A banking company and a thrift company in Illinois, seeking the heft they think is necessary to compete in the future, plan to merge as equals.

Earlier this month, $417 million-asset Northwest Illinois Bancorp, Freeport, and $408 million-asset FirstRock Bancorp, Rockford, announced a definitive agreement to become Today's Bancorp.

"This approach, by affiliating with another homegrown entity, can give us a competitive advantage," said Dan Heine, president and chief executive of Northwest Illinois.

The deal, expected to close in the fourth quarter, calls for a transaction in which stockholders of each party will get a number of shares in the new company equivalent to what they now own.

Risks of the Deal

John E. Snow, a vice president at Chicago-based Hamilton Investments, said the deal makes "a lot of sense" strategically. However, he cautioned, mergers of equals do carry risks.

"The opportunities for efficiency and cost cutting don't tend to get acted upon because there's no clear acquirer. It's a hard thing to do."

Mr. Heine, who will be chairman and chief executive of Today's Bancorp, said both parties recognize that they must quickly reduce costs by about $2.5 million.

Northwest Illinois operates four community banks with eight offices in Freeport, Rockford, Pecatonica, Winnebago, Rock City, and Galena. It also has an acquisition pending of $45 million-asset Tri-State Bank and Trust Co., East Dubuque.

Mortgage Business

The company also owns NWIB Mortgage Source, a mortgage banking subsidiary that previously was a bank department.

Northwest Illinois, Mr. Heine said, is an aggressive marketer, has a strong credit culture, and offers a range of traditional and nontraditional bank products.

FirstRock owns First Federal Savings Bank, which converted from a federally chartered mutual savings and loan association to a federally chartered stock savings bank in 1992. It has a solid consumer franchise and mortgage operation in Illinois' second largest city.

"The main strength we're bringing is the strong franchise in Rockford," said David Ingrassia, president and chief executive of FirstRock.

First Rock has an $800 million loan servicing portfolio and Northwest has $200 million, said Mr. Ingrassia, who will be president and chief operating officer of the holding company.

Takeover Possibility

"The fledgling mortgage banking operation at Northwest Illinois will fit in with the fully developed operation at First Rock," analyst Mr. Snow agreed.

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The partnership will create a strong independent company, Mr. Snow said, but also could make a more attractive takeover candidate.

Mr. Heine will say only, "We want to be one of the best performers in our peer group, and the future will take care of itself."

But he also said he'd like to see the company between $1 billion and $2 billion within five years.

Today's Bancorp, to be based in Rockford, will call its commercial banking company Today's Bank and its thrift company Today's Savings Bank.

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