Chicago bank M&A looks poised to rebound

The market for bank deals in the Chicago area may be picking up, with the first deal of 2021 and a large player poised to expand in the market.

Champaign, Ill.-based First Busey Corp., which reported $10.54 billion in total assets as of Dec. 31, 2020, announced in mid-January that it will purchase Cummins-American Corp. First Busey had 10 active branches in the Chicago-Naperville-Elgin, Ill.-Ind.-Wisc., metropolitan statistical area as of Jan. 29, while Cummins-American, based in the Chicago suburb of Glenview, operates seven branches in the MSA. The deal will put First Busey further over $10 billion in assets, helping offset expenses related to crossing the regulatory threshold, and will gain a trust business, said David Konrad, a bank equity analyst at D.A. Davidson.

Konrad believes there will be more deals in the Chicago MSA, with most of them in-market deals. "In the Chicagoland market, there's a lot of banks, but a lot of them end up being very small and privately held banks," Konrad said.

Illinois has a fragmented banking market due to being one of the last states to repeal unit banking in 1993. Under the rule, banks were limited to having only one location in one county, leading to several small banks in the Chicago MSA and delaying consolidation in the area.

Out-of-market acquirers are likely to try for bigger banks in the area, such as Rosemont, Ill.-based Wintrust Financial Corp. and Chicago-based First Midwest Bancorp Inc., to build scale, Konrad said. But Wintrust and First Midwest are likely to grow by being buyers, too. Wintrust has been the purchaser in four of the 20 most recent deals in the market, while First Midwest has been the buyer in two of the 20 most recent deals. Management at First Midwest said on its fourth-quarter 2020 earnings call that it is still interested acquiring commercial relationship-based franchises both in Chicago and in adjacent Midwest urban markets. Wintrust is also continuing to look for deals across its business lines and has hired away bankers from disruption in past deals in the area. "Dislocation is our middle name," Wintrust CEO Edward Wehmer said on the bank's January earnings call.

The announced merger between Huntington Bancshares Inc. and TCF Financial Corp. may also affect the deal market in Chicago, Konrad said. The deal will triple Huntington's presence in the Chicago market, management said on the bank's fourth-quarter 2020 earnings call, giving the bank the 10th-largest market share in the MSA after closing the deal, according to S&P Global Market Intelligence data, which Konrad believes they will try to build.

"For an out-of-market bank, [10th] probably isn't where you need to be, and so my guess is one of the larger acquirers going forward will be Huntington," he said. TCF mostly maintains in-store branches in Chicago, Konrad said, so Huntington may look to expand its traditional branch footprint through acquisitions of banks in the area. Huntington announced it would close 198 branches with its acquisition of TCF, focusing mainly on closures of in-store branches in Michigan markets.

In recent years, Chicago has been a busy spot for mergers and acquisitions. In 2018, 14 deals were announced in the Chicago-Naperville-Elgin, Ill.-Ind.-Wisc., MSA. Eleven were announced in 2015, the second-highest year since 2010. Overall, since 2010, 67 deals have been announced in the MSA.