Associated and Bank Mutual prepare for merger

How analysts expect the integration to play out

When Green Bay-based Associated Banc-Corp announced it would acquire Brown Deer-based Bank Mutual Corp. for $482 million in July, there were still a lot of unknowns about how the companies would be integrated.

In the months since, public filings have given a clearer picture of the advantages and synergies the banks expect to gain from the transaction. While the deal is still awaiting regulatory approval, if all goes according to plan, it is expected to close in the first quarter of 2018.

Bank Mutual headquarters

Bank Mutual Corp.’s Brown Deer headquarters.

Among the advantages customers can expect is the larger size of the institution, which combines the largest bank based in Wisconsin with the largest bank based in the Milwaukee market. Associated Bank has $30 billion in assets and 1 million customers in eight states, which significantly increases the size and adds new products for customers of Bank Mutual, which has $2.7 billion in assets and 120,000 customers in Wisconsin and Minnesota.

“It really builds their scale and it enhances their presence in some markets, being Green Bay, Milwaukee… which are relatively attractive markets,” said Kevin Reevey, senior vice president, senior research analyst at Great Falls, Montana-based D.A. Davidson Cos., who covers both Associated and Bank Mutual. “It allows Bank Mutual’s customers to have access to a broader suite of products at Associated, plus being a slightly bigger institution, Associated can do more in the way of larger loans for their business clientele.”

And with the acquisition of a bank with an overlapping network, Associated will be able to gain 45 percent cost savings, primarily by consolidating 36 redundant branches that are within 2.2 miles of each other and eliminating that overhead. Associated released a list of the branches that are expected to close, many of which are in the Milwaukee market, in September. Philip Flynn, president and chief executive officer of Associated Bank, said in a July interview with BizTimes the Bank Mutual headquarters building in Brown Deer will eventually be vacated.

Representatives for Associated Bank and Bank Mutual declined to comment for this story.

“This is strategically interesting for them. It’s an in-footprint transaction, it helps them shore up their presence, particularly in Milwaukee,” said Emlen Harmon, managing director of equity research at San Francisco-based JMP Securities LLC, who covers Associated. “In-footprint transactions come with a fair amount of efficiencies that help make the deal financially compelling.”

The rash of new development in downtown Milwaukee over the past couple of years is good news for business lending, and should position Associated to offer clients larger loans, Reevey said.

“Milwaukee is actually a very attractive market,” Reevey said. “It’s actually experiencing reurbanization, especially in that downtown area.”

And Associated made a smaller acquisition, of Oak Brook, Illinois-based wealth management firm Whitnell & Co., in October that will help it gain market share in the wealth management niche locally, he said.

“Now they’ll be able to better service their customers, but those customers of Bank Mutual as well, and also it will allow them to build fee income,” Reevey said.

Other areas in which Associated Bank could try to gain an advantage are insurance, trust and treasury services.

“I think the company sees some opportunity to grow some of these fee-generating businesses that Bank Mutual wasn’t as strong in,” Harmon said.

Simply becoming a larger entity will help when it comes to growing overall market share, but it’s not an easy road, he said.

“Having a greater critical mass could help them to some degree,” Harmon said. “Banking is very competitive right now, so market share is a tough game. They would certainly like to achieve that. They’re going to have to work for it.”

While there are likely to be some branch consolidations and layoffs, Harmon doesn’t anticipate sweeping reductions in the market. Associated has said it can reassign many of the affected employees to open positions elsewhere in the company.

Associated Banc-Corp’s Milwaukee offices.

“Associated is cognizant of maintaining as much of their presence in Milwaukee as they can,” he said. “This is about them developing a greater presence there, so in terms of having personnel or offices, etc., I think they would probably care more toward keeping a greater presence than trying to pare things more meaningfully.”

After the acquisition closes, the bank is expected to take six months to a year to complete the integration, the analysts said. During that time, Bank Mutual’s stock will be delisted from the NASDAQ, the redundant branches would likely be closed and the signage would be switched over to Associated Bank. The systems conversion is expected to take place in the third quarter.

Since Associated hasn’t made a bank acquisition in several years, analysts and shareholders will focus on the ability of management to gain value from the transaction.

One potential impact of the merger is a shift in the dynamics and market share among smaller banks in metropolitan Milwaukee. That sort of impact was seen after the 2011 acquisition of M&I Bank parent Marshall & Illsley Corp. by BMO Financial Group. At the time, Milwaukee-based M&I was Wisconsin’s largest bank. Bank Mutual, U.S. Bank and PNC Financial Services Group told BizTimes then they were working to gain Milwaukee customers and executives from M&I in the fallout.

