Greetings, and welcome to the Huntington Bancshares’ Fourth 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 over to your host, Mr. Mark Muth, Director of Investor Relations. Please go ahead.

Thank you, Melissa. Welcome. I’m Mark Muth, Director of Investor Relations for Huntington. Copies of the slides we’ll be reviewing can be found on the Investor Relations section of our website, 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 the call. As noted on slide two, 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 the risks and uncertainties, please refer to this slide and material filed with the SEC, including our most recent Forms 10-K, 10-Q and 8-K filings. Let me now turn it over to Mac for an overview of the financials.

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 fourth quarter financial performance including record net income for the third consecutive quarter and the accelerated achievement of all five of our long-term financial goals in the quarter. As I turn to slide three to review full year results, please keep in mind that comparisons to 2016 are impacted by the inclusion of FirstMerit, at the acquisition close, during the third quarter of 2016. We reported earnings per common share of $1 for full year 2017, up 43% over 2016. This includes $0.09 per share of significant items related to the FirstMerit acquisition and $0.11 per share of reasonably estimated benefit from federal tax reform. Also including the impact of the significant items, return on assets was 1.17%, return on common on equity was 11.6% and return on common equity was 15.7%. Turning to slide four. We reported earnings per common share of $0.37 for the fourth quarter, up 85% over the year ago quarter. This includes $0.11 per share of reasonably estimated benefit from federal tax reform. Also including the impact of significant items, return on assets was 1.67%, return on common equity was 17% and return on tangible common equity was 22.7%. Our reported efficiency ratio for the quarter was 54.9%. As a reminder, this is the first quarter since the acquisition of FirstMerit that we did not incur merger-related expense, having completed the physical integration of FirstMerit in the third quarter of 2017. Tangible book value per share increased 2% sequentially and 8% year-over-year to $6.97 per share. During the fourth quarter, we repurchased $137 million of common stock, representing 9.8 million shares at an average cost of $14 per share. Turning…

Thanks, Mac. Moving to the economy, slides 16 and 17 illustrate selected key economic indicators for our footprint. And as we’ve noted previously, our footprint states have outperformed the rest of the nation during the economic recovery for the last several years. And I remain optimistic on the outlook for the local economies across our eight states. The bottom left chart on slide 16 and the chart on slide 17 illustrate trends in unemployment rates across our footprint. And as you can see, unemployment rates across the majority of our footprint remained near historical lows. The labor markets in our footprint have proven to be strong with several markets such as here in Columbus, in Indianapolis and Grand Rapids, where we see meaningful labor shortages. We have noted previously that we’re seeing wage inflation in our expense base and certainly our customers are as well. Housing markets across our footprint continue to display broad-based home price inflation while remaining some of the most affordable markets throughout the U.S. Consumer confidence in our region is at its highest level since 2000. And perhaps more importantly, I would like to direct your attention to the map on the bottom right of slide 16 which illustrates the Philadelphia fed’s state leading indicator indices for our footprint. These leading indicators point toward a very favorable economic operating environment in 2018 as six of our eight states are expected to see an acceleration in economic activity over the next six months. The optimism illustrated by the leading indicators, confirm our own optimism which is based on the daily interactions our bankers have with our small business, commercial and consumer customers. Our customer calling efforts have found widespread confidence across all of these customer segments. Our loan pipelines remain good including our commercial and business pipelines…

Melissa, we will now take questions. We ask that as the courtesy to your peers, each person ask only one question and one related follow-up. And then if that person have additional question, he or she can add himself back into the queue. Thank you.

Thank you. [Operator Instructions] Our first question comes from the line of Matt O’Connor with Deutsche Bank. Please proceed with your question.

Hey, guys. It’s actually Ricky for Matt’s team. Just wondering if you could quickly touch on your fee expectations for the year, I know you gave some of the revenue outlooks. But I was wondering if you could maybe touch on that. And then, maybe specifically talk about some of strengths you’ve had in the capital markets business over the past few quarters. I think you had a nice step up there. So, maybe if you can talk about that is well. Thanks.

