Greetings and welcome to the Huntington Bancshares First Quarter Earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Mr. Mark Muth, Director of Investor Relations. Thank you, you may begin.

Thank you, Michelle, and welcome. I’m Mark Muth, Director of Investor Relations for Huntington. Copies of the slides we will be reviewing can be found on our IR website at www.huntington-ir.com, by following the Investor Relations link on www.huntington.com. This call is being recorded and will be available as a rebroadcast starting about one hour from the close of the call. Our presenters today are Steve Steinour, Chairman, President and CEO, and Mac McCullough, Chief Financial Officer. Dan Neumeyer, our Chief Credit Officer will also be participating in the Q&A portion of today’s call. As noted on Slide 2, today’s discussion, including the Q&A period, will contain forward-looking statements. Such statements are based on information and assumptions available at this time and are subject to changes, risks and uncertainties which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of risks and uncertainties, please refer to this slide and materials filed with the SEC, including our most recent Forms 10-K, 10-Q and 8-K filings. Let’s get started by turning to Slide 3 and an overview of the first quarter financials. Mac?

Thanks Mark, and thanks to everyone joining the call today. As always, we appreciate your interest and support. Let me start by saying we are very pleased with what we accomplished in the first quarter. Not only did we deliver solid core financial performance, we’ve materially completed the FirstMerit systems conversion and branch consolidations over President’s Day weekend. As Steve will discuss later in the call, both the systems conversion and branch consolidations went very well, and we remain on pace to deliver the expected cost savings and the incremental revenue enhancement opportunities. We continue to expect that the economics of the FirstMerit acquisition will accelerate the achievement of our long-term financial goals. As I discuss first quarter results, please keep in mind that all year-over-year comparisons will benefit from the inclusion of FirstMerit, as the acquisition closed during the third quarter of 2016. With that in mind, let me dive into the financials. On Slide 3, Huntington reported earnings per common share of $0.17 for the first quarter of 2017. This is inclusive of $0.04 per share of significant items related to the FirstMerit acquisition, which also impacted the financial metrics that I will highlight on this slide. Return on assets was 0.84%, return on common equity was 8.2%, and return on tangible common equity was 11.3%. The net interest margin was 3.30%, up 19 basis points year-over-year and 5 basis points compared to the fourth quarter of 2016. Tangible book value per share decreased 8% from the year-ago quarter to $6.55. Total revenue increased $300 million or 40% year-over-year, which included 45% growth in net interest income and 29% growth in non-interest income. Non-interest expense increased $216 million or 44% year-over-year. Non-interest expense adjusted for the year-over-year change in significant items increased $149 million or 31% year-over-year, reflecting…

Thanks Mac. Moving to the economy, Slide 12 illustrates a few key economic indicators for our footprint. Our footprint has outperformed the rest of the nation during the economic recovery of the last several years, and I remain very bullish on the outlook for the local economies across our eight states. The bottom left chart illustrates trends in the unemployment rates across our footprint, and as you can see, unemployment rates across the majority of our footprint continue to trend favorably. The charts on the top and bottom right show coincident and leading economic indicators for the region. I want to call particular attention to the bottom chart, which shows the leading indexes for our footprint as of January, which is the most recent data available. This is the chart we look to for insights into expected future growth within our footprint, and as you can see, the chart shows that seven of our eight states expect positive economic growth over the next six months. Slide 13 illustrates trends in the unemployment rates for our 10 largest deposit markets. Now, many of the large MSAs in our footprint remain at or near 15-year lows for unemployment as of the end of February. The labor market in our footprint has proven to be strong in 2016 with several markets, such as here in Columbus and in Grand Rapids, where we’re at structural full employment. We’ve noted previously that we’re seeing wage inflation in our expense base, and our customers are too. Housing markets across the footprint are strong, displaying home price stability and even increases while remaining some of the most affordable markets in the U.S. We continue to see broad-based home price appreciation in all of our footprint states. Consumers and businesses alike continue to express optimism about a more…

Thanks Steve. Operator, we’ll now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow-up, and then if that person has additional questions, he or she can add themselves back into the queue. Thank you.

