classification.
For leased equipment, the residual component of a direct financing lease represents the estimated fair value of the leased equipment at the end of the lease term. Huntington uses industry data, historical experience, and independent appraisals to establish these residual value estimates. Additional information regarding product life cycle, product upgrades, as well as insight into competing products are obtained through relationships with industry contacts and are factored into residual value estimates where applicable. Upon expiration of a lease, residual assets are remarketed, resulting in an extension of the lease by the lessee, a lease to a new customer, or purchase of the residual asset by the lessee or another party. Huntington also purchases insurance guaranteeing the value of certain residual assets.
Impairment of the residual values of direct financing leases is evaluated quarterly, with impairment arising if the expected fair value is less than the carrying amount. Effective January 1, 2019, as a result of the implementation of ASU 2016-02, Huntington assesses net investments in leases (including residual values) for impairment and recognizes any impairment losses in accordance with the impairment guidance for financial instruments. As such, net investments in leases may be reduced by an allowance for credit losses, with changes recognized as provision expense.

48

The following table presents net investments in lease financing receivables by category at September 30, 2019 and December 31, 2018.
(dollar amounts in millions)
September 30,
2019
 
December 31,
2018
Commercial and industrial:
 
 
 
Lease payments receivable
$
1,743

 
$
1,747

Estimated residual value of leased assets
701

 
726

Gross investment in commercial and industrial lease financing receivables
2,444

 
2,473

Deferred origination costs
18

 
20

Deferred fees
(245
)
 
(250
)
Total net investment in commercial and industrial lease financing receivables
$
2,217

 
$
2,243

The carrying value of residual values guaranteed was $91 million as of September 30, 2019. The future lease rental payments due from customers on sales-type and direct financing leases at September 30, 2019, totaled $1.7 billion and were due as follows: $0.6 billion in 2020, $0.5 billion in 2021, $0.3 billion in 2022, $0.1 billion in 2023, $0.1 billion in 2024, and less than $0.1 billion thereafter. Interest income recognized for these types of leases was $28 million and $81 million for the three-month and nine-month periods ended September 30, 2019, respectively.
Nonaccrual and Past Due Loans
Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. See Note 1 “Significant Accounting Policies” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for a description of the accounting policies related to the NALs.
The following table presents NALs by loan class at September 30, 2019 and December 31, 2018.
(dollar amounts in millions)
September 30,
2019
 
December 31,
2018
Commercial and industrial
$
291

 
$
188

Commercial real estate
12

 
15

Automobile
5

 
5

Home equity
60

 
62

Residential mortgage
69

 
69

RV and marine
1

 
1

Other consumer
—

 
—

Total nonaccrual loans
$
438

 
$
340


The following table presents an aging analysis of loans and leases, including past due loans and leases, by loan class at September 30, 2019 and December 31, 2018:
 
September 30, 2019
 
 
Past Due (1)
 
 
 
 Loans Accounted for Under FVO
 
Total Loans
and Leases
 
90 or
more days
past due
and accruing
 
(dollar amounts in millions)
30-59
Days
 
60-89
 Days
 
90 or 
more days
 
Total
 
Current
 
 
 
 
Commercial and industrial
$
69

 
$
30

 
$
70

 
$
169

 
$
30,225

 
$
—

 
$
30,394

 
$
9

(2)
Commercial real estate
9

 
—

 
7

 
16

 
6,839

 
—

 
6,855

 
—

 
Automobile
79

 
18

 
10

 
107

 
12,185

 
—

 
12,292

 
8

 
Home equity
49

 
16

 
50

 
115

 
9,184

 
1

 
9,300

 
13

 
Residential mortgage
119

 
44

 
164

 
327

 
10,841

 
79

 
11,247

 
125

(3)
RV and marine
11

 
3

 
2

 
16

 
3,537

 
—

 
3,553

 
1

 
Other consumer
13

 
6

 
7

 
26

 
1,225

 
—

 
1,251

 
7

 
Total loans and leases
$
349

 
$
117

 
$
310

 
$
776

 
$
74,036

 
$
80

 
$
74,892

 
$
163

 

49

 
December 31, 2018
 
 
Past Due (1)
 
 
 
 Loans Accounted for Under FVO
 
Total Loans
and Leases
 
90 or
more days
past due
and accruing
 
(dollar amounts in millions)
30-59
Days
 
60-89
 Days
 
90 or 
more days
 
Total
 
Current
 
 
 
 
Commercial and industrial
$
72

 
$
17

 
$
51

 
$
140

 
$
30,465

 
$
—

 
$
30,605

 
$
7

(2)
Commercial real estate
10

 
—

 
5

 
15

 
6,827

 
—

 
6,842

 
—

 
Automobile
95

 
19

 
10

 
124

 
12,305

 
—

 
12,429

 
8

 
Home equity
51

 
21

 
56

 
128

 
9,593

 
1

 
9,722

 
17

 
Residential mortgage
108

 
47

 
168

 
323

 
10,327

 
78

 
10,728

 
131

(3)
RV and marine
12

 
3

 
2

 
17

 
3,237

 
—

 
3,254

 
1

 
Other consumer
14

 
7

 
6

 
27

 
1,293

 
—

 
1,320

 
6

 
Total loans and leases
$
362

 
$
114

 
$
298

 
$
774

 
$
74,047

 
$
79

 
$
74,900

 
$
170

 
(1)
NALs are included in this aging analysis based on the loan's past due status.
(2)
Amounts include Huntington Technology Finance administrative lease delinquencies.
(3)
Amounts include mortgage loans insured by U.S. government agencies.

Allowance for Credit Losses
Huntington maintains two reserves, both of which reflect Management’s judgment regarding the appropriate level necessary to absorb probable and estimable credit losses inherent in our loan and lease portfolio as of the balance sheet date: the ALLL and the AULC. Combined, these reserves comprise the total ACL. The determination of the ACL requires significant estimates, including the timing and amounts of expected future cash flows on impaired loans and leases, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans and leases, all of which may be susceptible to change. See Note 1 “Significant Accounting Policies” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for a description of the accounting policies related to the ACL.
The ALLL is increased through a provision for credit losses that is charged to earnings, based on Management’s quarterly evaluation and is reduced by charge-offs, net of recoveries.

50

The following table presents ALLL and AULC activity by portfolio segment for the three-month and nine-month periods ended September 30, 2019 and 2018.
(dollar amounts in millions)
 
Commercial
 
Consumer
 
Total
Three-month period ended September 30, 2019:
 
 
 
 
 
 
ALLL balance, beginning of period
 
$
560

 
$
214

 
$
774

Loan charge-offs
 
(53
)
 
(49
)
 
(102
)
Recoveries of loans previously charged-off
 
15

 
14

 
29

Provision for loan and lease losses
 
39

 
43

 
82

ALLL balance, end of period
 
$
561

 
$
222

 
$
783

AULC balance, beginning of period
 
$
99

 
$
2

 
$
101

Provision (reduction in allowance) for unfunded loan commitments and letters of credit
 
—

 
—

 
—

AULC balance, end of period
 
$
99

 
$
2

 
$
101

ACL balance, end of period
 
$
660

 
$
224

 
$
884

Nine-month period ended September 30, 2019:
 
 
 
 
 
 
ALLL balance, beginning of period
 
$
542

 
$
230

 
$
772

Loan charge-offs
 
(124
)
 
(145
)
 
(269
)
Recoveries of loans previously charged-off
 
35

 
42

 
77

Provision for loan and lease losses
 
108

 
95

 
203

ALLL balance, end of period
 
$
561

 
$
222

 
$
783

AULC balance, beginning of period
 
$
94

 
$
2

 
$
96

Provision (reduction in allowance) for unfunded loan commitments and letters of credit
 
5

 
—

 
5

AULC balance, end of period
 
$
99

 
$
2

 
$
101

ACL balance, end of period
 
$
660

 
$
224

 
$
884

(dollar amounts in millions)
 
Commercial
 
Consumer
 
Total
Three-month period ended September 30, 2018:
ALLL balance, beginning of period
 
$
531

 
$
210

 
$
741

Loan charge-offs
 
(11
)
 
(47
)
 
(58
)
Recoveries of loans previously charged-off
 
15

 
14

 
29

Provision for loan and lease losses
 
8

 
41

 
49

ALLL balance, end of period
 
$
543

 
$
218

 
$
761

AULC balance, beginning of period
 
$
90

 
$
3

 
$
93

Provision (reduction in allowance) for unfunded loan commitments and letters of credit
 
5

 
(1
)
 
4

AULC balance, end of period
 
$
95

 
$
2

 
$
97

ACL balance, end of period
 
$
638

 
$
220

 
$
858

Nine-month period ended September 30, 2018:
ALLL balance, beginning of period
 
$
482

 
$
209

 
$
691

Loan charge-offs
 
(46
)
 
(138
)
 
(184
)
Recoveries of loans previously charged-off
 
45

 
44

 
89

Provision for loan and lease losses
 
62

 
103

 
165

ALLL balance, end of period
 
$
543

 
$
218

 
$
761

AULC balance, beginning of period
 
$
84

 
$
3

 
$
87

Provision (reduction in allowance) for unfunded loan commitments and letters of credit
 
11

 
(1
)
 
10

AULC balance, end of period
 
$
95

 
$
2

 
$
97

ACL balance, end of period
 
$
638

 
$
220

 
$
858



51

Credit Quality Indicators
See Note 3 “Loans / Leases and Allowance for Credit Losses” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for a description of the credit quality indicators Huntington utilizes for monitoring credit quality and for determining an appropriate ACL level.
To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate ACL level for these loans, Huntington utilizes the following internally defined categories of credit grades:
•
Pass - Higher quality loans that do not fit any of the other categories described below.
•
OLEM - The credit risk may be relatively minor yet represents a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the loan may weaken or the collateral may be inadequate to protect Huntington’s position in the future. For these reasons, Huntington considers the loans to be potential problem loans.
•
Substandard - Inadequately protected loans by the borrower’s ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. It is likely Huntington will sustain some loss if any identified weaknesses are not mitigated.
•
Doubtful - Loans that have all of the weaknesses inherent in those loans classified as Substandard, with the added elements of the full collection of the loan is improbable and that the possibility of loss is high.
Loans are generally assigned a category of "Pass" rating upon initial approval and subsequently updated as appropriate based on the borrower's financial performance.
Commercial loans categorized as OLEM, Substandard, or Doubtful are considered Criticized loans. Commercial loans categorized as Substandard or Doubtful are both considered Classified loans.
The following table presents each loan and lease class by credit quality indicator at September 30, 2019 and December 31, 2018.
 
September 30, 2019
(dollar amounts in millions)
Credit Risk Profile by UCS Classification
Commercial
Pass
 
OLEM
 
Substandard
 
Doubtful
 
Total
Commercial and industrial
$
28,276

 
$
657

 
$
1,457

 
$
4

 
$
30,394

Commercial real estate
6,609

 
158

 
87

 
1

 
6,855

 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by FICO Score (1), (2)
Consumer
750+
 
650-749
 
<650
 
Other (3)
 
Total
Automobile
$
6,257

 
$
4,462

 
$
1,328

 
$
245

 
$
12,292

Home equity
5,847

 
2,815

 
592

 
45

 
9,299

Residential mortgage
7,633

 
2,796

 
600

 
139

 
11,168

RV and marine
2,313

 
1,027

 
111

 
102

 
3,553

Other consumer
487

 
583

 
117

 
64

 
1,251

 
December 31, 2018
(dollar amounts in millions)
Credit Risk Profile by UCS Classification
Commercial
Pass
 
OLEM
 
Substandard
 
Doubtful
 
Total
Commercial and industrial
$
28,807

 
$
518

 
$
1,269

 
$
11

 
$
30,605

Commercial real estate
6,586

 
181

 
74

 
1

 
6,842

 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by FICO Score (1), (2)
Consumer
750+
 
650-749
 
<650
 
Other (3)
 
Total
Automobile
$
6,254

 
$
4,520

 
$
1,373

 
$
282

 
$
12,429

Home equity
6,098

 
2,975

 
591

 
56

 
9,720

Residential mortgage
7,159

 
2,801

 
612

 
78

 
10,650

RV and marine
2,074

 
990

 
105

 
85

 
3,254

Other consumer
501

 
633

 
129

 
57

 
1,320


(1)
Excludes loans accounted for under the fair value option.
(2)
Reflects updated customer credit scores.
(3)
Reflects deferred fees and costs, loans in process, etc.