So, we are seeing, I think a good strength in the fee businesses. I think you need to keep in mind some of the investments that we made around the FirstMerit acquisition and SBA lending and mortgage banking in particular, I think those investments are paying off for us very well. I would say, we’re ahead of SBA. And I think we’re catching up on mortgage. We might have been a little bit behind in terms of hiring in some markets, but I think we’re in good shape as we enter 2018. So, I would expect to see good growth in those lines. Capital markets is a real opportunity for us. They had a record quarter in the fourth quarter in terms of revenue. And when we think about the opportunities to sell into the FirstMerit customer base, we have capital markets with treasury management, our products on the Huntington side much stronger, our expertise from a sales perspective, I think is much better. And we’re seeing real opportunities there as we think about penetrating that customer base. It all ties into our optimal customer relationship strategy which we continue to focus on across the entire organization. While we believe the opportunities are higher for FirstMerit side, we definitely have opportunities on the Huntington side as well. So, I would say that 2018 is going to be a good year for fee income growth relative to what we’ve seen historically because of those investments and because of our focus on OCR.

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

Good morning, this is actually Sam Ross on for John Pancari. I know you guys talked about your loans picking up at the end of the quarter. I’m just hoping you can maybe talk about where your line utilization rate ended the quarter and may be sort of what you are seeing at your line utilization currently?

Yes. This is Dan. Actually line utilization was down just a tick. I think we were down two-tenths of a percent in the quarter. The dynamics kind of changed throughout the course of the quarter where we had a lot of year-end activity, very much close to the year end. I think there was a lot of built-up demand that had been delayed throughout the year. And so, we have seen an uptick there. I would expect that in the first quarter utilization is difficult to pinpoint and with the benefits of tax reform, you don’t know if there’s going to be an immediate impact or whether you might see it later on. I think as the year goes on, I would expect we will see an uptick in utilization but really hard to estimate in the first quarter.

Got it. And then, maybe just a following cleanup question. I know you guys gave your NIM expectation for full year 2018. But given the impacts of tax reform, what are you guys seeing from your NIM expectations for Q1?

So, I think the one impact you need to think about is just the impact of FTEs; it’s about a 3 basis-point reduction in the NIM related to normalizing for the tax reform on the FTE adjustment. But other than that, I wouldn’t expect material change.

Thank you. Our next question comes from the line of Scott Siefers with Sandler O’Neill & Partners. Please proceed with your question.

Good morning, guys. Steve, I was hoping if you could spend maybe just a moment or two offering a little bit your thoughts on kind of reinvestment of the tax benefits if any, or basically how you look at the balance of allowing it to flow through the bottom-line versus just ongoing or increased investments?

Scott, we’ve been working with a long-term set of strategies now for almost a decade and that informs our plans every year, it certainly has in 2018. And as I mentioned, we try to approach it conservatively in terms of assuming no interest rate changes. And we’ve been investing every year in the businesses since 2010. We will continue to do that. So, the tax reform does not change our plans in any meaningful way and we’re set with those. So, we would expect the benefits of the tax reforms to flow very, very substantially to the bottom-line. If some of it tends to get competed away over time, we think we are in a tremendous position to respond with the relatively strong performance in both returns and NIM. So, expecting for 2018 that very substantially it goes to the bottom-line and we’ll see how the market reacts over time.

Okay, perfect. Thank you. And then, Mac, I was just hoping to ask just a quick question on the potential conversion of the Series A preferred. So, if I understand it correctly, you could potentially force conversion as soon as next month, if the right circumstances occur. Would you guys have to resubmit CCAR if you wanted to do it this year or is it something that for all intents and purposes maybe it’s just any conversion would be part of the next CCAR process period regardless of the whether or not you can force based on stock price movements?

Yes, Scott. So, we wouldn’t seem to resubmit our 2017 CCAR in order to force the conversion. In terms of thinking through how we might optimize capital going forward and the opportunities that that creates, that would be a part of the 2018 process.

Okay I understand. So, you do have plenty of flexibility should you choose to -- in very short order potentially.

Absolutely.

Thank you. Our next question comes from the line of Ken Usdin with Jefferies. Please proceed with your question.

Follow-up on that capital structure question, Mac. So, just trying to understand the ins and out. So, currently, we got the share count in and I think your point about flat as if we were to then leave those shares in and take out this preferred that would be neutral. But would that also consider the line on 13 about additional potential to new preferred issuance?

Yes. Ken, so, the way to think about it, so, we’re paying 8.5% on the Pref A that has the potential to convert here in the first quarter. And it basically is neutral to EPS as we bring those shares back in because of the yield that we’re paying on that pref. So, what that does for us when we think about 2018 CCAR process, obviously this is going to increase our TCE and our CET1 ratios, again with no impact to EPS. And it will give us the opportunity to optimize capital in the 2018 CCAR process at -- even if we issue additional preferred to offset the preferred that we’re converting, it is likely going to be neutral to EPS because of high rate that we’re paying on the current pref versus where we’re currently in the market for a similar instrument, and then, thinking about how we use the common equity that’s been created in the 2018 CCAR process. So, I think in terms of where we sit today, it’s neutral or positive.

