In a deal that would create a community banking powerhouse in the upper Midwest, Citizens Banking Corp. of Flint, Mich., has agreed to buy F&M Bancorp of Kaukauna, Wis., for $820 million in stock.

The deal, announced Monday, would establish a company with $7 billion of assets and 200 branches in five states. Citizens, with offices in Michigan and Illinois, would pick up Wisconsin's fourth-largest bank, along with branches throughout Iowa and Minnesota.

"I think this will give us a broader identity," said Robert J. Vitito, chief executive officer at $4.5 billion-asset Citizens.

The deal, the second largest in the industry this year, typifies the current style in mergers. Unlike the megamergers that dominated headlines last year, the new wave of activity mostly involves midsize banks bulking up to boost earnings. The big exception was Fleet Financial Group's $16.8 billion deal for BankBoston.

Analysts generally applauded the Midwest deal, by far the largest ever for Citizens. They said the merger partners share banking philosophies of centralizing back-office operations but leaving key lending decisions to branch managers.

"Clearly these two companies seem to be cut from the same cultural cloth," said Michael M. Moran, an analyst at Roney Capital Markets in Detroit.

"This creates quite an attractive franchise," said Joseph Roberto, a bank analyst at Keefe, Bruyette & Woods in New York. "Both banks tend to be in smaller communities, but you can make money in those markets."

But the deal fell flat with investors. Citizen shareholders, many of whom were hoping the company would sell, dumped their shares on news of the agreement.

Citizens' stock fell 16% Monday, to $32.625 per share.

Under the terms of the deal, F&M shareholders would receive 1.303 shares of Citizens' common stock for each outstanding share of F&M stock. The price works out to 3.3 times F&M's book value and 23.4 times its 12-month trailing earnings, according to Hovde Financial Inc., which represented F&M in the transaction.

Gail Janssen, chairman of F&M, said it was time to sell so the operation could remain competitive in a rapidly consolidating industry. "In order for us to effectively serve our customers, it was best to merge," he said.

Mr. Moran of Roney said absorbing F&M could be a challenge for Citizens, which has not completed a merger since 1997. But the analyst said he is confident that management will deliver results for shareholders.

Mr. Vitito "knows he has all of 10 minutes to enjoy this announcement," Mr. Moran said. "From the 11th minute there will be pressure to perform."

Citizens plans to cut costs by consolidating F&M's 18 charters into one Wisconsin-based bank, Mr. Vitito said. The bank would retain F&M's name, and local boards of directors would also stay in place, to retain the feel of community banking, he said.

Had a Wisconsin company agreed to buy F&M, there could have been further savings, said Wayne Bopp, an analyst at Robert W. Baird in Milwaukee.

"This is a higher-cost strategy," he said. "An in-market buyer would have had the most to gain, in terms of cost savings."

Nevertheless, Mr. Bopp said he supports the deal and expects Citizens to make up for higher costs by introducing fee-income-generating products, such as trust services, to F&M customers.

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