Wisconsin’s community banks and small community banks – those with $1.5 billion and $500 million, and less than $500 million in assets, respectively, are the best targets for consolidation in the near future, according to a report released by the Chicago Mercantile Exchange.
Real estate related loans have accounted for the largest losses from Wisconsin’s banks, the report says, especially for those in the “super community bank” category. There are six super community banks in Wisconsin, each with more than $1.5 billion in assets – two of them, Marshall & Ilsley Corp. and Johnson Financial Group Inc., are based in southeastern Wisconsin.
Because they did not take part in the aggressive lending related to the residential housing boom, Wisconsin’s small community banks (those with less than $50 million in assets) had the highest loan yields and net interest margin through September, 2009, the report says.
“Banks that have had consistent returns through the cycle will be the best positioned to raise capital and serve as the consolidators in the market,” the report states.
“There are relatively few troubled institutions in Wisconsin. However, the state has a large number of small community and community banks and this presents opportunity for inorganic growth.”
Many of the state’s largest commercial lenders saw stalled growth last year because of they were focused on maintaining adequate capital levels. Smaller community banks used that to their advantage, and have been able to attract customers that larger banks were unable to serve, the report says.
“The opportunity to strongly capitalize an institution or merge two community banks and execute a capital raise in order to aggregate community banks within the state with similar characteristics could be very attractive to institutional investors, particularly while bank valuations remain low,” the report says.
“The healthiest and strongest banks in the state have an opportunity to expand inorganically in Wisconsin, particularly by targeting community banks without serious asset quality concerns.”