Frustrated that its town had nary a bank branch, a citizens committee in Patoka, Ind., earlier this year invited Casey State Bank in Illinois to open an office in a branch vacated by Union Planters Corp. in 2001.
Jim Niksch, the president of the $124 million-asset Casey, said Patoka residents felt they needed a bank. And Casey executives saw the town — about 30 miles from Casey State’s closest Illinois branch — as a good fit for a bank that focuses on agriculture and rural lending.
Except Casey State Bank is chartered in Illinois and at the time could not branch into Indiana without first getting an Indiana charter.
“There was kind of a firewall between Illinois and Indiana,” Mr. Niksch said.
It came down in August, when Illinois Gov. Rod Blagojevich, a Democrat, signed a law allowing banks chartered in other states to build branches there — if the bank’s home state allows Illinois banks to do likewise. (Previously, banks had to buy into Illinois or apply for a charter.)
This opened up 17 states to Illinois banks, according to an analysis by the Illinois Division of Banks and Real Estate. Most of the interstate branching is expected to occur in Indiana, the only contiguous state with reciprocal law. At least three Illinois banks, including Casey State, have already made plans to branch across the state line.
Casey State is in final negotiations to buy the Patoka branch and aims to open it under the Casey State name sometime in January, Mr. Niksch said.
Gina Williams, a senior bank analyst with the Indiana Department of Financial Institutions, said Indiana banks have had the ability to branch into other states since 1996, “as long as reciprocity was there.”
“It was the Illinois law that prevented branching” into that state, and vice versa, Ms. Williams said.
Getting into Indiana was why Ronald T. Shropshire, the president of the $686 million-asset Great Lakes Bank of Blue Island, Ill., brought the issue up with the Illinois Bankers Association two years ago.
Mr. Shropshire had an opportunity to move across the border but could not because of the old law.
Walt’s Food Store, a supermarket chain, is a Great Lakes customer but had another thrift’s branches in its stores. When the lease ended, the thrift decided to close its in-store branches. Mr. Shropshire wanted to move in to build up the bank’s retail business but was not allowed to under the law.
“The lease in Dyer was up, and that location was going to go dark because the thrift didn’t want to stay and we couldn’t go in there,” he said.
The previous thrift agreed to extend its lease in the Dyer store, and Mr. Shropshire can take over the location when it expires in December. He said he expects to have a branch there in January but that he does not think his Indiana expansion will stop there.
“This would be an initial effort,” Mr. Shropshire said. “We are seriously looking at what other opportunities might be available to us in northwest Indiana.”
Scott D. Clarke, an assistant commissioner in the Illinois Division of Banks and Real Estate, said roughly 10 banks from Illinois and Indiana have contacted the office to ask about the new branching rules. He said Indiana was the only state with a common border that had the same type of law. Illinois banks have branched out of state before, but this law has made it easier.
“We did have some that had branched out of state … but it was through acquisition of another charter, and not through a de novo branch,” Mr. Clarke said.
Indiana banks need to file an application for every new branch, whether in or out of state, Ms. Williams said. So far she has had about four inquiries from Indiana banks looking to enter Illinois.
