When Robert L. DeMeulenaere took the helm of Brenton Banks Inc. in 1994, he believed the banking industry had to expand into the insurance and brokerage businesses to thrive.
And he figured his company - the largest banking concern headquartered in Iowa - should be big enough to diversify and remain independent.
Now Mr. DeMeulenaere questions whether any community bank can beat the big boys and he predicts a wave of consolidation is about to hit the Hawkeye State. If so, he will have led the way: Brenton announced on July 7 that it has agreed to be bought by Wells Fargo & Co. for $265 million.
"It's becoming more difficult for a traditional community bank to compete," said Mr. DeMeulenaere, president and chief executive officer of $1.9 billion-asset Brenton. "The world has changed. Customers are demanding a greater breadth and broader array of products, services, and expertise that only banks like Wells can offer."
Brenton, which is based in Des Moines, is one of the oldest and best-known banking names in the Hawkeye State.
The company, which is publicly traded but about 50% owned by the Brenton family, was founded in 1881 in Dallas Center, Iowa, and run by six generations of Brentons before Mr. DeMeulenaere became CEO.
For Iowa - which has the fourth-highest number of banks and thrifts in the country, 468 - Brenton's deal with San Francisco-based Wells could foreshadow big changes. Mr. DeMeulenaere predicts there will be "quite a bit more consolidation over the next three years." That could reduce the field to a handful of large national companies. Meanwhile, more and more small ones - consumer financiers, mortgage lenders, and even specialized community banks - could carve out niche markets.
"It's hard for me to see how a traditional community bank can either be as good as these niche players or offer a full range of services like Wells can," Mr. DeMeulenaere said.
Donald E. Hole, executive vice president of Iowa Independent Bankers, disagrees. Customers prefer the hands-on service of community banks, he said, and the increasing affordability of technology gives these banks the opportunity to offer more products on top of one-to-one service.
"There's nothing that prohibits a community bank from offering a full spectrum of services," he said.
Moreover, in Iowa, an agricultural state, farmers would rather work with a community bank than a national conglomerate, Mr. Hole said. Farmers fear being stuck without crucial credit if a national bank were to pull out of agricultural lending for greener pastures in some other business line.
"Community banks in Iowa are so strong that it can be a tough environment for bigger out-of-state banks to enter," said Joseph Stieven, a bank analyst at Stifel, Nicolaus & Co. in St. Louis.
Mr. Stieven also said would-be buyers have few sizable community banks to choose from in Iowa. After Brenton the state's next largest publicly traded banking company is $719 million-asset First Federal Bankshares Inc. of Sioux City.
"All the major consolidation is really done for Iowa," Mr. Stieven said.
David Moore, a banking analyst at Podesta & Co. in Chicago, said the Wells-Brenton deal might be a cue to smaller banks that they should no longer expect to draw the bids they might have in 1998 or 1999, when banks of all sizes sold for three or more times book value. Wells is paying two times book value for Brenton.
"The bigger sellers may be at the leading edge of reducing their expectations, but the smaller banks probably are not that far behind," Mr. Moore said. "That bodes well for more acquisitions."