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Lenders have increasingly turned to niche businesses, such as equipment financing, to differentiate themselves from competitors. Some banks, like Bank of the Cascades in Oregon, are choosing complicated specialties like aircraft financing that may scare off potential rivals.
July 29 -
Nearly 85% of the acquisitions announced this year have involved sellers with $500 million or less in assets. Investment bankers expect more of the same in the final six months of this year.
July 1 -
The Oregon company is hopeful it will enjoy significant stock appreciation once investors realize the value of its acquisition of Home Federal in Idaho. Management hopes other potential sellers agree.
June 20
The management team at Cascade Bancorp in Bend, Ore., learned that practice makes perfect while integrating its last acquisition.
The $2.4 billion-asset company added nearly $1 billion in assets last year after buying Home Federal Bank in Nampa, Idaho. The closing of the deal Cascade's first since 2006 was held up due to questions from the Securities and Exchange Commission. Once it was completed, management only took 10 days to convert the systems.
To prepare, Cascade hired consulting firm KPMG to develop a road map to ensure a speedy integration. The plan included mock system conversions to identify complications such as duplicate customer account numbers. By catching issues early Cascade had an almost flawless integration, Chief Executive Terry Zink said in a wide-ranging interview.
Cascade continues to look for deals in parts of the Pacific Northwest that are outside of big metropolitan areas. Pricing has remained a sticking point, though Zink said his team also insists that any target must fit his company's sales-focused culture.
"There's a tendency for smaller banks to believe that sales are not necessarily that important," he said. "Everyone who banks with us has needs for financial services, and all we want to do is be their primary provider. It's not an issue of selling things people don't need, but if 98% of our customers have a credit card then they should have our card in their wallet."
The following is an edited transcript.
How would you sum up the Home Federal integration?
TERRY ZINK: We really had very few problems. We had modeled in a percentage of customer attrition because we closed 13 branches, and yet we really never realized that. Both banks were in the same exact footprint. Usually when you come into new areas and people don't know who you are, that tends to lead to a bit higher attrition. Both of us had pretty good brand equity in the market so we were seen as a natural combination.
We had announced that we would [
Can you talk more about the regulatory approval process and employee turnover?
We had announced the transaction in October [2013] and we believed that we would able to close the transaction around the first part of the next year. We ran into a delay because the SEC wanted to weigh in on our [deferred-tax asset] recovery that had taken a place a year earlier. We had to produce documentation.
Employees are always worried about what will happen with their jobs. Without having final approval, it was very difficult for us to talk to people and say what the plan was. It caused some high anxiety, and sometimes that leads to people deciding that they are better off finding a job with another bank.
What lessons did you learn?
As we went back and did a debrief we felt like we could have provided better communication. There was uncertainty on the part of everybody on what you could tell people and what you couldn't tell them. I think I would have preferred to work a little closer on communication and get in front of employees and customers a little better than we did.
Do you think increased regulatory scrutiny is scaring off some banks from doing deals?
If it became the norm, it would be a problem. Generally when you look at delays, they are caused by something. Ours was caused by our deferred-tax asset and people wanting clarity to make sure it was properly disclosed to all shareholders. I don't think anyone expected that to happen, but maybe we should have. These are things that are outside of the normal course of business and probably do require a little bit of extra scrutiny. Times have changed, and regulations have changed.
What is your current M&A strategy?
We're looking at banks either in our footprint or contiguous to us. I believe, as a community bank, it is very difficult to compete in a very large metropolitan area with the so-called "too big to fail" banks. They have a very dominate market share. In smaller communities, people appreciate community banks and the fact that you can become involved in the community. That really makes a difference, so we're looking at banks that have that kind of distribution. We should be in the top three in market share in every market we service.
What advice would you give to other CEOs about deal integration?
One of the things we did because we're a smaller bank was hire KPMG to do project management and produce a playbook that we could use in future acquisitions. They were able to keep us focused during the integration, as well as give us a living document we can now use in future acquisitions. My advice to another CEO would be if you don't have that playbook you are probably better off with it.
Can you give me an example from that playbook?
One of the things that KPMG did that was really important was mock testing. Before we actually converted systems we had gone through a mock system conversion three times. They built a plan for the mock conversions, how to read the findings and then continue to refine our systems. So when we did the live conversion and threw that switch, it really was flawless. If we had been live with the first mock conversion, we would have had a lot of problems. There were little things that popped up, like accounts that had corresponding numbers.
The other thing they did was keep us focused on what was going on. You're doing two things when you're running an integration. You're trying to convert systems, but at the same time you are running a bank. Customer transactions are going on. They helped us to divide our team up a little bit where we kept a certain group of people focused on the day-to-day operations of the bank while having a group solely dedicated to the integration.
How do you decide if a takeover target's culture will work with yours?
We have a very strong sales culture, and I look at whether or not they have a very active sales management model. This sounds like a negative comment, and I don't mean it that way, but some people will run their bank with what I always call a sit-and-serve model. They are focused on customer service and sales are an offshoot of that. We really look at sales as part of our culture and customer service is a way to generate those sales. But it's not customer service for just the sake of just great customer service where everyone loves you and nobody buys anything.
