Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, October 10, 1993 TAG: 9310080026
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Dominion Bankshares Corp., one of the last major companies with a Roanoke headquarters and one of the region's top employers, had been sold to First Union Corp. of Charlotte, N.C.
Dominion's mounting problems with bad real estate loans and banking industry's continuing trend of mergers had led many to believe it was just a matter of time for the Roanoke company to be absorbed.
And now, a year later, the Dominion name - dating from 1984 when the company adopted it for its area banks - will itself disappear from the Southwest Virginia scene. Signs bearing First Union's name and green logo will replace Dominion's red and white signature on bank buildings Friday morning.
It will be the final, though symbolic step in a year full of change for both the region's lead bank and the community that regarded it as an economic cornerstone.
In the intervening year, First Union admits to the run-off of some of Dominion's local business, but less than company officials had anticipated at the time the merger was announced.
And while there have been employment cuts, there also have been gains. The net result is there are to be more First Union employees although the overall payroll will be smaller.
First Union abolished back-office and holding-company jobs, and as expected eliminated duplication with its own operations and corporate structure.
Many of the Roanoke jobs lost were top executive positions, paying high wages.
But the deal meant First Union settled on Roanoke as headquarters for its Virginia bank, which includes offices in Maryland and Washington, D.C. First Union National Bank of Virginia now has assets of $12.2 billion, or 38.6 percent larger than Dominion Bank was with $8.8 billion in September 1992. First Union's total assets are $72 billion, making it the nation's ninth largest bank.
Dominion, which had been laying off people during its pre-merger financial problems, had 2,000 workers in the Roanoke Valley when First Union came here. As part of the sale to First Union, Dominion agreed to eliminate 1,288 positions, 850 of them in the Roanoke Valley.
But after it finishes moving some of its systemwide functions to Roanoke, First Union will employ 2,200 people locally.
The new First Union jobs pay in the $20,000 range with a sprinkling of supervisors earning more than $40,000.
"The good news is that the units moved here are growth units," said Warner Dalhouse, the Dominion Bank chairman who became chairman of First Union National Bank of Virginia.
That good news bodes well for the future of employment opportunities in the Roanoke Valley. Dalhouse predicted that another 1,000 to 1,200 First Union jobs will be created in Roanoke in the next 24 to 30 months.
On top of that, Dalhouse said, First Union moved many highly paid executives to its Virginia headquarters. Dalhouse said he would guess that the number is greater than those who were laid off from the holding company, but the average salary may be lower. He said the trade-off may be a wash.
A notable aspect of the merger is the lower profile assumed by Dalhouse over the last year. Active in civic as well as business affairs and vocal on many community issues, Dalhouse for many yers was among the most visible corporate leaders.
But now, Benjamin P. Jenkins III is president of the bank and is in charge of its daily operations. Jenkins, who had supervised First Union's initial transition team in Roanoke, transferred from Atlanta, where he was president of First Union National Bank of Georgia.
Now, Dalhouse travels more, looking for prospects to expand the bank. That includes work toward future mergers.
After acquiring Dominion and, later, successfully bidding for First American Metro Corp. of McLean, Dalhouse said, First Union is "kind of in a digestive mode." That deal added 174 offices to the company's operations.
But he said the bank will one day grow again through acquisitions as well as by winning new business.
\ First Union's goal for the initial year was to position the company for the future, he said.
That meant strengthening the bank, laying a good foundation, meeting financial hurdles, putting in a team of people across the state and focusing on customer sales and service.
"By and large, we've done that," Jenkins said.
Management in the Roanoke Valley market has changed very little, Jenkins said.
The most significant transfer was of Byron Yost, who returned to Roanoke from Dominion's Richmond bank to serve as the regional president, and Jane Bunn, who came from First Union in Atlanta to head consumer banking.
Except for them, Jenkins said, "the bankers dealing with the public haven't changed." By contrast, there was more upheaval in the Washington area with personnel coming and going.
In Roanoke, the layoffs are still coming, however. About 175 people are slated to be let go by Friday when the merger of operations, including computer systems, becomes fully effective.
First Union promised to bring 650 new jobs to the valley through the end of next year.
Jenkins said 445 of those jobs have been transferred to Roanoke and filled largely by Dominion employees who had been laid off.