Understood. Okay, got it. So, we should think about both the potential preferred but also the potential that you could do more on the equity side and CCAR also. So it’s more than just -- okay, I got it. Second question just then, the credit outlook continues to be very good, taking all of Steve’s points about the strength across the footprint. It did have a bit of that continued provision step up which I would still assume was mostly related to the legacy portfolio. So, can you help us just understand that push and pull about that provision movement on the old book and then just how you expect underlying credit? I know below the 35 to 50 but it’s been for such a long time. So, just kind differentiate the provision for the legacy book and then also just how you think about the core.

Sure, Ken. This is Dan. So, provision in the quarter, there were three primary drivers, one is just loan growth. We did have a good period-end loan growth, despite the fact that average balances weren’t really up. We did have a surge at quarter-end and that’s on the basis on which reserves are based. So, the second component would be that we had a couple of credits with some specific reserves, nothing huge but nonetheless a driver there. And then, third were the FirstMerit renewals. And as you know, these are loans that were marked, had no reserves established. But when we extend the restructure, they now have a reserve attached to them. So it’s those three components that make up what happened in the quarter. I would point out that when you look at that year as a whole because clearly this is a dynamic process, there is going to be fluctuation from quarter-to-quarter. But, on average, we had about $50 million of provision expense for quarter and about $40 million per quarter of charge-off. So, we said that we would slowly, very slowly build the reserve. I think if you looked a year ago, we were at 1.10 coverage on an ACL basis and we ended the year at 1.11. So, I think that qualifies as a slow build. So, that’s really the dynamics going on there.

And that’s what you continue?

Yes. The impact on FirstMerit is that book continues to mature and more and more is slipped to Huntington origination. The impact there is going to lessen and lessen as the years go by.

Thank you. Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your question.

I was just -- I know your outlook assumes no rate hikes. I’m just curious what would be the impact to net interest income and net interest margin with the 25 basis-point rate hike?

Yes. Peter, it’s Mac. So, if you think about 25 basis points short end for the full year, it’s probably in the neighborhood of $25 million pick-up for the full year, is the way to think about it.

I’m sorry and that’s assuming two rate hikes?

Well, that would be the impact of 25 basis points. So, if it’s two rate hikes, it will be twice that.

Got it. And then, secondly, you talked about your selectively increasing certain deposit costs. Could you just give us a little bit more color how much you increased the deposit cost and what the impact would be in the first quarter?

So, we’re just looking I think more closely at -- on the commercial side, the relationships and the depth of the relationships when we think about how we pass through any additional price increases. As you know, we’re a relationship bank and we deeply value those deep relationships with our customers. And that’s exactly the way we’re thinking about it. I think, we’ve pretty much worked our way through the most recently hike. There still might be a few additional opportunities that we’re considering. But, we’re very focused on the commercial side in terms of making sure that we’re doing the right thing from a rate increase perspective with our deep customer relationships.

Okay. Thank you.

And Peter, if I could just go back to your first question, what I gave you was the full year impact of 25 basis points. So, you need to decide the timing and kind of factor in how that would impact full year 2018.

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

Steve, I want to ask you about the goals, the five goals that you talked about going into 2018. I wasn’t sure, I thought for while there, I was getting it right, but I just want to make sure that without the impact from taxes, you’re saying that you would have accomplished those in the fourth quarter of this year or you would accomplish those in 2018 or do you need tax benefit to even get it in 2018?

No, Marty, to clarify then, we accomplished those in the fourth quarter excluding tax benefit. And we would have expected to accomplish them in 2018 excluding tax benefit. They will only be further embellished if you will, with tax benefit.

Okay. That’s what I thought we were getting at and then I kind of got confused there for a second. Mac, on the provision, I want to go back to that, kind of walk forward, but I think that’s where some of this can get a little bit in a sense just convoluted in the way that you got -- in the slide that you showed the reduction of the purchase accounting accretion, you also show a reduction in provision of $50 million. So, if we look at your provision for this year at $200 million roughly, and so, when we are itemizing net interest income and saying basically margins flat on a GAAP basis, so we kind of take that as a guidance. The next thing to do, we take that all else being the same, the charge-offs, you would end up with $50 million or less. So, you would have a walk down of provision from $200 million to a $150 million in that kind of cocoon of assumptions and guidance. So, I just want to make sure that was kind of the way to look at that.

Yes, Marty. That is correct. I mean, the year-over-year impact is about $51 million reduction in provision related to FirstMerit, simply because we have less loans moving from the acquired portfolio to the originated portfolio.

