Chicago-based First Security bought by MB Financial Bank (01/18/04)

Chicago-based First Security bought by MB Financial Bank

by Andrew Nynka

PARSIPPANY, N.J. - First Security Federal Savings Bank, a 76-year-old Ukrainian institution based in Chicago, announced its sale to MB Financial Bank on January 12 for $139.2 million.

The announcement was made jointly by Julian Kulas, president and CEO of First Security Federal Savings Bank, and Mitchell Feiger, president and CEO of MB Financial, in a statement released on the Internet that same day.

In the statement, Mr. Kulas said that the transaction would "allow our shareholders, many of whom are long-time customers and community members of First Security, the choice of obtaining an attractive cash price for their shares or obtaining, on a tax-deferred basis, shares in a strong, well-managed, community oriented bank."

"We [the First Security Board of Directors] considered this transaction very carefully and would not have approved it if we didn't think it would be in the best interests of our shareholders, our customers and our communities," Mr. Kulas said.

Mr. Kulas acknowledged that the news caught many people by surprise, particularly older Ukrainians who felt that by selling out First Security was losing its Ukrainian identity. However, during a telephone interview with The Ukrainian Weekly on January 14, Mr. Kulas said First Security would retain its identity and he emphasized that all of the company's employees would be left in place, retaining their seniority, salary and even accrued vacations.

The statement formally announced that MB Financial Inc., the parent company of MB Financial Bank, and First SecurityFed Financial Inc., parent of First Security Federal Savings Bank, agreed to merge, pending shareholder, regulatory and other necessary approvals. However, MB Financial Inc. will be the surviving corporation in the transaction, which is expected to be completed by the second quarter of 2004. In addition, First Security Federal Savings Bank will merge with MB Financial Bank, leaving MB Financial as the surviving bank.

The transaction, valued at $139.2 million, will be paid through a combination of MB Financial stock and cash. First Security stockholders will receive a cash payment equal to $35.25 for their shares if they decide to sell, while First Security stockholders receiving stock will receive MB Financial shares valued at $35.25 per share.

"We are looking forward to a smooth transition and delivering the same high-quality personalized service with the familiar faces to which First Security customers are accustomed. In addition to offering First Security customers the same general banking products to which they are accustomed, we will offer them some new MB Financial products and services which they may find helpful in dealing with today's complex financial world," Mr. Feiger said in the statement.

According to Mr. Kulas, the transaction was initiated by First Security because "we wanted to allow our customers access to products and services which are simply not available to small community banks like First Security."

Mr. Kulas also noted that timing was a strong consideration in First Security's decision to initiate a merger. "We wanted to do this while we are still a valuable institution," Mr. Kulas told The Weekly. Officials at First Security first began discussing the possibility of a merger months ago and looked at 14 financial institutions before agreeing to join MB Financial.

The 40-year veteran of First Security, who has made known his intention to retire in the next year or so, said that larger banks have been aggressively moving into the area and that, in the past nine months have "surrounded our offices." Mr. Kulas called it a "virtual invasion" by companies such as Washington Mutual and Bank One. The latter, Mr. Kulas explained, has some 200 branches in Chicago alone.

MB Financial, which prior to the transaction had 36 locations, will gain two branches in Chicago's Ukrainian Village, as well as offices in Norwood Park and Palatine, Ill. According to Mr. Kulas, all of First Security's branches will continue running just as they had prior to the transaction while the Chicago branch locations could see a name change to Ukrainian Bank, a division of MB Financial.

Mr. Feiger told the Chicago Tribune that a First Security branch office in Philadelphia also was part of the deal and that it is "large enough to make money on its own" and would run for at least a year under the First Security name.

MB Financial also announced that, in order to "emphasize its commitment to First Security's customers and communities," it would donate $1 million to the Heritage Foundation, a private grant-making organization created by an initial infusion of $5 million worth of First Security cash and stock. The MB Financial donation will be made after the transaction between MB Financial and First Security is completed.

Since its creation in 1997 the Heritage Foundation has supported Ukrainian schools, universities and educational institutions, as well as churches, seminaries, museums, and cultural and youth organizations.

The Heritage Foundation, however, was not part of the deal with MB Financial, Mr. Kulas said, and there are no plans for it to fall under the aegis of the newly merged organization. Following MB Financial's future contribution, the Heritage Foundation will have a base of $12 million and, as a reflection of its financial growth, the foundation is looking to expand the number of members on its board of directors, Mr. Kulas said.

"The First Security board of directors views this transaction as an evolutionary step in our long-term effort to serve our customers and maximize shareholder value," Mr. Kulas said.

Following news of the transaction, the Chicago Sun Times reported on January 13 that First Security's stock shot up $3.01 to $34.91, its highest close since it became a publicly held company in 1997.

The First Security customer base, which currently comprises various ethnic backgrounds, including the Polish and Hispanic communities, originated in 1928 as a bank predominantly used by Ukrainians. According to Mr. Kulas, the bank's Ukrainian customer base is currently 35 percent, while only 5 percent of its lending goes to Ukrainian customers.

The statement also announced that Mr. Kulas will become a member of the MB Financial Bank board of directors, remain a director of the Heritage Foundation and retain his office in Chicago. Paul Nadzikewycz, chairman of First SecurityFed Financial, will also become an MB Financial Bank Board member and remain on the Heritage Foundation board.

First Security reported assets of $495 million on September 30, 2003. The addition of First Security is expected to increase MB Financial's total assets to more than $4.8 billion, while giving the Illinois-based banking and financial organization - MB Financial Bank - 40 locations in the Chicago area.

"We believe there will be outstanding benefits to our customers," Mr. Kulas said. MB Financial will provide a "comprehensive array of services through multiple channels. This will include the addition of Ukrainian telephone banking to the current English, Polish, Hispanic and Korean system currently offered."

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