Whenever it buys a bank, Old National Bancorp in Evansville, Ind., likes to steal an idea from the seller and incorporate it into the rest of its business.

The $15 billion-asset Old National is especially intrigued with the commercial and industrial loan portfolio that would come with Anchor Bancorp in St. Paul, Minn., which Old National agreed to buy this week for $303.2 million in cash and stock.

Anchor has a foothold in middle-market lending, something that isn’t a strength for Old National, which has focused more on the upper end of small businesses, said Bob Jones, Old National’s president and CEO.

"This team is extraordinarily good at C&I lending," Jones said Tuesday during a conference call to discuss the deal. He noted that he was looking forward to Anchor’s staff "really teaching us how to be better in that middle market as you think about Milwaukee or Madison or Indianapolis, where we’ve got those great opportunities."

Bob Jones, CEO of Old National Bancorp in Evansville, Ind.
Not in a rush, but ...
Old National has no immediate plans for additional M&A deals in the Minneapolis area, CEO Bob Jones says, but he doesn't rule them out either.

The $2 billion-asset Anchor would provide an entrée into Minnesota for Old National, which has completed seven bank deals since October 2010. (This Anchor has no affiliation with AnchorBank in Madison, Wis., that Old National bought last year.)

Thirty-four percent of Anchor’s loan portfolio is in C&I, compared with 16% for Old National. Once the deal closes, C&I loans would make up 18% of the combined bank’s portfolio.

Anchor has 18 branches, mostly in the greater Twin Cities market. Jones touted the area’s demographics and economic prospects as being even stronger than Michigan and Wisconsin, states where Old National already operates. Minneapolis has a projected five-year population growth of 4.4%, while the overall U.S. population is expected to grow by 3.8%. Minneapolis’ median household income is expected to be more than $72,000 this year, almost 27% higher than the U.S. figure.

The competitive landscape should also be advantageous, Jones said. Two megabanks, Wells Fargo and U.S. Bancorp, control almost 80% of Minneapolis’ deposit market share, but the remaining deposits are fragmented among smaller players. Anchor is No. 7 in market share statewide.

Old National has no immediate plans for additional deals in the Minneapolis area, Jones said, but he wouldn’t rule them out either.

"But we do think there’s great fragmentation in the market that we may have the opportunity to take advantage of," Jones said during the call. "So, we’re going to rely on Jeff Hawkins" — Anchor’s president and chief operating officer — "and his team to help us think through that, but for modeling purposes what you see is what you get."

The deal "checks many of the strategy boxes [Old National] was looking for, and is also financially compelling," Keefe, Bruyette & Woods wrote in a research note to clients. The earn-back period should be less than three and a half years and 9% accretion is projected for 2019, the note said.

Old National expects to achieve an annual 36% cost savings by 2019. The transaction is expected to close in the first quarter.

"As we've been talking over the last few quarters on earning calls … about M&A, we've always talked about the right market, the right price and the right people," Jones said during the call. "We clearly believe that with Anchor Bank in Minnesota."

In addition to the acquisition, Old National said it would close 14 branches — six in Wisconsin, one in Illinois, two in Michigan and five in Indiana — in November. Jones said that the closings, which should result in $4 million in cost savings next year, were part of continuing efforts to streamline its branch network.

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