Chris Murphy, president and CEO of First Source Corp., South Bend, Ind., is the leader of a super community bank with a niche.

"I think the greatest growth opportunities will be our traditional areas of growth. We are a large community bank with a specialty business. Our local basis, our consumer and small-business area will provide the greatest growth over the next three to five years in terms of market-share increases and in revenues generated from additional products and services," he says.

"Our specialty business areas, which include aircraft financing, construction machinery financing, and auto rental-franchise financing, will provide strong growth as well. We do expect continued increases in market share there.

"On the local level we are a beneficiary of the purchase and consolidation of most of our competitors. We are one of the few independent competitors left in our local market area.

"On a national level, the markets we serve are so unique and so relatively small that large consolidated entities do not compete in them."

First Source has found an unusual specialty business to improve its performance, which is quite different from the typical niche play.

Consolidation Helps

"First Source's primary mission is to build customer wealth and increase market share in the primary market that it serves" says Mr. Murphy. As with other super community banks, consoldation is among the best source of growth. As other competitors are purchased by branch networks and megabanks, the super community bank typically experiences a windfall particularly in retail and small business.

Customers who feel disenfranchised from the megabank and look for the service levels and attitude they have been accustomed to move to the super community bank, and First Source is no exception. First Source continues to expand its share even as consolidation in Indiana continues.

Specialty Market

First Source has also identified a specialty business in functional lending, especially aircraft financing.

"Because of our aircraft financing expertise, we're just opening a division serving small aircraft owners. We're financing the purchase of single-engine aircraft across the country .... This is a business we do well, and we believe it can have good operating margins and good credit risks. The purpose of the specialty lending business is to improve margin in a declining spread environment. If the margins continue to erode in some of our other businesses, we will close those down. This will have the effect of increasing margins overall in the company. We have some businesses that have become more and more competitive to where the margins have been squeezed out of them, and we have taken the position that it is better not to be in one of those markets then try to hold ground in a losing situation," Mr. Murphy says.

The profitability and consistent performance which First Source generates through its current franchise, as well as its niche business, allows the company to do things rarely found in the business today, such as refurbishing old branches and building new ones. It appears that First Source still believes in the importance of branches and is prepared to make the investment to make them effective sales outlets and service centers for its customer base in the various communities.

First Source combines a dominant position in its local markets, especially in the consumer and small business markets in its communities, with a national specialty, a successful niche business to yield ongoing consistent performance. "Because we are locally owned with local decision making, we are able to provide a timely response to local needs" says Mr. Murphy. "Our goal is to continually upgrade our services to customers and their communities."

First Source chairman Ernestine M. Raclin, agrees: "Strong performance at First Source reflects both the continued improvement of the overall economy and the success of our efforts to build mutually beneficial, long-term relationships with our customers."

First Source carries out this philosophy profitably. At $1.5 billion of assets, ROA is 1.16%, and asset quality is superior, with chargeoffs of 0.03% of total assets.

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