Community banks unwilling to be preyed upon by larger institutions are becoming hunters themselves.

Smaller banks are banding together to bid as a group on branch divestitures by regional banks. The method proved successful in the Midwest early this year, with 11 community banks acquiring 29 branches of Minneapolis's First Bank System Inc. in five states. It's also been used about half a dozen times since 1991 in the government's bulk branch sales through the Resolution Trust Corp.

"The consortia are very valuable to a community bank to get its bid heard if the seller wants to simplify the sale by dealing with as few people as possible," said Larry Callen, chairman and chief executive of First Ogallala Investment Inc. in Ogallala, Neb., which bought a First Bank branch. "It's the only way to go and keep community banks in there."

Pulling together groups of community banks to bid on branches and deposits is rare, but the strategy is catching on. In New England, consultants are trying to assemble a group of banks to buy branches that will likely be sold by Fleet Financial Group. And in Texas there are rumors that community banks may get together to acquire 21 branches that Bank of America could be selling.

By pooling their resources, community banks can give the appearance of a single entity offering one consolidated bid for a collection of branches.

Deals like this aren't easily accomplished because they involve pulling together many banks that are used to competing, not cooperating.

But the prospects of other the deals in New England and Texas have consulting firms competing for the right to lead the next venture.

"You are seeing more talk of consortia this year," said Peter F. Moriarty, president of TTG Inc. in Washington, one of the firms vying for leadership in New England. "We're encouraging it ourselves."

The rise of the consortium as the new vehicle for branch purchases stems from consolidation and cutbacks sweeping the larger institutions.

The sheer size of several recent deals and efforts by superregionals to slim down operations have prompted more significant divestitures, both in terms of number of branches and the geographic reach of the spinoffs. Both the First Bank and the Fleet deals, for example, involve markets in several states.

"As major regional institutions with some overlap combine over the course of the next three to four years, there's going to be an increasing level of divestiture that will most likely be required," said John Carusone, president of Bank Analysis Center in Hartford, Conn.

Since the sellers want to avoid a bureaucratic nightmare by using bulk sales with few buyers, the community banks see banding together as the only way they'll get an invitation to the bidding party.

"The bid instructions from (First Bank) was that they hoped to find one buyer for the whole deal," said Mr. Callen, whose bank was a First Bank bidder. "This was only a $9 million branch and we knew that we didn't have much chance of getting it if we were a stand-alone bidder."

Bidding as one group benefits the sellers as well as the small buyers. Dividing the branches between the members of the group gives sellers a way to avoid boosting a potential large competitor.

And the bid from a collection of community banks is likely to be at least as competitive if not higher than that from a single institution because the small institutions will be equally interested in all the branches, Mr. Moriarty said.

"(The sellers) get the ease of a transaction with a larger buyer but they also get the benefits of a more aggressive premium that the medium- to smaller-sized institutions will bid," said Eric D. Hovde, executive vice president of Washington-based investment banker Hovde Financial Inc.

Also, community banks tend to be more interested in traditional brick- and-mortar branches, while the regional and money-center institutions are increasingly turning to technology to provide alternative delivery systems.

On the other hand, the seller must still transfer the deposit data and back-office operations to multiple institutions. And groups of community banks can be difficult to organize and control because of the competing interests of the individual members, particularly if loans are included but not assigned to particular branches.

"It's not the same as a second financial institution buying all the branches when you try to get a group of institutions together," said Donald E. Snyder, president and chief executive of Forest City, Iowa's Manufacturers Bank and Trust, which bought a First Bank branch. "It's obviously more work than if they were involved in the same holding company."

Bidding consortiums first developed a few years ago as a means for community banks to bid on bulk branch sales from the RTC. But the success of Hovde Financial's First Bank deal brought the concept onto the private transaction stage.

"What we're all doing is going out and trying to educate the community banks on making this thing fly and then getting them all to team up," Mr. Moriarty said. "The idea is to put the smaller banks on a level playing field with the larger banks who have been the larger bidders."

The consultants still face a daunting task because community banks, trained to compete, not collaborate, with each other, don't usually consider pooling their resources or letting an outsider coordinate them, Mr. Moriarty said.

"You've got to coordinate early and you've got to take some risks up front if you're a community bank," Mr. Moriarty said. "If you're unwilling to take those early risks, you're likely to loose the opportunity to bid at all."

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