First Merchants has sights set on metro area growth

Emboldened by a couple of key acquisitions, Muncie-based First Merchants Bank is aiming to further expand its footprint in the Indianapolis area.

New markets under consideration include Zionsville and Greenfield, to fill voids in service areas, while also exploring additional locations in Carmel, Greenwood and Plainfield, where First Merchants already has branches.

The goal of the expansion, which could begin within the next year, is to grow market share in the metropolitan area by focusing on the surrounding communities, said President and CEO Mike Rechin.

Rechin wouldn’t divulge where the bank ranks locally in terms of assets in the Indianapolis area. However, he said its Indianapolis operations account for $950 million of the bank’s $4.2 billion in assets. The local figure is up from $250 million five years ago.

First Merchants has no branches in Indianapolis and 17 in the seven counties surrounding Indianapolis. All but two of the bank’s 80 locations are in smaller Indiana cities similar in size to Muncie.

“We think Indianapolis is our most attractive market to grow,” Rechin said. “We’ve convinced ourselves and have proven that we can compete here very well.”

First Merchants’ Carmel location, where much of its commercial lending activity occurs, has been key to the growth.

Since 2007, First Merchants has risen from the Indianapolis area’s 20th-largest bank to the eighth-largest based on number of employees, according to the most recent IBJ statistics.

The bank arrived on the west side by snapping up the 14 branches of Plainfield-based Lincoln Bancorp in September 2008 for $78 million.

First Merchants followed up with its purchase earlier this year of $117 million in loans from failed SCB Bank in Shelbyville while assuming $136 million of its deposits. It also purchased SCB’s main office and plans to open a second location in Shelbyville by the end of the year.

The foray into Shelby County helped solidify First Merchants’ position south of Indianapolis. It has four locations in Greenwood and one each in Mooresville and Morgantown.

Now Rechin has his sights set on Boone and Hancock counties, to give First Merchants a presence in each doughnut county surrounding Indianapolis.

Rechin’s strategy of building along the outer loop of counties makes sense to Mike Renninger of Carmel-based financial consultancy Renninger & Associates LLC.

“Do you expect to see them on every street corner in Marion County? Mike Rechin would probably tell you no,” Renninger said. “They can do far better serving the outlying areas and cherry-pick.”

Zionsville would help First Merchants link its presence in Hendricks County with its offices in Hamilton County.

A Boone County location also would expand First Merchants’ market from Indianapolis to Lafayette. The bank has one branch each in Frankfort and Crawfordsville, and 20 in Lafayette from its 2001 acquisition of Lafayette Bank & Trust Co., whose name First Merchants kept.

A location in Greenfield would fill the gap between Hamilton and Shelby counties.

Any expansion First Merchants embarks upon could be achieved either organically or through acquisitions.

“We won’t match the branch numbers of PNC [Bank] or Fifth Third [Bank],” Rechin said, “but we want to have more.”

Rechin and several of his top executives have a big-bank background, however.

Rechin joined First Merchants in 2005 after spending 10 years at the Indianapolis office of PNC predecessor National City Bank, where he was executive vice president of corporate banking.

Mike Stewart, First Merchants’ chief banking officer, also came from National City and had worked with Rechin in the past.

Their target commercial customer at the smaller First Merchants is midsize companies with annual revenue up to $75 million.

The executive office at 103rd and Meridian streets in Carmel boasts 75 loan officers, prompting Renninger to question whether First Merchants can stay true to its Muncie roots.

“Sooner or later, do they rebrand themselves as a Carmel-based bank or an Indianapolis-based bank?” he wondered. “I don’t know.”

What is clear is First Merchants’ recovery from the economic rebound.

The bank in September repaid $116 million in Troubled-Asset Relief Program, or TARP, funds. It also has raised $21 million in equity and posted a strong first quarter.

Wall Street is beginning to take notice. In late April, TheStreet Ratings upgraded First Merchants stock to “buy” from “hold,” citing growth in profit, improved profit margins and notable return on equity.

“Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results,” the rating service said.

The bank’s stock has nearly doubled in the recent months, rising from $6.75 in August to $12.67 in early May.

“I think we’ve gotten a lot of people’s attention as an alternative to larger banks,” Rechin said.•