Banking & Finance

The banker next door

By Nancy Byron

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The DeLawder file

He’s chairman and CEO of a bank holding company with $5.5 billion in assets, yet Dan DeLawder routinely hands out his home telephone number and cell phone number to customers of Park National Corp.

They’re printed right on his business card — along with five other ways to reach him. His willingness to be contacted 24/7 shows just how strongly DeLawder believes in personal accountability, and it’s a philosophy that has driven his company’s success. “We have a safe and secure balance sheet with strong earnings,” DeLawder says, noting that Park National is ranked fifth in the nation among large, publicly traded banks for its strong financial performance. “That allows us to do some things that other businesses might not be able to do.”

Take, for example, the string of banks purchased by Park National Corp. since 1985. None of them has changed names or been subject to consolidation or shake-ups in the executive ranks due to their acquisition by Park. It’s a long-standing tradition at this Newark-based corporation to let acquired banks maintain their own identity and personnel at all levels after merging or being acquired.

That’s why 12 separate bank names appear in Park’s financials, and the corporation bankrolls 12 marketing directors, 12 human resources directors, 12 controllers, 12 bank presidents and 12 separate boards of directors. Those numbers are expected to increase to 14 each when Park closes on a deal this quarter to acquire Vision Bank Florida and Vision Bank Alabama.

It’s an unorthodox approach in an industry that typically thrives on ultra-streamlined operations and the muscle derived from sheer size and name recognition.

Still, DeLawder wouldn’t have it any other way.

“We could save a lot of money by collapsing our charters into one and having one name, one identity, one brand and get some real marketing benefit from that,” he says. “We could have just one board of directors and just one president and save a lot of money. We spent well over $1 million in board fees alone last year.

“But we think that would jeopardize the level of success we have enjoyed. It would jeopardize the ownership, if you will, of the community bank. It would be just like everybody else.”

DeLawder calls Park’s practice of allowing acquired banks to operate in a fairly independent fashion “earned autonomy.” But it’s also a way to hold each bank accountable for its individual performance. No one is going to hide under the Park National Corp. umbrella.

Here’s how and why it works.

A radical idea
Earned autonomy wasn’t the result of a well-thought-out plan, DeLawder says. It was more of an experiment.

“In 1985, we had our first opportunity to have another bank join us,” DeLawder says. “That was Fairfield National in Lancaster. When we first joined with them, we weren’t real sure what to do, honestly. We looked around and saw the Bank Ones and the National Cities and the large banks of Central Ohio who acquired banks and immediately changed the name, changed the management, laid off a bunch of people and really changed the complexion of the organization they bought.”

Park’s executives did not feel comfortable with that approach. So Bill McConnell, who was Park’s chairman at that time, made a proposition that has since become the hallmark of the company’s acquisition strategy. “He said, ‘We don’t think all wisdom resides in Newark, Ohio,’” DeLawder says. “He said to the bank, ‘We may be the acquirer here, but we think you have a lot to offer our organization. We’d like to have you retain your identity, keep your board intact and keep your people intact, so those who want to stay can, and let’s see how this works.’ “We didn’t have much of a plan beyond that. But the business model we implemented in 1985 worked, and it continues to work to this day.”

Of course, it helped that McConnell knew the management of Fairfield National well before the acquisition and that its headquarters was just 30 miles from Park National’s corporate office, allowing close monitoring. In addition, Lancaster is a very similar community to Newark, as they are both county seats. “There is ownership of a community, a parochial attitude, if you will, that we are very sensitive to,” DeLawder says, noting that most of Park’s acquisitions have been county seat banks. “They have their identity. They’re known as the local community bank. They were before they joined us, and they continue to be known in that same fashion after they joined us because we retained their identity, and the board, and the leadership, and the associates. “We’ve never laid somebody off. Never. We’re very, very sensitive to that. Frankly, if you start reducing staff, you impact the performance level of the bank. There’s a direct relationship between people and production. Respecting the management there and the people was very important for us.”

Local control
Presidents at each of Park’s 12 affiliate banks carry full responsibility for day-to-day decision-making, as well as setting an annual budget and running daily operations.

