Huntington Bancshares Incorporated · NASDAQ:HBAN
Huntington Bancshares — Q1 2003 Earnings Presentation
50 slides from Huntington Bancshares's earnings presentation, Apr 22, 2003
Slide 1: First Quarter Earnings Review April 16, 2003
First Quarter Earnings Review April 16, 2003
Slide 2: Meeting Participants
Meeting Participants Tom Hoaglin Chairman, President and Chief Executive Officer Mike McMennamin Vice Chairman and Chief Financial Officer Jay Gould Sr. Vice President - Investor Relations
Slide 3: Basis of Presentation
Basis of Presentation Operating Lease Reclassification The following presentation reflects the impact of the reclassification of $3.2 billion in auto leases from direct finance leases to operating leases effective in the 2003 first quarter. Prior period results have also been restated, though these
Slide 4: Operating Lease Accounting
al Operating Lease Accounting
Slide 5: Operating Lease Accounting Financial Impact
Operating Lease Accounting Financial Impact $(3.2) million cumulative effect impact on equity as of December 31, 2002 $(0.10) EPS impact on 2002 net income $(0.01) EPS impact on 2003 first quarter net income Significant financial statement geography impact
Slide 6: Operating Lease vs. Direct Finance Lease Financial Impact Over the Life of the Lease
Operating Lease vs. Direct Finance Lease Financial Impact Over the Life of the Lease There is no economic impact... identical earnings and cash flow under both methodologies Timing of Income Changes the timing of income recognition... Level revenue recognition vs. level yield accounting on amortizin
Slide 7: Operating Lease vs. Direct Finance Lease
Operating Lease vs. Direct Finance Lease (1) Direct Finance Lease Operating Lease Y0 30 30 Y1 26.8 26.5 Y2 23.5 23 Y3 20 19.5 Y4 16 16 Y5 12.5 12.5 Direct Finance Lease Operating Lease Y0 Y1 1356 1033 Y2 1202 1033 Y3 1040 1033 Y4 871 1033 Y5 694 1033 Balance Sheet Impact (2) Income Recognition Timin
Slide 8: Operating Lease vs. Direct Finance Lease
Operating Lease vs. Direct Finance Lease (1) (000's) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total Cumulative months -- 12 24 36 48 60 Direct Finance Lease B/S - Lease receivable - Gross $35.2 $30.6 $26.1 $21.6 $17.0 $12.5 B/S - Unearned income (5.2) (3.8) (2.6) (1.6) (0.7) - - B/S - Lease receiva
Slide 9: Operating Lease vs. Direct Finance Lease Financial Statement Geography Impact
Operating Lease vs. Direct Finance Lease Financial Statement Geography Impact Operating Lease Direct Finance Accounting Lease Accounting Auto leases Non-interest earning asset Loans and leases Income earned Rental income Interest income Funding cost Interest expense Interest expense Depreciation exp
Slide 10: First Quarter Performance Highlights
First Quarter Performance Highlights
Slide 11: 2003 First Quarter Performance Highlights
2003 First Quarter Performance Highlights 1Q03 4Q02 Net income $87.3 MM $76.6 MM Earnings per share $0.37 $0.33 Loan growth - annualized 11 % 15 % Core deposit growth excluding CD's - annualized 12 % 4 % Net interest margin 3.62 % 3.63 % Efficiency ratio 69.6 % 70.2 % Net charge-offs - adjusted (1)
Slide 12: First Quarter - Other Achievements
First Quarter - Other Achievements Regional Banking Opened two new offices... one in East Michigan... one in Central Ohio Announced sale of Martinsburg, WV banking offices Began roll out of new Business Banking sales and relationship management training Record Business Banking sales Began roll out o
Slide 13: First Quarter - Other Achievements
