Magazine article American Banker

Two Illinois Banks Drop Plans to Merge

Magazine article American Banker

Two Illinois Banks Drop Plans to Merge

Article excerpt

Two banking companies in Illinois have suddenly scrapped a plan to merge as equals.

FirstRock Bancorp, Rockford, and Northwest Illinois Bancorp., Freeport, terminated their April agreement after Northwest's mortgage unit suffered unexpected losses.

The plans had called for melding the two companies into a "super community bank group" with assets of $825 million. Shareholders of each company were to have received stock in the new entity equivalent to their previous holdings.

"The primary reasons for the dissolution of the merger were financial," said David A. Ingrassia, FirstRock's president and chief executive.

The deal apparently was thrown out of balance when rising interest rates took a toll on Northwest's NWIB Mortgage Source.

Cancellation a Surprise

John Snow, vice president at Chicago-based Hamilton Investments, said he was surprised by the termination.

"But then, I was also surprised that the mortgage banking part of Northwest Illinois' business was going to report a loss this quarter," he said.

"I think the top management of Northwest Illinois was probably as surprised as anybody as to how bad it was going to be," Mr. Snow added.

The parties could have tried to reprice the deal rather than scuttle it, he said. But he suspects that some shareholders on both sides may have wanted a premium, which they wouldn't have received from the merger of equals. Now, both companies are free to participate in a premium transaction, he said.

Christine Pavel, a Chicago Corp. analyst who follows Northwest Illinois, estimates for the company will earn $0. …

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