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Exhibit 99.2
Huntington Bancshares Incorporated
Presentation To Investor Community
September 29, 2000 Conference Call Text
INTRODUCTION: Laurie Counsel, Director of Investor Relations
Good morning to our conference call participants. Thanks for taking the time
today to join us.
Here today to discuss this morning's announcement are:
Frank Wobst, Chairman and Chief Executive Officer
Pete Geier, President and Chief Operating Officer, and
Anne Creek, Executive Vice President, Chief Financial Officer, and Treasurer
This call is being recorded and will be available as a rebroadcast starting
today at 12:30 p.m. through October 13 at 8 p.m. and is also available on the
Internet for 90 days. Please call the Investor Relations department at
614-480-5676 for more information to access these replays. Please also call if
you have not yet received the news release and presentation for today's call and
we'll get you the materials.
For those who may be listening to this as a rebroadcast or on the Internet or
otherwise don't have a copy of our presentation, our forward-looking statement
disclosure, slide 2, is contained in our 8-K filed with the SEC.
Slide 3 shows the outline for our presentation today.
Let me now introduce Huntington's Chairman and Chief Executive Officer, Frank
Wobst...
SLIDE 2
GREETING: Frank Wobst, Chairman & Chief Executive Officer
o Thank you for joining us today on such short notice following our
announcement earlier this morning.
o Needless to say we are disappointed, as we know you are, with the
circumstances that led to today's announcement of lowered earnings
estimates and a write-down related to our auto leasing business.
o However, we feel it is important to inform the investment community and
our shareholders of the issues we are currently facing and of how we
are addressing them and what you can expect for the future.
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SLIDE 3
Today's presentation will cover three issues:
o Details and reasons for our revised earnings
o The rationale behind the write-down of our auto residual values and the
significant changes we have made in that business line
o Our strategy and plans for increasing revenue in our core business
lines
SLIDE 4
Slide 4 of your slide package shows our earnings revisions and the impact of the
lease write-down.
o Our estimate for earnings per share for the third quarter will be $.33
and on an operating basis will be $.30 per share before the $.13 per
share write-down of lease residual values. We are estimating fourth
quarter earnings of $.31 -$ .33 per share and full year 2001 earnings
of $1.40-$1.50 per share.
o The earnings per share numbers in parenthesis represent items included
in reported earnings, i.e., securities gains, securitization income and
a 2 cent tax benefit in the second quarter of this year. Fourth quarter
and full year 2001 estimates do not reflect any benefit from these
activities.
I WILL NOW ASK PETE GEIER, OUR PRESIDENT AND CHIEF OPERATING OFFICER, TO REVIEW
THE FACTORS THAT HAVE LED TO OUR REVISED EARNINGS.
SLIDE 5
Please turn to slide 5.
Redesign of consumer products
o We have recognized we could not retain and grow consumer deposits and
market share with our existing retail deposit product set. We have
developed a full set of new deposit products which offer a better value
proposition to the customer and will generate attractive profit
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margins for Huntington. Customer response to the improved product set
has been very favorable. The second quarter was the first time we've
seen growth in consumer core deposits in a year and a half.
o As existing customers have moved to these new deposit products from
lower cost deposits, the result has been an increase in our core
deposit costs and a negative impact on our net interest margin.
However, as we continue to retain existing customers and attract new
customers with these products, there will be a long-term benefit as we
are able to reduce our reliance on more expensive wholesale funding.
o The flat yield curve we have experienced this year has also compressed
spreads and put additional pressure on the net interest margin.
o The restructuring of the balance sheet in the first half of this year
included $1.5 billion of new securitizations. While securitizations
will continue to play an important role in our balance sheet and
capital management efforts going forward, securitization activity will
slow down from the pace of the first half.
o Sales of retail investment products, i.e., mutual funds and annuities,
increased 20% in the first half of the year, following a 55 % increase
in 1999. Even though we are still experiencing significant growth in
sales the growth rate has slowed from what we had been projecting
because of the volatility and uncertainty in the financial markets this
year.
o Our mortgage banking unit was hurt this year because of the rise in
mortgage rates and the fact that we are relatively more dependent on
refinancing activity than the market as a whole.
o While we're very proud of the success of the expense reduction program
and believe it was absolutely necessary to better position us for
growth, we do believe that the intense management focus on this
initiative also had the impact of delaying the implementation of
strategic growth initiatives. We have identified the talent needs in
several of our lines of business and are adding key personnel to those
areas to drive growth.
