Edgar Filing: HUNTINGTON BANCSHARES INC/MD

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Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY PERIOD ENDED March 31, 2014

Commission File Number 1-34073

Huntington Bancshares Incorporated


Maryland		31-0724920
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

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

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

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

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

There were 827,771,805 shares of Registrant’s common stock ($0.01 par value) outstanding on March 31, 2014.

HUNTINGTON BANCSHARES INCORPORATED

INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013			52

Condensed Consolidated Statements of Income for the three months ended March 31, 2014 and 2013			53

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013			54

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2014 and 2013			55

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013			56

Notes to Unaudited Condensed Consolidated Financial Statements			57

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

Executive Overview			7

Discussion of Results of Operations			9

Risk Management and Capital:			17
Credit Risk			17
Market Risk			28
Liquidity Risk			30
Operational Risk			33
Compliance Risk			35
Capital			35
Fair Value			38

Business Segment Discussion			39

Additional Disclosures			50

Item 3. Quantitative and Qualitative Disclosures about Market Risk			125

Item 4. Controls and Procedures			125

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			125

Item 1A. Risk Factors			125

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			125

Item 6. Exhibits			126

Signatures			128

Glossary of Acronyms and Terms

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


2013 Form 10-K		Annual Report on Form 10-K for the year ended December 31, 2013

ABL		Asset Based Lending

ACL		Allowance for Credit Losses

AFCRE		Automobile Finance and Commercial Real Estate

AFS		Available-for-Sale

ALCO		Asset-Liability Management Committee

ALLL		Allowance for Loan and Lease Losses

ARM		Adjustable Rate Mortgage

ASC		Accounting Standards Codification

ASU		Accounting Standards Update

ATM		Automated Teller Machine

AULC		Allowance for Unfunded Loan Commitments

AVM		Automated Valuation Methodology

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

BHC		Bank Holding Companies

C&I		Commercial and Industrial

Camco Financial		Camco Financial Corp.

CCAR		Comprehensive Capital Analysis and Review

CDO		Collateralized Debt Obligations

CDs		Certificate of Deposit

CFPB		Bureau of Consumer Financial Protection

CMO		Collateralized Mortgage Obligations

CRE		Commercial Real Estate

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

EPS		Earnings Per Share

ERISA		Employee Retirement Income Security Act

EVE		Economic Value of Equity

Fannie Mae		(see FNMA)

FASB		Financial Accounting Standards Board

FDIC		Federal Deposit Insurance Corporation

FDICIA		Federal Deposit Insurance Corporation Improvement Act of 1991

FHA		Federal Housing Administration

FHFA		Federal Housing Finance Agency

FHLB		Federal Home Loan Bank

FHLMC		Federal Home Loan Mortgage Corporation

FICA		Federal Insurance Contributions Act

FICO		Fair Isaac Corporation

FNMA		Federal National Mortgage Association

FRB		Federal Reserve Bank

Freddie Mac		(see FHLMC)

FTE		Fully-Taxable Equivalent

FTP		Funds Transfer Pricing



GAAP		Generally Accepted Accounting Principles in the United States of America

HAMP		Home Affordable Modification Program

HARP		Home Affordable Refinance Program

HIP		Huntington Investment and Tax Savings Plan

HQLA		High Quality Liquid Asset

HTM		Held-to-Maturity

IRC		Internal Revenue Code of 1986, as amended

IRS		Internal Revenue Service

ISE		Interest Sensitive Earnings

LCR		Liquidity Coverage Ratio

LIBOR		London Interbank Offered Rate

LGD		Loss-Given-Default

LIHTC		Low Income Housing Tax Credit

LTV		Loan to Value

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

MSA		Metropolitan Statistical Area

MSR		Mortgage Servicing Rights

NALs		Nonaccrual Loans

NAV		Net Asset Value

NCO		Net Charge-off

NIM		Net interest margin

NCUA		National Credit Union Administration

NPAs		Nonperforming Assets

NPR		Notice of Proposed Rulemaking

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

NSF / OD		Nonsufficient Funds and Overdraft

OCC		Office of the Comptroller of the Currency

OCI		Other Comprehensive Income (Loss)

OCR		Optimal Customer Relationship

OLEM		Other Loans Especially Mentioned

OREO		Other Real Estate Owned

OTTI		Other-Than-Temporary Impairment

PD		Probability-Of-Default

Plan		Huntington Bancshares Retirement Plan

Problem Loans		Includes nonaccrual loans and leases (Table 12), troubled debt restructured loans (Table 13), accruing loans and leases past due 90 days or more (aging analysis section of Footnote 3), and Criticized commercial loans (credit quality indicators section of Footnote 3).

REIT		Real Estate Investment Trust

Reg E		Regulation E, of the Electronic Fund Transfer Act

RBHPCG		Regional Banking and The Huntington Private Client Group

ROC		Risk Oversight Committee

SAD		Special Assets Division

SBA		Small Business Administration

SEC		Securities and Exchange Commission

SERP		Supplemental Executive Retirement Plan

Sky Financial		Sky Financial Group, Inc.

SRIP		Supplemental Retirement Income Plan



TCE		Tangible Common Equity

TDR		Troubled Debt Restructured loan

TLGP		Temporary Liquidity Guarantee Program

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

UCS		Uniform Classification System

UPB		Unpaid Principal Balance

USDA		U.S. Department of Agriculture

VA		U.S. Department of Veteran Affairs

VIE		Variable Interest Entity

PART I. FINANCIAL INFORMATION

When we refer to “we,” “our,” and “us” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have 148 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, insurance service programs, and other financial products and services. Our 727 branches are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio and a limited purpose office located in the Cayman Islands and another limited purpose office located in Hong Kong. Our foreign banking activities, in total or with any individual country, are not significant.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2013 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2013 Form 10-K. This MD&A should also be read in conjunction with the financial statements, notes and other information contained in this report.

Our discussion is divided into key segments:

•

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

•

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

•

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

•

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

•

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

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

EXECUTIVE OVERVIEW

Summary of 2014 First Quarter Results

For the quarter, we reported net income of $149.1 million, or $0.17 per common share, compared with $153.3 million, or $0.17 per common share, in the year-ago quarter (see Table 1).

Fully-taxable equivalent net interest income was $443.4 million for the quarter, up $13.3 million, or 3%, from the year-ago quarter. The results reflected a $2.6 billion, or 6%, increase in average loans, as well as a $1.4 billion, or 14%, increase in other earning assets. These were partially offset by a 15 basis point decrease in the net interest margin. The primary items affecting the net interest margin were a 22 basis point negative impact from the mix and yield of earning assets, partially offset by a 7 basis point reduction in funding costs.

The provision for credit losses decreased $5.0 million, or 17%, from the year-ago quarter. This reflected the continued decline in classified, criticized and nonaccrual loans. NCOs decreased $8.7 million, or 17%, to $43.0 million, primarily due to improvement of the CRE portfolio. Given the absolute low level of C&I and CRE NCOs, there will continue to be some volatility in quarter to quarter comparisons. NCOs were an annualized 0.40% of average loans and leases in the current quarter, compared to 0.51% in the year-ago quarter.

Noninterest income decreased $8.1 million, or 3%, from the year-ago quarter. Mortgage banking income declined $22.2 million, or 49%, primarily driven by 41% reduction in volume, lower gain on sale, and a higher percentage of originations held on the balance sheet. Other income declined by $7.0 million, or 18%, as the year-ago quarter included an $8.8 million gain on the sale of LIHTC investments. Securities gains increased $17.5 million, as we adjusted the mix of our securities portfolio to prepare for the Liquidity Coverage Ratio rules. Service charges on deposit accounts increased $3.7 million, or 6%, which reflected 7% consumer household and 3% commercial relationship growth. This more than offset the negative impact of the February 2013 implementation of a new posting order for consumer transaction accounts. Electronic banking increased $2.9 million, or 14%, due to continued consumer household growth.

