In a deal that will raise its profile in Chicago's massive banking marketplace, Cincinnati-based First Financial Bancorp said Monday that it would pay $142 million in stock to acquire BankFinancial.
The announcement comes less than two months after the $18.6 billion-asset First Financial
First Financial has maintained a substantial commercial-lending presence in Chicago. Buying Burr Ridge, Illinois-based BankFinancial, which operates 18 branches in four Chicagoland counties, would give it a retail profile, as well.
The purchase would also provide an ample source of capital and deposits to fuel additional growth, First Financial CEO Archie Brown told American Banker.
"What we really see as the biggest value [from BankFinancial] is in the retail presence and in the deposit base," Brown said in an interview. "It's a very low-cost, I think a very rich funding base that they provide."
First Financial has been growing in Chicago "in different waves and different pieces," Brown said. It currently has branches nearby in Northwest Indiana, as well as a commercial lending team and two specialty-lending business lines inside Chicago.
Adding BankFinancial to the mix "will probably give us 25 offices when you look at the total footprint for the metro area, [and] over $2 billion in deposits," Brown said.
Chicago's appeal is obvious. First Financial estimates the 9.2 million-person market's gross domestic product at $860 billion, with nearly $600 billion in bank deposits.
Jon Arfstrom, an analyst at RBC Capital Markets, said in a research note Monday that he appreciates First Financial's willingness to extend its core footprint into Chicago.
"Over the longer term, we see establishing a larger presence in Chicago as additive to the growth profile and overall franchise value," Arfstrom said. "That said, given the relative size and transaction terms, we see more limited near term financial impacts, as well as limited risks related to the transaction."
First Financial has been expanding not just in Chicago, but throughout the Midwest. In January, it opened a commercial loan production office in Grand Rapids, Michigan.
The seller in First Financial's latest deal, the $1.4 billion-asset BancFinancial, has a loan-to-deposit ratio of 66%, below the industry average of 71%, according to the Federal Deposit Insurance Corp. BankFinancial also has a common equity tier 1 capital ratio of 20.7%.
While BankFinancial makes money, its profitability lags both the industry's and First Financial's. The selling company reported a return on equity totaling 3.71% for the quarter ending March 31, compared with First Financial's reported ROE of 15.16%. First-quarter ROE across the U.S. banking industry was 11.58%, according to FDIC.
"First Financial is the ideal choice to help us continue our legacy of delivering exceptional financial solutions, while maintaining a strong commitment to customer care and service to our communities," BankFinancial Chairman and CEO Morgan Gasior said in a press release. "We look forward to being part of First Financial's continued success as we expand the scope of our financial services to our customers and communities."
First Financial is forecasting that it will close the acquisition in the fourth quarter. Upon completion, it plans to achieve significant cost savings, equal to 45% of BankFinancial's annual operating expenses, which totaled $41.5 million in 2024. First Financial also plans to sell BankFinancial's entire $500 million multifamily loan portfolio to generate additional liquidity.
The $142 million purchase price works out to $11.37 per BankFinancial share, or about 91% of tangible book value.
In June, First Financial announced plans to acquire Westfield, after the Westfield Center, Ohio-based bank's parent company, Ohio Farmers Insurance Co., opted to focus more intently on its core personal, commercial and specialty insurance businesses.
Brown said First Financial is mindful of the complexities involved in pursuing overlapping mergers simultaneously, but it ultimately concluded the relatively small size of the two targets made them manageable.
"We have thought about it a lot," Brown said. "We have built out a playbook we think we can implement, but if these were much larger, we couldn't do that. … We think these are deals we can get our arms around."
