EVB achieved record earnings the same year it consolidated three disparate banking entities.
Often in the community banking industry the word “consolidation” carries a negative connotation – super-regional or national organizations “consolidate” by acquiring established local banks. The entire breadth of the community banking industry has shrunk by alarming proportions in the last 25 years, due to “consolidation.” Can this industry buzzword ever be a positive?
In fact, it can. Not only did the newly-consolidated EVB go through the complicated and potentially disruptive process of consolidating and converting, but they achieved record earnings in the same year.
For newly consolidated EVB, it certainly has been. In 2005, Eastern Virginia Bancshares was a three-bank holding company comprised of Southside Bank, Hanover Bank, and the Bank of Northumberland. The Holding Company through the combined banks is approximately $800 million in total assets with 24 locations in Eastern Virginia. Like most multi-bank holding companies, their goals were to maximize shareholder return, increase earnings, save overhead dollars, and streamline regulatory reporting.
In 2002, the holding company undertook some operational reengineering work to begin centralizing the operations of the three banks. During that project, Eastern Virginia Bancshares did gain some efficiencies and streamlined processes to some extent.
As a holding company board, however, the directors of Eastern Virginia Bancshares wanted to protect themselves from acquisition and remain independent. With this goal in mind, Eastern Virginia Bancshares contracted with Brintech, a management consulting firm to the financial services industry, to consolidate the three bank charters into one new entity – EVB.
In October 2005, the holding company board decided that a charter collapse was the right move for the organization. At that point, Joe Shearin, EVB’s President and CEO, contacted Hal Oswalt at Brintech. “If we had attempted a project of this magnitude on our own,” says Shearin, “we would have spent two or three years in research and development. Bringing in Brintech as our strategic partner created the foundation and the blueprints that we needed for the consolidation.”
EVB knew Brintech through its work with Geri Forehand, Brintech’s Director of Strategic Services, who had conducted the holding company strategic planning retreats in 2004 and 2005. “While we had talked about the potential of collapsing the charters both as a strategic maneuver to increase earnings and in a defensive gesture to avoid acquisition, it was not until 2005 that the board as a whole decided that it made sense to pursue it actively,” says Forehand.
With Brintech on board for the consolidation, the next step in the process was to bring everyone else in the process – directors, officers, staff, regulators, and customers – up to speed. “Notifying the individual bank boards, management teams, and employees was a logistical feat,” recalls Hal Oswalt, Brintech’s President & CEO. “Mr. Shearin called all three boards together and announced that the charters of the three individual banks would consolidate under the holding company.” There was some surprise at first, and of course the uncertainty that always results from significant corporate change.
“We intellectually knew this project would be huge,” says Patricia Gallagher, EVB’s Director of Strategic Planning and Marketing. “But until we were in the midst of the planning and then, later, the implementation, we really had
no idea what we were getting into. We had seen other companies make the mistakes of trying to tackle projects of this magnitude on their own, and we knew that we did not have the tools and templates that a partnering firm would have, which is why we contacted Brintech.”
Right away both Shearin and Oswalt realized they were looking at an enormous amount of change on several levels. First was the obvious – that the three banks would become one bank, operating under one name and one charter. Following closely behind that, though, were the simultaneous and equally critical projects of (1) making the operational migrations and upgrades necessary for three organizations to work centrally and (2) communicating about the consolidation both internally and externally. The corporate culture and the customer and prospect marketing would all evolve concurrently with fundamental operational change.
Changing one culture is a daunting prospect for an organization. Changing three cultures could be overwhelming. One of EVB’s original three banks had been in operation since 1909. One of the three was a recent start-up. Two organizations could not have been more culturally diverse. “While we had made some operational upgrades prior to the consolidation,” says Joe James, EVB’s Executive Vice President and Chief Operating Officer, “there were still many disparate systems and widely different cultures among the three organizations.”
Rather than “mandating” a new, outside culture on all three organizations, Brintech worked with EVB to take the best aspects from each individual bank. One of the organizations had garnered a 70% market share, primarily through a truly customer-centric environment. “That mindset was something that we wanted to capitalize on for the new consolidated organization,” says Gallagher. “We wanted to follow that bank’s example from a customer service standpoint, and continue to build these three diverse groups into a structured, cohesive team, drawing on the strengths of each one.”
