Some bankers might say credit quality is the biggest challenge when taking over a bank. But for many the biggest is dealing with the people they inherit.
State Bank Financial Corp. in Atlanta, which became a buyer when private investors infused it with $300 million in capital, is among those that have announced management changes immediately after an acquisition, creating questions about the criteria used to evaluate existing executives versus bringing in a new team.
"That is one of the most overlooked aspects of a bank merger integration," said Joe Evans, the chairman and chief executive of State Bank, which has used a subsidiary to buy 10 failed banks since 2009. "Having a good understanding of the bank's talent and culture and how to integrate that into your culture and talent is a bigger situation than what you're underwriting on the balance sheet."
Other bank buyers say executives who are already on-site have a better chance of staying after an sale if they have a regulatory background. There are other "tests"; State Bank has spent hours with a consultant running psychoanalysis on workers from all its deals.
In Gaithersburg, Md., Mesfin Ayenew and his team are helping the $162 million-asset HarVest Bancorp Inc. with a $15 million recapitalization, including $5 million that is fully committed.
Ayenew came with a team of consultants in June to help HarVest negotiate for recapitalization. He's now awaiting regulatory approval to become HarVest's CEO, executive chairman and chief operating officer, after former CEO, Jack Hollerbach, resigned in January.
Ayenew said it was not planned for Hollerbach to leave. "I'm reluctant to just walk in and fire everybody, which is what a lot of investors do," he said. He said attributes he considers in weighing whether to keep an executive include his or her attitude, a willingness to go out and make money and particular strengths as opposed to weaknesses.
"There's a lot more art than science," said Scott Custer, the CEO of Piedmont Community Bank Holdings Inc., a new investor group. In the group's third deal, unveiled last week, it will buy a majority stake in Crescent Financial Corp. in Raleigh, N.C., through a $75 million capital injection.
Crescent's current CEO, Michael Carlton, would become the company's president and president and CEO of Crescent State Bank. The deal also adds eight members from Piedmont to the board to complement four existing members.
That the group is keeping Crescent's CEO makes this deal different from typical deals with a new investor group that commonly has its own team in mind. Even Piedmont's first deal, buying a majority stake in Vantage South of Burlington, N.C., went through a complete management overhaul.
"It is becoming more and more rare" for the existing chief executive to stay on, said Adam Taylor, president of Bank Capital Group, an Atlanta investment bank.
Taylor said most of the investor groups are already led by a former bank CEO and they typically will bring on six to 10 executives and make up about half the new board of a community bank.
The difference for Piedmont in its latest deal: The $973 million-asset Crescent will be the platform bank for further deals. "The premise here is that Crescent is the surviving platform, so it makes sense for us to have that management team," Taylor said.
The only time a group would keep the former CEO is if it had a "true and deep connection in the community," said Tony Plath, a finance professor with the University of North Carolina at Charlotte. "But they also need a guy who can move [the company] forward."
Plath pointed to North American Financial Holdings Inc., which acquired a majority stake in Capital Bank Corp. in Raleigh, N.C., through a $181 million investment Jan. 28. The group agreed to keep CEO Grant Yarber, but with the title of North Carolina market president. NAFH's leadership team will join Capital Bank and its board; NAFH's CEO, Eugene Taylor, will be president and CEO of Capital Bank and chairman.
Plath said it helped that Yarber has ties to a Bank of America Corp. predecessor, like Taylor. Capital will become the platform bank for the other deals by NAFH.
Trying to keep on previous leaders can be just as difficult. Ayenew, who left banking almost a decade ago and was searching for a deal for the past few years, said most discussions were blocked by management and a board who were "resistant to change."
Taylor added that boards are becoming much more receptive to management changes proposed by an interested buyer, especially if the company needs the capital. "It's like the rat in the trap that says, 'I don't care about the cheese anymore, just let me out,' " he said.
