Banking & Finance

BEHIND THE NEWS: Bank plays the 'local' card, but will it succumb to sale?

March 6, 2006

An in-your-face ad campaign that First Indiana Corp. rolled out last month highlights the Indianapolisbased bank's local roots and leaves the distinct impression it won't be accepting a buyout offer anytime soon. Rhetoric or reality? Time will tell. "If you run an Indiana business, you need an Indiana bank," reads one of the ads. It continues: "Remember when your local bank was actually local?"

First Indiana executives and directors are savoring the sale of Union Federal Bank, which leaves First Indiana as the largest homebased financial institution, based on deposits.

Privately held Union Federal gave up that distinction early last month, when it agreed to be purchased by Bowling Green, Ohio-based Sky Financial Group. The Ohio bank will pay $330 million for Union Federal and its Fort Wayne-based parent, Waterfield Mortgage.

"We thought this would be an opportunity to make a little bit of a stir," First Indiana's David Lindsey said of the ads.

Lindsey has been with the company 23 years and now serves as executive vice president of First Indiana Bank. That means he's seen all of Indianapolis' other marquee banks disappear-American Fletcher in 1987, Merchants National in '91, Indiana National in '92, Peoples in '99 and now Union Federal.

Should we make room on the list for First Indiana?

"We are here as long as we are supported and successful," Lindsey said.

These days, the bank seems both. First Indiana faltered a few years ago after its aggressive push into commercial lending triggered a torrent of soured loans. But new CEO Robert Warrington has righted the ship, awakening the company's slumbering stock.

Since the beginning of 2004, First Indiana shares have appreciated 81 percent, compared with just 32 percent for the Russell 2000 Financial Services index. In January, the company announced a five-for-four stock split.

Now, with the Union Federal moniker set to disappear from the banking landscape, First Indiana is poised to play the local card for all it's worth. One of the ads reads: "We're proud to be an Indiana-owned and -operated bank, with decision makers located here, not in another state."

First Indiana's largest shareholder, the McKinney family, has long championed the bank's independence. The biggest holders of stock are Robert McKinney, 80, and his daughter Marni McKinney, 49-neither of whom could be reached for comment.

Lindsey said: "The McKinney family and our board think there is a place to maintain a local bank in this market."

But veteran observers of Indianapolis banking know not to put too much stock in such statements. For starters, First Indiana's turnaround under Warrington positions it to reap a fat price in a buyout. The shares are fetching about $27 apiece these days, giving the company a stock market value of $466 million.

And nearly every big Hoosier bank that ultimately sold played up its local headquarters beforehand. When Peoples accepted a $227 million buyout from Cincinnatibased Fifth Third Bancorp, it was running ads boasting, "We have roots where others have branches."

How did Peoples CEO William "Mac" McWhirter explain the about-face? The offer was too good to refuse. The McKinneys might one day say the same thing.

Sweet times for software maker

Software maker Interactive Intelligence Inc. suddenly has a hot stock.

Interactive on Jan. 30 announced fourth-quarter results far exceeding investors' expectations. Profit was $1.8 million, up 250 percent from the same period a year earlier. Sales were $17.5 million, up 22 percent.

The company's shares have climbed steadily since. They were trading March 2 at $9.19, up 75 percent since the earnings release. Raymond James analyst Mike Latimore said in a report that the stock might hit $10 within 12 months.

Interactive is enjoying sales success with its core product-software that helps firms manage call centers-as well as with a newer offering targeting telephone communication via the Internet.

Also helping to win over investors: During a Jan. 30 conference call, the company outlined how it expects to perform the rest of the year. It was the first time the company had provided that guidance since its 1999 initial public offering.

"That kind of stunned investors on the call," CEO Don Brown told IBJ's Peter Schnitzler. "Our confidence gave them confidence."

Hurco shares take huge hit

Hurco Cos., the maker of computercontrolled machine tools, had been delighting investors in recent quarters.

So when the Indianapolis company on Feb. 23 reported disappointing results for its fiscal first quarter, they savaged the stock. That day, Hurco shares closed at $27.52-down $8.35, or 23 percent.

Sales for the quarter reached $31.9 million, shy of the $36.75 million one analyst had projected. Profit was $3 million, or 48 cents a share-6 cents a share less than the analyst's estimate.

Even with the plunge, Hurco shares are up 180 percent since May.
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