MB Financial Inc. in Chicago has a reputation as a strong commercial loan generator, and Illinois' First Oak Brook Bancshares Inc. is known as a skilled deposit gatherer.
That, in a nutshell, explains why MB Financial is paying $372 million - 2.8 times book value - for the $2.3 billion-asset First Oak Brook. The deal, announced early Tuesday, would be MB Financial's biggest acquisition ever and create an enterprise with $8.3 billion of assets and more than 60 branches in one of the nation's most attractive metropolitan markets.
"The core of what we're doing here is combining a great deposit-generating franchise and a great commercial asset-generating franchise," said Mitchell Feiger, MB Financial's president and chief executive officer, in a conference call Tuesday.
MB Financial's commercial loan portfolio has increased by an average of 17% a year over the past five years, while First Oak Brook's has grown by an average of about 6%. But First Oak Brook has added deposits at a rate of about 15% a year, compared with 11% a year for MB Financial, according to Federal Deposit Insurance Corp. data.
In the call, Mr. Feiger said First Oak Brook's branches are in faster-growing areas, mostly in DuPage County, than MB Financial's. He also pointed out that there is almost no overlap between the two companies' branches.
First Oak Brook, the parent of Oak Brook Bank, has also been aggressively adding branches in high-growth areas - it opened four last year and plans to open two more this year - and Mr. Feiger said MB Financial would continue with that strategy.
Richard M. Rieser Jr., First Oak Brook's president and CEO, said in the conference call that his company began discussions with MB Financial after a different banking company approached it with an offer. At that point, First Oak Brook's board decided to solicit other offers, and liked MB Financial's the best, he said.
MB Financial said it would pay $36.80 for each First Oak Brook share and that it would fund the acquisition with 80% stock and 20% cash. In late trading Tuesday, First Oak Brook's shares were up more than 30.85%, to $35.37. MB Financial's stock was down 2.07%, to $34.60.
The deal is expected to close in the fourth quarter, at which time Oak Brook Bank would be merged into MB Financial Bank.
Mr. Rieser would join MB Financial's board, and the combined company would try to retain all the key employees, Mr. Feiger said.
Oak Brook would be MB Financial's first acquisition since it bought the $490 million-asset First SecurityFed Financial Inc. of Chicago for $139.2 million in 2004. Its largest acquisition was in 2001, when it bought the $1.8 billion-asset MidCity Financial Corp. in Chicago for $292 million.
In a report released Tuesday, Kevin K. Reevey, an analyst with BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., said MB Financial is paying a fair price for a property that would considerably improve its competitive position in Chicago.
Daniel E. Cardenas, the director of research at Howe Barnes Investments Inc. in Chicago, said funding has been MB Financial's biggest challenge. While it has bought other deposit-rich banks in the past, this move would help solve the funding problem over the long term.
"This is a substantially bigger organization with a proven ability to de novo and make those de novos grow in a quick manner," Mr. Cardenas said of First Oak Brook.
