East Cambridge Savings Bank President and Chief Executive Officer Gilda M. Nogueira was recently interviewed by Diane McLaughlin of the Banker and Tradesman for an article entitled “Merger Wave Raises Risk of Customer Losses”. Published on December 4, Nogueira reflects on what worked well and benefitted customers as part of the recently completed acquisition of Woburn based Patriot Community Bank by East Cambridge Savings Bank. The merger was announced in February 2022 and completed on August 1, 2022.
Nogueira’s section of the article is in bold below.
Merger Wave Raises Risks of Customer Losses
40 Percent of Mass. Customers Consider Switching Banks
By Diane McLaughlin | Banker & Tradesman Staff | Dec 4, 2022
Amid the series of bank mergers that Massachusetts has seen over the past 18 months, a recent study has shown that customers of banks acquired by larger institutions were more likely to switch banks than those involved in smaller acquisitions.
But even with more than half of Massachusetts consumers saying they would remain with a bank or credit union following a smaller acquisition, nearly 40 percent of customers were unsure whether they would stay or switch banks, according Rivel Banking Research. Rivel’s research has also shown that consumers’ level of trust in community banks has recently dropped, particularly in Eastern Massachusetts, as customers wonder whether their bank will be bought.
With the decades-long movement toward bank consolidation likely to continue, efforts ranging from steps taken before a merger is announced to outreach efforts after to the level of planning before a system conversion can factor into acquiring banks’ chances of retaining customers, industry executives say.
“If we can not only meet your expectations but exceed them in those first hours and days, we have a very high probability of retaining those customers, because we already have spent hours and hours and hours understanding who they are, what their needs are, and how they use their banking services,” said Matthew Sosik, CEO of Hometown Financial Group. “We know we’re a good fit for them, so the question then is: Are we going to meet their expectations?”
A Cautionary Tale in Connecticut
The largest of the region’s recent bank mergers saw Buffalo-based M&T Bank buy Connecticut-based People’s United Bank in April. Customer complaints following the lenders’ September system conversion reached such levels that even Massachusetts Sens. Elizabeth Warren and Ed Markey penned angry letters to M&T demanding compensation for customers. Connecticut Attorney General William Tong warned that his office would “not hesitate to use the full extent of our authority to protect families and businesses” if customer service disruptions continued.
During M&T Bank’s third-quarter earnings call in October, CFO Darren King said the bank had converted nearly 1 million customers while receiving complaints from less than 1 percent of them. King said ongoing work with customers affected by the conversion would continue into the fourth quarter.
But even a small percentage of accountholders upset during a conversion can translate into thousands of customers who might leave. More than 1 in 4 Massachusetts customers of banks acquired by large institutions said they are likely to leave the bank, said Corey Wrinn, a managing director with Rivel. Rivel’s third-quarter analysis included interviews with more than 13,700 Massachusetts households and businesses.
When smaller banks or credit unions acquired a customer’s financial institution, Wrinn said, 56 percent of customers said they are more likely to stay and only 6 percent said they are likely to leave, with 38 percent responding that they were unsure.
“As we’ve seen with recent larger mergers [like People’s United and M&T] the bigger bank doesn’t always offer the best communication nor consistency of service during the transition,” Wrinn said.
Transparency Brought Success in Woburn
For East Cambridge Savings Bank, a now-$1.5 billion-asset bank that acquired Woburn-based Patriot Community Bank in August, communication about the merger and its effects on customers began early in the process.
East Cambridge Savings Bank staff made sure that Patriot Community Bank’s employees understood the reasons behind the merger and what would happen to customers, President and CEO Gilda Nogueira said.
“It was so important to have those employees understand what we were saying, believe in what we were saying because they, in most cases, were that frontline point of communication to those customers,” Nogueira said. “When the phone call was coming in, it didn’t come to me first or to the lender at East Cambridge, it went to those Patriot employees, so it was really important that they were on board with this as well.”
Patriot Community Bank had one branch, and employees were retained as part of the acquisition. Part of the communications with customers involved assuring them that where they banked and who they banked with would not change, Nogueira said. She said remaining as transparent as possible with customers was also key to the process.
“It’s like buying a new car – you don’t want to drive it out of the lot and immediately your investment has just diminished,” Nogueira said. “The purpose … was to acquire this organization, acquire its base, and serve the markets that they were serving, so it was in our best interest to communicate that, which we did a lot of.”
She added that because East Cambridge Savings Bank had more products and services, Patriot Community Bank customers began asking when they would be available even before the transaction closed.
Preparation Proves Vital
East Cambridge Savings Bank converted Patriot customers over to its systems in November, a process Nogueira described as a success.
Hometown Financial Group’s system conversion for the former Envision Bank also took place in November. Abington Bank, one of three banks held by Hometown Financial Group, had merged with Envision Bank in October.
Sosik, Hometown Financial Group’s CEO, said that even though the company has done nine mergers over the past decade, preparation for the system conversion takes thousands of hours, a process the bank does “not take lightly or for granted.”
“Their prior banking relationship is shifting a little bit this way and that,” Sosik said. “We were able to navigate all of that in the first, probably, week with elevated phone calls into our customer care center, but
[the conversion] very successful.”
Sosik said Hometown Financial Group has a high retention rate following mergers, but noted that rather than a specific program, this retention happens as a result of the preparation that takes place throughout the merger and conversion process. He added that while Hometown Financial Group has not experienced customer losses following a merger, he has seen the consequences in the industry when banks do make mistakes in the process.
“It’s amazing how little you need to impact the retention rate, but how dramatically you can impact the loss rate – the customer breakage rate – by not doing a good job,” Sosik said.