Edgar Filing: HUNTINGTON BANCSHARES INC/MD

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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

QUARTERLY PERIOD ENDED September 30, 2017

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.)

Registrant's address: 41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number, including area code: (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 website (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. Refer to the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and emerging growth company in Rule 12b-2 of the Securities Exchange Act. (Check one):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)
		Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by checkmark 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 7(a)(2)(B) of the Securities Exchange Act. ¨

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

There were 1,080,946,315 shares of the Registrant’s common stock ($0.01 par value) outstanding on September 30, 2017.

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HUNTINGTON BANCSHARES INCORPORATED

INDEX



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	39
Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016	40
Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2017 and 2016	41
Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2017 and 2016	43
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2017 and 2016	44
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	45
Notes to Unaudited Condensed Consolidated Financial Statements	47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Executive Overview	6
Discussion of Results of Operations	7
Risk Management and Capital:	19
Credit Risk	19
Market Risk	27
Liquidity Risk	29
Operational Risk	30
Compliance Risk	31
Capital	31
Fair Value	33
Business Segment Discussion	33
Additional Disclosures	37
Item 3. Quantitative and Qualitative Disclosures about Market Risk	98
Item 4. Controls and Procedures	99
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	100
Item 1A. Risk Factors	100
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	100
Item 6. Exhibits	100
Signatures	103

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Glossary of Acronyms

The following listing provides a comprehensive reference of common acronyms used throughout this document.



ABS		Asset-Backed Securities

ACL		Allowance for Credit Losses

AFS		Available-for-Sale

ALCO		Asset-Liability Management Committee

ALLL		Allowance for Loan and Lease Losses

ANPR		Advance Notice of Proposed Rulemaking

ASC		Accounting Standards Codification

ATM		Automated Teller Machine

AULC		Allowance for Unfunded Loan Commitments

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

BHC		Bank Holding Companies

BHC Act		Bank Holding Company Act of 1956

C&I		Commercial and Industrial

CCAR		Comprehensive Capital Analysis and Review

CDO		Collateralized Debt Obligations

CDs		Certificate of Deposit

CET1		Common equity tier 1 on a transitional Basel III basis

CFPB		Consumer Financial Protection Bureau

CISA		Cybersecurity Information Sharing Act

CMO		Collateralized Mortgage Obligations

CRA		Community Reinvestment Act

CRE		Commercial Real Estate

CREVF		Commercial Real Estate and Vehicle Finance

DIF		Deposit Insurance Fund

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

EFT		Electronic Fund Transfer

EPS		Earnings Per Share

EVE		Economic Value of Equity

FASB		Financial Accounting Standards Board

FDIC		Federal Deposit Insurance Corporation

FDICIA		Federal Deposit Insurance Corporation Improvement Act of 1991

FHA		Federal Housing Administration

FHC		Financial Holding Company

FHLB		Federal Home Loan Bank

FICO		Fair Isaac Corporation

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FirstMerit		FirstMerit Corporation

FRB		Federal Reserve Bank

FTE		Fully-Taxable Equivalent

FTP		Funds Transfer Pricing

GAAP		Generally Accepted Accounting Principles in the United States of America

HIP		Huntington Investment and Tax Savings Plan

HQLA		High Quality Liquid Asset

HTM		Held-to-Maturity

IRS		Internal Revenue Service

LCR		Liquidity Coverage Ratio

LGD		Loss-Given-Default

LIBOR		London Interbank Offered Rate

LIHTC		Low Income Housing Tax Credit

LTV		Loan to Value

MBS		Mortgage-Backed Securities

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

MSA		Metropolitan Statistical Area

MSR		Mortgage Servicing Rights

NAICS		North American Industry Classification System

NALs		Nonaccrual Loans

NCO		Net Charge-off

NII		Net Interest Income

NIM		Net Interest Margin

NPAs		Nonperforming Assets

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

RBHPCG		Regional Banking and The Huntington Private Client Group

REIT		Real Estate Investment Trust

ROC		Risk Oversight Committee

RWA		Risk-Weighted Assets

SAD		Special Assets Division

SBA		Small Business Administration

SEC		Securities and Exchange Commission

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SERP		Supplemental Executive Retirement Plan

