EXHIBIT 99.2
HUNTINGTON BANCSHARES INCORPORATED
CONFERENCE CALL
LEADER, MIKE McMENNAMIN
JANUARY 18, 2002
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Operator: Good afternoon. My name is Jeff, and I will be your
conference facilitator today. At this time I would like to
welcome everyone to the Huntington Bancshares fourth quarter
earnings results conference call. All lines have been placed
on mute to prevent any background noise. After the speakers'
remarks there will be a question and answer period. If you
would like to ask a question during that time, simply press
the number one on your telephone keypad, and questions will
be taken in the order they are received. If you would like
to withdraw your question, press the pound key. Thank you.
Mr. Gould, you may begin your conference.
Jay Gould: Thank you, Jeff. And welcome to today's conference call. I'm
Jay Gould, Director of Investor Relations. Before formal
remarks we have the usual housekeeping items. Copies of the
slides that we will be reviewing can be found on our
website, huntington-ir.com. This call is also being recorded
and will be available as a rebroadcast starting later this
evening through the end of the month. Please call the
investor relations department at 614-480-5676 for more
information on how to access these recordings or playback or
if you have difficulty getting copies of the slides.
Today's discussion, including the question and answer
period, may contain forward looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Such
statements are based on information and assumptions
available at this time and are subject to change, 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 slide 24 and material filed with the SEC, including
our most recent 10-K, 10-Q, or 8-K filings. Let's begin.
Participating in today's call will be Tom Hoaglin, Chairman,
President, and CEO; and Mike McMennamin, Vice Chairman and
Chief Financial Officer. Let me turn the meeting over to
Tom.
Tom Hoaglin: Thank you, Jay. Welcome, everyone. Thanks for joining us
today. I'll begin today's presentations with a quick review
of fourth quarter highlights. Mike and Jay will follow with
more detailed comments.
I want to leave you with some high level impressions
regarding our
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fourth quarter performance. First, our earnings of $.30 per
share met expectations in a difficult credit environment.
Second, as we announced in December, we strengthened our
loan loss reserves to 1.90%, up significantly from 1.67% at
the end of the third quarter and from 1.45% at March 31.
Third, we were pleased with a two percent revenue growth
during the quarter and over eight percent year-over-year.
The revenue growth was accomplished in spite of earning
assets that were flat versus the third quarter and down two
percent from the year-ago quarter.
Fourth, we continue to make progress at improving operating
efficiency as evidenced by the third consecutive quarterly
decline in our efficiency ratio to 55.8%. You'll recall that
we were at 62% in the first quarter of this year. Every one
percent improvement in our efficiency ratio equates to
approximately four cents per share.
In summary, we continue to move ahead in implementing the
strategic initiatives announced last July. We're pleased
with the progress we're continuing to see in deposit growth,
margin expansion, fee income generation, and expense
control. Our employees are engaged and enthusiastic, and
we're making progress in improving our financial
performance. But there is still much to do.
For the foreseeable future we expect to continue to be
operating in a weak economic environment and, therefore,
expect to be challenged by continued high levels of net
charge-offs and non-performing assets. We will discuss our
views on this later.
Staying focused on fourth quarter performance, let me turn
the presentation over to Mike who will provide more detail.
Mike McMennamin: Thanks, Tom. Turning to slide four, fourth quarter operating
earnings were $.30 per share, consistent with the guidance
given at the end of the third quarter and reaffirmed in our
December 18th announcement. Importantly, it was achieved
despite higher credit costs and reflected improvement in
other areas of the company.
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In many respects the fourth quarter represented a
continuation of trends noted in the third quarter. Compared
with the third quarter, deposits grew at an annualized seven
percent rate. Revenue excluding security gains was up two
percent for the quarter and was up eight percent versus the
prior year quarter.
The net interest margin expanded seven basis points to
4.11%. This represented the fourth consecutive quarterly
increase from the low of 3.70% in the year-earlier quarter.
The efficiency ratio improved to 55.8%, the third
consecutive quarterly improvement. This reflected both
revenue growth and a decline in expenses.
As announced in December, credit quality deteriorated
consistent with our guidance. Specifically, the net
charge-off ratio increased to 1.04% of loans and
non-performing assets increased $17 million.