52

Impaired Loans
See Note 1 “Significant Accounting Policies” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for a description of accounting policies related to impaired loans.
The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance at September 30, 2019 and December 31, 2018.
(dollar amounts in millions)
 
Commercial
 
Consumer
 
Total
ALLL at September 30, 2019
 
 
 
 
 
 
Portion of ALLL balance:
 
 
 
 
 
 
Attributable to loans individually evaluated for impairment
 
$
45

 
$
7

 
$
52

Attributable to loans collectively evaluated for impairment
 
516

 
215

 
731

Total ALLL balance
 
$
561

 
$
222

 
$
783

Loan and Lease Ending Balances at September 30, 2019 (1)
 
 
 
 
 
 
Portion of loan and lease ending balance:
 
 
 
 
 
 
Individually evaluated for impairment
 
$
574

 
$
579

 
$
1,153

Collectively evaluated for impairment
 
36,675

 
36,984

 
73,659

Total loans and leases evaluated for impairment
 
$
37,249

 
$
37,563

 
$
74,812


(dollar amounts in millions)
 
Commercial
 
Consumer
 
Total
ALLL at December 31, 2018
 
 
 
 
 
 
Portion of ALLL balance:
 
 
 
 
 
 
Attributable to loans individually evaluated for impairment
 
$
33

 
$
10

 
$
43

Attributable to loans collectively evaluated for impairment
 
509

 
220

 
729

Total ALLL balance:
 
$
542

 
$
230

 
$
772

Loan and Lease Ending Balances at December 31, 2018 (1)
 
 
 
 
 
 
Portion of loan and lease ending balances:
 
 
 
 
 
 
Individually evaluated for impairment
 
516

 
591

 
1,107

Collectively evaluated for impairment
 
36,931

 
36,783

 
73,714

Total loans and leases evaluated for impairment
 
$
37,447

 
$
37,374

 
$
74,821


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


53

The following tables present by class the ending balance, unpaid principal balance, and the related ALLL, along with the average balance and interest income recognized for impaired loans and leases: (1)
 
September 30, 2019
 
Three Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2019
(dollar amounts in millions)
Ending
Balance
 
Unpaid
Principal
Balance (6)
 
Related
Allowance (7)
 
Average
Balance
 
Interest
Income
Recognized
 
Average
Balance
 
Interest
Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
205

 
$
250

 
$
—

 
$
204

 
$
4

 
$
210

 
$
16

Commercial real estate
31

 
33

 
—

 
30

 
2

 
34

 
6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
314

 
344

 
43

 
322

 
3

 
298

 
8

Commercial real estate
24

 
27

 
2

 
29

 
—

 
32

 
1

Automobile
42

 
45

 
2

 
41

 
1

 
40

 
2

Home equity
292

 
329

 
9

 
297

 
3

 
305

 
10

Residential mortgage
290

 
326

 
3

 
287

 
3

 
287

 
8

RV and marine
4

 
4

 
—

 
3

 
—

 
3

 
—

Other consumer
10

 
10

 
2

 
10

 
—

 
9

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial (3)
519

 
594

 
43

 
526

 
7

 
508

 
24

Commercial real estate (4)
55

 
60

 
2

 
59

 
2

 
66

 
7

Automobile (2)
42

 
45

 
2

 
41

 
1

 
40

 
2

Home equity (5)
292

 
329

 
9

 
297

 
3

 
305

 
10

Residential mortgage (5)
290

 
326

 
3

 
287

 
3

 
287

 
8

RV and marine (2)
4

 
4

 
—

 
3

 
—

 
3

 
—

Other consumer (2)
10

 
10

 
2

 
10

 
—

 
9

 
—



54

 
December 31, 2018
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
(dollar amounts in millions)
Ending
Balance
 
Unpaid
Principal
Balance (6)
 
Related
Allowance (7)
 
Average
Balance
 
Interest
Income
Recognized
 
Average
Balance
 
Interest
Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
224


$
261


$
—


$
264


$
5


$
264


$
16

Commercial real estate
36


45


—


36


2


49


6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
221

 
240

 
31

 
284

 
3

 
285

 
9

Commercial real estate
35

 
39

 
2

 
49

 
1

 
48

 
2

Automobile
38

 
42

 
2

 
38

 
1

 
37

 
2

Home equity
314

 
356

 
10

 
326

 
3

 
330

 
11

Residential mortgage
287

 
323

 
4

 
290

 
3

 
299

 
8

RV and marine
2

 
3

 
—

 
2

 
—

 
2

 
—

Other consumer
9

 
9

 
3

 
9

 
—

 
8

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial (3)
445

 
501

 
31

 
548

 
8

 
549

 
25

Commercial real estate (4)
71

 
84

 
2

 
85

 
3

 
97

 
8

Automobile (2)
38

 
42

 
2

 
38

 
1

 
37

 
2

Home equity (5)
314

 
356

 
10

 
326

 
3

 
330

 
11

Residential mortgage (5)
287

 
323

 
4

 
290

 
3

 
299

 
8

RV and marine (2)
2

 
3

 
—

 
2

 
—

 
2

 
—

Other consumer (2)
9

 
9

 
3

 
9

 
—

 
8

 
—

(1)
These tables do not include loans fully charged-off.
(2)
All automobile, RV and marine, and other consumer impaired loans included in these tables are considered impaired due to their status as a TDR.
(3)
At September 30, 2019 and December 31, 2018, C&I loans of $309 million and $366 million, respectively, were considered impaired due to their status as a TDR.
(4)
At September 30, 2019 and December 31, 2018, CRE loans of $46 million and $60 million, respectively, were considered impaired due to their status as a TDR.
(5)
Includes home equity and residential mortgages considered impaired due to collateral dependent designation associated with their non-accrual status as well as home equity and mortgage loans considered impaired due to their status as a TDR.
(6)
The differences between the ending balance and unpaid principal balance amounts primarily represent partial charge-offs.
(7)
Impaired loans in the consumer portfolio are evaluated in pools and not at the loan level. Thus, these loans do not have an individually assigned allowance and as such are all classified as with an allowance in the tables above.
TDR Loans
TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided would not otherwise be considered. However, not all loan modifications are TDRs. See Note 3 “Loans / Leases and Allowance for Credit Losses” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for an additional discussion of TDRs.

55

The following table presents, by class and modification type, the number of contracts, post-modification outstanding balance, and the financial effects of the modification for the three-month and nine-month periods ended September 30, 2019 and 2018.
 
New Troubled Debt Restructurings (1)
 
Three Months Ended September 30, 2019
 
Number of
Contracts
 
Post-modification Outstanding Recorded Investment (2)
(dollar amounts in millions)
 
Interest rate reduction
 
Amortization or maturity date change
 
Chapter 7 bankruptcy
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
119

 
$
—

 
$
39

 
$
—

 
$
—

 
$
39

Commercial real estate
7

 
—

 
1

 
—

 
—

 
1

Automobile
833

 
—

 
5

 
2

 
—

 
7

Home equity
76

 
—

 
2

 
3

 
—

 
5

Residential mortgage
69

 
—

 
9

 
—

 
—

 
9

RV and marine
46

 
—

 
1

 
—

 
—

 
1

Other consumer
385

 
2

 
—

 
—

 
—

 
2

Total new TDRs
1,535

 
$
2

 
$
57

 
$
5

 
$
—

 
$
64

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Number of
Contracts
 
Post-modification Outstanding Recorded Investment (2)
(dollar amounts in millions)
 
Interest rate reduction
 
Amortization or maturity date change
 
Chapter 7 bankruptcy
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
131

 
$
—

 
$
35

 
$
—

 
$
—

 
$
35

Commercial real estate
9

 
—

 
5

 
—

 
—

 
5

Automobile
848

 
—

 
4

 
3

 
—

 
7

Home equity
159

 
—

 
8

 
3

 
—

 
11

Residential mortgage
76

 
—

 
8

 
1

 
—

 
9

RV and marine
40

 
—

 
—

 
—

 
—

 
—

Other consumer
386

 
2

 
—

 
—

 
—

 
2

Total new TDRs
1,649

 
$
2

 
$
60

 
$
7

 
$
—

 
$
69


56

 
New Troubled Debt Restructurings (1)
 
Nine Months Ended September 30, 2019
 
Number of
Contracts
 
Post-modification Outstanding Recorded Investment (2)
(dollar amounts in millions)
 
Interest rate reduction
 
Amortization or maturity date change
 
Chapter 7 bankruptcy
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
335

 
$
—

 
$
114

 
$
—

 
$
—

 
$
114

Commercial real estate
21

 
—

 
12

 
—

 
—

 
12

Automobile
2,227

 
—

 
14

 
6

 
—

 
20

Home equity
248

 
—

 
7

 
6

 
—

 
13

Residential mortgage
241

 
—

 
27

 
1

 
—

 
28

RV and marine finance
113

 
—

 
1

 
1

 
—

 
2

Other consumer
972

 
6

 
—

 
—

 
—

 
6

Total new TDRs
4,157

 
$
6

 
$
175

 
$
14

 
$
—

 
$
195

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
Number of
Contracts
 
Post-modification Outstanding Recorded Investment (2)
(dollar amounts in millions)
 
Interest rate reduction
 
Amortization or maturity date change
 
Chapter 7 bankruptcy
 
Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
641

 
$
—

 
$
302

 
$
—

 
$
—

 
$
302

Commercial real estate
95

 
—

 
79

 
—

 
—

 
79

Automobile
2,088

 
—

 
11

 
6

 
—

 
17

Home equity
472

 
—

 
21

 
8

 
—

 
29

Residential mortgage
278

 
—

 
29

 
2

 
—

 
31

RV and marine finance
99

 
—

 
—

 
1

 
—

 
1

Other consumer
1,320

 
6

 
—

 
—

 
—

 
6

Total new TDRs
4,993

 
$
6

 
$
442

 
$
17

 
$
—

 
$
465

(1)
TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.
(2)
Post-modification balances approximate pre-modification balances.
The financial effects of modification represent the impact on the provision (recovery) for loan and lease losses. Amounts for the three-month periods ended September 30, 2019 and 2018, were $1 million and $(1) million, respectively. For the nine-month periods ended September 30, 2019 and 2018, the financial effects of modification were $(1) million and $(11) million, respectively.
Pledged Loans and Leases
The Bank has access to the Federal Reserve’s discount window and advances from the FHLB. As of September 30, 2019 and December 31, 2018, these borrowings and advances are secured by $38.2 billion and $46.5 billion, respectively, of loans and securities.
 
 
 
 
 
 
 
 
 
 
 
 


57

4. INVESTMENT SECURITIES AND OTHER SECURITIES
Debt securities purchased in which Huntington has the positive intent and ability to hold to their maturity are classified as held-to-maturity securities.  All other debt and equity securities are classified as either available-for-sale or other securities.
The following tables provide amortized cost, fair value, and gross unrealized gains and losses by investment category at September 30, 2019 and December 31, 2018:
 
 
 
Unrealized
 
 
(dollar amounts in millions)
Amortized
Cost
 
Gross
Gains
 
Gross
Losses
 
Fair Value
September 30, 2019
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. Treasury
$
10

 
$
—

 
$
—

 
$
10

Federal agencies:
 
 
 
 
 
 
 
Residential CMO
6,668

 
71

 
(15
)
 
6,724

Residential MBS
2,355

 
39

 
(1
)
 
2,393

Commercial MBS
1,237

 
3

 
(1
)
 
1,239

Other agencies
117

 
—

 
—

 
117

Total U.S. Treasury, federal agency and other agency securities
10,387

 
113

 
(17
)
 
10,483

Municipal securities
3,147

 
35

 
(30
)
 
3,152

Asset-backed securities
588

 
8

 
(1
)
 
595

Corporate debt
50

 
2

 
—

 
52

Other securities/Sovereign debt
4

 
—

 
—

 
4

Total available-for-sale securities
$
14,176

 
$
158

 
$
(48
)
 
$
14,286

 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
Residential CMO
$
1,970

 
$
41

 
$
(3
)
 
$
2,008

Residential MBS
2,065

 
45

 
—

 
2,110

Commercial MBS
4,075

 
66

 
—

 
4,141

Other agencies
316

 
5

 
—

 
321

Total federal agency and other agency securities
8,426

 
157

 
(3
)
 
8,580

Municipal securities
4

 
—

 
—

 
4

Total held-to-maturity securities
$
8,430

 
$
157

 
$
(3
)
 
$
8,584

 
 
 
 
 
 
 
 
Other securities, at cost:
 
 
 
 
 
 
 
Non-marketable equity securities:
 
 
 
 
 
 
 
Federal Home Loan Bank stock
$
104

 
$
—

 
$
—

 
$
104

Federal Reserve Bank stock
297

 
—

 
—

 
297

Other securities, at fair value
 
 
 
 
 
 
 
Mutual funds
53

 
—

 
—

 
53

Marketable equity securities
1

 
—

 
—

 
1

Total other securities
$
455

 
$
—

 
$
—

 
$
455


58

 
 
 
Unrealized
 
 
(dollar amounts in millions)
Amortized
Cost
 
Gross
Gains
 
Gross
Losses
 
Fair Value
December 31, 2018
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. Treasury
$
5

 
$
—

 
$
—

 
$
5

Federal agencies:
 
 
 
 
 
 
 
Residential CMO
7,185

 
15

 
(201
)
 
6,999

Residential MBS
1,261

 
9

 
(15
)
 
1,255

Commercial MBS
1,641

 
—

 
(58
)
 
1,583

Other agencies
128

 
—

 
(2
)
 
126

Total U.S. Treasury, federal agency and other agency securities
10,220

 
24

 
(276
)
 
9,968

Municipal securities
3,512

 
6

 
(78
)
 
3,440

Asset-backed securities
318

 
1

 
(4
)
 
315

Corporate debt
54

 
—

 
(1
)
 
53

Other securities/Sovereign debt
4

 
—

 
—

 
4

Total available-for-sale securities
$
14,108

 
$
31

 
$
(359
)
 
$
13,780

 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
Residential CMO
$
2,124

 
$
—

 
$
(47
)
 
$
2,077

Residential MBS
1,851

 
2

 
(42
)
 
1,811

Commercial MBS
4,235

 
—

 
(186
)
 
4,049

Other agencies
350

 
—

 
(6
)
 
344

Total federal agency and other agency securities
8,560

 
2

 
(281
)
 
8,281

Municipal securities
5

 
—

 
—

 
5

Total held-to-maturity securities
$
8,565

 
$
2

 
$
(281
)
 
$
8,286

 
 
 
 
 
 
 
 
Other securities, at cost:
 
 
 
 
 
 
 
Non-marketable equity securities:
 
 
 
 
 
 
 
Federal Home Loan Bank stock
$
248

 
$
—

 
$
—

 
$
248

Federal Reserve Bank stock
295

 
—

 
—

 
295

Other securities, at fair value
 
 
 
 
 
 
 
Mutual funds
20

 
—

 
—

 
20

Marketable equity securities
1

 
1

 
—

 
2

Total other securities
$
564

 
$
1

 
$
—

 
$
565


 

59

The following table provides the amortized cost and fair value of securities by contractual maturity at September 30, 2019 and December 31, 2018. Expected maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without incurring penalties.
 
