Officials at Centrue Financial Corp. and UnionBancorp Inc. offer a pretty simple explanation for merging the two Illinois companies: being able to operate more efficiently and having deeper pockets to expand.
Centrue, in Fairview Heights, and UnionBancorp, in Ottawa, announced last week that they are merging as equals to create a $1.3 billion-asset company with 38 branches in central and western Illinois.
Thomas A. Daiber, Centrue's president and chief executive officer, said the two companies have already identified $4 million of savings, most of which would come from back-office consolidation. They have no overlapping branches.
The $620 million-asset Centrue has 19 branches stretching from the St. Louis suburbs to the collar counties of Chicago. UnionBancorp, the $662 million-asset parent of UnionBank, has 17 branches in western, northern, and central Illinois.
Both Mr. Daiber and Scott A. Yeoman, UnionBancorp's president and CEO, said Centrue and Union face the same challenges as many other banking companies of their size: fierce competition for customers, soaring regulatory costs, and difficulty in distinguishing themselves.
Mr. Yeoman said the merger would provide "a foundation to expand more rapidly into other markets."
The companies are still developing their plans for expansion after the merger, but the new company for now, plans to stay on the fringes of Chicago, where competition is already intense.
In fact, Mr. Daiber said that as the Chicago area gets more crowded and more expensive, he expects more consumers and business owners to move to Centrue's market areas in the outer suburbs.
There are already plans to expand in the St. Louis area, as well, he said.
The companies are calling the deal a merger of equals, but UnionBancorp is technically the buyer. Centrue shareholders would receive 1.2 shares of UnionBancorp stock for each of their shares. The price works out to about $55.1 million.
UnionBancorp would be the surviving legal entity, because it would end up the better capitalized of the two companies after the merger, Mr. Yeoman said.
And Mr. Daiber said the companies decided to use the Centrue name once the merger is complete, because that would help the combined company stand out.
"Throughout Illinois, I think there are four or five banks with the Union name," he said.
Mr. Daiber would be the president and CEO of the new company, and Mr. Yeoman would be the chief operating officer. The board would be made up of 10 directors, five from each company, and Dennis J. McDonnell, the chairman of UnionBancorp, would be its chairman.
The management of both companies expect the combination to provide better returns than the two companies have achieved on their own.
At yearend UnionBancorp's return on assets was 0.7%, and Centrue's was 0.91%. The average for companies of their size was 1.47%, according to the Federal Deposit Insurance Corp.
The companies also lagged the average return on equity of 14.99%; Centrue's ROE was 9.35% at yearend, and Union's was 5.97%.
Both companies had efficiency ratios above 72% in the first quarter, but Mr. Daiber said he expects that figure to improve as the combined company "spreads the costs over a much larger asset base."
In the past both companies have had problems with credit quality. At the end of 2003, both companies charged off about $6.2 million of loans. By the end of last year Centrue had $2.7 million of chargeoffs, and UnionBancorp had $2.3 million. Mr. Daiber said the chief credit officers of both companies would stay on after the merger.
Mr. Daiber became Centrue's president and CEO in 2003, after the company, then named Kankakee Bancorp Inc., bought Aviston Financial Corp. for $15 million. Kankakee had been under pressure from investors to sell until it had appointed a new independent board member. Mr. Daiber, formerly with Allegiant Bancorp in St. Louis, was given the task of cleaning up the portfolio.