Also as announced on December 18th, the quarter included two
nonrecurring items. The first was a $32 million after tax
reduction in tax expense related to the issuance of $400
million of REIT preferred stock of which $50 million was
issued to the public. Offsetting this was a $50 million
pretax addition to the loan loss reserve. At year end the
reserve ratio was 1.90%, up from 1.67% at September 30th and
1.45% a year ago.
Slide five reconciles reported versus operating earnings.
You'll recall that we break out performance in this manner
so we can see how underlying performance is tracking
excluding the impact of the restructuring and other charges
associated with the strategic repositioning announced last
July. This quarter we have also excluded the impact of the
two fourth quarter items.
As Tom mentioned, earnings per share on an operating basis
were $.30. Reported earnings per share were $.26. We'll
comment more on these trends in a just a moment.
Turning to slide six, in the fourth quarter we recognized an
additional $15 million pretax of restructuring and other
charges bringing the total to date to $177 million pretax.
The $15 million charge during the quarter included the final
branch consolidation costs and other legal, accounting, and
other operational costs.
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Slide seven shows performance highlights for the fourth
quarter compared with the third quarter and the year-ago
quarter. Most of this we've already commented on, so I just
want to focus on our capital position.
In spite of the $177 million of pretax restructuring and
other charges recognized in 2001, our tangible equity to
asset ratio has improved slightly from 5.87% to 6.04% during
the year. Completing the Florida sale will immediately
increase this ratio above nine percent.
Slide eight compares the quarterly income statement for the
fourth, third, and year-ago quarters. Compared to the third
quarter, net interest income increased $5.5 million
reflecting a higher net interest margin as earning asset
levels were essentially flat.
Non-interest income, excluding security gains, was up $3.6
million, and expenses were down $1.5 million.
The interesting comparison is the current quarter versus
last year. Despite a $25.7 million increase in provision
expense, seven cents per share, net income was essentially
flat from the year-ago quarter. The deterioration in credit
quality has masked significant improvements in other areas
of our performance.
Examples of progress from a year ago include net interest
income up $22 million, or 10%, despite a two percent decline
in earning assets reflecting a more efficient balance sheet
and a wider net interest margin.
Non-interest income, up three percent. However, non-interest
income increased nine percent if you exclude from both
periods the impact of securitization-related income.
Securitization-related income was $2.7 million in the fourth
quarter and $10 million in the year-ago quarter.
And while expenses were up two percent or 3.4 million,
revenues increased $25.3 million. We've made significant
progress in improving our operational efficiencies.
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Slide nine shows a steady progress in net interest income
and the margin over the last year. The increase in the
margin was driven by a planned reduction in lower margin
earning assets, primarily investment securities; an increase
in net free funds, primarily reflecting tighter controls on
branch and ATM cash and increased demand deposits; greater
discipline on the pricing side for both deposits and loans;
a slightly liability sensitive balance sheet; and a period
of declining interest rates.
Turning to slide ten, the average managed loan growth
numbers on this slide have been adjusted for the impact of
acquisitions, securitization activity, and asset sales.
Average managed loan growth slowed to a two percent
annualized rate during the quarter, down from the seven
percent annualized growth rate in the third quarter. Loans
were five percent higher than a year ago.
Home equity lines have been an area of focus and a source of
growth for Huntington. They have been increasing at an
annualized rate in the high teens in recent quarters. These
volumes are being positively impacted by the attractiveness
of the lower rates as well as an increased cross-selling
success to first mortgage customers during this period of
heavy refinance activity.
Commercial real estate loans increased at an 18% annualized
rate in the fourth quarter, following a 16% annualized rate
in the third quarter, and were 10% higher than a year ago.
Construction loans account for most of this growth and
reflect the funding of commitments made 9 to 18 months ago.
This activity is exclusively within our footprint and with
long-time customers primarily in the Central Ohio, Southern
Ohio, Northern Kentucky, and East Michigan regions.
Our typical construction credit is to targeted developers
within our local markets with a good track record and strong
capital and cash flows.
Not surprisingly, commercial loans have been declining
reflecting the impact of a weakened economy on loan demand.
Auto loans and leases were little changed during the
quarter. Loan and lease originations declined 23% from $985
million in the third
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quarter to $759 million in the fourth quarter and were flat
versus a year ago. Some of the decline from the third to the
fourth quarter is seasonal.
As you would expect, new car originations as a percentage of
total loan and lease originations declined from 61% to 54%
during the quarter reflecting the impact of the zero percent
financing offered by the captive finance companies.