September 30, 2019
 
December 31, 2018
(dollar amounts in millions)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Available-for-sale securities:
 
 
 
 
 
 
 
Under 1 year
$
294

 
$
291

 
$
186

 
$
185

After 1 year through 5 years
1,084

 
1,074

 
1,057

 
1,039

After 5 years through 10 years
1,708

 
1,717

 
1,838

 
1,802

After 10 years
11,090

 
11,204

 
11,027

 
10,754

Total available-for-sale securities
$
14,176

 
$
14,286

 
$
14,108

 
$
13,780

 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
Under 1 year
$
—

 
$
—

 
$
—

 
$
—

After 1 year through 5 years
18

 
19

 
11

 
11

After 5 years through 10 years
329

 
335

 
362

 
356

After 10 years
8,083

 
8,230

 
8,192

 
7,919

Total held-to-maturity securities
$
8,430

 
$
8,584

 
$
8,565

 
$
8,286


The following tables provide detail on investment securities with unrealized losses aggregated by investment category and the length of time the individual securities have been in a continuous loss position at September 30, 2019 and December 31, 2018:
 
Less than 12 Months
 
Over 12 Months
 
Total
(dollar amounts in millions)
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO
$
1,287

 
$
(3
)
 
$
1,207

 
$
(12
)
 
$
2,494

 
$
(15
)
Residential MBS
353

 
(1
)
 
9

 
—

 
362

 
(1
)
Commercial MBS
80

 
—

 
401

 
(1
)
 
481

 
(1
)
Other agencies
1

 
—

 
—

 
—

 
1

 
—

Total federal agency and other agency securities
1,721

 
(4
)
 
1,617

 
(13
)
 
3,338

 
(17
)
Municipal securities
403

 
(7
)
 
1,238

 
(23
)
 
1,641

 
(30
)
Asset-backed securities
68

 
—

 
93

 
(1
)
 
161

 
(1
)
Corporate debt
—

 
—

 
—

 
—

 
—

 
—

Total temporarily impaired securities
$
2,192

 
$
(11
)
 
$
2,948

 
$
(37
)
 
$
5,140

 
$
(48
)
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO
$
160

 
$
(1
)
 
$
119

 
$
(2
)
 
$
279

 
$
(3
)
Residential MBS
—

 
—

 
—

 
—

 
—

 
—

Commercial MBS
—

 
—

 
27

 
—

 
27

 
—

Other agencies
5

 
—

 
—

 
—

 
5

 
—

Total federal agency and other agency securities
165

 
(1
)
 
146

 
(2
)
 
311

 
(3
)
Municipal securities
4

 
—

 
—

 
—

 
4

 
—

Total temporarily impaired securities
$
169

 
$
(1
)
 
$
146

 
$
(2
)
 
$
315

 
$
(3
)

60

 
Less than 12 Months
 
Over 12 Months
 
Total
(dollar amounts in millions)
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO
$
425

 
$
(3
)
 
$
5,943

 
$
(198
)
 
$
6,368

 
$
(201
)
Residential MBS
259

 
(6
)
 
319

 
(9
)
 
578

 
(15
)
Commercial MBS
10

 
—

 
1,573

 
(58
)
 
1,583

 
(58
)
Other agencies
—

 
—

 
124

 
(2
)
 
124

 
(2
)
Total federal agency and other agency securities
694

 
(9
)
 
7,959

 
(267
)
 
8,653

 
(276
)
Municipal securities
1,425

 
(24
)
 
1,602

 
(54
)
 
3,027

 
(78
)
Asset-backed securities
95

 
(2
)
 
117

 
(2
)
 
212

 
(4
)
Corporate debt
40

 
—

 
1

 
(1
)
 
41

 
(1
)
Total temporarily impaired securities
$
2,254

 
$
(35
)
 
$
9,679

 
$
(324
)
 
$
11,933

 
$
(359
)
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO
$
12

 
$
—

 
$
2,004

 
$
(47
)
 
$
2,016

 
$
(47
)
Residential MBS
16

 
—

 
1,457

 
(42
)
 
1,473

 
(42
)
Commercial MBS
—

 
—

 
4,041

 
(186
)
 
4,041

 
(186
)
Other agencies
113

 
(2
)
 
205

 
(4
)
 
318

 
(6
)
Total federal agency and other agency securities
141

 
(2
)
 
7,707

 
(279
)
 
7,848

 
(281
)
Municipal securities
—

 
—

 
4

 
—

 
4

 
—

Total temporarily impaired securities
$
141

 
$
(2
)
 
$
7,711

 
$
(279
)
 
$
7,852

 
$
(281
)

At September 30, 2019 and December 31, 2018, the market value of investment securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $3.8 billion and $4.5 billion, respectively. There were no securities of a single issuer, which were not governmental or government-sponsored, that exceeded 10% of shareholders’ equity at either September 30, 2019 or December 31, 2018.
The following table is a summary of realized securities gains and losses for the three-month and nine-month periods ended September 30, 2019 and 2018, respectively.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
2019
 
2018
 
2019
 
2018
Gross gains on sales of securities
$
—

 
$
—

 
$
9

 
$
6

Gross losses on sales of securities
—

 
(2
)
 
(11
)
 
(8
)
Net (loss) gain on sales of securities
$
—

 
$
(2
)
 
$
(2
)
 
$
(2
)

Security Impairment
Huntington evaluates the securities portfolio for impairment on a quarterly basis. As of September 30, 2019, the Company has evaluated available-for-sale and held-to-maturity securities with gross unrealized losses for impairment and concluded less than $1 million and no OTTI was required for the three-month periods ended September 30, 2019 and 2018, respectively, and less than $1 million and no OTTI was required for the nine-month periods ended September 30, 2019 and 2018, respectively.
Other securities that are carried at cost are reviewed for impairment on a quarterly basis, with valuation adjustments recognized in other noninterest income. As of September 30, 2019, the Company concluded no impairment is required.

61

5. MORTGAGE LOAN SALES AND SERVICING RIGHTS
Residential Mortgage Portfolio
The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the three-month and nine-month periods ended September 30, 2019 and 2018:
 

Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
 
2019
 
2018
 
2019
 
2018
Residential mortgage loans sold with servicing retained
 
$
1,238

 
$
1,047

 
$
3,025

 
$
2,787

Pretax gains resulting from above loan sales (1)
 
26

 
24

 
61

 
64

(1)
Recorded in mortgage banking income.
The following table summarizes the changes in MSRs recorded using the amortization method for the three-month and nine-month periods ended September 30, 2019 and 2018:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
 
2019
 
2018
 
2019
 
2018
Carrying value, beginning of period
 
$
184

 
$
204

 
$
211

 
$
191

New servicing assets created
 
12

 
12

 
31

 
32

Impairment (charge) recovery
 
(11
)
 
—

 
(38
)
 
7

Amortization
 
(13
)
 
(8
)
 
(32
)
 
(22
)
Carrying value, end of period
 
$
172

 
$
208

 
$
172

 
$
208

Fair value, end of period
 
$
172

 
$
222

 
$
172

 
$
222

Weighted-average life (years)
 
4.9

 
7.1

 
4.9

 
7.1


MSRs do not trade in an active, open market with readily observable prices. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. Changes in the assumptions used may have a significant impact on the valuation of MSRs. MSR values are highly sensitive to movement in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments.
For MSRs under the amortization method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at September 30, 2019, and December 31, 2018 follows:
 
September 30, 2019
 
December 31, 2018
 
 
 
 
Decline in fair value due to
 
 
 
 
Decline in fair value due to
(dollar amounts in millions)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
15.60
%
 
 
$
(8
)
 
$
(15
)
 
9.40
%
 
 
$
(6
)
 
$
(12
)
Spread over forward interest rate swap rates
889

bps
 
(5
)
 
(9
)
 
934

bps
 
(7
)
 
(13
)

Additionally, at September 30, 2019 and 2018, Huntington held MSRs recorded using the fair value method of $8 million and $11 million, respectively.
Total servicing, late fees and other ancillary fees included in mortgage banking income was $16 million and $15 million for the three-month periods ended September 30, 2019 and 2018, respectively. For the nine-month periods ended September 30, 2019 and 2018, total servicing, late fees and other ancillary fees included in mortgage banking income was $47 million and $44 million. The unpaid principal balance of residential mortgage loans serviced for third parties was $21.7 billion and $21.0 billion at September 30, 2019 and December 31, 2018, respectively.
6. OPERATING LEASES
At September 30, 2019, Huntington was obligated under noncancelable leases for branch and office space. These leases are all classified as operating primarily due to the amount of time such spaces are occupied relative to the underlying assets useful lives. Many of these leases contain renewal options, most of which are not included in measurement of the right-of-use asset as they are not considered reasonably certain of exercise (i.e., Huntington does not currently have a significant economic incentive to exercise these options). Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in the consumer or other price indices.

62

Occasionally, Huntington will sublease the land and buildings for which it has obtained the right to use; substantially all of those sublease arrangements are classified as operating, with sublease income recognized on a straight-line basis over the contractual term of the arrangement. Huntington has elected not to include non-lease components in the measurement of right-of-use assets, and as such allocates the costs attributable to such components, where those costs are not separately identifiable, via per-square-foot costing analysis developed by the entity for owned and leased spaces. Huntington uses a portfolio approach to develop discount rates as its lease portfolio is comprised of substantially all branch space and office space used in the entity’s operations. That rate, an input used in the measurement of the entity’s right-of-use assets, leverages an incremental borrowing rate of appropriate tenor and collateralization.
Net lease assets and liabilities at September 30, 2019 are as follows:
(dollar amounts in millions)
 
Classification
 
September 30, 2019
Assets
 
 
 
 
Operating lease assets
 
Other assets
 
$
200

Liabilities
 
 
 
 
Lease liabilities
 
Other liabilities
 
$
225


Net lease cost for the three-month and nine-month periods ended September 30, 2019 is as follows:
(dollar amounts in millions)
 
Classification
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost
 
Net occupancy
 
$
11

 
$
34

Short term lease cost
 
Net occupancy
 
—

 
1

Sublease income
 
Net occupancy
 
(1
)
 
(2
)
Net lease cost
 
 
 
$
10

 
$
33


Maturity of lease liabilities at September 30, 2019 are as follows:
(dollar amounts in millions)
 
Total
Remainder of 2019
 
$
10

2020
 
50

2021
 
39

2022
 
34

2023
 
29

Thereafter
 
105

Total lease payments
 
$
267

Less: Interest
 
(42
)
Total lease liabilities
 
$
225


Lease term and discount rate as of September 30, 2019 are as follows:
 
 
September 30, 2019
Weighted-average remaining lease term (years)
 
 
Operating leases
 
7.41

 
 
 
Weighted-average discount rate
 
 
Operating leases
 
4.67
%

Cash flow supplemental information at September 30, 2019 are as follows:
(dollar amounts in millions)
 
Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
(41
)
 
 
 
Right-of-use assets obtained in exchange for lease obligations
 
 
Operating leases
 
19



63

7. LONG-TERM DEBT
In January 2019, the Bank issued $300 million of senior notes at 100% of face value. The senior notes mature on February 5, 2021 and will bear interest at a rate per annum, reset quarterly, equal to the three-month LIBOR for U.S. dollar deposits plus 0.55%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest.
In February 2019, the Bank issued $500 million of senior notes at 99.909% of face value. The senior notes mature on April 1, 2022 and have a fixed coupon rate of 3.125%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest.
In August 2019, Huntington issued $800 million of senior notes at 99.781% of face value. The senior notes mature on August 6, 2024 and have a fixed coupon rate of 2.625%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest.
8. OTHER COMPREHENSIVE INCOME
The components of Huntington's OCI for the three-month and nine-month periods ended September 30, 2019 and 2018, were as follows:
 
Three Months Ended
September 30, 2019
 
Tax (expense)
(dollar amounts in millions)
Pretax
 
Benefit
 
After-tax
Unrealized gains (losses) on available-for-sale securities arising during the period
$
81

 
$
(18
)
 
$
63

Less: Reclassification adjustment for realized net losses (gains) included in net income
8

 
(2
)
 
6

Net change in unrealized holding gains (losses) on available-for-sale securities
89

 
(20
)
 
69

Net change in fair value on cash flow hedges
36

 
(8
)
 
28

Net change in pension and other post-retirement obligations
1

 
—

 
1

Total other comprehensive income (loss)
$
126

 
$
(28
)
 
$
98

 
Three Months Ended
September 30, 2018
 
Tax (expense)
(dollar amounts in millions)
Pretax
 
Benefit
 
After-tax
Unrealized gains (losses) on available-for-sale securities arising during the period
$
(82
)
 
$
18

 
$
(64
)
Less: Reclassification adjustment for realized net losses (gains) included in net income
3

 
(1
)
 
2

Net change in unrealized gains (losses) on available-for-sale securities
(79
)
 
