Huntington Bancshares May Soon Be Helping Small Businesses In Your Town

Investors tired of investing in large-cap banking institutions which constantly makes for negative news headlines, might just as well consider Huntington Bancshares (NASDAQ: HBAN  ) .

With strong growth in its commercial segment, a thirst for expansion into neighboring states and a convincing customer-centric business model, Huntington Bancshares should have much more potential to grow its business going forward.

Background
The off-the-radar Midwestern financial services holding company has an operating history dating back to 1866. The bank has a strong branch footprint in Ohio where about 415 branches (57% of all branches) are located.

Huntington Bancshares further has 157 branches in Michigan, 51 in Pennsylvania, 45 in Indiana, 31 in Virginia and 12 in Kentucky.

The community bank serves small- and medium sized businesses that require financing, is active in the mortgage business and provides personal banking services ranging from traditional savings and checking accounts to wealth management.

Source: Wikimedia Commons, Huntington Bankshares branch

Strong focus on growth
With $61 billion in assets, Huntington Bancshares has transformed itself into a formidable regional player over the last decades. Huntington Bancshares' business model has been strenghtened by focusing on the commercial business, increasing its product reach, and, yes, occasionally getting busy on the mergers and acquisitions front.

Huntington Bancshares announced in April and May 2014 that it will acquire 24 branches in Central and East Michigan from Bank of America.

The transaction will bring about $1 billion of deposits over and diversify Huntington Bancshares' operations footprint as well as strengthening its market position as a deposit-strong community bank franchise.

Reducing Huntington Bancshares' reliance on Ohio is the right move for shareholders. Venturing into less penetrated neighboring states should allow Huntington Bancshares to leverage its banking capabilities, especially in the important commercial banking segment.

Business model centered on small businesses is driving value
Community banks like Huntington Bancshares are essential for meeting the financing needs of local businesses as many small and medium-sized businesses require loans with relatively small balances.

Big banking institutions such as Bank of America or Wells Fargo might not only be more difficult to deal with, but, due to their enormous size, can also afford to be quite discriminatory when it comes to small loan sizes. 

Small businesses naturally gravitate toward community banks. Proof of that is, that Huntington Bancshares recently "climbed to the top spot in the country with the highest number of Small Business Administration (SBA) 7(a) loans for the first half of the SBA's fiscal year ending March 31."

This indeed is remarkable considering that Huntington Bancshares only operates in six states, however, it takes the country's top spot for originating SBA loans.

Steve Steinour, chairman, president and CEO of Huntington Bank correctly pointed out the importance of community banks for the commercial banking needs of small businesses:

Small businesses are the foundation of our Main Street economies throughout the United States. These businesses generate two-thirds of all of new jobs and help keep our neighborhoods healthy. Huntington is committed to supporting small business growth as a key way to strengthen our communities as they continue through the economic recovery.

Strong customer relationships underpinning revenue growth
Probably the biggest difference between big banks and small banks, is that big banks rely on scale and small banks rely on relationships.

Community banks usually are well connected to business people in their respective communities and it is exactly this customer-centric approach to banking that has led Huntington Bancshares to grow its commercial loan business strongly over the last couple of years.

Commercial Relationship revenues have increased from $143 million in Q2 2012 to $197 million in Q1 2014: A respectable increase of 38% and an immediate reflection of the importance of deepening customer relationships (see below).

Source: Huntington Bancshares Second Quarter Investor Presentation

The Foolish Bottom Line
Huntington Bancshares does things differently then Wall Street's big banks. Huntington Bancshares' business is largely driven by relationships with local retail and commercial customers who flock to community banks such as this one.

With a proven and successful business model, Huntington Bancshares is looking at a bright future.

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