Huntington Bancshares Inc. is elbowing into Ohio's crowded supermarket banking sector, striking a deal to bump U.S. Bancorp and other rivals from coveted in-store spots.

Columbus, Ohio-based Huntington has agreed to open at least 103 full-service branches inside stores of Giant Eagle Inc., one of Ohio's top grocery chains.

The rollout could take several years, though Huntington says it will build 26 branches by the end of 2011 in Giant Eagle stores that lack a bank and two more in West Virginia. It will replace other institutions as leases expire inside 75 Giant Eagle stores.

The deal makes Huntington Giant Eagle's exclusive banking partner in Ohio for at least 15 years. At least half a dozen banks currently operate in the retailer's Ohio stores.

"This is a play around convenience," said Steve Steinour, the chairman and CEO of the 600-branch Huntington. "We will have the most branches in Ohio. You know Ohio is our home market. Our distribution will be significantly bolstered."

The move is Huntington's first foray into supermarket banking, a lucrative but tricky business that the $51.8 billion-asset lender hopes will draw customers. It is also the latest salvo in a burgeoning market-share war among Midwestern banks.

Steinour said Huntington could strike deals with other retail chains now, too.

Steinour has been vocal about siphoning customers from other banks since Huntington started making money in the first quarter, after more than a year of losses on bad home loans.

U.S. Bancorp said at its investor day in New York this month that it wants to expand its 806-branch in-store network. Richard C. Hartnack, the Minneapolis company's vice chairman of consumer banking, said at the time that the store branches are crucial "for creating new relationships" and among "the most productive in our system."

Now it stands to lose at least 13 Giant Eagle sites in Cleveland and six in Columbus, according to Giant Eagle's Web site.

"We will be their exclusive partner," Steinour said. "We will replace those banks."

In the case of at least Citizens Financial Group, however, Huntington will have to wait a while. According to a Citizens spokesman, its five Ohio Giant Eagle locations are leased until 2017. (The Ohio announcement will not affect Citizens' relationship with Giant Eagle in other states, most notably Pennsylvania, where the company operates 58 Giant Eagle store branches.)

U.S. Bancorp could not be reached before publication.

Banking in supermarkets can be a good way to gather deposits, if done correctly, experts say. The heavy foot traffic creates an opportunity to draw new customers, and in-store locations are much cheaper to operate than stand-alone branches despite being open much longer hours. Operating expenses can be 25% to 50% a regular branch's costs.

The hangups: In-store tellers must be especially friendly and skillful; new deposits tend to plateau after rising swiftly and hover at a lower level than in stand-alone branches.

Also, well-to-do people and small businesses have tended to be reluctant to use them, so banks can have a hard time selling products and services. Steinour said Huntington's Giant Eagle sites will do everything from gathering deposits to offering mortgages and business banking services — because convenience is becoming more important than ever to customers.

"In-store is certainly one way to sharply reduce operating cost without necessarily giving up the branch entirely," said Robert Meara, a senior analyst at Celent.

Fewer banks have opened stores in supermarkets in recent years after the practice became popular in the 1990s and early 2000s. But this is mostly because banks ran out of big supermarket-chain partners. And it is one reason the deal is a coup for Steinour, who relied on old business connections and an aggressive pitch to win over Giant Eagle.

Huntington currently lacks in-store branches. As of June 2009, 103 branches would have ranked as the 10th-largest in-store branch network in the country, according to data from SNL Financial. U.S. Bancorp has the largest network.

Steinour struck a similar in-store branch deal with Giant Eagle in Pittsburgh in 2001 when he ran Citizens Financial Group. Now he's poised to take back at least two Cleveland sites from that company's subsidiary, Charter One.

"I knew the ownership and management of Giant Eagle," he said. "We're prepared to go in anywhere in Ohio where they have stores."

That attitude is one reason he said Giant Eagle signed the exclusive deal. It sidesteps the uncertainty of having to find a new bank for every store it opens, he said. It makes marketing easier, too.

"It will be a better arrangement than if they have a series of banks," he said.

Steinour declined to discuss financial details of the agreement because Giant Eagle is a private company. He also declined to disclose details about the new branches' size, cost and deposit targets.

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