That leaves 205 jobs still to arrive, and Jenkins said the 175 discharged employees are candidates to fill those posts. So are former Dominion and First American employees from other areas who are being brought to Roanoke at First Union's expense for a look at the valley.
David Furman, director of human resources for the Virginia bank, said 814 positions in the valley were terminated rather than the initial estimate of 850. The 814 includes the 175 jobs still pending termination.
But, Furman said, that job loss was offset by 342 people who were placed in the new jobs. That number does not include the 205 positions still to be transferred to Roanoke.
He and Jenkins estimate that about half of the people who lost their jobs were re-employed in other bank positions. That portion is typical of First Union mergers in other states.
Last week, about 2,200 people worked for First Union in the Roanoke area. That will be reduced by the 175 positions, then increased by the 205 new jobs next year.
Virtually every person who would accept a transfer got a job elsewhere in the First Union system, according to Jenkins.
In addition, three corporate-wide First Union offices were moved here: the consumer loan service center, the revolving credit service center and the printing operation. That means Roanoke stands to profit from First Union's growth in other states.
\ Jenkins, like Dalhouse, expects "steady growth over time" in employment because Roanoke is a headquarters for an expanding bank.
Jenkins concedes that the Roanoke-based bank's business dropped off during the past 12 months of change and turmoil.
Yet he said the decline was less than First Union projected during its studies of Dominion prior to the merger agreement.
There is "a natural run-off" of business at any bank, Jenkins said.
Borrowers pay off their loans. People move across town or away from town. Deposits and loans naturally flow out of a bank.
In normal times, that outgo is offset by the inflow of new loans and new deposits.
But a merger is not a normal condition for a bank, Jenkins said. Worried employees focus internally on the company and their own job security rather than on the customer.
Adding to the merger upheaval, First Union decided to close its branches in five Kroger stores. But that was only after it floated trial balloons about possible abandonment of other branches in Southeast Roanoke and on Melrose Avenue and Peters Creek Road. The proposal created an uproar in the Southeast Roanoke neighborhood, and First Union abandoned the plan.
And there have been computer-conversion glitches as well - automated teller machines that were temporarily inoperable, incorrect orders for supplies and the like.
Jenkins said a conversion period is a difficult time for both customers and employees. Bridging two computer systems is "very tricky."
When the work is done, Jenkins said, the problems should be solved. Meanwhile, "we hate that."
\ Dominion was in turmoil before First Union ever entered the scene. It instituted a salary freeze in 1991 and engaged in two successive layoffs costing about 700 jobs systemwide, 200 of them in the Roanoke Valley.
And the company already was bleeding from voluntary departures before First Union arrived. Those refugees found jobs at competitor firms, some entirely new to the local financial industry.
Dominion alumni, for instance, founded Ferguson, Andrews & Associates; Catawba Capital Management; and Peakwood Capital Corp., all based in Roanoke.
Michael Smith, president of Ferguson Andrews, said that company started in January 1992 with 11 people from Dominion who were concerned about their prospects after a potential merger. It now has 17 people from the bank.
He said Ferguson Andrews, a securities brokerage and investment bank, competes with First Union as well as other banks and brokerage houses.
Those spinoffs occurred primarily in Roanoke, Smith said, because it was "a headquarters phenomenon."
Catawba Capital Management has a staff of eight and $125 million in assets under management.
It was founded in July 1992 by Dominion executives worried about then-persistent rumors of merger.
They knew, according to Jerry Crowgey, that an acquisition "wouldn't have been a favorable development for our careers."
Catawba Capital is an investment consulting firm. Crowgey said its competitors are all money managers, including banks and, to a lesser extent, brokers.
Paul J. Head, president, and Carter Bullington, vice president, formed Peakwood Capital Corp. in March 1992 because they were worried about the effects of a merger on their jobs at Dominion.
Bullington said Peakwood has so far helped companies in the coalfields restructure their financing. They have also helped several local businesses obtain financing.
Peakwood plans to get into all types of financing, Bullington said.
Analysts and some other bankers agree the flow of Dominion business and customers under First Union is natural during a merger because of the many problems.
Lewis Nelson, vice president for consumer banking for NationsBank in Roanoke, said it picked up some accounts from First Union, although he had no numbers.
