Hoosier banks from outside the Indianapolis area are piling into the market with branch locations, and with no let-up in sight.
Take MainSource Bank. The Greensburg institution nibbled at the metro area with branches in Shelbyville and rural Johnson County, and now is aiming straight for the heart of downtown with a storefront location in the Barnes & Thornburg building.
“We felt it made sense to establish a presence in the primary commerce center and central nervous system of the state,” CEO Archie Brown said. “We wouldn’t want to choose a little site out in Carmel like everybody else does.”
MainSource and competitors including Horizon Bank in Michigan City, Muncie-based First Merchants Bank and Warsaw-headquartered Lake City Bank are coming to Indianapolis for a reason. They want to grow.
Total bank deposits in the nine-county Indianapolis area rose nearly 23 percent, to $32.3 billion, in the four years ended in June 2011, according to the latest Federal Deposit Insurance Corp. figures. Deposits in the rest of the state increased at only a third the rate—8 percent, to $67.2 billion.
Worse, deposits shrank in 15 of the state’s 92 counties and were virtually flat in a handful of others.
Pushing into new markets can pay off. Star Financial Bank moved its headquarters to Fort Wayne from General Motors-dependent Marion in 2000 and saw its assets nearly double, to $1.7 billion. At the same time, it gained market share, as measured by deposits, in Marion and became one of the largest locally based banks in Fort Wayne.
Banks outside the Indianapolis area are not moving their headquarters here, but they are exploiting a tradition dating to the acquisitions of the big three Indianapolis-based banks: American Fletcher, Indiana National and Merchants National.
As those banks were snapped up by institutions including JPMorgan Chase and PNC, other out-of-state banks moved in to take advantage of the market. Today, out-of-state banks—JPMorgan Chase, PNC, Fifth Third, Huntington National and BMO Financial—hold the top five spots and 67 percent of the market.
Meanwhile, new rivals emphasizing local ownership popped up. One of them, The National Bank of Indianapolis, is now the largest locally headquartered bank, with $1.2 billion in deposits.
The leftovers offer plenty to grow a community bank, said John Reed, president of the investment banking group at David A. Noyes and Co. Reed formerly oversaw financial-industry transactions for the firm.
The typical break-even point for a bank branch is $20 million in deposits, Reed said. So a community bank has to capture less than six-tenths of 1 percent of the metro area’s deposits to justify the investment.
“It’s a lot more expensive to build an office in Indianapolis than in east nowhere, but the prospect of getting up to critical mass in a reasonable amount of time is probably greater than it is in east nowhere,” Reed said.
The encroaching community banks differ in their strategies.
Lake City Bank established its first retail presence here in November with an 11,000-square-foot office at the prominent intersection of 96th and Meridian streets and already has more than $60 million in deposits, CEO David Findlay said.
The north-side location made sense because Lake City focuses on lending to physician practices and small manufacturers, which are concentrated around Park 100, Findlay said. The bank’s loan office, in the same area since 2006, had $100 million in commercial loans outstanding before Lake City established its retail presence.
Lake City plans to add one branch office—Findlay wouldn’t say where—every 12 to 18 months, and is not looking for acquisitions.
First Merchants has expanded quickly in the northern, western and southern suburbs, partly through acquisitions. Its 2008 purchase of Lincoln Bancorp in Plainfield added a Hendricks County presence. More recently, it bought the loans and deposits of the failed SCB of Shelbyville.
First Merchants CEO Mike Rechin has said he’s looking to fill in the gaps with branches in Boone and Hancock counties.
The institution also has a sizable loan operation in Carmel, which has helped grow its local asset base from $250 million to $950 million over five years. The Indianapolis area now accounts for more than 20 percent of the bank’s $4.2 billion in assets.
Horizon Bank is taking a similar approach, though it’s just getting started. Horizon closed on its purchase of Johnson County-based Heartland Bancshares in July and will continue to operate under the Heartland name.
Horizon Chief Financial Officer Mark Secor has said the bank is looking for more acquisitions.
