Anytime two business entities merge, the context is important to note. As State Bank of Cross Plains (SBCP) and Monona Bank were announcing their plans to partner, the Federal Reserve Board made good on its pledge to start raising interest rates to slow inflation, there was growing concern about the American and global economies despite strong employment data, and Russia’s invasion of Ukraine joined inflation to roil the stock markets.
Pessimistic voices are growing louder, and if an economic downturn is truly in the wind, one could not blame any business entity for pursuing a strength-in-numbers strategy. But the executives behind the merger of SBCP, founded in 1908, and Monona Bank, founded in 1991, contend they took the offensive rather than act in a defensive manner. Their due diligence began last summer when the Fed and others still viewed inflation as transitory, there was light at the end of the COVID tunnel thanks to widening vaccine distribution, and you probably could count on one hand the number of people who could find Ukraine on a map.
By this time next year, Jim Tubbs, president and CEO of SBCP, and Paul Hoffmann, president and CEO of Monona Bank, plan to be leading an institution with a yet-to-be-determined new name, more than $3 billion in combined assets, and more than 400 employees across 17 communities throughout South Central Wisconsin.
Tubbs used the term “super-community bank” to describe what is being formed. “We looked at this as an offensive move,” Tubbs explains. “There wasn’t anything defensive … Many [mergers] can be from a defensive mechanism, meaning, ‘Hey, we don’t have a succession plan. Hey, we have an owner who wants to sell. Hey, we have a concern with our financial performance.’ Those are defensive reasons why companies sell. This was truly an offensive opportunity, not for a sale but truly for a combination.”
Hoffmann characterizes the decision to combine forces as a forward-looking, strategic decision that best serves customers, communities, and shareholders, and provides opportunities for employees to build their careers. “It’s not like we have some driving reason either from the pandemic or an economic side to it,” he states. “It was to create one of the best banks in Wisconsin and to share a goal that Jim and I have to do that, knowing we have two strong teams that can come together and make this happen.”
Care to join me?
The merger is the latest in a series of consolidation moves among local community banks, and closely follows Summit Credit Union’s decision to buy West Bend-based Commerce State Bank, which will join two financial institutions that have combined assets approaching $6 billion and 54 locations.
The opportunity for future expansion appealed to Tubbs and Hoffmann, but their first order of business is to gain the necessary regulatory approvals, proceed with the integration process, and eventually choose a new name for the combined entity. “Without a doubt, the benefit of the expansion opportunity is there, but first things first,” Tubbs says. “We want to make sure we take care of what we just created. It will be about one year from now that the dust will settle, when we will combine the two banks together, and when we will combine into one core processing system. Why is that important? That’s the element of how our customers’ transactions are run through our systems, so it’s super important for our connection to customers.”
As community banks, they have similar core offerings, which now can be provided on a larger scale, but SBCP’s wealth management and trust areas also appealed to Monona Bank.
“We don’t have those services right now, and that’s something we are definitely excited about,” Hoffman states. “They also have more depth in the agriculture lending area, and agricultural services and the insurance side of it, so while we do a little bit of that, we’re able to expand our offerings in that regard.”
Hoffmann also likes the expanded geographic footprint of the combined entity, a convenient advantage for bank customers who might live in New Glarus but work in Madison or live in Sauk County and work in Middleton. “Now, we’ll have more locations that can serve them both from a work standpoint and closer to home,” Hoffmann says.
The workforce component to a broader geographic footprint also pertains to remote and hybrid work opportunities. “With the pandemic, we’ve learned that people can work from wherever,” Hoffmann notes. “Through [Microsoft] Teams and Zoom and other services, we’ve learned that you don’t have to have all of your marketing people work in one office or one location. You can spread that out and help attract and retain the best people without having to say, ‘OK, you live down in Stoughton, but you have to drive all the way to Waunakee.’”
Tubbs also cites the value of more convenient branch locations. “Banking is still a convenience, and greater convenience can be technology and greater convenience can be locations,” he states. “Without a doubt, this combination provides a greater footprint, a greater opportunity for customers of either bank … We did not have a location in Cottage Grove. We did not have a location in Sauk City. We did not have a location, in essence, on the east side of Madison, and this is going to be fantastic for our customer base, jointly, to have more convenience.”
Another benefit is a technological one. “People use the word scale,” notes Tubbs. “This opportunity to bring the banks together has provided us with scale to make sure we can provide the best technology out there for our customers and our associates to interact with one another. That’s the other element that I’m really excited about.”
Meanwhile, both banks will continue to function independently until spring 2023, when they are expected to fully merge, integrate, and operate under a new name and brand, but it won’t be a combination of the existing names. According to Tubbs, it will be a brand-new name that’s a reflection of the combined institutions.
Tubbs and Hoffman have known each other for 15 years, and they have served together on various business boards. Having run independent community banks, they have a high level of respect for one another. “It does start with the basis of trust,” Hoffman notes. “Jim and I have known each other for a long time. We have a lot of respect for each other and each other’s organizations. Over the years, we’ve shared on loan participations, and we’ve worked on boards together, and we have a personal friendship that serves as the basis for it. I know him well, we have very similar [corporate] cultures, and for a merger like this to work, you have to have a base of trust and then you have to have similar cultures so that you can come together.”
Stamps of approval
The all-stock merger plan was unanimously approved by the boards of directors of both companies, signed on March 14, and is expected to close by the end of 2022, subject to regulatory approvals and approval by the shareholders of each company. Combined, the banks have just over 700 local shareholders, and Tubbs and Hoffmann believe the unanimous endorsement from both business boards is a strong endorsement of their plans. “We think that [shareholder approval] is very likely to happen because it makes great sense,” Hoffmann notes. “It’s important to us that they both vote for that and give us both the necessary approvals.”
As a regulated industry, bank mergers also must be approved by the Wisconsin Department of Financial Institutions and the Federal Deposit Insurance Corp., and the Federal Reserve Bank must approve the merger for the banks’ respective holding companies. Monona Bankshares Inc. is the holding company of Monona Bank, and S.B.C.P. Bancorp Inc. is the holding company for State Bank of Cross Plains. Once those approvals are secured, the two institutions would “more than likely” merge the holding companies together this fall, Hoffman says.
“We’ve got a few hurdles to get over for sure,” Hoffman acknowledges. “We’ve already started to talk to them [shareholders and agencies], and we feel good about the proposition of coming together and what that means to serving our communities. We both have strong community outreach and community response, so we think that will play well with the regulators. That’s something they always look at, and we can bring that to the table.”
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