SRIP		Supplemental Retirement Income Plan

TCE		Tangible Common Equity

TDR		Troubled Debt Restructured Loan

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

UCS		Uniform Classification System

UPB		Unpaid Principal Balance

USDA		U.S. Department of Agriculture

VIE		Variable Interest Entity

XBRL		eXtensible Business Reporting Language

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PART I. FINANCIAL INFORMATION

When we refer to “we”, “our”, and “us”, 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 leasing, investment management, trust services, brokerage services, insurance programs, and other financial products and services. Our 958 branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia, and Wisconsin. 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 2016 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2016 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 2017 Third Quarter Results Compared to 2016 Third Quarter

For the quarter, we reported net income of $275 million, or $0.23 per common share, compared with $127 million, or $0.11 per common share, in the year-ago quarter (see Table 1). Reported net income was impacted by FirstMerit acquisition-related net expenses totaling $31 million pre-tax, or $0.02 per common share.

Fully-taxable equivalent net interest income was $771 million, up $135 million, or 21%. The results reflected the benefit from a $13.2 billion, or 17%, increase in average earning assets and an 11 basis point improvement in the net interest margin to 3.29%. Average earning asset growth included a $7.6 billion, or 12%, increase in average loans and leases, and a $5.6 billion, or 31%, increase in average securities. The net interest margin expansion reflected a 26 basis point increase in earning asset yields, including an approximate 12 basis point impact of purchase accounting, and a 4 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 19 basis point increase in funding costs.

The provision for credit losses decreased $20 million year-over-year to $44 million in the 2017 third quarter. NCOs increased $3 million to $43 million. NCOs represented an annualized 0.25% of average loans and leases, which remains below our long-term expectation of 35 to 55 basis points.

Non-interest income was $330 million, up $28 million, or 9%. The increase was primarily a result of the FirstMerit acquisition. In addition, card and payment processing income increased due to higher credit and debit card related income and underlying customer growth. Capital markets fees increased reflecting our continued strategic focus on expanding the business.

Non-interest expense was $680 million, down $32 million, or 4%, primarily reflecting the impact of the FirstMerit acquisition. Personnel costs decreased primarily related to acquisition-related personnel expense partially offset by an increase in average full-time equivalent employees. Further, professional services, outside data processing and other services decreased primarily reflecting a net decrease in acquisition-related Significant Items, partially offset by higher card and data processing expense from increased usage. Partially offsetting these decreases, other expense increased primarily reflecting an increase in donations and sponsorships and equipment lease residual impairments.

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The tangible common equity to tangible assets ratio was 7.42%, up 28 basis points from a year-ago. The CET1 risk-based capital ratio was 9.94% at September 30, 2017, compared to 9.09% a year ago. The regulatory Tier 1 risk-based capital ratio was 11.30% compared to 10.40% at September 30, 2016. All capital ratios were impacted by the repurchase of $123 million of common stock at an average cost of $12.75 per share during the 2017 third quarter. The total risk-based capital ratio was impacted by the repurchase of trust preferred securities during the 2016 fourth quarter.

Business Overview

General

Our general business objectives are:

1.Grow net interest income and fee income.

2.Deliver positive operating leverage.

3.Increase primary customer relationships across all business segments.

4.Continue to strengthen risk management.

5.Maintain capital and liquidity positions consistent with our risk appetite.

Economy

We expect consumer and business optimism to remain high across our footprint. Labor markets and consumer spending are strong with some inflationary pressures. Throughout 2017, consumer loan growth has remained steady. To date manufacturing has benefited the Midwest. Our pipelines support commercial loan growth, although the commercial lending environment is competitive on both structures and rates.

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.

