As banks rely more on fee income, Huntington Bancshares is boasting about its intentional slashing of service charges.
The Columbus, Ohio, company offers customers a 24-hour grace period before charging overdraft fees. Huntington's so-called "Fair Play" strategy, launched five years ago, has been "widely popular" for offering people extra time to address negative account balances, said Steve Steinour, the company's chairman, president and chief executive.
"Nobody likes being nickel-and-dimed," Steinour said.
The $62.6 billion-asset Huntington should generate long-term gains as gaining new customers offsets lower overdraft fees, Steinour said, adding that checking accounts have grown at an average rate of 9% per quarter since the initiative began.
Overall, Huntington's second-quarter profit rose 19% from a year earlier, to $196 million, as it caught an industry tailwind on mortgage banking income. Revenue from service charges slipped 3%, to $70 million.
Steinour discussed Huntington's performance, as well as broader strategic goals and competition, in a wide-ranging interview Thursday after the company reported its second-quarter earnings. Here is an edited transcript.
Do you expect higher mortgage banking revenue to continue into the third quarter?
STEPHEN STEINOUR: The economies where we're located are doing very well. Half of the manufacturing growth in the past few years has come from Ohio, Michigan and Indiana. You have pockets of very strong performance and, in turn, that's driving growth in most of the cities in our footprint. That sets up a housing recovery. There's actually a shortage of housing in a number of our markets. So we do expect it will continue, and we've been investing in this home lending and mortgage business over the past few years. We're well positioned to take advantage of it.
Noninterest income in other areas declined. What does that mean for the company going forward?
We've done a series of things with deposit service charges. About five years ago, we introduced something called 24-Hour Grace. After an overdraft, we'll notify you if you have given us your text or email. You can make the deposit that day and there's no charge. Last July, we extended that length of deposit up to midnight in any of our channels.
Over time, the rate of growth in our customer base will likely produce a return of that service income. We suggested there would be $6 million of forgone revenue when we made the changes last July. We purposefully reduced the service fee income to make it more attractive for our customers. Our checking account base for the last five years has grown by 9% per year.
What's behind the 9% increase in nonperforming assets?
These levels are so low. They're not a concern to me, and I've had 35 years in this business. These are very, very good performance metrics. And frankly the industry is doing well in this regard. The numbers are so low that they're going to bounce around a little bit. They're down from the first quarter.
Auto loans rose 10%, and I know that has been a priority at the bank.
Auto lending is a core competency. We have been in it for over half a century. In 2010, when the bankruptcies of GM and Chrysler occurred, we saw it as an opportunity to expand. So we grew the business, and we invested in the business. That investment has allowed us to be positioned in 17 different states. We do a lot of business in auto. We're very good at it.
They're a really good bank, but I think they're in Cincinnati and that region. We've got a very significant share throughout the state; I'm sure we'll see more of that throughout the future. But I think they only recently closed on their acquisition.
Ohio is going through an oil-and-gas boom. How will that affect your energy book?
The eastern part of Ohio has two very significant gas reservoirs. One of which is extremely rich in what are called liquids. There will be continuing growth in gas in Ohio, western Pennsylvania and central Michigan.
We will be helpful to that industry. It's going to help further propel the markets in the region where, as I said, the economies are doing really well. We're fortunate to be here. Pittsburgh is doing fabulous. Columbus is in great shape. Cleveland has gone through a remarkable renaissance, as has Cincinnati. So we'll do a bit of financing to go forward. We've been prudent about what we've done so far, and will continue to do so.
The fifth anniversary of Dodd-Frank was this week. Huntington has been active in lobbying to raise the $50 billion-asset threshold. What do you expect will come out of regulatory relief efforts in Congress this year?
I'm encouraged by the consideration that's in process on both sides. We're very encouraged by the recognition of our prudential regulators, I think it was [Federal Reserve] Chairman Yellen a week ago who suggested that there be a change in [the systemically important financial institution] designation. In testimony [Fed] Gov. Tarullo suggested that, and others are supportive. You know, the regulators who are subject matter experts are trying to influence the legislators for consideration.
From our perspective it's around the simplicity of our business model. We're just a large community bank. And so the more we can bring our resources to folks externally, to our customer and our communities, the better will be their experience and the better the growth. So the burdens of Dodd-Frank I think are counterproductive to broader societal goals.