Noninterest expense increased $17.3 million, or 4%, from the year-ago quarter. The current quarter results were negatively affected by $12.6 million of one-time merger related expenses related to our acquisition of Camco Financial (see below), $9.0 million addition to litigation reserves, and $3.0 million goodwill impairment related to the reorganization of our business segments (see below). Personnel costs decreased $9.4 million, or 4%, primarily reflecting the curtailment of the pension plan as of the end of 2013. Also, the year-ago quarter included $6.9 million of franchise repositioning related expense.

The tangible common equity to tangible assets ratio at March 31, 2014, was 8.63%, down 28 basis points from a year ago. Our Tier 1 common risk-based capital ratio was 10.60%, down slightly from 10.62% a year ago. The regulatory Tier 1 risk-based capital ratio at March 31, 2014, was 11.95%, down slightly from 12.16% a year ago. The decrease in the regulatory Tier 1 risk-based capital ratio reflected the redemption of $50 million of qualifying preferred securities on December 31, 2013 and an increase in risk-weighted assets caused by organic balance sheet growth, as well as assets acquired from Camco Financial. These declines were offset by an increase in retained earnings. All capital ratios were impacted by the repurchase of 27 million common shares over the last four quarters, 15 million of which were repurchased during the 2014 first quarter, as well as the issuance of 9 million common shares in the Camco Financial acquisition.

The Federal Reserve completed its review of our January 2014 capital plan submission and did not object to our proposed capital actions. These actions include a 20% increase in the dividend per common share to $0.06, potentially starting in the fourth quarter of 2014, and the potential repurchase of up to $250 million of common stock through the first quarter of 2015. Huntington’s proposed capital actions represent an 11% increase in the capital return relative to the dividends paid during the four quarters covered by last year’s plan and the recently completed $227 million share repurchase program. Our capital priorities remain the same, with reinvesting excess capital to organically grow the business our top priority.

Business Overview

General

Our general business objectives are: (1) grow net interest income and fee income, (2) increase cross-sell and share-of-wallet across all business segments, (3) improve efficiency ratio, (4) continue to strengthen risk management, including sustained improvement in credit metrics, and (5) maintain strong capital and liquidity positions.

We continued to deliver solid financial performance in the 2014 first quarter with strong balance sheet growth that drove increased net interest income year over year. We also invested in key businesses and our distribution network for future growth. We are particularly pleased that we have been able to proceed with our ongoing investments, while controlling expenses across the enterprise and achieving positive operating leverage. In addition, we saw significant increases in C&I and automobile lending and our customer base once again expanded.

OTHER HIGHLIGHTS

Camco Financial Acquisition – On March 1, 2014, we completed our acquisition of Camco Financial and converted their banking offices to Huntington branches. As a result, we acquired $0.6 billion of deposits and $0.6 billion of loans.

Business Segments – Our business segments are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. During the 2014 first quarter, we reorganized our business segments to drive our ongoing growth and leverage the knowledge of our highly experienced team. We now have five major business segments: Retail and Business Banking, Commercial Banking, Automobile Finance and Commercial Real Estate (AFCRE), Regional Banking and The Huntington Private Client Group (RBHPCG), and Home Lending. A Treasury / Other function includes our insurance brokerage business, along with technology and operations, other support groups, other unallocated assets, liabilities, revenue, and expense.

Accounting Standards Update – We early adopted ASU 2014-01 (see Note 1). The amendments are required to be applied retroactively to all periods presented. We elected to change the method of recognition in investments that previously qualified for the effective yield method to the proportional amortization method. As a result of these changes, we recorded a cumulative-effect adjustment to beginning retained earnings.

Branch Acquisition Announcement – On April 9, 2014, we announced the signing of a definitive agreement to acquire 11 branches in Central and East Michigan from Bank of America Corporation. We will purchase approximately $450 million of deposits, with a deposit premium of 3.5% based on deposit balances near the time the transaction closes. The transaction is expected to be completed in the second half of 2014.

Economy

Our loan pipelines are strong and we see signs that our customers are more confident in the economy. Our Midwestern markets are recovering with downward unemployment trends and ongoing investments by manufacturers and other businesses. Notwithstanding these tailwinds, we continue to face a challenging regulatory and competitive environment.

2014 Expectations

Net interest income is expected to increase moderately. We anticipate an increase in earning assets as total loans moderately grow and investment securities remain near current levels. However, those benefits to net interest income are expected to be mostly offset by continued downward pressure on NIM. While we are maintaining a disciplined approach to loan pricing, asset yields remain under pressure but the continued opportunity of deposit repricing remains, albeit closer to current levels.

The C&I portfolio is expected to see growth consistent with the anticipated increase in customer activity. Our C&I loan pipeline remains robust with much of this reflecting the positive impact from our investments in specialized commercial verticals, automotive dealer relationships, focused OCR sales process, and continued support of middle market and small business lending. Automobile loan originations remain strong and portfolio balances are expected to continue to grow. Residential mortgages, home equity, and CRE loan balances are expected to increase modestly.

We anticipate the increase in total loans will outpace growth in total deposits modestly. This reflects our continued focus on the overall cost of funds, through the issuance of long-term debt as well as the continued shift towards low- and no-cost demand deposits and money market deposit accounts.

Noninterest income, excluding the impact of any net MSR activity and securities gains, is expected to be slightly higher than current seasonally low levels. Beginning in July, we anticipate a change in our consumer checking accounts that is estimated to impact service charges on deposits negatively by $6 million per quarter.

Noninterest expense is expected to be slightly higher than current levels, excluding the net $22 million of negative impact from Significant Items we experienced in the 2014 first quarter. The 2014 second quarter is expected to be negatively impacted by annual peak marketing expenses, a full quarter’s inclusion of Camco Financial, and annual merit increases to personnel expense. We are committed to delivering positive operating leverage for the 2014 full year.

NPAs are expected to show continued improvement. NCOs are within our expected normalized range of 35 to 55 basis points. The level of provision for credit losses was below our long-term expectation, and we continue to expect moderate quarterly volatility.

The effective tax rate for the remainder of 2014 is expected to be in the range of 25% to 28%, primarily reflecting the impacts of tax-exempt income, tax-advantaged investments, and general business credits.

DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section that summarizes key issues important for a complete understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion.”

Table 1—Selected Quarterly Income Statement Data (1)


	2014			2013
(dollar amounts in thousands, except per share amounts)	First			Fourth			Third			Second			First
Interest income	$	472,455		$	469,824		$	462,912		$	462,582		$	465,319
Interest expense		34,949			39,175			38,060			37,645			41,149

Net interest income		437,506			430,649			424,852			424,937			424,170
Provision for credit losses		24,630			24,331			11,400			24,722			29,592

Net interest income after provision for credit losses		412,876			406,318			413,452			400,215			394,578

Service charges on deposit accounts		64,582			69,992			72,918			68,009			60,883
Mortgage banking income		23,089			24,327			23,621			33,659			45,248
Trust services		29,565			30,711			30,470			30,666			31,160
Electronic banking		23,642			24,251			24,282			23,345			20,713
Insurance income		16,496			15,556			17,269			17,187			19,252
Brokerage income		17,071			15,116			16,532			19,546			17,995
Bank owned life insurance income		13,307			13,816			13,740			15,421			13,442
Capital markets fees		9,194			12,332			12,825			12,229			7,834
Gain on sale of loans		3,570			7,144			5,063			3,348			2,616
Securities gains (losses)		16,970			1,239			98			(410	)		(509	)
Other income		30,999			35,407			36,950			28,919			37,984

Total noninterest income		248,485			249,891			253,768			251,919			256,618

Personnel costs		249,477			249,554			229,326			263,862			258,895
Outside data processing and other services		51,490			51,071			49,313			49,898			49,265
Net occupancy		33,433			31,983			35,591			27,656			30,114
Equipment		28,750			28,775			28,191			24,947			24,880
Marketing		10,686			13,704			12,271			14,239			10,971
Deposit and other insurance expense		13,718			10,056			11,155			13,460			15,490
Amortization of intangibles		9,291			10,320			10,362			10,362			10,320
Professional services		12,231			11,567			12,487			9,341			7,192
Other expense		51,045			38,979			34,640			32,100			35,666