17

 
(62
)
Net change in pension and other post-retirement obligations
2

 
(1
)
 
1

Total other comprehensive income (loss)
$
(77
)
 
$
16

 
$
(61
)
 
Nine Months Ended
September 30, 2019
 
Tax (expense)
(dollar amounts in millions)
Pretax
 
Benefit
 
After-tax
Unrealized holding gains (losses) on available-for-sale securities arising during the period
$
428

 
$
(95
)
 
$
333

Less: Reclassification adjustment for realized net losses (gains) included in net income
21

 
(5
)
 
16

Net change in unrealized holding gains (losses) on available-for-sale securities
449

 
(100
)
 
349

Net change in fair value on cash flow hedges
104

 
(22
)
 
82

Net change in pension and other post-retirement obligations
3

 
—

 
3

Total other comprehensive income (loss)
$
556

 
$
(122
)
 
$
434


64

 
Nine Months Ended
September 30, 2018
 
Tax (expense)
(dollar amounts in millions)
Pretax
 
Benefit
 
After-tax
Unrealized holding gains (losses) on available-for-sale securities arising during the period
$
(359
)
 
$
78

 
$
(281
)
Less: Reclassification adjustment for realized net losses (gains) included in net income
21

 
(4
)
 
17

Net change in unrealized holding gains (losses) on available-for-sale securities
(338
)
 
74

 
(264
)
Net change in pension and other post-retirement obligations
4

 
(1
)
 
3

Total other comprehensive income (loss)
$
(334
)
 
$
73

 
$
(261
)

Activity in accumulated OCI for the three and nine month periods ended September 30, 2019 and 2018, were as follows:
(dollar amounts in millions)
Unrealized gains (losses) on
debt securities (1)
 
Change in fair value related to cash flow hedges
 
Unrealized gains
(losses) for
pension and
other post-
retirement
obligations
 
Total
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
Balance, beginning of period
$
(83
)
 
$
54

 
$
(244
)
 
$
(273
)
Other comprehensive income before reclassifications
63

 
28

 
—

 
91

Amounts reclassified from accumulated OCI to earnings
6

 
—

 
1

 
7

Period change
69

 
28

 
1

 
98

Balance, end of period
$
(14
)
 
$
82

 
$
(243
)
 
$
(175
)
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Balance, beginning of period
$
(482
)
 
$
—

 
$
(248
)
 
$
(730
)
Other comprehensive income before reclassifications
(64
)
 
—

 
—

 
(64
)
Amounts reclassified from accumulated OCI to earnings
2

 
—

 
1

 
3

Period change
(62
)
 
—

 
1

 
(61
)
Other
1

 
 
 
 
 
1

Balance, end of period
$
(543
)
 
$
—

 
$
(247
)
 
$
(790
)

(dollar amounts in millions)
Unrealized gains (losses) on
debt securities (1)
 
Change in fair value related to cash flow hedges
 
Unrealized gains
(losses) for
pension and
other post-
retirement
obligations
 
Total
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
Balance, beginning of period
$
(363
)
 
$
—

 
$
(246
)
 
$
(609
)
Other comprehensive income before reclassifications
333

 
82

 
—

 
415

Amounts reclassified from accumulated OCI to earnings
16

 
—

 
3

 
19

Period change
349

 
82

 
3

 
434

Balance, end of period
$
(14
)
 
$
82

 
$
(243
)
 
$
(175
)
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Balance, beginning of period
$
(278
)
 
$
—

 
$
(250
)
 
$
(528
)
Cumulative-effect adjustments (ASU 2016-01)
(1
)
 
 
 
 
 
(1
)
Other comprehensive income before reclassifications
(281
)
 
—

 
—

 
(281
)
Amounts reclassified from accumulated OCI to earnings
17

 
—

 
3

 
20

Period change
(264
)
 
—

 
3

 
(261
)
Balance, end of period
$
(543
)
 
$
—

 
$
(247
)
 
$
(790
)
(1)
AOCI amounts at September 30, 2019, June 30, 2019 and September 30, 2018 include $126 million, $131 million and $141 million, respectively, of net unrealized losses on securities transferred from the available-for-sale securities portfolio to the held-to-maturity securities portfolio. The net unrealized losses will be recognized in earnings over the remaining life of the security using the effective interest method.


65

The following table presents the reclassification adjustments out of accumulated OCI included in net income and the impacted line items as listed on the Unaudited Condensed Consolidated Statements of Income for the three-month and nine-month periods ended September 30, 2019 and 2018:
 
Reclassifications out of accumulated OCI
Accumulated OCI components
Amounts reclassified from accumulated OCI
 
Location of net gain (loss) reclassified from
accumulated OCI into earnings
 
Three Months Ended
 
 
(dollar amounts in millions)
September 30, 2019
 
September 30, 2018
 
 
Gains (losses) on debt securities:
 
 
 
 
 
Amortization of unrealized gains (losses)
$
(4
)
 
$
(3
)
 
Interest income - held-to-maturity securities - taxable
Realized gain (loss) on sale of securities
(4
)
 
—

 
Noninterest income - net gains (losses) on sale of securities
Total before tax
(8
)
 
(3
)
 
 
Tax (expense) benefit
2

 
1

 
 
Net of tax
$
(6
)
 
$
(2
)
 
 
Amortization of defined benefit pension and post-retirement items:
 
 
Actuarial gains (losses)
$
(1
)
 
$
(2
)
 
Noninterest income
Net periodic benefit costs
—

 
—

 
Noninterest income
Total before tax
(1
)
 
(2
)
 
 
Tax (expense) benefit
—

 
1

 
 
Net of tax
$
(1
)
 
$
(1
)
 
 
 
 
 
 
 
 
 
Reclassifications out of accumulated OCI
Accumulated OCI components
Amounts reclassified from accumulated OCI
 
Location of net gain (loss) reclassified from accumulated OCI into earnings
 
Nine Months Ended
 
 
(dollar amounts in millions)
September 30, 2019
 
September 30, 2018
 
 
Gains (losses) on debt securities:
 
 
 
 
 
Amortization of unrealized gains (losses)
$
(11
)
 
$
(9
)
 
Interest income - held-to-maturity securities - taxable
Realized gain (loss) on sale of securities
(10
)
 
(12
)
 
Noninterest income - net gains (losses) on sale of securities
Total before tax
(21
)
 
(21
)
 
 
Tax (expense) benefit
5

 
4

 
 
Net of tax
$
(16
)
 
$
(17
)
 
 
Amortization of defined benefit pension and post-retirement items:
Actuarial gains (losses)
$
(4
)
 
$
(6
)
 
Noninterest income
Net periodic benefit costs
1

 
2

 
Noninterest income
Total before tax
(3
)
 
(4
)
 
 
Tax (expense) benefit
—

 
1

 
 
Net of tax
$
(3
)
 
$
(3
)
 
 


66

9. EARNINGS PER SHARE
Basic earnings per share is the amount of earnings (adjusted for dividends declared on preferred stock) available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options, restricted stock units and awards, and distributions from deferred compensation plans. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.
For the nine months ended September 30, 2018, total diluted average common shares issued and outstanding was impacted by using the if-converted method. The calculation of basic and diluted earnings per share for the three and nine-month periods ended September 30, 2019 and 2018 was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions, except per share data, share count in thousands)
2019
 
2018
 
2019
 
2018
Basic earnings per common share:
 
 
 
 
 
 
 
Net income
$
372

 
$
378

 
$
1,094

 
$
1,059

Preferred stock dividends
(18
)
 
(18
)
 
(55
)
 
(51
)
Net income available to common shareholders
$
354

 
$
360

 
$
1,039

 
$
1,008

Average common shares issued and outstanding
1,034,940

 
1,084,536

 
1,042,246

 
1,090,570

Basic earnings per common share
$
0.34

 
$
0.33

 
$
1.00

 
$
0.92

Diluted earnings per common share:
 
 
 
 
 
 
 
Dilutive potential common shares:
 
 
 
 
 
 
 
Stock options and restricted stock units and awards
11,930

 
15,655

 
12,681

 
17,105

Shares held in deferred compensation plans
4,403

 
3,549

 
4,137

 
3,416

Dilutive impact of Preferred Stock
—

 
—

 
—

 
5,887

Dilutive potential common shares
16,333

 
19,204

 
16,818

 
26,408

Total diluted average common shares issued and outstanding
1,051,273

 
1,103,740

 
1,059,064

 
1,116,978

Diluted earnings per common share
$
0.34

 
$
0.33

 
$
0.98

 
$
0.90

Anti-dilutive awards (1)
6,253

 
1,616

 
4,900

 
2,035


(1)
Reflects the total number of shares related to outstanding options that have been excluded from the computation of diluted earnings per share because the impact would have been anti-dilutive.



67

10. NONINTEREST INCOME
Huntington earns a variety of revenue including interest and fees from customers as well as revenues from non-customers. Certain sources of revenue are recognized within interest or fee income and are outside of the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Other sources of revenue fall within the scope of ASC 606 and are generally recognized within noninterest income. These revenues are included within various sections of the Unaudited Condensed Consolidated Financial Statements. The following table shows Huntington’s total noninterest income segregated between contracts with customers within the scope of ASC 606 and those within the scope of other GAAP Topics.
(dollar amounts in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Noninterest income
 
 
 
 
 
 
 
 
Noninterest income from contracts with customers
 
$
240

 
$
222

 
$
697

 
$
654

Noninterest income within the scope of other GAAP topics
 
149

 
120

 
385

 
338

Total noninterest income
 
$
389

 
$
342

 
$
1,082

 
$
992


The following table illustrates the disaggregation by operating segment and major revenue stream and reconciles disaggregated revenue to segment revenue presented in Note 15 "Segment Reporting".
 
Three Months Ended September 30, 2019
(dollar amounts in millions)
Consumer & Business Banking
 
Commercial Banking
 
Vehicle Finance
 
RBHPCG
 
Treasury / Other
 
Huntington Consolidated
Major Revenue Streams
 
 
 
 
 
Service charges on deposit accounts
$
79

 
$
16

 
$
2

 
$
1

 
$
—

 
$
98

Card and payment processing income
56

 
4

 
—

 
—

 
—

 
60

Trust and investment management services
9

 
1

 
—

 
34

 
—

 
44

Insurance income
8

 
2

 
—

 
10

 
—

 
20

Other income
8

 
7

 
2

 
1

 
—

 
18

Net revenue from contracts with customers
$
160

 
$
30

 
$
4

 
$
46

 
$
—

 
$
240

Noninterest income within the scope of other GAAP topics
63

 
71

 
—

 
1

 
14

 
149

Total noninterest income
$
223

 
$
101

 
$
4

 
$
47

 
$
14

 
$
389

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
(dollar amounts in millions)
Consumer & Business Banking
 
Commercial Banking
 
Vehicle Finance
 
RBHPCG
 
Treasury / Other
 
Huntington Consolidated
Major Revenue Streams
 
 
 
 
 
Service charges on deposit accounts
$
75

 
$
16

 
$
1

 
$
1

 
$
—

 
$
93

Card and payment processing income
50

 
3

 
—

 
—

 
—

 
53

Trust and investment management services
7

 
1

 
—

 
34

 
—

 
42

Insurance income
8

 
1

 
—

 
10

 
—

 
19

Other income
10

 
2

 
1

 
1

 
1

 
15

Net revenue from contracts with customers
$
150

 
$
23

 
$
2

 
$
46

 
$
1

 
$
222

Noninterest income within the scope of other GAAP topics
44

 
58

 
1

 
—

 
17

 
120

Total noninterest income
$
194

 
$
81

 
$
3

 
$
46

 
$
18

 
$
342



68

 
Nine Months Ended September 30, 2019
(dollar amounts in millions)
Consumer & Business Banking
 
Commercial Banking
 
Vehicle Finance
 
RBHPCG
 
Treasury / Other
 
Huntington Consolidated
Major Revenue Streams
 
 
 
 
 
Service charges on deposit accounts
$
221

 
$
48

 
$
5

 
$
3

 
$
—

 
$
277

Card and payment processing income
162

 
11

 
—

 
—

 
—

 
173

Trust and investment management services
25

 
2

 
—

 
103

 
1

 
131

Insurance income
25

 
5

 
—

 
33

 
1

 
64

Other income
24

 
17

 
4

 
5

 
2

 
52

Net revenue from contracts with customers
$
457

 
$
83

 
$
9

 
$
144

 
$
4

 
$
697

Noninterest income within the scope of other GAAP topics
139

 
183

 
—

 
3

 
60

 
385

Total noninterest income
$
596

 
$
266

 
$
9

 
$
147

 
$
64

 
$
1,082

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
(dollar amounts in millions)
Consumer & Business Banking
 
Commercial Banking
 
Vehicle Finance
 
RBHPCG
 
Treasury / Other
 
Huntington Consolidated
Major Revenue Streams
 
 
 
 
 
Service charges on deposit accounts
$
215

 
$
48

 
$
4

 
$
3

 
$
—

 
$
270

Card and payment processing income
146

 
8

 
—

 
—

 
—

 
154

Trust and investment management services
19

 
3

 
—

 
106

 
—

 
128

Insurance income
26

 
3

 
—

 
31

 
1

 
61

Other income
30

 
3

 
2

 
4

 
2

 
41

Net revenue from contracts with customers
$
436

 
$
65

 
$
6

 
$
144

 
$
3

 
$
654

Noninterest income within the scope of other GAAP topics
121

 
169

 
3

 
2

 
43

 
338

Total noninterest income
$
557

 
$
234

 
$
9

 
$
146

 
$
46

 
$
992


Huntington generally provides services for customers in which it acts as principal. Payment terms and conditions vary amongst services and customers, and thus impact the timing and amount of revenue recognition. Some fees may be paid before any service is rendered and accordingly, such fees are deferred until the obligations pertaining to those fees are satisfied. Most Huntington contracts with customers are cancelable by either party without penalty or they are short-term in nature, with a contract duration of less than one year. Accordingly, most revenue deferred for the reporting period ended September 30, 2019 is expected to be earned within one year.