[Operator instructions] Our first question comes from the line of Ken Usdin with Jefferies. Please proceed with your question.

Thanks, good morning. Just a couple questions related to the merger. First of all, you mentioned, Steve, three quarters of the saves gotten through the conversion was in February. So can you just help us understand, do we see a step-down again in 2Q? And then also, Mac, to your prior commentary about that 609-plus amortization by the fourth quarter, is that also still what you expect by year-end?

Yes, thanks Ken. So absolutely we’re still focused on that 609, excluding intangible amortization and not adjusted for the expense that we need to basically support the revenue initiative. But we’re very confident that we’re going to achieve that 609 in the fourth quarter of 2017. Regarding how it plays out from here, keep in mind that there’s seasonality as we move through the year, but we’re definitely headed towards that 609 in the fourth quarter of 2017.

So Mac, just a follow-up on that, then. You mentioned it’s ex-amortization and ex-investment, so how do we think about netting all that together? How much is that investment and how much--and or, is any of that investment not already in the run rate?

So the investment is coming into the run rate, even as we speak, because of the fact that we’re hiring personnel in Chicago, for example, for SBA lending, mortgage banking, those types of activities. I would think about it in terms of your model, whatever you assumed for the incremental revenue, to put an efficiency ratio against that revenue and build it in that way.

Okay, and just one quick follow-up - short-term borrowing costs were elevated. You mentioned in the release that it was related to liquidity around. Does any of that roll of, and does that help the margin going forward?

You know, we do have some medium term notes that are rolling off here shortly, and that should be of some assistance to the margin going forward but clearly the March rate increase is going to be helpful as well.

All right, thanks. I’ll leave it there. Thank you.

Okay, thanks Ken.

Thank you. Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Thanks, good morning guys. Just following up on Ken’s question on the margin, loan yields are up. Maybe Mac, can you touch a little bit on what’s going on there? Is that just the impact of the December rate increase, and could we see a similar type increase in 2Q from the March hike?

Yes, thanks Jon. So clearly we are seeing the impact of the December increase in the first quarter with the core margin increasing 7 basis points to 3.14. I think probably 2 basis points of that is day basis, so I’d be thinking more about a 5 basis point increase from a core excluding day basis. We definitely expect the core margin to expand from here. Purchase accounting is going to be a bit difficult to forecast, which is why we put the slide in the deck to help you do that. We did have $8 million of accelerated accretion in the quarter above and beyond the normal accretion, and that’s why we’re going to continue to see the amortization be pulled forward and likely help the margin. But I would continue to look at that accelerated accretion and even some of the normal amortization being allocated to the reserve, because as we see the acquired loans move to the organic book for FirstMerit, we’ve got to provide a reserve for those loans. Does that help?

Yes, that helps. I think what you’re saying is there’s some moving parts, but this is sustainable and we’re likely to see some benefits in Q2. Is that fair?

Yes, the core margin will expand.

Okay. Just a quick follow-up - you touched on the deposit costs, and I noticed they were up modestly, 3 basis points. But anything going on there? Are you seeing any kind of pressure or demands from clients to raise those rates?

You know, I think - we don’t see a lot of pressure at this point in time. There are some one-off requests that take place. In general, I think liquidity is good in the industry, and I think maybe some of the lack of asset growth in the first quarter across the industry is helping to take some pressure off of deposit pricing. But we’ve actually seen less than 10% deposit beta since the increase in the Fed cycle starting in December of ’15, so we don’t think that there’s going to be a lot of pressure around pricing in 2017, at least in the near term.

Okay. All right, thank you.

Okay, thanks Jon.

