Chicago Sprawl, Riverboat Gambling Restore Youth to a City Past Its Prime

AURORA, Ill. -- Last summer, at a gala marking the arrival of riverboat casinos, Calvin R. Myers realized just how far this town had come.

"I'm sitting in the 10th row looking at Frank Sinatra," recalled Mr. Myers, chairman and chief executive of Merchants Bancorp. "And I'm saying, 'I can't believe I'm doing this in downtown Aurora.'"

Once a weary industrial burg, Auroa is now a modern-day boomtown. Located some 40 miles west of Chicago, it is benefiting not only from casinos but from a nationwide flight of families and businesses to distant suburbs. Aurora led the metropolitan area in housing starts in 1990 through 1992, and last year it was No. 2.Merchants BancorpAt a Glance Headquarters Aurora, Ill.Chairman Calvin R.and CEO MeyersAssets $472 millionROA 1.15%ROE 12.05%Employees 250Locations 5Sources: Merchants Bancorp, Chicago Corp.

In Line of Growth

"The Chicago suburbs are coming at a rapid pace right at Aurora," said Matthew Finn, senior banking analyst at Burns, Pauli & Co., St. Louis.

Mr. Myers, a 51-year-old former economics professor, is making sure that Merchants takes maximum advantage of the boom.

"How many times does a community go through redevelopment in one's lifetime?" he asks. "Once, maybe, and we're seeing it right now."

The bank, which is based in Aurora, has been lending money to housing developers, homebuyers and a hotel operator. And to boost fee income, Mr. Myers has been making a big push in trust banking.

Assets Surge

The upshot is that Merchants' assets have surged by nearly 50% since 1990, to $472 million. Net income, meanwhile, has risen 182%, to $4.7 million last year.

The performance is winning plaudits from analysts. James M. Schutz of Chicago Corp., who has a "buy" rating on Merchants, credits Mr. Myers with developing a strong sales culture at the bank.

Mr. Schutz said he is especially impressed by the trust business, which has been growing at double-digit rates. In late 1992, Merchants recruited the trust manager from rival Old Second Bancorp. to run the business.

Mr. Myers still confesses to some disbelief about what is happening in Aurora.

"If you had told me five years ago that there would be plans in place for three hotels in downtown Aurora, I'd have said you were crazy," he said.

A 17-Year Veteran

Mr. Myers, who joined the bank in 1977, said he has told his board that "we're going to be in a position to entertain business requests we've never had the opportunity to look at for the last 20 years."

Clearly, banking in Aurora has changed, Mr. Myers said. "If we were in the middle of Montana or the middle of Arkansas someplace, we'd probably still be a community bank that closed on Wednesdays or closed at 3 o'clock in the afternoon," he said.

Nevertheless, the urban sprawl hasn't yet hit towns just a few miles farther away, he added. "I talked to my colleagues that are in smaller banks in communities within 20 or 30 miles to the west of us, and it's as if none of this is happening," he said.

The economic and demographic trends behind the growth of the immediate Aurora are indeed powerful.

The boom, experts say, is rooted in the problem of housing affordability in Chicago. Simply put, home prices are often very high compared with family incomes.

"Chicago has probably the least affordable housing market in the Midwest," said Mike Lahr, a senior economist at Regional Financial Associates, West Chester, Pa.

As a result, people are scattering in all directions -- including places like Aurora, which has a population of about 100,000.

At the same, many businesses are trying to escape Chicago's high taxes, Mr. Lahr said. Some prominent companies, including Toyota, are showing fresh interest in Aurora.

"As has happened with a lot of metro areas, businesses are finding they don't need to be in downtown Chicago to be effective," said Mr. Finn of Burns, Pauli.

Then there are the riverboat casinos, which have bolstered tourism and other parts of the local economy. To date, such gambling has been legalized in Illinois, Indiana, Iowa, Louisiana, Mississippi, and Missiouri.

The spread of the gaming industry has boosted banking in a variety of ways. Symbolic of this, automated teller machines have replaced the cashier lines at some casinos. (See related story, facing page).

The excitement in Aurora is unlikely to go unnoticed by big banks. They will want to take advantage of the opportunities by branching or by acquiring established community banks in the growth areas, Mr. Lahr said.

Indeed, First Chicago Corp. and Harris Bankcorp both have penetrated the Aurora area. Harris last month announced plans to acquire Suburban Bancorp, which has a branch in Aurora.

In 1988, First Chicago acquired Gary-Wheaton, Bank, which also had a branch in Aurora. But because of the former branching restrictions in Illinois, First Chicago could not put its own name on the bank until last year.

Merchants which owns the largest locally based bank, is "not running around with a for-sale sign on our back," said Mr. Myers. But he is clearly aware of the possibilities.

"There are a lot of organizations that want to get into this market," he said. "As a result, I think we're a pretty valuable franchise. We want to grow and be as profitable as we can and we'll let the chips fall where they may."

No Stranger to Talks

No Stranger to Talks

Certainly, Merchants knows what merger discussions are all about.

In the late 1980s, the company explored a merger of equals with Old Second, the city's largest bank holding company. Around the time, Naperville-based First Midwest Bancorp expressed interest in acquiring Merchants. But neither of the talks came to fruition. For now, Merchants is considering plans to expand its branches and make some acquisitions of its own. Mr. Myers says he would like to see the bank's assets hit $600 million in a couple of years.

Such plans never would have been possible in the old Aurora.

The city, a manufacturing center in the 1940s and 1950s, suffered when a number of companies left, Mr. Myers said. The situation in Aurora -- and Illinois -- was similar to that of many other "Rust Belt" factory centers that lost industry in the years after World War II and felt they could no longer be competitive operating as they were.

Back to the River

In recent years, as local leaders contemplated opportunities to revitalize Aurora, they zeroed in on an asset that had long been ignored -- the Fox River.

Mr. Myers, born in Aurora and reared nearby, was with the downtown redevelopment committee about four years ago when the group suggested Aurora try to get a riverboat gambling license.

"For a lot of people, the state took care of the ethical issue by making it legal to do it," said Mr. Myers. "Then ... we started to take a look at it from an economic development standpoint. Once you did that, you started to see some of the possibilities that could accrue from this."

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