Can Huntington Bancshares Defy Critics, Enrich Shareholders, and Make Banking Fair and Transparent?

Can good customer service and consumer-friendly policies be the foundation of a profitable bank? That's what Ohio-based Huntington Bancshares (NASDAQ: HBAN  ) is determined to find out.

The fact that Huntington Bancshares has chosen to differentiate itself by treating customers with decency and respect is a sad commentary on the state of banking. Read through the regulatory filings of any of the nation's largest banks and you'll find a stark contrast to this approach.

As my colleague Patrick Morris has pointed out, a recent presentation by Bank of America (NYSE: BAC  ) revealed that in-branch deposits cost almost 14 times more than those made over a smartphone. The implication? That the bank must figure out how to decrease the former and increase the latter.

To be sure, Bank of America is far from alone in this regard. PNC Financial has essentially shouted from the rooftops that free checking is a thing of the past and bank branches of the future will be fewer in number and smaller in scale. And the examples go on.

Much of the change is a natural consequence of technology. ATMs and mobile phones make banking less labor intensive from the lender's perspective and, legitimately, more efficient for customers. Why should someone drive to a branch to deposit a check when they can do so using a smartphone on their couch?

Added to this, a series of legal and regulatory changes have deprived banks of once-lucrative revenue sources. Most notably, debit card swipe fees are now capped and overdraft fees have been severely curtailed. The result is that customers are much less profitable to banks than they once were.

But while most of the nation's largest banks are responding to this new landscape by finding ways to minimize customer interactions, "optimizing" their branch networks, and eliminating perks like free checking, Huntington Bancshares is pursuing the antithesis.

Over the last two years, Huntington has aggressively opened new branches, introduced grace periods to give customers an opportunity to cure overdrafts, rolled out "asterisk-free" checking accounts with no minimum balance requirement and no monthly maintenance fee, and, most recently, removed overdraft protection transfer fees for both consumer and business checking accounts.

"At Huntington we made the decision that we did not want to charge customers for transferring their own money from one account to another," said Steve Steinour, president and CEO of Huntington Bancshares. "Customers want a fair approach to their banking so that they can save and invest their hard-earned dollars. We hear them and we continue to give them the services they want."

Although it's still too early to pronounce victory or defeat, there are promising signs. Consumer checking accounts are up 38% since the program began in 2010. Commercial relationships have increased by 28% over the same time period. And, according to the bank's own estimates, both its return on assets and net interest margin are consistently outperforming Huntington's peer group.

Can Huntington Bancshares parlay these wins into success for shareholders? That remains to be seen, as shares of the bank still trade for a considerable discount to their pre-crisis peak. But either way, I believe it's safe to say that it would be a welcome development for the banking industry if Huntington prevails.

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