Can a $300 million community bank find happiness after acquisition by a $1.4 billion former competitor?

Ask Ted Doll, formerly president of New Jersey's Washington Bancorp and now first senior vice president of Hubco Inc.

Sitting with Ted and Ken Neilson, CEO of Hubco, it was hard to believe that these two were competitors just a few months ago, for they seemed to fit beautifully.

"The best thing that Ken did for our people at the time of the merger was to hold top positions open for Washington people, so they would not be second-class citizens after the event," Ted said.

The positions of CEO, chief portfolio manager, branch administrator, and several top audit spots were all held open until Washington people were on board to fill them, and this, plus joining a bonus plan, helped blend the Washington staff into the Hubco team. Of 80 Washington employees, 70 joined Hubco, with five not "being invited" - people who Ted feels should have been trimmed earlier anyway, and five not coming on board for lifestyle reasons.

What made the merger work so well?

It was not just the staff-reduction benefits, albeit with normal attrition. Hubco has absorbed the 70 Washington Bancorp people and still increased its staff by only 40.

Additional factors that cut costs for the merged operation include:

*The ability to close two redundant branches.

*Placement of Washington's accounts on Hubco's system immediately, thereby benefiting from both economies of scale and Hubco's investment in efficient imaging technology.

*Dramatic reduction in costs for D&O insurance and external audit fees for the combined banks, plus elimination of board fees for one set of directors.

*Reduction in cost of fidelity bond and CRA administration.

For example, Washington had been paying up to $125,000 a year for external audits. When merged into Hubco, the total fee that Hubco had to pay went up by only about $10,000.

"What could have been done to make the transition easier?" I asked.

Only two suggestions came up:

First, the staff of Washington could have been given better understanding in advance of what Hubco's end game is and follow-up meetings every two to four weeks to iron out kinks in the understanding of Hubco's culture.

Two problems that Ted Doll raised had been unexpected: The staff of Washington has to go from handling three to five jobs a piece over to doing only one or two in the larger organization. Some people loved this, some hated it. Also Ted said fewer lines to the top had made it easier for people to get away with unorthodox steps in a small bank - something they had to surrender under Hubco's firmer control system.

As for Ted himself, he admitted that it might be hard to get over "postmerger syndrome" when you have been president and now you have a new boss.

Ted and Ken agreed that someone who remains on staff after having been president should not become a board member, because an inside director who reports to the CEO will be hobbled in serving as a honest critic of management policies.

So Ted is sticking to his first love - portfolio management. And as for the question of whether he would do it again if he had the power to halt or approve the merger, he states that it was absolutely mandatory for staff growth, shareholder value, and getting away from the excessive time that it takes a community banker to meet regulatory requirements - something the larger bank can meet with a lower proportion of its overall resources dedicated to these issues.

What now? Is Hubco looking at joining a larger organization to gain the same type of benefits that Washington did by selling out?

Ken Neilson hopes not.

"Our performance is good enough that a larger bank would have to pay a fortune for us."

"And we are trying to remain independent by carrying water on both shoulders - providing strong returns to our shareholders through gaining efficiency from steps like image processing, yet differentiating ourselves by keeping passbooks in ethnic communities where people like them and having bilingual phone service and ATMs in our Spanish communities to keep our local feel."

As for the fact that 13 of the 45 branches are unionized, the discussion will have to wait for next week. But it is obvious that this unique union status did nothing to distract from the glow of the merger.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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