Garnet Capital Advisors Blog

Fees sometime feel like the name of the game for financial institutions. Across the country, nearly all banks make a significant portion of their income via fees, from overdraft fees to ATM surcharges and more. Over this period, fees have become the safest bet for financial institutions to turn a profit. 

For example, American Banker reported that regional banks had second quarter gains driven by fee income. Richard Davis, U.S. Bancorp's chairman and CEO, told analysts via a conference call that banks that can't get income through loan growth will get it through fees.

However, not all banks share that opinion. On the contrary, one bank - Huntington Bancshares - has decided to go in the opposite direction.

Fees aren't friends for Ohio-based bank
Flying in the face of the fee-dependent banks across the country, Columbus, Ohio-based Huntington Bancshares is slashing its fees in favor of alternative income methods, according to a separate American Banker report. 

The biggest example is its apprehension toward overdraft fees. Instead of charging consumers the moment they enter a negative account balance, Huntington has a "Fair Play" system in place. Consumers have up to 24 hours to resolve the negative balance in order to avoid a fee. The reason for this push is that Huntington can gain customers by lowering fees. 

"Nobody likes being nickel-and-dimed," Stephen Steinour, chairman and CEO of Huntington Bancshares, told American Banker. 

He added that checking accounts at the bank have increased by 9 percent per quarter since the Fair Play system began.

Fee-free banks need alternatives
While Huntington is a prime example of how low-or-no fees can increase customers, the lack of fee income requires an alternative approach to turn a profit.

For Huntington, the answer is a long-term play involving booking more loans. Huntington is significantly involved in auto loans throughout its region, and it is also keeping a close eye on the local housing market and residential lending space. The goal, according to Steinour, is to continue to expand into home and auto lending. 

When his bank decided to alter its overdraft fee structure, the institution expected to lose as much as $6 million in revenue in the short term. However, that loss can be offset via an increase in customers and a larger emphasis on loan sales.

In the second quarter, Huntington's profit increased 19 percent year-over-year, according to American Banker, driven by mortgage banking income. On the other hand, service charge revenue decreased by 3 percent, down to $70 million. Huntington is working on a business model that is contrary to what nearly all other banks are doing across the country.

And for Huntington, that is exactly what they want to be doing. If offset with the right alternative strategy - like loan sales - lower fees don't have to signal the end of profits for financial institutions. Instead, it can be a gateway to more customers in the future.