First State Bank Discusses Its M&A Experience

See related feature: Risk and Customers Key Considerations in Mergers

One bank willing to discuss its merger and acquisition activity is First State Bank. The Lincoln, Neb.-based institution tripled its assets to $246 million when it was acquired in 2004, along with Bank of Yutan (Yutan, Neb.), by bank holding company Wilber Co., the parent of Saline State Bank. Although First State is relatively small, it still faced many of the same issues as large banks when trying to mesh IT and people.

The first key to executing a successful merger, according to First State CFO Tom Oerter, is to secure buy-in from employees on both sides. "They're all feeling uneasy about their futures, especially on the side of the acquired bank," explains Oerter, who joined Wilber just days before it acquired both First State and Bank of Yutan. "Reassure those people and help them see it as a growth opportunity."

Perhaps even more vital, however, is the need to understand all of the moving parts, especially on the IT side, suggests Andrew Cooper, First State's network administrator. "You must be able to make decisions on the fly and adapt after the fact," he says. "On the technology side, especially when you have two banks with completely different systems, you can't anticipate every possible problem."

After evaluating the systems of the three merging banks, it was decided that First State's core applications, from Sioux Falls, S.D.-based Precision Computer Systems (PCS), a unit of Fiserv, would best meet the combined organization's needs, but the bank moved from an in-house deployment to a service bureau model to accommodate the rapid growth, Oerter reports. "We would never have been able to keep up if we kept it in-house," he explains, adding that the migration occurred over a three-year period.

First Bank also leveraged multiprotocol label switching (MPLS) technology to enhance the flexibility of its branches and its disaster recovery capabilities post-merger, according to Cooper. "[MPLS] allows for each branch to connect independently to Precision RMD, and allows us to have any site as a disaster recovery hub," he relates.

But mergers of any kind will have their share of bumps along the way, Cooper acknowledges. For example, he recalls, one ancillary application was overlooked during the integration process. "Trying to get everything to work on Day One wasn't easy. You have to have a complete grasp of both banks' systems," Cooper stresses.

First State now has an M&A track record and tools that will allow it to execute future acquisitions more seamlessly. For instance, Cooper says, the bank now can tap Palo Alto, Calif.-based VMware's technology to perform testing in a virtual environment before migrating from one bank's systems to another's. "When we merged with the other banks, we didn't have a test site," he notes. "We were learning as we migrated systems over the night of the merger."

Oerter adds that having some competency in executing mergers is important for banks as they seek to grow. "You need people to set aside their regular duties to work on the project," he says.