A community bank based in Wisconsin has agreed to acquire another financial institution, pushing its asset size beyond the significant $10 billion threshold. Nicolet Bankshares will purchase MidWestOne Financial Group for approximately $864 million in an all-stock deal. This merger is expected to close in the first half of 2026 and will enable Nicolet to expand its presence into Iowa and the Minneapolis-St. Paul metropolitan area.
As of September 30, 2023, Nicolet Bankshares reported assets totaling $9.03 billion. The acquisition of MidWestOne, which has assets of $6.2 billion, will lead to a combined asset size of around $15.7 billion. This strategic move allows Nicolet to effectively navigate the regulatory landscape, as banks with assets exceeding $10 billion face increased regulatory costs. Acquiring another institution helps mitigate these costs by increasing revenue potential.
Strategic Expansion into New Markets
Nicolet has maintained a strong footprint in smaller markets across Wisconsin, including Green Bay, Eau Claire, and Appleton. However, this merger marks its first entry into larger metropolitan areas. MidWestOne operates 15 banking offices in the Minneapolis-St. Paul region, a significant market that Nicolet has largely avoided until now.
During a conference call with analysts, Mike Daniels, Nicolet’s chairman, president, and CEO, acknowledged the cautious approach to larger markets. “We have always stated we want to be in markets where we can matter,” he said. “We struggled to enter larger metro markets without a sizable acquisition that would allow us to matter.” The acquisition of MidWestOne positions Nicolet to achieve that goal.
While the Twin Cities represent an exciting opportunity, Daniels expressed uncertainty regarding further expansion into Denver, where MidWestOne also operates. “Mattering in Denver will require additional scale,” he noted, indicating ongoing discussions with MidWestOne’s leadership about potential future growth in that region.
Financial Implications of the Merger
The transaction values MidWestOne at a price-to-tangible-book-value-per-share of 166%. Following the announcement, shares of Nicolet experienced a decline of 3.5% in mid-afternoon trading. This initial market reaction underscores the complexities involved in significant mergers.
As Nicolet prepares to cross the $10 billion asset threshold, the bank anticipates facing new financial realities. Daniels noted that interchange fee caps will apply to banks exceeding this limit, estimating a potential revenue impact of about $8.5 million in the coming year. Nicolet is not new to acquisitions; it completed its most recent purchase of Charter Bankshares in August 2022, marking its third acquisition in 18 months.
Both banks have faced challenges in the current economic environment, particularly with rising interest rates leading to unrealized losses. Nicolet proactively repositioned its balance sheet by selling $500 million in U.S. Treasuries in early 2023, resulting in improved net interest margins over ten consecutive quarters.
MidWestOne has also taken steps to enhance its profitability following unrealized losses. According to Daniels, the bank made the difficult decision last year to raise equity, allowing for a strategic repositioning of its balance sheet. “This action vastly improved MidWestOne’s profitability,” he said, expressing confidence in the bank’s future trajectory.
Once the transaction concludes, MidWestOne shareholders will own 30% of the combined company. Nicolet will hold eight board seats, while MidWestOne will have four. Leadership continuity is also a priority, with MidWestOne’s CEO Chip Reeves and Chief Financial Officer Barry Ray expected to join Nicolet’s leadership team.
Reeves highlighted the shared values between the two organizations, emphasizing a commitment to teamwork and customer focus. “We both have an extreme focus on team and customer as we create shared success,” he stated. This collaborative spirit positions the newly merged entity for success as it navigates an evolving financial landscape.
As the merger progresses, stakeholders will be closely watching how the combined strengths of Nicolet and MidWestOne will shape their ability to compete in an increasingly complex banking environment.