That’s what I thought. And I think that’s where you can probably get some layering effect that I was wondering why other estimates weren’t kind of catching up to where we were. But, I think that was the missing piece if people kind of start looking at the models and sort of thinking okay well, the NII is pretty clear but the next guidance is you really got to pull down that extra build in allowance of $50 million that then helps lower your provisioning as you go into 2018. So, thanks. I appreciate that clarity.

Marty, as we think about 2018 and how Dan kind of described the provision on the reserve build, I mean obviously it’s going to depend on the environment; it’s going to depend on the strength of loan growth in 2018. And we do expect that we’re going to be working into a gradual build of the reserve going forward. So, I would tell you that a lot factors go into that. I think, we saw probably better performance in 2017 than we expected on both the Huntington and the FirstMerit side of the equation. So, things are shaping up well as we think about 2018. But, I do think longer term we have a graphical reserve build.

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

Thank you. Your guidance assumes that we’re going to see core operating expenses go up by roughly 1% with GAAP expenses going down about 2% to 4%. With that core EPS -- core operating expense growing at 1%, do you expect that to be a two to three-year run rate on growth for operating expenses, given some of the fall-through from the FirstMerit transaction and any other big investments you have out there?

Yes, Kevin. It’s Mac. So, clearly, we’re getting full year benefit of the cost takeouts from FirstMerit in 2018. So that’s the way I would think about the 1% that you quote in 2018. I would not expect that to be longer term growth rate going forward. We continue to invest in the business. As you know personnel costs are the biggest component of our expense line up, and we continue to give merit increases and those types of things. So, when we modeled FirstMerit, we kind of assumed the 3% core growth rate and expense going forward. And I will just point out that we’ve achieved the cost takeouts, we’ve achieved the metrics that we expected from efficiency and ROTCE and we continue to get benefit in the expense growth rate in 2018.

Okay. And then, you’ve made that reinvestment of roughly, was it $100 million, generate additional revenue. Do you see any other large investments that need to be made on the horizon following as you’ve digested FirstMerit fully?

Just to go back, the investment we made in the FirstMerit revenue initiatives is $50 million. So, we expect $100 million in incremental revenue and then $50 million would be the assumption we made assuming the 50% efficiency ratio; and going back to the $100 million in revenue that was the number that we expected at a minimum. And we do believe that we’re going to see additional revenue opportunities coming out of the FirstMerit transaction as these initiatives mature and in particular as we execute on OCR which actually is the biggest opportunity of all the revenue initiatives coming out of FirstMerit. As Steve pointed out, we make investments in the business based upon what we need to do based upon what’s happening in the environment and what we feel we need to do from a colleague perspective, from a customer prospective. And I think we’ve done a really good job of that over time. We’re going to continue to focus on positive operating leverage going forward. And as Steve mentioned also, we’re just kicking off our strategic planning process; we’re evaluating different opportunities to grow the business. The primary focus of that process is on revenue growth and thinking about the customer and thinking about what we can do to improve customer experience.

Thank you. Our next question comes from the line of Kevin Reevey with D.A. Davidson. Please proceed with your question.

So, this question is for Steve or Mac. So, your revenue outlook for 2018 is 4% to 6%, which is similar to your revenue outlook for last year. And I’m just curious why you not have higher -- stronger outlook, given the fact now that we have corporate tax reform? And it seems like there is a lot more optimism today than there was last year.

Kevin, it’s Mac. The 4% to 6% range we think is reasonable, given our risk appetite and how we think about what we want to put on the balance sheet. I mean, obviously, it wasn’t until late in the year that we knew the tax reform was going to get passed. And we still don’t know exactly how to think about it in 2018, although we did see a strong close to 2017 in terms of loan growth on the commercial side in particular. So, we definitely have the opportunities around the FirstMerit investments. And we think we’re going to perform better on those than what we expected. Offsetting that we got some headwinds around first accounting accretion that we’ve just talked about and we’re still in a 2% to 3% GDP growth economy. So, I think 4% to 6% is the right range for us, in particular as we think about managing risk appropriately in terms of what we put on the balance sheet.

And then, just to follow up on the FirstMerit Synergies. How should we think about how the $100 million of synergies are spread out in 2018? Do you think that’s going to come more -- is that going to be more back half loaded or should we -- was that more evenly spread out?

