Banc One Corp., the $30 billion-asset Columbus, Ohio, banking company, recently announced definitive agreements for two significant acquisitions in Illinois: Marine Corp., a $1.2 billion-asset banking firm in downstate Springfield, and $1.6 billion-asset First Illinois, which has 15 banking offices in suburban Chicago. Currently Banc One's only operation in Illinois is a $51 million-asset Chicago bank.
"This acquisition allows us to make a meaningful entry into central Illinois," said Banc One chief executive John B. McCoy of the stock deal valued at $190 million. "Marine provides an ideal vehicle for us to grow our presence in this important state."
Marine's four banking units operate 15 offices in the central and east-central Illinois cities of Springfield, Bloomington-Normal, Monticello, and Champaign-Urbana.
A Service Economy
The region's markets are service based, with strong insurance, agricultural, and education-related economies. "They [Marine] operate in markets similar to markets we are used to, and they have a very good deposit portfolio, which gives us a good base to work with. Marine also operates the nation's fourth-largest bank farm management department, overseeing 145,000 acres in Illinois," said Don Kimble, Banc One's merger specialist.
Banc One has the best track record of expansion into new markets of any U.S. bank; one reason is that the company is willing to invest in good management and allow that management considerable autonomy, even at the cost of some operational economies. This policy undoubtedly helped make the Marine deal possible.
Marine is 60% owned by the family of its CEO, Willard Bunn 3d. The family has been in the banking business for 140 years and has provided Marine with five generations of management. Mr. Bunn noted that the affiliation with Banc One would allow his company to accelerate the pace of its expansion in Illinois.
During the past three years, despite intense regional competition, Marine has consistently earned a return on average assets of greater than 1% by capitalizing on core businesses in its local markets and focusing on industry-specific fee-based income.
For example, in 1990 Marine developed its own technology (the Meret system) to become the nations second-largest processor of automatic insurance premium payments, surpassed only by Chase Manhattan.
Banc One plans to capitalize on its wide customer base and commitment to technology to increase Marine's penetration of the market for payment system services.
Banc One will need to increase Marine's return on assets significantly to justify the price being paid. "Our track record suggests that we can do it. By adding consumer loans and consolidating back-room functions, we should be able to reach a profitability level similar to those of other affiliates performing at the 1.40% or 1.50% level within two or three years," said Mr. Kimble.
Just 10 weeks after agreeing to acquire Marine Corp., Banc One signed a definitive agreement to acquire $1.6 billion-asset First Illinois Corp. for 12.80 per share, or 2.8 times book value.
The $374 million deal would position Banc One in suburban areas west and northwest of the important Chicago market.
Bruce McPhee, First Illinois' CEO, said, "Affiliating with Banc One will enable us to continue our tradition of serving our communities and our customers in a superior fashion."
There is much to be said for the proposed combination: First Illinois is a classic community banking organization headed by a young and talented management team.
The company's financial performance is impressive: Its ROAA of 1.61% was more than twice the average for Illinois banking companies, while its ratio of nonperforming assets to total assets of 1.57% is about two-thirds the average for Illinois banking companies. Further, the company's balance sheet is strong, with an equity-to-assets ratio of 10.63% and a 74% ratio of loan-loss reserves to nonperforming assets and assets 90 days past due.
Book Value Not Key Factor
The price of 2.8 times book value seems high even for Illinois, where an acquirer must be willing to pay well above the current averages.
However, according to Banc One executive vice president William Boardman, book value is not a key factor in Banc One pricing: "While we consider many factors in pricing, including the multiple of book value, the touchstone of our pricing strategy is earnings per share. Our principal corporate goal is to make sure that the price of an acquisition is not dilutive of our earnings per share; we are not as concerned about whether or not book value per share is diluted."
Mr. McRae is a contributing editor of Bank Mergers and Acquisitions, a newsletter published by SNL Securities. The data base and publishing firm, based in Charlottesville, Va., specializes in the banking and thrift industries.