The next slide provides detail on recent core deposit
trends. Core deposits exclude negotiable CDs and eurodollar
deposits. The seven percent annualized growth rate during
the quarter was encouraging particularly following the 11%
growth rate in the third quarter. The growth rate outside of
Florida during the quarter was at an eight percent rate,
slightly higher than the growth rate for the total company.
We're excited about the progress we've made in the second
half of the year in growing core deposits, and we are
obviously benefiting from uncertainty in the financial
markets. Nevertheless, we feel a significant part of this
growth is attributable to our focus on the sales management
process.
Let me now turn the presentation over to Jay who is going to
review fee income and expenses.
Jay Gould: Thank you, Mike. Turning to slide 12, the discussion on
non-interest income will focus mostly on year-over-year
trends which mitigate seasonal factors that sometimes impact
linked-quarter comparisons.
Total non-interest income before security gains increased
$3.3 million or three percent versus the same quarter last
year. However, while securitization-related income impacts
results in each quarter, the year-ago quarter included a
sizeable gain. If you exclude securitization-related income,
as Mike mentioned, total non-interest income was up $10.6
million or nine percent from the year ago quarter.
Service charges increased a strong nine percent from a year
ago. This primarily reflected higher corporate maintenance
fees as
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corporate treasurers pay hard dollar fees for deposit
services rather than maintain higher demand deposit
balances.
Brokerage and insurance revenue was 23% higher. The growth
in our Private Financial Group was one of last year's real
success stories. The primary driver of the growth was
increased annuity sales. In the fourth quarter annuity sales
were $180 million. This volume was 27% higher than in the
third quarter and was a new record beating last quarter's
previous record of $140 million in sales. And it was more
than double the annuity sales in the year-ago quarter.
Insurance-related income was down slightly as life insurance
sales in the year-ago quarter were particularly strong.
Trust income increased six percent over the prior year,
primarily reflecting increased revenue from Huntington's
proprietary mutual funds. Fund assets in the fourth quarter
were $2.8 billion, up seven percent from a year ago. The
growth in revenue reflects this growth in assets aided by
the introduction of five new funds as well as fee increases.
Partially offsetting this growth was a decline in personal
trust fees primarily due to declining asset values
reflecting market conditions.
Mortgage banking income was particularly strong in light of
the current lower-rate environment and heavy refinancing
activity. Mortgage banking revenue increased 32% from the
year-ago quarter. This is another success story as they
posted a record year. Origination volume in the fourth
quarter was $1.2 billion, up from $455 million a year ago
and $737 million in the third quarter. Full year origination
volume totalled $3.5 billion, up from $1.5 billion in 2000.
The 28% decrease that you see on the slide in other income
primarily reflected the year-ago quarter's higher level of
securitization-related income. Excluding this, other income
was down seven percent. While customer-related derivative
sales in our investment banking unit, a brand new product
offering this year that generated over $2 million of fee
revenue, this was more than offset primarily by a decline in
gains realized from the sale of an OREO property in the
year-ago quarter.
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Turning to slide 13, non-interest expense declined $1.5
million from the third quarter. This follows a $4.4 million
decrease in the prior quarter. The primary cause was a $2.6
million reduction in personnel cost reflecting lower benefit
expenses partially offset by higher sales commissions
related to mortgage banking, capital markets, and private
financial services related activities.
Occupancy and equipment expense increased $1.1 million
reflecting a number of factors including higher depreciation
and building maintenance costs.
Let me turn the presentation back to Mike for a discussion
of credit quality trends.
Mike McMennamin: Thanks, Jay. Slide 14 provides a snapshot of credit quality
trends. On December 18th we announced that credit quality
was continuing to deteriorate and that as a result we would
see higher net charge-offs and non-performing loans in the
quarter. Further that we would bolster our loan loss reserve
to 1.90% of loans.
Non-performing assets increased $17 million or eight percent
from the third quarter and represented 1.05% of period-end
total loans and OREO. We expect further increases in
non-performing assets in the first half of this year,
although the rate of increase should slow.
Further, we expect the non-performing asset ratio to
increase in the first quarter with the Florida sale given
the lower level of non-performing assets in Florida.