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Table 1 - Selected Quarterly Income Statement Data (1)
(dollar amounts in thousands, except per share amounts)
	Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2017			2017			2017			2016			2016
Interest income	$	872,987		$	846,424		$	820,360		$	814,858		$	694,346
Interest expense	114,554			101,912			90,385			79,877			68,956
Net interest income	758,433			744,512			729,975			734,981			625,390
Provision for credit losses	43,590			24,978			67,638			74,906			63,805
Net interest income after provision for credit losses	714,843			719,534			662,337			660,075			561,585
Service charges on deposit accounts	90,681			87,582			83,420			91,577			86,847
Cards and payment processing income	53,647			52,485			47,169			49,113			44,320
Mortgage banking income	33,615			32,268			31,692			37,520			40,603
Trust and investment management services	33,531			32,232			33,869			34,016			28,923
Insurance income	13,992			15,843			15,264			16,486			15,865
Brokerage income	14,458			16,294			15,758			17,014			14,719
Capital markets fees	21,719			16,836			14,200			18,730			14,750
Bank owned life insurance income	16,453			15,322			17,542			17,067			14,452
Gain on sale of loans	13,877			12,002			12,822			24,987			7,506
Net securities gains (losses)	(33		)	135			(8		)	(1,771		)	1,031
Other noninterest income	38,157			44,219			40,735			29,598			33,399
Total noninterest income	330,097			325,218			312,463			334,337			302,415
Personnel costs	377,088			391,997			382,000			359,755			405,024
Outside data processing and other services	79,586			75,169			87,202			88,695			91,133
Equipment	45,458			42,924			46,700			59,666			40,792
Net occupancy	55,124			52,613			67,700			49,450			41,460
Professional services	15,227			18,190			18,295			23,165			47,075
Marketing	16,970			18,843			13,923			21,478			14,438
Deposit and other insurance expense	18,514			20,418			20,099			15,772			14,940
Amortization of intangibles	14,017			14,242			14,355			14,099			9,046
Other noninterest expense	58,444			59,968			57,148			49,417			48,339
Total noninterest expense	680,428			694,364			707,422			681,497			712,247
Income before income taxes	364,512			350,388			267,378			312,915			151,753
Provision for income taxes	89,944			78,647			59,284			73,952			24,749
Net income	274,568			271,741			208,094			238,963			127,004
Dividends on preferred shares	18,903			18,889			18,878			18,865			18,537
Net income applicable to common shares	$	255,665		$	252,852		$	189,216		$	220,098		$	108,467

Average common shares—basic	1,086,038			1,088,934			1,086,374			1,085,253			938,578
Average common shares—diluted	1,106,491			1,108,527			1,108,617			1,104,358			952,081
Net income per common share—basic	$	0.24		$	0.23		$	0.17		$	0.20		$	0.12
Net income per common share—diluted	0.23			0.23			0.17			0.20			0.11
Cash dividends declared per common share	0.08			0.08			0.08			0.08			0.07
Return on average total assets	1.08		%	1.09		%	0.84		%	0.95		%	0.58		%
Return on average common shareholders’ equity	10.5			10.6			8.2			9.4			5.4
Return on average tangible common shareholders’ equity (2)	14.1			14.4			11.3			12.9			7.0
Net interest margin (3)	3.29			3.31			3.30			3.25			3.18
Efficiency ratio (4)	60.5			62.9			65.7			61.6			75.0
Effective tax rate	24.7			22.4			22.2			23.6			16.3

Revenue—FTE
Net interest income	$	758,433		$	744,512		$	729,975		$	734,981		$	625,390
FTE adjustment	12,209			12,069			12,058			12,560			10,598
Net interest income (3)	770,642			756,581			742,033			747,541			635,988
Noninterest income	330,097			325,218			312,463			334,337			302,415
Total revenue (3)	$	1,100,739		$	1,081,799		$	1,054,496		$	1,081,878		$	938,403

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Table 2 - Selected Year to Date Income Statements (1)

