With its victory in the bidding war for Fina Bancorp Inc. in Valparaiso, Ind., 1st Source Corp. would vault to the top deposit-share position in one of its markets and the No. 2 position in another.
But the South Bend company has ambitions beyond its home state.
It has a specialty finance business that does equipment lending for trucking, aircraft, and mining companies that operate nationwide, as well as in Latin America. Christopher J. Murphy 3rd, 1st Source’s chairman, president, and chief executive officer, is not tipping his hand, but he said that the business — which accounts for about 54% of its overall loan portfolio — helps his company scout out potential areas for expansion.
“It gives us a peek into those markets and an understanding of the robustness of those markets,” Mr. Murphy said.
For now, though, 1st Source’s focus is on integrating Fina, the $605 million-asset parent company of First National Bank, Valparaiso.
The $135 million acquisition, which would be 1st Source’s first whole-bank one in more than a decade, would move 1st Source from No. 8 to No. 1 deposit share in Porter County and from No. 5 to No. 2 in La Porte County, according to statistics from the Federal Deposit Insurance Corp.
The $3.8 billion-asset 1st Source has 61 branches in Indiana and seven in Michigan. First National Bank, Valparaiso, has 27 branches in three Indiana counties.
The deal is “right in line with our strategy,” Mr. Murphy said. “We wanted to continue to fill out our presence in the footprint we now serve.”
The price works out to about 1.96 times First National’s book value. The deal is expected to close next quarter.
The added deposits could help 1st Source lower its cost of funds. To keep pace with loan demand, it nearly doubled its brokered deposits last year, to $80 million at yearend, and it more than quadrupled its Federal Home Loan Bank advances, to $26 million, according to FDIC data. Its cost of funds in the fourth quarter rose 110 basis points from the same quarter in 2005, to 3.48% of earning assets.
First National’s funding costs also rose, but not by nearly as much, and its loan-to-deposit ratio is significantly lower than 1st Source’s.
Wayne Welter, the chief executive officer of First National Bank, Valparaiso, said his family has been the bank’s majority owner since 1974 and decided to sell because “it’s time.” He also said that 1st Source beat about 20 other bidders, but that all the bids were close.
“It worked out great in the sense that the competitors were all very close which allowed us, the sellers, to choose 1st Source for nonfinancial aspects,” Mr. Welter said.
Specifically, Mr. Welter said that 1st Source has promised to establish a regional headquarters in Valparaiso, which means that much of First National’s staff would keep their jobs.
First Source’s last whole-bank acquisition was in 1995, but it is unlikely to wait another 12 years before making its next one. Mr. Murphy said that his company plans to look at growth opportunities in its markets, but that it also hopes, within the next few years, to make a deal outside the upper Midwest.
“We’ll look for some markets away from here that are somewhat countercyclical to durable goods and automotive manufacturing,” he said.
