Greetings and welcome to Huntington Bancshares Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Mark Muth, Director of Investor Relations. Thank you, you may begin.

Thank you. Welcome. I’m Mark Muth, Director of Investor Relations for Huntington. Copies of the slides we will be reviewing can be found on the IR website, of Huntington’s website 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 second quarter results. Mac?

Thanks Mark, and thanks to everyone for joining the call today. As always, we appreciate your interest and support. We are very pleased with our second quarter financial performance, including record net income and we continue to make solid progress with the FirstMerit integration completing the remaining FirstMerit Systems conversions during the quarter. Steve will provide a more detailed update on the integration later in the call. During the quarter, we also received the results for the annual Dodd-Frank Act Stress Test and the annual CCAR process. We believe our DFAST credit losses distinguish Huntington among our peers again this year. Our cumulative stress losses and a severely adverse scenario were the fourth lowest, our third consecutive year to be among the four lowest regional banks. We also received no objection from the Federal Reserve to our proposed capital plans submitted and the CCAR process. The capital plan includes an increase in the cash dividend from $0.08 per share to $0.11 per share beginning with the fourth quarter of 2017 dividend, subject to board approval at that time, and a repurchase of up to 308 million of common stock over the fourth quarter period through June of 2018. The reinstatement of the buyback is an important milestone for Huntington as we have completely replenished our CET1 capital ratio following the strategic capital deployments in the FirstMerit transaction. Let’s now turn to Slide 3 and review second 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. Huntington recorded earnings per common share of $0.23 for the second quarter of 2017, up 21% over the year ago quarter. This is inclusive of $0.03 per share of significant items related to the FirstMerit acquisition, which…

Thanks Mac, and good morning to all of you. We are on the home stretch of our prepared remarks. So moving to the economies, Slide 14, we illustrate selective key economic indicators for our footprint. We previously noted our regional footprint has outperformed the rest of the nation during the economic recovery over the last several years and I remain 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. As shown on the top chart five of the eight states in our footprint produced stronger economic growth in the nation as a whole and during three months through May, which is the most recent date available. Further as depicted in the bottom chart, the leading indexes for our footprint as of May showed that 78 states expect positive economic growth over the next six months. Slide 15 illustrates trends and unemployment rates for our 10 largest deposit markets in many of the large MSAs, the footprint remains at or near 15 year lows for unemployment as of the end of May. The labor markets in our footprint have proven to be strong with several markets such as here in Columbus and in Indianapolis and Grand Rapids, where we see labor shortages. Now we've previously noted that we are seeing wage inflation in our expense base and our customers are too. Housing markets across the footprint continue to display broad-based home price inflation, while remaining in some of the most affordable markets in the US. There are also exciting pockets of…

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

[Operator Instructions] Our first question is from Ken Usdin from Jefferies. You may state your question.

Hi thanks, good morning.

Good morning Ken.

Good morning Ken.

Mac, just wondering just on the loan growth outlook, I know you talked about the pay downs in commercial and theory, and you know just wondering are you expecting loans to get better as you go through the second half to get to the to 4% to 6% range and are you still contemplating at auto securitization within that 4% to 6% outlook? Thanks.

Yes, thanks Ken. Yes, so we do expect the second half of the year to improve from organic growth perspective, and we did have the headwinds that we talked about with the FirstMerit exits, were all - all were anticipated. We actually identified during the due diligence process and I would tell you that there is probably 200 million there that came out in the quarter. We do anticipate an auto securitization yet this year, which is included in the 4% to 6% guidance that we’ve given and we would tell you that the pipelines are where we’ve seen them in terms of the strength and what’s coming through. So, again we do expect to see some improvement as the year progresses.

We also had Ken about 2% drop in commercial utilization. So, a fair amount of headwinds in the second quarter with the combination of those factors and we came through that and so the pipeline as we sit here today reflects essentially what we had at the end of the first quarter and we think a lot of the headwinds have been adjusted.

Okay. And just a follow-up on another start of the balance sheet, so Mac, your point about the reserve build related to the FirstMerit new loans, this quarter you had not only really low charge-offs, but a reserve release. So can you just try to walk us through what are these components moving on and do we kind of go back to the reserve builds or this one seem to be a zag within that broader commentary of continuing to expect the reserve to build over time? Thanks

Hi Ken, this is Dan. So this was an unusual quarter for us. So, obviously we did have the credit quality improvements, particularly in C&I, the big reduction in nonaccrual loans of about 9%. The interesting thing was this quarter a number of those loans had large specific reserves tied to them. So, a largest single specific reserve we got paid out of that credit and then we had a couple - two of a next three largest credits where energy deals where we had pay downs of the loans and improvement in the collateral and cash flows negating the needs for a specific results on those. So that combination was an unusual dynamics. So on a go forward basis, we would expect that natural accrual. We would expect, as we’ve said a slow and gradual move back towards the coverage ratios you would have seen prior to the FirstMerit deal. Think about charge-offs, plus some room for a growing portfolio is how we think about it.

