Q&A: Six months at the top

It’s been about half a year since Union First Market Bank sealed a deal to acquire one of its biggest state rivals.

Billy Beale, Union’s CEO, now oversees a $7.3 billion bank with 133 branches and 1,560 employees spread through much of the state. It makes Union the largest community bank in Virginia and by the far the biggest headquartered in Richmond.

Union’s holding company recently released its financials for the first six months of 2014, its first two quarters with the former StellarOne Bank’s assets and operations in the fold. It posted a profit of $22.6 million during the period.

And earlier this month TowneBank – which, like Union, dominates its home market of Hampton Roads – announced a huge leap into Richmond with a deal to take over Franklin Federal Savings Bank.

BizSense caught up with Beale last week to discuss the bank’s progress since the StellarOne purchase and whether the combined bank has lived up to expectations and to hear his thoughts on the arrival of TowneBank.

The following is an edited transcript.

Billy Beale

Billy Beale

Richmond BizSense: So you’ve made it through the first six months with Stellar in the fold. What has gone well during that time?

Billy Beale: The first six months has been highly focused on the integration (of the two banks). A lot of it is the data and the systems and the business processes. That is just a huge distraction to the team because that’s all they are focusing on. They are trying to learn new software, new processes, talking to the customers and telling them everything is going to be OK. Now that we are through that, a lot of that has settled down.

RBS: What hasn’t gone as well as you would have liked so far?

BB: We had some hiccups as you often do in these conversions. I think I underestimated the distraction factor, especially for our commercial lending team. This is the first time we have ever done an integration of a bank this size, and there were a lot of lessons learned. But we have not seen masses of customers closing their accounts at Stellar. We have also not seen yet what I would call a nice increase of new accounts. We just started marketing our brand in Roanoke Valley and Blacksburg and Lynchburg, so it hasn’t had a chance to take hold yet. It will come with time.

We lost (employees) in Richmond that we were not expecting to leave to Park Sterling. We lost people in Roanoke to a new entry out of Asheville. The people departing in Richmond and Roanoke, that didn’t go as well as I like. Some of the people who left we expected to be big contributors. There are some things we can try next time to see if we can’t head that stuff off at the pass.

RBS: Union’s mortgage unit posted another loss in the second quarter, and you recently brought on a new CEO for that part of the business. What’s happening in that segment that’s causing the challenges?

BB: In the case of the mortgage segment, there was a lot of turmoil from the middle of last year all the way until now. We were implementing new loan origination software, moving headquarters, displacing longtime employees. At the same time, loan volume dropped and we had an organization that was built to do a lot more volume than it was, which meant we were top-heavy. Since March, we have lost some of that heavier overhead (both the CEO and CFO of Union Mortgage left for other lenders).

We brought on JG Carter (former president of TowneBank Mortgage) to sort of get that unit headed in the right direction. We changed compensation programs – we actually lowered compensation for the lending officers to get more in line with the market. That creates disruption as you might imagine. There’s still a lot of froth in the water that just needs to settle down a bit.

RBS: Nonperforming assets (bad loans and foreclosed real estate) can be a good indicator of the health of the economies you operate in. What’s your feeling on the health of borrowers and the economy, and is there anything that concerns you?

BB: Asset quality in my mind is good. It isn’t quite normal, but it’s much better. In many ways it might be the tail of the recession.

We never really had a commercial real estate recession through this process. It kind of paused, but commercial real estate in some ways has been what’s carried Virginia through this. My biggest concern is when interest rates start to rise and the borrowing costs on these projects start to go up, they will be under more stress. Do we see ourselves start to have some commercial real estate recession?

RBS: The Richmond market seems to be luring banks from all over the state, particularly smaller rural banks. What do you make of the new competition and what is bringing them here?

BB: Probably the universal reason – and we have operations in the Northern Neck, too – is, frankly, there is just not much going on over there. To them, Richmond represents an opportunity to get some loan growth. Frankly, if were in their shoes, I would be making the same decision.

Richmond is a big market, and I think it will be very difficult for those banks to be significant players, but I think there’s a niche they can serve. The real test will be whether there is enough strength in the economy to support what’s already here plus the new players.

RBS: The most high-profile new arrival to Richmond is TowneBank. Union and TowneBank have always been distant rivals. What are your feelings on TowneBank making a major push into Union’s territory?

BB: I would describe TowneBank as the Ukrop’s grocery store of banking in the Norfolk area. There is just an aura about them. And the way they do business is different than their competitors. I don’t know of any other bank in the state that replicates or comes close to the way they do business or model themselves with their large number of directors. It’s a unique and well-regarded franchise. Can they come into Richmond and layer in the same sort of franchise? I don’t know.

RBS: Union is at $7.3 billion in assets. Does that give you enough scale for a while to hit the revenue marks you need to hit? Or this there an active push to make a move to keep growing, maybe through an acquisition to quickly get you to $10 billion?

BB: It’s really is not about assets. While it is easy to write and quote and say we’re the biggest bank based in Virginia – that’s something everybody has a concept of – what I’d really like is to be the most profitable bank in Virginia.

It’s been about half a year since Union First Market Bank sealed a deal to acquire one of its biggest state rivals.

