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Sunday, 24 May 2015 22:00

Bank M&A should continue, although pace of deals may slow

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Old National Bank has installed new signage at the former Founders Bank & Trust branches in greater Grand Rapids after completing an acquisition of Founders Financial Corp. on Jan. 1. Old National Bank has installed new signage at the former Founders Bank & Trust branches in greater Grand Rapids after completing an acquisition of Founders Financial Corp. on Jan. 1. PHOTO: JOE BOOMGAARD

The sale of the parent corporations for Founders Bank & Trust and The Bank of Holland are the latest deals in a merger trend across the banking industry in Michigan that M&A experts expect will only continue to occur in coming years.

Given the pressures from increasing regulatory burdens and fierce competition, plus a limited potential for growth, prospective buyers remain on the prowl and should find willing sellers if the price is right.

Jason Byrd, managing director of the financial institutions practice at Charter Capital Partners in Grand Rapids, describes the present environment for bank M&A as “rationally exuberant.” Another eight or more deals in Michigan over the next year or so “wouldn’t be surprising to me,” Byrd said.

“There are probably good reasons we’re going to see many more transactions,” he said. “I just think you’ll see a consistent march toward consolidation.”

In the latest deal, shareholders for the Holland-based Lake Michigan Financial Corp. — the parent company of The Bank of Holland and The Bank of Northern Michigan — this month approved a $184.1 million sale to Chemical Financial Corp., which has made a trio of acquisitions in the last year. The acquisition of Lake Michigan Financial, which had assets of $1.24 billion as of March 31, is targeted to close in the third quarter.

That acquisition came shortly after Evansville, Ind.-based Old National Bancorp completed the integration of the former Founders Financial Corp. in Grand Rapids following the January closing of an $88.2 million deal.


John Donnelly, manager of financial institutions at investment bank Donnelly Penman & Partners Inc. in Grosse Pointe, sees bank M&A continuing, although he believes it will occur at a reduced pace for the time being after a high level of activity.

“I tell people it feels a little quieter and a little calmer right now,” Donnelly said. “This is a normal little pause after such frenetic activity the last 18 to 24 months. I would say for the next 12 months, anyway, it’s going to be a little quieter.”

That temporary lull would come after a series of deals in the last two years that includes the $151.5 million merger of Mercantile Bank Corp. with the former Firstbank Corp. in Alma that closed a year ago, plus Troy-based Talmer Bancorp Inc.’s acquisition of the former Michigan Commerce Bank.

Rob Bondy, a partner in the Grand Rapids office of Plante Moran PLLC, anticipates the announcement of one or two more transactions in Michigan yet this year and three to five annually over the next few years. A change in interest rates later this year or in 2016 could potentially spur new activity.

“Folks are kind of taking a deep breath right now and maybe feel they have the ability to be more patient in their buy or sell decision, but the decision is still high on their minds,” Bondy said.


One difference from the previous examples is the size of the banks expected to be involved in future deals. Rather than large banks buying smaller community banks, as was the case with the acquisitions by Chemical Financial and Old National, Bondy expects to see more deals involving banks of similar size or in similar or neighboring geographic markets.

The key driver will remain the need to bulk up to better absorb increasing regulatory compliance costs, optimize operations and better compete with larger players for loans and deposits.

“The $250 million bank feels like if it were a $500 million bank, it would be much better. The $500 million bank wants to be $1 billion — and that’s just to stay current, not thriving,” Bondy said. “That’s just a survival feeling.”

Succession planning will also come into play in some deals, according to both Bondy and Byrd. Many community banks lack a leadership succession plan and merging with a like-minded institution is one option for securing the senior management talent needed, Byrd said.

“There are a lot of prospective benefits to coming together and you can still stay true to the community bank model,” he said.

Chemical Financial and Old National have been the most active buyers in the market in Michigan.

The Midland-based Chemical Financial (Nasdaq: CHFC) closed in October on a $121 million deal for Northwestern Bancorp Inc. in Traverse City and wrapped up the $26-million acquisition of Monarch Community Bancorp in Coldwater on March 31.

In discussing Chemical Financial’s quarterly results with brokerage analysts last month, Chairman, President and CEO David Ramaker reiterated the corporation’s interest in making additional acquisitions of community banks in Michigan.

“While our primary focus is on the successful consummation and integration of these announced transactions, we remain attentive to the identification of additional acquisitive growth opportunities and view the market conditions in Michigan as right for further consolidation,” Ramaker said in a conference call. “(W)e believe we are well-positioned to achieve additional competitive and acquisitive market share gains as we move forward.”


The acquisition strategy has expanded Chemical Financial’s presence in the western, central and northwestern portions of Lower Peninsula, where it has 183 offices in 43 counties with assets of $7.55 billion. The Lake Michigan Financial acquisition adds four offices in Holland, downtown Grand Rapids and Grand Haven. Chemical Financial plans to consolidate The Bank of Northern Michigan offices in Traverse City and Petoskey into its other nearby locations.

Chemical Financial’s acquisition strategy has made the bank a larger regional player that’s positioned to become a leader, Donnelly said.

“It’s becoming Old Kent,” said Donnelly, recalling the former homegrown Grand Rapids-based bank that led the market prior to its sale to Fifth Third Bancorp in 2001. At the time, Old Kent “was as highly regarded as any bank I can remember.”

The deals for Lake Michigan Financial and Northwestern involved high-quality banks and the Monarch deal offers Chemical a “gateway to Indiana,” Donnelly said. Buying Lake Michigan Financial, which caters to a high-end clientele, “was the ultimate” purchase and “kind of completes the Monopoly board” for Chemical, he said.

“That’s Park Place or Boardwalk,” he said.

Through their acquisitions around the state, both Chemical and Old National have become “the two big dogs in the fight right now” for business, Donnelly said. He expects both to return to the M&A market in the future.

Old National (Nasdaq: ONB) first entered the Michigan market in mid-2013 with the acquisition of 24 former Bank of America offices, 20 of which are in Southwestern Michigan. It later added a $173.1 million deal for United Bancorp in Ann Arbor. The bank then moved into the Grand Rapids-area market with the acquisition of Founders Financial, which has four offices in Kent County and had assets of $459.7 million at the end of 2014.

Old National has offices in Michigan, Indiana, Illinois and Kentucky and total assets of more than $11.2 billion.

The deals in Michigan followed Old National’s strategy of using acquisitions the last few years to transition its footprint from primarily rural, low-growth markets to mid-sized urban markets with higher growth potential.

For the near future, or at least through 2015, the bank’s M&A strategy is on hold as it focuses on execution, said CEO Bob Jones.

“One of the things we’ve told the Street is, ‘Pause.’ We’re not going to be active in the M&A market in 2015 and we’ll see where we’re going in ’16,” Jones told brokerage analysts in a conference call to discuss quarterly results. “We are in all of the markets we want to be in and we believe those markets will help us drive organic growth.”

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