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Huntington Bank’s $35 million decision that worked

The Huntington National Bank in 2010 introduced checking accounts with no monthly maintenance fees or minimum balances required; a 24-hour grace period for overdrafts before charging fees; and a debit card with platinum level service for every holder, a move defying industry practices. What made the concept so unusual was the timing. The year before was the onset of a national financial crisis. Huntington’s earnings plunged in 2009 to a negative $3.1 billion on bad loans and other factors.

Offering customers 24 hours to fix their overdrafted account with no charge was in essence forfeiting a steady source of income.

In a one-on-one interview with this newspaper, Huntington Chairman, President and Chief Executive Officer Stephen Steinour said 24-hour grace was a $35 million decision. One that paid off.

“$35 million was a lot of money to us in 2009 and 2010,” Steinour said.

“The design we’ve taken to our products, and to our approach, consistent with fair play banking, is upfront with whatever we do,” he said. The bank recognized “that we’ll have over time many more customers and the revenue we’re going to lose in the short term we’ll make up in time.”

The plan was to make up the revenues by growing market share — gaining new customers — and growing so-called “wallet share” — getting customers to buy more products from Huntington including checking accounts, loans, credit cards and other services.

The idea of fair play, that treating customers fairly is good for business, was formulated soon after Steinour’s arrival at Huntington in 2009. There was a series of employee town hall meetings, strategy sessions and consumer research that took place across the Ohio bank’s six-state Midwestern footprint to bounce around new ideas.

One thing employees in all markets said was, “We have customers that are getting charged overdrafts and they don’t realize it until the overdraft charge hits. And times are tough, they don’t have the money to pay it,” Steinour recounted.

“That sort of feedback, and there was a lot more of it, caused us then to step back and say look, we’re hearing it, let’s listen to it, let’s think about it and strategically, these challenges can also be opportunities,” he said. “We don’t have to do what everybody else is doing. Let’s vision, if you will, going a different direction.”

In the three years since 24-hour grace and other aspects of the “fair play” banking strategy were conceived and put in place, Huntington has added about 300,000 new checking account customers for a total 1,228,812 consumer households as of year-end 2012.

The growth led to record annual profits in 2012 of $641 million, swinging from a $3 billion loss in 2009.

Meanwhile, Huntington in 2010 also made a commitment to lend $4 billion to small businesses in three years. Huntington was Ohio’s largest lender of loans backed by the U.S. Small Business Administration in fiscal year 2012.

The Columbus-based bank is Ohio’s second largest by deposits behind Cincinnati-based Fifth Third Bancorp. Huntington is the fourth largest bank by deposits in the Cincinnati metropolitan, the sixth largest in Dayton and second largest in Springfield. However, it lost market share in Cincinnati and Dayton from June 2012 to June 2013, according to the Federal Deposit Insurance Corp.

Huntington’s presence in Dayton and Springfield is “stable and growing, but the growing part is in new households, new customers and deeper relationships with customers,” Ron Cloyd, Huntington community president for Dayton and Springfield, said. “Part of that equation, we’re looking at growth differently than we used to look at growth.”

“It was always about how are you going to grow the numbers of branches, how are you going to grow numbers of employees? We’re in totally different economic times today and our industry’s changed,” Cloyd said.

“Because of technology and how we’re approaching the market, both business and consumer, we’re trying to grow the number of clients that we’re serving… and we’re trying to grow the amount of business we have with each customer,” Cloyd said.

Zacks Investment Research of Chicago noted in August that Huntington has made fundamental progress since Jan 2009 and reorganized its business model.

“Huntington continues to move forward by positioning itself for growth and implementing strategic initiatives designed to drive future revenue growth. Its cross-sell and product penetration initiatives throughout the company are expected to boost its top line,” reads the research note.

In the coming quarters, “the anticipated slowdown in mortgage banking activity is expected to be offset by continued growth in new customers, increased contribution from higher cross-sell, and the continued maturity of the previous strategic investments,” according to Zacks’s analysis.

“Revenue headwinds are a concern amid a tepid economic recovery, low interest rate and a tough regulatory environment. Further, with the anticipation of an expanding expense base, we remain somewhat skeptical about its ability to augment earnings in the quarters ahead.”

Huntington bank directors in 2009 did not foresee today’s low interest rate environment. As things move further away from the 2007 to 2009 recession, banks have fewer bad loans on the books. Record low interest rates in 2012 spurred new home purchase and refinance activity, helping the bottom line.

However, the industry is looking for revenue growth.

Banks’ main income source is the difference in interest collected on loans and earned on investments, and the interest paid on deposits. Still, historically low interest rates pressure the interest margin, forcing banks to compete for customers and look to cost cutting and fee income to drive revenues.

One response has been a reduction in banks offering free personal checking accounts. The number of banks offering it dropped four years in a row to 38 percent this year, down from 76 percent of banks offering it in 2009, a study released Sept. 30 found. Fees charged to customers for overdrafts, ATMs and other services have reached record highs in 2013. The average overdraft is now $32.20, according to

“The beauty of the decisions made in 2009 are they’re as relevant today because of the environment. We didn’t anticipate we’d be in this low rate environment that we’re in today, but it actually has helped us because other banks have been adding fees to their checking products or other requirements, minimum balances, automated transfers,” Steinour said.

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