A Wisconsin banking company has found its desire to expand costly.

Fortress Bancshares is trying to recover after two 1996 acquisitions drove up its operating expenses 63% and took a chunk out of first-half 1997 earnings.

Fortress, a five-year-old Hartland, Wis., holding company, bought a Boatmen's Bank of North Iowa branch in Cresco last August and a Winona, Minn., thrift branch from TCF Bank Minnesota about six weeks later. The $163 million-asset holding company converted the Cresco branch into a state-chartered bank and the thrift branch into a bank branch.

"We probably bit off a very large piece for a bank our size," said Jon Bruss, Fortress' chairman.

"We're not an organization that's loaded with staff, so we were working very feverishly to get these things done."

Industry analysts said lower earnings are often the price a company has to pay to grow through acquisition.

In Fortress' case, the company's ambitious conversion of its new branches drove costs up.

Aside from the nearly $4 million purchase price, Fortress spent $2.7 million on operating expenses in the first six months of 1997, compared with $1.7 million for the same period last year.

Earnings per share dropped 20% in the second quarter, and net income dropped 7%.

However, the second-quarter decline in earnings was an improvement from the first quarter. The company reported a 32% slip in first-quarter earnings, from $149,000 in 1996 to $102,000 this year.

Fortress officials said the improvement is a sign that the bank is recovering.

Fortress had to apply for a state bank charter in Iowa to convert the former Boatmen's branch into a stand-alone bank, incurring additional regulatory expenses, Mr. Bruss said. The holding company also had to integrate many new products when it converted the TCF branch into a bank branch. He said more money was spent on improving technology in the branches.

The benefits from Fortress' acquisitions have justified the difficulty in integrating them, Mr. Bruss said.

He said the company, which now operates eight offices in rural markets in Wisconsin, Minnesota, and Iowa, bought the Iowa Boatmen's branch because it was the only way into the northeast Iowa banking market.

Mr. Bruss said he expects the company's earnings to have fully recovered from the 1996 acquisitions by the end of the third quarter.

He also said he doesn't expect the company to acquire again soon.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.