“We expected a mixture of concern, excitement, and surprise, and that’s exactly what we got,” says Shearin. “We had previously worked with Brintech to craft the different messages that would go to our Boards, our staff, and our customers, and we had prepared ourselves for the inevitable questions and concerns.”
One of the first, unavoidable questions from every level of personnel involved was “Am I going to lose my job?” Although a scripted presentation and message was prepared, Joe Shearin first stepped in to clarify that no one at any bank would be laid off as a result of the consolidation. While everyone expected to uncover redundancies as a part of the process, the goal from the first day was to handle redundancy through natural attrition. “We have stayed true to that initial promise,” reports Shearin. There have been no layoffs as a result of the consolidation.
Second only to assuring all holding company employees that their jobs were not in jeopardy was creating the new corporate identity of the consolidated organization. “One of the immediate concerns in any consolidation is branding,” says John Matheny, Brintech’s Director of Sales and Marketing. “It is human nature to want to rush to judgment on a ‘name’ because it is a visible, tangible symbol of the consolidation, and settling on a corporate identity creates a sense of conclusion – but sometimes that conclusion can be false if the new name is arbitrary.”
Consequently, Brintech and the holding company embarked on a thorough, deliberate marketing planning process. Matheny and Gallagher worked with focus groups of staff and customers in all three markets, weighing options for names, corporate identity, branding themes, and positioning strategies. “Ultimately we made the choice to go with ‘EVB’ as our new name,” says Gallagher.
Joe Shearin issued a memo to the staff that carefully explained the methodology behind the name choice and the new tagline: “Community Banking Since 1910.” The new EVB logo would incorporate some existing graphical elements from the Eastern Virginia Bancshares holding company materials, and according to the marketing team, the new name and tagline would impart a straightforward message about the bank and its commitment to its communities. EVB wanted to create continuity, preserve tradition, and reflect a willingness to evolve – the bank would be “the same – only better.”
“For the magnitude of change that re-naming three banks represents,” says Matheny, “the process was incredibly smooth.” The newly-fashioned EVB worked with several marketing and advertising firms, some local and some national, before settling on a partner to help create their logo, messaging, and collateral materials.
“Early in the process we talked about doing some of the marketing and branding work inhouse,” says Gallagher. “But we realized that we really were not equipped to do that on the scale we needed to do it. We needed strong advice from reputable advisors – both in terms of banking and in terms of branding and positioning.”
From Point A to Point B: A Miracle Occurs. So during the time between November and January, EVB was planning and beginning the production process for new credit cards, ATM cards, and signage, all of those projects that require a long production lead time – and all before the name was finalized. When the new name was announced, production on cards, literature, posters, and signs went into overdrive so that when the banks closed their doors at the end of business on Friday, April 24, 2006, they re-opened on Monday, April 27 as EVB.
From early planning through the first year of the marketing plan, EVB has successfully implemented more than 75% of its original marketing and advertising plan – within budget. “For any bank, that’s an impressive feat,” says Matheny. “For one undergoing such fundamental and rapid consolidation, it’s even more so.”
Day-to-Day Work Alongside Rapid Consolidation. For the customer, it looked as though the bank had been transformed, literally over a weekend. But those behind the scenes knew the reality of how much work goes into a successful consolidation.
During the crucial period between December 2005 and April 2006, about 10% of the bank’s staff worked tirelessly – often 7 days a week – to make the transition seamless. “Everyone at all three banks was extremely busy during this time,” recalls Gallagher. “About 10% of us were actively involved in consolidation activities on a daily basis, and the rest of the staff kept running the banks – we could not close the doors during this period of transition!”
Customer reaction was typically neutral or even positive, and there was always that natural sense of inquiry and the expected questions, both personal and universal. “What can I expect?” “Will you still process my deposits?” “Can I use up my checks?” If anything, business as usual was more intense during the transition time; all frontline employees worked to reassure customers, providing prepared handouts with frequently asked questions.
To bridge any potential gaps between the staff who was actively involved in the consolidation activity and those who were not, EVB created the OneBank Team newsletter. “We wanted to make clear from the outset that there was no ‘cloak and dagger’ secrecy behind anything we were doing,” says Shearin. We communicated regularly with the staffs of all three banks to explain the process as we went through it.”