First Quarter - Other Achievements Private Financial Group Record annuity sales Acquired $7.5 billion custody account - Ohio Police & Fire Pension fund Added two new 401(k) product offerings including one targeted for Business Banking customers Technology One year anniversary of on-line banking upgr
Slide 14: Financial Review
al Financial Review
Slide 15: Performance Highlights
Performance Highlights 1Q03 4Q02 3Q02 2Q02 1Q02 EPS $0.37 $0.33 $0.39 $0.30 $0.37 ROA 1.29% 1.13% 1.45% 1.22% 1.41% ROE 15.7% 13.6% 16.3% 12.9% 15.7% Net interest margin 3.62% 3.63% 3.70% 3.78% 3.64% Efficiency ratio 69.6% 70.2% 68.8% 68.9% 71.7% Loan growth - annualized 11% 15% 10% (21)% (19)% Core
Slide 16: 2003 First Quarter Earnings
2003 First Quarter Earnings Change B (W) vs. 4Q02 1Q02 ($MM) 1Q03 4Q02 1Q02 Amt. Amt. Pct. Net interest income $193.1 $194.0 $184.5 $ (0.9) $8.6 4.6 % Provision (35.7) (47.6) (39.0) 11.9 3.3 8.4 Non-interest income 315.6 306.5 303.1 9.0 12.5 4.1 Securities gains 1.2 2.3 0.5 (1.1) 0.7 NM Florida sale
Slide 17: Performance Trends
Performance Trends Net Income Amount 1Q02 0.37 2Q02 0.3 3Q02 0.39 4Q02 0.33 1Q03 0.37 Earnings Per Share Amount 1Q02 92.2 2Q02 75.8 3Q02 94 4Q02 76.6 1Q03 87.3
Slide 18: Performance Trends Net Interest Income & Margin (FTE)
Performance Trends Net Interest Income & Margin (FTE) Net Interest Margin Drivers Mortgage prepayment activity Lower margin residential mortgages Loan mix...weighted toward lower rate / higher quality auto loan originations Maturity of $800 mm in high rate retail CD's Amount NIM 1Q02 186 0.0364 2Q02
Slide 19: Loan Growth
Loan Growth Average ($B) Annualized Growth 1Q03 vs. 4Q02 vs. 1Q03 vs. 1Q03 4Q02 3Q02 1Q02 Commercial $ 5.6 5 % 4 % (7) % Commercial real estate 3.8 9 12 3 Total commercial/CRE 9.4 6 7 (3) Auto loans 3.2 16 22 11 Home equity 3.2 9 14 1 Residential real estate 1.8 33 56 55 Other consumer 0.4 (10) (6)
Slide 20: Auto Loan Sale
Auto Loan Sale Action Sold $560 million of 2002 vintage auto loans Strategy Lower balance sheet exposure to auto business Reduced credit exposure Financial Impact $7.0 million gain on sale $0.5 million (after tax) reduction in 2003 earnings 7 bp decline in net interest margin Credit quality 10 bp in
Slide 21: Core Deposit Trends
Core Deposit Trends (1) Average ($B) Annualized Growth 1Q03 vs. 4Q02 vs. 1Q03 vs. 1Q03 4Q02 3Q02 1Q02 Demand $ 2.8 (1) % 6 % 5 % Interest checking 1.7 4 5 (16) Savings / MMA 6.9 21 2 7 IRA's 0.7 (12) (6) (17) Core deposits excl. CD's 12.0 12 4 - - CD's 3.0 (41) (17) (37) Total $15.0 -- % (2) % (8) %
Slide 22: Success in Attracting Customer Assets
Success in Attracting Customer Assets (1) Incremental Growth Core Deposits ex. CD's Annuity Sales Mutual Fund Sales 1Q02 241 129.1 41.9 2Q02 552 152.6 54.6 3Q02 436 151.8 32.4 4Q02 90 150.1 36.1 1Q03 327 173.9 52.3 ($MM) ($MM) Core Deposits ex. CD's Annuity Sales Mutual Fund Sales 1Q02 241 129.1 41.
Slide 23: Non-interest Income
Non-interest Income ($MM) Better or (Worse) vs. 1Q03 4Q02 4Q02(1) 1Q02 Operating lease income $182.9 $ 2.2 1 % 4 % Deposit service charges 39.6 (1.6) (4) 3 Brokerage / insurance 15.5 1.6 11 (12) Trust services 14.9 (0.4) (3) (4) Mortgage banking 14.9 3.5 30 (24) Bank Owned Life Ins. 11.1 (0.3) (3) (
Slide 24: Mortgage Banking
Mortgage Banking Mortgage Servicing (1) 1Q03 4Q02 3Q02 Mortgage servicing portfolio $6.7 B $6.0 B $5.2 B Investor servicing portfolio $4.4 B $3.8 B $3.2 B Mortgage servicing rights $35.4 MM $29.3 MM $27.9 MM MSR % of investor servicing portfolio 0.80 % 0.78 % 0.88 % MSR % of equity 1.56 % 1.27 % 1.1
Slide 25: Performance Trends
