A merger or acquisition can create uncertainty and anxiety among both leaders and rank-and-file employees at community banks. That’s why no stone must be left unturned when drawing up a change management plan.
Even a deal that looks perfect on paper can easily go awry if leadership doesn’t focus on employee retention, smoothing cultural differences and comprehensive communication. This is especially important if a major reason for the deal is to acquire younger talent who could eventually take leadership roles at the combined entity.
“Even a deal that looks good financially can be bad if the social aspects don’t line up,” says Greyson E. Tuck, an attorney and consultant with Gerrish Smith Tuck PC, a legal firm based in Memphis, Tennessee.
Here are six tips to help community banks successfully merge institutions.
1. Mapping Out Post-Merger Integration for Banks
Many banks are in a hurry to ink a deal and don’t take enough time to work through the human components first. This is a mistake that can lead to multiple integration issues.
“Failing to meet expectations breeds resentment,” says Tuck. He cites the example of a bank president who came to him about six weeks after a deal, saying he wished he could unwind the transaction. A key executive had moved from being at the top of their bank’s food chain to a different role and was lamenting not having been more diligent in considering the potential ramifications.
Early on, merging banks need to ensure they have the right people in the right roles, which means identifying who the right people are from either organization, says Alan J. Kaplan, founder and chief executive of Kaplan Partners, a retained executive search firm in Wynnewood, Pennsylvania, that works with community banks.
Sometimes, acquiring banks feel their people and technology should automatically be the ones to stay if there’s overlap, but that’s not always a good assumption, says Kaplan. Just because a bank is being acquired doesn’t mean its technology or the people are inferior. After all, it’s being acquired for a reason.
The goal should be to “take the best, strongest people that you can,” Kaplan says. That means taking the time to define the skills and qualities required for the new role, then making informed decisions based on those criteria.
2. Overcoming Cultural Differences in Bank Mergers and Making Hard Choices
Mergers can be challenging, especially in a merger of equals, because you don’t need two of every role. This can mean making hard choices based on what’s best for the new organization. In these cases, the person not chosen to remain in a particular role can still be offered a different role at the combined bank.
From a human capital perspective, merging banks can be easier when a small bank is acquired.
“The smaller the bank, the fewer employees, the easier it is to make a place for everybody,” says Blake Edwards, president and chief executive of $1.3 billion-asset Skyline National Bank in Independence, Virginia. They might not be doing the same job as before, but there’s often a similar job for them that suits their needs.
Edwards offers an example from the community bank’s most recent acquisition. In 2024, Skyline bought a $150 million-asset community bank whose husband-and-wife executives wanted to retire. A cousin of the couple, a commercial lender, was in line to succeed them, and his world changed when they decided to sell the bank. Edwards wanted to ensure that the lender remained with Skyline, so he met with him to discuss his role and reassure him about his career trajectory. Edwards asked him to consider the opportunities that could come with eventually becoming an executive at a larger bank versus serving as the chief executive of a $150 million bank that had been struggling to grow.
The pep talk worked: Last year, the employee was the highest-producing commercial lender on Skyline’s team, and Edwards wouldn’t be suprised if he takes on more leadership positions at the bank in the future.
3. Developing a Bank Merger Communication Plan
The importance of stellar communication is something Krista Snelling, chairman and chief executive of $2.9 billion-asset West Coast Community Bank in Santa Cruz, California, learned from its 2024 purchase of 1st Capital Bancorp in nearby Salinas.
When banks go through a merger or acquisition, employees being onboarded crave information, yet there’s a lot to absorb, including new people, new policies, new payroll systems and new technology. Snelling says this can be overwhelming for employees who have so much to take in at once, in addition to their day jobs.
“You have to communicate, communicate and over-communicate, and even then, it’s probably not going to be enough,” she adds.
Advice for Retaining Staff
Community banks can boost their chances of retaining top talent by being open and truthful with employees and offering them roles they’ll be happy with, even if they’re slightly different from their previous positions. Here are three helpful tips:
- Show incoming team members the big picture. Blake Edwards, president and chief executive at Skyline National Bank in Independence, Virginia, met with incoming employees to offer a broader understanding of the bank’s history, where they fit into its future and their growth potential.
- Make employees feel wanted. Kennebec Savings Bank in Augusta, Maine, wanted to retain the chief financial officer of the $95 million-asset bank it merged with in 2021. But it didn’t need two CFOs, so they offered the person who held the role at the smaller organization a finance role where she was tasked with managing several people. She got stability and the ability to work for a bigger bank—and she was happy with this, says Andrew E. Silsby, Kennebec’s president and chief executive.
- Consider retention packages. Greyson E. Tuck, an attorney and consultant with Gerrish Smith Tuck PC in Memphis, Tennessee, says community banks should consider retention packages to keep top talent, which can include stock options and restricted stock. “The idea is to give some incentive for the individual to stay and to get them in a position where they feel that staying is better than any alternative somebody might reasonably offer,” he says.
