Huntington Bancshares didn't emerge from the financial crisis as a stronger, more focused company by playing it safe.
Even as it was dealing with massive credit problems related to its acquisition of Sky Financial, Huntington, under the guidance of CEO Stephen Steinour, began investing heavily in talent, branches and business lines to better position it for growth once the economy turned.
First the Columbus, Ohio, company took advantage of other banks' pullback in automobile lending to expand its car lending outside its six-state footprint, into New England, the Mid-Atlantic and other markets. After nearly doubling the size of its portfolio, it began securitizing and selling some of the loans earlier this year.
Then in early 2010—while many competitors were still in full hunker-down mode—Huntington began hiring dozens of business bankers. Since then it has added 25,000 commercial relationships and has been the country's No. 3 Small Business Administration lender for three years running. (It ranked No. 15 before the hiring spree.)
Perhaps most visibly, the $56 billion-asset Huntington has invested tens of millions of dollars in a range of consumer marketing initiatives that combined have helped it add roughly 250,000 household checking accounts in less than three years.
With many banks still pruning their branch networks, Huntington in the last two years has opened roughly 90 in-store branches in Ohio and Michigan—hardly fast-growing states—and has committed to adding roughly 40 more by mid-2015. It also has bucked industry trends by retaining free checking in the face of costly new regulations, and even enhanced the product with what just might be the most consumer-friendly overdraft program in the country.
The results of what Steinour calls these "contrarian" moves speak for themselves. After losing $3 billion in 2009, Huntington returned to profitability in the first quarter of 2010 and has made money every quarter since, including a record $168 million in this year's third quarter. Meanwhile, nonperforming assets have been steadily declining and
Huntington's capital ratios, and returns on assets and equity, rank among the tops in its asset class.
Huntington executives say that Steinour, who joined the bank at the start of 2009, has been the driving force behind the resurgence. A former regional CEO at the Royal Bank of Scotland's Citizens Financial Group, the big-thinking Steinour came in with an agenda of transforming Huntington into the premier retail bank in the Midwest. He has been laser-focused on that goal ever since, says James Dunlap, a senior executive vice president who oversees commercial and regional banking.
"The company is moving at a pace it's never operated at before," says Dunlap, who has been with Huntington for 33 years. Describing Steinour as "the most actively involved CEO I've ever worked with," Dunlap notes that his boss routinely calls on clients and has made more than 100 visits to the Huntington's 11 regional markets since taking the helm.
Mary Navarro, a 30-year banking veteran who has been with Huntington for the past decade, says Steinour "is different from anyone I've ever worked for. He pushes my thinking beyond where it's been at any other time in my career."
For guiding Huntington through the depths of the financial crisis, returning it to profitability far sooner than anyone expected and positioning it as a retail banking force in its primary markets, American Banker has named Steinour its Banker of the Year for 2012.
Colleagues and business associates describe Steinour as exceedingly humble. Characteristically, he says he gives much of the credit for Huntington's recovery and recent run of success to the bank's "dedicated" employees and its "supportive" board of directors.
"This company has a history of good customer service, and a pride around that, so we had strengths to build from," Steinour says of the bank's growth in household accounts and steady increase in products per household.
And the board, which made the decision to keep Huntington independent when the easiest course of action might have been to find a buyer, signed off on a $70 million branding initiative at a time when the company was losing money.
"Our board is very prepared to think longer term," says Steinour, 54. But to David Porteous, Huntington's lead director, the credit goes to Steinour's leadership.
"I don't know that I've ever met anybody who has a greater capacity for hard work and dealing with multiple issues like Steve," Porteous says.
"He's just extraordinary."
Born and raised in Gettysburg, Pa., Steinour graduated from Gettysburg College in 1980 and began his career as an analyst with the Treasury Department before moving over to the Federal Deposit Insurance Corp. From there he "chased" his wife to Boston, he says, and landed at Bank of New England, where he rose to the level of executive vice president before the bank failed and was taken over by Fleet Financial in 1991.
It was at Fleet where he met Larry Fish, the future CEO at Citizens whom Steinour calls his mentor. When Fish left to join Citizens in 1992, Steinour went with him.
Steinour quickly rose through the regional executive ranks at Citizens and became president and CEO in 2006. Two years later, seeking something new, he left to become managing partner at CrossHarbor Capital. He had expected to remain in private equity for a while, until a recruiter called to gauge his interest in Huntington.