Total noninterest expense		460,121			446,009			423,336			445,865			442,793

Income before income taxes		201,240			210,200			243,884			206,269			208,403
Provision for income taxes		52,097			52,029			65,047			55,269			55,129

Net income	$	149,143		$	158,171		$	178,837		$	151,000		$	153,274

Dividends on preferred shares		7,964			7,965			7,967			7,967			7,970

Net income applicable to common shares	$	141,179		$	150,206		$	170,870		$	143,033		$	145,304

Average common shares—basic		829,659			830,590			830,398			834,730			841,103
Average common shares—diluted		842,677			842,324			841,025			843,840			848,708
Net income per common share—basic	$	0.17		$	0.18		$	0.21		$	0.17		$	0.17
Net income per common share—diluted		0.17			0.18			0.20			0.17			0.17
Cash dividends declared per common share		0.05			0.05			0.05			0.05			0.04
Return on average total assets		1.01	%		1.09	%		1.27	%		1.08	%		1.12	%
Return on average common shareholders’ equity		9.9			10.5			12.3			10.4			10.8
Return on average tangible common shareholders’ equity (2)		11.3			12.1			14.2			12.1			12.6
Net interest margin (3)		3.27			3.28			3.34			3.38	%		3.42
Efficiency ratio (4)		66.4			63.4			60.3			63.7			62.9
Effective tax rate		25.9			24.8			26.7			26.8			26.5


Revenue—FTE
Net interest income	$	437,506	$	430,649	$	424,852	$	424,937	$	424,170
FTE adjustment		5,885		8,196		6,634		6,587		5,923

Net interest income (3)		443,391		438,845		431,486		431,524		430,093
Noninterest income		248,485		249,891		253,768		251,919		256,618

Total revenue (3)	$	691,876	$	688,736	$	685,254	$	683,443	$	686,711

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

⁽²⁾

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

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

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

Significant Items

Definition of Significant Items

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

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

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

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

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons were impacted by the Significant Items summarized below:

1.	Camco Financial Acquisition. During the 2014 first quarter, $11.8 million of net one-time merger related costs were recorded related to the acquisition of Camco Financial. This resulted in a negative impact of $0.01 per common share.

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

3.	Franchise Repositioning Related Expense. During the 2013 fourth quarter, $6.9 million of franchise repositioning related expense was recorded. This resulted in a negative impact of $0.01 per common share.

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

Table 2—Significant Items Influencing Earnings Performance Comparison


	Three Months Ended
	March 31, 2014						December 31, 2013						March 31, 2013
(dollar amounts in thousands, except per share amounts)	After-tax			EPS (2)(3)			After-tax			EPS (2)(3)			After-tax		EPS (2)(3)
Net income	$	149,143					$	158,171					$	153,274
Earnings per share, after-tax				$	0.17					$	0.18				$	0.17

Significant Items—favorable (unfavorable) impact:	Earnings (1)			EPS (2)(3)			Earnings (1)			EPS (2)(3)			Earnings (1)		EPS (2)(3)
Camco Financial Acquisition		(11,823	)		(0.01	)		—			—			—		—
Addition to Litigation Reserve		(9,000	)		(0.01	)		—			—			—		—
Franchise repositioning related expense								(6,909	)		(0.01	)

⁽¹⁾

Pretax.

⁽²⁾	Based on average outstanding diluted common shares

⁽³⁾

After-tax

Net Interest Income / Average Balance Sheet

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

Table 3 - Consolidated Quarterly Average Balance Sheets


	Average Balances															Change
	2014			2013												1Q14 vs. 1Q13
(dollar amounts in millions)	First			Fourth			Third			Second			First			Amount			Percent
Assets:
Interest-bearing deposits in banks	$	83		$	71		$	54		$	84		$	72		$	11			15	%
Loans held for sale		279			322			379			678			709			(430	)		(61	)
Securities:
Available-for-sale and other securities:
Taxable		6,240			5,818			6,040			6,728			6,964			(724	)		(10	)
Tax-exempt		1,115			548			565			591			549			566			103

Total available-for-sale and other securities		7,355			6,366			6,605			7,319			7,513			(158	)		(2	)
Trading account securities		38			76			76			84			85			(47	)		(55	)
Held-to-maturity securities—taxable		3,783			3,038			2,139			1,711			1,717			2,066			120

Total securities		11,176			9,480			8,820			9,114			9,315			1,861			20

Loans and leases: (1)
Commercial:
Commercial and industrial		17,631			17,671			17,032			17,033			16,954			677			4
Commercial real estate:
Construction		612			573			565			586			598			14			2
Commercial		4,289			4,331			4,345			4,429			4,694			(405	)		(9	)

Commercial real estate		4,901			4,904			4,910			5,015			5,292			(391	)		(7	)

Total commercial		22,532			22,575			21,942			22,048			22,246			286			1

Automobile		6,786			6,502			6,075			5,283			4,833			1,953			40
Home equity		8,340			8,346			8,341			8,263			8,395			(55	)		(1	)
Residential mortgage		5,379			5,331			5,256			5,225			4,978			401			8
Other consumer		386			385			380			461			412			(26	)		(6	)

Total consumer		20,891			20,564			20,052			19,232			18,618			2,273			12

Total loans and leases		43,423			43,139			41,994			41,280			40,864			2,559			6
Allowance for loan and lease losses		(649	)		(668	)		(717	)		(746	)		(772	)		123			(16	)

Net loans and leases		42,774			42,471			41,277			40,534			40,092			2,682			7

Total earning assets		54,961			53,012			51,247			51,156			50,960			4,001			8

Cash and due from banks		904			846			944			940			904			—			—
Intangible assets		535			542			552			563			571			(36	)		(6	)
All other assets		3,941			3,917			3,889			3,976			4,065			(124	)		(3	)

Total assets	$	59,692		$	57,649		$	55,915		$	55,889		$	55,728		$	3,964			7	%

Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	13,192		$	13,337		$	13,088		$	12,879		$	12,165		$	1,027			8	%
Demand deposits—interest-bearing		5,775			5,755		$	5,763		$	5,927		$	5,977			(202	)		(3	)

Total demand deposits		18,967			19,092			18,851			18,806			18,142			825			5
Money market deposits		17,648			16,827			15,739			15,069			15,045			2,603			17
Savings and other domestic deposits		4,967			4,912			5,007			5,115			5,083			(116	)		(2	)
Core certificates of deposit		3,613			3,916			4,176			4,778			5,346			(1,733	)		(32	)

Total core deposits		45,195			44,747			43,773			43,768			43,616			1,579			4
Other domestic time deposits of $250,000 or more		284			275			268			324			360			(76	)		(21	)
Brokered deposits and negotiable CDs		1,782			1,398			1,553			1,779			1,697			85			5
Deposits in foreign offices		328			354			376			316			340			(12	)		(4	)

Total deposits		47,589			46,774			45,970			46,187			46,013			1,576			3
Short-term borrowings		883			629			710			701			762			121			16
Federal Home Loan Bank advances		1,499			851			549			757			686			813			119
Subordinated notes and other long-term debt		2,503			2,244			1,753			1,292			1,348			1,155			86

Total interest-bearing liabilities		39,282			37,161			35,894			36,058			36,644			2,638			7

All other liabilities		1,035			1,095			1,054			1,064			1,085			(50	)		(5	)
Shareholders’ equity		6,183			6,056			5,879			5,888			5,834			349			6

Total liabilities and shareholders’ equity	$	59,692		$	57,649		$	55,915		$	55,889		$	55,728		$	3,964			7	%

