Next CEO expects to grow Bank Mutual with acquisitions

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Michael Crowley Jr., chief executive officer of Brown Deer-based Bank Mutual Corp., will retire into a non-executive chairman role on July 1, when Bank Mutual president Dave Baumgarten will become CEO. The company’s board selected Baumgarten to join the bank as Crowley’s successor in 2010. Since then, he has made quite a few changes at the company. Looking forward, Baumgarten says he plans to focus on making acquisitions. BizTimes Milwaukee reporter Molly Newman recently interviewed Baumgarten. The following are excerpts from that interview.

BizTimes: The bank reported a 62-percent increase in net income year-over-year and increased the dividend to shareholders to two cents in the last quarter. How much of a symbolic milestone is it for the company to go from losses to huge gains and paying out dividends?

Baumgarten: “The bank celebrated its 120th anniversary last year and 2010 was the first year it ever had a loss in its history. We had two years of losses. I fully expected we were going to turn this thing around and make a profit in 2012. We lived up to the expectations that we laid out to the investment community as to what we could do. And the dividend, we were paying a penny, even with the loss in ’10 and the loss in ’11, we were paying a penny dividend so we really went from 1 cent to 2 cents a quarter. Back in 2008 and 2009, we were paying more than that in dividends so I guess I’d just call it, it wasn’t really a symbolic turnaround, it was more doing what we thought we could do. As we look at 2013, we’re going to make more money than we did in ’12 and in 2014 we’re going to make more than we did in 2013. That’s without doing anything really totally out of the box. That’s just doing basic blocking and tackling.”

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BizTimes: Is the bank poised for further growth this year and next year?

Baumgarten: “This organization had really been a traditional thrift. And I think the board felt that was a business model that over the next five to 10 years probably didn’t make a lot of sense anymore. And so we’ve taken the time starting at the end of 2010 and early 2011 to start to create a commercial banking model. We basically redid the whole product offering for the commercial side. We created some very good treasury management products, we created an international banking area, we hired a number of very experienced commercial bankers from other large banks in town. We did have a lot of capital, we still have a lot of excess capital, so we’ve been able to make some investments on the commercial side, really what I call investments in the future of this organization.”

BizTimes: How many foreclosed homes does Bank Mutual own?

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Baumgarten: “Fortunately for Bank Mutual, we never got into some of the more aggressive lending that a lot of the other institutions did that really created the mortgage problem. We’ve only got 15 residential properties that we’ve foreclosed on that are in our OREO portfolio right now. It’s a non-event for us.”

BizTimes: Was there a long-term plan to transition you into the CEO role at the bank?

Baumgarten: “I think as Mike Crowley and the board talked about creating a different business strategy, they knew if they were going to try to look more like a commercial bank they had to go outside and bring in somebody that was from that environment. And secondly, Mike was in his mid-60s and did not have a successor in-house. As the board was looking to bring somebody in, they were both looking at a natural successor plan for Mike, as well as somebody that could lead the new business strategy going forward.”

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BizTimes: What kind of things are particular to your leadership style that people can expect out of Bank Mutual going forward?

Baumgarten: “We will be very cognizant about what the expectations are of our customer base and will constantly try to exceed the expectations of our customers. Because of our strong capital base, we have all the capacity relative to lending capability or products that any middle market company can be satisfied with. It’s how we deliver those that I think can differentiate us. We very much believe in a quick turnaround on credit decisions and the local decision making around those credit decisions.

“Clearly as we transition from a thrift to a commercial bank, there has been a need for significant changes in the company. We have tried to do everything we can to lay out a clear vision. We’ve tried to provide the support to our people to allow them to make those types of changes in what we expect and I think we’ve tried to do it on a very open dialogue.

“When we started this whole thing, we said there’s really kind of three legs to the stool. Prior to the end of 2010 or 2011, Bank Mutual would never have been thought of as a commercial bank, and we knew we had to change that image. You do some of that through advertising, but the way you really get at it is hiring good commercial bankers that are well-respected in the community and you do deals.

“The second piece of the stool was turning our 76 branch network from a service culture to more of a sales culture, and that’s taken a lot of time. We had to redo the product line. We had to change the incentive plan. We had to change a number of people within the organization on the branch side of the equation. We’ve really worked on making sure that we’ve improved the quality of our products so that we could better satisfy the needs of our new customers.

“The third is because we have such a strong capital position, we are going to have to take advantage of being able to do some acquisitions in this marketplace.”

BizTimes: It sounds like you’ve made a lot of changes already, but what are some of the first things you’ll be doing differently when you take over as CEO?