Ken, I would point out that we had good performance in auto so across the board the metrics was really was quite strong. It is unusual were literally everything comes positive in the given quarter, and in this - so we have one of those. This is exceptional and not the norm.

Understood, good to see the underlying there as well. So, thanks Steve.

Absolutely. Thank you.

Thanks Ken.

Our next question is from Steve Moss with FBR Capital Market. You may proceed.

Hi guys, this is actually Kyle Peterson on for Steve today. I was wondering if you could start on margin, specifically kind of the core when you kind of strip out the accretion. Got a couple of bps of expansion in this quarter, I was wondering what you guys were kind of thinking between loan and deposit side benefit from June rate hike?

Yes, Kyle, we are going to continue to see expansion in the core margin. We haven't seen all of the benefit in the loans side from the June increase and we continue to manage the cost of deposits really well as you can see with the 3 basis points increase on a linked quarter basis. So, clearly we think that there is expansion in the core margin from here, and adjusting for day basis in the second quarter we’re probably up 3 basis points from the first quarter.

Okay great. And then I guess if you could just expand a little bit on that, kind of on the swaps I know you guys have been pouring back some of that exposure, just kind of potential impacts that could have on NIM with any future rate hikes kind of once those are all rolled off?

Yes, so the asset swaps continue to roll off as scheduled and we don't have any plans to replace those. We’re currently about 6.4% asset sensitive and actually without the asset swaps it only has the 10th of a percent to asset sensitivity. So really the asset swaps are pretty much a non-event at this point.

Okay great. Thanks guys.

Thanks a lot.

Our next question is from Scott Siefers from Sandler O'Neill & Partners. You may proceed.

Good morning guys.

Hi, Scott.

Hi Mac, quick question. First of all, thank you guys for adding those slides 9 and 10 with the 4Q expense expectation as well as, sort of the walk forward on revenue side, I don’t mean to pin you down too much on the near term expectation Mac, but could you kind of walk us through the expense trajectory for the remainder of the year? Because I guess, what is implied is, you come down a little from this quarters, call it $645 million to the $639 million in the reminder of the year and just there were a few puts and takes, right, I guess you have seasonally upgraded in a couple of areas in the 2Q, but then you also presumably have the branch consolidation benefits, I think, though you said there is some offset on the digital and investment side. So, how should we expect expenses to progress through the remainder of this year?

Yes, Scott, so a few things, I mean, we are highly confident in the 609 for the fourth quarter excluding the intangible amortization and the FirstMerit revenue initiatives. The second quarter that we're looking at is seasonally higher, we have merit increases in this quarter, we have the impact of some stock compensation expense that hits this quarter that one-time in nature as it relates to the year, and we also had some seasonally higher marketing this quarter. So, those three things alone are probably $10 million to $15 million, closer to $15 million. So, very confident as we move from this level down to the 609 in the fourth quarter as I described.

Okay. All right. I think that actually does it for me. That’s a helpful walk there, I appreciate that.

Thanks Scott.

Okay. Our next question is from Jon Arfstrom from RBC Capital Markets. You may proceed.

Thanks, good morning guys.

Hi Jon.

I did have a bigger question, but I just wanted to ask on the swaps, Mac. During the details, it looks like the swaps maybe cost you a little bit of money on commercial loan yield this quarter. Am I looking at that correctly?

That would be correct.

Okay. And is it a bit of a headwind again in Q3 and Q4? And then as we see these swaps roll off, it's maybe helpful in 2018 to commercial loan yields?

Yes absolutely. It will be a headwind through the first quarter of 2018, really pretty small in the scheme of things and then once they are got we get the full benefit of the rate increase coming through and the adjustable rate C&I levels.

Okay, okay. Good, that helps. On the incremental reduction in branches, Steve, do you view this as a onetime item? Or is this something that's ongoing? And could we see more of this as things progress?

Jon, we’ve been suggesting that we would review the branches like any good retailer, periodically. We tend to do it about every year and the track record would show a fairly consistent period of activity between every year, year and a half for the last 5, 6 years. So, we will continue to operate with that, and again like any good retailer we will be looking at our distribution. We are seeing continued - in particular mobile take-up by our customers both consumers and businesses, it is one of the reasons we’re investing more, if you will, accelerating some of our plans, and so you could expect to see more distribution consolidation from us over time.

Okay.

We remain Jon with number one branch here in Ohio and Michigan. So, you think about that over an extended period of time and as this transition to more and more mobile occurs, I think it gives us a really significant, set of opportunities over time.

