Bank mergers have increased dramatically over past two years: Wisconsin deals have also become larger in scale

Wisconsin has seen a marked increase in the number of bank mergers over the past two years, driven by a combination of regulation, aging managers and economies of scale.

According to the FDIC, there were two bank mergers completed each year from 2011 to 2013. In 2014, six deals were completed, and in 2015, nine bank mergers were finalized across the state.

“In those two years, there was more deal activity than there has been in any year in the previous 10 years,” said Peter Wilder, an attorney in the banking and financial institutions practice group at Godfrey & Kahn S.C. in Milwaukee. “We saw a lot of activity and I think we’re going to continue seeing that.”

In fact, the trend has been toward much larger bank transactions recently. Within the past six months, several blockbuster Midwestern deals have been announced that impact Wisconsin, most of which will be completed this year:

• In September, Sturgeon Bay-based Baylake Corp. and Green Bay-based Nicolet National Bankshares Inc. announced they will merge in a $141 million deal to become one of the largest Wisconsin-based banks, with $2.2 billion in assets.
• In January, Madison-based Anchor BanCorp Wisconsin Inc. announced it will be acquired by Evansville, Ind.-based Old National Bancorp for about $461 million. Anchor also is one of the top five largest banks headquartered in Wisconsin, with $2.2 billion in assets.

  

• In January, Columbus, Ohio-based Huntington Bancshares announced it will buy Akron, Ohio-based FirstMerit for $3.4 billion. FirstMerit, which has 48 branches in Wisconsin, entered the state in 2013 when it acquired Citizens Republic Bancorp Inc. This is Huntington’s first entry into the Wisconsin market.
• Also in January, Midland, Mich.-based Chemical Financial Corp. announced it will acquire Troy, Mich.-based Talmer Bancorp Inc. for $1.1 billion. Talmer until recently had 11 Talmer Bank and Trust branches in Wisconsin, which were folded into Hartland-based Town Bank in 2014 through an acquisition by parent Rosemont, Ill.-based Wintrust Financial Corp.

“Some of those were multi-billion dollar deals, but all of them were more than $100 million, which are very large transactions for Wisconsin,” Wilder said.

Of the 25 largest regional banks in Illinois, Indiana, Michigan, Ohio and Wisconsin, 11 are currently involved in a pending whole bank merger or acquisition of some kind, he said.

“One of the theories is a lot of the larger regional banks were not doing as much M&A because the regional approval process for acquiring another bank had gotten so difficult in the wake of the recession,” Wilder said. “It appears that that is loosening up a little bit.”

“It is a nationwide trend,” said Cheryll Olson-Collins, acting administrator for the Wisconsin Department of Financial Institutions. “The state of Wisconsin has more state-chartered banks than the majority of states, so we’re pretty healthy to begin with.”

Among the other factors driving the deals is the increasing regulatory burden faced by banks in the wake of the financial crisis and the costs that go along with complying with those new rules.

Also, a number of banks don’t have a succession plan in place and selling the bank is the easiest way to get liquidity for shareholders, Wilder said.

A lot of employees in the banking field are aging, Olson-Collins said. The Wisconsin Bankers Association’s BOLT (Building Our Leaders of Tomorrow) program aims to address the aging workforce problem by encouraging more young people to consider banking careers, she said.

At the same time, banks’ balance sheets have been squeezed by low interest rates.

“They’re having a hard time making as much of a margin on their assets, on their loans and their securities portfolios,” Wilder said. “Because interest rates have been low for so long, it’s becoming more and more common for banks to want to get larger because they can spread their costs across a larger asset base.”

Economies of scale are certainly a factor in combining two banks into one larger operation, said Rose Oswald Poels, president and chief executive officer of the Wisconsin Bankers Association.

“Regulatory costs have gone up, technology costs have increased, security, in the context of greater expenses for data security and cyber protection, have gone up,” Oswald Poels said. “It’s been a challenge to find enough revenue sources to offset that.

“For the last really six years or more, we’ve had a very low interest rate environment. That is what negatively affects banks’ profitability.”

She expects another five to seven percent increase in merger activity statewide in 2016.

“We do have some deals pending, some acquisitions, with bank holding companies,” Olson-Collins said, though she couldn’t share details of the deals.

Wisconsin now has 181 state-chartered banks, down from 188 in 2014, she said.