	Nine Months Ended September 30,				Change
(dollar amounts in thousands, except per share amounts)	2017		2016		Amount			Percent
Interest income	$	2,539,771	$	1,817,255	$	722,516		40	%
Interest expense	306,851		182,918		123,933			68
Net interest income	2,232,920		1,634,337		598,583			37
Provision for credit losses	136,206		115,896		20,310			18
Net interest income after provision for credit losses	2,096,714		1,518,441		578,273			38
Service charges on deposit accounts	261,683		232,722		28,961			12
Cards and payment processing income	153,301		119,951		33,350			28
Mortgage banking income	97,575		90,737		6,838			8
Trust and investment management services	99,633		74,258		25,375			34
Insurance income	45,099		48,037		(2,938		)	(6	)
Brokerage income	46,510		44,819		1,691			4
Capital markets fees	52,755		40,797		11,958			29
Bank owned life insurance income	49,317		40,500		8,817			22
Gain on sale of loans	38,701		22,166		16,535			75
Net securities gains (losses)	94		1,687		(1,593		)	(94	)
Other noninterest income	123,110		99,720		23,390			23
Total noninterest income	967,778		815,394		152,384			19
Personnel costs	1,151,085		989,369		161,716			16
Outside data processing and other services	241,957		216,047		25,910			12
Equipment	135,082		105,173		29,909			28
Net occupancy	175,437		103,640		71,797			69
Professional services	51,712		82,101		(30,389		)	(37	)
Marketing	49,736		41,479		8,257			20
Deposit and other insurance expense	59,031		38,335		20,696			54
Amortization of intangibles	42,614		16,357		26,257			161
Other noninterest expense	175,560		134,487		41,073			31
Total noninterest expense	2,082,214		1,726,988		355,226			21
Income before income taxes	982,278		606,847		375,431			62
Provision for income taxes	227,875		133,989		93,886			70
Net income	754,403		472,858		281,545			60
Dividends declared on preferred shares	56,670		46,409		10,261			22
Net income applicable to common shares	$	697,733	$	426,449	$	271,284		64	%

Average common shares—basic	1,087,115		844,167		242,948			29	%
Average common shares—diluted	1,107,878		856,934		250,944			29
Net income per common share—basic	$	0.64	$	0.51	$	0.13		25
Net income per common share—diluted	0.63		0.50		0.13			26
Cash dividends declared per common share	0.24		0.21		0.03			14

Revenue—FTE
Net interest income	$	2,232,920	$	1,634,337	$	598,583		37	%
FTE adjustment	36,336		29,848		6,488			22
Net interest income (3)	2,269,256		1,664,185		605,071			36
Noninterest income	967,778		815,394		152,384			19
Total revenue (3)	$	3,237,034	$	2,479,579	$	757,455		31	%


(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 and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains.

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Significant Items

Earnings comparisons are impacted by the Significant Items summarized below:

Mergers and Acquisitions. Significant events relating to mergers and acquisitions, and the impacts of those events on our reported results, are as follows:


•	During the 2017 third quarter, $31 million of noninterest expense was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.02 per common share.


•	During the 2017 second quarter, $50 million of noninterest expense was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.03 per common share.


•	During the 2016 third quarter, $159 million of noninterest expense was recorded related to the then pending acquisition of FirstMerit. This resulted in a negative impact of $0.11 per common share.

The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected:



Table 3 - Significant Items Influencing Earnings Performance Comparison
(dollar amounts in thousands, except per share amounts)
	Three Months Ended
	September 30, 2017						June 30, 2017						September 30, 2016
	Amount			EPS (1)			Amount			EPS (1)			Amount			EPS (1)
Net income	$	274,568					$	271,741					$	127,004
Earnings per share, after-tax				$	0.23					$	0.23					$	0.11

Significant Items—favorable (unfavorable) impact:	Earnings			EPS (1)			Earnings			EPS (1)			Earnings			EPS (1)
Mergers and acquisitions, net expenses	$	(30,733	)				$	(50,243	)				$	(158,749	)
Tax impact	10,757						17,585						52,033
Mergers and acquisitions, after-tax	$	(19,976	)	$	(0.02	)	$	(32,658	)	$	(0.03	)	$	(106,716	)	$	(0.11	)


(1)	Based upon the quarterly average outstanding diluted common shares.



