Bank Mergers and the Effects They Have

If you work in or around the Banking industry, it seems a day doesn’t pass when there isn’t gossip of another potential Bank merger. However, that gossip has started turning into reality the past three years, as Bank merger activity has heated up. The Chicagoland marketplace was once dominated by small community banks, and an abundance of mid-sized regional banks. But the number of Banks are dwindling quickly as the mid-sized banks get acquired by even larger regional or national banks, and the community banks continue to get swallowed up by large regional and other local banks. The smaller banks are trying to get larger to continue competing, and the regional banks just keep getting bigger, deciding it is easier to meet investor growth expectations via mergers versus core lending and deposit growth.

The below chart highlights 14 mergers that have already taken place or have already been announced for 2018, representing a major shift in the banking market over less than a three-year period. In fact, 6 of the mergers are happening in 2018, so expect more to come as the year goes by.

Buying Bank Buyer’s Assets Selling Bank Sellers Assets Purchase Price Year
CIBC Bank $501 Billion Private Bank $20.4 Billion $4.8 Billion 2017
Fifth Third Bank $142 Billion MB Financial Bank $20 Billion $4.7 Billion 2018*
MB Financial Bank $15 Billion American Chartered Bank $2.8 Billion $449 Million 2016
First Midwest Bank $10.7 Billion Standard Bank $2.5 Billion $365 Million 2016
Bussey Bank $5.7 Billion First Community Bank $1.34 Billion $236 Million 2017
Byline Bank $3.3 Billion First Bank & Trust – Evanston $1.1 Billion $169 Million 2018
Midland States Bank $3.2 Billion Centrue Bank $978 Million $175 Million 2017
Byline Bank $3.3 Billion Ridgestone Bank $443 Million $105 Million 2016
Old Second National Bank $2.36 Billion ABC Bank $350 Million $44 Million 2018
Wintrust Financial Corp. $28 Billion Community Bank of Wheaton $343 Million $42.4 Million 2016
Wintrust Financial Corp. $28 Billion Delaware Place Bank $245 Million $34 Million 2018*
Wintrust Financial Corp. $28 Billion American Enterprise Bank $200 Million Not Disclosed 2018*
Wintrust Financial Corp. $28 Billion First Community Bank – Elgin $172 Million $33.5 Million 2016
Peoples Bank of Munster $950 Million First Personal Bank of Orland $147 Million $15.6 Million 2018*
*Yet to close

Although this list is not all inclusive, as there are likely other mergers we have missed, it definitely shows a trend of the larger banks acquiring both community and other regional banks.

If you are a commercial loan borrower you have to be asking, “How does this affect me?”. Well the effects are many, and we have outlined a few below:

  • Although in theory mergers should not create a decline in market capacity because the new bank will pick up the assets of the selling bank, in reality this is not the case. As Bank’s get bigger they have more compliance and additional testing and reserve requirements, and that coupled with the leverage they usually incur to execute a merger, actually reduces market capacity for commercial loans. So as Banks get acquired, there is less market capacity to absorb the current number of loans in the market, making it harder for business owners to find the financing they need.
  • With mergers come integration. If you are a borrower or depositor at a commercial bank, you can expect changes including changes in account types and account fees, changes in processes including that for applying or renewing your loan(s), and changes in Loan Policy and the types of loans the Bank wishes to make or keep on their books. These changes can have a direct impact on your business, as they can affect how you manage not only your cash, but also how you borrow money with that institution going forward.

  • Probably one of the biggest changes is that related to staffing. As Bank’s merge they tend to reduce staff, which can mean loss of a loan officer, banking manager, or other Bank staff member that has helped play an essential role in your business. It can sometimes be challenging to form relationships with new staff members, who may be overwhelmed with the merger, do not really understand your business, are struggling to understand how to get things done in a new banking environment, and have already been assigned multiple other new accounts to work with, overwhelming them.
  • As Bank’s get larger, Bank management tends to focus on large transactions. A $20 billion Bank cannot typically meet their growth goals by doing small loans under $5 million, so they tend to focus their marketing, sales and processes on larger companies. Because of this small business clients often find themselves now working with small business underwriting departments that have fixed processes, fixed guidelines, and a limited set of products. These small business borrowers typically do not get the same type of flexibility in product offerings, underwriting, and process they used to in the past from their community bank.

Unfortunately, after most bank mergers, commercial loan borrowers and depositors cannot expect business as usual, especially if there are major changes in staffing at their Bank. Borrowers and depositors must be ready for a change in products and requirements from the new institution. If you have a new loan request or a pending loan renewal, we suggest starting the process early and being sure to be in a position to find another option or have a backup option ready, should your new Bank not want to move forward with your renewal or new request.

One thing is certain in life, and that is change. Whether a banker or a borrower, we appreciate your business and the opportunity to work with you. We encourage you to tell us about the changes you are experiencing in your business and see how we can help you as a Borrower find the financing you need, and you as the Banker continue to find quality relationships that meet your new Bank’s lending requirements.