Sky Financial, formed after the merger last summer of two Ohio banks and the winter acquisition of a third, is in the process of closing two more deals. Its aggressive strategy is blending core banking and aggressive feebased businesses, and is turning the bank into a multi-service financial contender.

CEO David Francisco likens the firm to a mini Norwest, touting a strong sales culture and a belief in growing the banking business through acquisitions, but pointing to an emphasis on fee-based income.

The merger of $1.7-billion-asset Mid Am Bank of Toledo with Citizens Bancshares of Salinaville’s $1.9 billion, and the December acquisition of The Ohio Bank of Findley plus the pending acquisitions of Wood Bancorp of Bowling Green and First Western Bancorp of New Castle, Pa., bring the company’s heft to $7.3 billion. The latter two deals are scheduled to close in the second and third quarters, respectively. The company has melded nine charters into three, and will become the seventh-largest bank in Ohio, a state with several big players, including National City, Fifth Third, KeyBank and the old Bank One.

"We made a decision three or four years ago that traditional banking business is becoming more and more commoditized, and with pressure on margins going forward, we know we’re not going to grow our net income on banking 15% a year. We have to augment that and the other piece is fee-based businesses," he said.

One of the bank’s goals is to grow earnings per share (EPS) at 12-15% a year. Management’s thinking is 10-11% will come from the core banking franchise, a couple more out of acquisition efforts and the last few from the fee-based businesses. Other goals are to continue to operate in the top quartile of U.S. banks in earnings, revenue growth, efficiency and asset quality.

The company’s performance has impressed industry analysts, garnering a favorable rating from banking specialist Keefe Bryuette & Woods’s analyst Brock Vandervliet. Vandervliet upgraded his Feb. 9 rating of "attractive" to "buy," the firm’s highest rating, last week upon analysis of the company’s first quarter performance. He said he expects the company’s stock to trade at $33 a share one year from now, a roughly 27% increase from the current price of $25.75. The company competes in the rural markets of Ohio and Pennsylvania and has a limited presence in Michigan and West Virginia.

In the last three years the company has built up mass, either acquiring or building from scratch nine subsidiaries in such diverse businesses as specialty health finance and plain old credit insurance. The companies are in the process of getting name changes to include the word Sky.

The company’s next move is the acquisition of a full-service insurance agency to augment the credit insurance business, expected to be announced in the next several weeks. Francisco said the company is actively shopping for a company with $8 to $10 million in commission revenue and, most importantly, canny management.

"There is lots of potential for us to expand in the broad-based insurance. We can do a lot of business referrals once we get this in place," Francisco said, describing it as "another industry in the early stages of consolidation." The new company would be added into Sky Insurance which operates in Ohio and Michigan.

In addition to the credit insurance, the company has Mid Am Title Insurance Agency, which operates only in Michigan. That company will remain separate from the other insurance business.

Francisco said one of the nice things about now being reasonably large is having extra money to spend on "experiments" such as acquiring local Internet service provider ValueNet. The bank bought the concern to see if it could lure the service’s 1,800 customers who were not already with the bank into the fold. The cost of the experiment (roughly $200,000) and the amount it brings in–enough to break even–is not so important, Francisco said.

"It’s the concept we’re trying to prove. If it works, we’ll do 10 more," he said, adding that the landscape is littered with small local Internet service providers.

Another interesting chance Sky took was starting its own specialty finance company, Mid Am Credit Corp., which provides financing mainly for dentists. The Columbus-based venture is now the number two provider of loans to dentists nationwide, with $135 million in volume, earning $4.5 million last year. "Neat thing about a company investment of $300,000," Francisco said. "I’d take six more, please."

Other businesses the bank has are not the big money makers Mid Am Credit Corp. is, but are critical pieces of the overall mix the bank offers customers, Francisco said. The bank’s brokerage business, Sky Investments, based in Bryan, Ohio, is a full-service broker dealer in 19 states and in the bank’s branches.

The company also has a collection company headquartered in Florida, Sky Asset Management, which is on the cusp of being profitable, Francisco said, pending some infrastructure work. Mid Am Financial Services Inc., based in Indianapolis, is a B, C and D mortgage lender which helps the bank keep customers whose credit exposure it might not want on the balance sheet. The bank does not do portfolio loans, instead selling them to a wide variety of buyers on a flow basis. Although at the break-even point now, budgeted to make $600,000 this year, the division probably has as great a potential to be a big money maker as any of the other start-ups, Francisco said, because it is volume driven.

"We’re three times as big as we were at the start of 2008," said Francisco. We have a much larger core bank base to cross sell these other services through. We got all the pieces in place, we’re comfortable with it, now we have to go and sell the living daylights out of it and make it happen."