Region’s financial institutions say growth opportunities plentiful in Northwest Indiana
From airlines to hospitals, many industries have undergone consolidation, and the banking industry is no exception.
Acquisition and merger activity have helped decrease the number of banks overall in Indiana and throughout the nation, but the trend has presented growth opportunities for some regional banks in Northwest Indiana.
One example is Michigan City-based Horizon Bank, which has acquired 14 banks in the last 17 years. Most recently, it purchased Salin Bank in Indianapolis for $135.3 million earlier this year.
The acquisition of Salin has put the 146-year-old Horizon Bancorp Inc. at $5 billion in total bank assets. The milestone represents a double-digit compounded annual growth rate of 12.63% from assets of $532 million at the end of 2000. The company also has expanded into 11 new markets.
Paul Freeman, executive vice president of the Indiana Bankers Association, said acquisitions like the ones Horizon Bank has completed are not new.
“The acquisition activity has been a trend for the last 20 years,” he said. “When I started working here (at the banking association) 32 years ago, we had 360 members. Today, we have 125.”
The last time a new bank was chartered in Indiana was 15 years ago, Freeman said.
For banks looking to expand, one well-tread pathway is to expand into complementary markets.
“In search of that growth, mergers and acquisitions and bricks-and-mortar locations are the strategies that banks have to grow,” Freeman said.
Growth through acquisition
Horizon Bank has been acquiring other banks, and they are not done yet. Craig Dwight, Horizon’s chairman and chief executive officer, said the company is continuing to look for purchase opportunities in Indiana, northwest Ohio and central Michigan.
“We want to be a regional player in those areas,” he said.
In a similar move, Peoples Bank SB has been expanding its reach during the past five years. It acquired First Federal Savings Bank in 2014, with locations in downtown Hammond and Highland, and relocated the Highland branch to a new custom-built building in 2017. In 2015, it acquired Liberty Savings Bank.
The bank purchased First Personal Bank in 2018, and now has Illinois locations in Orland Park, Chicago (Garfield Ridge) and Lemont. Their most recent purchase was A.J. Smith Federal Savings Bank, with two locations in Orland Park and one in Midlothian.
Benjamin Bochnowski, president and CEO of Peoples Bank, said their acquisition strategy is geared to helping the bank continue to thrive while maintaining a regional identity.
“As we strive to remain an independent community bank, we are strategically expanding our footprint through acquisitions and by building new banking centers,” he said. “The banks we acquired were a natural fit and shared the same values and commitment to the community as we do.”
He said all the banks they’ve taken over are within a 60-mile radius of their corporate center in Munster. Before the acquisitions, Peoples Bank had 12 banking centers. Now it has 22 in various communities in two states.
Another financial institution that is growing through acquisitions is South Bend-based Teachers Credit Union, which was founded in 1931.
In April 2019, it announced it will acquire New Bancorp Inc. the holding company for New Buffalo Savings Bank, in all-cash transactions. New Buffalo has bank branches in New Buffalo, Sawyer and Three Oaks, Mich.
Purchase of the entity, which had $119.5 million in assets, will increase TCU’s total number of branches to 57.
As of 2018, TCU boasted $3.2 billion in total companywide assets compared to $3.1 billion in 2017. Its total membership grew from 295,339 in 2017 to 301,001 in 2018.
While some banks are growing through acquisitions, one large Region-based player is taking a different route.
Instead, Centier Bank, which was founded in 1895, is focusing on bringing new branches to well-populated areas. It has 62 branches throughout northern Indiana. It opened a Michigan City branch in July, and plans to open new branches in Elkhart and Fort Wayne this fall.
Mike Schrage, CEO, chairman and president, said the family-owned bank has not done an acquisition since 1982 and has no plans to do any.
Centier is not for sale, but other small family-owned banks have been looking to get out of the business.
For family-owned institutions, Dwight said one motivation to sell is when they don’t have a succession plan or a family member interested in taking over the business. Other reasons are antiquated technological systems and the inability to keep up with new threats like cybersecurity breaches.
“We’ve acquired some small banks that don’t have an interest in mobile banking and that’s an expectation that customers have today,” Dwight said.
Another pressure on banks comes from increased regulation. Forty years ago, mortgage-closing documents consisted of 12 pages. Today there are 230 pages, he said.
