When announcing a planned merger, bankers usually mention that their acquisition partner is a good “cultural fit.”
But what does that mean, exactly? Every community bank says it puts customers first, and many bankers talk about treating employees like family. Often, the merging banks are within a few miles of each other, so the idea of wild geographical swings in “culture” seems far-fetched.
To Glen White, CEO of Mutual Bank, “culture” is in the details. Mutual Bank was formed in 2006 from the combination of Security Federal Savings Bank and Whitman-based Mutual Bank, so White had to deal with merging the cultures of two established institutions.
Aside from how the two employee groups mesh socially, it’s about how accessible the management is to the rest of the bank, whether employees have individual incentive programs or if staff is truly trained to cross-sell to their customers, he said.
These questions are not academic, but thorny real-life problems to overcome in any bank merger, according to bankers who recently went through mergers of their own.
And more will soon have to tackle these problems, as bank mergers are expected to heat up. In particular, the recent passage of federal financial reform legislation, although carving out specific exceptions for smaller institutions, has many predicting a speed-up in industry consolidation.
Details, Details
Merger veterans told Banker & Tradesman they all started with similar advice: Find a trusted merger partner, get to know it thoroughly and over-communicate at every level of the organization so employees and board members are all in the loop.
But each merger has its own bumps, including surprise shareholder lawsuits, differing books of business and personality clashes.
But first, a quick aside: Make sure the merger actually happens.
In 2006, Randolph Savings Bank and Bristol County Savings Bank had worked out a strategy and were proceeding with plans to merge when Randolph’s corporators voted against the merger, stunning the banking community, not to mention the two banks involved. Randolph had initiated merger proceedings, but its corporators were not convinced that the merger was in the bank’s best interest.
This provided a harsh lesson on the importance on communicating with the people who wield ultimate control over whether a merger happens, said Stephen J. Coukos, a partner with Boston-based Chu, Ring and Hazel. Mutual banks, to some extent, have to be even more careful about this than stock banks, he said.
Shareholders can be convinced to vote “yes” on a merger when they see the profit they’ll get, but corporators have no dollar incentive. Banks have to communicate with them and let them know why a merger might be necessary someday, and not just expect a rubber stamp when the time comes, according to Coukos.
But the Randolph/Bristol situation is rare. A more common problem is to be sure that each bank exhaustively scrubs through its potential partner’s portfolio. Especially in uncertain financial times, it would be dire to overpay for a bank that seems healthier than it really is, or to merge with a bank that looks good, only to find that it’s fiscally ill.
After deciding to go ahead with a merger, any number of surprises can crop up. Mark O’Connell, CEO of Avidia Bank – formed in 2007 from Westborough Bank and Hudson Savings Bank – got caught off guard by a shareholder lawsuit from the partially public Westborough. Hudson won the lawsuit, but not before losing 3 to 4 months in a legal battle and roughly $1 million in court fees.
“At the time, I didn’t think anybody would bring a lawsuit against us,” O’Connell said. Other differences also arose: Westborough was a more traditional savings bank, Hudson was more commercially oriented, which meant Westborough’s board had to be brought up to speed on commercial business.
DanversBank had to make its own adjustments when it acquired Beverly National in 2009, said COO Jim McCarthy. Beverly had a stronger small business lending program, and Danvers stepped up to improve that part of its bank, even lowering the prices of some of its products to keep it in line with Beverly.
As a veteran acquirer of smaller banks, Danvers knew it had to work to keep Beverly employees in the loop. McCarthy said it appointed “branch buddies” to go out to every location and keep up with employees through the transition.
The only way to comfort someone is to be there one-on-one, he said.
“Any fear, founded or not, had a chance to be aired,” he said. “At the end of the day, it’s about trust.”
Mutual Bank’s White, who formerly operated Mutual Federal Savings and Loan Association of Whitman, said key cultural adjustments included spreading the Whitman bank’s sales culture to new comrades at the former Security Federal bank. But Security Federal’s employees were willing to adapt, which made the process realtively smooth sailing.
But White had little to offer in the way of advice to bankers gearing up to tackle a first merger, saying there was no silver bullet to fix all problems.
“You really don’t know until you step into it,” he said.