Reported net charge-offs were at 104 basis points, up from
74 basis points in the third quarter. Excluding losses on
businesses we have exited and for which reserves were
established in the second quarter, adjusted net charge-offs
were 98 basis points up from 61 basis points, and I'll talk
more about that in just a moment.
Total delinquencies over 90 days have been relatively stable
over the past year and were 42 basis points in the fourth
quarter, essentially flat with the third quarter.
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The allowance for loan losses ended the year at 1.90%, up
from 1.67% at the end of September and considerably higher
than the 1.45% a year ago.
Slide 15 shows the trend in non-performing assets as well as
their composition. The $17.4 million increase was consistent
with our expectations and reflected the continuing impact of
the weak economy, concentrated in a number of companies,
mostly in the manufacturing and service sectors.
Net charge-offs on slide 16 are shown on an adjusted basis,
that is excluding the impact of any charge-offs established
in the second quarter special charge and any related
subsequent charge-offs. Adjusted net charge-offs increased
to 98 basis points from 61 basis points in the prior
quarter.
Commercial net charge-offs increased to 139 basis points
from 56 basis points in the third quarter. This increase was
spread over a number of companies in the retail trade,
manufacturing, services, and communication sectors
reflecting the broad-based nature of the current economic
slowdown.
Total consumer net charge-offs were 105 basis points, up
from 85 basis points in the third quarter. This was
primarily driven by a 34 basis point increase in total
indirect net charge-offs from 117 basis points to 151 basis
points. Some of this increase in indirect charge-offs is
seasonal. Fourth quarter and first quarter charge-offs
typically are 10 to 15% higher than levels experienced in
the second and third quarters. In addition, the charge-off
levels are obviously being adversely impacted by the current
economic environment.
Regarding the indirect loan portfolio, vintages originated
between the fourth quarter of '99 and the third quarter of
2000 continue to perform poorly. About 20% of the volume in
that time period was underwritten with FICO scores below
640. In contrast, over the last 12 months only three percent
of loan volume was underwritten below a FICO level of 640.
Our experience is that about two-thirds of expected losses
on auto loans occur within 9 to 24 months of the loan
origination. Loans originated during these earlier vintages
are now 15 to 24 months old and are at, or near, the peak
PAGE 11
of their charge-off cycle. These vintages are contributing
adversely to the fourth quarter indirect portfolio
charge-off rate of 151 basis points. Importantly,
charge-offs on more recently originated vintages are running
about 40% lower than these earlier vintages given comparable
aging.
The good news is that the relative negative impact on total
charge-offs from this earlier originated segment of the
portfolio is, and will continue to, diminish over coming
quarters. On balance, the credit quality of the remaining
consumer portfolio is behaving as expected and within
acceptable tolerances given the economic environment.
Slide 17 recaps full-year performance. While we are pleased
with the progress we have made during 2001, the full-year
results are obviously clearly unsatisfactory as shown on
this slide. So let me close with some brief comments
regarding our 2002 outlook.
Not surprisingly, and as shown on slide 19, key determinants
of 2002 earnings will be the economic environment, the level
of interest rates, and credit quality. The assumption we
have made is that the weakness of the economy will continue
through the first half of the year with a modest recovery in
the second half. We are expecting to see continued high
levels of net charge-offs and non-performing assets for at
least the next couple of quarters. We are not looking for
significant deterioration beyond fourth quarter levels, but
pressure will remain on credit performance.
Regarding interest rates, our view is that short term rates
will increase perhaps one and a half to two percent during
the year and that the yield curve will flatten.
Slide 20 summarizes our 2002 performance assumptions. We
expect operating earnings per share will fall in the range
of $1.32 to $1.36. This excludes the remaining planned first
quarter restructuring charges and gain associated with the
Florida sale. This range is consistent with the current
$1.34 per share analyst consensus.
To help you directionally understand our thinking regarding
anticipated 2002 performance, here are some key assumptions.
PAGE 12
These assumptions exclude Florida on a proforma basis from
2001 results.
a. Continued high levels of charge-offs and NPAs.
b. Modest growth in loans.
c. Continued growth in core deposits.
d. Expansion of the net interest margin, driven by reduced
funding costs, the Florida sale, where margins were lower
than those of the rest of the company, increase in net
free funding, and improved lending spreads.
e. Modest expense growth and continued improvement in the
efficiency ratio.
