Huntington Bancshares Inc. entered the Indianapolis market in 1986 and since has led a relatively unassuming existence, barely cracking the top 10 in local deposit amounts and operating just a few dozen branches.
So, the Columbus, Ohio-based bank is entering uncharted territory following its $3.6 billion acquisition of fellow Buckeye bank Sky Financial Group Inc. in Bowling Green.
Huntington completed its purchase of Sky on July 2, making it the 24th-largest domestic bank in the United States in terms of assets. Locally, the deal elevates Huntington’s presence to big-player levels by more than tripling its amount of deposits from $871 million to $2.8 billion.
The figure places Huntington in select company behind New York-based Chase and Cleveland-based National City Bank, whose local deposits each total in the $5 billion range, and ahead of locally based First Indiana Bank and Cincinnati-based Fifth Third Bank, both with $2 billion.
“[The acquisition] catapults them to a position of prominence,” said Mike Renninger, banking consultant and principal of Carmel-based Renninger & Associates LLC. “They are now a real contender in what is considered a very vibrant market.”
Indeed, boosting Huntington’s stake in Indianapolis, as well as in Ohio markets such as Akron, Canton and Toledo, is what drove the acquisition, said Mike Newbold, regional president of Sky.
“Sky represented an opportunity for Huntington to increase market share where Huntington had a smaller penetration,” he said. “The merger results in a bank that is No. 3 in deposits. From our perspective, that will give the bank a significant boost.”
The deal is expected to begin adding to earnings this year provided it is able to squeeze out an expected $115 million in expense savings.
Much of that will occur at Sky’s former Bowling Green headquarters where jobs will be cut and back-office operations downsized and combined with Huntington’s home in Columbus.
Additional jobs will be eliminated in Cleveland and several branches will be closed throughout the region where they overlap with existing Huntington locations, Newbold said.
The purchase of Sky fills in some Indiana and northern Ohio markets for Huntington and puts the bank into western Pennsylvania for the first time. Sky has 42 branches in Indiana and Huntington 27. Sixteen locations could be closed in the Indianapolis area.
“Where we have two branches on opposite sides of the street, we will close one, and those employees will join their counterparts in the other building,” Newbold said. “We want to make sure our customers see familiar faces. We were very upfront with our folks and communicated with them that they did not need to fear for their positions.”
Sky has 400 employees in Indiana, while Huntington has 225.
Huntington probably will put the real estate on the market but most likely will avoid selling to another bank, which is normal in these circumstances, Renninger said.
What is unusual is the shakeup involving the top brass, Renninger said. Newbold at Sky moves to regional president of Huntington once the branch signs are replaced in September. Cindy Keitch, current leader of Huntington in Indiana, will remain with the company and take an executive position in Canton.
Further, Sky CEO Marty Adams becomes president and COO of Huntington, but is slated to replace current CEO Thomas Hoaglin on or before Dec. 31, 2009, according to the merger agreement. That caveat might have gotten Adams interested in negotiating with Huntington, Renninger surmised.
“So, in effect, Sky executives will control the overall company and local operations of Huntington,” he said. “That is very rare.”
As reported in IBJ earlier this month, Huntington will give up its local headquarters in Capital Center downtown. The 100 employees based at 201 N. Illinois St. will move to a Sky-owned office building at 45 N. Pennsylvania St.
Sky bought the building last year as part of its $321 million purchase of locally based Union Federal Savings Bank. Sky announced Huntington was purchasing it in December, just two months after completing the Union Federal purchase.
The merged bank is opting for the Sky building because it owns the 75,000-square-foot property, and it has space available. The bank is renovating several floors to accommodate the additional employees, Newbold said.
Huntington signed a 10-year lease extension for its space on the 17th and 18th floors of Capital Center last fall, but bank officials are confident they can find another tenant to sublease the space. The bank plans to keep branch locations open in both buildings.
Huntington grew its local deposits from $553 million in 2001 to $871 million last year, yet languished as the ninth-largest bank in those terms.
“They were probably a little frustrated in not being able to gain any market share, and this leapfrogs them up into the big boys’ neighborhood,” said John Reed, a banking expert and executive vice president of Chicago-based investment firm David A. Noyes & Co.
Acquiring additional deposits, especially in the form of savings and checking accounts, is particularly important in the current environment of competitive interest rates, Reed said.
Banks pay out very little in interest on most savings and checking accounts, giving them access to cheap funds they can lend out at higher rates. More cheap funds help banks become even more competitive and profitable when it comes to lending.
Said Reed: “Any opportunity to pick up funds that don’t cost anything is considered golden.”