Economic Development

UCFC Merger Seen as Good and Bad News for Valley

YOUNGSTOWN, Ohio – With the announcement Monday that United Community Financial Corp. will merge with First Defiance Financial Corp. in a $473 million stock-for-stock deal, there are arguments that the move could be a boon or a hindrance to the area’s economic status.

At the Youngstown/Warren Regional Chamber, President and CEO James Dignan said he sees the move by the parent company of Home Savings Bank as a positive for the Mahoning Valley because it will increase the company’s market assets while keeping a banking headquarters in Youngstown.

“There’s a potential for growth, but we won’t know the details until the deal closes,” Dignan said.

On the other side of the coin, Youngstown State University economics professor A.J. Sumell fears the perception of one of the Valley’s iconic financial institutions merging with an out-of-town financial corporation will not be viewed as a positive signal on residents already jaded by the exit of companies and the associated economic impact.

“It’s different news because Home Savings is not closing, but the news still may be perceived as if more dominoes are falling,” Sumell said. “In the end, we’ve just become kind of numb after losing iconic institutions like The Vindicator, Northside Hospital and the idling of General Motors.”

Banking headquarters will remain in Youngstown, but the holding company will operate out of Defiance, about 60 miles southwest of Toledo. Likely gone will be the name “Home Savings Bank” as the companies said a new name, jointly chosen by the two entities, would be announced before the closing of the deal, expected in early 2020. 

Dignan said there are trade-offs in any merger, and while the holding company is moving, many operations will remain local. 

As more details emerge, he continued, residents will see what footprint the holding company will have and more information will be provided on back-end operations, such as which employees will be retained and where they may end up working. In a conference call Monday morning, United Community President and CEO Gary M. Small said there is little overlap in the two banks’ geography.

Sumell, speaking in general until more details are rolled out, said the merger may be another negative for the community in terms of economic development. 

“I would not expect this merger to create a net increase in employees, Sumell said. “It’s likely to have a net decrease.”

Ryan J. Glinn, financial adviser with W3 Wealth Management of Howland, said the merger appears to be a logical attempt for both banks to scale. He said retaining key decision makers at both banks will lend itself to a smooth transition.

First Defiance’s president and CEO, Donald P. Hileman, will serve as CEO of the new holding company through 2021, at which point he will take over as executive chairman. Small will be president of the holding company and will become CEO when Hileman transitions to his next role.

“Home Savings has been an important employer in this area for years, and I don’t expect the merger to change that,” Glinn said.

Eric Lanham, vice president of marketing for 717 Credit Union, said the announcement came as a bit of a surprise; however, bank mergers are nothing new. 

“Mergers have been a trend in the financial industry since 1990. Smaller financial institutes that are federal insured have experienced a 60-plus percent decline in their numbers,” Lanham said.

There are a lot of reasons for mergers, including greater efficiency and closing any gaps that may exist, according to Lanham.

“Smaller community institutions face increasing costs, the complexity of compliance and technology,” he said. “There’s an expectation from consumers [of] technically advanced offerings and being able to meet those expectations can become a challenge.”

Sumell explained the objective of any merger is for the combined company to achieve economies of scale by combining for a lower cost per unit. This happens when the company reduces the number of redundancies that coexist in terms of employees doing the same job. 

Sumell said he doesn’t see a significant impact on local branches, or on consumers, but noted administrative positions will likely be affected. 

Glinn said his hope is that the local branches stay intact and any employee turnover is minimal. 

“This is always a concern with any merger. However, looking at both bank’s respective branch locations, it doesn’t appear this should present an issue,” he observed.

Locally owned and smaller banks are fighting to remain in communities. Dignan said other local mergers have meant local headquarters being replaced by regional presidents, “but this model works because it still feels like a community bank.”

Dignan and others are hopeful that foundation and community philanthropic commitments will not be affected. According to the announcement, the combined company will continue the philanthropic and community investments provided by First Defiance and United Community prior to the merger. 

717’s Lanham said local institutions tend to be more involved in the communities they serve. Some examples include quicker responses to loan underwriting and willingness to loan to consumers with lower credit scores. 

“Local institutions are better at getting to know the individual and what the area is going through,” Lanham said.

Because employees work and live here, they have a better understanding of what’s happening economically and what families are going through, such as the ripple effect from the closing of GM Lordstown.

For 717, in the past, mergers of other institutions have resulted in the influx of new customers, Lanham said. While it’s too early to determine what the local impact of the Home Savings merger will mean in regards to supplies, services and cultural change, “it’s different in every case,” Lanham said.

“Obviously they thought is was a wise business decision and there is a value for their consumers.”

MORE:
Small: UCFC-First Defiance Merger a ‘Clean Slate’ for Growth
UCFC Merger Seen as Good and Bad News for Valley
Merger Unites Best of UCFC and FIrst Defiance, CEOs Say

Published by The Business Journal, Youngstown, Ohio.