“I clearly remember the day that the holding company announced that we were moving to one charter,” says Joe James, EVB’s Chief Operations Officer. “I joked with Joe Shearin that I don’t think I heard anything else for the next 45 minutes because my mind was racing out of control.”
“One of the primary strengths that EVB had throughout the consolidation is unquestionable Joe James,” says Hal Oswalt. James came to EVB with a background from a large regional bank that grew quickly through acquisition, so he had first-hand experience with the benefits and economies of scale that an organization can achieve by operating under one structure, methodology, and operating system.
Before the consolidation, the three bank holding company’s technology and operations staff had just over 30 full-time equivalents. This group handled operations, technology management and support, facilities management, and some project management and retail operations.
One Core, But Three Approaches. “Before the charter consolidation, we had already created some centralizations among the three banks,” says James. “So we were all running on the same core system, but each bank had true autonomy in choosing ancillary vendors, creating policies, and setting fees.” While all three banks operated on the same ITI platform, the primary operations tasks involved aligning the product offerings, fee structures, and rate methodologies of all three organizations, then converting to one cohesive product offering.
The three banks had multiple vendors for checks, credit cards, merchants, and other ancillary systems that had to under contract review, revision, renegotiation, or even cancellation. Brintech worked closely with EVB’s project managers to make sure these disparate and overlapping projects ran on time. “The blend of our internal skillset with the experience from Brintech was a very good marriage that led to a pretty strong success,” says James.
Consolidated Systems Are Good – A Consolidated Team Is Even Better. EVB went into the consolidation process with an exceptionally strong IT team, led by Joe James. “We have the kind of staff that goes the distance,” says Shearin. “During a pre-consolidation event where we had some system issues, not one of our IT folks walked out of the building for 40 hours – we couldn’t make them leave.”
In addition to their existing dedication, “We were motivated by the idea that consolidating would make our lives a lot easier and more productive,” says James. Operating three banks three different ways, even on the same core platform, complicates the life of an IT professional. Under the new consolidated set of technology, policies, and practices, EVB is much more nimble in its ability to go to market and to solve problems.
As part of the consolidation project, the IT and operations teams tested and re-tested all of its system integration and communications – repeatedly. “I never got to that point that I really felt like the future of the company was really hanging by any two or three threads,” says James. The team employed sound project management that included effective contingencies.
To illustrate the flexibility created by the consolidated operations of EVB, in six months the team was given its charge from the holding company board, created a consolidation plan, executed, and completed the plan. “In third quarter 2006 we rolled out a brand new reward checking product in 90 days,” says James. “It would have taken us about six months to complete the same project when we operated as three separate organizations.”
During the period from November 2005 to April 2006, the technology and operations teams were completely diverted to the consolidation project, except for the absolutely necessary software upgrades and conversions. Consequently, after the successful conversion, the team was able to pick back up on new projects, including new branches, significant network upgrades, and customer-facing technology implementations.
“A letdown after the consolidation?” replies Joe Shearin when asked. “Really no. We just rolled right into new projects that had been postponed during the consolidation – new reward checking account, new technology.”
“One of the most significant changes that I have seen,” reports Gallagher, “now that we are a year from the opening of EVB, is in our branch manager meetings.” In the beginning, branch managers and other employees would tend to form groups with their “own” bank colleagues. “Now, though, we don’t see that as much. We have really come a long way in terms of successfully merging the three corporate cultures, and it did not take long for our customers or our employees to get comfortable with the new identity.”
One of the key goals at the beginning was to improve efficiency ratio. The consolidated EVB is increasing market share and actually achieved record earnings in 2006 – and the groundwork laid for improvement in efficiency.
“I truly would not have done anything differently,” concludes Shearin. “Of course we had small issues that we could have improved, but our key goals – we achieved them.” There was no job loss as a result of the consolidation. The three cultures are still evolving, retaining the best of each individual corporate identity. The consolidated operations and technology make upgrades and new, creative goals more attainable.
EVB’s successful
consolidation ultimately made it possible for the bank to better
deliver on its mission:
“To provide superior financial products
and services in each of the communities we serve, while empowering
employees to always do the right thing with a level of integrity that
lives up to the trust our customers place in us.”