With deep-pocketed owners and a posse of aggressive bankers on its payroll, First Chicago Bank and Trust in Itasca, Ill., says it is on a fast track to at least triple in size over the next five years.
Since the Rancho Santa Fe, Calif., private-equity firm Castle Creek Capital LLC bought a controlling stake in what was then Labe Bank in mid-2006, the century-old bank roughly doubled its assets by making its first-ever acquisition, adopted the First Chicago name, and moved its headquarters from Chicago to the city's northwest suburbs.
The result is that the once urban-focused bank has been transformed into a regional player with $1 billion of assets — and it is not planning to stop there.
Through steady growth and acquisitions, First Chicago is aiming to have $3 billion to $5 billion in the next five years.
"Our goal is to be the most profitable, well-run $5 billion bank in the Chicago area that caters to small businesses and their owners," said William Ruh, First Chicago's chairman and chief executive officer.
Though Castle Creek, which owns an 89% stake in First Chicago, has a reputation for building banking companies through acquisitions and then selling them for top dollar, the bank's executives say that for now they are focusing on keeping up the momentum from its late 2006 purchase of the $463 million-asset Bloomingdale Bank.
John Eck, First Chicago's president, said it originated $864 million of loans last year, surpassing its "lofty goal" of $840 million — despite a softening economy and fierce competition for loans in its market.
It did so, he said, by recruiting "very experienced talent" from competitors such as Royal Bank of Scotland Group PLC's Charter One Bank, the $5.2 billion-asset Amcore Financial Inc. of Rockford, Ill., and LaSalle Bank Corp., which Bank of America Corp. acquired from ABN Amro Holding NV in October.
In the last year First Chicago has brought on six senior vice presidents and their accompanying staff members to spur organic growth, Mr. Eck said.
The new talent is helping the bank serve even more companies with $5 million to $40 million of annual revenue.
"That has always been our niche," he said. Other competitors have grown "and moved up out of that space."
Additionally, executives said that the bank does not really have any exposure in residential real estate; its portfolio is made up of mainly owner-occupied businesses.
Mr. Ruh said the road to its asset goals will be paved at least partially by high-quality, low-cost deposits.
First Chicago has generated a steady increase in core deposits since the Bloomingdale acquisition, and Mr. Eck said it would continue to pursue low-cost deposits by strengthening relationships with companies such as dry cleaners, florists, and other neighborhood businesses that typically deposit more money than they borrow.
But not all that deposit growth will come from mom-and-pop shops. Mr. Eck said his bank is exploring the possibility of bringing on other senior-level bankers with experience in gathering deposits in niche areas.
First Chicago also is using its Castle Creek connections to generate business.
The private-equity firm brings a wealth of deposit-gathering and back-office experience to the banks it buys.
In First Chicago's case, it has given the bank front-row access to some of the region's well-heeled residents, such as the billionaire Crown family.
The Crowns, who have stakes in companies such as General Dynamics Corp. and Maytag Corp., are Castle Creek investors, and Mr. Eck said they have been constant suppliers of referrals for both loans and deposits. In fact, he said the family connections have given his bank a leg up when competing for deals.
"We are doing things we could never do on our own," Mr. Eck said. "Our relationship with them is paying enormous dividends."
Beyond organic growth, the bank and Castle Creek have made it clear that acquisitions will be an inevitable part of First Chicago's future.
It has not made a deal since it acquired Bloomingdale, but Mr. Ruh said that is not because it hasn't tried.
"The pricing just hasn't worked out," he said. "Sellers' expectations are not in line with actual values."
However, Mr. Eck said that First Chicago expects sellers' asking prices to come down as the competition gets tougher and shareholders start getting even weaker returns.
About 300 banks and thrifts compete for banking business in the Chicago metropolitan area, and most bankers and analysts view the market as ripe for consolidation.
"Chicago was one of the last places to get rid of the unit banking laws, so it is one of the least consolidated major metro markets in the country," said Peyton Green, a senior analyst in Nashville for First Horizon National Corp.'s FTN Midwest Research Securities Corp.
For now, though, Mr. Green said he believes First Chicago can do just fine focusing on organic growth. Citing the mass layoffs at LaSalle, he said, "Chicago is in about as much of a disruption phase as it could be."
The disruption could help First Chicago and other area banks grow organically, because they can get the "people they wanted to hire for years," Mr. Green said. "In a town like Chicago, it is all about who have you hired and how deep their relationships are."