Finally, regarding the quarterly pattern of earnings
progression, the $1.34 consensus translates into a quarterly
average of 33 1/2 cents. Assuming earnings growth throughout
the year and a more challenging credit environment in the
first half, we expect quarterly earnings in the first half
would be below this average.
Let me turn the presentation back to Tom now for some final
comments prior to the Q&A session.
Tom Hoaglin: Thanks, Mike. Slide 22 shows that 2001 was a year of
significant change. When we announced the refocusing in
July, we knew the challenges would be great even in a good
economic environment. A weakened economy has only increased
those challenges.
Nevertheless, we can report to our investors that we made
significant progress on a number of our strategic
initiatives with financial performance improving, especially
throughout the second half of the year. We reached an
agreement to sell Florida. We consolidated branches. We
exited unprofitable e-businesses. We strengthened the
management team. We established a regional management
structure to bring decision making closer to customers. We
also initiated a sales management process. We reduced the
dividend to conserve capital.
Financially, we needed to rekindle revenue growth and take
out unproductive spending. The second-half performance
indicates we are starting to get some traction here. The
difficult economic environment and deteriorating credit
quality trends resulted in a
PAGE 13
need to strengthen our reserves. This was tough but
necessary medicine and improves our ability to perform in an
uncertain environment.
In the end, we made progress and have taken the initial
steps toward achieving our long-term financial goals. The
progress we have made has positioned Huntington for steady
progress as we enter 2002.
So what does 2002 hold for us?
Obviously, the economy is a wild card. Certainly we are in a
situation where the economy and related credit quality
trends could get worse before getting better, but we are not
standing still. Improving our product cross selling in all
lines of our business is a high priority. So is improving
customer service, and we are expanding our internal
financial reporting to improve individual accountability for
performance. In sum, 2002 boils down to executing the game
plan.
This completes our prepared remarks. Mike, Jay, and I will
be happy to take your questions. Let me turn the meeting
back over to the operator who will provide instructions on
conducting the question and answer period.
Operator: At this time I would like to remind everyone, in order to
ask a question, please press the number one on your
telephone keypad. Please hold for your first question. Your
first question comes from Ed Najarian from Merrill Lynch.
Ed Najarian: Good afternoon, guys.
Jay Gould: Hi, Ed.
Ed Najarian: Couple of questions here. First, and I apologize because I
don't have the slide presentation, so maybe this is in
there, but is higher credit related costs -- are higher
credit related costs all of the variance between the
guidance, the '02 EPS guidance that you gave over the summer
and your revised EPS guidance, or are there other areas of
variance from that lower estimate? And, if there are, can
you go over what they are?
PAGE 14
Mike McMennamin: Ed, this is Mike. We had assumed -- let me see if I can do
the math quickly. We had assumed 65 basis points of
charge-offs in July for 2002. Let me just do the math. Let's
just say at 90 basis points, for the sake of argument. Now
that additional 25 basis points would translate into about
$.14 a share, so --
Ed Najarian: And that would be about it?
Mike McMennamin: That accounts for those other items going both ways,
obviously, but on a macro basis that would account for the
difference.
Ed Najarian: Okay. If I could just follow that up then, I just have some
other quick questions. Could you speak to the amount of
non-performing assets that will go away in the Florida sale?
And could you also speak to the pace of share repurchase
that you expect? You gave the amount, but could you quantify
sort of the timing throughout the year?
Mike McMennamin: As we mentioned in the remarks, the sale of Florida will
actually increase our ratio of non-performing assets. I
don't have in front of me the actual dollar number of
non-performing loans that go away. I think it's about $10
million, roughly. But the ratio will actually increase
because Florida's non-performing asset ratio is lower than
the rest of the company.
With regard to the pace of share repurchase, we really have
not commented. We expect the Florida transaction to close on
February 15th, and shortly thereafter we expect to make an
announcement with regard to what our share repurchase plans
are.
Ed Najarian: And then lastly, any discussion of lease residual risk or
how you're viewing that these days?
Mike McMennamin: We conduct, I think as we mentioned the last conference
call, we conduct a quarterly analysis of our lease residual
risk. The estimated losses in that portfolio have not
changed in the last couple of quarters. We still feel that
the combination of our balance sheet reserves plus the lease
residual insurance policy that we have fully cover all the
embedded losses in that portfolio. We did have our first
claim submission to the insurance company here
PAGE 15
in the last 30 days. And all but a tag amount of claims that
we presented were paid. So the policy is working as
advertised. I know that there's been some concern about that
issue. We feel good about the first claim experience. There
were no claims that were rejected that we thought we were
owed on.
