Illinois has emerged as the nation’s busiest state for bank consolidation. Fourteen banks in the state have agreed to be sold this year, including nine between June and August, according to data compiled by S&P Global Market Intelligence. Illinois has accounted for 8% of all bank sales, slightly outpacing the dozen deals announced in Texas. A big driver for M&A in Illinois has been the sheer number of banks operating in the state. Those banks are facing the same issues challenging lenders nationwide, including cost pressures, fierce competition — and now declining interest rates. Those factors will likely push more consolidation in coming months, industry experts said. “We’re still one of the most concentrated markets in the country, so I think it is fertile ground here for more consolidation,” said Patrick Barrett, chief financial officer of First Midwest Bancorp in Chicago. Illinois, and Chicago in particular, is still feeling the impact of a decision to repeal unit banking laws years after other states. Those laws, which limited banks to a single branch in a county, postponed consolidation and led to a proliferation of small, privately held banks. There are 26 banks with less than $1 billion in assets based in Chicago, and dozens more in neighboring suburbs, according to S&P Global. The total in downtown Chicago is nearly double the 14 banks based in New York. “There are still plenty of potential targets,” said Barrett, whose bank moved its headquarters to Chicago last year. A number of the $17.5 billion-asset company’s acquisitions have been in and around the Windy City. “We continue to be as interested as ever” in Illinois and nearby areas, Barrett said. “Dialogues are continuing.” Many Chicago-area banks are struggling to keep pace with needed investments in technology and cybersecurity, industry observers said. Intense competition from banks and nonbanks is another factor, and many asset-sensitive banks are bracing for margin pressure from the Federal Reserve’s recent rate cuts. Aging management teams and a need for liquidity are also concerns at small, privately held banks. “There are a lot of talks going on,” said Ed Wehmer, chairman and CEO of the $33.6 billion-asset Wintrust Financial in Rosemont, Ill. “The opportunities are lined up like planes over O’Hare,” Wehmer added. “We still have a lot of small banks in Illinois, and many of them don’t want to go through another credit cycle or deal again with lower rates. That makes some of them eager sellers.” There are factors that could work against M&A. For one, an ongoing malaise in bank stock prices could hinder the purchase power of potential acquirers. The area’s M&A market has historically been dominated by a handful of aggressive consolidators — First Midwest, Wintrust, the $5.4 billion-asset Byline Bancorp and the $2.6 billion-asset Old Second Bancorp — which Barrett attributed to more modest growth in the market compared to the Northeast or West Coast. A number of potential sellers have issues that concern potential buyers. “Their portfolios, although they appear current, would not take a downturn very well,” Wehmer said during a July conference call to discuss quarterly earnings. “We'll walk away from those.” Still, challenges for banks appear to be intensifying. The economy is showing signs of a slowdown and credit quality will eventually erode, said Walt Mix, a former banker and head of the financial services practice at Berkeley Research Group. “There are a whole host of things for banks to sort through,” Mix said. “For some, it is just too much and it makes sense to sell.” In a state like Illinois, with ample sellers and few buyers, acquirers have some pricing power, which should help resolve pricing expectations faster than in other parts of the country, industry observers said. While a decline in bank stocks has created a lull in conversations, James Eccher, Old Second’s president and CEO, said during his company’s quarterly call in July that the drivers of M&A remain firmly in place. “We expect things to turn around and accelerate as the year unfolds, and we continue to have good discussions with a lot of partners,” Eccher said.