Thank you. Our next question comes from the line of John Pancari with Evercore ISI. Please proceed with your question.

Morning John.

Good morning. On the credit front, just wanted to get a little bit of color. I saw some movement in the past dues, in the 30-plus past dues on the commercial side of the shop. Not too concerning just yet, but wondering if you could just give us some color on the C&I side, they’re up, and CRE looked like it was up a good amount in the 30-plus past dues as well. Thanks.

Yes, so there is nothing there that is concerning at all. In fact on the CRE side, that movement was one credit that was just an administrative past due, not a payment issue. It just wasn’t renewed prior to quarter end. So we are at a very low level of delinquencies overall, so while there is some movement, it’s still all well controlled in the range, and the CRE is just, again, one item, so very confident in our delinquency levels.

Okay. Apologize if I missed any of this - I hopped on late, but in terms of your retail CRE exposure, have you commented on that in terms of sizing and how it looks?

I haven’t, but I will. So we have a certain level of retail exposure. Obviously we have it both from the C&I space and in the CRE space. In CRE, we have about $1.7 billion of exposure that is in secured exposure and the retail project type, and then we also have about $600 million in our REIT portfolio. The REIT portfolio obviously has a very strong credit profile secured by an unencumbered pool of assets, and no credit issues there. Within the REITs, we have about $250 million of regional mall exposure, so again fairly modest exposure there. A good majority of our exposure is in strip centers, so you would have grocery-anchored strip centers and other anchored strip centers, so those are the local destinations and so not a risk profile that we’re overly concerned about. We do have a list of watch tenants, so we’ve gone through the entire portfolio and reviewed any of those customer that have filed bankruptcy or are intending to file, and then also another tier where they’ve announced store closings, etc. When we go through that entire portfolio and look at the impact of all of those entities, were they to stop paying their rent, we really have --we’ve had a couple of downgrades, a handful of downgrades of no meaningful amount, so we feel very good with where we’re standing in the CRE portfolio. Then on the C&I side, obviously retail is a very broad category, but when you strip out auto dealer and those kinds of exposures, which really aren’t what we think of as conventional retailers, and you get down to food and beverage, building materials, nurseries and then clothing stores, etc., we have about a billion dollars of outstandings, and again no exposure to any of those entities that have been in the headlines filing bankruptcy or maybe intending to. So overall, very confident in our retail exposure.

Okay, great. That’s helpful. Lastly, if I could just ask one more on the credit side on auto, I just wanted to see if I could get a little bit more color out of you in terms of what you’re seeing when it comes to the decline in used car values, what that could imply in terms of your exposures, and then also your outlook for growth there. Thanks.

Sure. I’ll answer that and then I’ll also give a few reminders of what we’ve stated before in terms of our portfolio and why we think it’s different. So first of all, in terms of the used car values, the Manheim Index, while moving around a bit, is still quite strong. It doesn’t impact us quite as much because as a prime/super prime lender, we’re focused mainly on probability of default, not loss given default. We’ve done some stress analysis on our portfolio, as we’ve mentioned before, and a fairly significant drop in the Manheim does not impact us to any great degree, so we aren’t concerned about the values and I think overall they’re holding up fairly well right now. A reminder - we have consistent FICO LTV and term. If you look at the schedules that are included, no movement there. We have no leasing. Again, we’re focused on prime and super prime borrowers. We have no risk layering where we’re combining low FICOs with high LTVs and extended terms. Again, we tend to have a little bit more exposure to the used car markets, which is much more affordable for our customer base, and our performance continues to demonstrate the consistency in our origination policies. So again, very confident in the auto book.

Okay, thanks for all the detail.

Sure.

Thank you. Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.

Good morning, Ken.

Morning. Just a question on the purchase accounting adjustments. Just wanted to make sure I understand Slide 5 properly. Versus what you reported, if I got the numbers right, I think you reported $36 million of PAA in the NII line this quarter, but for the full year you’re saying 68. Does the 68 include any of the accelerated, or is that just sort of the normal scheduled amortization? Just trying to reconcile the numbers.

