CHICAGO, IL - March 24, 2010 - Capital Insight Partners, an investment bank and consultancy specializing in community banks with up to $3 billion of assets, today announced the release of its analysis of Indiana economic trends and community banking market. A free copy of the report is available for download at: http://www.capitalinsight.com/connect/IN_Bank_Market_Overview.pdf.

"Community banks’ health is often a strong indicator of overall economic and market trends because they tend to serve retail and business banking needs at the grassroots level. Although the state’s economic challenges have been well publicized, our findings revealed that a large number of community banks throughout Indiana are healthy and well-capitalized. Yet market share is dominated by megabanks not based in Indiana, and an opportunity exists to consolidate some of Indiana’s 116 small community banks. The key finding is that state appears to lack a significant number of strong Indiana-based institutions with the means and interest in serving as a much-needed aggregator," explained Eliot Stark, managing director of Capital Insight. Before joining Capital Insight, Stark had 30-plus year career in banking, with extensive ties to Midwestern financial and business communities.

Stark continued: "Indiana is home to a large number of community banks. With increasingly strict regulatory oversight, higher capital requirements and operating costs, it will be challenging for all of these banks to grow and prosper in coming years. However, the positive news is there are tremendous opportunities for banks to join forces to create institutions with larger capital bases and greater lending power, while still retaining the values of service and customer attention unique to community banks."

Among the report’s key findings:

• Among the relatively healthy Indiana banking scene, only one institution has a Tier 1 capital ratio (a measure of financial strength) below 8%. Of the 116 small community banks, 13 institutions boast Tier 1 capital ratio above 30%. This compares with a regulatory target of approximately 6% Tier 1 capital ratio to be considered well-capitalized.
• The Indiana economy is transitioning from a manufacturing-based economy to a service based economy, although strong pockets of manufacturing strength and opportunity remain in north and central Indiana, and agricultural strength in the southern portion of the state.
• While it appears there will not be a meaningful number of FDIC bank closures, there is a significant opportunity for small community banks (under $500 million in assets), community banks ($500 million to $1.5 billion in assets), and super community banks ($1.5 billion to $10 billion in assets) to consolidate in order to better compete and win business from national or regional megabanks (institutions whose primary business activities are not focused in the state).
• The healthiest and strongest banks within the state have an opportunity to expand into neighboring states through acquisitions – markets with similar characteristics, yet featuring banks with significantly lower valuations. Acquiring high quality core deposits could help fuel growth at Indiana-based community banks.
• The opportunity to capitalize an Indiana-based institution or fuel a merger of two community banks and execute a capital raise to finance growth could be very attractive to institutional investors, particularly while bank valuations remain low.
• While there are a few Indiana-based Super Community banks with more $3 billion of total assets, it is more likely that selected smaller banks ($800 million to $2 billion in assets) will become aggregators of small community banks in Indiana. These banks boast relatively healthy balance sheets and are well positioned to expand through acquisitions.
• Overhead expenses are the highest at the small community banks and the lowest at the super community banks, primarily due to economies of scale and a more service-intensive approach at smaller banks. However, small community banks have the highest loan yields and net interest margins because they were more cautious in loan growth during the real estate-driven economic expansion from 1998-2006.
• Indiana’s median household income has increased by 7.5% from $41,600 to $44,700 since the beginning of the decade. The middle class has grown substantially; the number of households making between $60,000 and $100,000 doubled from 472,000 in 2000 to 708,000 today. Although prospects for annual economic growth are modest, the state has a sound and stable base.

Capital Insight Partners continues to develop in-depth analyses of numerous United States markets; particularly ones it believes are ripe for consolidation. The company works with community banking clients and on behalf of hedge funds, family offices, and private equity groups that invest in community banks throughout the country.

Contacts:
Jacob Eisen, Managing Director
Eliot Stark, Managing Director
312-466-7646
jeisen@capitalinsight.com
estark@capitalinsight.com

Media:
Cindy Martin
847-864-9540
cmartin@capitalinsight.com