The newcomers play up the fact that they are Indiana banks. Reed thinks that’s what many small-business owners want to hear when they’re looking for loans.
“They’re just completely turned off at the prospect of going to a PNC or a Chase or something like that,” he said. “The decision, it keeps getting bumped uphill until it’s a thousand miles away.”
Market hard to ignore
Central Indiana is not the only region of the state where banks can find growth, but its dominance is difficult to ignore.
In the first decade of the millennium, the population of Hamilton County grew 50 percent, to 274,569. While migration from Indianapolis accounted for much of that growth, Marion County’s population still increased 5 percent.
Fort Wayne saw healthy but less-rapid growth over the time frame, increasing 23 percent, to 253,691.
Evansville declined slightly to 117,429, and surrounding Vanderburgh County grew 4.5 percent, to 179,703.
MainSource’s home base of Decatur County grew less than 5 percent over the decade, to 25,740 people.
Despite a new Honda plant opening in Greensburg in 2008, bank deposits in Decatur County increased only 12.4 percent between June 2007—six months before the onset of the Great Recession—and June last year.
Of course, MainSource doesn’t rely solely on that one, rural market. It has a presence throughout southeastern Indiana, plus Dayton, Ohio, and Frankfort, Ky.
MainSource’s Brown hopes the downtown Indianapolis office will generate loans to small and medium-size businesses and private wealth clients. “We’re not going to be a big retail, consumer player.”
Delaware County, where First Merchants is based, saw its population shrink slightly, to 117,671. Horizon’s home base of LaPorte County eked out a 1-percent increase, to 111,467.
The long-term future looks brighter for the Indianapolis area.
Hamilton County will double in size by 2050, surpassing Lake and Allen counties, according to Matt Kinghorn, a demographer at the Indiana Business Research Center in the Kelley School of Business at Indiana University.
Hendricks, Boone, Johnson and Hancock counties will round out the top five in population growth, Kinghorn predicts.
Metro areas in the four corners of the state will grow more modestly, by 20 percent to 25 percent, Kinghorn said in a report published this spring.
Not just Indianapolis
Bankers aren’t ignoring other metro areas, especially those within easy reach.
Before Indianapolis, Lake City looked to Fort Wayne, where its market share parallels Star Financial’s, and the South Bend-Elkhart area. Early this year, the bank opened a regional headquarters in downtown South Bend.
“The opportunities we have in Warsaw, Elkhart, South Bend, Fort Wayne … are no less than they were,” Findlay said. “Indianapolis is another expansion opportunity to help us grow our balance sheet.”
MainSource solidified its presence in Columbus, Ind., long before it set its sights on downtown Indianapolis. The bank entered the Columbus market in 2009 after Irwin Union failed.
“Three years later, we have about $100 million in deposits with two full-service offices,” Brown said. He added that MainSource plans to add a third Columbus office early next year.
While Columbus isn’t a fast-growing city, the large number of engineers and other professionals working at Cummins Inc. makes it attractive. At $45,481, the Columbus area had the highest average wage in the state last year.
Columbus has also caught the attention of Evansville-based Old National Bank, the largest Indiana-based bank. Old National announced this year its plans to acquire Columbus-based Indiana Bank & Trust.
“There isn’t a bank in the world that doesn’t want to be in Hamilton County,” said Randy Reichmann, president of the Indianapolis region for Old National. “If you’re going to be the Indiana bank, you’ve got to be more places than that. Columbus is one of them.”
Old National set its sights on Indianapolis in the early 2000s after maxing out its growth potential in Evansville.
The bank built 10 branch offices in the area between 2000 and 2008, Reichmann said. Then it bought CharterOne, which had 65 locations, most of them in grocery stores.
Old National, which has $8.6 billion in assets, filled out its statewide presence by acquiring St. Joseph Capital in 2006 and Monroe Bank, which was the largest Bloomington-based bank, in 2010.
Old National is ninth in the Indianapolis market, with $758 million in deposits.
Reichmann said he’d like to move up the list, possibly through further acquisition. “We definitely feel like there’s more opportunities to be had in Indianapolis.”•