Huntington Bancshares (HBAN) has enjoyed undeniable success in attracting new customers, but a big question for investors is when that growth in new households will translate into meaningful revenue growth.

The Columbus, Ohio, company has added more than 130,000 new checking account customers over the past year, largely by promoting a simplified checking account that, among other things, gives customers 24 hours to cover overdrafts before they are hit with a penalty.

But while its so-called fair-play banking is widely praised for its consumer friendliness, it is not yet contributing much to the top or bottom lines. Many of the new accounts are being opened at Huntington's in-store branches, where Huntington officials acknowledge that deposit balances tend to be lower. Meanwhile, service charges on deposit accounts climbed by just 1% year over year — and actually fell 11% from the prior quarter — partly because of a dip in overdraft fees prompted by its 24-hour grace program.

On a conference call discussing Huntington's first-quarter earnings Wednesday, some analysts expressed concern that revenue from its retail banking was not keeping pace with the rapid growth in new accounts.

But Stephen Steinour, the chairman and chief executive at the $56 billion-asset Huntington, defended the company's strategy, arguing that the additional accounts will only become more profitable as interest rates rise.

"Part of the reason why we like this rate of expansion is that when we get to a more normalized [interest rate] curve there will be a significant contribution coming off that deposit base," Steinour said on the call.

He said, too, that the bank is raising its benchmark for cross-selling from four to six products — a move that has the potential to generate more fees per customer.

For the quarter, Huntington reported net income of $151.8 million, down 1% from the same period last year and 9% from the fourth quarter. Its earnings per share of 17 cents were a penny higher than consensus estimates of analysts polled by Bloomberg.

The company attributed the year-over-year decline to a 12% decline in fee income, to $252 million, stemming primarily from a 90% drop in its gain on loan sales. (Last year's first-quarter profit was boosted by a bulk sale of automobile loans.)

Otherwise, Huntington's numbers were solid; total loans climbed 4%, to $40.9 billion; noninterest expenses fell 4%, to $19.9 million; and net chargeoffs declined 38%, to 0.51% of total loans.

Scott Siefers, an analyst at Sandler O'Neill & Partners, says that, given the current economic conditions, Huntington performed as well as can be expected.

"We saw from Huntington what we're seeing from other regionals, which is lower credit costs and improved expense control," Siefers says. "I'd like to see the complexion of earnings change, but that's a little difficult in this operating environment."

In heavy trading, Huntington's shares were down nearly 3.3% late Thursday, to $6.99.

A major challenge for banks is growing top-line revenues at a time when loan demand remains tepid, interest rates are at historic lows and new regulations are crimping fees.

Overall, Huntington's revenue fell 3% year over year and 7% from the previous quarter, to $682.3 million. On consumer deposit accounts, revenue rose just 1% year over year, despite the nearly 12% increase in new households, and declined by nearly 5% from the prior quarter.

Terry McEvoy, an analyst at Oppenheimer, says Huntington "sacrificed a lot of revenue" when it gave customers 24 hours to replenish accounts they had overdrawn, but he believes the service and other consumer-friendly moves are giving the bank a competitive edge in the battle for customers.

"What I like is that they are doing something that no one else is doing," he says. "They are thinking out of the box."

Fee income is likely to take another hit from the company's recent decision to re-order the way it processes transactions. Like many banks, it often processed transactions that came in on the same day from highest to lowest, but in February it altered its approach and now processes them in chronological order.

The move is likely to reduce overdraft income, but Steinour told analysts that it is the right thing to do for customers.

"We think this is the fairest approach," he said.

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