Ind.'s Home Bancorp Hangs Keep-Out Sign on Board

An Indiana thrift company is trying to send a not-so-subtle message that out-of-towners aren't welcome on its board of directors.

Home Bancorp, a $335 million-asset company in Fort Wayne, recently added a two-sentence provision to its bylaws that requires its directors to "have an intimate knowledge of our market area in order to serve the needs of our community."

W. Paul Wolf, Home Bancorp's president and chief executive officer, said the directors decided on their own that it was a good way to keep the bank under local control.

"We're just a small community bank and we want to stay that way," he said.

Though the language of Home Bancorp's director requirement is unique, the concept is not. Lawyers who design anti-takeover measures for community banks say they've been suggesting board-qualification provisions for years.

By requiring someone to reside in the bank's hometown or have "intimate knowledge" of the company's market area, banks may guard against shareholder activists' demanding representation on the board. Local directors also may be more apt to resist hostile takeover attempts, said Jeffrey C. Gerrish, a lawyer with Gerrish & McCreary in Memphis.

"It allows banks to control their own destiny," he said. "It prevents someone from coming in and stirring up the pot."

Mr. Gerrish, who has been recommending anti-takeover provisions for banks for about 15 years, said some banks require directors to live within a 50-mile radius of the bank. Others limit residency to a certain community or county. Current directors who don't meet the new requirements may be grandfathered into the bank's bylaws with the new anti-takeover provisions.

Similar provisions are also popular among mutual thrifts that want to guard against "professional depositors,"-shareholder activists who deposit funds in mutual thrifts and then pressure the thrift to go public.

To make it more difficult for professional depositors to stake a claim in a mutual thrift, the savings association may prohibit nonlocal deposits. Potential depositors must then prove that they live in the community before the thrift will accept their business, said Charlotte Bahin, regulatory counsel for the America's Community Bankers.

The lawyers said that director requirements are legal as long as they are adopted before outsiders attempt to gain a seat on the board. Otherwise, the policies are viewed by the courts as discriminatory.

If the provisions are in place and an out-of-towner challenges them in court, many of them hold up or at least stall the unwelcome party, said Craig McChrohon, a lawyer at Freeborn & Peters in Chicago.

"It's like barbed wire on a beach," he said. "It doesn't stop them, but it slows them down."

But David H. Baris, executive director of the American Association of Bank Directors, said that director-qualification provisions may prevent shareholders from electing the most-qualified directors to the bank board.

"In a community organization, it's certainly helpful for someone to know the local market," Mr. Baris said. "But those aren't the only skills needed."

One banker countered that view, saying that having local bank directors on a community bank board makes good business sense.

John A. Nash, president of Irwin Financial Corp. in Columbus, Ind., said all of the members of the $1.3 billion-asset holding company's Columbus bank live in south central Indiana. Though the company does not have a policy requiring local residency, Mr. Nash said the local board members give the bank valuable insight.

"Our directors are in touch with the market," he said. "They see us operate, and they know many of our customers."

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