69

11. FAIR VALUES OF ASSETS AND LIABILITIES
See Note 17 “Fair Value of Assets and Liabilities” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for a description of the valuation methodologies used for instruments measured at fair value. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the three-month and nine-month periods ended September 30, 2019 and 2018.
Assets and Liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018 are summarized below:
 
Fair Value Measurements at Reporting Date Using
 
Netting Adjustments (1)
 
September 30, 2019
(dollar amounts in millions)
Level 1
 
Level 2
 
Level 3
 
 
Assets
 
 
 
 
 
 
 
 
 
Trading account securities:
 
 
 
 
 
 
 
 
 
Municipal securities
$
—

 
$
89

 
$
—

 
$
—

 
$
89

Other securities
29

 
—

 
—

 
—

 
29

 
29

 
89

 
—

 
—

 
118

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
10

 
—

 
—

 
—

 
10

Residential CMOs
—

 
6,724

 
—

 
—

 
6,724

Residential MBS
—

 
2,393

 
—

 
—

 
2,393

Commercial MBS
—

 
1,239

 
—

 
—

 
1,239

Other agencies
—

 
117

 
—

 
—

 
117

Municipal securities
—

 
58

 
3,094

 
—

 
3,152

Asset-backed securities
—

 
540

 
55

 
—

 
595

Corporate debt
—

 
52

 
—

 
—

 
52

Other securities/sovereign debt
—

 
4

 
—

 
—

 
4

 
10

 
11,127

 
3,149

 
—

 
14,286

Other securities
54

 
—

 
—

 
—

 
54

Loans held for sale
—

 
963

 
—

 
—

 
963

Loans held for investment
—

 
53

 
27

 
—

 
80

MSRs
—

 
—

 
8

 
—

 
8

Derivative assets
—

 
1,112

 
11

 
(546
)
 
577

Liabilities
 
 
 
 
 
 
 
 
 
Derivative liabilities
—

 
628

 
3

 
(504
)
 
127


70

 
Fair Value Measurements at Reporting Date Using
 
Netting Adjustments (1)
 
December 31, 2018
(dollar amounts in millions)
Level 1
 
Level 2
 
Level 3
 
 
Assets
 
 
 
 
 
 
 
 
 
Trading account securities:
 
 
 
 
 
 
 
 
 
Municipal securities
$
1

 
$
27

 
$
—

 
$
—

 
$
28

Other securities
77

 
—

 
—

 
—

 
77

 
78

 
27

 
—

 
—

 
105

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
5

 
—

 
—

 
—

 
5

Residential CMOs
—

 
6,999

 
—

 
—

 
6,999

Residential MBS
—

 
1,255

 
—

 
—

 
1,255

Commercial MBS
—

 
1,583

 
—

 
—

 
1,583

Other agencies
—

 
126

 
—

 
—

 
126

Municipal securities
—

 
275

 
3,165

 
—

 
3,440

Asset-backed securities
—

 
315

 
—

 
—

 
315

Corporate debt
—

 
53

 
—

 
—

 
53

Other securities/sovereign debt
—

 
4

 
—

 
—

 
4

 
5

 
10,610

 
3,165

 
—

 
13,780

Other securities
22

 
—

 
—

 
—

 
22

Loans held for sale
—

 
613

 
—

 
—

 
613

Loans held for investment
—

 
49

 
30

 
—

 
79

MSRs
—

 
—

 
10

 
—

 
10

Derivative assets
21

 
474

 
5

 
(291
)
 
209

Liabilities
 
 
 
 
 
 
 
 
 
Derivative liabilities
11

 
390

 
3

 
(217
)
 
187


(1)
Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and cash collateral held or placed with the same counterparties.
The tables below present a rollforward of the balance sheet amounts for the three-month and nine-month periods ended September 30, 2019 and 2018, for financial instruments measured on a recurring basis and classified as Level 3. The classification of an item as Level 3 is based on the significance of the unobservable inputs to the overall fair value measurement. However, Level 3 measurements may also include observable components of value that can be validated externally. Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.
 
Level 3 Fair Value Measurements
Three Months Ended September 30, 2019
 
 
 
 
 
Available-for-sale securities
 
 
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
 
Asset-backed
securities
 
Loans held for investment
Opening balance
$
9

 
$
9

 
$
3,202

 
$
—

 
$
28

Transfers out of Level 3 (1)
—

 
(20
)
 
—

 
—

 
—

Total gains/losses for the period:
 
 
 
 
 
 
 
 
 
Included in earnings
(1
)
 
19

 
(1
)
 
—

 
—

Included in OCI
—

 
—

 
24

 
—

 
—

Purchases/originations
—

 
—

 
28

 
55

 
—

Sales
—

 
—

 
—

 
—

 
—

Repayments
—

 
—

 
—

 
—

 
(1
)
Settlements
—

 
—

 
(159
)
 
—

 
—

Closing balance
$
8

 
$
8

 
$
3,094

 
$
55

 
$
27

Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date
$
(1
)
 
$
(1
)
 
$
—

 
$
—

 
$
—

Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period
$
—

 
$
—

 
$
23

 
$
—

 
$
—


71

 
Level 3 Fair Value Measurements
Three Months Ended September 30, 2018
 
 
 
 
 
Available-for-sale securities
 
 
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
 
Loans held for investment
Opening balance
$
11

 
$
1

 
$
3,178

 
$
34

Transfers out of Level 3 (1)
—

 
(12
)
 
—

 
—

Total gains/losses for the period:
 
 
 
 
 
 
 
Included in earnings
—

 
9

 
(1
)
 
—

Included in OCI
—

 
—

 
—

 
—

Purchases/originations
—

 
—

 
260

 
—

Sales
—

 
—

 
—

 
—

Repayments
—

 
—

 
—

 
(2
)
Settlements
—

 
3

 
(160
)
 
—

Closing balance
$
11

 
$
1

 
$
3,277

 
$
32

Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date
$
—

 
$
(3
)
 
$
—

 
$
—


 
Level 3 Fair Value Measurements
Nine Months Ended September 30, 2019
 
 
 
 
 
Available-for-sale securities
 
 
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
 
Asset-backed
securities
 
Loans held for investment
Opening balance
$
10

 
$
2

 
$
3,165

 
$
—

 
$
30

Transfers out of Level 3 (1)
—

 
(44
)
 
—

 
—

 
—

Total gains/losses for the period:
 
 
 
 
 
 
 
 
 
Included in earnings
(2
)
 
50

 
(1
)
 
—

 
—

Included in OCI
—

 
—

 
70

 
—

 
—

Purchases/originations
—

 
—

 
136

 
55

 
—

Sales
—

 
—

 
—

 
—

 
—

Repayments
—

 
—

 
—

 
—

 
(3
)
Settlements
—

 
—

 
(276
)
 
—

 
—

Closing balance
$
8

 
$
8

 
$
3,094

 
$
55

 
$
27

Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date
$
(2
)
 
$
6

 
$
—

 
$
—

 
$
—

Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period
$
—

 
$
—

 
$
68

 
$
—

 
$
—


72

 
Level 3 Fair Value Measurements
Nine Months Ended September 30, 2018
 
 
 
 
 
Available-for-sale securities
 
 
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
 
Asset-
backed
securities
 
Loans held for investment
Opening balance
$
11

 
$
(1
)
 
$
3,167

 
$
24

 
$
38

Transfers out of Level 3 (1)
—

 
(26
)
 
—

 
—

 
—

Total gains/losses for the period:
 
 
 
 
 
 
 
 
 
Included in earnings
—

 
25

 
(3
)
 
(2
)
 
—

Included in OCI
—

 
—

 
(37
)
 
11

 
—

Purchases/originations
—

 
—

 
539

 
—

 
—

Sales
—

 
—

 
—

 
(33
)
 
—

Repayments
—

 
—

 
—

 
—

 
(6
)
Settlements
—

 
3

 
(389
)
 
—

 
—

Closing balance
$
11

 
$
1

 
$
3,277

 
$
—

 
$
32

Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date
$
—

 
$
(1
)
 
$
—

 
$
—

 
$
—


(1)
Transfers out of Level 3 represent the settlement value of the derivative instruments (i.e. interest rate lock agreements) that is transferred to loans held for sale, which is classified as Level 2.
The tables below summarize the classification of gains and losses due to changes in fair value, recorded in earnings for Level 3 assets and liabilities for the three-month and nine-month periods ended September 30, 2019 and 2018:
 
Level 3 Fair Value Measurements
Three Months Ended September 30, 2019
 
 
 
 
 
Available-for-sale securities
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
Classification of gains and losses in earnings:
 
 
 
 
 
Mortgage banking income
$
(1
)
 
$
19

 
$
—

Interest and fee income
—

 
—

 
(1
)
Total
$
(1
)
 
$
19

 
$
(1
)
 
Level 3 Fair Value Measurements
Three Months Ended September 30, 2018
 
 
 
 
 
Available-for-sale securities
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
Classification of gains and losses in earnings:
 
 
 
 
 
Mortgage banking income
$
—

 
$
9

 
$
—

Other expense
—

 
—

 
(1
)
Total
$
—

 
$
9

 
$
(1
)

 
Level 3 Fair Value Measurements
Nine Months Ended September 30, 2019
 
 
 
 
 
Available-for-sale securities
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
Classification of gains and losses in earnings:
 
 
 
 
 
Mortgage banking income
$
(2
)
 
$
50

 
$
—

Interest and fee income
—

 
—

 
(1
)
Total
$
(2
)
 
$
50

 
$
(1
)


73

 
Level 3 Fair Value Measurements
Nine Months Ended September 30, 2018
 
 
 
 
 
Available-for-sale securities
(dollar amounts in millions)
MSRs
 
Derivative
instruments
 
Municipal
securities
 
Asset-backed
securities
Classification of gains and losses in earnings:
 
 
 
 
 
 
 
Mortgage banking income
$
—

 
$
25

 
$
—

 
$
—

Securities gains (losses)
—

 
—

 
—

 
(2
)
Other expense
—

 
—

 
(3
)
 
—

Total
$
—

 
$
25

 
$
(3
)
 
$
(2
)

Assets and liabilities under the fair value option
The following tables present the fair value and aggregate principal balance of certain assets and liabilities under the fair value option:
 
September 30, 2019
(dollar amounts in millions)
Total Loans
 
Loans that are 90 or more days past due
Assets
Fair value
carrying
amount
 
Aggregate
unpaid
principal
 
Difference
 
Fair value
carrying
amount
 
Aggregate
unpaid
principal
 
Difference
Loans held for sale
$
963

 
$
932

 
$
31

 
$
1

 
$
1

 
$
—

Loans held for investment
80

 
86

 
(6
)
 
4

 
6

 
(2
)
 
December 31, 2018
(dollar amounts in millions)
Total Loans
 
Loans that are 90 or more days past due
Assets
Fair value
carrying
amount
 
Aggregate
unpaid
principal
 
Difference
 
Fair value
carrying
amount
 
Aggregate
unpaid
principal
 
Difference
Loans held for sale
$
613

 
$
594

 
$
19

 
$
—

 
$
—

 
$
—

Loans held for investment
79

 
87

 
(8
)
 
6

 
7

 
(1
)
The following tables present the net gains (losses) from fair value changes for the three-month and nine-month periods ended September 30, 2019 and 2018.
 
 
Net gains (losses) from fair value changes
 
Net gains (losses) from fair value changes
(dollar amounts in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Assets
 
2019
 
2018
 
2019
 
2018
Loans held for sale (1)
 
$
6

 
$
(4
)
 
$
12

 
$
(1
)
(1)
The net gains (losses) from fair value changes are included in Mortgage banking income on the Unaudited Condensed Consolidated Statements of Income.
Assets and Liabilities measured at fair value on a nonrecurring basis
Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The amounts presented represent the fair value on the various measurement dates throughout the period. The gains (losses) represent the amounts recorded during the period regardless of whether the asset is still held at period end.