Performance Trends (1) (1) Excluding securities gains and 1Q02 gain from the sale of the Florida banking operations Revenue (FTE) Amount 1Q02 488.8 2Q02 481 3Q02 513.9 4Q02 502.382 1Q03 510.756 ($MM)
Slide 26: Non-interest Expense
Non-interest Expense ($MM) Better or (Worse) vs. 1Q03 4Q02 4Q02(1) 1Q02 Operating lease expense $143.6 $ 3.8 2 % (3) % Personnel costs 121.7 (7.9) (7) % (7) Net occupancy 16.8 (3.4) (25) 2 Outside services 16.6 0.6 4 10 Equipment 16.4 0.9 5 3 Marketing 6.6 (0.4) (7) 5 Professional services 6.3 1.7 2
Slide 27: Credit Quality Overview
Credit Quality Overview 1Q03 4Q02 1Q02 NPAs / total loans + OREO 0.79 % 0.77 % 1.38 % Net charge-offs - adjusted (1) 0.68 1.85(2) 0.92 90+ days past due 0.32 0.35 0.32 Consumer 0.55 0.47 0.48 Commercial 0.15 0.28 0.14 Commercial RE 0.07 0.16 0.26 Reserve / total loans 1.82 1.82 2.09 Reserve / NPAs 2
Slide 28: Non-performing Asset Trends
% Lns + OREO 1Q02 225.53 0.0138 2Q02 223.237 0.0134 3Q02 214.1 0.0123 4Q02 136.723 0.0077 1Q03 140.725 0.0079 Non-performing Asset Trends ($MM)
Slide 29: Non-Performing Asset Flow Analysis
Non-Performing Asset Flow Analysis Period End ($MM) 1Q03 4Q02 3Q02 2Q02 1Q02 NPA beginning of period $136.7 $214.1 $223.2 $225.5 $227.5 4Q02 credit actions: New 29.9 Loan losses (51.3) Sales (1) (25.8) Net impact (47.2) New 48.4 35.6 47.2 73.0 74.4 Returns to accruing status (6.0) (12.7) (0.4) (0.3)
Slide 30: Net Charge-offs - Adjusted
Net Charge-offs - Adjusted (1) Amount Percent 1Q02 39.2 0.0092 2Q02 34.1 0.0083 3Q02 31.7 0.0075 4Q02 80.6 0.0185 1Q03 30.3 0.0068 ($MM) 1Q03 4Q02 1Q02 Commercial 1.06 % 4.30 % 1.31 % Commercial real estate 0.06 0.82 0.44 Total commercial 0.66 2.92 0.98 Consumer Auto loans 1.19 1.18 1.52 Other direc
Slide 31: Vintage Performance
Vintage Performance % of Portfolio - EOP Vintage 12/00 12/01 6/02 9/02 12/02 3/03 6 Mo. 12 Mo. 18 Mo. Auto Loans Cumulative Charge-off Pre - 4Q98 18 % 6 % 2 % 1 % 1 % 1 % 4Q98 - 3Q99 25 12 9 6 5 4 4Q99 - 4Q00 57 34 26 22 17 14 0.07% 0.79% 1.72% 1Q01 - 4Q01 -- 48 38 31 27 23 0.04 0.52 1.05 1Q02 - 4Q0
Slide 32: Consumer Delinquency Trends
Consumer Delinquency Trends (1) 30+ Days 1Q02 0.0232 2Q02 0.0224 3Q02 0.021 4Q02 0.0223 1Q03 0.0203 90+ Days 1Q02 0.0048 2Q02 0.0043 3Q02 0.0045 4Q02 0.0047 1Q03 0.0055 (1) % of related outstandings at EOP. Excludes impact of Florida banking operations sold in 1Q02
Slide 33: Loan Loss Reserve
Loan Loss Reserve Loan Loss Reserve Flow Analysis ($M) 1Q03 4Q02 3Q02 LLR- beginning $ 324.6 $ 361.9 $ 347.9 Gross charge-offs (39.3) (41.9) (43.5) Recoveries 7.4 10.7 10.0 Net charge-offs (31.9) (31.2) (33.6) Provision exp. 35.7 47.6 48.8 Credit actions chg-offs -- (51.3) -- Assets purchased/(sold)
Slide 34: Capital Trends
Capital Trends (1) 1Q03 4Q02 1Q02 Tier 1 risk-based capital (2) 8.52 % 8.69 % 10.31 % Total risk-based capital (2) 11.35 11.53 13.45 Tier 1 leverage (2) 8.59 8.88 9.77 Tangible equity / assets 7.39 7.61 9.12 Double leverage (3) 91 88 78 Repurchased 4.3 mm shares... 3.9 mm left on authorization (1) P
Slide 35: 2003 Outlook
al 2003 Outlook
Slide 36: 2003 Outlook
2003 Outlook Earnings Per Share - Prior $1.50 - $1.53 Impact of operating lease accounting ($0.03) Earnings Per Share - New $1.47 - $1.51
Slide 37: Private Securities Litigation Reform Act of 1995 Forward Looking Statement Disclosure
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 FORWARD LOOKING STATEMENT DISCLOSURE This presentation and discussion, including related questions and answers, may contain forward-looking statements, including certain plans, expectations, goals, and projections which are subject to numerous assumpt
Slide 38: Appendix
al Appendix
