BMO Financial Group today announced agreements to purchase two Wisconsin-area banks, expanding the Harris franchise into a third U.S. Midwestern state.

In two separate transactions, BMO announced the acquisitions of Ozaukee Bank and Merchants and Manufacturers Bancorporation, Inc. Combined, the two banks have approximately 40 full service locations — more than 20 in the Milwaukee area — and 13 limited-service locations, as well as over US$2 billion in assets and US$1.7 billion in deposits.

“Today’s announcements will move us further toward our goal of becoming the leading Personal and Commercial bank in the U.S. Midwest,” said Bill Downe, CEO, BMO Financial Group. “These acquisitions will allow us to enhance the experience the customers of these banks already have by adding the full breadth of personal, business and wealth management services that Harris has delivered in the Chicago market for 125 years.”

BMO announced a definitive agreement to purchase Ozaukee Bank in a stock transaction valued at US$190 million. Under the agreement, Ozaukee Bank holders will receive approximately 3 million shares of BMO Financial Group (Bank of Montreal), parent company of Harris. The exact number of shares will be determined based on a formula prior to closing. Ozaukee Bank is a community bank with six full-service and two limited-service locations in the northern part of the greater Milwaukee area. With US$694 million in assets and US$561 million in deposits, Ozaukee Bank is the deposit share leader in its market.

Additionally, BMO announced a definitive agreement to purchase Merchants and Manufacturers (OTC: MMBI), also headquartered in the Milwaukee area, for US$137.2 million in cash, or US$37.30 per share of Merchants and Manufacturers common stock. Merchants and Manufacturers is a multi-bank holding company with six bank subsidiaries operating 34 full-service and 11 limited-service locations in an area concentrated in Milwaukee, and extending into Green Bay to the north and LaCrosse to the west. Merchants and Manufacturers’ banks have a combined US$1.5 billion in assets and US$1.2 billion in deposits, holding more than half of their deposits in the Milwaukee area.

“Milwaukee is an attractive market for Harris for two important reasons. First, its size and proximity to Chicago — less than 100 miles separate the two cities – make it a natural fit for us. Second, Milwaukee is a relatively affluent market with median household income and projected household income growth higher than the national average,” said Ellen Costello, CEO, Harris Bankcorp, Inc. “When you add to that the commitment to customer service and community involvement Harris shares with these banks, we believe we have significant potential to grow our market share even further.”

The combined transactions represent a price-to-book multiple of 2.2 times book, consistent with purchase multiples in the U.S. Midwest. Excluding one-time costs, the transactions are mildly dilutive to cash earnings per share in year one and mildly accretive to cash earnings per share in year two.

Both acquisitions are expected to close later this year pending approval by U.S. and Canadian regulators, as well as shareholders of the respective companies.

Following the acquisition of First National Bank & Trust in central Indiana, which was completed this year, Harris N.A. has more than 230 locations and over 580 Harris-branded ABMs in Illinois and Indiana. The Wisconsin acquisitions move Harris closer to its goal of 350 to 400 locations across the Midwest. With $42 billion in assets and $29 billion in deposits, Harris is the second-largest bank based on branches in the Chicago market. Additionally, Harris has affiliated wealth management offices in Arizona, California, Florida, Georgia, Virginia and Washington.

Today’s acquisitions likely won’t have a material impact on BMO operations, but the deals do confirm that the bank intends to continue expanding its retail business in the U.S., analysts say.

“While a positive development, the acquisitions are not expected to have a material impact on the overall credit profile of the bank,” the credit rating agency DBRS says.

“The acquisitions will substantially contribute to BMO’s goal of having 350 to 400 locations in the U.S. Midwest,” it notes, adding that prior to the acquisitions, Harris had greater than 230 locations. MMBI has 34 full-service branches and 11 limited-service branches, and OB has six and two, respectively. “The combination of these two acquisitions and existing operations will give BMO the sixth-largest deposit market share in the Milwaukee MSA,” DBRS notes.

@page_break@UBS Securities Canada Inc. says that, “Synergies are likely to be limited and risks slightly higher for an out of market deal, but management suggests each bank is well positioned in good markets with an attractive deposit base. The move suggests BMO is able to accelerate its stated objective of U.S. growth through acquisitions.”

“Most importantly, we believe this demonstrates that management remains firmly committed to its U.S. retail strategy and will continue growing the platform through organic growth, additional bolt-on acquisitions and, under the right circumstances, potentially larger transactions,” UBS adds in a report. “Management has pointed to the recent acquisition and integration of First National as a demonstration of the platform’s improved scalability. These latest deals will serve as a good test of management’s ability to accelerate the pace of acquisition growth and to deliver improved operating results.” UBS concludes that the deals are likely to be modestly accretive to earnings, but it has made no changes to its estimates or price target.

“Both businesses will benefit from existing BMO platforms, including risk management, wealth management to OB customers and commercial banking expertise to both OB and MMBI,” DBRS says.

DBRS expects BMO will continue to expand all its U.S. operations, including Harris Bank, as well as private banking and investment banking operations.