ROCKY MOUNT, N.C. -- As Society Corp. and Keycorp pursue their recently announced "merger of equals," Cecil W. Sewell Jr. has a few words of advice.

"Pick the winners now," says the president and chief operating officer of Centura Banks Inc. "Too many chiefs and not enough Indians is a very difficult way to undertake a merger."

Mr. Sewell should know. A merger of equals gave birth to his Rocky Mount-based Centura three years ago under what should have been the best of circumstances.

Even so, it nearly came to grief on the so-called social issues, which arise when merger partners disagree about who will run the shop once the transaction is complete. When two banks join together without paying a premium to either side's shareholders, social issues are practically inevitable.

Shaky Track Record

Mergers of equals have a shaky record. Probably the most famous example is Atlanta-based C&S/Sovran Corp., which suffered such internal division -- on top of bad loans -- that it succumbed to a buyout from NationsBank Corp. in 1991.

But even Centura, now generally seen as a successful combination, illustrates the pitfalls inherent in the process.

"In the early stages, it worked miserably," says Jon Burke, banking analyst with the Robinson-Humphrey Co. in Atlanta.

On the other hand, working through the numerous merger-related problems does seem to have made Centura a tougher, more competitive organization.

Bureaucracy Trimmed

Earnings are good this year, and the $3.7 billion-asset bank recently unveiled an organizational structure that seeks to reduce bureaucracy and make the branch employees more responsive to customers.

"We learned change, adaption, and agility from our experience in the merger of equals," Mr. Sewell says.

Centura emerged in November 1990 from the union of two similar-size banks -- Peoples Bancorp. and Planters Corp. -- both located in Rocky Mount with managers that knew each other well.

The head of Peoples then, Robert R. Mauldin, even moved his office into the Planters headquarters six months before the merger was consummated to work next door to J. Richard Futrell Jr., Planters' CEO.

Decision-Making Problems

In spite of all that good will, a task force equally balanced between Peoples' and Planters' executives seemed unable to make hard decisions.

"Bringing two banks together where the negotiating authority of each was about equal was a nightmare," says marketing consultant David Cates, who numbers Centura among his clients.

"There were too many people -- all nice guys -- and they all go to the same churches and country clubs."

Mr. Mauldin thinks he and Mr. Futrell promised too much. "We knew what the potential was. But in order to please our constituencies, we were overly aggressive in what we thought we could do."

Investors Defect

The failure to deliver major cost savings, combined with mounting loan problems, caused Wall Street to sour on the Centura deal. In stock performance, the company badly lagged behind its regional peers throughout 1991, and didn't begin closing the gap until the end of 1992.

Frustrated directors on the executive committee finally expressed their impatience to Mr. Futrell and Mr. Mauldin at the end of 1991. "They reminded us that our fates were entwined," Mr. Mauldin says.

The executives took the complaints to heart and at last began to make the tough decisions about cutting staff and other expenses.

Of the 1,770 employees on staff in November 1990, more than 300 have been laid off so far, though recent acquisitions have bumped the total back to 1,800. Eleven branches have been sold, and 15 were shuttered. Eight more of the remaining 136 offices are scheduled to be sold or closed soon.

As a result, Centura's efficiency ratio, which measures the amount of operating revenue absorbed by noninterest expense, has fallen to 63% from 72% at the end of 1991. The company's target is 60% by the end of 1995.

"The combination of time and adversity brought both sides together. You probably have a management team that is as tough as any," says Mr. Burke of Robinson-Humphrey.

Mr. Mauldin likens Centura to a rug with a seam that connects two constituent parts. Peoples and Planters. "That seam has now disappeared," he says.

The integration of the two pieces accelerated sharply this year. In January, Mr. Mauldin, 58, replaced Mr. Futrell, 62, as Centura's chairman and CEO. The original merger agreement called for Mr. Futrell to have first shot at running the combined company, and then be succeeded by Mr. Mauldin in April 1993.

Balance of Power

The fact that Mr. Futrell retired three months early to accept a job as state budget officer is commonly seen as a sign that the board, still evenly divided between former Peoples' and Planters' directors, was comfortable with the balance of power.

The second indication of that comfort came last month when Mr. Sewell, 46, another former Peoples' executive, took over Mr. Mauldin's job as president and chief operating officer.

As Centura's senior executive vice president. Mr. Sewell had been in charge of mergers and acquisitions, strategic planning, human resources, and credit policy.

"There probably was a time when that [having a People's executive in charge] would have bothered me. But after observing what these guys can do, I have 100% confidence in them," says director Thomas A. Betts Jr., an insurance broker in Rocky Mount who was a former Planters' director.

Flattening Management

With their power consolidated, Mr. Mauldin and Mr. Sewell are now moving to implement a radical reorganization, which has been in the works for nine months. The idea is to make the bank more responsive to customers by eliminating layers of middle management.

Much of the plan was designed by Jack Jacobs, and Austin, Tex.-based consultant. Mr. Jacobs, formerly with the Alex Sheshunoff consulting group, helped draw up an organizational chart that is unusually flat.

There are no managers separating Mr. Sewell, the chief operating officer, from the people who run the various functional divisions.

"All we're trying to do is focus people more on the marketplace, not administrative activity," Mr. Jacobs says.

Layoffs Loom

One implication of the plan is that Centura may have to jettison some redundant middle managers. Mr. Sewell is reluctant to talk about layoffs, but says they are "quite possible."

A second major change is to organize the branch system around market types rather than geographic regions.

All branches in major metropolitan areas, for example, will be grouped under the same reporting structure, rural branches under another, and those located in resort communities in yet another unit, even though these branches may be at opposite ends of the state.

Centura is also making major investments in technology to try to stay competitive. A new customer information file will be ready by early next year, allowing branch employees to pull together a wider array of customer information. An improved branch automation system will be layered on top of the new CIF in the third quarter of 1994.

Merger-Conversion Player

Acquisitions represent another element in Centura's franchise-building strategy, contributing over $1 billion in assets during the last two years.

Like other midsize North Carolina bank, Centura has become active in the merger-conversion game, a process by which banks acquire S&Ls when they convert from mutual to stock ownership. (See American Banker, Nov. 12). The Rocky Mount bank recently purchased First Savings Bank of Forest City in just such a transaction.

Centura has shown good earnings this year, largely on the strength of residential mortgages and consumer loans. Net income for the first nine months was $26.9 million, up 35% from $20 million in the year-earlier period.

Lending Should Improve

Analysts expect Centura's core small-business lending efforts to improve as the regional recovery takes hold. "The world in some ways, at least for the foreseeable future, is coming to them," Mr. Burke says.

At the very least, Centura survived its merger of equals intact, which is no mean accomplishment.

"Everybody -- both management and board -- acknowledges there were some tough times," says director Richard H. Barnhardt, a real estate developer in Rocky Mount. "But the bank has come through them well. The major problems are worked out."

Mr. Sewell offers one last bit of advice for Society and Keycorp banks. "A merger of equals," he says, "is just like everything else -- it's how you execute."

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