74

The amounts measured at fair value on a nonrecurring basis at September 30, 2019 were as follows:
 
 
 
Fair Value Measurements Using
 
 
(dollar amounts in millions)
Fair Value
 
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
 
Total
Gains/(Losses)
Nine Months Ended
September 30, 2019
MSRs
$
172

 
$
—

 
$
—

 
$
172

 
$
(38
)
Impaired loans
20

 
—

 
—

 
20

 
(1
)
Loans held for sale
36

 
—

 
—

 
36

 
(13
)

MSRs accounted for under the amortization method are subject to nonrecurring fair value measurement when the fair value is lower than the carrying amount.
Huntington records nonrecurring adjustments of collateral-dependent loans measured for impairment when establishing the ALLL. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and cost of construction. Periodically, in cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized.
Loans held for sale are measured at lower of cost or fair value less costs to sell. The fair value of loans held for sale is determined based on discounted cash flows or based on the fair value of the underlying collateral supporting the loan.
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
The table below presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2019 and December 31, 2018:
 
Quantitative Information about Level 3 Fair Value Measurements at September 30, 2019
(dollar amounts in millions)
Fair Value
 
Valuation Technique
 
Significant Unobservable Input
 
Range
 
Weighted Average
Measured at fair value on a recurring basis:
MSRs
$
8

 
Discounted cash flow
 
Constant prepayment rate
 
0
 %
-
25
%
 
9
%
 
 
 
 
 
Spread over forward interest rate swap rates
 
5
 %
-
11
%
 
8
%
Derivative assets
11

 
Consensus Pricing
 
Net market price
 
(2
)%
-
14
%
 
2
%
 
 
 
 
 
Estimated Pull through %
 
1
 %
-
100
%
 
90
%
Derivative liabilities
3

 
Discounted cash flow
 
Estimated conversion factor
 
 
 
 
 
162
%
 
 
 
 
 
Estimated growth rate of Visa Class A shares
 
 
 
 
 
7
%
 
 
 
 
 
 Discount rate
 
 
 
 
 
2
%
 
 
 
 
 
Timing of the resolution of the litigation
 
 
 
 
 
6/30/2020

Municipal securities
3,094

 
Discounted cash flow
 
Discount rate
 
2
 %
-
3
%
 
2
%
Asset-backed securities
55

 
 
 
Cumulative default
 
0
 %
-
64
%
 
4
%
 
 
 
 
 
Loss given default
 
5
 %
-
80
%
 
24
%
Loans held for investment
27

 
Discounted cash flow
 
Discount rate
 
6
 %
-
6
%
 
6
%
 
 
 
 
 
Constant prepayment rate
 
9
 %
-
12
%
 
9
%
Measured at fair value on a nonrecurring basis:
MSRs
172

 
Discounted cash flow
 
Constant prepayment rate
 
12
 %
 
33
%
 
16
%
 
 
 
 
 
Spread over forward interest rate swap rates
 
5
 %
 
11
%
 
9
%
Impaired loans
20

 
Appraisal value
 
NA
 
 
 
 
 
NA

Loans held for sale
36

 
Appraisal value
 
NA
 
 
 
 
 
NA


75

 
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018
(dollar amounts in millions)
Fair Value
 
Valuation Technique
 
Significant Unobservable Input
 
Range
 
Weighted Average
Measured at fair value on a recurring basis:
 
 
 
 
MSRs
$
10

 
Discounted cash flow
 
Constant prepayment rate
 
6
 %
-
54
%
 
8
%
 
 
 
 
 
Spread over forward interest rate swap rates
 
5
 %
-
11
%
 
8
%
Derivative assets
5

 
Consensus Pricing
 
Net market price
 
(5
)%
-
23
%
 
2
%
 
 
 
 
 
Estimated Pull through %
 
1
 %
-
100
%
 
92
%
Derivative liabilities
3

 
Discounted cash flow
 
Estimated conversion factor
 
 
 
 
 
163
%
 
 
 
 
 
Estimated growth rate of Visa Class A shares
 
 
 
 
 
7
%
 
 
 
 
 
 Discount rate
 
 
 
 
 
4
%
 
 
 
 
 
Timing of the resolution of the litigation
 
 
 
 
 
6/30/2020

Municipal securities
3,165

 
Discounted cash flow
 
Discount rate
 
4
 %
-
4
%
 
4
%
 
 
 
 
 
Cumulative default
 
0
 %
-
39
%
 
3
%
 
 
 
 
 
Loss given default
 
5
 %
-
90
%
 
25
%
Loans held for investment
30

 
Discounted cash flow
 
Discount rate
 
7
 %
-
9
%
 
9
%
 
 
 
 
 
Constant prepayment rate
 
9
 %
-
9
%
 
9
%
Measured at fair value on a nonrecurring basis:
 
 
 
 
Impaired loans
33

 
Appraisal value
 
NA
 
 
 
 
 
NA

Loans held for sale
121

 
Discounted cash flow
 
Discount rate
 
5
 %
-
6
%
 
5
%
 
24

 
Appraisal value
 
NA
 
 
 
 
 
NA


The following provides a general description of the impact of a change in an unobservable input on the fair value measurement and the interrelationship between unobservable inputs, where relevant/significant. Interrelationships may also exist between observable and unobservable inputs.
Credit loss estimates, such as probability of default, constant default, cumulative default, loss given default, cure given deferral, and loss severity, are driven by the ability of the borrowers to pay their loans and the value of the underlying collateral and are impacted by changes in macroeconomic conditions, typically increasing when economic conditions worsen and decreasing when conditions improve. An increase in the estimated prepayment rate typically results in a decrease in estimated credit losses and vice versa. Higher credit loss estimates generally result in lower fair values. Credit spreads generally increase when liquidity risks and market volatility increase and decrease when liquidity conditions and market volatility improve.
Discount rates and spread over forward interest rate swap rates typically increase when market interest rates increase and/or credit and liquidity risks increase, and decrease when market interest rates decline and/or credit and liquidity conditions improve. Higher discount rates and credit spreads generally result in lower fair market values.
Net market price and pull through percentages generally increase when market interest rates increase and decline when market interest rates decline. Higher net market price and pull through percentages generally result in higher fair values.

76

Fair values of financial instruments
The following table provides the carrying amounts and estimated fair values of Huntington’s financial instruments at September 30, 2019 and December 31, 2018:
 
September 30, 2019
(dollar amounts in millions)
Amortized Cost
 
Lower of Cost or Market
 
Fair Value or
Fair Value Option
 
Total Carrying Amount
 
Estimated Fair Value
Financial Assets
 
 
 
 
 
 
 
 
 
Cash and short-term assets
$
1,758

 
$
—

 
$
—

 
$
1,758

 
$
1,758

Trading account securities
—

 
—

 
118

 
118

 
118

Available-for-sale securities
—

 
—

 
14,286

 
14,286

 
14,286

Held-to-maturity securities
8,430

 
—

 
—

 
8,430

 
8,584

Other securities
401

 
—

 
54

 
455

 
455

Loans held for sale
—

 
101

 
963

 
1,064

 
1,067

Net loans and leases (1)
74,029

 
—

 
80

 
74,109

 
75,234

Derivatives
—

 
—

 
577

 
577

 
577

Financial Liabilities
 
 
 
 
 
 
 
 
 
Deposits
82,395

 
—

 
—

 
82,395

 
82,398

Short-term borrowings
2,173

 
—

 
—

 
2,173

 
2,173

Long-term debt
9,874

 
—

 
—

 
9,874

 
10,075

Derivatives
—

 
—

 
127

 
127

 
127

 
December 31, 2018
(dollar amounts in millions)
Amortized Cost
 
Lower of Cost or Market
 
Fair Value or
Fair Value Option
 
Total Carrying Amount
 
Estimated Fair Value
Financial Assets
 
 
 
 
 
 
 
 
 
Cash and short-term assets
$
2,725

 
$
—

 
$
—

 
$
2,725

 
$
2,725

Trading account securities
—

 
—

 
105

 
105

 
105

Available-for-sale securities
—

 
—

 
13,780

 
13,780

 
13,780

Held-to-maturity securities
8,565

 
—

 
—

 
8,565

 
8,286

Other securities
543

 
—

 
22

 
565

 
565

Loans held for sale
—

 
191

 
613

 
804

 
806

Net loans and leases (1)
74,049

 
—

 
79

 
74,128

 
73,668

Derivatives
—

 
—

 
209

 
209

 
209

Financial Liabilities
 
 
 
 
 
 
 
 
 
Deposits
84,774

 
—

 
—

 
84,774

 
84,731

Short-term borrowings
2,017

 
—

 
—

 
2,017

 
2,017

Long-term debt
8,625

 
—

 
—

 
8,625

 
8,718

Derivatives
—

 
—

 
187

 
187

 
187

(1)
Includes collateral-dependent loans measured for impairment.

77

The following table presents the level in the fair value hierarchy for the estimated fair values at September 30, 2019 and December 31, 2018:
 
Estimated Fair Value Measurements at Reporting Date Using
 
September 30, 2019
(dollar amounts in millions)
Level 1
 
Level 2
 
Level 3
 
Financial Assets
 
 
 
 
 
 
 
Trading account securities
$
29

 
$
89

 
$
—

 
$
118

Available-for-sale securities
10

 
11,127

 
3,149

 
14,286

Held-to-maturity securities
—

 
8,584

 
—

 
8,584

Other securities (1)
54

 
—

 
—

 
54

Loans held for sale
—

 
963

 
104

 
1,067

Net loans and direct financing leases
—

 
80

 
75,154

 
75,234

Financial Liabilities
 
 
 
 
 
 
 
Deposits
—

 
75,707

 
6,691

 
82,398

Short-term borrowings
—

 
—

 
2,173

 
2,173

Long-term debt
—

 
9,435

 
640

 
10,075

 
Estimated Fair Value Measurements at Reporting Date Using
 
December 31, 2018
(dollar amounts in millions)
Level 1
 
Level 2
 
Level 3
 
Financial Assets
 
 
 
 
 
 
 
Trading account securities
$
78

 
$
27

 
$
—

 
$
105

Available-for-sale securities
5

 
10,610

 
3,165

 
13,780

Held-to-maturity securities
—

 
8,286

 
—

 
8,286

Other securities (1)
22

 
—

 
—

 
22

Loans held for sale
—

 
613

 
193

 
806

Net loans and direct financing leases
—

 
49

 
73,619

 
73,668

Financial Liabilities

 

 

 
 
Deposits
—

 
76,922

 
7,809

 
84,731

Short-term borrowings
1

 
—

 
2,016

 
2,017

Long-term debt
—

 
8,158

 
560

 
8,718


(1)
Excludes securities without readily determinable fair values.
The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include trading account securities, customers’ acceptance liabilities, short-term borrowings, bank acceptances outstanding, FHLB advances, and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in banks, interest-bearing deposits at Federal Reserve Bank, federal funds sold, and securities purchased under resale agreements. Loan commitments and letters-of-credit generally have short-term, variable-rate features and contain clauses that limit Huntington’s exposure to changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.
Certain assets, the most significant being operating lease assets, bank owned life insurance, and premises and equipment, do not meet the definition of a financial instrument and are excluded from this disclosure. Similarly, mortgage and nonmortgage servicing rights, deposit base, and other customer relationship intangibles are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent Huntington’s underlying value. Many of the assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by Management. These estimations necessarily involve the use of judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.

78

12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded in the Unaudited Condensed Consolidated Balance Sheets as either an asset or a liability (in other assets or other liabilities, respectively) and measured at fair value.
Derivative financial instruments can be designated as accounting hedges under GAAP. Designating a derivative as an accounting hedge allows Huntington to recognize gains and losses on the hedging instruments in the same income statement line item where the gains and losses on the hedged item are recognized. Gains and losses on derivatives that are not designated in an effective hedge relationship under GAAP immediately impact earnings within the period they occur.
The following table presents the fair values of all derivative instruments included in the Unaudited Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018. Amounts in the table below are presented gross without the impact of any net collateral arrangements.
 
September 30, 2019
December 31, 2018
(dollar amounts in millions)
Asset
 
Liability
 
Asset
 
Liability
Derivatives designated as Hedging Instruments
 
 
 
 
 
 
 
Interest rate contracts
$
376

 
$
19

 
$
44

 
$
42

Derivatives not designated as Hedging Instruments
 
 
 
 
 
 
 
Interest rate contracts
544

 
417

 
261

 
165

Foreign exchange contracts
22

 
20

 
23

 
19

Commodities contracts
178

 
172

 
172

 
168

Equity contracts
3

 
3

 
—

 
10

Total Contracts
$
1,123

 
$
631

 
$
500

 
$
404


The following table presents the amount of gain or loss recognized in income for derivatives not designated as hedging instruments under ASC Subtopic 815-10 in the Unaudited Condensed Consolidated Income Statement for the three-month and nine-month periods ended September 30, 2019 and 2018, respectively.
 
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
Amount of Gain or (Loss) Recognized in Income on Derivative
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollar amounts in millions)
 
 
 
2019
 
2018
 
2019
 
2018
Interest rate contracts:
 

 
 
 
 
 
 
 
 
Customer
 
Capital markets fees
 
$
15

 
$
11

 
$
38

 
$
30

Mortgage Banking
 
Mortgage banking income
 
28

 
5

 
52

 
(3
)
Interest Rate Floors
 
Other noninterest income
 
(1
)
 
—

 
4

 
—

Foreign exchange contracts
 
Capital markets fees
 
7

 
6

 
22

 
18

Commodities contracts
 
Capital markets fees
 
1

 
1

 
(3
)
 
3

Equity contracts
 
Other noninterest expense
 
(2
)
 
—

 
(3
)
 
3

Total
 
 
 
$
48

 
$
23

 
$
110

 
$
51


Derivatives used in asset and liability management activities
Huntington engages in balance sheet hedging activity, principally for asset liability management purposes. Balance sheet hedging activity is generally arranged to receive hedge accounting treatment that can be classified as either fair value or cash flow hedges. Fair value hedges are executed to hedge changes in fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. Cash flow hedges are executed to modify interest rate characteristics of designated commercial loans in order to reduce the impact of changes in future cash flows due to market interest rate changes.

79

The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management activities at September 30, 2019 and December 31, 2018, identified by the underlying interest rate-sensitive instruments.
 