Slide 39: Loan Portfolio - 3/31/03
Loan Portfolio - 3/31/03 By Type of Loan ($B) Amt Pct Commercial $ 5.7 32.2% Commercial RE 3.8 21.2 Total commercial 9.5 53.4 Auto loans 2.8 15.8 Home equity 3.3 18.4 Residential real estate 1.8 10.3 Other consumer 0.4 2.1 Total consumer 8.3 46.6 Total loans $17.8 100.0% By Region or LOB 1Q03 Centra
Slide 40: Commercial Loan Portfolio - 3/31/03
Commercial Loan Portfolio - 3/31/03 $9.5 B By Industry Sector Services 0.25 Manufacturing 0.13 F.I.R.E. 0.3 Retail Trade 0.13 Construction 0.07 Wholesale Trade 0.06 Trans./Comm. 0.03 Agriculture 0.01 Energy 0.01 Other 0.01
Slide 41: Commercial Loan Portfolio - 3/31/03
< $5 MM 18785 $5+ MM 370 $5 MM - < $10 MM 245 $10 MM - < $25 MM 117 $25 MM - < $50 MM 8 $50+ MM 0 Total 370 < $5 MM 0.61 $5 MM - < $10 MM 0.18 $10 MM - <$25 MM 0.18 $25 MM - < $50 MM 0.03 $50 MM + 0 Commercial Loan Portfolio - 3/31/03 # of Loans By Size 18,785 98.1% 370 1.9% Loans By $ Size 61% 3% $
Slide 42: Commercial Real Estate Portfolio - 3/31/03
Columbus Cleveland Cincinnati W. MI E. MI WV ID FL 0.191 0.215 0.154 0.15 0.151 0.078 0.058 0.006 Commercial Real Estate Portfolio - 3/31/03 Construction Owner Occupied Mini-Perm Permanent 0.389 0.324 0.135 0.152 Cincinnati Columbus W. Michigan E. Michigan W. Virginia Indiana Cleveland Permanent Min
Slide 43: Commercial Real Estate Portfolio - 3/31/03
Commercial Real Estate Portfolio - 3/31/03 Retail Industrial Office Multifamily Land Devel Single-family Hotel Health Care Raw Land Other 0.218 0.171 0.156 0.148 0.083 0.056 0.044 0.023 0.024 0.077 Retail Industrial Office Multi-family Land Devel. Hotel Single-family Health Care Other $3.8 Billion I
Slide 44: Commercial Real Estate Portfolio - 3/31/03
Commercial Real Estate Portfolio - 3/31/03 Retail Industrial Office Multifamily Land Devel Single-family Hotel Health Care Raw Land Other 0.201 0.112 0.138 0.214 0.118 0.069 0.062 0.016 0.031 0.034 Retail Industrial Office Multi-family Land Devel. Hotel Single-family Health Care Other $2.6 Billion E
Slide 45: Consumer Loan Portfolio - 3/31/03
Consumer Loan Portfolio - 3/31/03 By Type of Loan ($B) Amt Pct Auto loans 2.8 33.9% Home equity * 3.3 39.5 Residential real estate 1.8 22.0 Other consumer 0.4 4.6 Total consumer $8.3 100.0% * Home equity lines $2.7 Home equity loans 0.6 1Q03 Auto loans & leases 0.34 Home equity 0.39 Residential real
Slide 46: Home Equity - Quarterly Production
Home Equity - Quarterly Production ($MM) 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 Loans Production $79.8 $74.2 $70.5 $93.6 $72.8 $83.2 $76.2 $81.8 $63.7 $64.1 $54.2 Avg. LTV 79% 79% 80% 80% 78% 77% 79% 75% 72% 72% 69% Avg. FICO 686 684 689 692 695 697 697 699 698 698 697 % < 640 23.5%
Slide 47: Non-performing Assets - By Sector
Non-performing Assets - By Sector Services 0.37 Manufacturing 0.25 F.I.R.E. 0.08 Construction 0.03 Retail Trade 0.04 Agriculture 0.02 Trans./Comm. 0.02 Wholesale Trade 0.02 Energy 0.02 Other 0.15 $141 MM @ 3/31/03
Slide 48: Performance Trends Loan Loss Provision
Performance Trends Loan Loss Provision (1) (2) 4Q02 excludes credit actions taken during quarter Net Charge-offs Add'l Provision 1Q02 43 -4 2Q02 36.5 9.1 3Q02 33.6 15.2 4Q02 31.2 16.4 1Q03 31.9 3.8 ($MM) $39 $46 $49 $48 $36
Slide 49: Performance Trends Return on Average Assets and Equity
Performance Trends Return on Average Assets Return on Average Equity Amount 1Q02 0.0141 2Q02 0.0122 3Q02 0.0145 4Q02 0.0113 1Q03 0.0129 Return on Common Equity 1Q02 0.157 2Q02 0.129 3Q02 0.163 4Q02 0.136 1Q03 0.157
Slide 50: Huntington
4) Huntington
Huntington Bancshares — Q1 2003 Earnings Presentation on 6ix