Shutdown threatens Midwest job growth, Huntington CEO warns

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Huntington Bancshares is close to the point where it will have no choice but to stop making Small Business Administration loans.

As a preferred SBA lender, the Columbus, Ohio, company has been able to close SBA loans throughout the 33-day government shutdown, but Chairman and CEO Stephen Steinour said Thursday that its ability to do so is nearing an end.

The $109 billion-asset company might be able to make bridge loans to some borrowers awaiting SBA financing, but many other businesses in Huntington’s Midwest footprint face the prospect of having their access to capital cut off entirely, Steinour said in an interview.

He added that if the impasse drags on much longer, the region’s robust employment growth is likely to stall.

“Small businesses are responsible for a lot of job growth,” Steinour said.

The SBA lets preferred lenders underwrite and close loans on their own. All they need from the agency are loan numbers that allow loans to move forward. Huntington, like other banks, was able to stockpile those loan numbers in advance of the shutdown, but now its supply is running low.

“We can’t close loans without SBA loan numbers,” Steinour said.

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Huntington is one of the nation’s largest SBA lenders. In the 2018 fiscal year, which ended Sept. 30, it ranked No. 1 in the country in loans closed, at 4,628, and No. 3 in dollar volume.

The bank’s success in SBA lending can be attributed in part to the strength of the Midwestern economy.

“What we’re hearing from our customers is positive,” Steinour said. “Uniformly we hear that their biggest issue is the tight labor market constraining economic growth in a period where we already have strong gross domestic product growth. The Midwest has had the highest job opening rate in the nation the past two years.”

The Midwest’s strong growth trends are also have a positive impact on Huntington’s bottom line. Fourth-quarter net income of $334 million was down 23% year over year, but the 2017 numbers were inflated by a one-time $123 million tax benefit related to the Tax Cuts and Jobs Act. Full-year 2018 profits totaled $1.4 billion, up 17% over the prior year.

Those results were driven primarily by strong commercial loan growth. Huntington’s commercial-and-industrial loans totaled $28.9 billion on Dec. 31, up 8% year over year. The bank also received a strong contribution from newly acquired Hutchinson, Shockey, and Erley, which added $4 million of fee income during the quarter.

“That $4 million was very, very helpful,” Steinour said, adding that he expects synergies between Chicago-based HSE, a public finance broker-dealer and investment bank, and Huntington’s existing municipal finance businesses to drive even greater revenue growth in 2019.

“We like their people, their culture and their business,” he said.

Huntington closed its deal for HSE Oct. 1. While the company would be interested in adding more specialty lenders, a whole-bank deal is “very unlikely,” Chief Financial Officer Howell D. “Mac” McCullough III said on the conference call.

“We’re very comfortable with the businesses that we have,” McCullough said. “It’s not that we’re out looking for something in particular."

"Anything we can find like an HSE or a Macquarie Equipment Finance that helps to strengthen our position in a business we’re already in, bring us additional capabilities and talent, those are very attractive opportunities,” McCullough said.

Huntington acquired Macquarie Equipment Finance in 2015. It completed its last whole-bank deal, for the $26.2 billion-asset FirstMerit, in August 2016.

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