September 30, 2019
(dollar amounts in millions)
Fair Value
Hedges
 
Cash Flow Hedges
 
Total
Instruments associated with:
 
 
 
 
 
Loans
$
—

 
$
17,150

 
$
17,150

Investment securities
—

 
12

 
12

Long-term debt
7,540

 
—

 
7,540

Total notional value at September 30, 2019
$
7,540

 
$
17,162

 
$
24,702

 
 
 
 
 
 
 
 
 
December 31, 2018
(dollar amounts in millions)
Fair Value Hedges
 
Cash Flow Hedges
 
Total
Instruments associated with:
 
 
 
 
 
Investment securities
$
—

 
$
12

 
$
12

Long-term debt
4,865

 
—

 
4,865

Total notional value at December 31, 2018
$
4,865

 
$
12

 
$
4,877


The following table presents additional information about the interest rate swaps and floors used in Huntington’s asset and liability management activities at September 30, 2019 and December 31, 2018.
 
September 30, 2019
 
 
 
 
 
 
 
Weighted-Average Rate
(dollar amounts in millions)
Notional Value
 
Average Maturity (years)
 
Fair Value
 
Receive
 
Pay
Asset conversion swaps
 
 
 
 
 
 
 
 
 
Receive fixed—generic
$
8,287

 
3.5

 
$
106

 
1.69
%
 
1.33
%
Liability conversion swaps
 
 
 
 
 
 
 
 
 
Receive fixed—generic
7,540

 
2.5

 
191

 
2.20

 
2.08

Total swap portfolio at September 30, 2019
$
15,827

 
3.0

 
$
297

 
1.93
%
 
1.69
%
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
 
(dollar amounts in millions)
Notional Value
 
Average Maturity (years)
 
Fair Value
Interest rate floors
 
 
 
 
 
 
 
 
 
Designated interest rate floors
$
8,875
 
 
1.6
 
 
$
60

Total floors portfolio at September 30, 2019
$
8,875
 
 
1.6
 
 
$
60

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Weighted-Average Rate
(dollar amounts in millions)
Notional Value
 
Average Maturity (years)
 
Fair Value
 
Receive
 
Pay
Asset conversion swaps
 
 
 
 
 
 
 
 
 
Receive fixed—generic
$
12

 
1.2

 
$
—

 
2.20
%
 
2.46
%
Liability conversion swaps
 
 
 
 
 
 
 
 
 
Receive fixed—generic
4,865

 
2.6

 
2

 
2.24

 
2.54

Total swap portfolio at December 31, 2018
$
4,877

 
2.6

 
$
2

 
2.24
%
 
2.54
%

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of assets and liabilities. Net amounts receivable or payable on contracts hedging either interest earning assets or interest bearing liabilities were accrued as an adjustment to either interest income or interest expense. The net amounts resulted in an increase (decrease) to net interest income of $(16) million and $(11) million for the three-month periods ended September 30, 2019, and 2018, respectively, and $(44) million and $(25) million for the nine-month periods ended September 30, 2019, and 2018, respectively.

80

Fair Value Hedges
The changes in fair value of the fair value hedges are recorded through earnings and offset against changes in the fair value of the hedged item.
The following table presents the change in fair value for derivatives designated as fair value hedges as well as the offsetting change in fair value on the hedged item for the three-month and nine-month periods ended September 30, 2019 and 2018.
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
(dollar amounts in millions)
2019
 
2018
 
2019
 
2018
Interest rate contracts
 
 
 
 
 
 
 
Change in fair value of interest rate swaps hedging long-term debt (1)
$
36

 
$
(11
)
 
$
165

 
$
55

Change in fair value of hedged long term debt (1)
(32
)
 
12

 
(162
)
 
(49
)
(1)
Recognized in Interest expense—long-term debt in the Unaudited Condensed Consolidated Statements of Income.
As of September 30, 2019 and December 31, 2018, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges.
 
Carrying Amount of the Hedged Liabilities
 
Cumulative Amount of Fair Value Hedging Adjustment To Hedged Liabilities
(dollar amounts in millions)
September 30, 2019
 
December 31, 2018
 
September 30, 2019
 
December 31, 2018
Long-term debt
$
7,835

 
$
4,845

 
$
150

 
$
(12
)
The cumulative amount of fair value hedging adjustments remaining for any hedged assets and liabilities for which hedge accounting has been discontinued was $(104) million and $(127) million at September 30, 2019 and December 31, 2018, respectively.
Cash Flow Hedges
During the first nine months of 2019, Huntington entered into $17.2 billion of interest rate floors and swaps. These are designated as cash flow hedges for variable rate commercial loans indexed to LIBOR. The initial premium paid for the interest rate floor contracts represents the time value of the contracts and is not included in the measurement of hedge effectiveness. Any change in fair value related to time value is recognized in OCI. The initial premium paid is amortized on a straight line basis as a reduction to interest income over the contractual life of these contracts.
Derivatives used in mortgage banking activities
Mortgage loan origination hedging activity
Huntington’s mortgage origination hedging activity is related to economically hedging Huntington's mortgage pricing commitments to customers and the secondary sale to third parties. The value of a newly originated mortgage is not firm until the interest rate is committed or locked. The net asset (liability) position of these derivatives at September 30, 2019 and December 31, 2018 are $14 million and $(4) million, respectively. At September 30, 2019 and December 31, 2018, Huntington had commitments to sell residential real estate loans of $2.0 billion and $0.8 billion, respectively. These contracts mature in less than 1 year.

81

MSR hedging activity
Huntington’s MSR economic hedging activity uses securities and derivatives to manage the value of the MSR asset and to mitigate the various types of risk inherent in the MSR asset, including risks related to duration, basis, convexity, volatility, and yield curve. The hedging instruments include forward commitments, interest rate swaps, and options on interest rate swaps.
The notional value of the derivative financial instruments, corresponding trading assets and liabilities, and net trading gains (losses) related to MSR hedging activity is summarized in the following table:
(dollar amounts in millions)
September 30, 2019
December 31, 2018
Notional value
$
572
 
 
$
—
 
Trading assets
30
 
 
—
 
Trading liabilities
(1
)
 
—
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollar amounts in millions)
2019
2018
 
2019
2018
Trading gains (losses)
$
20

$
—

 
$
44

$
(8
)

MSR hedging trading assets and liabilities are included in other assets and other liabilities, respectively, in the Unaudited Condensed Balance Sheets. Trading gains (losses) are included in mortgage banking income in the Unaudited Condensed Consolidated Statement of Income.
Derivatives used in customer related activities
Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their risk management purposes. Derivative financial instruments used in trading activities consist of commodity, interest rate, and foreign exchange contracts. Huntington enters into offsetting third-party contracts with approved, reputable counterparties with substantially matching terms and currencies in order to economically hedge significant exposure related to derivatives used in trading activities.
The interest rate or price risk of customer derivatives is mitigated by entering into similar derivatives having offsetting terms with other counterparties. The credit risk to these customers is evaluated and included in the calculation of fair value. Foreign currency derivatives help the customer hedge risk and reduce exposure to fluctuations in exchange rates. Transactions are primarily in liquid currencies with Canadian dollars and Euros comprising a majority of all transactions. Commodity derivatives help the customer hedge risk and reduce exposure to fluctuations in the price of various commodities. Hedging of energy-related products and base metals comprise the majority of these transactions.
The net fair values of these derivative financial instruments, for which the gross amounts are included in other assets or other liabilities at both September 30, 2019 and December 31, 2018, were $87 million and $92 million, respectively. The total notional values of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives, were $30 billion and $26 billion at September 30, 2019 and December 31, 2018, respectively. Huntington’s credit risk from customer derivatives was $515 million and $132 million at the same dates, respectively.
Visa®-related Swaps
In connection with the sale of Huntington’s Class B Visa® shares, Huntington entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B shares resulting from changes in the Visa® litigation. At September 30, 2019, the fair value of the swap liabilities of $3 million is an estimate of the exposure liability based upon Huntington’s assessment of the potential Visa® litigation losses and timing of the litigation settlement.
Financial assets and liabilities that are offset in the Unaudited Condensed Consolidated Balance Sheets
Huntington records derivatives at fair value as further described in Note 11 "Fair Values of Assets and Liabilities".
Derivative balances are presented on a net basis taking into consideration the effects of legally enforceable master netting agreements. Additionally, collateral exchanged with counterparties is also netted against the applicable derivative fair values. Huntington enters into derivative transactions with two primary groups: broker-dealers and banks, and Huntington’s customers. Different methods are utilized for managing counterparty credit exposure and credit risk for each of these groups.
Huntington enters into transactions with broker-dealers and banks for various risk management purposes. These types of transactions generally are high dollar volume. Huntington enters into collateral and master netting agreements with these counterparties, and routinely exchanges cash and high quality securities collateral. Huntington enters into transactions with

82

customers to meet their financing, investing, payment and risk management needs. These types of transactions generally are low dollar volume. Huntington enters into master netting agreements with customer counterparties; however, collateral is generally not exchanged with customer counterparties.
At September 30, 2019 and December 31, 2018, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $46 million and $37 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements with broker-dealers and banks.
At September 30, 2019, Huntington pledged $109 million of investment securities and cash collateral to counterparties, while other counterparties pledged $228 million of investment securities and cash collateral to Huntington to satisfy collateral netting agreements. In the event of credit downgrades, Huntington would not be required to provide additional collateral.
The following tables present the gross amounts of these assets and liabilities with any offsets to arrive at the net amounts recognized in the Unaudited Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018.
Offsetting of Financial Assets and Derivative Assets
 
 
 
 
Gross amounts
offset in the unaudited
condensed
consolidated
balance sheets
 
Net amounts of
assets
presented in
the unaudited condensed
consolidated
balance sheets
 
Gross amounts not offset in the
unaudited condensed consolidated
balance sheets
 
 
(dollar amounts in millions)
 
Gross amounts
of recognized
assets
 
 
 
Financial
instruments
 
Cash collateral
received
 
Net amount
September 30, 2019
Derivatives
$
1,123

 
$
(546
)
 
$
577

 
$
(15
)
 
$
(31
)
 
$
531

December 31, 2018
Derivatives
500

 
(291
)
 
209

 
(4
)
 
(53
)
 
152


Offsetting of Financial Liabilities and Derivative Liabilities
 
 
 
 
Gross amounts
offset in the unaudited
condensed
consolidated
balance sheets
 
Net amounts of
liabilities
presented in
the unaudited condensed
consolidated
balance sheets
 
Gross amounts not offset in the
unaudited condensed consolidated
balance sheets
 
 
(dollar amounts in millions)
 
Gross amounts
of recognized
liabilities
 
 
 
Financial
instruments
 
Cash collateral
delivered
 
Net amount
September 30, 2019
Derivatives
$
631

 
$
(504
)
 
$
127

 
$
—

 
$
(23
)
 
$
104

December 31, 2018
Derivatives
404

 
(217
)
 
187

 
—

 
(12
)
 
175


13. VIEs
Unconsolidated VIEs
The following tables provide a summary of the assets and liabilities included in Huntington’s Unaudited Condensed Consolidated Financial Statements, as well as the maximum exposure to losses, associated with its interests related to unconsolidated VIEs for which Huntington holds an interest, but is not the primary beneficiary, to the VIE at September 30, 2019, and December 31, 2018:

September 30, 2019
(dollar amounts in millions)
Total Assets

Total Liabilities

Maximum Exposure to Loss
Trust Preferred Securities
$
14


$
252


$
—

Affordable Housing Tax Credit Partnerships
714


338


714

Other Investments
157


64


157

Total
$
885


$
654


$
871

 
December 31, 2018
(dollar amounts in millions)
Total Assets
 
Total Liabilities
 
Maximum Exposure to Loss
Trust Preferred Securities
$
14

 
$
252

 
$
—

Affordable Housing Tax Credit Partnerships
708

 
357

 
708

Other Investments
126

 
53

 
126

Total
$
848


$
662


$
834



83

Trust-Preferred Securities
Huntington has certain wholly-owned trusts whose assets, liabilities, equity, income, and expenses are not included within Huntington’s Unaudited Condensed Consolidated Financial Statements. These trusts have been formed for the sole purpose of issuing trust-preferred securities, from which the proceeds are then invested in Huntington junior subordinated debentures, which are reflected in Huntington’s Unaudited Condensed Consolidated Balance Sheet as long-term debt. The trust securities are the obligations of the trusts, and as such, are not consolidated within Huntington’s Unaudited Condensed Consolidated Financial Statements.
A list of trust preferred securities outstanding at September 30, 2019 follows:
(dollar amounts in millions)
Rate
 
Principal amount of
subordinated note/
debenture issued to trust (1)
 
Investment in
unconsolidated
subsidiary
Huntington Capital I
2.79
%
(2)
$
70

 
$
6

Huntington Capital II
2.71

(3)
32

 
3

Sky Financial Capital Trust III
3.49

(4)
72

 
2

Sky Financial Capital Trust IV
3.49

(4)
74

 
2

Camco Financial Trust
3.42

(5)
4

 
1

Total
 
 
$
252

 
$
14

(1)
Represents the principal amount of debentures issued to each trust, including unamortized original issue discount.
(2)
Variable effective rate at September 30, 2019, based on three-month LIBOR +0.70%.
(3)
Variable effective rate at September 30, 2019, based on three-month LIBOR +0.625%.
(4)
Variable effective rate at September 30, 2019, based on three-month LIBOR +1.40%.
(5)
Variable effective rate at September 30, 2019, based on three-month LIBOR +1.33%.
Each issue of the junior subordinated debentures has an interest rate equal to the corresponding trust securities distribution rate. Huntington has the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the trust securities will also be deferred and Huntington’s ability to pay dividends on its common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to trust securities are guaranteed by Huntington to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all indebtedness of the Company to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by Huntington.
Affordable Housing Tax Credit Partnerships
Huntington makes certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the LIHTC pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.
Huntington uses the proportional amortization method to account for a majority of its investments in these entities. These investments are included in other assets. Investments that do not meet the requirements of the proportional amortization method are accounted for using the equity method. Investment losses related to these investments are included in noninterest income in the Unaudited Condensed Consolidated Statements of Income.
The following table presents the balances of Huntington’s affordable housing tax credit investments and related unfunded commitments at September 30, 2019 and December 31, 2018.
(dollar amounts in millions)
September 30,
2019
 