	Nine Months Ended
	September 30, 2017						September 30, 2016
	Amount			EPS (1)			Amount			EPS (1)
Net income	$	754,403					$	472,858
Earnings per share, after-tax				$	0.63					$	0.50

Significant Items—favorable (unfavorable) impact:	Earnings			EPS (1)			Earnings			EPS (1)
Mergers and acquisitions, net expenses	$	(152,121	)				$	(185,944	)
Tax impact	53,243						61,252
Mergers and acquisitions, after-tax	$	(98,878	)	$	(0.09	)	$	(124,692	)	$	(0.14	)


(1)	Based upon the year to date average outstanding diluted common shares.

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Net Interest Income / Average Balance Sheet

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



Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis

	Average Balances
(dollar amounts in millions)	Three Months Ended															Change
	September 30,			June 30,			March 31,			December 31,			September 30,			3Q17 vs. 3Q16
	2017			2017			2017			2016			2016			Amount			Percent
Assets:
Interest-bearing deposits in banks	$	102		$	102		$	100		$	110		$	95		$	7		8	%
Loans held for sale	678			525			415			2,507			695			(17		)	(2	)
Securities:
Available-for-sale and other securities:
Taxable	12,275			13,135			12,801			13,734			9,785			2,490			25
Tax-exempt	3,161			3,104			3,049			3,136			2,854			307			11
Total available-for-sale and other securities	15,436			16,239			15,850			16,870			12,639			2,797			22
Trading account securities	92			91			137			139			49			43			88
Held-to-maturity securities—taxable	8,264			7,427			7,656			5,432			5,487			2,777			51
Total securities	23,793			23,756			23,643			22,441			18,175			5,618			31
Loans and leases: (1)
Commercial:
Commercial and industrial	27,643			27,992			27,922			27,727			24,957			2,686			11
Commercial real estate:
Construction	1,152			1,130			1,314			1,413			1,132			20			2
Commercial	6,064			5,940			6,039			5,805			5,227			837			16
Commercial real estate	7,216			7,070			7,353			7,218			6,359			857			13
Total commercial	34,859			35,062			35,276			34,945			31,316			3,543			11
Consumer:
Automobile	11,713			11,324			11,063			10,866			11,402			311			3
Home equity	9,960			9,958			10,072			10,101			9,260			700			8
Residential mortgage	8,402			7,979			7,777			7,690			7,012			1,390			20
RV and marine finance	2,296			2,039			1,874			1,844			915			1,381			151
Other consumer	1,046			983			919			959			817			229			28
Total consumer	33,417			32,283			31,705			31,460			29,406			4,011			14
Total loans and leases	68,276			67,345			66,981			66,405			60,722			7,554			12
Allowance for loan and lease losses	(672		)	(672		)	(636		)	(614		)	(623		)	(49		)	8
Net loans and leases	67,604			66,673			66,345			65,791			60,099			7,505			12
Total earning assets	92,849			91,728			91,139			91,463			79,687			13,162			17
Cash and due from banks	1,299			1,287			2,011			1,538			1,325			(26		)	(2	)
Intangible assets	2,359			2,373			2,387			2,421			1,547			812			52
All other assets	5,455			5,405			5,442			5,559			4,962			493			10
Total assets	$	101,290		$	100,121		$	100,343		$	100,367		$	86,898		$	14,392		17	%
Liabilities and Shareholders’ Equity:
Deposits:
Demand deposits—noninterest-bearing	$	21,723		$	21,599		$	21,730		$	23,250		$	20,033		$	1,690		8	%
Demand deposits—interest-bearing	17,878			17,445			16,805			15,294			12,362			5,516			45
Total demand deposits	39,601			39,044			38,535			38,544			32,395			7,206			22
Money market deposits	20,314			19,212			18,653			18,618			18,453			1,861			10
Savings and other domestic deposits	11,590			11,889			11,970			12,272			8,889			2,701			30
Core certificates of deposit	2,044			2,146			2,342			2,636			2,285			(241		)	(11	)
Total core deposits	73,549			72,291			71,500			72,070			62,022			11,527			19
Other domestic time deposits of $250,000 or more	432			479			470			391			382			50			13
Brokered deposits and negotiable CDs	3,563			3,783			3,969			4,273			3,904			(341		)	(9	)
Deposits in foreign offices	—			—			—			152			194			(194		)	—
Total deposits	77,544			76,553			75,939			76,886			66,502			11,042			17
Short-term borrowings	2,391			2,687			3,792			2,628			1,306			1,085			83
Long-term debt	8,949			8,730			8,529			8,594			8,488			461			5
Total interest-bearing liabilities	67,161			66,371			66,530			64,858			56,263			10,898			19
All other liabilities	1,661			1,557			1,661			1,833			1,608			53			3
Shareholders’ equity	10,745			10,594			10,422			10,426			8,994			1,751			19
Total liabilities and shareholders’ equity	$	101,290		$	100,121		$	100,343		$	100,367		$	86,898		$	14,392		17	%