Yes Ken, so the 68 does include the first quarter accelerated.

Okay, so that would imply roughly $32 million of sort of normal amortization for the next three quarters, ex-any accelerated?

Yes, that looks right.

Got it, okay. Makes sense. And then just one other question on the expenses, just to sort of super clarify, the 609, if we assume that amortization - I don’t know, pick a number, $13 million for the quarter, I just want to make sure that you weren’t--I mean, obviously you exclude any other one-time items, but just from an investment standpoint, is the right number to think about sort of including amortization, sort of that 620, 622 number, or is there--when you report it, is there going to be sort of other investments, other things that are a little more recurring that would take that number higher? Just want to make sure, thanks.

Yes, the 609, you would need to add the amortization to, right, and I think that’s close to 14. And then we shouldn’t see any non-recurring items related to the FirstMerit acquisition in the fourth quarter. We think we’re going to get through all those expenses in the third quarter. Then the only other thing you need to think about is the expense associated with the revenue investments that we’ve spoken about around the FirstMerit acquisition.

Got it. See, I think that’s what I’m more asking about. Let’s say you spent $50 million just hypothetically to hire more lenders, to build out something, then your expense number would be meaningfully higher than the 609 plus amortization. I just want to make sure that we’re all thinking about that it’s likely to be higher, if that’s the right way of looking at it, because--

Yes, that’s absolutely the right way to think about it, and keep in mind that we add the incremental revenue associated with those initiatives, things like SBA lending and mortgage banking, there are commissions and commission expense that comes along with that revenue.

Got it. Have you guys quantified just the magnitude of those additional investments?

No. I think--again, I think the best way to think about it is to think about the revenue impact and put an efficiency ratio against it, and I would use that as an adjustment for the model.

Okay, all right. Thank you very much.

Thanks Ken.

Thank you. Our next question comes from the line of Bob Ramsey with FBR Capital Markets. Please proceed with your question.

Morning Bob.

Hey, good morning. Just on that point, what is the right sort of marginal efficiency rate that you would apply to those incremental revenues?

You know, I would probably--you’ve got to keep in mind that we’re ramping up those investments and that activity. There’s likely to be a higher efficiency ratio in 2017 versus 2018, and efficiency ratio for those businesses in normal times could be in the 55% range, something like that. So again, it’s going to be higher in 2017 relate to 2018 because of the fact that we’re ramping up the investment.

Okay. Fair enough. Shifting gears to talk a little bit about loan growth, I know you guys have said 4% to 6% for the year. Obviously we seem to be off to kind of a slow start for the year. That does seem to be an industry-wide trend. But I’m just kind of curious how you’re thinking about the progression of loan growth over the course of the year and what kind of gives you confidence in that 4% to 6% number.

Well, we’ve seen--this is Steve, Bob. We’ve had pipeline and activity increases late in the first quarter, so as we came into the second quarter, we were in a reasonably good position. But if we think back to what we’ve seen in, I think, four of the last five years, second half has been stronger than first half for different reasons each year, but there’s sort of fluency to the year now, successive years in terms of activity picking up second quarter and translating into better performance in the second half. We think that will be the case again this year as it has been recently. Certainly pipelines would indicate that, and so our best indicators are in that fashion. We take some confidence in leading economic indicators and other factors, including conversations with customers and potential customers, so reasonably confident we’ve got the ability to deliver on that loan growth range of 4% to 6% for the year.

Okay. All right, thank you.

Thank you. Our next question comes from Steven Alexopoulos with JP Morgan. Please proceed with your question.

Morning Steve.

Morning everybody. Steve, maybe just to follow up on that in terms of first quarter loan growth being seasonally weak and you’re optimistic of a pick-up, just about every other ban out there is saying their commercial customers are in wait-and-see mode here, just watching to see what comes out of Washington. Are you not hearing that from your customers, maybe because your markets are performing a little better?

