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Exhibit 99.2
HUNTINGTON BANCSHARES INCORPORATED
Fourth Quarter 2000 Earnings Analysis
January 18, 2001
Laurie Counsel, Director of Investor Relations
o Good afternoon to our conference call participants. Thanks for taking the
time today to join us.
o Here to discuss today's earlier management announcement as well as fourth
quarter 2000 earnings are:
Frank Wobst, Chairman and Chief Executive Officer
Tom Hoaglin, Chief Executive Officer and President Elect, and
Mike McMennamin, Vice Chairman and Chief Financial Officer
o This call is being recorded and will be available as a rebroadcast starting
today at 5 p.m. through January 25th at 5 p.m. and is also available on the
Internet for two weeks. Please call the Investor Relations department at
614-480-5676 for more information to access these recordings or if you have
not yet received the news release and presentation for today's call.
SLIDE 2
o Today's conference call and discussion, including related questions and
answers, may contain forward-looking statements, including certain plans,
expectations, goals, and projections, which are subject to numerous
assumptions, risks, and uncertainties. Actual results could differ
materially from those contained or implied by such statements for a variety
of factors including: changes in economic conditions; movements in interest
rates; competitive pressures on product pricing and services; success and
timing of business strategies; the successful integration of acquired
businesses; the nature, extent, and timing of governmental actions and
reforms; and extended disruption of vital infrastructure. All
forward-looking statements included in this conference call and discussion,
including related questions and answers, are
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based on information available at the time of the call. Huntington assumes
no obligation to update any forward-looking statement.
SLIDE 3
o Slide 3 shows the speakers for today's presentation
o Let me now introduce Huntington's Chairman and Chief Executive Officer,
Frank Wobst.
FRANK WOBST
o Good afternoon, I am Frank Wobst, Chairman & Chief Executive Officer of
Huntington Bancshares Incorporated. In a couple of minutes, Mike McMennamin
is going to walk you through the fourth quarter financials. First, however,
I will share with you today what we think is a very exciting development at
Huntington.
o Yesterday, Tom Hoaglin was elected as President & Chief Executive Officer
of both Huntington Bancshares Incorporated and The Huntington National
Bank. Tom also was elected to both Boards. Tom has accepted these positions
effective February 15, 2001.
o When Tom assumes his new duties in February, I will continue as Chairman of
the Board of Huntington Bancshares Incorporated and The Huntington National
Bank. Pete Geier, who previously was President and Chief Operating Officer
and a member of both Boards, will remain with the Huntington until the end
of February to assist us in the transition and will then leave the
Huntington to pursue other opportunities.
o Tom has 27 years of banking experience. He started his career with Bank One
as a banking officer in Columbus in 1973 and was responsible for a number
of staff and line functions at that company, including president and chief
operating officer of Bank One Texas; and, chairman and chief executive
officer of Bank One Ohio Corporation which included affiliated banks in
Ohio, West Virginia, and Michigan. Tom served as chairman of Project One,
transforming Bank One into a standardized consolidated environment and was
a co-leader of the implementation team for the First Chicago and Banc One
Corporation merger. He served as chairman and chief
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executive officer of Bank One Services Corporation as well as executive
vice president, Private Banking, for Banc One Corporation in Chicago. Tom
left Banc One Corporation in 1999 and became vice chairman of AmSouth
Bancorporation, Birmingham, Alabama in February 2000.
o We are delighted Tom has decided to join the Huntington. He brings us a
wealth of experience and is already familiar with our markets, products and
many of our customers. We are looking forward to his leadership.
o Tom, with that introduction, we would like to have you make a few comments
regarding your background and observations about the Huntington.
TOM HOAGLIN
o Thanks very much. It is wonderful to have this opportunity and it is nice
to be with all of you today. I am sure that I have met some of you in prior
days from Bank One and AmSouth; others I'll be meeting for the first time.
o I would like to say a further word about my background. I do think that
both Bank One and AmSouth have prepared me well for this challenge. As
Frank indicated, I went to AmSouth in February of this past year. You would
know that AmSouth is a similar institution to Huntington in the sense of
dealing with the same kind of issues and challenges, just a different
geography. I would like to say a word about why I left AmSouth. My tenure
there was only a bit more than six months. Let me just say that I have a
very high regard for Dowd Ritter and his management team there. I enjoyed
my experience there, but Dowd and I simply agreed the fit was not as we had
originally envisioned or hoped, and that's the circumstance under which I
left last summer.
o Obviously I haven't started yet but you can expect that I will begin
immediately to review thoroughly and intensively our business plans,
strategies, geographic coverage, financials, and the leadership team to
make sure that I know where we
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stand and that we have the right plans in place and the right team to
implement them. I think that Mike McMennamin can attest to my style of
focusing intensely on the financials and I expect to bring that orientation
to the Huntington.
o I have no doubt that we will make some changes. It is premature, as you can
appreciate, to specify what they will be. I can say, however, that I have
been impressed with some of the leadership team I have met and the energy
they are bringing to the task of improving our performance. I have met with
many of the team members a couple of times already and suffice to say that
I am fully aware and fully understand that we must focus on revenue growth
first and foremost and also on controlling noninterest expenses and
maintaining strong credit quality. I am looking forward to getting started.