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

Table 4—Consolidated Quarterly Net Interest Margin Analysis


	Average Rates (2)
Fully-taxable equivalent basis (1)	2014			2013
Fully-taxable equivalent basis (1)	First			Fourth			Third			Second			First
Assets
Interest-bearing deposits in banks		0.03	%		0.04	%		0.07	%		0.27	%		0.16	%
Loans held for sale		3.74			4.46			3.89			3.39			3.22
Securities:
Available-for-sale and other securities:
Taxable		2.47			2.38			2.34			2.29			2.31
Tax-exempt		3.03			6.34			4.04			3.94			3.96

Total available-for-sale and other securities		2.55			2.72			2.48			2.42			2.43
Trading account securities		1.12			0.42			0.23			0.60			0.50
Held-to-maturity securities—taxable		2.47			2.42			2.29			2.29			2.29

Total securities		2.52			2.60			2.41			2.38			2.39

Loans and leases: (3)
Commercial:
Commercial and industrial		3.56			3.54			3.68			3.75			3.83
Commercial real estate:
Construction		3.99			4.04			3.91			3.93			4.05
Commercial		3.84			3.97			4.10			4.13			4.00

Commercial real estate		3.86			3.98			4.08			4.09			4.01

Total commercial		3.63			3.63			3.77			3.83			3.87

Consumer:
Automobile		3.54			3.67			3.80			3.96			4.28
Home equity		4.12			4.11			4.10			4.16			4.20
Residential mortgage		3.78			3.77			3.81			3.82			3.97
Other consumer		6.84			6.64			6.98			6.66			7.05

Total consumer		3.89			3.93			3.99			4.07			4.22

Total loans and leases		3.75			3.77			3.87			3.95			4.03

Total earning assets		3.53	%		3.58	%		3.64	%		3.68	%		3.75	%

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

Total demand deposits		0.01			0.01			0.01			0.01			0.01
Money market deposits		0.25			0.27			0.26			0.24			0.23
Savings and other domestic deposits		0.20			0.24			0.25			0.27			0.30
Core certificates of deposit		0.94			1.05			1.05			1.13			1.19

Total core deposits		0.28			0.32			0.32			0.34			0.37
Other domestic time deposits of $250,000 or more		0.41			0.39			0.44			0.50			0.52
Brokered deposits and negotiable CDs		0.28			0.39			0.55			0.62			0.67
Deposits in foreign offices		0.13			0.14			0.14			0.14			0.17

Total deposits		0.28			0.32			0.33			0.36			0.38
Short-term borrowings		0.07			0.08			0.09			0.10			0.12
Federal Home Loan Bank advances		0.12			0.14			0.14			0.14			0.18
Subordinated notes and other long-term debt		1.66			2.10			2.29			2.35			2.54

Total interest-bearing liabilities		0.36	%		0.42	%		0.42	%		0.42	%		0.45	%

Net interest rate spread		3.17	%		3.15	%		3.20	%		3.26	%		3.30	%
Impact of noninterest-bearing funds on margin		0.10			0.13			0.14			0.12			0.12

Net interest margin		3.27	%		3.28	%		3.34	%		3.38	%		3.42	%

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

⁽²⁾	Loan and lease and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.

⁽³⁾	For purposes of this analysis, NALs are reflected in the average balances of loans.

Table 5—Average Loans/Leases and Deposits


	First Quarter				Fourth Quarter		1Q14 vs 1Q13						1Q14 vs 4Q13
(dollar amounts in millions)	2014		2013		2013		Amount			Percent			Amount			Percent
Loans/Leases:
Commercial and industrial	$	17,631	$	16,954	$	17,671	$	677			4	%	$	(40	)		(0	)%
Commercial real estate		4,901		5,292		4,904		(391	)		(7	)		(3	)		(0	)

Total commercial		22,532		22,246		22,575		286			1			(43	)		(0	)
Automobile		6,786		4,833		6,502		1,953			40			284			4
Home equity		8,340		8,395		8,346		(55	)		(1	)		(6	)		(0	)
Residential mortgage		5,379		4,978		5,331		401			8			48			1
Other loans		386		412		385		(26	)		(6	)		1			0

Total consumer		20,891		18,618		20,564		2,273			12			327			2

Total loans and leases	$	43,423	$	40,864		43,139	$	2,559			6	%	$	284			1	%

Deposits:
Demand deposits—noninterest-bearing	$	13,192	$	12,165	$	13,337	$	1,027			8	%	$	(145	)		(1	)%
Demand deposits—interest-bearing		5,775		5,977		5,755		(202	)		(3	)		20			0

Total demand deposits		18,967		18,142		19,092		825			5			(125	)		(1	)
Money market deposits		17,648		15,045		16,827		2,603			17			821			5
Savings and other domestic time deposits		4,967		5,083		4,912		(116	)		(2	)		55			1
Core certificates of deposit		3,613		5,346		3,916		(1,733	)		(32	)		(303	)		(8	)

Total core deposits		45,195		43,616		44,747		1,579			4			448			1
Other deposits		2,394		2,397		2,027		(3	)		(0	)		367			18

Total deposits	$	47,589	$	46,013	$	46,774	$	1,576			3	%	$	815			2	%

2014 First Quarter versus 2013 First Quarter

Fully-taxable equivalent (FTE) net interest income increased $13.3 million, or 3%, from the 2013 first quarter. This reflected the benefit from the $2.6 billion, or 6%, of average loan growth and a $1.4 billion, or 14%, increase in other earnings assets, the majority of which were investment securities that meet the requirements for HQLA as proposed in the LCR rules issued by the regulators in October 2013. This was partially offset by the 15 basis point decrease in the FTE net interest margin to 3.27%. The 22 basis point negative impact on NIM from the mix and yield of earning assets was partially offset by the 7 basis point reduction in funding costs.

Average loans and leases increased $2.6 billion, or 6%, from the prior year, driven by:

•

$2.0 billion, or 40%, increase in average automobile loans, as originations remained strong and our investments throughout the Northeast and upper Midwest continued to grow as planned.

•

$0.7 billion, or 4%, increase in average C&I loans and leases. This reflected the continued growth within Business Banking, dealer floorplan, and domestic subsidiaries of foreign owned companies.

Partially offset by:

•

$0.4 billion, or 7%, decrease in average CRE loans. This decrease reflected continued runoff of the noncore portfolio.

Average noninterest bearing deposits increased $1.0 billion, or 8%, while average interest-bearing liabilities increased $2.6 billion, or 7%, from the 2013 first quarter, primarily reflecting:

•

$2.6 billion, or 17%, increase in money market deposits, reflecting the strategic focus on customer growth and increased share of wallet among both consumer and commercial customers.

•

$2.1 billion, or 75%, increase in short- and long-term borrowings, which were used to efficiently finance growth in loans and HQLA securities while continuing to lower the overall cost of funds.

Partially offset by:

•

$1.7 billion, or 32%, decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to no-cost demand deposits and lower cost money market deposits.

2014 First Quarter versus 2013 Fourth Quarter

Compared to the 2013 fourth quarter, fully-taxable equivalent net interest income increased $4.5 million, or 1%, reflecting a $1.9 billion, or 4% increase in average earnings assets, partially offset by a 1 basis point decrease in NIM. The primary items affecting the NIM were a 5 basis point negative impact from the mix and yield of earning assets, partially offset by a 4 basis point reduction in funding costs.

Provision for Credit Losses

(This section should be read in conjunction with the Credit Risk section.)

The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels appropriate to absorb our estimate of credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.

The provision for credit losses for the 2014 first quarter was $24.6 million and increased $0.3 million, or 1%, from the prior quarter and declined $5.0 million, or 17%, from the year-ago quarter. The current quarter’s provision for credit losses was $18.4 million less than total NCOs for the same period. (See Credit Quality discussion). Given the absolute low level of the provision for credit losses and the uncertain and uneven nature of the economic recovery, some degree of volatility on a quarter-to-quarter basis is expected.