The bank was deeply troubled at the time, but behind the mountain of real estate, construction and subprime mortgage loans, Steinour saw a bank with a 150-year history and deep ties to its communities. He jumped at the chance to nurse it back to health.
"Growing up in Gettysburg, I have an appreciation for history, and I thought the history here was unique and compelling," he says.
Steinour also was impressed with Huntington's board, which he says is more engaged than most bank boards. (The board and its committees met 87 times last year and 121 times the year before that.)
Far from being threatened by the board's independence, Steinour says he views the directors as a huge asset that has only strengthened in recent years with the addition of executives like CheckFree founder and e-payments pioneer Pete Kight and ex-Bank of New York Mellon Senior Vice Chairman Steven Elliott.
"One of the things that makes [Steinour] such a special CEO is that he genuinely wants robust discussions with the board," says Porteous, the lead director. "He feels that discussion leads to best-in-class decision making."
That first year was especially hard—like "drinking from a firehose," says Navarro. Steinour spent much of it attacking the bank's credit problems, slashing overhead (the bank laid off about 5 percent of its workforce) and raising fresh capital, but the board had given him the go-ahead to simultaneously chart a course for growth, and he wasted no time doing so.
"My first meeting with him was a dinner with all of the regional banking heads," Dunlap says. "Introductions lasted five to seven minutes and we spent the next three hours working, setting the agenda. The next day we hit the ground running."
"I felt it was very important for us in a difficult operating environment to think about the opportunities and options ahead of us, and then to pursue them with energy and focus as the cycle continued," Steinour says.
"To a certain extent it led us to a contrarian position, which I think has made a huge difference to the company in the near term and will be even more impactful in the long term."
Key to the growth plan was increasing small-business lending, which Steinour, Dunlap and other top executives saw as crucial to speeding up the economic recovery in its markets.
"We saw an opportunity, but we felt an obligation," says Steinour.
While credit quality remained a concern, the new incentive plan Steinour established, tying the regional presidents' pay to the performance of all 11 regions, ensured that the company did not lower its lending standards for the sake of meeting loan targets, Dunlap says.
"Steve wanted there to be accountability, and consequences" for questionable decisions. "I knew that I had better bring the right kinds of relationships into the company."
Aside from giving a boost to the bottom line, the commitment to small-business customers has also been a boon to Huntington's reputation. In a survey of small business owners released by J.D. Power and Associates, Huntington was ranked No. 1 in the country for customer satisfaction, up from No. 2 in last year's survey.
Huntington's credit quality improvements have been consistent with industry norms. Where it has set itself apart in its slow-growing markets is in how quickly it has been able to win market share from rivals.
After Congress passed a landmark law requiring banks to be more upfront with customers about their overdraft policies, Steinour saw an opportunity to siphon off customers from competitors.
With the blessing of the board, Steinour instructed Navarro and her team to tear up the old policy that was generating significant fee income for the bank and create a new one from scratch—reminding them all along to think big.
One idea they came up with—alerting customers via text or email that they had overdrawn their accounts and giving them 24 hours to replenish the funds without penalty—sounded so radical to the group that it wasn't even presented to Steinour at first.
But once Steinour got wind of the plan, he knew it was "the one," he says, even though it would surely reduce fee income at a time when the bank was just starting to make money again.
Certainly customers would appreciate the opportunity to make their accounts whole before being socked with a $30 or $35 penalty. Steinour also was thinking about front-line employees, who had made clear during town-hall-style meetings that they were not comfortable dinging customers for inadvertently overdrawing their accounts.
In the spring of 2010 Steinour gave his troops the go-ahead to put the systems in place, and later that year Huntington launched its "24-hour-grace" policy. Huntington remains the only large or regional bank in the country offering customers a grace period on overdrafts.
"We saw this as a real opportunity to either be ‘me-too' in something or to really break out," Steinour says. "We knew it would cost us to invest, but we also knew it was a moment in time"—with the entire industry struggling to find new revenue streams—"when nobody would be prepared to follow us. And if we were right, if we get first-mover advantage, then we'll have momentum."
Huntington's other major retail initiative has been its in-store branch expansion, a strategy with which other banks have had mixed success, at best.
It started in 2010, when Huntington struck a deal to open branches in dozens of Giant Eagle grocery stores in Ohio. The program was augmented earlier this year, when the company announced it would open roughly 30 branches in Meijer retail stores in Michigan as part of a 10-year commitment to add 200 branches in the state.