FRANK WOBST
o Thanks Tom. We are delighted to have you here and look forward to working
with you.
o Now let me turn the program over to Mike McMennamin, our Vice Chairman and
Chief Financial Officer, who is going to talk about the fourth quarter and
2000 full year financial results. Mike...
MIKE MCMENNAMIN
Thanks, Frank.
o As you recall, we previously provided earnings guidance for the 4th quarter
of .31 - .33 per share.
o Our earnings for the quarter came in @ 30 cents per share, one penny below
the low end of this range. The primary reasons for the shortfall were:
1. The net interest margin, which had expanded by 2 bp in the third
quarter declined from 3.74% to 3.70% in the 4th Q. We had expected the
margin to be flat.
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2. Stronger loan growth during the quarter than had been forecasted
resulted in higher loan loss provision expense.
3. Non-interest expense increased $10.3 million for the quarter, a larger
increase than had been forecasted and included unusually high
operational losses, seasonally high marketing expenses and higher than
expected year-end professional services costs.
4. Higher securitization income during the quarter, resulting from the
decline in short term interest rates, partially offset the above
variances.
o The sum of these factors reduced earnings per share by 2 cents for the
quarter.
SLIDE 4
o Significant drivers of performance versus the third quarter were:
1. 11% loan growth
2. 4% retail deposit growth
3. 4 bp decline in net interest margin
4. 4 bp increase in reported charge-offs
5. $10.3MM increase in non-interest expenses
SLIDE 5
o As I mentioned, earnings per share were 30 for the quarter, vs. 33 in the
third quarter, which included 3 cents of security gains.
o The tangible equity to assets ratio increased during the quarter to 5.87%,
reflecting a more efficient balance sheet, following the sale of
lower-yielding investment securities and additional loans securitized
during the quarter. Significant progress has
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been made in the last two years in strengthening the company's capital
structure. The tangible equity to assets ratio has improved from 5.15% in
December 1998, following the acquisition of the Barnett branches in
Florida, to the current level of 5.87%.
SLIDE 6
o The following managed loan growth information has been adjusted for the
impact of acquisitions, securitization activity and asset sales.
o Managed loan growth continues to be a good story, with growth accelerating
slightly during the quarter to an 11% growth rate vs. 7% in the 3rd
quarter.
o Commercial loan activity picked up during the quarter, growing at a 6% rate
vs. an 8% decline in the 3rd quarter. Recent growth in this area has been
split evenly between growth with existing and new customers.
o Commercial real estate volumes also were stronger in the 4th quarter,
growing at a 7% rate vs. a 2% rate in the previous quarter. Our activity
here continues to be with leading developers within our footprint. We have
recently put real estate lending teams in Florida, Michigan, and Indiana -
which is starting to drive incremental business.
o Home equity loans continued to exhibit a strong growth pattern, growing at
a 24% rate for the 3rd and 4th quarters and also vs. the year ago quarter.
We do expect to see lower growth rates in 2001, reflecting the expectations
of strong demand for 1st mortgage refinancing.
o Indirect auto lending and lease activity slowed to a 17% growth rate from
19% in the 3rd quarter, reflecting both seasonal patterns and a significant
slowdown in auto sales late in the quarter. Based on current industry
projections and our recent loan application volume, we expect the slower
growth to continue in the 1st quarter.
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SLIDE 7
o Earnings for the quarter totaled $76.2 million, vs. $83 million in the 3rd
quarter.
o Net interest income declined $2.8 million to $233.1 million for the
quarter. The net interest margin declined 4 bps to 3.70% while earning
assets were flat. The margin decline resulted from two factors: (1) a
reduction in demand deposits for the quarter; and (2) customer movement of
lower cost deposits to the new retail deposit products.
o Interest rates have declined sharply over the last three months, with
intermediate rates down over 100 bp from October. We have been and are
currently positioned to benefit from declining rates. A 100 bp gradual
decline in interest rates over the next year from mid-December interest
rate levels would benefit net interest income by 1.3%. Since mid-December,
rates have already declined 25 - 50 bp. Our interest rate risk position is
basically unchanged from +1.4% at the end of the 3rd quarter.
o As you may recall, the primary reason we developed the new retail deposit
products in the second quarter of 2000 was because we did not have a
competitive offering for customers. The new products were developed to
provide a better value proposition to the customer while still providing an
attractive return to Huntington. While this internal disintermediation of
retail deposits continues to negatively impact the net interest margin, we
are encouraged by the reduced volume of deposits being impacted by this
activity. In addition, recent declines in market interest rates will reduce
the impact of further disintermediation.
o Total retail deposits increased during the 4th quarter at an annual 4%
rate, the best quarter of the year. To put that growth in perspective, the
increase from the 4th quarter of last year was only 1.3%. Huntington and
the banking industry have been struggling to increase retail deposits in
the face of intense market competition from banks and other financial
service institutions.
