Dive Brief:

• Evansville, Indiana-based Old National Bank and Chicago-based First Midwest Bank announced an all-stock merger Tuesday that would create a $45 billion-asset financial entity and give Old National — the surviving brand — a presence in the nation’s third-largest city.
• The deal — worth $2.5 billion, according to the Chicago Tribune — is expected to close late this year or in early 2022, pending regulatory approval. Old National CEO Jim Ryan, who will retain that title after the merger, said on an investor call Tuesday, “We hope to close in the fourth quarter, then get to work on conversion in the first quarter of 2022.”
• The combined entity will have dual headquarters — Evansville for the holding company and bank, and Chicago for commercial lending and community banking operations. The board of directors will be split evenly — eight members from Old National and eight from First Midwest, but the former’s investors will own 56% of the company after the merger.

Dive Insight:

The tie-up would make Old National the sixth-largest Midwestern-headquartered bank and give it an entry point to the region’s largest city. It had previously counted three branches in Illinois, none of which are near Chicago. First Midwest holds a 2.7% share in the Chicago market, the ninth-largest in the area, according to 2020 Federal Deposit Insurance Corp. (FDIC) data.

Several mergers and acquisitions in 2021 have hinged on giving the surviving institution access to coveted geography. M&T Bank, for example, agreed to buy Bridgeport, Connecticut-based People’s United in February in part to expand its footprint into the Boston market.

Others this year, such as WSFS’s purchase of Bryn Mawr Trust or Eastern Bank’s acquisition of Century Bank, further cemented a local bank’s footprint around a city like Philadelphia in the former case, or Boston in the latter.

Like a number of recent mergers, too, the Old National-First Midwest deal creates a dual-office bank. BancorpSouth and Cadence Bank, which announced their intention to merge in April, said that the combined entity would operate headquarters in both Tupelo, Mississippi, and Houston. M&T said it would use People’s United’s Bridgeport headquarters as a New England regional office. And Huntington Bank, which announced in December that it would merge with TCF, said it would run its consumer business out of Columbus, Ohio, and its commercial bank from Detroit.

Outside Evansville, Old National’s footprint comprises several clusters near large Midwest markets such as Minneapolis, Indianapolis, Detroit’s western suburbs and Madison, Wisconsin. By merging, it stands to pick up 108 First Midwest branches, according to the Chicago Tribune — all but about 10 in the Chicago area, according to a branch map both banks released Tuesday.

Together, the banks stand to hold $34 billion of deposits and $33 billion of assets under management. They’ve also identified $109 million in cost savings — three-quarters of which they expect to be realized next year, American Banker reported Tuesday.

That aside, the deal would marry Old National’s mortgage and Small Business Administration lending business with First Midwest’s commercial banking arm — which would give the surviving bank the ability to revamp digital offerings such as commercial treasury management.

“It would be hard for banks our size to build those systems and make the necessary investments,” Ryan said. “Together, we can do it.”

The banks’ CEOs said they had been discussing a deal since January.

“We felt this was a fantastic, maybe once-in-a lifetime opportunity,” Ryan said on Tuesday’s call.

After the merger, First Midwest CEO Michael Scudder will serve as executive chairman. The surviving bank will retain other First Midwest executives, as well — President and Chief Operating Officer Mark Sander will fill the same role at the combined bank. So will community banking chief Thomas Prame and Chief Credit Officer Kevin Geoghegan. Old National will retain its CFO, Brendon Falconer.

Old National and First Midwest have each acquired several entities in the run-up to Tuesday’s deal — completing 16 deals in all since 2010, according to American Banker, including Old National’s 2016 acquisition of Madison-based AnchorBancorp Wisconsin and First Midwest’s 2017 purchase of $2.5 billion-asset Standard Bancshares.

Prior to the transaction, Old National accounted for $23.7 billion in assets, while First Midwest counted $21.2 billion. First Midwest stockholders will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own.