Noninterest Income

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

Table 6—Noninterest Income


	2014		2013										1Q14 vs 1Q13						1Q14 vs 4Q13
(dollar amounts in thousands)	First		Fourth		Third		Second			First			Amount			Percent			Amount			Percent
Service charges on deposit accounts	$	64,582	$	69,992	$	72,918	$	68,009		$	60,883		$	3,699			6	%	$	(5,410	)		(8	)%
Mortgage banking income		23,089		24,327		23,621		33,659			45,248			(22,159	)		(49	)		(1,238	)		(5	)
Trust services		29,565		30,711		30,470		30,666			31,160			(1,595	)		(5	)		(1,146	)		(4	)
Electronic banking		23,642		24,251		24,282		23,345			20,713			2,929			14			(609	)		(3	)
Insurance income		16,496		15,556		17,269		17,187			19,252			(2,756	)		(14	)		940			6
Brokerage income		17,071		15,116		16,532		19,546			17,995			(924	)		(5	)		1,955			13
Bank owned life insurance income		13,307		13,816		13,740		15,421			13,442			(135	)		(1	)		(509	)		(4	)
Capital markets fees		9,194		12,332		12,825		12,229			7,834			1,360			17			(3,138	)		(25	)
Gain on sale of loans		3,570		7,144		5,063		3,348			2,616			954			36			(3,574	)		(50	)
Securities gains (losses)		16,970		1,239		98		(410	)		(509	)		17,479			N.R.			15,731			1,270
Other income		30,999		35,407		36,950		28,919			37,984			(6,985	)		(18	)		(4,408	)		(12	)

Total noninterest income	$	248,485	$	249,891	$	253,768	$	251,919		$	256,618		$	(8,133	)		(3	)%	$	(1,406	)		(1	)%

N.R. - Not relevant, as denominator of calculation is a loss in prior period compared with income in current period.

2014 First Quarter versus 2013 First Quarter

In the 2014 first quarter, noninterest income decreased $8.1 million, or 3%, from the year-ago quarter, primarily reflecting:

•

$22.2 million, or 49%, decrease in mortgage banking income primarily driven by 41% reduction in volume, lower gain on sale, and a higher percentage of originations held on the balance sheet.

•

$7.0 million, or 18%, decrease in other income as the year-ago quarter included an $8.8 million gain on the sale of LIHTC investments.

Partially offset by:

•

$17.5 million increase in securities gains as we adjusted the mix of our securities portfolio to prepare for the LCR.

•

$3.7 million, or 6%, increase in service charges on deposit accounts reflecting 7% consumer household and 3% commercial relationship growth. This more than offset the negative impact of the February 2013 implementation of a new posting order for consumer transaction accounts.

•

$2.9 million, or 14%, increase in electronic banking due to continued consumer household growth.

2014 First Quarter versus 2013 Fourth Quarter

Compared to the 2013 fourth quarter, noninterest income decreased $1.4 million, or 1%, reflecting typical seasonality within service charges on deposit accounts, which decreased $5.4 million. Other linked quarter changes were a $3.6 million decrease in gain on sale of loans from reduced SBA loan sales, a $4.4 million decrease in other income, and a $3.1 million decrease in capital market fees related to customer derivatives. These were partially offset by a $15.7 million increase in securities gains.

Noninterest Expense

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

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

Table 7—Noninterest Expense


	2014		2013								1Q14 vs 1Q13						1Q14 vs 4Q13
(dollar amounts in thousands)	First		Fourth		Third		Second		First		Amount			Percent			Amount			Percent
Personnel costs	$	249,477	$	249,554	$	229,326	$	263,862	$	258,895	$	(9,418	)		(4	)%	$	(77	)		(0	)%
Outside data processing and other services		51,490		51,071		49,313		49,898		49,265		2,225			5			419			1
Net occupancy		33,433		31,983		35,591		27,656		30,114		3,319			11			1,450			5
Equipment		28,750		28,775		28,191		24,947		24,880		3,870			16			(25	)		(0	)
Marketing		10,686		13,704		12,271		14,239		10,971		(285	)		(3	)		(3,018	)		(22	)
Deposit and other insurance expense		13,718		10,056		11,155		13,460		15,490		(1,772	)		(11	)		3,662			36
Amortization of intangibles		9,291		10,320		10,362		10,362		10,320		(1,029	)		(10	)		(1,029	)		(10	)
Professional services		12,231		11,567		12,487		9,341		7,192		5,039			70			664			6
Other expense		51,045		38,979		34,640		32,100		35,666		15,379			43			12,066			31

Total noninterest expense	$	460,121	$	446,009	$	423,336	$	445,865	$	442,793	$	17,328			4	%	$	14,112			3	%

Number of employees (average full-time equivalent)		11,848		11,765		12,080		12,063		11,949		(101	)		(1	)%		83			1	%

2014 First Quarter versus 2013 First Quarter

In the 2014 first quarter, noninterest expense increased $17.3 million, or 4%, from the year-ago quarter. When adjusting for the $21.6 million of Significant Items, noninterest expense decreased $4.3 million. The $17.3 million increase in the reported noninterest expenses primarily reflects:

•

$15.4 million, or 43%, increase in other expense, reflecting a $9.0 million addition to litigation reserves and a $3.0 million goodwill impairment.

•

$5.0 million, or 70%, increase in professional services, including $2.2 million of one-time merger related expenses.

•

$3.9 million, or 16%, increase in equipment expense, reflecting increased depreciation on technology investments.

•

$3.3 million, or 11%, increase in net occupancy, reflecting $1.7 million of one-time merger related expenses.

•

$2.2 million, or 5%, increase in outside data processing and other services, reflecting $4.3 million of one-time merger related expenses.

Partially offset by:

•

$9.4 million, or 4%, decrease in personnel costs, primarily reflecting the curtailment of the pension plan of the end of 2013 that was partially offset by $2.3 million of one-time merger related expenses.

2014 First Quarter versus 2013 Fourth Quarter

Noninterest expense of $460.1 million for the 2014 first quarter included $21.6 million of Significant Items and was up $14.1 million, or 3%, from the 2013 fourth quarter noninterest expense of $446.0 million, which included a $6.9 million Significant Item. After excluding the impact of Significant Items from both quarters, noninterest expense was essentially unchanged as the remaining $3.7 million increase in deposit and other insurance was largely offset by the remaining $3.0 million decline in marketing.

Provision for Income Taxes

The provision for income taxes in the 2014 first quarter was $52.1 million. This compared with a provision for income taxes of $52.0 million in the 2013 fourth quarter and $55.1 million in the 2013 first quarter. All three quarters included the benefits from tax-exempt income, tax-advantaged investments, and general business credits. At March 31, 2014, we had a net federal deferred tax asset of $123.7 million and a net state deferred tax asset of $42.3 million. Based on both positive and negative evidence and our level of forecasted future taxable income, we determined no impairment existed to the net federal and state deferred tax asset at March 31, 2014. For regulatory capital purposes, there was no disallowed net deferred tax asset at March 31, 2014.

We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. In the first quarter of 2013, the IRS began an examination of our 2010 and 2011 consolidated federal income tax returns. We have appealed certain proposed adjustments resulting from the IRS examination of our 2006, 2007, 2008, 2009, and 2010 tax returns. We believe the tax positions taken related to such proposed adjustments are correct and supported by applicable statutes, regulations, and judicial authority, and intend to vigorously defend them. It is possible the ultimate resolution of the proposed adjustments, if unfavorable, may be material to the results of operations in the period it occurs. Nevertheless, although no assurances can be given, we believe the resolution of these examinations will not, individually or in the aggregate, have a material adverse impact on our consolidated financial position. Various state and other jurisdictions remain open to examination, including Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, and Illinois.

On September 13, 2013, the IRS released final tangible property regulations under Sections 162(a) and 263(a) of the IRC and proposed regulations under Section 168 of the IRC. These regulations generally apply to taxable years beginning on or after January 1, 2014 and will affect all taxpayers that acquire, produce, or improve tangible property. Based upon preliminary analysis, we do not expect that the adoption of these regulations will have a material impact on the Company’s Consolidated Financial Statements.