SLIDE 6
I'd like to now review some recent trends in the automobile leasing market and
the factors that led to our decision to write-down our lease residual values.
o The chart on this slide illustrates recent trends in residual value
estimates for 3, 4, and 5 year leases. The estimates for the market
value of automobiles at the end of the lease term rose
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significantly from 1990 - 1997. We recognized gains on lease
terminations until 1997, as cars that were returned to us at the end of
the lease were sold at higher prices than had been estimated when the
leases were originated. However, new leases booked during 1996 - 1997
were originated with higher estimated ending residual values, and
therefore Huntington, and the industry as a whole, is experiencing
losses from leases originated during that period. In fact, 80% of
current year residual losses are attributable to leases originated in
1996 and 1997.
o The trend of increasing residual value estimates has reversed itself in
the last three years, with estimates declining to levels at or below
those of the early 1990s. Accordingly, the leases being originated now
are being booked with much lower ending residual value estimates.
o The strength in new car sales in recent years has led to a softening in
used car prices.
o Current estimates of ending residual values for new 4 and 5 year leases
have declined 18 - 25% from 1997 levels.
SLIDE 7
Let's now turn to the changes we are implementing in the auto leasing business:
o The $33MM after-tax charge we are taking in the third quarter reflects
100% of the embedded losses in the ENTIRE $3 billion portfolio and
reflects current market conditions, i.e., the soft state of the used
car market today.
Origination Mix and Pricing
o A disproportionate share of the residual losses have resulted from
short term leases, i.e., less than 4 years. We have shifted the
composition of our lease originations heavily toward 4 and 5 year
product this year. Over 85% of this year's originations are 4 and 5
year leases vs. 48% in 1997. We have eliminated the 2 year lease from
our product set and increased pricing on 3 year leases by 50 bp,
putting pricing for this product at the high end of the market.
o Origination fees are being increased by $100 - 250 per lease, for all
lease products, beginning in October. This will increase the yield on
these leases by approximately 25 basis points.
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Reduced residual value risk by 6%
o We have taken two actions to reduce residual value risk, above and
beyond the significant reduction in market residual value assumptions
that the previous slide illustrated:
o We, and the industry, had previously been willing to residualize the
cost of options the customer wanted to add to the car. Because these
options have little or no resale value, we no longer reflect their
value in our residual. On a portfolio of our size, this policy change
will reduce our residual exposure by $48 million versus the previous
practice.
o Beginning in January of this year, we established a reserve for
residual losses on all new leases in an amount equal to the cost of
purchasing residual insurance from a third party, currently
approximately 2%. On a portfolio of our size, this reserve will grow to
$24 million over the life of the leases.
o The last three years have been difficult ones for the auto leasing
business. However, this has been a good business for Huntington over a
long period of time. We generated gains on lease terminations every
year from 1983 to 1997. With the changes we have made in pricing and
risk reduction, we are confident the leasing business will generate
attractive returns on assets and equity going forward.
SLIDE 8
I'd like to spend a moment on slide 8 and discuss the Huntington 2000+ program,
which began in February, 1999.
o As mentioned earlier, phase 1 of the 2000+ program, focusing on expense
reduction was a great success. We reduced our annual run rate of
operating expenses by $140 million. With this program, we have
eliminated the many redundancies in our company.
o Phase 2, the restructuring of the company's balance sheet, is also
complete. That phase included exiting non-core businesses, reducing the
investment securities portfolio, and reducing interest rate risk in the
company, as well as securitizing auto loans to reduce our reliance on
wholesale funding. These efforts will create a more stable earnings
stream going forward.
o The third phase of 2000+ focuses on accelerating revenue growth in our
core businesses.