Okay. Does this change your thinking at all on distribution in Chicago, in terms of maybe looking at a more digital expansion of your retail business in Chicago?

It doesn't change our strategy because it has all been consistent. We are looking for niche opportunities, principally business focused. We are not going to run the same play in Chicago that we’re doing in Ohio and Michigan in terms of dense distribution. We will, so we do think of Ohio, Chicago as an opportunity to pilot some of what we want to get done with mobile. And we will continue to use it on that basis. The combination of mobile and digital and data and analytics in a market as dense as Ohio is very attractive to us with the current distribution. We’re subscale, I don't think we are highly unlikely to build it out. So, we will be coming at it differently.

Okay. All right. Thank you.

Thanks Jon.

Our next question is from Kevin Reevey with D.A. Davidson. You may proceed.

Good morning guys.

Good morning Kevin.

So it looks like second quarter you had some very strong performance in your capital markets business, what’s the pipeline going forward into the third quarter, do you expect this line of business to continue to remain strong as this is kind of more seasonal than anything else?

Kevin we had a really good quarter in the second quarter and a lot of that activity can be tied to either market circumstances volatility or commercial activity, and as we have said we think the commercial activity in the second half of the year is better than the first half or will be and we are also pretty good start in the quarter.

And then my last question is related to deposit price, it sounds like you were able to continue the lag your deposit pricing in the quarter, which had helped you a little bit on the margin, how many rate hikes do you think that will take before you will have to kind of start moving your deposit pricing up?

Kevin it is going to be really based on what’s happening in the marketplace. We are seeing a little bit more competition in our markets, but feel very confident in our core deposit base because of the strategy that we’ve put in place in 2010, around building relationships with the quality of the fair play product sets and mindset, and how do we actually serves the customer. We think it feels us with an advantage in times like this when we see increases in deposit pricing and we can maybe lag a little bit more than the competition even. We are really pleased with what we have been able to do so far. The deposit betas are very attractive for us at this point in time, but I would think by that time we get at least the second increase from here, we will see a bit more pressure in what’s happening.

Great, thank you.

Thanks a lot.

Our next question is from Geoffrey Elliott with Autonomous Research. You may proceed.

Hi good morning, thank you for taking the question. I wondered if you could speak a little bit more about auto, you had some growth this quarter, what it’s your appetite for growing auto like at the moment and how is the competitive environment shaping up?

Geoff we remain highly confident in the quality of what we’re underwriting. We’re very, very disciplined and you see the statistics every quarter. The credit quality performance, there’s been an anxiety around auto for last three years. The credit quality performance and the consistency of it, I think it’s clearly coming through, as it did in this quarter in particular. And so we will we have limits in place in terms of what we believe on balance sheet, we use securitization as an outlet. We will continue to do that. As you heard Mac talk about it, it is not a business where we expect to adjust the limits that we have now. We will operate within those guidelines. We ramped it up a bit post Q3 and just believe then that with our discipline on credit that we were getting our better risk return trade-off than what was available in securities. So we continue to believe that as we look at the business today and prepare it to alternative risk returns.

And on the competitive side, how things are shaping up there, we have seen some of the other banks pulling back a bit, is that creating opportunities?

There is a - this industry cycle is on the finance side, and we think we’re entering one of the more attractive periods. Like 2010, 2011, 2012 were attractive. So there is a bit less competition, as others pull back. Those that bought deep are clearly feeling the challenges from the credit risk they took and so a combination of factors, I think we are making it even more interesting to us prospectively. We are also applying some of our data and analytics to this portfolio. We’ve been managing with some unique tools over the last year and a half. We think we are making better trade-off decisions, and pricing clearly has gone up as we referenced it is up about 50 basis points of Q2 last year to this year.

Great, thank you very much.

Thank you.

Our next question is from Kevin Barker with Piper Jaffrey. You may proceed.

Good morning.

Hi Kevin.

In regards to the comment about the swaps earlier, would you expect some of that incremental interest income or at least the interest headwind to start to be released over third and fourth quarter before the swaps actually expire in the first quarter or is it something just where it just happens as a full maturity in the first quarter?

Well it is basically will run off pro rata along with the run off of the swaps themselves.

It is very laddered.

It is. So it’s very gradual from this point to the first quarter of 2018. It is actually a very small amount in the first quarter of 2018.

So at the short end of your current stay is, or that stay is stable, from where it is today and so the first quarter, how much of a tail wind would you expect on interest income?

Related to the swaps?

Yes.

It is a very small number. I think it’s probably 1 million or 2 million. I mean it is not large at all.

The specific details will be in the footnotes in the Q, here in a few weeks.