RISK MANAGEMENT AND CAPITAL

Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. We manage risk to an aggregate moderate-to-low risk profile through a control framework and by monitoring and responding to identified potential risks. Controls include, among others, effective segregation of duties, access, authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.

We identify primary risks, and the sources of those risks, within each business unit. We utilize Risk and Control Self-Assessments (RCSA) to identify exposure risks. Through this RCSA process, we continually assess the effectiveness of controls associated with the identified risks, regularly monitor risk profiles and material exposure to losses, and identify stress events and scenarios to which we may be exposed. Our chief risk officer is responsible for ensuring that appropriate systems of controls are in place for managing and monitoring risk across the Company. Potential risk concerns are shared with the Risk Management Committee, Risk Oversight Committee, and the board of directors, as appropriate. Our internal audit department performs on-going independent reviews of the risk management process and ensures the adequacy of documentation. The results of these reviews are reported regularly to the audit committee and board of directors.

We believe that our primary risk exposures are credit, market, liquidity, operational, and compliance oriented. More information on risk can be found in the Risk Factors section included in Item 1A of our 2013 Form 10-K and subsequent filings with the SEC. Additionally, the MD&A included in our 2013 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2013 Form 10-K. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 2013 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 significant credit risk associated with our AFS and HTM securities portfolios (see Note 4 and Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. While there is credit risk associated with derivative activity, we believe this exposure is minimal.

We continue to focus on the identification, monitoring, and managing of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use additional quantitative measurement capabilities utilizing external data sources, enhanced use of modeling technology, and internal stress testing processes. Our portfolio management resources demonstrate our commitment to maintaining an aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have focused on product design features, origination policies, and treatment strategies for delinquent or stressed borrowers.

Loan and Lease Credit Exposure Mix

At March 31, 2014, loans and leases totaled $44.4 billion, representing a $1.2 billion, or 3%, increase compared to $43.1 billion at December 31, 2013, primarily reflecting growth in the C&I and automobile portfolio. In addition, we added $559.4 million in loans from our acquisition of Camco Financial during the 2014 first quarter. The Camco Financial portfolio represents approximately 50% of the growth in the quarter, centered in CRE, home equity and residential mortgage.

At March 31, 2014, commercial loans and leases totaled $23.1 billion and represented 53% of our total loan and lease credit exposure. Our commercial portfolio is diversified along product type, customer size, and geography across our footprint, and is comprised of the following loan types (see Commercial Credit discussion).

C&I – C&I loans and leases are made to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects. The majority of these borrowers are customers doing business within our geographic regions. C&I loans and leases are generally underwritten individually and secured with the assets of the company and/or the personal guarantee of the business owners. The financing of owner occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The operation, sale, rental, or refinancing of the real estate is not considered the primary repayment source for these types of loans. As we have expanded our C&I portfolio, we have developed a series of “verticals” to ensure that new products or lending types are embedded within a structured, centralized Commercial Lending area with designated experienced credit officers.

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

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

Total consumer loans and leases were $21.3 billion at March 31, 2014, and represented 47% of our total loan and lease credit exposure. The consumer portfolio is comprised primarily of automobile, home equity loans and lines-of-credit, and residential mortgages (see Consumer Credit discussion).

Automobile – Automobile loans are comprised primarily of loans made through automotive dealerships and include exposure in selected states outside of our primary banking markets. The exposure outside of our primary banking markets represents 18% of the total exposure, with no individual state representing more than 5%. Applications are underwritten utilizing an automated underwriting system that applies consistent policies and processes across the portfolio.

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

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

Other consumer – Primarily consists of consumer loans not secured by real estate, including personal unsecured loans. We introduced a consumer credit card product during 2013, utilizing a centralized underwriting system and focusing on existing Huntington customers.

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

Table 8—Loan and Lease Portfolio Composition


	2014				2013
(dollar amounts in millions)	March 31,				December 31,				September 30,				June 30,				March 31,
Commercial:⁽¹⁾
Commercial and industrial	$	18,046	41	%	$	17,594	41	%	$	17,335	41	%	$	17,113	41	%	$	17,267	42	%
Commercial real estate:
Construction		692	2			557	1			544	1			607	1			574	1
Commercial		4,339	10			4,293	10			4,328	10			4,286	10			4,485	11

Total commercial real estate		5,031	12			4,850	11			4,872	11			4,893	11			5,059	12

Total commercial		23,077	53			22,444	52			22,207	52			22,006	52			22,326	54

Consumer:
Automobile		6,999	16			6,639	15			6,317	15			5,810	14			5,036	12
Home equity		8,373	19			8,336	18			8,347	20			8,369	20			8,474	21
Residential mortgage		5,542	12			5,321	12			5,307	12			5,168	12			5,051	12
Other consumer		363	—			380	2			378	1			387	2			397	1

Total consumer		21,277	47			20,676	48			20,349	48			19,734	48			18,958	46

Total loans and leases	$	44,354	100	%	$	43,120	100	%	$	42,556	100	%	$	41,740	100	%	$	41,284	100	%

(1)	As defined by regulatory guidance, there were no commercial loans outstanding that would be considered a concentration of lending to a particular industry or group of industries.

As shown in the table above, our loan portfolio is diversified by consumer and commercial credit. At the corporate level, we manage the credit exposure via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned limits as a percentage of capital. C&I lending by segment, specific limits for CRE primary project types, loans secured by residential real estate, shared national credit exposure, unsecured lending, and designated high risk loan definitions represent examples of specifically tracked components of our concentration management process. Our concentration management process is approved by our board level Risk Oversight Committee and is one of the strategies utilized to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile.

The table below provides our total loan and lease portfolio segregated by the type of collateral securing the loan or lease:

Table 9—Loan and Lease Portfolio by Collateral Type


	2014				2013
(dollar amounts in millions)	March 31,				December 31,				September 30,				June 30,				March 31,
Secured loans:
Real estate—commercial	$	8,612	19	%	$	8,622	20	%	$	8,769	21	%	$	8,749	21	%	$	9,041	22	%
Real estate—consumer		13,916	31			13,657	32			13,654	32			13,537	32			13,525	33
Vehicles		9,270	21			8,989	21			8,275	19			7,763	19			6,924	17
Receivables/Inventory		5,717	13			5,534	13			5,367	13			5,260	13			5,383	13
Machinery/Equipment		2,930	7			2,738	6			2,778	7			2,831	7			2,815	7
Securities/Deposits		1,064	2			786	2			905	2			924	2			840	2
Other		870	3			1,016	2			948	2			1,020	2			1,014	2

Total secured loans and leases		42,379	96			41,342	96			40,696	96			40,084	96			39,542	96
Unsecured loans and leases		1,975	4			1,778	4			1,860	4			1,656	4			1,742	4

Total loans and leases	$	44,354	100	%	$	43,120	100	%	$	42,556	100	%	$	41,740	100	%	$	41,284	100	%

Commercial Credit

Refer to the “Commercial Credit” section of our 2013 Form 10-K for our commercial credit underwriting and on-going credit management processes.

C&I PORTFOLIO

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

CRE PORTFOLIO

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

Dedicated real estate professionals originated the majority of the portfolio, with the remainder obtained from prior bank acquisitions. Appraisals are obtained from approved vendors, and are reviewed by an internal appraisal review group comprised of certified appraisers to ensure the quality of the valuation used in the underwriting process. The portfolio is diversified by project type and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this portfolio. Subsequent to the origination of the loan, the Credit Review group provides an independent review and assessment of the quality of the underwriting and/or risk of new loan originations.

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

Consumer Credit

Refer to the “Consumer Credit” section of our 2013 Form 10-K for our consumer credit underwriting and on-going credit management processes.