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SLIDE 9
While we acknowledge that revenue growth is developing slower than anticipated,
I'd like you to turn to slide 9 to tell you what we're doing to accelerate
momentum.
o Last month, we made a significant change to our organizational
structure, moving from a regional focus to a line of business
orientation. We believe this change will streamline our decision making
process and will allow us to leverage the new talent we've brought into
the company as well as the excellent talent that is in our regions.
This streamlined structure will enable us to be more responsive to
changing market and customer needs.
o We've taken a number of recent actions to strengthen our management and
sales team. Mike McMennamin, formerly Chief Financial Officer for Bank
One Corporation, recently joined us to manage our asset liability
function and investment banking unit. Marty Mahan, who managed our
Florida retail operation, now has line responsibility for the
Retail/Business Banking line of business. Ron Seiffert, our
Vice-Chairman, has assumed responsibility for the Commercial Banking
line of business. Dan Benhase, who demonstrated great success in
growing the trust and asset management business at Firstar, has joined
Huntington to manage our Private Financial Group business line. These
individuals are significantly upgrading the talent in their respective
areas. We have added a new manager of business banking, a new call
center manager for our Direct Bank, a new Chief Investment Officer in
our Private Financial Group, a new head of structured finance in
investment banking, and a new head of institutional trust.
o We need to execute our strategies to accelerate revenue growth in our
core business. We've done a significant amount to position our business
lines for growth including new product roll-out, upgrading our web
bank, re-negotiating the pricing on some of our retail investment sales
programs, expanding our own Huntington Funds and much more. We now need
to execute on these plans and programs.
o While we realize we need to improve revenue growth now, we're also
making strategic investments to ensure our long-term success in the
world of e-commerce. A recently launched initiative, e-bank, with
technology partners Corillian, Compaq, SAIC, and Microsoft, will enable
Huntington to leverage its already top-rated web bank to provide
customized delivery to the mass retail market. Barrie Christman, our
former Northeast Region President, will lead a new initiative, e-pin,
to provide business to business payment solutions.
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SLIDE 10
Now let's move to slide 10 and discuss the growth drivers and key assumptions
for 2001. They include:
o Managed loan growth of 6 - 8% driven by a continuation of the
double-digit growth trends we are currently seeing in retail and
business banking.
o 2 - 4% growth in core deposits driven by the expanded retail product
set, including free checking, which is now in place.
o We will see $20 to $25 million in additional fee income from trust,
insurance and investment sales driven by the new management team and
expanded sales force in our Private Financial Group.
o Electronic Banking will continue to be strong: growing 15 - 20% as we
increase the number of on-line customers with our upgraded Web Bank.
Additionally, growth in our popular debit cards will create interchange
income.
o We should also see growth in commercial and retail service charges of 7
to 10%, driven by fee income on our free checking products and fees on
our expanded menu of business cash management products.
o While the absolute levels of non-interest expense will increase, the
efficiency ratio should improve to a range of 53 - 55%. It is important
to note the improvement in the efficiency ratio will be driven by
increased revenue in 2001, unlike the expense-driven improvement we
experienced in the last two years.
Frank will conclude our presentation with some closing thoughts.
SLIDE 11
I believe the decisions we've outlined here today provide a strong foundation
for future growth. Let me tell you what is working at Huntington:
o We continue to experience excellent credit quality. Our estimated
charge-offs of 37 basis points for 2000 compare favorably with 1999
charge-offs of 40 basis points. We have not experienced the
deterioration in our credit quality numbers that some of our
competitors are
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currently facing. Furthermore, we do not see any significant
deterioration in loan delinquencies or non-performing assets.
o Secondly, we have done a very good job bringing our expenses down in
the last two years. As we stated earlier, Phase I of the 2000+
initiative reduced expenses at a $140 million annual run rate.
o We have solid strategies in place to drive revenue growth and earnings
momentum and have the executive management team to implement these
strategies. We do NOT feel the need to change these strategies.
o The issue we face is the need to implement these strategies and drive
revenue and earnings growth. We are beginning to see some early signs
that this growth is beginning to emerge.
This is a difficult time for the Huntington. I can assure you that our
management team is fully committed to generate sustainable, high-quality
earnings and there is a strong sense of urgency in the company to achieve our
objectives. Thank you. We will be delighted to take any questions.