Community banking companies in Indianapolis have found themselves in a land of regionals after a spate of acquisitions has taken out a rung of midsize competitors.
The $2.1 billion-asset First Indiana Corp. announced a deal last month to sell itself to Marshall & Ilsley Corp. of Milwaukee, and Harris Bankcorp Inc., a Chicago unit of Bank of Montreal, bought the $1.3 billion-asset First National Bank and Trust in Kokomo, Ind., in January.
Huntington Bancshares Inc. of Columbus, Ohio, increased its deposit share in Indianapolis from 2.5% to over 10% last month by acquiring Sky Financial Group of Bowling Green, Ohio. (Sky had purchased the $2.7 billion-asset Union Federal Bank in Fort Wayne, Ind., in October.)
Once the First Indiana deal closes, out-of-state companies would control more than 60% of the deposits and have the top five shares in the Indianapolis area, according to Federal Deposit Insurance Corp statistics. Just five banking companies would be headquartered in Indianapolis, and the concentrated competition has made some bankers skittish.
For instance, the $683 million-asset Tower Financial Corp. of Fort Wayne cited intense competition when it abandoned plans to open an Indianapolis branch.
National Bank of Indianapolis is in line to become the largest locally based bank, with $1.1 billion of assets, after the First Indiana deal closes. Morrie Maurer, its president and chief executive officer, said tough market conditions are prompting companies to sell.
"Indianapolis has cutthroat competition," Mr. Maurer said. "One by one, my local bank brothers have decided to hang it up."
Some community banks are positioning themselves as the hometown bank to compete against companies with higher lending limits and larger product lines.
James S. Young, the president and CEO of Indiana Business Bancorp, said he will use that tactic to pick up customers and employees.
"Some good, seasoned local banking professionals may have never wanted to work for a $50 billion organization. They could reach out and look for opportunities with current local banks," Mr. Young said.
Bob Jones, the president and CEO of Old National Bancorp of Evansville, said it plans to compete with the new arrivals by positioning itself as the home-state bank, if not the hometown one.
"There's a pretty strong faction of clients that want to deal with an Indiana bank," Mr. Jones said. "We pay taxes in Indiana. We support charities in Indiana. I think that resonates very well with both corporate and retail clients."
Old National has been in the Indianapolis market for about seven years. It has 13 branches there, including four it opened in the last two years.
Mr. Maurer said National Bank competes by focusing on professionals, affluent households, and small businesses.
"We focus on target market segments, and we provide the highest level of personal service," he said. "We have experienced bankers and extremely low turnover."
Though his privately held bank might attract attention from potential buyers, Mr. Maurer insisted that it would remain independent. "Our bank is not for sale."
The market disruption caused by the acquisitions should help his bank grow, he said. "As policies are changed and decisions move from Indianapolis to out-of-state headquarters, there are always groups of customers who don't like it, so I see opportunity."
John C. Reed, the president of the financial institutions group at David A. Noyes & Co., in Indianapolis, said the dealmaking can benefit local banks.
"The banks have thrived locally — and this has been the case in a lot of other markets — in part because their customer base and their employee base felt disenfranchised when an out-of-state bank acquired the bank they were with," Mr. Reed said.
Small businesses in particular like to deal with decision makers, who are remote when a bank's headquarters are out of state, he said.
Also, lenders with acquired banks are often unhappy as part of a large company and leave, taking their relationships with them, Mr. Reed said. "A lot of them are very happy to leave a very large bank, where they are just a foot soldier, to be a senior lender at a small bank."
Carving out even a small slice of loans from a big banking company like M&I can make a huge difference to a community bank, he said.
First Indiana has $1.7 billion of loans, and even though M&I would be aggressive in trying to keep that business, it would not retain every loan customer, Mr. Reed said. "If they lose 10% of that because customers just split, that is $167 million in loans."
Indianapolis is the seat of the state government, and the businesses headquartered there include the pharmaceutical maker Eli Lilly & Co. and the benefits company WellPoint Inc.
"There is pretty good economic activity here," said S. Joe DeHaven, the president and CEO of the Indiana Bankers Association. "Indianapolis has had a pretty progressive local government, amenities that attract people, professional sports, some arts, and the racing scene is pretty prevalent here," because of the Indianapolis Motor Speedway.
Despite the small number of locally based banking companies left, Mr. Jones said he sees more deals in the offing.
"I think there is going to be a slugfest for a while, because everybody is coming," he said. "It is going to be an extremely competitive environment for a couple years."
