September 18th marked another notable day in Michigan banking, as shareholders at two in-state institutions involved in a pending merger approved their proposed union, while leadership at two other in-state banks announced plans to combine resources. Banking consolidation is nothing new, and most assuredly will continue. Considering recent statistics that reflect a universe that is shrinking on the order of 4-5% per year, since there are roughly 5,300 chartered banking institutions in existence today, that translates into approximately 200 – 250 organizations deciding to merge, annually.
No, it is not the common theme of consolidation shared by the two aforementioned September 18th announcements in our state that makes that day “notable” – but rather, the diverse geography of the parties involved that is most interesting. Technology has seemingly put the world and its resources in the palm of one’s hand and banking has clearly ridden (and continues to ride) that wave. And these two combinations poignantly underscore that dynamic, as physical geography is no longer the impediment it may have once been.
In the “East meets West” component of our title, in a transaction first announced back in March of this year, shareholders at both the parent companies of ChoiceOne and Lakestone approved their pending merger. With the transaction now scheduled to close in the coming days, Sparta-based ChoiceOne (our “West”) will combine with Lapeer-based Lakestone (our “East”) in forming a $1.3 billion enterprise. And, as it relates to our “North heads South” portion, at roughly the same time news of the East/West shareholder vote was crossing the transom, Hancock-based Superior National (our “North”) detailed plans to bring Bingham Farms-based Main Street (our “South”) under the same roof. Pending requisite regulatory and shareholder approvals, that combination will result in a nearly $850 million organization spanning from the Upper Peninsula into the vibrant Southeast Michigan market.
We were fortunate to have played a role in both transactions(1), and I and my colleagues are always available to discuss some of the dynamics and considerations that went into each undertaking. There is never a “one-size-fits-all” response to consolidation in the banking industry, but suffice it to say that market extension opportunities involving demographically-compelling locales, coupled with the opportunity to lever existing infrastructure and technological platforms while securing and retaining talent, were generally common themes in both transactions.
And in both cases, while inevitable market pressures will begin to exert themselves in demanding results and expecting near-seamless execution, all four parties have signaled that they will not rush consolidation of the lead banking units until operating systems are clearly aligned and critical transition issues are detailed and put in order. We applaud, in advance, the projected discipline, and clearly the desire to not destroy the very value creation all four parties expect to emerge as they come together in these two separate mergers.
As I head off to the annual Community Bankers of Michigan convention in Traverse City this week, I am sure that the dynamics of these two deals will surely elicit commentary and thoughts from multiple attendees. Actually, it is pretty much a given, as I will be moderating a panel of talented professionals that will opine on current hot topics in the industry. In light of building trade tensions, growing geopolitical uncertainty, at times mixed or divided signals coming out of the Fed’s policymakers, creeping recessionary fears (which may have been recently heightened here in Michigan with the UAW/GM strike), and a plethora of other issues facing bankers (and the economy) today, I simply harken back to an admonition I made last month:
Maintain underwriting integrity and discipline. Manage capital and reserves carefully. Emphasize sound risk management practices and a robust architecture. You are stewards of your shareholders’ investment. Do not succumb to the “this time is different” mindset. The constant, for successful banks, has been adhering to solid credit standards and sound cost controls. Whatever is on the other side will, inevitably, pass. Do what you need to do so that when it does, you are still standing.
In closing, attached please find our monthly summary of Michigan’s financial institutions. As you and your Board take your organization forward, please do not hesitate to reach out to me and/or my colleagues at ProBank Austin if we can be of any assistance in helping you assess the competitive landscape. My best wishes for continued success as you move through 2019.
(1)ProBank Austin was exclusive financial advisor to Choice One in the merger with Lakestone. ProBank Austin issued a fairness opinion to Keweenaw Financial, parent company of Superior National, in the acquisition of Main Street Bank.
SEPTEMBER 2019 MICHIGAN BANKING SUMMARY
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