Billy Beale, Union’s CEO, now oversees a $7.3 billion bank with 133 branches and 1,560 employees spread through much of the state. It makes Union the largest community bank in Virginia and by the far the biggest headquartered in Richmond.

Union’s holding company recently released its financials for the first six months of 2014, its first two quarters with the former StellarOne Bank’s assets and operations in the fold. It posted a profit of $22.6 million during the period.

And earlier this month TowneBank – which, like Union, dominates its home market of Hampton Roads – announced a huge leap into Richmond with a deal to take over Franklin Federal Savings Bank.

BizSense caught up with Beale last week to discuss the bank’s progress since the StellarOne purchase and whether the combined bank has lived up to expectations and to hear his thoughts on the arrival of TowneBank.

The following is an edited transcript.

Billy Beale

Billy Beale

Richmond BizSense: So you’ve made it through the first six months with Stellar in the fold. What has gone well during that time?

Billy Beale: The first six months has been highly focused on the integration (of the two banks). A lot of it is the data and the systems and the business processes. That is just a huge distraction to the team because that’s all they are focusing on. They are trying to learn new software, new processes, talking to the customers and telling them everything is going to be OK. Now that we are through that, a lot of that has settled down.

RBS: What hasn’t gone as well as you would have liked so far?

BB: We had some hiccups as you often do in these conversions. I think I underestimated the distraction factor, especially for our commercial lending team. This is the first time we have ever done an integration of a bank this size, and there were a lot of lessons learned. But we have not seen masses of customers closing their accounts at Stellar. We have also not seen yet what I would call a nice increase of new accounts. We just started marketing our brand in Roanoke Valley and Blacksburg and Lynchburg, so it hasn’t had a chance to take hold yet. It will come with time.

We lost (employees) in Richmond that we were not expecting to leave to Park Sterling. We lost people in Roanoke to a new entry out of Asheville. The people departing in Richmond and Roanoke, that didn’t go as well as I like. Some of the people who left we expected to be big contributors. There are some things we can try next time to see if we can’t head that stuff off at the pass.

RBS: Union’s mortgage unit posted another loss in the second quarter, and you recently brought on a new CEO for that part of the business. What’s happening in that segment that’s causing the challenges?

BB: In the case of the mortgage segment, there was a lot of turmoil from the middle of last year all the way until now. We were implementing new loan origination software, moving headquarters, displacing longtime employees. At the same time, loan volume dropped and we had an organization that was built to do a lot more volume than it was, which meant we were top-heavy. Since March, we have lost some of that heavier overhead (both the CEO and CFO of Union Mortgage left for other lenders).

We brought on JG Carter (former president of TowneBank Mortgage) to sort of get that unit headed in the right direction. We changed compensation programs – we actually lowered compensation for the lending officers to get more in line with the market. That creates disruption as you might imagine. There’s still a lot of froth in the water that just needs to settle down a bit.

RBS: Nonperforming assets (bad loans and foreclosed real estate) can be a good indicator of the health of the economies you operate in. What’s your feeling on the health of borrowers and the economy, and is there anything that concerns you?

BB: Asset quality in my mind is good. It isn’t quite normal, but it’s much better. In many ways it might be the tail of the recession.

We never really had a commercial real estate recession through this process. It kind of paused, but commercial real estate in some ways has been what’s carried Virginia through this. My biggest concern is when interest rates start to rise and the borrowing costs on these projects start to go up, they will be under more stress. Do we see ourselves start to have some commercial real estate recession?

RBS: The Richmond market seems to be luring banks from all over the state, particularly smaller rural banks. What do you make of the new competition and what is bringing them here?

BB: Probably the universal reason – and we have operations in the Northern Neck, too – is, frankly, there is just not much going on over there. To them, Richmond represents an opportunity to get some loan growth. Frankly, if were in their shoes, I would be making the same decision.

Richmond is a big market, and I think it will be very difficult for those banks to be significant players, but I think there’s a niche they can serve. The real test will be whether there is enough strength in the economy to support what’s already here plus the new players.

RBS: The most high-profile new arrival to Richmond is TowneBank. Union and TowneBank have always been distant rivals. What are your feelings on TowneBank making a major push into Union’s territory?

BB: I would describe TowneBank as the Ukrop’s grocery store of banking in the Norfolk area. There is just an aura about them. And the way they do business is different than their competitors. I don’t know of any other bank in the state that replicates or comes close to the way they do business or model themselves with their large number of directors. It’s a unique and well-regarded franchise. Can they come into Richmond and layer in the same sort of franchise? I don’t know.

RBS: Union is at $7.3 billion in assets. Does that give you enough scale for a while to hit the revenue marks you need to hit? Or this there an active push to make a move to keep growing, maybe through an acquisition to quickly get you to $10 billion?

BB: It’s really is not about assets. While it is easy to write and quote and say we’re the biggest bank based in Virginia – that’s something everybody has a concept of – what I’d really like is to be the most profitable bank in Virginia.

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Bill Shumadine
Bill Shumadine
7 years ago

Billy’s comments, especially his last ones, are right on target. For years bankers have puffed their chest over their size which is important only to the extent of making larger loans. A profitable bank has never failed. But a large nonprofitable one is asking for trouble…or maybe help.