Officials with the companies in Fort Wayne and here aren't saying one way or the other.
"We have nothing to announce," said Alvin "Kit" Stolen, CEO of Union Federal since 2002. "We officially wouldn't comment or address those kinds of rumors or speculation."
The privately held companies are among the largest financial firms headquartered in Indiana. Union Federal has more than $3.4 billion in assets and ranks as the city's third-largest bank. Waterfield ranked 51st nationwide in mortgage originations in the third quarter.
Analysts and banking observers tab Bowling Green, Ohio-based Sky Financial Group as a possible suitor for Union Federal, and say Long Island-based American Home Mortgage might scoop up Waterfield Mortgage. Neither firm would comment.
A deal for Waterfield may already be in the bag, according to Darli Stoughton, president of the Greater Indianapolis Mortgage Bankers Association.
"It's been confirmed by some Waterfield employees," Stoughton told IBJ. "Some of the Waterfield people have already gotten retention offers from American Home Mortgage."
However, in response to sale speculation, Waterfield Mortgage recently distributed a companywide e-mail saying the company had not been sold. An employee contacted by IBJ confirmed receiving the e-mail.
Both Union Federal and Waterfield Mortgage are facing business challenges. Union Federal posted a $72 million profit in 2003, at the peak of the housing boom, but earned just $34 million in 2004, according to Charlottesville, Va.-based SNL Financial.
In 2005, it lost $12 million in the first half of the year before rebounding to earn $21 million in the third quarter. Union Federal Senior Vice President Mark Nondorf attributed the recent swings to volatile interest rates.
The slowdown in the housing market has also affected the mortgage business. Waterfield's loan originations reached $11 billion in 2003 before falling to $8 billion in 2004 and an estimated $7 billion in 2005, according to Inside Mortgage Finance magazine.
Until 1999, Waterfield and Union Federal were controlled by the family of Fort Wayne financier Richard D. Waterfield, now in his early 60s. That year, the family cashed in part of its stake and brought in other investors, including some of Indiana's best-known businesspeople. Among those scooping up shares were former Eli Lilly and Co. CEO Randall Tobias and current Lilly CEO Sidney Taurel.
At the time, Waterfield described the move as an attractive alternative to selling to an out-of-state financial power.
"We really did not want to sell to one of these big consolidators," he said then. "My family had a great deal of loyalty to the employees that had built careers with us."
The Sky's the limit
The lack of confirmation of deals for Waterfield and Union Federal hasn't stopped analysts from handicapping probable suitors.
Sky Financial already has a Fort Wayne office and has been aggressively buying banks in this part of the country. Since 1991, it's purchased 13 companies, according to data from the federal government and information on its Web site.
"Sky has one of the most proven acquisition models in the Midwest. It would make a lot of sense," said Terry McEvoy, an analyst with New York-based Oppenheimer & Co.
"Sky is one institution among many that is looking to grow in the Midwest," he added. "And the metropolitan markets are much more attractive than any of the rural markets."
But another analyst said Union Federal might be too big for Sky, which has $15 billion in assets.
If it gets out its checkbook, Sky probably would need to pay between $500 million and $700 million, said John Reed, president of David A. Noyes & Co.'s Financial Institutions Group. He said the price could be higher or lower depending on the extent to which Waterfield and Union Federal assets are intertwined.
Sky's largest purchase to date-Warren, Ohio-based Second Bancorp-had $2.1 billion in assets.
Sky already has its hands full assimilating prior acquisitions, said Kevin Reevey, an analyst with New York-based Ryan Beck & Co.
Other analysts say San Francisco-based Wells Fargo could be the lead horse. The bank has 3,000 locations in 23 states, but no branches in Indianapolis. It has five in Fort Wayne.
"It would make sense for [Wells Fargo] to acquire a bank in [Indianapolis]," said Richard Bove, an analyst with New Yorkbased Punk Ziegel and Co. who follows the company. "They've been making acquisitions all around the country of that nature. It's completely in keeping with their growth strategy."
Union Federal, however, may be too small to interest Wells Fargo, said Mike Scott, a senior industry analyst in mergers and acquisitions at SNL Financial.
"Presumably, Wells Fargo would look for a larger target," Scott said. "There's been talk of them merging with Wachovia," a Charlotte, N.C.-based bank with $493 billion in assets.
Analysts are less divided about potential buyers for Waterfield Mortgage. They agree American Home Mortgage is the perfect suitor.
"The concept of American Home Mortgage acquiring a [mortgage] originator like Waterfield is highly likely," said Steven Delaney, an analyst with Ryan Beck & Co. "Since they became a public company in 1999, they've done acquisitions of 10 mortgage companies."
American Home Mortgage originated $13.7 billion in mortgages in the third quarter, ranking it 16th among the nation's biggest originators. Waterfield ranked 51st with $2 billion.
Waterfield would be alluring to American Home, Delaney said, partly because the two firms have a similar mix of business. He said American Home could use the purchase of Waterfield to expand its Midwestern presence.
However, a deal with American Mortgage might jeopardize many of the 750 jobs at Waterfield's Fort Wayne headquarters. American Home Mortgage is known for eliminating back-office positions after it buys companies.
State Rep. Matthew Bell, R-Fort Wayne, whose district encompasses Waterfield's headquarters, said he's heard rumors the company is being sold, but is not aware of layoffs in the offing.
"We would all be very concerned about job losses, especially great jobs like those at Waterfield," he said. "It's been a great company for the region and it's certainly the kind of jobs we like to create."
Union Federal employees, on the other hand, probably would have less to fear, unless a buyer had a major presence here already. Sky isn't known for cutting jobs.