December 31,
2018
Affordable housing tax credit investments
$
1,219

 
$
1,147

Less: amortization
(505
)
 
(439
)
Net affordable housing tax credit investments
$
714

 
$
708

Unfunded commitments
$
338

 
$
357



84

The following table presents other information relating to Huntington’s affordable housing tax credit investments for the three-month and nine-month periods ended September 30, 2019 and 2018.
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in millions)
 
2019
 
2018
 
2019
 
2018
Tax credits and other tax benefits recognized
 
$
26

 
$
24

 
$
79

 
$
70

 
 
 
 
 
 
 
 
 
Proportional amortization expense included in provision for income taxes
 
22

 
19

 
66

 
59


There were no material sales of affordable housing tax credit investments during the three-month and nine-month periods ended September 30, 2019 and 2018. There was no impairment recognized for the three-month and nine-month periods ended September 30, 2019 and 2018.
Other VIE's
Other VIE's include investments in Small Business Investment Companies, Historic Tax Credit Investments, certain equity method investments, renewable energy financings, automobile securitizations, and other miscellaneous investments.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to extend credit
In the ordinary course of business, Huntington makes various commitments to extend credit that are not reflected in the Unaudited Condensed Consolidated Financial Statements. The contract amounts of these financial agreements at September 30, 2019 and December 31, 2018, were as follows:
(dollar amounts in millions)
September 30,
2019

December 31,
2018
Contract amount representing credit risk
 
 
 
Commitments to extend credit:
 
 
 
Commercial
$
18,345


$
17,149

Consumer
14,754


14,974

Commercial real estate
1,410


1,188

Standby letters of credit
624


676

Commercial letters-of-credit
10


14


Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
Standby letters-of-credit are conditional commitments issued to guarantee the performance of a customer to a third-party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years. The carrying amount of deferred revenue associated with these guarantees was $10 million and $13 million at September 30, 2019 and December 31, 2018, respectively.
Commercial letters-of-credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and generally have maturities of no longer than 90 days. The goods or cargo being traded normally secure these instruments.
Litigation and Regulatory Matters
The following supplements the disclosure in Note 20 - Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K and in Note 14 - Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (collectively, the prior commitments and contingencies disclosures).
In the ordinary course of business, Huntington is routinely a defendant in or party to pending and threatened legal and regulatory actions and proceedings.
In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties,

85

Huntington generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each matter may be.
Huntington establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. Huntington thereafter continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.
For certain matters, Huntington is able to estimate a range of possible loss. In cases in which Huntington possesses information to estimate a range of possible loss, that estimate is aggregated and disclosed below. There may be other matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is possible, management currently estimates the aggregate range of possible loss is $0 to $20 million at September 30, 2019 in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. The estimated range of possible loss does not represent Huntington’s maximum loss exposure.
Based on current knowledge, management does not believe that loss contingencies arising from pending matters will have a material adverse effect on the consolidated financial position of Huntington. Further, management believes that amounts accrued are adequate to address Huntington’s contingent liabilities. However, in light of the inherent uncertainties involved in these matters, some of which are beyond Huntington’s control, and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to Huntington’s results of operations for any particular reporting period.
15. SEGMENT REPORTING
Huntington's business segments are based on our internally-aligned segment leadership structure, which is how management monitors results and assesses performance. The Company has four major business segments: Consumer and Business Banking, Commercial Banking, Vehicle Finance, Regional Banking and The Huntington Private Client Group (RBHPCG). The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.
Business segment results are determined based upon Huntington's management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing service to customers. Results of operations for the business segments reflect these fee-sharing allocations.
The management process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all four business segments from Treasury / Other. Huntington utilizes a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, if any, and a small amount of other residual unallocated expenses, are allocated to the four business segments.
The management policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures result in changes in reported segment financial data. Accordingly, certain amounts have been reclassified to conform to the current period presentation.
Huntington uses an active and centralized FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). During 2019, the Company

86

updated and refined its FTP methodology primarily related to the allocation of deposit funding costs. Prior period amounts presented below have been restated to reflect the new methodology.
Consumer and Business Banking - The Consumer and Business Banking segment, including Home Lending, 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, mortgage loans, consumer loans, credit cards, and small business loans and investment products. Other financial services available to consumer and small business customers include insurance, interest rate risk protection, foreign exchange, and treasury management. Business Banking is defined as serving companies with revenues up to $20 million. Home Lending supports origination and servicing of consumer loans and mortgages for customers who are generally located in our primary banking markets across all segments.
Commercial Banking - Through a relationship banking model, this segment provides a wide array of products and services to the middle market, large corporate, real estate and government public sector customers located primarily within our geographic footprint. The segment is divided into six business units: Middle Market, Specialty Banking, Asset Finance, Capital Markets/Institutional Corporate Banking, Commercial Real Estate and Treasury Management.
Vehicle Finance - Our products and services include providing financing to consumers for the purchase of automobiles, light-duty trucks, recreational vehicles and marine craft at franchised and other select dealerships, and providing financing to franchised dealerships for the acquisition of new and used inventory. Products and services are delivered through highly specialized relationship-focused bankers and product partners.
Regional Banking and The Huntington Private Client Group - The core business of The Huntington Private Client Group is The Huntington Private Bank, which consists of Private Banking, Wealth & Investment Management, and Retirement Plan Services. The Huntington Private Bank provides high net-worth customers with deposit, lending (including specialized lending options), and banking services. The Huntington Private Bank also delivers wealth management and legacy planning through investment and portfolio management, fiduciary administration, and trust services. This group also provides retirement plan services to corporate businesses. The Huntington Private Client Group provides corporate trust services and institutional and mutual fund custody services.
Listed in the table below is certain operating basis financial information reconciled to Huntington’s September 30, 2019, December 31, 2018, and September 30, 2018, reported results by business segment.
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
Income Statements
Consumer & Business Banking
 
Commercial Banking
 
Vehicle Finance
 
RBHPCG
 
Treasury / Other
 
Huntington Consolidated
(dollar amounts in millions)
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
433

 
$
263

 
$
100

 
$
48

 
$
(45
)
 
$
799

Provision (benefit) for credit losses
35

 
36

 
12

 
(1
)
 
—

 
82

Noninterest income
223

 
101

 
4

 
47

 
14

 
389

Noninterest expense
421

 
142

 
36

 
63

 
5

 
667

Provision (benefit) for income taxes
42

 
39

 
12

 
7

 
(33
)
 
67

Net income (loss)
$
158

 
$
147

 
$
44

 
$
26

 
$
(3
)
 
$
372

2018
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
445

 
$
259

 
$
97

 
$
51

 
$
(50
)
 
$
802

Provision (benefit) for credit losses
41

 
(1
)
 
13

 
—

 
—

 
53

Noninterest income
194

 
81

 
3

 
46

 
18

 
342

Noninterest expense
424

 
121

 
35

 
60

 
11

 
651

Provision (benefit) for income taxes
38

 
46

 
11

 
6

 
(39
)
 
62

Net income (loss)
$
136

 
$
174

 
$
41

 
$
31

 
$
(4
)
 
$
378


87

 
Nine Months Ended September 30,
Income Statements
Consumer & Business Banking
 
Commercial Banking
 
Vehicle Finance
 
RBHPCG
 
Treasury / Other
 
Huntington Consolidated
(dollar amounts in millions)
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
1,371

 
$
798

 
$
291

 
$
153

 
$
(180
)
 
$
2,433

Provision (benefit) for credit losses
81

 
103

 
27

 
(3
)
 
—

 
208

Noninterest income
596

 
266

 
9

 
147

 
64

 
1,082

Noninterest expense
1,247

 
427

 
112

 
193

 
41

 
2,020

Provision (benefit) for income taxes
134

 
113

 
33

 
23

 
(110
)
 
193

Net income (loss)
$
505

 
$
421

 
$
128

 
$
87

 
$
(47
)
 
$
1,094

2018
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
1,254

 
$
744

 
$
294

 
$
148

 
$
(84
)
 
$
2,356

Provision (benefit) for credit losses
98

 
41

 
36

 
—

 
—

 
175

Noninterest income
557

 
234

 
9

 
146

 
46

 
992

Noninterest expense
1,263

 
364

 
106

 
180

 
23

 
1,936

Provision (benefit) for income taxes
95

 
120

 
34

 
24

 
(95
)
 
178

Net income (loss)
$
355

 
$
453

 
$
127

 
$
90

 
$
34

 
$
1,059

 
Assets at
 
Deposits at
(dollar amounts in millions)
September 30,
2019
 
December 31,
2018
 
September 30,
2019
 
December 31,
2018
Consumer & Business Banking
$
25,418

 
$
27,486

 
$
51,671

 
$
50,300

Commercial Banking
34,368

 
34,818

 
21,088

 
23,185

Vehicle Finance
19,414

 
19,435

 
363

 
346

RBHPCG
6,593

 
6,540

 
6,101

 
6,809

Treasury / Other
22,942

 
20,502

 
3,172

 
4,134

Total
$
108,735

 
$
108,781

 
$
82,395

 
$
84,774



Item 3: Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in Huntington’s 2018 Form 10-K.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
Huntington maintains disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Huntington’s Management, with the participation of its Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Huntington’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2019. Based upon such evaluation, Huntington’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2019, Huntington’s disclosure controls and procedures were effective.
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

88

PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported.
Item 1: Legal Proceedings
Information required by this item is set forth in Note 14 "Commitments and Contingent Liabilities" of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption "Litigation and Regulatory Matters" and is incorporated into this Item by reference.
Item 1A: Risk Factors
Information required by this item is set forth in Part 1 Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) and (b)
Not Applicable
(c)
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)
July 1, 2019 to July 31, 2019
59,000

 
$
14.42

 
$
512,149,127

August 1, 2019 to August 31, 2019
5,154,176

 
13.01

 
445,099,835

September 1, 2019 to September 30, 2019
—

 
—

 
445,099,835

Total
5,213,176

 
$
13.02

 
$
445,099,835

 
(1)
The reported shares were repurchased pursuant to Huntington’s publicly-announced share repurchase authorization.
(2)
The number shown represents, as of the end of each period, the approximate dollar value of Common Stock that may yet be purchased under publicly-announced share repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions.

On July 17, 2019, the Board of Directors authorized the repurchase of up to $513 million of common shares over the four quarters through the 2020 second quarter. During the 2019 third quarter, Huntington repurchased a total of 5.2 million shares at a weighted average share price of $13.02.

Item 6. Exhibits
Exhibit Index
This report incorporates by reference the documents listed below that we have previously filed with the SEC. The SEC allows us to incorporate by reference information in this document. The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document.
The SEC 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 Quarterly Report on Form 10-Q, 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 10004.

89

Exhibit
Number
Document Description
Report or Registration Statement
SEC File or
Registration
Number
Exhibit
Reference
3.1
Articles Supplementary of Huntington Bancshares Incorporated, as of January 18, 2019.
Current Report on Form 8-K dated January 16, 2019.
001-34073
3.1
3.2
Articles of Restatement of Huntington Bancshares Incorporated, as of January 18, 2019.
Current Report on Form 8-K dated January 16, 2019.
001-34073
3.2
3.3
Bylaws of Huntington Bancshares Incorporated, as amended and restated on January 16, 2019.
Current Report on Form 8-K dated January 16, 2019.
001-34073
3.3
4.1(P)
Instruments defining the Rights of Security Holders—reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request.
 
 
 
10.1
Second Amendment to the Huntington Supplemental 401(k) Plan, dated October 22, 2019
 
 
 
10.2
First Amendment to The Huntington Bancshares Supplemental Retirement Income Plan, dated October 23, 2019
 
 
 
31.1
*Rule 13a-14(a) Certification – Chief Executive Officer.
 
 
 
31.2
*Rule 13a-14(a) Certification – Chief Financial Officer.
 
 
 
32.1
**Section 1350 Certification – Chief Executive Officer.
 
 
 
32.2
**Section 1350 Certification – Chief Financial Officer.
 
 
 
101.INS
***The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
 
 
 
101.SCH
*Inline XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
*Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
*Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
*Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
*Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
*
Filed herewith
**
Furnished herewith
***
The following material from Huntington’s Form 10-Q Report for the quarterly period ended September 30, 2019, formatted in Inline XBRL: (1) Unaudited Condensed Consolidated Balance Sheets, (2) Unaudited Condensed Consolidated Statements of Income, (3) Unaudited Condensed Consolidated Statements of Comprehensive Income (4) Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity, (5) Unaudited Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements.

90

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HUNTINGTON BANCSHARES INCORPORATED
(Registrant)
 
 
 
 
 
Date:
October 28, 2019
 
/s/ Stephen D. Steinour
 
 
 
Stephen D. Steinour
 
 
 
Chairman, President, and Chief Executive Officer (Principal Executive Officer)
 
 
 
Date:
October 28, 2019
 
/s/ Howell D. McCullough III
 
 
 
Howell D. McCullough III
 
 
 
Chief Financial Officer
(Principal Financial Officer)


91

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