We’re clearly seeing a wait-and-see, I think in the first quarter, and so there’s going to be some continuation of that. But the economic development activity in these different states is very, very strong. There is tremendous foreign direct investment activity in Ohio and Michigan in particular, where I’m closer, and I would say from what they’re telling me, it’s like record levels of inquiry and review. The midwest still has a manufacturing core, and so the conversations around Made in the USA and import tariffs I think are spurring the level of activity that we should benefit from in our footprint. The states continue to be reasonably well positioned, certainly well run - many of the cities are financially doing well, so I think we’re well positioned to enjoy investment, continued investment, growth and relative outperformance to some of the other regions in the U.S.

Okay, that’s helpful. Maybe for a follow-up question, on the tax rate, many banks are calling out this quarter new accounting guidance around share-based compensation. What was the impact from this in your first quarter?

We had $2.9 million associated with that in the first quarter.

That’s what I need. Thanks guys.

Thanks Steve.

Thank you. Our next question comes from Marty Mosby with Vining Sparks. Please proceed with your question.

Good morning, Marty.

Good morning. So I think there was one thing that you could do on Slide 5, where you’re talking about the purchase accounting accretion, is that for this quarter we just talked about earlier, we had $36 million, you’ve got $32 million for the rest of the year. That seems like a fairly significant step-down, which the other two--you know, the other piece doesn’t move, so that looks like that would have a potentially negative impact when you look at the build of allowance related to the shifting of the loans from purchase accounting to the normal loan portfolio. You’ve built your loan loss allowance by $29 million this quarter, so that would offset most of the incremental benefit you got from the early prepayments. Putting that on that slide would help to net it out in a way that would be, I think, better understanding the bottom line impact. Am I misunderstanding that, or is that how that typically is working?

No Marty, I think you’re absolutely right. We do see opportunity related to the accelerated accretion to build the reserve because of the fact that those loans moving from acquired to organic need to have the reserve built. Now of course, there’s a process that we go through in determining what the appropriate reserve is, and I wouldn’t want to associate it directly with the accelerated accretion, and I think it’s also important to keep in mind that there’s a Huntington component to this as well associated with loan growth and those types of things. But I get your point, and I think let us see what we can do to better associate that.

Just for instance, it looks like the excess, if you just take the 32 and divide it by 3, it gives you about 11. That means you had about $25 million of extra early accretion, and if you look at the allowance build, it was $29 million, so a little bit more negative on allowance build but in line with each other. The other thing is if you look at expenses, looking at the expense base in this particular quarter, there’s really two pieces that I felt like we didn’t show--you know, were unfavorable surprises. One, outside data occupancy and equipment, which are typically kind of related to some of the consolidations you did in the first quarter, so that could just be timing, that was up--those three categories were actually up a little bit from the fourth quarter, which could have been working on the consolidation and eventually rolling down. And then deposit insurance stepped up about $5 million this quarter as well, so just was curious if you could address those two issues going forward.

Yes, I would say that the first item, this is just primarily timing in terms of the activity that we see and the work that we’re doing. We did have a small true-up in the FDIC of about $1.5 million, so that is a bit of an unusual item in the quarter.

Perfect, thanks.

Okay, thanks Marty.

Thank you. Our next question comes from the line of Kevin Barker with Piper Jaffray. Please proceed with your question.

Good morning. I noticed that--you know, to follow on some of John’s questions regarding the credit outlook, I noticed that 90-day delinquency and NPAs, trends look okay on a consolidated basis, but the criticized ratio continues to move higher over the last three quarters. Can you just give us a little bit of color around the trends around the criticized ratio and what you’re seeing there?