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Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)

	Average Yield Rates (2)
	Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,
Fully-taxable equivalent basis (3)	2017		2017		2017		2016		2016
Assets:
Interest-bearing deposits in banks	1.77	%	1.53	%	1.09	%	0.64	%	0.64	%
Loans held for sale	3.83		3.73		3.82		2.95		3.53
Securities:
Available-for-sale and other securities:
Taxable	2.42		2.38		2.38		2.43		2.35
Tax-exempt	3.62		3.71		3.77		3.60		3.01
Total available-for-sale and other securities	2.67		2.64		2.65		2.65		2.50
Trading account securities	0.16		0.25		0.11		0.18		0.58
Held-to-maturity securities—taxable	2.36		2.38		2.36		2.43		2.41
Total securities	2.55		2.55		2.54		2.58		2.47
Loans and leases: (1)
Commercial:
Commercial and industrial	4.05		4.04		3.98		3.83		3.68
Commercial real estate:
Construction	4.55		4.26		3.95		3.65		3.76
Commercial	4.08		3.97		3.69		3.54		3.54
Commercial real estate	4.16		4.02		3.74		3.56		3.58
Total commercial	4.07		4.04		3.93		3.78		3.66
Consumer:
Automobile	3.60		3.55		3.55		3.57		3.37
Home equity	4.72		4.61		4.45		4.24		4.21
Residential mortgage	3.65		3.66		3.63		3.58		3.61
RV and marine finance	5.43		5.57		5.63		5.64		5.70
Other consumer	11.59		11.47		12.05		10.91		10.93
Total consumer	4.32		4.27		4.23		4.13		3.97
Total loans and leases	4.20		4.15		4.07		3.95		3.81
Total earning assets	3.78		3.75		3.70		3.60		3.52
Liabilities:
Deposits:
Demand deposits—noninterest-bearing	—		—		—		—		—
Demand deposits—interest-bearing	0.23		0.20		0.15		0.11		0.11
Total demand deposits	0.10		0.09		0.07		0.04		0.04
Money market deposits	0.36		0.31		0.26		0.24		0.24
Savings and other domestic deposits	0.20		0.21		0.22		0.25		0.21
Core certificates of deposit	0.73		0.56		0.39		0.29		0.43
Total core deposits	0.30		0.26		0.22		0.20		0.20
Other domestic time deposits of $250,000 or more	0.61		0.49		0.45		0.39		0.40
Brokered deposits and negotiable CDs	1.16		0.95		0.72		0.48		0.44
Deposits in foreign offices	—		—		—		0.13		0.13
Total deposits	0.35		0.31		0.26		0.23		0.22
Short-term borrowings	0.95		0.78		0.63		0.36		0.29
Long-term debt	2.65		2.49		2.33		2.19		1.97
Total interest-bearing liabilities	0.68		0.61		0.54		0.48		0.49
Net interest rate spread	3.10		3.14		3.16		3.12		3.03
Impact of noninterest-bearing funds on margin	0.19		0.17		0.14		0.13		0.15
Net interest margin	3.29	%	3.31	%	3.30	%	3.25	%	3.18	%


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


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


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

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2017 Third Quarter versus 2016 Third Quarter

Fully-taxable equivalent (FTE) net interest income for the 2017 third quarter increased $135 million, or 21%, from the 2016 third quarter. This reflected the benefit from the $13.2 billion, or 17%, increase in average earning assets coupled with an 11 basis point improvement in the FTE net interest margin (NIM) to 3.29%. Average earning asset growth included a $7.6 billion, or 12%, increase in average loans and leases and a $5.6 billion, or 31%, increase in average securities. The NIM expansion reflected a 26 basis point increase related to the mix and yield of earning assets and a 4 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 19 basis point increase in funding costs. FTE net interest income during the 2017 third quarter included $27 million, or approximately 12 basis points, of purchase accounting impact.

