While Huntington Bancshares Inc. and TCF Financial Corp. executives say a planned merger between the two companies will create a Midwest banking powerhouse, some experts view it as an opportunity for competitors to gain both business and talent.
Major bank mergers such as Columbus, Ohio-based Huntington’s proposed $22 billion acquisition of Detroit-based TCF Financial typically result in market disruptions that may lead to moves by both clients and talent, said John Rodis, an analyst at St. Louis, Mo.-based Janney Montgomery Scott LLC who covers TCF Financial.
The deal that Huntington (Nasdaq: HBAN) and TCF (Nasdaq: TCF) aim to close in the second quarter — and which will result in the closing of 198 branch offices mostly in Michigan, including all of Huntington’s branches at Meijer Inc. stores — is sure to follow that tendency, Rodis said.
“From all indications it looks like an attractive deal for the most part. But just like in any deal there’s naturally going to be some fallout, and that fallout should benefit the smaller banks,” he said. “For smaller community banks this typically tends to be the sort of gift that keeps on giving. It’s just natural that when you have two banks that have significant market share in Michigan and Grand Rapids, there’s just going to be some fallout.”
The extent of the fallout is uncertain but may become clearer in a few quarters, Rodis said. A smooth conversion between the two banks after the deal closes will determine whether clients opt to move to another bank, he said.
If the conversion goes well, “and the signage just changes, then it’s not that big of a deal,” he said. “These sort of events take some time to play out.”
Shift in focus?
Announced in December, the TCF acquisition would elevate Huntington to one of the 10 largest banks in the U.S. After the deal closes, Huntington would have about $168 billion in assets, $117 billion in loans, and $140 billion in deposits with dual headquarters in Detroit and Columbus. Huntington would base commercial banking operations at the Detroit headquarters while consumer banking would be headquartered in Columbus, according to a merger application filed with the U.S. Office of the Comptroller of the Currency.
Michael Bell, an M&A attorney at Honigman LLP who co-chairs the law firm’s Financial Institutions Practice Group, agrees that the deal could offer “substantial opportunity” for smaller competitors, although he doesn’t see a “mass migration” of key Huntington customers post-acquisition.
Particular opportunities exist for competitors to gain small business borrowers and commercial lending talent if Huntington — which is a national leader in U.S. Small Business Administration lending — puts more focus on the higher end of the commercial lending market and less on the lower end, Bell said.
Whenever a large bank merger occurs, there’s a tendency for the resulting larger institution to shift focus more upmarket, he said.
“Will folks try to react to that and make some moves because of that? Sure,” Bell said.
Huntington’s 502-page merger application notes that the acquisition “offers additional loan opportunities for its small business customers” at TCF, and that the bank plans to build out across the TCF footprint its business banking operation that serves companies with up to $20 million in annual revenues. As well, Huntington in 2019 launched a dedicated business relationship manager team “to provide ongoing support to its growing small business customer base,” according to the merger application.
Both TCF and Huntington have sizable market positions in Michigan, ranking sixth and seventh, respectively, in the Federal Deposit Insurance Corp.’s 2020 summary of deposits. In the Grand Rapids-area market, Huntington ranked second in last year’s summary of deposits while TCF was fourth.
Huntington Bank has 277 offices in Michigan with $17.1 billion in deposits, according to the merger application to the Office of the Comptroller of the Currency, which is one of three federal regulatory bodies that needs to approve the deal, along with the FDIC and Federal Reserve Board. The FDIC lists TCF as having 243 offices in Michigan as of June 30, 2020, with $20.7 billion in deposits.
Opportunities for competitors
Chief executives at two of TCF’s and Huntington’s smaller competitors in West Michigan also see potential opportunities coming out of the deal.
Independent Bank Corp. CEO Brad Kessel called the proposed merger a “material event, obviously, within our markets,” especially given the office closings or consolidations that will occur after the transaction closes.
“Between the two financial institutions, we compete with them in almost every one of our markets,” Kessel said when asked about the deal in a recent conference call on quarterly results. “So that just will be opportunities for talent acquisition and will be opportunities for customer acquisition. I would point to our track record. We’ve had this disruption going on in our marketplace as the industry continues to consolidate for a number of years. And …. we have, I think, been very successful in adding talent and customers to our company.”
Kessel wrote in an email to MiBiz that banking “is still about relationships,” and “these relationships will be up for grabs as the merger moves forward.”
Likewise, Mercantile Bank Corp. President and CEO Robert Kaminski told analysts in a Jan. 19 conference call on fourth quarter results that the market disruption typically seen after bank mergers “does provide some potential opportunities.”
In seeking to capitalize on any opportunity that may arise, the Grand Rapids-based Mercantile will continue to stress its hometown roots and ability to “compete at any level,” Kaminski told MiBiz.
“Certainly, when you have mergers and acquisitions at the corporate level, it doesn’t matter whether it’s in banking or any other industry, there’s bound to be a certain degree of disruption of some kind, especially when you have one that’s of the scope and size of this merger,” Kaminski said. “If there’s any disruption as the merger takes place, people are going to be there ready to take advantage of the opportunity. (Mercantile) is going to play off of our strengths and we’re going to contrast us and the kind of products and services that we can deliver as a community bank. We believe our ability to be nimble is a strong attribute, and we’re going to continue to play toward those strengths.”
The proposed acquisition of TCF “will bring together two banking organizations with highly compatible cultures, business models, risk management systems and dedication to customer service, resulting in a stronger bank holding company that is better able to serve the needs and interests of Huntington’s and TCF’s customers, communities and other constituents,” Huntington says in its merger application.
Given the overlap in branch networks of the two banks, the deal will result in the “necessary consolidation or closing of some branches,” although “customers of the respective banks will not be materially impacted,” according to the merger application that lists all of the 198 TCF and Huntington branches that will either close or consolidate into a nearby offices. A large majority of the branches are in Michigan.
Among them are two dozen West Michigan locations for either bank, including five TCF and one Huntington office in Ottawa County.
In Kent County, TCF offices on 28th Street in Grand Rapids and 84th Street in Byron Center will consolidate into nearby Huntington offices, and Huntington’s main office on Pearl Street in downtown Grand Rapids will consolidate into a TCF office in The Warner Building at 150 Ottawa Ave., according to the merger application.
Four TCF offices and one Huntington branch in Berrien County will close or consolidate into nearby locations, as will one office each for either bank in Kalamazoo County.
Huntington also plans to divest TCF offices in four Michigan markets — Cadillac, Gaylord, Gladwin-Midland and Roscommon County — that have combined deposits of about $375 million.
Citing a need to “mitigate any potentially adverse effects on competition” that’s required under federal regulation, Huntington will divest TCF offices to “one or more depository institutions” that the Federal Reserve and U.S. Department of Justice find to be “competitively suitable,” according to the merger application.
A Huntington spokesperson said in an email to MiBiz that the bank would “maintain our number-one branch position” in Michigan even after the planned branch office closures with the TCF acquisition.