Steinour says that with customer visits to branches steadily declining, it makes sense to set up shop in grocery stores, where, he points out, the average household head will visit 2.4 times a week.
The branch openings will add $25 million to the expense base next year, but Steinour believes it's a needed investment to attract more customers and deepen existing relationships. Besides, Steinour says, "We can open nine Giant Eagle branches for the cost of one freestanding branch."
It's hard to quantify the impact of each facet of the retail strategy, but collectively they appear to be paying off in increased market share. As of the third quarter, 76 percent of households with a Huntington consumer checking account used four or more of the bank's products or services, up from 73 percent a year earlier.
In the Detroit area, market share gains have been particularly pronounced. Huntington has grown deposits there by nearly 60 percent since 2009. It now controls 4.67 percent of the Detroit deposit market, up from just over 3 percent three years ago, according to FDIC data. In the same timeframe, Huntington's deposit share in the Cleveland area has grown from 5.5 percent to 8.8 percent.
Huntington already holds the No. 1 market share in its hometown of Columbus, and it's poised to widen the gap even more now that it is about to become the only bank on the campus of Ohio State University, where it will have exclusive access to more than 50,000 students as well as faculty, employees and alumni.
Under a 15-year partnership that kicked in this year, Huntington will open up to four branches on the main campus and more than double its number of campus ATMs. As part of the deal, Huntington also will soon be taking over the management of the university's payroll.
In exchange, Huntington has agreed to donate $25 million to the university for scholarships and academic programming and $10 million to the university's endowment. It also will provide internships for OSU students.
Steinour says he first approached Ohio State nearly two years ago about developing a partnership, and spent a year brainstorming and hammering out the details with university officials before unveiling the agreement in February.
"This is something very different," says Steinour. "The economics of it will benefit the university in very significant ways, and it gives us an exclusivity there that will create revenue streams that are very substantial for us."
Steinour says that Ohio State drives the local economy in very significant ways, and he believes it's important for Huntington, as the hometown bank, to actively support it. To that end, the bank has become one of the top sponsors of a bicycle race that raises funds for the university's cancer treatment center, the Arthur G. James Cancer Hospital and Richard Solove Research Institute.
The event, called Pelotonia, has raised roughly $40 million for cancer research over the last four years. The center's CEO, Dr. Michael Caligiuri, says that Huntington not only stepped in to co-sponsor the event when funding dried up after the first year, but Huntington employees, prodded by Steinour, have raised close to $6 million for the cause on their own.
More than 1,000 Huntington employees competed in this year's race, including Steinour, who logged 150 miles over two days. "We had 6,000 riders this year, which means that one-sixth of the riders came from Huntington," Caligiuri says.
"It's just been a phenomenal example of leadership in our community."
Caligiuri says he also admires Steinour's business acumen and often taps him for advice on the challenges of running a large organization. Mostly, though, Caligiuri appreciates that Steinour consistently pushes him to take Pelotonia to the next level. The event already is the largest bike race in America by number of riders and Steinour says there's no reason why it can't be the largest by amount raised. His goal: $25 million a year.
"Steve thinks very big," Caligiuri says. "He's always asking, ‘why not?'"
As Huntington has raised its profile in its markets, so too has Steinour, who has become a frequent speaker at business events and has appeared on CNBC, Fox or Bloomberg about 10 times in the past two years. A favorite topic of discussion is the recovering Midwest economy, which he believes is not getting the attention it deserves either from the press or from companies looking for areas to invest.
The federal government's bailout of the auto industry "exacerbated a cumulative period of Rust Belt derision, and it's had an impact on people's outlook," says Steinour, who has taken to calling the upper Midwest the "Recovery Belt." "As the Midwest was significantly and sharply recovering, the story wasn't getting out, and I've tried to fill that void."
How sustainable that recovery is remains to be seen. A number of Midwest banks reported slowing loan growth in the third quarter, including Huntington, and several analysts responded by lowering their earnings estimates for this year and next.
Steinour, like many bank CEOs, blames the latest slowdown on political gridlock in Washington, comparing it to mid-2011 when the economy was partially paralyzed by the debt-ceiling debate. Steinour believes business confidence will improve if Congress can resolve the fiscal cliff issue, but if doesn't and the economy weakens further he says Huntington is prepared to tap the brakes.
"We are being cautious about next year," he says. "You can see the economy going in two distinctly different directions, so we are going to be conservative with our shareholders' capital."