Ed Najarian: Okay. Thank you.
Operator: Your next question comes from David George with A.G.
Edwards.
David George: Good afternoon. My question is with respect to your 2002
guidance at the $1.32 to $1.36. Is that reflective of the
FAS 142 adjustment?
Mike McMennamin: That is correct.
David George: Okay. And is that adjustment -- if we looked at the fourth
quarter numbers, would that be around $.33 for Q4?
Mike McMennamin: That's correct.
Operator: Your next question comes from Fred Cummings with McDonald
Investments.
Fred Cummings: Yes. Two questions. First, Mike, when you quoted the nine
percent proforma capital ratio, I'm assuming that that
assumes the full $200 million pretax falls to the bottom
line from the sale of Florida. You've not talked about how
you might utilize that gain.
Mike McMennamin: Fred. The day after the sale closes we expect that tangible
common equity ratio to rise to a little bit more than nine
percent. Assuming that we repurchase $300 million to $400
million of stock in 2002 without making any comment as to
the timing of that, at the end of 2002 we estimate that the
tangible common equity ratio would still be about 7 3/4
percent. So the assumption we've made is that we would use
$300 million to $400 million of that capital to repurchase
stock.
Fred Cummings: Secondly, as it relates to the indirect auto and lease
portfolio, the vintages originated in 4Q '99 I think or in
1Q 2000, Mike, can you give us the size of those? I know a
couple of quarters ago you
PAGE 16
indicated that the underwriting that was done with more
conservative FICO scores represented maybe 45% of loans and
35% of leases. I just want to get a feel for how that breaks
out and also the timing of the run off of this higher risk
piece of the portfolio.
Mike McMennamin: Fred, the loans -- and these numbers apply to the indirect
loan portfolio, not loans and leases. But the same basic
trend would be applicable for the lease portfolio. So the
numbers I'm going to give you are just the loan portfolio.
I'll give you the numbers for the second, third, and fourth
quarters.
The loans originated during the fourth quarter '99 through
the third quarter of 2000, those vintages, in the second
quarter were 20% of the portfolio, in the third quarter were
16%, and in the fourth quarter it declined to 11 1/2% of the
total portfolio.
The losses that we incurred on those portfolios, again, the
second, third, and fourth quarter represented 39%, 35%, and
26%, respectively, of the total losses in the indirect loan
portfolio. So, as you can see, the magnitude of that problem
is starting to get smaller and smaller and will continue to
diminish with each passing quarter.
Fred Cummings: Okay. Thank you.
Operator: At this time I would like to again remind everyone, in order
to ask a question, please press the number one on your
telephone keypad. Your next question comes from Joe Duwan
with Keefe Bruyette & Woods.
Joe Duwan: Yes. Question for you, Mike on interest rate positioning
with the expectation in higher interest rates over the
course of this year.
Mike McMennamin: Joe, we've been liability sensitive throughout 2001. And if
you use the measurement of the exposure of your net interest
income to a gradual 200 percentage point increase in rates,
that increase is above and beyond whatever the forward curve
implies at a given point in time. We have been liability
sensitive in perhaps as much as two and a quarter, maybe
even two and a half percent at some point during 2001.
PAGE 17
Our current position is that given that same 200 basis point
increase above today's forward curve, which as you're well
aware calls for a significant increased ramp up in short
term rates, that our net interest income function in the
next 12 months is exposed to a little bit more than one
percent, one to one and a quarter percent. So as the year
has progressed and rates have declined, we've narrowed or
reduced our interest rate risk position even further.
Joe Duwan: Okay. Thank you.
Operator: Your next question comes from Roger Lister with Morgan
Stanley.
Roger Lister: Yes. I wonder if you can give us some sense of how much
you've typically written off your non-performers on the C&I
side. Sort of look across the non-performers, just some kind
of average sense of what you've written them down to
already.
Mike McMennamin: Roger, I don't have that number. We'll be happy to see if we
can get that number. I just don't have it at the top of my
head and would not hazard a guess on it.
Roger Lister: Okay. Thank you. How about -- maybe you can give us a
different sense which would be as you look across the region
and you look across the sort of industries that you're
involved in, do you see any differences across the
marketplace and how people are faring? Are you seeing any
signs of up turn in people's needs for working capital or
desire to build inventories?
