How does a community bank grow into a regional power? Hire like one

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Union Bankshares in Richmond, Va., is transition from a community bank to a regional institution.

To help with that change, the $13 billion-asset company has hired a string of big bank veterans, including Maria Tedesco, who has worked at BMO Harris and Santander Bank, as president of its bank.

John Asbury, who became Union's CEO in early 2017, is looking to expand its commercial-and-industrial lending and digital capabilities while divesting non-core businesses such as mortgages and marine finance. Those moves should elevate Union from a bank that produces middle-of-the-pack returns to a top performer, industry observers said.

“Since John Asbury has joined, there is a message of a new Union story,” said Austin Nicholas, an analyst at Stephens. “The new Union story has been viewed positively — and we have seen that in the stock [price] this year.”

Asbury, a former Regions Bank executive, succeeded William Beale, who retired after leading Union for 25 years. Beale took Union from a small bank to one with $8 billion in assets and an extensive branch network.

Beale, who realized Union’s needs were changing as it grew, set out to recruit new talent to sharpen its expertise, Asbury said.

Union hired Loreen Lagatta, who had been at Capital One and Citigroup, as chief human resources officer; Rob Gorman, who worked at SunTrust, as chief financial officer; and Dean Brown, another Capital One alumnus, as chief information officer and head of bank operations.

Asbury has continued to emphasize strategic additions, hiring John Stallings, the former regional president at SunTrust, as bank president; Sara Rountree, who worked at Wells Fargo, as head of digital strategy; Duane Smith, a former Capital One employee, as chief marketing officer; and David Ring, who worked at Huntington National Bank and Wachovia Bank, was brought on to help drive commercial banking strategy.

“If you look at the executive leadership team, the changing of the guard is complete,” Asbury said. “All of these executives have come out of large bank environments and that will help us compete against those banks.”

Some of the country’s biggest banks, including Capital One, Wells, Bank of America and BB&T, have dominant market share in Virginia, where Union has the bulk of its operations. Union's bank, for its part, has the eighth-biggest deposit market share in the state, based on June data from the Federal Deposit Insurance Corp.

Asbury likes to point out that Union, which bought the $3.2 billion-asset Xenith Bankshares in January, is arguably Virginia's first statewide independent bank in two decades. He compares Union to the former Crestar Bank, a regional bank based in Richmond that was bought by SunTrust in 1998.

It makes sense to hire executives with experience at larger banks when trying to expand, said Trent Fleming of Trent Fleming Consulting. Such expertise can usher in a level of sophistication when structuring the organization and juggling different priorities, he said.

Those upgrades should help Union as it sets its sights on becoming a regional powerhouse. While Asbury exited mortgages and marine finance, he also emphasized C&I by hiring more than two dozen bankers this year.

Management has set financial metrics, such as a return on assets of 1.2% to 1.5 % and an efficiency of less than 55%, by the fourth quarter on an annualized run rate that would help make it a best in class institution. For the second quarter, Union’s return on assets was 1.44% and its efficiency ratio was 57.2%.

Investors seem to be responding positively to the changes. Union's stock is up more than 13% this year, far outpacing the 3% increase in the KBW Nasdaq bank stock index.

Asbury “has been clear in his strategic objectives,” said Catherine Mealor, an analyst at Keefe, Bruyette & Woods. “He has these targets and he is being deliberate in delivering” results.

The strategy also has a degree of risk that the changes could damage Union's underlying culture, Fleming warned. Smaller banks are usually successful at being responsive to customers’ needs; it is important to hold fast to such values.

“What makes community banks different is their flexibility and knowledge of their communities and the people they serve,” Fleming said. “In situations that are highly automated at the larger banks, they may not allow a loan. In my experience, executives at larger banks tend to err on the one size fits all.”

Asbury is aware of this danger. During his time managing commercial businesses for Regions across 16 states, “there were things we had to do that were somewhat detrimental to maintaining market flexibility,” he said.

“We want people who are accustomed to more complexity, rather than less,” Asbury added. “But we also have learned through experience what not to do. We need to maintain agility in the organization. We do not want to try and manage all markets as if they are the same.”

Tedesco is the latest example of Union landing a big bank executive. The former chief operating officer of retail at BMO Harris Bank, was recommended by Stallings, who relinquished his post at Union earlier this year due to health issues. He is now a senior executive vice president with the bank.

Asbury also knew Tedesco from serving on a small business banking committee at the Consumer Bankers Association.

Tedesco will have a range of responsibilities, including oversight of the bank’s commercial, business and consumer banking; wealth management; marketing and digital strategy. Once she joins Union later this month, Tedesco plans to spend time meeting with customers to learn more about the bank's opportunities in areas like digital investments.

“Our biggest challenge is how quickly the industry is changing,” Tedesco said. “The pace is accelerating particularly around our digital choices. Every day there is some new way to serve customers.”

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