Industry experts say bank consolidations are likely to continue, with at least a few more bank deals expected to be announced this year. Credit: MCT

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Facing issues ranging from higher expenses to loan problems to retirements by management, more Wisconsin banks are finding merger partners.

Since the beginning of last year, more than a dozen state banks — almost all of them small — have changed hands or revealed plans to merge. That includes two that failed and were taken over by stronger institutions last year.

Industry experts say the consolidation is likely to continue, with at least a few more bank deals expected to be announced this year.

"There's been chatter for the last five years — everybody's talked about merging. But it's actually happening now. Deals are being struck, people are conducting due diligence," said John Reichert, a shareholder in the Financial Institutions Group of the Milwaukee law firm Godfrey & Kahn. "Our sense is that it's accelerating."

Wisconsin's chief financial institution regulator agreed a wave of consolidation is under way.

"I think the most important thing to keep in mind is that mergers are happening for a variety of reasons," said Peter Bildsten, secretary of the Wisconsin Department of Financial Institutions. "Sometimes it's earnings pressure. Sometimes it's shareholder pressure. Sometimes it's credit problems at the institutions. Yes, sometimes it's regulatory pressures and perhaps regulatory burdens. Sometimes it's a lack of succession planning."

Bildsten noted that credit unions — bank-like nonprofit cooperatives that are owned by members instead of shareholders — also are in consolidation mode in the state.

"We expect six (credit union) mergers to close by June 30 and perhaps another half dozen in the second half of this year alone," Bildtsen said.

Many triggers

Like Bildsten, Reichert said no single factor is driving the mergers.

"You've got a lot of banks that say we're lacking capital and they have an inability to raise capital on their own," Reichert said. "Or their shareholders are saying, 'You know, we've been shareholders for 20 years and we need some liquidity.' But they're not publicly traded and there isn't a ready market for the shares, so what are you going to do?"

Reichert said in some cases the pending retirement of the chief executive is the trigger.

"You've got a situation where management is looking to retire, and in many instances they've been successfully running the bank for a long time, but there isn't a good succession plan in place," he said.

Reichert said two things have improved in the post-recession bank deal climate. Buyers are more comfortable that their due diligence is able to detect the true risk in loan portfolios of for-sale banks, and the price between sellers and buyers has narrowed as both sides have become more realistic.

"For a long time there was a gap between the pricing expectations," Reichert said. "Sellers thought they were worth a lot more than they probably were and buyers wanted to pay a lot less than they probably needed to."

Some experts say another factor pushing banks into each other's arms is technology. National bank consultant James Clarke, who was in town last week to offer his industry perspective to Brookfield's North Shore Bank, said the expense of keeping up with technology and offering customers all they expect today is growing.

"Technology has become probably the second-biggest cost to the banks," said Clarke, principal of Clarke Consulting in Villanova, Pa. "And the second-biggest cost used to be occupancy — the buildings themselves."

Branches shrinking

The number of brick-and-mortar bank branches is shrinking at a time when more businesses and consumers do their banking online and over smartphone and tablet apps.

"Some institutions, both banks and credit unions, that have been slow to come out and find ways to meet demand for growing technology — not just with the delivery of products and services to consumers but also in managing their loan portfolios and deal with compliance — that is another cost," said Bildsten.

Rose Oswald Poels, chief executive of the Wisconsin Bankers Association, said although consolidation is just a natural part of business, there are some new expense pressures on banks.

"One, compliance and regulatory burden, which has grown exponentially in the last few years and has a disproportionately negative effect on community banks," Oswald Poels said. "And then the second reason is just technology costs, because as more and more consumers want transactions done electronically, that is a big investment in technology and the security behind that technology."

The number of banks headquartered in Wisconsin through the first quarter of this year was 257, down from 264 at the same time a year ago and from 271 in 2012, data from the Federal Deposit Insurance Corp. shows.

Oswald Poels predicted at the beginning of 2014 that state banks will consolidate 3% to 5% over the course of the next year to year and a half.

Nationally, the U.S. had 6,730 FDIC-insured banks through the first quarter, down from 7,019 in the first period of 2013 and 7,308 in the first quarter of 2012.

In some mergers, banks that have been struggling end up being taken over by stronger banks, which generally benefits customers. That was the case in April last year when Green Bay's Nicolet National Bank acquired Medford-based Mid-Wisconsin Bank in a $10.2 million deal. Nicolet is a profitable bank with a solid reputation, while Mid-Wisconsin was losing money.

"From an acquirer's standpoint, you're looking to acquire a branch network to kind of round out your footprint," Reichert said. "You're looking to acquire some talented management people or some other employees. You're looking to diversify your products or your portfolio."

Mergers or Acquisitions

Involving Wisconsin banks since 2013

■ Community Bank of Central Wisconsin voluntarily liquidated, selling assets and deposits to Citizens State Bank of Loyal and Forward Financial Bank, Marshfield

■ Bank of Monticello merged into Greenwood's State Bank, Lake Mills

■ Nicolet National Bank, Green Bay, acquired Mid-Wisconsin Bank, Medford

■ Bank of Kenosha failed and was taken over by North Shore Bank, Brookfield

■ Community State Bank, Norwalk, merged into Farmers & Merchants Bank of Kendall

■ Bank of Wausau failed and was taken over by Nicolet National Bank, Green Bay

■ Summit Community Bank, Maplewood, Minn., merged into Peoples Bank Midwest, Hayward

■ Bank of Turtle Lake was acquired by Dairy State Bank, Rice Lake

■ John O. Melby & Co. Bank, Whitehall, merged into State Bank of Arcadia

■ Landmark Credit Union, New Berlin, acquired Hartford Savings Bank

■ First National Bank and Trust, Barron, merged into Central Bank, Golden Valley, Minn.

■ Peoples State Bank of Bloomer was acquired by Security Financial Bank, Durand

■ First Federal Bank of Wisconsin, Waukesha, and Bay View Federal Savings and Loan Association, Milwaukee, announced plans to merge

■ Bank North, Wausaukee, is merging into The Stephenson National Bank & Trust, Marinette

■ La Farge State Bank is merging into Farmers State Bank, Hillsboro