AUTOMOBILE PORTFOLIO

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

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

RESIDENTIAL REAL ESTATE SECURED PORTFOLIOS

The properties securing our residential mortgage and home equity portfolios are primarily located within our geographic footprint. While home prices have rebounded from the 2009-2010 levels, they remain below the peak. Huntington continues to support our local markets with consistent underwriting across all residential secured products. The residential-secured portfolio originations continue to be of high quality, with the majority of the negative credit impact coming from loans originated in 2006 and earlier. Our portfolio management strategies associated with our Home Savers group allows us to focus on effectively helping our customers with appropriate solutions for their specific circumstances.

Table 10—Selected Home Equity and Residential Mortgage Portfolio Data

(dollar amounts in millions)


	Home Equity												Residential Mortgage
	Secured by first-lien						Secured by junior-lien
	03/31/14			12/31/13			03/31/14			12/31/13			03/31/14			12/31/13
Ending balance	$	4,886		$	4,842		$	3,487		$	3,494		$	5,542		$	5,321
Portfolio weighted average LTV ratio⁽¹⁾		71	%		71	%		81	%		81	%		74	%		74	%
Portfolio weighted average FICO score⁽²⁾		757			758			746			741			745			743

	Home Equity												Residential Mortgage (3)
	Secured by first-lien						Secured by junior-lien
	Three Months Ended March 31,
	2014			2013			2014			2013			2014			2013
Originations	$	300		$	548		$	163		$	106		$	198		$	319
Origination weighted average LTV ratio⁽¹⁾		72	%		66	%		83	%		81	%		81	%		75	%
Origination weighted average FICO score⁽²⁾		763			778			756			751			752			759

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

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

(3)	Represents only owned-portfolio originations.

Home Equity Portfolio

Within the home equity portfolio, the standard product is a 10-year interest-only draw period with a 20-year fully amortizing term at the end of the draw period. Prior to 2007, the standard product was a 10-year draw period with a balloon payment. After the 10-year draw period, the borrower must reapply to extend the existing structure or begin repaying the debt in a traditional term structure.

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

The table below summarizes our home equity line-of-credit portfolio by maturity date:

Table 11—Maturity Schedule of Home Equity Line-of-Credit Portfolio


	March 31, 2014
(dollar amounts in millions)	1 year or less		1 to 2 years		2 to 3 years		3 to 4 years		More than 4 years		Total
Secured by first-lien	$	53	$	20	$	3	$	2	$	2,472	$	2,550
Secured by junior-lien		237		183		135		92		2,337		2,984

Total home equity line-of-credit	$	290	$	203	$	138	$	94	$	4,809	$	5,534

The amounts in the above table maturing in four years or less primarily consist of balloon payment structures and represent the most significant maturity risk. The amounts maturing in more than four years primarily consist of exposure with a 20-year amortization period after the 10-year draw period.

Historically, less than 30% of our home equity lines-of-credit that are one year or less from maturity actually reach the maturity date, and we anticipate this percentage will decline in future periods as our proactive approach to managing maturity risk continues to evolve.

Residential Mortgages Portfolio

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

Several government programs continued to impact the residential mortgage portfolio, including various refinance programs such as HARP and HAMP, which positively affected the availability of credit for the industry. During the period ended March 31, 2014, we closed $96 million in HARP residential mortgages. The HARP and HAMP residential mortgage loans are part of our residential mortgage portfolio or serviced for others.

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

Credit Quality

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

We believe the most meaningful way to assess overall credit quality performance is through an analysis of credit quality performance ratios. This approach forms the basis of most of the discussion in the sections immediately following: NPAs and NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, and product segmentation in the analysis of our credit quality performance.

Credit quality performance in the 2014 first quarter reflected continued overall improvement. However, the level of NPA’s increased 4% to $365.3 million compared to the prior quarter, primarily attributable to the Camco Financial acquisition. The level of Consumer OREO increased over the prior quarter as there were relatively few sales in the first quarter. We expect the sales activity in the second quarter to be substantially stronger. NCOs decreased by $3.5 million or 7% in the quarter, primarily as a result of recovery levels in the CRE and home equity portfolios. Commercial criticized loans increased compared to the prior quarter, again driven by the impact of Camco Financial, and reflecting our continued focus on proactively identifying potential problem credits. There was no specific industry or region that drove the increase in the quarter. Commercial classified loans declined, reflecting the continued improvement across the portfolio. The ACL to total loans ratio declined to 1.56%, but our coverage ratios as demonstrated by the ACL to NAL ratio of 211% remained strong.

NPAs, NALs, AND TDRs

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

NPAs and NALs

NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2) impaired loans held for sale, (3) OREO properties, and (4) other NPAs. Any loan in our portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. Also, when a borrower with discharged non-reaffirmed debt in a Chapter 7 bankruptcy is identified and the loan is determined to be collateral dependent, the consumer loan is placed on nonaccrual status.

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

Of the $128.4 million of CRE and C&I-related NALs at March 31, 2014, $55.9 million, or 44%, 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, residential mortgage loans are placed on nonaccrual status at 150-days past due. First-lien home equity loans are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile and other consumer loans are generally charged-off when the loan is 120-days past due.

When loans are placed on nonaccrual, accrued interest income is reversed with current year accruals charged to earnings 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 is returned to accrual status.

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

Table 12—Nonaccrual Loans and Leases and Nonperforming Assets


	2014			2013
(dollar amounts in thousands)	March 31,			December 31,			September 30,			June 30,			March 31,
Nonaccrual loans and leases:
Commercial and industrial	$	57,053		$	56,615		$	68,034		$	80,037		$	80,928
Commercial real estate		71,344			73,417			80,295			93,643			110,803
Automobile		6,218			6,303			5,972			7,743			6,770
Residential mortgage		121,681			119,532			116,260			122,040			118,405
Home equity		70,862			66,189			62,545			60,083			63,405

Total nonaccrual loans and leases		327,158			322,056			333,106			363,546			380,311
Other real estate owned, net
Residential		30,581			23,447			16,610			17,353			19,538
Commercial		5,110			4,217			12,544			3,713			5,601

Total other real estate owned, net		35,691			27,664			29,154			21,066			25,139
Other nonperforming assets⁽¹⁾		2,440			2,440			12,000			12,087			10,045

Total nonperforming assets	$	365,289		$	352,160		$	374,260		$	396,699		$	415,495

Nonaccrual loans as a % of total loans and leases		0.74	%		0.75	%		0.78	%		0.87	%		0.92	%
Nonperforming assets ratio⁽²⁾		0.82			0.82			0.88			0.95			1.01
(NPA+90days)/(Loan+OREO)⁽³⁾		1.17			1.20			1.29			1.38			1.48

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

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

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

The $13.1 million, or 4%, increase in NPAs compared with December 31, 2013, primarily reflected the impact of the acquisition of the Camco Financial portfolio:

•

$8.0 million, or 29%, increase in net OREO properties was primarily related to consumer OREO, reflecting limited sales in the first quarter and the addition of $3.0 million of properties from Camco Financial.

•

$4.7 million, or 7%, increase in home equity NALs was related to the addition of Camco Financial. Additionally, while the number of nonaccrual home equity lines/loans is flat to slightly down, the NAL balances are increasing due to new NALs having a relatively higher balance than in prior periods, as a result of the improving home values.

•

$2.2 million, or 2%, increase in residential mortgage NALs, reflecting the addition of Camco Financial.

Partially offset by:

•

$2.1 million, or 3%, decline in CRE NALs, reflecting both NCO activity and problem credit resolutions, including borrower payments and payoffs partially resulting from successful workout strategies implemented by our commercial loan workout group.

TDR Loans

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

TDRs are modified loans in which a concession is provided to a borrower experiencing financial difficulties. TDRs can be classified as either accrual or nonaccrual loans. Nonaccrual TDRs are included in NALs whereas accruing TDRs are excluded from NALs, as it is probable that all contractual principal and interest due under the restructured terms will be collected. TDRs primarily reflect our loss mitigation efforts to proactively work with borrowers having difficulty making their payments.