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o One of the challenges in growing retail deposits is stemming the attrition
rate of existing customers. The monthly attrition rate nationally for
households is estimated to be approximately 1% per month. Huntington's
attrition rate was running in excess of 1% per month in 1999 and through
the 1st quarter of last year. In the last six months of the year, that
attrition rate has improved, averaging .56% per month. While better
management of customer and household attrition is only one element of a
successful deposit growth strategy, we are encouraged by the recent trend.
o Loan loss provision expense increased $6.1 million for the quarter, of
which $4.4 million is related to loan growth. The remaining $1.7 million
resulted from higher charge-offs of 50 bp vs. 46 bp in the prior quarter.
Though higher than earlier periods, charge-offs were in line with
management's expectations.
SLIDE 8
o Non-interest income, excluding security gains, increased $19.4 million from
the prior quarter. Income from securitization activity (included in Other
Non-Interest Income) was $9.4 million higher, reflecting (1) the increased
capitalized value of the excess spread resulting from the decline in
short-term interest rates and (2) higher servicing income from the larger
volume of securitized loans.
o The increase in Brokerage and insurance income was entirely related to the
acquisition of the J. Rolfe Davis property & casualty insurance agency in
Florida in September. Reflecting the volatility of the financial markets in
the fourth quarter, sales of mutual funds and annuities declined 8% from
the prior quarter.
o Service charge revenue on deposit accounts declined $0.5 million in the
quarter, reflecting lower demand deposit volumes.
o The growth in trust income resulted from price increases implemented in the
investment management business.
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SLIDE 9
o Non-interest expense increased $10.3 million from the prior quarter.
Personnel costs declined $3.6 million as a result of year-end adjustments
to incentive accruals.
o The $2.0 million increase in marketing expense was primarily seasonal in
nature as the more significant advertising campaigns were in the latter
part of the year. Professional service costs were also up in large part due
to timing.
o Operational losses were unusually high during the quarter, increasing $5.4
million. The losses were primarily related to a cleanup of account
reconciliations.
o The magnitude of the recent quarter's increase in expenses is unacceptable
to management and we do not expect this growth rate to continue.
SLIDE 10
o Turning to credit quality.
o Non-performing assets increased 19% during the quarter to $105 million,
representing .51% of loans and other real estate owned versus .44% at the
end of the third quarter.
o This chart compares our NPA performance with a group of peer banks we track
our results against. The banks in the peer group are AmSouth, BBT,
Comerica, Fifth Third, Firstar, Key Corp., National City, Old Kent,
Regions, and US Bancorp. Our numbers track very well versus this group of
banks through the 3rd quarter, with our 3rd quarter NPA ratio at .44% vs.
the group at .61%. We expect further increases in NPA over the first half
of 2001 as the softening economic picture unfolds and takes its toll on our
corporate customers. We feel we will weather this storm at least as well as
if not better than the industry, however.
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SLIDE 11
o Charge-offs on total reported loans increased from .46% to .50% during the
quarter. This chart compares our charge-offs with those of the same peer
group. It also highlights Huntington's comparatively low charge-offs from
the 4th quarter of 1999 through the 2nd quarter of 2000.
SLIDE 12
o This slide breaks out our total reported loan charge-off number. Though
commercial losses did increase 5 bps, they remain at very modest levels
from a historical perspective. Consumer losses increased 7 bp to 79 bp,
detail of will be provided on the next chart. Commercial real estate losses
were almost non-existent.
SLIDE 13
o Charge-offs increased during the quarter on all consumer loan products,
with the exception of home equity credit lines. Charge-offs in the on-books
indirect auto portfolio increased from 1.33% to 1.46% during the quarter.
On the total managed portfolio, i.e., including the $1.4 billion of
securitized auto loans, losses increased from 1.09% to 1.23%. A significant
portion of the higher charge-offs we are experiencing are from the loans
originated during the 4th quarter of 1999 and the 1st quarter of 2000. Loss
rates on more recent vintages are more in line with historical norms.
o This concludes our comments on the 4th quarter.
GUIDANCE FOR 1ST Q 2001
o At this time, our estimate of earnings per share for the first quarter of
2001 is 26 - 28 cents, based on our current assumptions for the key
earnings drivers.
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o We are withdrawing the earnings guidance for 2001 that was provided in
September last year and confirmed during our 3rd quarter conference call on
October 17. That guidance that was provided included estimates based on the
information available to us at that time.
o Subsequently, a number of changes have occurred, both in the economy and
banking system, in general, and at Huntington, specifically. Clearly the
most significant change is yesterday's election of Tom Hoaglin as President
and Chief Executive Officer.
o As Tom indicated, he will be devoting his early weeks at the Huntington to
reviewing business strategies, plans, and budgets as he familiarizes
himself with the organization. We think it is imperative that Tom has
sufficient time to develop perspective and provide his input on the future
strategic direction of the Huntington before we release further earnings
guidance.
o As such, we will provide earnings guidance when we release first quarter
earnings results in April.
Thank you.
Frank, Tom, or I would be happy to take any questions now.