Okay. And then in regards to the revenue synergies that you are generating off of the $50 million investment, what specifically have you seen so far in the second quarter start to benefit and start to come through on the income statement?

Well we obviously have our mortgage production and pipelines and we are seeing that flow-through very significantly. FirstMerit was not an SBA lender, so for us to be number three in Chicago, four in Chicago depending on what you want to measure, and same with Wisconsin, that’s all a result of the initiatives. We’re starting to break out some of the RV marine portfolio, as well for as you can see the growth in that portfolio, and it’s a portfolio that has performed very well through the cycle for FirstMerit. And we have some experience in terms of the team we put in place, about two years ago now to help us understand and manage that. So we are able to leverage the skill sets and technology is somewhat in auto and apply it to that book as well. So we see in terms of broadly the OCR activity whether it’s cross sell of products. At the branch level or through phone or other distribution channels we’re able to track that and we see that coming on as well. So, we like what we see occurring now. And there's been a lot of effort to make sure the conversion and integration activities went really well through the first half of this year. So, second half is entirely a focus on driving that revenue further.

And Kevin on Slide 10 you can see the progression by quarter of the revenue related to the initiatives for 2017, and you can see it for 2018 as well with the expected expenses with those initiatives on Slide 9.

Thank you for taking my question.

Thank you.

Operator, next question.

[Operator Instructions] Our next question is from Marty Mosby with Vining Sparks. You may proceed.

Thanks.

Hi Marty.

Steve I wanted to back up a second because we’ve been talking about a lot of minutia and details and we really haven't talked about the key results from what you’ve been able to do with FirstMerit acquisition, and that is the improvement in return on tangible common equity, it is one thing that we don't have a trend in this massive presentation you give out, but yet looking at how that’s stepping up. And then, you know Mac you just talk about the impact of the seasonality in expenses, which actually held back this particular quarter, so a step-up from what was a 12% return before the acquisition, now is getting to, when you look into the next quarter and take that seasonality out, something north of 15%, and even could be close to 16% next quarter. So, you are seeing that kind of benefit come through and as you are then going to generate synergies going forward, kind of where do you think we kind of push forward on that particular matter because I think that’s the end result of the combination you’ve made here?

Well Marty when we announced the deal, we talked about it as accelerating and enhancing our long-term financial goals and one of those is a TCE, return on TCE of 13% to 15% and at the announcement we suggested we saw our way to the upper end of that. And we in fact expect to deliver that and potentially go beyond it depending on was it occurring in the economy and sort of the interest rate environment, but we are very, very focused on those metrics and that’s an important one. May, one of the most important ones for us, and as we have talked before, our board will be reviewing performance against the metrics and coming into next year determining whether they should be adjusted or not. We do feel this was a very powerful transformational opportunity for us and we think we are executing it very well. So, that combination should put us in a position over just another couple of quarters where we can show without one-time expense or transaction-related expenses, pretty strong performance. Anything to add Mac.

I think it sums it up really well. I mean that’s one of the reasons why we did the deals, it is obviously a great strategic fit, risk appetite was the right, customers we know, great colleagues and improving the return profile. So, we feel like we're right on track in terms of what we expect.

And then Mac, just on a follow-up in that kind of vein is, when you look at the purchase accounting accretion, the way that kind of works out, you have been offsetting most of that benefit from building allowance. This particular quarter you had some events that didn't turn out that particular way, but when you are looking at purchase down accounting accretion versus the eventual synergies that you pick up, it’s almost like that will schedule that you put down there and show that versus the intangible kind of write-off, you ought to put the synergies on there too, to show the three elements. In other words, the other piece of the puzzle is the synergies you are going to build instead of a positive number that’s going to go negative. Over time you actually have the reverse. You have the synergies kind of come in and over swamp this particular diagram. So, again it is a little misleading in a sense it feels like oh my gosh we are accelerating the benefit when in reality you have things offset the PAA as it rolls off.

That’s a great observation Marty, and we appreciate you pointing that out.

Thanks.

Thank you.

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

Thank you all. The first half of 2017 produced solid results, and as you can tell we are excited about our prospects to finish the second half of the year strong. The integration of FirstMerit is largely complete and we are now focused on the revenue upside. Our success with the integration accelerates the achievement of our long-term financial goals as we were just talking about, and our strategies are clearly working, our execution goals continues to drive good results, and we expect to continue to gain market share and growth share of wallet. So finally, I just want to reiterate that our board and management team are all long-term shareholders. Our top priority is realizing revenue synergies from FirstMerit, as well as growing our core business. And at the same time, we will continue to manage risk and volatility and drive solid consistent long-term performance. We remain optimistic about our future performance. So thank you for your interest in Huntington, we appreciate you joining us today. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.