Huntington Bancshares Incorporated Stock: Not All Growth Is Good

Sometimes a bank just has to learn to say no.

Jul 28, 2014 at 1:14PM

Mustang By Scott
Flickr / scott361.

Since the financial crisis, Huntington Bancshares (NASDAQ:HBAN) has doubled the size of its automobile loan portfolio. Unfortunately, there is trouble. 

The Midwestern lender is overreaching its bounds in a business line as classic to banks as a '64 Stang.

Huntington's automobile history
Huntington has three ways in which it deals with the automobile industry: financing the building of new dealerships, financing the new and used inventory of those dealerships, and financing customer purchases at those dealerships.

Old Car Dealership By Joeinsouthernca

Flickr // JoeInSouthernCA

Its automobile financing services date back to the 1950s, a legacy that has enabled the bank to make a name for itself as a reliable lender throughout the Midwest. However, it has begun to expand outside of its area of success.

Having been hit quite hard during the financial crisis, many banks exited the auto financing business entirely. This opened opportunities throughout the country.

Huntington stepped in to fill the gap and within a year expanded its automobile loan portfolio by nearly 40%. The loan volume has been so successful that it enabled Huntington to glean lucrative securitization profits, selling $2.3 billion worth of automobile loans in 2012. 

There is only one problem. Many of the new markets that Huntington has entered are outside of its existing footprint -- way outside.

Lack of focus
Currently, out-of-footprint automobile operations exist within New England and the Mid-Atlantic markets.

Hban Footprint Map

Huntington's primary footprint-from Company site

Huntington believes that it can successfully expand in those areas based on the process it has developed in its current market, concentrating on high-quality originations.

What's the problem with this? It's a lack of focus.

When it comes to any type of business, when you lose your focus, you lose your shirt.

That means we first have to define Huntington's focus. According to its website, Huntington wants to be "THE bank of the Midwest." 

Note the emphasis on the geography qualifier -- the Midwest.

The shift in focus away from its current footprint can distract it from its existing operations. At the very least, expanding into new markets introduces new risk as it would to any business. All this aside, there is one particular reason why this expansion doesn't make sense.

Different types of growth
Huntington has some experience with operating outside of its market. The bank offers wealth management services in its primary footprint and Florida.

This makes sense. Wealthy account holders in the bank's six-state footprint retire and move to the Sunshine State. Huntington doesn't want to lose this business, so it makes it convenient for these retirees by locating wealth management offices in Florida.

The same logic does not follow with automobiles.

Old People By Nickbaumgartner

Flickr // Nick.Baumgartner91

For wealth management, the expansion it is purely for continuity of service. For automobile financing, Huntington's expansion is all about grabbing new business anywhere and everywhere.

In other words, expanding automobile financing outside of the current footprint does not enhance automobile financing like it does with wealth management.

When it first started expanding, the bank even considered markets in the Southeast and west of the Mississippi. It is this kind of hodgepodge, chase-the-profit opportunity that gets banks in trouble.

Time to refocus
Instead of chasing profits all around the country, Huntington should refocus growth back on its home turf. The automotive industry is doing pretty great right now. That means that Huntington could ride a wave of new business for a while. However, the only reason it was able to expand in the first place was because other banks couldn't handle an economic downturn. The next time the economy takes a dip, an overextended Huntington could retract back to its footprint or worse.

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.

David Post has no position in any stocks mentioned. The Motley Fool owns shares of Huntington Bancshares. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information