Mike McMennamin: No, I don't think we have so far. The loan weakness on the
commercial front has continued in December and early
January. So, so far we have not really seen any turnaround
on that front.
Roger Lister: Looking maybe to a different issue, when you look out into
2002, you've had quite success in building core deposits,
transaction depositions. Do you think it's going to be more
of a struggle as you go into a rising rate environment
versus sort of build up in liquidity that has been sort of
prevalent in the last few months?
Mike McMennamin: Well, I don't think there's any question that we and other
banks
PAGE 18
have benefited from the economic turmoil here in the last,
particularly, the last quarter in terms of being able to
grow deposits. So assuming that we get an economic recovery,
I think it may very well be more difficult to grow the core
deposits. But that is something that's very important to us.
We're committed to it. That's a central part of our
strategy.
Tom Hoaglin: Roger, this is Tom Hoaglin. I think while the environment
might prove a little more difficult for growth in deposits,
just to piggyback on what Mike was saying, we really feel
like we're working very hard in particularly our -- well,
both commercial and retail sales efforts so that even in a
more challenging environment we are confident we're going to
be able to succeed in continuing to grow deposits.
Mike McMennamin: I also would point out that we have a strong vested interest
in growing deposits in the next 12 months than perhaps we
did certainly a year ago. And I say that in the sense that
when we sell Florida we will be -- even though we're selling
Florida, we'll be writing a check for approximately $1.2
billion. So we will become on an immediate sense more
dependent upon the wholesale market. And our goal over the
next year or two is to reduce that dependence by replacing
that with core retail and commercial deposits. So we have a
strong vested interest in accomplishing those goals.
Roger Lister: We'll look forward to hearing more about that in the next
round of earnings releases.
Mike McMennamin: Thank you.
Operator: Your next question comes from Fred Cummings with McDonald
Investments.
Fred Cummings: Tom, what type of changes have you made on the credit risk
management side of the bank? I know you've made a lot of
changes, but what have you done with respect to risk
management on the credit side?
Tom Hoaglin: Well, two items I'd use in responding to you, Fred. As we
have talked in previous calls relative to our auto finance,
we've made
PAGE 19
several changes over the course of the last year to
significantly tighten credit criteria, about FICO scores,
and loan to value ratios, and those kinds of things. So
clear changes there and with measurable results.
On the commercial side, one of the things we did earlier in
the year was to take a look at how we participated in
syndicated national credits. Keep in mind that our
participation has to do with companies that are in our
footprint. We don't go out of footprint. The companies are
companies we know. But, nevertheless, we've had a fair
amount of activity out in our regions that was not
scrutinized by a central credit area here in Columbus. So in
mid-year we changed that so that we don't allow regional
credit people and originators to generate syndicated loans
without the sign off by home office, if you will. That has
involved significant tightening. So we're working on it for
both the commercial and retail side.
Fred Cummings: And the source of the increase in, say, commercial
non-accruals, was that driven by some syndicated credit
disproportionate amount?
Tom Hoaglin: Yes.
Fred Cummings: And secondly, Tom, as you look at the structure of your
balance sheet mix of the loan portfolio, what would you view
maybe in the, say, late 2002 or sometimes in 2003 to be a
normalized kind of charge-off ratios. Is 50 basis points --
I know historically Huntington loan term has run around 50
basis points. Is that a good number to think about with
respect to normalized charge-offs?
Tom Hoaglin: Fred, it would look pretty good right now. Obviously, that
depends on the mix and the percentage of the portfolio
that's in the various components, particularly the indirect.
I think that would be a pretty attractive number for us as
we -- certainly, if we could get there -- I would doubt
very, very much if we will be at 50 basis points by the end
of 2002. But we are -- we do think that we'll -- we will
make progress as we go through the year, although it
probably is back end loaded on any credit quality
improvement.
Fred Cummings: Okay. Thank you.
PAGE 20
Operator: At this time there are no further questions.
Tom Hoaglin: Okay. Well, thank you all very much for joining us. We
really appreciate your interest in Huntington, and we
appreciate your questions, and we look forward to keeping
you apprised of their progress. Thanks again.
Operator: This concludes today's Huntington Bancshares fourth quarter
earnings results conference call. You may now disconnect.
[END OF CALL]