Kevin, there will be some seasonality to certain of those products, mortgage and RV marine. But, by the second quarter, those should be performing well. So, short seasonality first quarter and then, remember, we’ve said a $100 million plus in the revenue side. And so, we kind of lock into this $100 million, but we had a very good year. We put a lot of the base line expense in, coming back to the earlier question $48 million of revenue, $37 million of expense. And so now, we get the operating leverage of goes initiatives as we move forward. And obviously, we’re pretty bullish about on how the integration of FirstMerit has been achieved.

Thank you. Our next question comes from the line of Terry McEvoy with Stephens, Inc. Please proceed with your question.

A question maybe for Dan. I’m just looking for your comments on some fourth quarter trends and the outlook as it relates to the C&I and CRE loans with retail exposure.

Sure. So, I think over time, one, we feel very good about -- on the C&I side, as we pointed out, our exposures are very well diversified; we didn’t have any exposures to those entities filing for bankruptcy et cetera. Many of our exposures are in auto part, supply investment grade et cetera. So, feel really good there. With the CRE, a little more challenging, because obviously with every announcement of a new bankruptcy that’s going to impact some of our properties. Now, up until this point, we’re seeing a very slow migration of credits into criticized status because of some of these bankruptcies. We’ve also seen some challenges in terms of delayed projects. Frankly, there is labor shortages in some areas that are causing projects to fall behind. So, we’ve seen some very modest deterioration there. But again, due to the diversification of our portfolio, the strength of our core developers et cetera, we feel really good about where we’re sitting today.

Thanks. And then, just as a follow-up, when I look at the revenue synergies, Chicago comes up a couple of times. And, when I look at Huntington, most of your major markets, your top five, Ohio, Detroit, Indianapolis; whereas in Chicago you’re closer to 20. And I guess my question is do you have the scale that’s necessary to accomplish and generate the revenue synergies that we’ve been talking about on the call specific to that market?

Well, remember -- this is Steve. The revenue synergies are across the board, but in Chicago, we have very select focus on our different business initiatives there. We’re not trying to play a broad-based consumer strategy, for example, given the limited distribution. So, we feel -- we definitely feel very good about what we’re accomplishing in Chicago. We have a great team there, set of teams there, and are bullish about our ability to get to a $100 million plus on these FirstMerit synergies this year and obviously expect to keep going. We like the niches we have in Chicago, and that’s how we’re playing.

Thank you [Operator Instructions]

Any questions, operator?

We have one question from Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Hey, thanks. Steve, you may not like this question but I will ask it anyway. Just following up on Terry’s question a little bit, just strategic thinking, big picture thinking for the Company. With FirstMerit, obviously, you guys have had ups and down but it’s now really coming through and you’ve proved that you can do an acquisition and integrate it, get the expenses and get the revenues. What is the Steve Steinour and Board big picture thinking on M&A? Willing to do it again?

Jon, we always look at things but the priority for us in 2018 is getting the strategic plan process really robustly and well completed; and then, secondarily, making sure we deliver these revenue metrics. We have been saying for several years we think we’re in late innings of the game; it looks like it just had extended into extra innings. But we’re in a cautious pasture. Dan referenced that in terms of some of the things that we were doing earlier and in prior calls around limits on construction, commercial real estate, host of things. We will continue those. We will look for other areas where we think we need to adjust, and during the good times with the view that we will have lower volatility through cycles and continue. So, as we advance the strategic plan, the emphasis is on core, not M&A and that’s our focus.

Fair enough. Thank you.

Thanks, Jon. So I think we have to wrap up here, we’re coming into the home stretch. Thank you very much for joining the call. As you can see, we produced very results in the fourth quarter and for the full year of 2017. And you can tell, we are confident as we come into 2018 that we have momentum in our businesses. Strategies are working. We expect to drive positive results for 2018. We believe we are going to continue to gain market share and grow share of wallet. Our top priorities are growing our core businesses and continuing to realize the revenue synergies from FirstMerit which are not capped at $100 million. So, we’ve always said a 100 million plus. Our fourth quarter results demonstrate the core economic benefits of the acquisition of FirstMerit. We have achieved all of our long-term financial goals and there is more opportunity at hand in 2018 and beyond. So, finally, I would like to include a reminder that there’s just a unique and high level alignment between the Board and management, our colleagues and our shareholders. The Board and colleagues are collectively one of the largest shareholders in Huntington. We uphold the retirement requirements on certain shares which is very unique. We will continue to proactively manage risk and volatility. And we are appropriately focused on driving sustained, long-term performance. So, I appreciate again your interest in Huntington. Thanks for joining us today, and have a great day.

Thank you, ladies and gentlemen. This concludes today’s conference. You may disconnect your lines at this time.