Bank merger activity remains strong into second half

2016 Mid-Year Economic Forecast

The Wisconsin banking industry enters the second half of the year profitable and healthy, with strategic opportunities on the horizon.

The state’s 238 FDIC-insured financial institutions reported first quarter net income of $265 million up from $259 million in the first quarter of 2015. The second quarter data has not yet been released.

Bank vault-97135283-shutterstockLending was up in the first quarter, with $76.1 billion in total loans and leases, compared with $71.6 billion in the same period last year.

And Wisconsin’s 144 state-chartered credit unions also saw profits and lending increase in the first quarter. Net income totaled $72.3 million in the first quarter, up from $67.8 million in the same period last year.

Credit unions lent $22.5 billion in the first quarter, up 10.2 percent from $20.4 billion in the first quarter of 2015.

Wisconsin Bankers Association president and chief executive officer Rose Oswald Poels said lending activity will continue to be strong in the second half of the year.

Wisconsin bank mergers continued at a rapid pace in the first half of 2016, and many of them involved banks based in southeastern Wisconsin.

Oswald Poels in February predicted a five to seven percent increase in Wisconsin bank merger activity this year, but the robust activity levels have exceeded her expectations already, she said.

“We’ll probably end up closer to 12 percent (increase in state bank merger activity) for the whole calendar year,” Oswald Poels said.

This is in keeping with the trend toward increasing merger activity; 2015 saw nine Wisconsin bank mergers, up from six in 2014 and two each year from 2011 to 2013.

“Part of that is probably because banks are much stronger today,” Oswald Poels said, noting higher earnings, increased loan demand and stable deposits.

In addition, succession concerns, shareholder liquidity needs and the increasing expenses devoted to banking technology and compliance have driven much of the community bank merger activity, she said.

In the first half of 2016, Racine-based Johnson Bank parent Johnson Financial Group closed on its acquisition of Milwaukee-based Cleary Gull Advisors Inc.  and Rosemont, Illinois-based Wintrust Financial Corp. completed its $25.1 million acquisition of Pewaukee-based Foundations Bank parent Generations Bancorp Inc.

Several of the announced mergers will close in the second half of 2016.

Brookfield-based North Shore Bank’s acquisition of West Allis-based Layton State Bank parent Layton Park Financial Group Inc. is expected to close in the fourth quarter.

The $105 million purchase of Brookfield-based Ridgestone Bank by Chicago-based Byline Bancorp Inc. is expected to close late this year.

Fond du Lac-based NEB Corp., which owns both American Bank and National Exchange Bank & Trust, plans to merge the two banks, which have southeastern Wisconsin branches, under the National Exchange name in the second half of the year.

There were a few darker spots for the local banking industry in the first half of the year, though. Activist investors took aim at Brown Deer-based Bank Mutual Corp. and Waukesha-based CIB Marine Bancshares Inc. North Milwaukee State Bank was closed by the Wisconsin Department of Financial Institutions and a North Carolina bank assumed its deposits. Also, JPMorgan Chase announced it would lay off 135 employees in Milwaukee—because of the improved economy resulting in fewer mortgage defaults.

Looking ahead, banks will continue to be challenged by low interest rates and will seek yield in other parts of their business, such as trust services, insurance or investments, Oswald Poels said.

“With the actions over in Great Britain, it looks like The Fed is changing their mind about interest rate increases the rest of the year, so that certainly will affect banks in Wisconsin and across the country, as well,” she said. “Some of what they’re seeing, because of the loan volume growing, they’re helping their bottom line out by putting more loans on the books.”

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Molly Dill, former BizTimes Milwaukee managing editor.

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