Baumgarten: “I don’t think relative to what we can do organically within the organization that the people here are going to see much directional shift when I take over as CEO. The shift has already happened. On those first two fronts, we just have to keep doing what we’re doing, continuing the trend of improvement and keep doing it better every day. If there’s any shift, it’s going to be, I’m going to have to spend more time looking at acquisition candidates that can enhance our position in the marketplace.”

Biztimes: Are you looking for acquisition candidates in Wisconsin?

Baumgarten: “I’d prioritize them 1, 2 and 3. No. 1 would be an in-market acquisition, so doing something within our footprint that’s already there where we could take advantage of the branch network that we already have and expand that branch network. No. 2 would be doing a non-bank acquisition, buying a product line that we don’t currently have. That could be a leasing company, it could be an asset-based lending company, it could be a money manager. The third priority would be to do something maybe within Wisconsin but outside of our footprint. An example of that would be La Crosse. Or doing something across the border into Minnesota. We have no interest in doing anything in Illinois. There’s too many banks, it’s too competitive and it would just be very difficult to ever build a critical mass down there given the level of competition that’s already there. It’s just an overbanked market.”

BizTimes: What is your timeline to deploy that capital on an acquisition?

Baumgarten: “You’ve got to have the right buyer, you’ve got to have the right seller that all kind of agree. If we found the right thing in the next quarter, we’d consider it. If it took 18 months to find the right thing, it’ll take 18 months. What we’re not going to do is significantly overpay for something. What we want to be able to do to a potential acquisition candidate is to tell them the Bank Mutual story, get them confident that the story’s a good one and that Bank Mutual has a bright future and give them some of our stock and let them kind of ride the future forward with us as opposed to trying to ride the future forward alone. If you’re a smaller bank today, with all the new regulations coming down and the difficulty of raising capital, it’s just getting tougher and tougher to envision how a lot of these smaller banks are going to survive over the next few years.”

BizTimes: Is it possible Bank Mutual would be acquired or do you expect to be the acquirer?

Baumgarten: “A part of our strategy is around doing some acquisitions to enhance the value of our company. We’re worth $2.5 billion today. I would hope that over the next few years we could significantly improve that size. Whether or not we’re going to be a survivor long-term I think depends on our performance. If we perform and can give our shareholders the type of return they deserve then we deserve to stay independent. If we can’t do that or if somebody wants to come in and offer some huge premium to what we’re dreaming at, I think doing our fiduciary responsibility, we’d have to at least think about that. Short-term, I’d say my desire is to do some acquisitions here and make us a much more strong, viable player in this marketplace.”

BizTimes: Do you think there’s a lot of opportunity there with the acquisition of M&I and kind of the vacuum in the market here for a local bank like yours?

Baumgarten: “That’s kind of the basis of what we’re trying to sell out there that differentiates us from the others. In the larger banks, a lot of the decision making is no longer done here. The top leadership of these banks, they’re not located here. Being the size we are, we’ve got a unique opportunity to deliver what a lot of clients want today: They want to know who’s making the decisions on their accounts, they want to know what the key variables are to getting a positive response to a request and they want a reasonable turnaround. That’s something that I think we are offering and we’re offering them experienced commercial bankers to deal with. On the commercial side, we’ve probably hired 16 or 17 decent commercial bankers over the last 12 to 18 months, all of which have come out of banks like U.S. Bank, Chase, Associated Bank and M&I. We have not staffed our organization with small community bank people. We’ve taken people that are used to calling on mid-sized companies and that are experienced and have great reputations in the community.”

BizTimes: What will your strategy be as mobile banking becomes more prevalent? Do you feel it will lead to fewer brick and mortar banks?

Baumgarten:“The whole technology is totally driving how customers use their banks today. I think branches are always going to have a role in complementing overall delivery of product. We’ve got to figure out what we’re going to do with the bricks and mortar. You will see fewer bricks branches, but what you’ll definitely see is we have to utilize them a lot different. It doesn’t make any sense to have six teller windows at a branch anymore because we’ll never have six customers in a branch at one time. As technology moves forward, you’re going to see smaller branches, you’re probably going to see technology more built into the branches than what it is today. But it’s clearly the wave of the future.”

BizTimes: Members of your board have been moving toward acquiring more shares right now. Does this mean a positive outlook for the company overall?

Baumgarten: “The board is very comfortable with the direction that we’re taking the company, I think they’re very comfortable with the progress that we’ve made and they would share my optimism relative to where we can take this company over the next several years. I think we’re all pretty bullish.”

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