GRAND RAPIDS — Huntington Bancshares Inc. has a new game plan it expects will bring sharper focus to core Midwest markets and customer service while reducing costs and increasing shareholder value.
According to strategic and financial restructuring plans announced last week, the Columbus, Ohio-based regional bank holding company for Huntington Bank will divest of its Florida operations, consolidate 43 banking offices in Michigan, Ohio, Indiana and West Virginia and reduce quarterly dividend per share by 20 percent.
Capital from the Florida sale will be used to shore up the company’s capital position and repurchase shares.
Using the forum of a teleconference last week to outline Huntington’s strategic direction, Thomas Hoaglin, president and CEO since February, vowed “no more over-promises and under-deliverance.”
He said after several months of meeting with shareholders, customers and employees, reviewing Huntington’s businesses and assessing the strength of its management team, he found a few more surprises than he expected, but added that the problems are fixable.
“In a nutshell, internally Huntington has not been working very well. We have a dedicated team but they’ve lacked a clear sense of direction. Senior management turnover has taken a toll on the organization,” he said, adding that the company has had four different CFOs in a span of just three years.
“Too much decision-making has been centralized, which has caused a shift in the focus away from serving customers onto the corporate bureaucracy.”
Huntington will change its management structure by decentralizing control. Regional presidents will now have responsibility for corporate and retail banking at the local level while maintaining corporate standards in terms of common products and common approaches to pricing, sales, service and distribution, Hoaglin explained.
“We will be a local bank able to deliver more sophisticated resources to our customers than could a true small community bank. I believe this strategy will position us to win in markets both large and small.”
In Michigan, Huntington operates about 130 banking offices and 192 ATMs with some $4.3 billion in deposits. In all, the bank has assets of $28 billion and more than 500 offices in Florida, Indiana, Kentucky, Maryland, Michigan, New Jersey, Ohio and West Virginia. It competes in seven major metropolitan markets, and 85 percent of its deposits are concentrated in Michigan and Ohio.
Jeri Grier, a corporate spokesperson at the bank’s Columbus headquarters, said the intent of the actions taken last week is to bring the decision-making process closer to the local level.
“What we want you to see is better customer service,” she stressed.
Although Huntington has yet to announce the locations affected by consolidation, Grier said 16 of the 130 offices in Michigan will be eliminated. Elimination of 43 offices in four states is necessary because Huntington has too many banking locations within close proximity of one another, according to the company.
Grier said there will be no job losses in Michigan. Employees working at locations to be closed will be shifted to other offices, and those affected will be notified within the next two weeks. Consolidation efforts will likely be completed by year’s end.
As to the sale of Florida operations, the bank’s expectation is that most of those employees will go with the purchaser, she said.
Also last week, James Dunlap was appointed president of the West Michigan region, which includes Grand Rapids, Kalamazoo, Traverse City, Muskegon, Sault Saint Marie, Holland and Niles. Dunlap replaces Bill Kleven, who left Huntington in June.
Dunlap, who has been with the company for more than 20 years, is former president of the Southern region and will continue to oversee Florida operations for the time being. He will split his time between Florida and Michigan during the transition.
Huntington will take restructuring and special charges of about $140 million after tax in the next three quarters as a result of strategic and financial restructuring.
According to Hoaglin, the company has lacked financial discipline and accountability for performance, but it has a strong credit culture, sound credit quality and a newly strengthened senior management team.
“What we have to do now is improve our execution dramatically. We have lots of issues to address and we’re going to address them aggressively. Business as usual will not be good enough,” he remarked.
“We intend to take some decisive actions now to lift earnings per share, strengthen capital, clean up the balance sheet and position Huntington for future growth.
“Teamwork will be a core value for us particularly in the area of customer service where too often in the past Huntington employees have not worked effectively enough to meet customer needs and solve customer problems.”
The bank’s Michigan operations need to improve, he said, because performance in Michigan has lagged, largely due to lack of leadership over time, lots of management turnover and poor merger integration of First Michigan Bank Corp., acquired in 1997.
Hoaglin said selling the Florida franchise would serve as the catalyst for restructuring and repositioning. The Florida business isn’t “geographically strategic” to the company’s future and its sale will enable the company to focus resources on growing the core Midwest franchise.
As Hoaglin explained it, the company spent a lot of money building out infrastructure in Florida but hasn’t been able to generate the return it would like, and it would require a greater investment to remain competitive there.
As the eighth-largest bank in Florida with some $4.5 billion in deposits, its operations include 130 banking centers and 458 ATMs concentrated in the state’s central market. The sale is to get underway immediately and should be complete by year’s end.
Hoaglin acknowledged that cutting the dividend by 20 percent is a tough issue because retail investors own 75 percent of Huntington stock. But with an “unacceptably low” level of earnings given franchise potential, Huntington needs additional capital for flexibility. Revenues have been flat over the last few years as expenses have increased.
“We recognize that our payout ratio is high. Reducing it will help support future growth and/or repurchase of additional shares, so shareholders can be rewarded and customers better served.”
Directors of Huntington’s board have decided to take all their compensation this year in the form of options rather than cash, he added.
Financial targets now include: annual earnings-per-share growth in the 10 percent to 12 percent range; return on equity of 18 percent to 20 percent; a dividend payout ratio in the 35 percent to 45 percent range; and an efficiency ratio of 48 percent to 52 percent.
“In every one of our markets one of our major competitors is going through a major change, either an acquisition of their own, conversions, or enterprise reconstruction that they’re dealing with and I think this creates opportunity for us as well.” said Ronald Baldwin, vice chairman for commercial and retail banking.
“We have recruited market veterans to lead our teams under the new organizational design.”