That happens in any merger, he said, such as when Crestar acquired Colonial American Bank of Roanoke five years ago.
Customers move, Nelson said, because of "different management, different people, different philosophies."
"I think they've been through a very difficult year," said Carson Quarles, president of the Southwestern region for Central Fidelity Bank.
When banks have difficulties, he added, they "naturally lose some market share. I'm sure they have. . . . You can't have a disruptive year as they have had without a loss."
Central Fidelity has been advertising aggressively during the period, but Quarles said it has not been targeted at First Union or any other particular bank.
National Commerce Bancorporation of Memphis, which took over the former Dominion branches inside Kroger supermarkets, has pulled customers from every bank in town, not just First Union, said the new bank's regional manager, James Beckner.
He attributed the NBC Bank's $33 million in deposits in a brief time to its relatively high interest rates paid on deposits.
Yet, he said, some of the customers were accustomed to banking at Kroger. "Many stayed with the branches" instead of moving to other First Union offices.
Guy W. Ford, industry analyst for Scott & Stringfellow in Norfolk, said a drop in business is "normally the course of business in mergers. There's some fallout. Most banks figure that into the equation."
It happened when Norfolk-based Sovran Financial Corp. merged with Citizens & Southern Corp. of Atlanta, Ford said, and again when C&S/Sovran became NationsBank.
Banking is a personal relationship, said Ford. When such a relationship changes, there's usually a loss.
The challenge is to gain back the business, Ford said. "It's just inevitable."
Henry J. Coffey Jr., who follows banking for J.C. Bradford & Co. in Nashville, said First Union is "moving to a standardized product. Nonconforming business tends to fall out."
Arnold G. Danielson, a banking consultant in Rockville, Md., left First American when it was acquired by First Union because, "I didn't want to do business with a North Carolina bank."
But with so many mergers in the industry, he couldn't find a Maryland-based bank. Now he's a customer of Crestar, which is headquartered in Richmond.
Whenever there's a merger, Danielson said, the affected bank loses business for the first year or two. "A lot of the personal bit is lost."
Jenkins said he expects a 12- to 18-month "flatness" in First Union's Virginia balance sheets.
Deposits and loans are down only slightly from the first of the year, Jenkins said. Both lines of business fell more sharply after Jan. 1, then started upward again in the spring - continuing upward even after Dominion's Kroger branches closed in June.
First Union is performing "nicely" against the original projections, he said.
That's because First Union anticipated the natural problems, Jenkins explained. It worked quickly to refocus employee attention on the customers in a "back-to-business effort."
First Union employees call commercial and individual customers every day, he said, making contact and answering questions.
That paid off, Jenkins said, especially because Dominion had overlooked the importance of customer relations while it wrestled with problems of the quality of its loans.
Because bank deposits are suffering from low interest rates, First Union - like other banks - is aggressively marketing annuities and its stable of mutual funds.
\ First Union eschews media advertising, relying instead on its employees to reach customers.
A bank's resources are finite, Jenkins said. First Union spends its money recruiting and training good salespeople. It measures their performance and rewards good results. That method, he said, is "a better value than advertising."
Roanoke Valley employees have "done a real good job," he said, so that business has turned up.
Within the bank, Jenkins said, there's been no resistance to the changes that come with a merger. He credited the leadership of Dalhouse and Yost for much of that attitude.
The consolidation brought two surprises for Jenkins.
In a merger, he said, an acquirer normally expects credit quality to be worse than anticipated.
In this transition, he said, the surprise was positive. The credit quality situation was better than it appeared, meaning Dominion had less of its assets than expected tied up in loans that were going unpaid or likely to go sour.
He credited Vice President Richard Carling and other Dominion executives with laying the foundation for the improvement.
The second surprise was that so few personnel changes were required. The quality of the people here is high, Jenkins said, so few changes were necessary.
And Jenkins' biggest disappointment: His inability to paint a better word picture for employees and the community about the reasons for all the changes and how the new bank will look.
First Union, he said, is investing $70 million in automation and technology in Virginia.
First Union is on the leading edge of banking, Jenkins said, and the next few months will be a revelation to employees and customers.
Banking will come out of the past, Jenkins said, and enter the future.
\ Chart - Dominion-First Union Chronology of the change (see micorfilm)
Keywords:
PROFILE
by CNB