While Associated and Bank Mutual work to integrate their companies, smaller banks may again attempt to take advantage of dislocation in the market and try to poach some customers and key lenders and relationship officers.

“Anytime there’s an acquisition in the market, it always results in a lot of the smaller banks trying to go after those customers,” Reevey said. “I think Associated is going to be focused internally on keeping those customers, making sure they’re happy, and also the employees.

“It’s going to be competitive among the smaller players to kind of get bigger in that market.”

Among the banks that could be jockeying for that market share are First Business Financial Services Inc., Old National Bank, Town Bank parent Wintrust Financial Corp., TCF Bank and Johnson Financial Group Inc., he said.

“Old National, they’re not that big (in Milwaukee) but I know Old National is very acquisitive. I wouldn’t be surprised if they try to buy one of the smaller players in that market,” Reevey said. “First Business Financial Services, they’re a commercially-focused bank. They don’t do acquisitions. Their growth is all organic. But I know they’ve been pretty active in trying to build their commercial loan book.”

“When there is an acquisition, you do see some institutions try to win business from whichever the acquired institution was, whether that’s trying to win lenders or bring customers over. The competition tends to be centered more around existing players,” Harmon said.

SEC filings have also indicated some of the banks’ executives will depart in the integration, including David Baumgarten, who will receive a $2.6 million payout through his change in control agreement. According to the company’s filings, “The officers of Associated holding office immediately prior to the effective time will serve as the officers of the surviving corporation from and after the effective time of the merger.” Bank Mutual also has employment agreements that include change in control provisions for chief financial officer Michael Dosland, chief operating officer Joseph Fikejs, chief credit officer Christopher Mayne, director of commercial banking Greg Larson, senior vice president and director of investment real estate Patrick Lawton, director of human resources Terri Pfarr and senior vice president and director of retail banking and sales Kimberlie Weekley. Pfarr has been informed her employment will terminate at the end of 2018.

In October, Associated Banc-Corp terminated the company’s change of control plan for its CEO and executive officers. The company’s compensation and benefits committee is in the process of developing new change of control agreements for the executive officers, according to an SEC filing.

When Green Bay-based Associated Banc-Corp announced it would acquire Brown Deer-based Bank Mutual Corp. for $482 million in July, there were still a lot of unknowns about how the companies would be integrated.

In the months since, public filings have given a clearer picture of the advantages and synergies the banks expect to gain from the transaction. While the deal is still awaiting regulatory approval, if all goes according to plan, it is expected to close in the first quarter of 2018.

Bank Mutual headquarters

Bank Mutual Corp.’s Brown Deer headquarters.

Among the advantages customers can expect is the larger size of the institution, which combines the largest bank based in Wisconsin with the largest bank based in the Milwaukee market. Associated Bank has $30 billion in assets and 1 million customers in eight states, which significantly increases the size and adds new products for customers of Bank Mutual, which has $2.7 billion in assets and 120,000 customers in Wisconsin and Minnesota.

“It really builds their scale and it enhances their presence in some markets, being Green Bay, Milwaukee… which are relatively attractive markets,” said Kevin Reevey, senior vice president, senior research analyst at Great Falls, Montana-based D.A. Davidson Cos., who covers both Associated and Bank Mutual. “It allows Bank Mutual’s customers to have access to a broader suite of products at Associated, plus being a slightly bigger institution, Associated can do more in the way of larger loans for their business clientele.”

And with the acquisition of a bank with an overlapping network, Associated will be able to gain 45 percent cost savings, primarily by consolidating 36 redundant branches that are within 2.2 miles of each other and eliminating that overhead. Associated released a list of the branches that are expected to close, many of which are in the Milwaukee market, in September. Philip Flynn, president and chief executive officer of Associated Bank, said in a July interview with BizTimes the Bank Mutual headquarters building in Brown Deer will eventually be vacated.

Representatives for Associated Bank and Bank Mutual declined to comment for this story.

“This is strategically interesting for them. It’s an in-footprint transaction, it helps them shore up their presence, particularly in Milwaukee,” said Emlen Harmon, managing director of equity research at San Francisco-based JMP Securities LLC, who covers Associated. “In-footprint transactions come with a fair amount of efficiencies that help make the deal financially compelling.”

The rash of new development in downtown Milwaukee over the past couple of years is good news for business lending, and should position Associated to offer clients larger loans, Reevey said.