4. Manage Staff Communication During Bank Sales at All Levels
Many banks make the mistake of not communicating with all stakeholders when a merger is happening, says Larry Williams, executive consultant and coach with ExecutiveSense Consulting in Clancy, Montana. Executive teams tend to focus on higher-level management and other leaders, but that’s not the right approach, because it leaves out an entire group of employees the bank depends on to thrive, says Williams, a former bank executive.
Community banks should make it a priority to share information with frontline staff and non-managers, since these team members are critical to a combined bank’s success.
“If you don’t explain the rationale and how things will look going forward, you risk people leaving, and you risk rumors starting about what’s going on,” says Williams. “While not everyone needs the same level of detail, it has to be meaningful to them. It has to be the right information and the truth.”
He offers a real-life example of what can go wrong when critical information is withheld from bank staff. A family that owned two community banks planned to merge them under a single chief executive within a few years but kept these plans secret from everyone except the CEOs of the respective banks. One CEO, who planned to retire around the time of the merger, began mentoring an employee he expected to become market president of the new entity. But he didn’t say anything about his pending retirement, the future merger or what the person’s new role would be. The employee decided to leave the bank for another role about six months before the merger was announced.
To make matters worse, once the merger was announced, no one properly communicated the rationale behind it or what employees should expect. The owners and the CEOs assumed that everyone would understand, but by not communicating, they created anxiety, and good employees quit, says Williams. He notes that it can be expensive to replace employees, so this was an added stress for the bank at a time when it was already dealing with significant change.
5. Employee Retention During Bank Mergers and Emotional Impact
To increase the likelihood of retaining staff in a merger, some handholding is necessary.
Kennebec Savings Bank in Augusta, Maine, merged with a much smaller local bank in early 2021. Retaining employees from the other community bank was a major priority for $1.8 billion-asset Kennebec, so it communicated its intent to keep their salaries the same or higher, depending on the new role, and add other benefits like a more robust 401(k) and better health insurance, says Andrew E. Silsby, the bank’s president and chief executive.
Silsby says he met with small groups of people, around five at a time, to discuss the bank’s history, its anticipated direction and benefits. The bank also created a buddy system, pairing existing Kennebec employees with those who were joining. While he doesn’t believe there is such a thing as a dumb question, he didn’t want people to feel intimidated and not ask what was on their minds.
“This is a people business. If you take care of employees, everything else just works itself out,” he says.
Keeping existing staff happy is also important. Tuck says one banking client of his law firm expressed buyer’s remorse about two years after a deal because they tried so hard to be a good partner to the new bank that employees at the other bank felt snubbed. Their people were frustrated because they felt the bank was catering to the other bank’s demands.
“It’s a balancing act,” Tuck says.
6. Merge Bank Cultures Through Compromise
Every community bank has different ways of doing business, and that can come to a head if the different models are at odds.
Lindsey LaNore, senior executive vice president and chief learning and experience officer for ICBA, offers an example from her time on the compliance team at a multibank holding company that merged multiple bank charters into one. Each bank’s team members felt strongly about how they had always done things, which led to conflicts over routine tasks such as routing customers’ telephone calls, handling transactions and satisfying compliance requirements.
To manage current and potential conflicts, the management team found they needed to be open-minded and learn about the respective banks’ cultures before making decisions on what was best for the larger institution. It was also critical to ensure everyone felt heard and could share their ideas about culture, process and function, LaNore says.
After West Coast Community Bank acquired 1st Capital, staff disagreed on the correct approach for pricing loans and deposits. Management quickly stepped in to mitigate further issues, Snelling says. The result was that both sides made compromises so that customers wouldn’t be negatively affected.
“That’s where having very positive personal relationships with people is very helpful,” she says, “because they trust that even if you disagree, you’re coming at it from a place of good faith.”
Be Prepared for Possible Talent Loss
Sometimes, no matter what you do, employees will decide to leave after a merger or acquisition. They might be picked off by a competitor, prefer to work for a smaller organization or want a different experience from what the combined organization can offer.
You can mitigate these issues if employees feel the deal benefits them, are satisfied with the role they are offered and are compensated appropriately, says Greyson E. Tuck, an attorney and consultant with Gerrish Smith Tuck PC in Memphis, Tennessee.
Despite multiple efforts to retain top talent, Krista Snelling of West Coast Community Bank says her bank lost a few people it didn’t want to lose after it acquired 1st Capital. Although management spoke to them about the benefits of taking a smaller role at a bigger bank, the people preferred to be at a smaller bank in larger roles. “I was really bummed. I liked them personally and professionally,” she adds.
That said, you can only do so much. “At some point, if it’s more important for someone to have the larger role, it’s really hard to come up with an idea for how to overcome that,” Snelling says.