Average earning assets for the 2017 third quarter increased $13.2 billion, or 17%, from the year-ago quarter, primarily reflecting the impact of the FirstMerit acquisition. Average securities increased $5.6 billion, or 31%, which included a $0.3 billion increase in direct purchase municipal instruments in our commercial banking segment. Average residential mortgage loans increased $1.4 billion, or 20%, as we continue to see the benefits associated with the expansion of our home lending business. Average RV and marine finance loans increased $1.4 billion, or 151%, reflecting the expansion of the acquired business into 17 new states over the past year.

Average total deposits for the 2017 third quarter increased $11.0 billion, or 17%, from the year-ago quarter, while average total core deposits increased $11.5 billion, or 19%. Average total interest-bearing liabilities increased $10.9 billion, or 19%, from the year-ago quarter. These increases primarily reflect the impact of the FirstMerit acquisition. Average demand deposits increased $7.2 billion, or 22%, comprised of a $5.1 billion, or 24%, increase in average commercial demand deposits and a $2.1 billion, or 20%, increase in average consumer demand deposits. Average long-term borrowings increased $0.5 billion, or 5%, reflecting the issuance of $2.7 billion and maturity of $1.6 billion of senior debt over the past five quarters.

2017 Third Quarter versus 2017 Second Quarter

Compared to the 2017 second quarter, FTE net interest income increased $14 million, or 2%. Average earning assets increased $1.1 billion, or 1%, sequentially, while the NIM decreased 2 basis points. The decrease in the NIM reflected a 7 basis point increase in the cost of interest-bearing liabilities, partially offset by a 3 basis point increase in earning asset yields and a 2 basis point increase in the benefit from noninterest-bearing funds. The purchase accounting impact on the net interest margin was approximately 12 basis points in the 2017 third quarter compared to approximately 15 basis points in the prior quarter.

Compared to the 2017 second quarter, average earning assets increased $1.1 billion, or 1%. Average loans and leases increased $0.9 billion, or 1%, primarily reflecting growth in residential mortgage, automobile, and RV and marine loans partially offset by a decline in average commercial and industrial loans. Average commercial and industrial loans were negatively impacted by the seasonal decline in automobile floorplan lending, a reduction in mortgage warehouse lending, and continued runoff in corporate banking, partially offset by growth in asset finance.

Compared to the 2017 second quarter, average total core deposits increased $1.3 billion, or 2%, primarily reflecting a $1.1 billion, or 6%, increase in money market deposits and a $0.6 billion, or 1%, increase in average demand deposits.

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Table 5 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis

(dollar amounts in millions)	YTD Average Balances									YTD Average Rates (2)
	Nine Months Ended September 30,				Change					Nine Months Ended September 30,
Fully-taxable equivalent basis (1)	2017		2016		Amount			Percent		2017		2016
Assets:
Interest-bearing deposits in banks	$	102	$	97	$	5		5	%	1.46	%	0.37	%
Loans held for sale	540		567		(27		)	(5	)	3.79		3.76
Securities:
Available-for-sale and other securities:
Taxable	12,735		7,781		4,954			64		2.40		2.37
Tax-exempt	3,105		2,576		529			21		3.70		3.25
Total available-for-sale and other securities	15,840		10,357		5,483			53		2.65		2.59
Trading account securities	107		43		64			149		0.17		0.68
Held-to-maturity securities—taxable	7,785		5,781		2,004			35		2.37		2.43
Total securities	23,732		16,181		7,551			47		2.55		2.53
Loans and leases: (3)
Commercial:
Commercial and industrial	27,852		22,326