The Secret Sauce Making Huntington Bancshares Money

Huntington Bancshares (NASDAQ: HBAN  )  plays up the fact that it is a local community lender, but it has a big secret.

At $60 billion in assets, it is the 38th largest bank in the country, and it aims to bring its billion-dollar sway to the local Midwestern communities it serves. 

The ability to do this better than anyone else hinges on what Huntington calls its Optimal Customer Relationship (OCR) process.

The OCR strategy is simple -- task each business segment to find what local customers need, use Huntington's massive size to get it to them better than anyone else, and then introduce these customers to great Huntington products and services in other segments.

Let's take a look at how each business segment contributes to creating the OCR:

Retail & Business Banking
At the core of any banking operation is attracting deposits through financial products such as checking and savings accounts. Deposits provide the capital for banks to make loans, which is ultimately how they make money.

Huntington's Retail and Business Banking segment produces nearly 60% of these loan-making funds for the bank by catering to consumer and small business customers.

Not only are these deposits the lifeblood of the bank, but attracting new deposits is a crucial first step in the OCR process. To attract new customers, Huntington has increased its marketing efforts, launching its Fair Play campaign in 2010. 

The campaign highlights Huntington's customer-oriented policies and has led to average annual increases of 10% in the number of consumer checking account households, a key OCR metric. 

Regional & Commercial Banking
The Regional and Commercial Banking segment operates similarly to the previous segment, but by catering to middle market and large corporate customers.

Despite similarities in form, the retail and commercial segments differ in the level of attention received. Huntington serves its commercial clients with dedicated teams that customize products to the client's specific needs. This

has allowed Huntington to become a specialist in serving specific industry segments.

For example, this past year Huntington has increased its strategic focus on the banking needs of the health care industry, allowing it to both bring in new deposits and increase its loans to the sector both by $400 million. 

It is efforts like these that have led to average annual increases of 8% in the number of commercial relationships since 2010, the OCR metric for measuring growth in the commercial customer base. 

Automobile Finance & Commercial Real Estate
Next, we move onto a segment largely focused on the moneymaking end of the banking equation -- lending.

The Automobile Finance and Commercial Real Estate (AFCRE) segment is Huntington's cash cow. It brings in a third of the bank's net income by financing automotive dealerships and large commercial real estate projects.

Although AFCRE carries substantially less deposits than the previous two segments, it still plays a crucial part in the overall OCR. 

Loans made to new dealerships and real estate developers help boost the commercial relationships metric. Additionally, these relationships set prime opportunities for introducing those customers to other segment products.

Wealth Advisors, Government Finance, & Home Lending
Last of all is the Wealth Advisors, Government Finance, and Home Lending (WGH) segment which contains a mixture of specialty services offered by the bank.

WGH can be thought of as the Retail and Business segment on steroids, taking on deposits from the super wealthy and government entities and catering to their banking needs. Additionally, WGH oversees origination and servicing of Huntington's mortgage operations.

WGH contributes to OCR much in the same way AFCRE does, increasing commercial relationships while setting the stage for introducing products to existing customers.

Of these two roles, the more important one is the introduction of products. As of this past year, nearly 80% of commercial customers use more than one Huntington product. 

Putting it all together
Each business segment plays a crucial part in how it adds to the functionality of the bank, but getting a customer involved in the primary product of a segment is just the beginning.

The OCR process is a platform for cross-selling. This means getting the individual with a Huntington checking account to apply for a mortgage through the bank or having the CEO that parks his company's funds in Huntington to move his own personal accounts under its wealth management services.

At the end of 2013, the company attributed over $1.5 billion in revenue to OCR efforts. That's 60% of the company's overall revenue! A continued effort in the area is the key to Huntington's future.

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