The roster of midsize banks on the hunt for acquisitions just got longer.

Associated Banc-Corp in Green Bay, Wis., ended a 10-year absence from bank M&A by agreeing on Thursday to buy Bank Mutual in Brown Deer, Wis., for $482 million. Management indicated during a conference call that the company will not wait very long to pursue the next deal.

“Consolidation is inevitable across the entire industry ... including in the Midwest,” said Philip Flynn, Associated’s president and CEO. “There's an awful lot of banks in Wisconsin and Illinois and other parts of the Midwest. So I think there's going to be attractive opportunities for us and others.”

The $29 billion-asset Associated is the latest institution with $20 billion to $30 billion in assets to announce a bank deal in the past year, joining a list of acquisitive welterweights that include F.N.B. Corp. in Pittsburgh; Iberiabank in Lafayette, La.; and First Horizon in Memphis Tenn.

Industry experts said to expect more midsize banks to emerge as buyers.

“I think most of the major players are looking beyond their borders,” said John Donnelly, managing director at Donnelly Penman, an investment bank in Grosse Point, Mich.

That should come as a relief for larger sellers since many bigger regionals, including BB&T, Regions Financial, KeyCorp and U.S. Bancorp, seem to be out of the M&A game in the near term for various reasons.

F.N.B. and Iberiabank have been frequent buyers since the financial crisis, while First Horizon, which agreed earlier this year to buy Capital Bank Financial in Charlotte, N.C., and Associated had been relatively quiet.

Outsiders had been wondering for years if, and when, Associated would find a bank it wanted to buy. In fact, the company is on Keefe, Bruyette & Woods’ list of potential sellers. (Bank Mutual also appears on the list.)

“We suspect most investors who know the Associated story have been expecting a deal for years, to no avail,” Scott Siefers, an analyst at Sandler O’Neill, wrote in a Friday note to clients. “Thus, the simple fact that Associated now has an announcement under its belt should help to get this monkey off its back.”

The deal adds to a recent consolidation wave in the Midwest. Other notable transactions have included Chemical Financial’s $1.1 billion acquisition of Talmer Bancorp in Troy, Mich., and Huntington Bancshares’ $3.4 billion purchase of FirstMerit in Akron, Ohio.

Bank Mutual also becomes the latest activist-pressured institution to find a buyer. The company had once locked horns with Clover Partners, an investment firm run by Johnny Guerry, until it agreed last year to add a Clover representative to its board. Clover owns about 4.1% of Bank Mutual's stock.

Clover's board representative "found a very welcoming and open-minded set of individuals" at Bank Mutual, Guerry said. Management, which "had done everything that was reasonably expected of them," worked with the board to "collaboratively find a path that was favorable for shareholders."

Associated is a good partner for Bank Mutual, Guerry added. "I think it is a good bite-sized deal for Associated with minimal dilution and ... when you start thinking of the revenue synergies and the expanded customer base it could create a lot of additional value," he said.

Bank Mutual, a former thrift, has tried to turn itself into more of a traditional bank, reducing its reliance on time deposits and booking more commercial loans. The changes have been slow to pay off; Bank Mutual’s return on average assets at June 30 was 0.62%.

While profits and returns lagged, Bank Mutual had managed to keep its balance sheet fairly clean. It had no chargeoffs in the second quarter, and only 0.33% of its assets were nonperforming on June 30.

“We went in with confidence about the credit culture at Bank Mutual, but I think one of the biggest surprises was how comfortable we were,” after completing due diligence, Flynn said. “Nothing Bank Mutual does from a credit perspective concerns us.”

Slideshow
These banks could end up on the block
Here are 10 banks the investment banking firm KBW says are ripe M&A targets because they are in hot markets, face various growth challenges that make them vulnerable or have private-equity owners looking to cash out.

Several other factors sold Flynn on Bank Mutual, which had been at the top of his list of targets.

The banks, which have competed fiercely for more than a century, have significant overlap; half of Bank Mutual’s branches are located within a mile of an Associated office. Several high-ranking Bank Mutual executives, including CEO Dave Baumgarten, once worked at Associated. And the banks share a common core operating platform.

“We believe we know how to execute on a lower-risk, in-market, efficiency-driven opportunity,” Flynn said, adding that Associated would look for similar deals in the future.

Bank Mutual’s small size likely made the deal an easier sell to Associated’s investors, industry experts said.

“We view the transaction as carrying far greater weight from a psychological perspective,” Siefers said. “Given that Associated has been on the M&A sidelines ever since [2007], our sense was that the market would watch their first deal out of the gate even more closely. Thankfully, we view [Bank Mutual] as digestible with a sound financial impact.”

That being said, integration and retention efforts will be closely scrutinized.

As for retention, Associated will lean heavily on Baumgarten, who will serve as a consultant to Flynn, to keep Bank Mutual’s lenders and 120,000 customer accounts in the fold. “I’ll be doing everything I can to ensure we’re successful,” Baumgarten said in an interview Friday.

“It’s still really early, but our message is that a bigger footprint and product set will be beneficial to Bank Mutual’s customer base,” Flynn said.

Associated is planning a conservative pace for the integration. The systems conversion would take place roughly six months after the deal’s completion. The lion’s share of expense cuts would not take place until 2019.

“This is the first one we’ve done for a long time, so we’re very focused on doing it exactly right,” Flynn said. “I’ve never thought overpromising and underdelivering was a good strategy.”

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.