Yes, I would say it’s mixed. From quarter to quarter, you’re going to see movement of varying degrees, and we’re starting to get year-end statements in now, so that’s a piece of it. But I think generally speaking, the outlook is very good. I mean, if you look at how it translates into NPAs, NPAs are actually down a fair amount, charge-offs are well controlled, so we are very much focused on early recognition so that the minute we see any negative developments, we are very quick to downgrade. But I think the obvious point and what we are pleased with is that it does not roll through. NPAs are very well controlled. Two-thirds of our commercial NPAs are current on principal and interest. I think that points to our conservative stance; and again, charge-offs are very well controlled. So I think the criticized inflow is about the only credit metric out there that wasn’t improved this quarter, and again I think it has more to do with early recognition of any potential problems, which gives us more options in terms of rehabilitating credit, etc. So no concerns on my end there. I think it speaks more to our risk identification.

Okay. Then in relation to some of your guidance around targeting an efficiency ratio and then looking at our revenue, can you talk about the timing on how you see the efficiency ratio peaking in ’17 before it declines back in ’18? Is there any particular quarter you’re looking at where you think the peak will be? [Indiscernible].

I’m sorry, Kevin, could you repeat the last part?

Where do you see that efficiency ratio peaking in ’17 before it starts to decline in ’18 in regards to your investments in the business?

Yes, I think we likely see a peak here in the first quarter. There are some seasonally higher expenses in the first quarter and there is also seasonally lower revenue, especially on the fee side in the first quarter, so I would view the first quarter as being a bit of a peak.

Okay. Thank you for taking my questions.

Thanks Kevin.

Once again, if you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our next question comes from the line of Geoffrey Elliott with Autonomous Research. Please proceed with your question.

Good morning, Geoff.

Good morning, thanks for taking the question. A quick one on CCAR. In the changes around the qualitative part of the test, what does that mean in practice for Huntington? How are you going to be assessed on the qualitative side going forward? When is that going to happen, and what do you think it means in terms of potential capital returns?

Thanks for the question, Geoff. So I think we’re going to see how this CCAR cycle plays out. Obviously this is the first time we’ve gone through with the difference in the qualitative, and I think we just have to understand that that has a material difference or not as we move through it. Clearly we would feel that we would have more opportunity to think about the dividend opportunity and also total payout opportunity, and I think we did position ourselves well related to the CCAR cycle with what we did with the balance sheet optimization in late 2016, picking up about 43 basis points of CET1. So really, Geoff, I think we have to see how the process plays out.

And then just switching back to the earlier questions on the retail exposure, I just wanted to check I got the numbers right. You said $1.7 billion of secured retail plus $600 million of REITs within CRE?

Correct.

And that’s out of the total $7.1 billion?

Correct.

So that, just on math, is kind of a 32% concentration, so I’m kind of curious what are the concentration limits that you apply there?

We don’t actually disclose the individual concentration limits we have. We have an overall CRE and then we have a CRE by project type, and we are within all of those limits as it stands today.

Okay, thank you.

Thanks Geoff.

Ladies and gentlemen, we have reached the end of our question and answer session. I would now like to turn the call back over to Mr. Steve Steinour for closing remarks.

Thank you for joining us today. We’re off to a solid start this year. We had good financial performance in the first quarter and equally important, we continued to make very significant progress in the integration of FirstMerit. Our colleagues have really rallied together as one team, bringing the best of Huntington to our customers. We’re encouraged by the sentiment we’re seeing and hearing from our customers and hopeful that thoughtful action in Washington will help bring about more than just optimism. Our strategies are working, our execution of goals continues to drive good results, we expect to continue to gain market share and grow share of wallet. Finally, I want to close by reiterating that our board and this management team are all long-term shareholders. Our top priority remains realizing the full set of opportunities with FirstMerit and growing our core business. At the same time, we’ll continue to manage risks and volatility and drive solid, consistent long-term performance. So thank you for your interest in Huntington, we appreciate you joining us today. Have a great day.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.