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

Table 13—Accruing and Nonaccruing Troubled Debt Restructured Loans


	2014		2013
(dollar amounts in thousands)	March 31,		December 31,		September 30,		June 30,		March 31,
Troubled debt restructured loans—accruing:
Commercial and industrial	$	102,970	$	83,857	$	85,687	$	94,583	$	90,642
Commercial real estate		210,876		204,668		204,597		184,372		192,167
Automobile		27,393		30,781		30,981		32,768		34,379
Home equity		202,044		188,266		153,591		135,759		162,087	⁽¹⁾
Residential mortgage		284,194		305,059		300,809		293,933		288,041
Other consumer		1,727		1,041		959		3,383		2,514

Total troubled debt restructured loans—accruing		829,204		813,672		776,624		744,798		769,830
Troubled debt restructured loans—nonaccruing:
Commercial and industrial		7,197		7,291		8,643		14,541		14,970
Commercial real estate		27,972		23,981		22,695		26,118		26,588
Automobile		5,676		6,303		5,972		7,743		6,770
Home equity		20,992		20,715		11,434		10,227		11,235
Residential mortgage		84,441		82,879		77,525		80,563		84,317
Other consumer		120		—		—		—		—

Total troubled debt restructured loans—nonaccruing		146,398		141,169		126,269		139,192		143,880

Total troubled debt restructured loans	$	975,602	$	954,841	$	902,893	$	883,990	$	913,710

(1)	Included $46,031 thousand incorrectly reflected as TDRs in the 2013 first quarter.

Our strategy is to structure commercial TDRs in a manner that avoids new concessions subsequent to the initial TDR terms. However, there are times when subsequent modifications are required, such as when the modified loan matures. Often the loans are performing in accordance with the TDR terms, and a new note is originated with similar modified terms. These loans are subjected to the normal underwriting standards and processes for other similar credit extensions, both new and existing. If the loan is not performing in accordance with the existing TDR terms, typically an individualized approach to repayment is established. In accordance with ASC 310-20-35, the refinanced note is evaluated to determine if it is considered a new loan or a continuation of the prior loan. A new loan is considered for removal of the TDR designation. A continuation of the prior note requires the continuation of the TDR designation, and because the refinanced note constitutes a new or amended debt instrument, it is included in our TDR activity table (below) as a new TDR and a restructured TDR removal during the period.

The types of concessions granted are consistent with those granted on new TDRs and include interest rate reductions, amortization or maturity date changes beyond what the collateral supports, and principal forgiveness based on the borrower’s specific needs at a point in time. Our policy does not limit the number of times a loan may be modified. A loan may be modified multiple times if it is considered to be in the best interest of both the borrower and us.

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

TDRs in the home equity and residential mortgage portfolio may continue to increase for a time as we continue to appropriately manage the portfolio. Any granted change in terms or conditions that are not readily available in the market for that borrower, requires the designation as a TDR.

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

Table 14—Troubled Debt Restructured Loan Activity


	2014			2013
(dollar amounts in thousands)	First			Fourth			Third			Second			First
TDRs, beginning of period	$	954,841		$	902,893		$	883,990		$	913,710		$	875,625
New TDRs		219,656			169,383			161,812			115,955			164,407	⁽²⁾
Payments		(55,130	)		(46,974	)		(60,392	)		(39,818	)		(44,183	)
Charge-offs		(10,774	)		(5,980	)		(10,439	)		(8,083	)		(5,395	)
Sales		(14,169	)		(613	)		(2,999	)		(2,738	)		(4,814	)
Transfer to OREO		(2,597	)		(2,609	)		(2,056	)		(2,453	)		(1,124	)
Restructured TDRs—accruing⁽¹⁾		(86,012	)		(51,709	)		(58,499	)		(46,987	)		(53,936	)
Restructured TDRs—nonaccruing⁽¹⁾		(23,038	)		(7,415	)		(6,163	)		(2,520	)		(10,674	)
Other		(7,175	)		(2,135	)		(2,361	)		(43,076	)⁽²⁾		(6,196	)

TDRs, end of period	$	975,602		$	954,841		$	902,893		$	883,990		$	913,710

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

(2)	Included $46,031 thousand of home equity TDRs incorrectly reflected as new TDRs in the 2013 first quarter.

ACL

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

Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. Our Credit Administration group is responsible for developing the methodology assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of losses inherent in the loan portfolio at the reported date. Additions to the ALLL result from recording provision expense for loan losses or increased risk levels resulting from loan risk-rating downgrades, while reductions reflect charge-offs (net of recoveries), decreased risk levels resulting from loan risk-rating upgrades, or the sale of loans. The AULC is determined by applying the transaction reserve process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation.

A provision for credit losses is recorded to adjust the ACL to the level we have determined to be appropriate to absorb credit losses inherent in our loan and lease portfolio. The provision for credit losses in the 2014 first quarter was $24.6 million, compared with $24.3 million in the prior quarter and $29.6 million in the year-ago quarter. (See Provision for Credit Losses discussion within Results of Operations section).

We regularly evaluate the appropriateness of the ACL by performing on-going evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. We evaluate the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet their financial obligations when quantifying our exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In addition to general economic conditions and the other factors described above, we also consider the impact of collateral value trends and portfolio diversification.

Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. While the total ACL balance has declined in recent quarters, all of the relevant benchmarks remain strong.

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

Table 15—Allocation of Allowance for Credit Losses (1)


	2014				2013
(dollar amounts in thousands)	March 31,				December 31,				September 30,				June 30,				March 31,
Commercial
Commercial and industrial	$	266,979	41	%	$	265,801	41	%	$	262,048	41	%	$	233,679	41	%	$	238,098	42	%
Commercial real estate		160,306	12			162,557	11			164,522	11			255,849	11			267,436	12

Total commercial		427,285	53			428,358	52			426,570	52			489,528	52			505,534	54

Consumer
Automobile		25,178	16			31,053	15			27,087	15			39,990	14			35,973	12
Home equity		113,177	19			111,131	19			124,068	20			115,626	20			115,858	21
Residential mortgage		39,068	12			39,577	12			51,252	12			63,802	12			63,062	12
Other consumer		27,210	—			37,751	2			37,053	1			24,130	2			26,342	1

Total consumer		204,633	47			219,512	48			239,460	48			243,548	48			241,235	46

Total allowance for loan and lease losses		631,918	100	%		647,870	100	%		666,030	100	%		733,076	100	%		746,769	100	%

Allowance for unfunded loan commitments		59,368				62,899				66,857				44,223				40,855

Total allowance for credit losses	$	691,286			$	710,769			$	732,887			$	777,299			$	787,624

Total allowance for loan and leases losses as % of:
Total loans and leases			1.42	%			1.50	%			1.57	%			1.76	%			1.81	%
Nonaccrual loans and leases			193				201				200				202				196
Nonperforming assets			174				184				178				185				180
Total allowance for credit losses as % of:
Total loans and leases			1.56	%			1.65	%			1.72	%			1.86	%			1.91	%
Nonaccrual loans and leases			211				221				220				214				207
Nonperforming assets			191				202				196				196				190

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

The $19.4 million, or 3%, decline in ACL compared with December 31, 2013, primarily reflected:

•

$10.5 million, or 28%, decline in other consumer, reflecting the changing risk profile of the overdraft portfolio and the seasonal reduction in the overall exposure. The ALLL for the other consumer portfolio is consistent with expectations given the level of overdraft exposure.

•

$5.9 million, or 19%, decline in automobile, reflecting the continued positive performance metrics and the high quality origination strategy.

•

$3.5 million, or 6%, decline in AULC, reflecting lower risk exposures.

The ACL to total loans declined to 1.56% at March 31, 2014, compared to 1.65% at December 31, 2013. We believe the decline in the ratio is appropriate given the significant continued improvement in the risk profile of our loan portfolio. Further, we believe that early identification of loans with cha

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