“Milwaukee is actually a very attractive market,” Reevey said. “It’s actually experiencing reurbanization, especially in that downtown area.”

And Associated made a smaller acquisition, of Oak Brook, Illinois-based wealth management firm Whitnell & Co., in October that will help it gain market share in the wealth management niche locally, he said.

“Now they’ll be able to better service their customers, but those customers of Bank Mutual as well, and also it will allow them to build fee income,” Reevey said.

Other areas in which Associated Bank could try to gain an advantage are insurance, trust and treasury services.

“I think the company sees some opportunity to grow some of these fee-generating businesses that Bank Mutual wasn’t as strong in,” Harmon said.

Simply becoming a larger entity will help when it comes to growing overall market share, but it’s not an easy road, he said.

“Having a greater critical mass could help them to some degree,” Harmon said. “Banking is very competitive right now, so market share is a tough game. They would certainly like to achieve that. They’re going to have to work for it.”

While there are likely to be some branch consolidations and layoffs, Harmon doesn’t anticipate sweeping reductions in the market. Associated has said it can reassign many of the affected employees to open positions elsewhere in the company.

Associated Banc-Corp’s Milwaukee offices.

“Associated is cognizant of maintaining as much of their presence in Milwaukee as they can,” he said. “This is about them developing a greater presence there, so in terms of having personnel or offices, etc., I think they would probably care more toward keeping a greater presence than trying to pare things more meaningfully.”

After the acquisition closes, the bank is expected to take six months to a year to complete the integration, the analysts said. During that time, Bank Mutual’s stock will be delisted from the NASDAQ, the redundant branches would likely be closed and the signage would be switched over to Associated Bank. The systems conversion is expected to take place in the third quarter.

Since Associated hasn’t made a bank acquisition in several years, analysts and shareholders will focus on the ability of management to gain value from the transaction.

One potential impact of the merger is a shift in the dynamics and market share among smaller banks in metropolitan Milwaukee. That sort of impact was seen after the 2011 acquisition of M&I Bank parent Marshall & Illsley Corp. by BMO Financial Group. At the time, Milwaukee-based M&I was Wisconsin’s largest bank. Bank Mutual, U.S. Bank and PNC Financial Services Group told BizTimes then they were working to gain Milwaukee customers and executives from M&I in the fallout.

While Associated and Bank Mutual work to integrate their companies, smaller banks may again attempt to take advantage of dislocation in the market and try to poach some customers and key lenders and relationship officers.

“Anytime there’s an acquisition in the market, it always results in a lot of the smaller banks trying to go after those customers,” Reevey said. “I think Associated is going to be focused internally on keeping those customers, making sure they’re happy, and also the employees.

“It’s going to be competitive among the smaller players to kind of get bigger in that market.”

Among the banks that could be jockeying for that market share are First Business Financial Services Inc., Old National Bank, Town Bank parent Wintrust Financial Corp., TCF Bank and Johnson Financial Group Inc., he said.

“Old National, they’re not that big (in Milwaukee) but I know Old National is very acquisitive. I wouldn’t be surprised if they try to buy one of the smaller players in that market,” Reevey said. “First Business Financial Services, they’re a commercially-focused bank. They don’t do acquisitions. Their growth is all organic. But I know they’ve been pretty active in trying to build their commercial loan book.”

“When there is an acquisition, you do see some institutions try to win business from whichever the acquired institution was, whether that’s trying to win lenders or bring customers over. The competition tends to be centered more around existing players,” Harmon said.

SEC filings have also indicated some of the banks’ executives will depart in the integration, including David Baumgarten, who will receive a $2.6 million payout through his change in control agreement. According to the company’s filings, “The officers of Associated holding office immediately prior to the effective time will serve as the officers of the surviving corporation from and after the effective time of the merger.” Bank Mutual also has employment agreements that include change in control provisions for chief financial officer Michael Dosland, chief operating officer Joseph Fikejs, chief credit officer Christopher Mayne, director of commercial banking Greg Larson, senior vice president and director of investment real estate Patrick Lawton, director of human resources Terri Pfarr and senior vice president and director of retail banking and sales Kimberlie Weekley. Pfarr has been informed her employment will terminate at the end of 2018.

In October, Associated Banc-Corp terminated the company’s change of control plan for its CEO and executive officers. The company’s compensation and benefits committee is in the process of developing new change of control agreements for the executive officers, according to an SEC filing.

Comments are closed.