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Banks orchestrate artful acquisitions

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Stories of bank mergers and acquisitions have a long, rich history in the Springfield area. Among them in recent years are the 1996 purchase of St. Louis-based Boatmen’s Bancshares Inc. by Nation’s Bank, the 2003 merger of local startups The Bank and Signature Bank and Empire Bank’s 2010 acquisition of Citizens National Bank.

What often gets overlooked when news of a merger or buyout hits, however, is the work that goes on behind the scenes to make it a reality.

“I’ve seen both sides of it myself, and it’s an emotional time for everyone,” said Kelly Polonus, communications director of Great Southern Bank.

Polonus– who was working with Charter Bank when it was acquired by Boatmen’s and was still at Boatmen’s when it was picked up by Nations Bank, which is now Bank of America– said clearly communicating information to employees of an acquired bank is essential during the first phases of any transition.

As it turns out, her perspective comes in handy at Springfield-based Great Southern, which in 2009 nearly doubled its number of locations after entering into two Federal Deposit Insurance Corp.-assisted purchase agreements with two failing regional bank systems.

Paola, Kan.-based TeamBank N.A., which had 17 locations and more than $660 million in total assets, was acquired in March 2009, and Sioux City, Iowa-based Vantus Bank, which had 15 banking centers and more than $500 million in assets, was acquired in September of the same year.

The 32 sites added through those transactions raised Great Southern’s total locations to 71 at the start of 2010.

Growth obstacles
That growth, however, doesn’t come without challenges, as echoed by two of Polonus’ Great Southern colleagues, who have been in the banking industry since the 1970s and are no strangers to the processes of consolidation.

Great Southern Director of Operations Doug Marrs worked with Great Southern’s Director of Information Technology Lin Thomason in 2009 to manage the operational and technical challenges that came with the TeamBank and Vantus purchases.

Marrs said learning a company’s products and procedures, answering employee questions and keeping customer contacts in place are vital in the immediate aftermath of an acquisition.

With the TeamBank and Vantus Bank purchases, about 40 Great Southern employees were handpicked to work directly in the new banking centers to field customer and employee questions and monitor procedures, Marrs said, noting that in both cases, training employees and implementing Great Southern procedures took months.

He said employees were instructed with talking points about Great Southern to ease customer concerns, but overall, banking customers know where to find answers when they have questions.

“The education level of customers is very high these days,” Marrs said. “It’s amazing what people can find out online.”

From a technical perspective, Thomason said the purchase of Vantus meant bringing on 13,000 to 15,000 new online customers in a weekend.

“There are a lot of tedious details that need to be worked out so that customers aren’t impacted by a loss in service,” he added.

Pre-conversion work can begin about 90 days before a purchase is finalized, and Thomason said credentials need to be provided to customers in a timely manner. Passwords, which can’t be converted, also must be re-established.

Thomason said the TeamBank and Vantus system additions were relatively easy compared to others he’s experienced.

“We were pretty fortunate,” he said. “We had hundreds of duplicate account numbers in each case instead of thousands, which can be pretty challenging.”

Mergers and acquisitions aren’t done on a whim, according to FDIC spokesman Greg Hernandez, who said all M&A activity starts with an application. Before a plan is approved, the regulatory agency must examine several factors.

“There are statutes that govern how these mergers are handled,” Hernandez said. “In addition to the statutory factors involved, the FDIC looks at the financial and managerial resources of the bank that wants to merge and the bank that is being acquired, future prospects of the merger, convenience and needs of the community being served, and the effectiveness of each depository institution involved of the merger.”

Hernandez said the FDIC then makes a determination that the proposed merger will not create a monopoly in its market or create a substantial loss of competition. The attorneys general of the states involved review the plans to see that no state laws would be violated, and Hernandez said approval can take months.

Among the 7,760 U.S. banking institutions, 4,779 were FDIC-insured as of the end of third-quarter 2010, the most recent data available.

Great Southern is among many institutions to undergo recent M&A activity. According to the FDIC’s 2009 report to Congress, there were 69 regular mergers, 129 corporate mergers, 13 interim mergers and 70 failed or closed bank mergers. Data for 2010 will be available later this year, Hernandez said.

More to come?
At least some of the consolidation comes from an economic reality that has left many financial institutions struggling.

All three of the local bank acquisitions completed or announced in 2010 – Pine Bluff, Ark.-based Simmons First National Bank’s purchase of Southwest Community Bank in May, Empire Bank’s purchase of Citizens National Bank in October and Liberty Bank’s acquisition of Village Bank announced in December – involved banks with high troubled asset ratios, which compare loans past due at least 90 days, loans in nonaccrual status and bank-owned property to capital and loan-loss reserves.

Liberty’s purchase of Village is expected to close in first-quarter 2011. Liberty officials declined to be interviewed for this story, while Empire officials could not be reached by press time.
At the end of third-quarter 2010, the national median troubled asset ratio was 15. In that report – the latest available – data shows seven banks with operations in Springfield that have registered troubled asset ratios greater than 30.

While that’s double the national average, a ratio of 100 or higher has typically been an indicator of serious trouble. By comparison, the ratios for the three purchased banks were considerably higher prior to their purchases or announced acquisitions in 2010. Southwest Community Bank’s ratio was 328.4, Citizens National Bank’s was 145.9 and Village Bank’s was 109.5.

The people factor
Beyond employee training, institutions need to handle staffing changes carefully.

Marrs said more than 50 percent of the employees who were with Vantus and TeamBank are still with Great Southern in 2011, but employees in many administrative or specialized-products positions that were already filled by Great Southern counterparts were let go in the weeks and months after the purchases.

While Polonus said she was fortunate to have kept her positions amid the transitions she went through earlier in her career, she and Marrs agreed that keeping employees up-to-date is important.

“Everyone in the room felt it,” Polonus said of the stress that comes with working at a purchased bank.[[In-content Ad]]

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