Dan Rousseve, senior vice president and chief information officer for TCU, said becoming a larger entity can help the acquiring bank deal with some of the regulatory pressures.
“A lot of these consolidations occur so banks can find the economies of scale and efficiencies to address the regulatory and compliance requirements,” he said.
As banks look for acquisitions, they focus on markets and regions that already align with their existing businesses. For Peoples Bank, the move into Illinois, where some of their customers already hailed, seemed a natural fit.
“Developing a physical presence (in Illinois) was a natural next step,” Bochnowski said. “It gives us a better opportunity to serve all of our customers and make banking with us more convenient for everyone.”
Rousseve said his company’s move into Michigan allows them to serve customers who already are comfortable with the brand.
“It’s a way to leverage the established New Buffalo Savings brand,” he said. “We can continue to grow and foster the relationships that are already there.”
Rousseve said one benefit TCU will bring to the New Buffalo market will be the conveniences that come with being part of a larger entity.
“They had three or four ATMS, but now they’ll have access to hundreds of ATMS, surcharge free,” he said. “It’s about giving them access to a broader, larger network and more convenient services.”
Still another pressure banks face comes from flourishing fintech companies that offer loans and other financial services.
“The internet has opened up loans with many new and different options,” said Freeman, of the Indiana Bankers Association. “There are a lot of nonbank (financial) entities that use the internet as their marketing vehicle.”
To address the competition from the internet, TCU recently hired a vice president of digital delivery.
“It’s about meeting our members where they are today,” Rousseve said.
Schrage said Centier also has invested in digital banking.
“We have all the digital banking bells and whistles for our clients — especially the Millennials and Gen Zs who rely on that more than the older generation,” he said.
Though bankers acknowledge the demand for digital banking, they all maintain that customers still want to interact face-to-face with another person.
“At Peoples Bank, technology enhances our customer experience, but it will never replace the personal relationships that we continue to build with our customers,” Bochnowski said.
He said the focus of Peoples Bank is on providing a range of ways in which a customer can do their banking.
“Customers have different banking preferences, and we offer alternative banking solutions so they can choose how and when they want to bank,” Bochnowski said. “While we realize that customers want alternatives for certain transactions, such as depositing checks, we are here for them when they are looking for trusted advice.”
Schrage said Centier also takes pride in getting to know their customers.
“We specialize in personal service. That’s our differentiator,” Schrage said. “It attracts people who want the long-term relationship experience.”
Many customers want to meet with a banker in person to discuss larger issues such as purchasing a first home or planning for retirement, the bankers agreed.
“I think that the important thing is that customers can still troubleshoot with someone who lives in their community and who knows their community,” Dwight said. “People still want person-to-person contact.”
Consolidation might lead to fewer options for consumers down the road, but the bankers said the opposite is true, and in fact, might create more opportunities. When an acquisition occurs, small businesses might find greater access to capital for loans to help them fund their own growth.
“Businesses will be able to take on much larger projects and the initiatives that their customers want to do,” Rousseve said.
Freeman said having fewer banks overall will not likely have an impact on the Northwest Indiana/Chicago regions where many banking options still exist despite consolidation.
“In Northwest Indiana, with its proximity to Chicago, there are probably 50 banks to choose from,” he said. “If you go to rural Indiana, that’s not going to be the choice. Technology (digital banking) is filling the void for some of these communities.”
All the bankers said their relatively small size and community connections are pluses, and even may appeal to a generation that is known for its expectation of service at the swipe of an app.
“We’re an alternative to the big banks — without being these gigantic organizations that are out of touch with the communities they serve,” Rousseve added.
The banks also foster relationships with customers by actively participating in the communities they serve.
“We encourage our employees to be active in the community and to be present at events,” Dwight said.
Rousseve said TCU employees are heavily involved in charitable organizations that do good and partner with organizations that provide fun things to do in the community.
Dwight and Rousseve said their respective institutions are continuing to look for markets to expand. Schrage said the focus of his bank, which posts growth between 8% and 10% annually, is different.
“That (acquisition) is an easy expansion route, but it’s very disruptive to the culture,” he said. “The legacy I want to leave is the culture not how big the bank is.”
Representatives from the Region’s largest financial institutions might have different strategies on growth. But they all agreed that they don’t want to lose the community commitment, which makes them stand out from the megabanks.
“We want to provide an alternative to the big banks,” Rousseve said.