Four months after signaling that it was ready to start buying banks again, Old National Bancorp of Evansville, Ind., has struck a deal that would take it into northern Indiana for the first time.
The $8.3 billion-asset Old National, which has not bought a bank since 2000, said it is paying $75.6 million in cash for the $491 million-asset St. Joseph Capital Corp. in Mishawaka.
Robert G. Jones, Old National's president and chief executive, said it targeted northern Indiana for expansion because it sees more opportunity there than in its existing markets. Old National has more than 100 branches spread out over southern and central Indiana, northern Kentucky, and southeastern Illinois.
"As you think of the growth markets that are available in the state, northern Indiana is where they are," Mr. Jones said in an interview Monday. The deal was announced Monday and is expected to close next quarter.
St. Joseph County is home to several colleges and universities, including Notre Dame University and Indiana University South Bend, and AM General LLC Hummer, which manufactures the popular Hummer truck and Humvee military vehicles, has its headquarters and a factory there.
Mr. Jones said the acquisition would provide Old National with a "platform for growth" throughout northern Indiana. John W. Rosenthal Sr., St. Joseph's chairman, president, and CEO, would stay on after the deal closes to lead its expansion.
"We've asked John, who is going to be our northern Indiana CEO, to think about which markets we go to next," Mr. Jones said.
Though Old National has acquired five insurance firms and one investment company since 2000, it took a long break from buying banks after its rapid expansion in the 1990s.
In 2000, then-president James A. Risinger launched an initiative to improve efficiency that started by consolidating Old National's 21 charters into one. Mr. Risinger resigned in February 2004 after hoped-for earnings improvements did not materialize.
In June 2004 the company announced it was laying off 300 employees and taking a $24 million restructuring charge. Mr. Jones took over as the president and CEO that September and continued to make changes, including cutting loan production offices, delegating pricing authority to regional presidents, and eliminating some managerial posts to gain more direct control over the business.
In June, Old National announced that it promoted Harold "Slug" Clemmons Jr. to senior vice president of the mergers and acquisitions - the first sign that the company was ready to resume acquiring banks.
Old National would pay St. Joseph $40 in cash for each share they own. The deal price is equal to 2.57 times book value.
St. Joseph, which is nine years old, has the No. 3 deposit share in St. Joseph County. It targets small businesses, and Mr. Rosenthal said that once Old National takes ownership, he would be able to offer larger loans and more products to St. Joseph's customers. He also said he would begin soliciting clients that were too big for St. Joseph.
"My marching orders from Bob are quite clear, which are to continue to be what we have been in the past," Mr. Rosenthal said.
Mr. Jones said that Mr. Rosenthal's connections played an important role in Old National's decision to buy St. Joseph. Mr. Rosenthal has been a banker in the area for almost 20 years, and his father was also a banker there and was at one time Notre Dame's athletic director.
"John comes with a great Rolodex," Mr. Jones said.
Kenneth S. James an analyst with First Horizon National Corp.'s FTN Midwest Research Securities Corp. in Nashville, said Old National wants to be the dominant community bank in the state and needs to be in northern Indiana if it wants to achieve that goal.
Still, he said, while location is important, "it is the loan generation from the relationships and ties the lenders have in the community" that would be most valuable to Old National.