“Each one has the responsibility for hiring and retaining and paying their people,” DeLawder says. “We oversee, in a macro view, compensation levels, but the presidents determine how much they pay customer service representatives.”

Local executives also set loan rates and other pricing.

“Now we watch that all very closely,” he says. “We compare those numbers very carefully. But that’s a responsibility they have at a local level.

“It’s like running your own little business. I don’t pontificate and tell them what they’re going to do next year. They tell us. They have ownership. And then we hold them accountable for it.”

DeLawder and Park National President David Trautman together review financial highlights — such as net income, total assets, return on equity, return on assets — from each affiliate bank on a monthly basis. These reports are also shared with the bank presidents, so each bank can look at how it does compared to the other banks.

But there are no incentive programs to reward the highest-performing branch or affiliate.

“We’re all wearing the same jersey,” says DeLawder. “We’re all on the same team. To start having individual office or bank-identified winners suggests there are losers, so we don’t go there. We’re all in this together.”

DeLawder and Trautman talk by phone with each president about the monthly numbers and meet face-to-face with them once a quarter. They praise individuals when they meet or exceed expectations — or redirect them if they are straying too far. “In our world, the easiest way to get a bank in trouble is to make bad loans,” DeLawder says, recalling a time when he had to replace a bank president and chief lending officer for unsatisfactory performance. “We allow our presidents to have enough rope to hang themselves with and, in this particular instance, they did.”

That, however, is the exception rather than the rule. Most bank leaders thrive on the responsibility and freedoms afforded them within the Park National family.

“They control their destiny,” DeLawder says. “So they take great pride in continuing to operate as the local community bank of choice. Large banks get all the attention ... but people in places like Newark, Ohio, still look to the bank as their resource, their partner. That has a lot of value.”

Earning a reputation
Although earned autonomy has been a winner in almost every case — and even the one that backslid has rebounded under new leadership — DeLawder says there was one other instance when an acquisition deviated from Park’s typical plan.

In 1994, when Park purchased First Federal of Zanesville, it was effectively folded into the corporation’s existing Zanesville affiliate, Century National Bank because Park already had a strong presence in that town. Because of that, First Federal’s CEO, who was also a member of the bank’s board of directors, retired. “He chose not to stay,” DeLawder says. “That’s been a rare instance. Every other bank that has joined us has been a free-standing community bank, and every board member has continued on.”

That track record has become something of a selling point when Park approaches potential acquisition candidates.

“After you do two or three like this, it becomes something you can point to with pride,” DeLawder says. “Others are more anxious to join you because of that style.”

Just last year, in fact, executives at Vision Bancshares Inc. wanted to raise additional capital to support increased growth but had all but abandoned the option of selling their company because they wanted to remain independent. Enter Park National. “The banks in Alabama and Florida chose to join us because they like our model,” DeLawder says. “We’ll retain their identity, their management, their leadership.”

The benefits of the earned autonomy model, however, go both ways.

“Several banks have joined us that have brought practices to us that we hadn’t known of or practiced before,” DeLawder says.

Treasury management, introduced to Park by Fairfield National and now practiced by all affiliate banks, is one example.

“We are different today than we were in 1985,” DeLawder says. “We’re better.”

The ultimate payoff
As with many businesses today, the proof of success is in the people.

So while Park National Corp. has been able to add numerous high-performing community banks to its fold over the years, it’s also been able to add top people “We’ve had the benefit of having really good people around this place who tend to stick around,” says DeLawder. “Once they get a job here, they tend to stay. You couple that with a very good, secure balance sheet, very good asset quality, strong capital and strong earnings ... you’ve got a combination that allows you to do some things that some businesses aren’t able to do. Businesses that are undercapitalized or who have a scarcity of quality people have growth limitations.”

Not Park. The corporation’s assets have grown from $2.34 billion to $5.5 billion, while its net income has increased from $41.6 million to $94.1 million in the past eight years.

And although Park’s employee numbers have grown 86 percent during that same timeframe, that doesn’t mean the corporation is opposed to streamlining where needed.

“We are able to centralize some operations that are transparent to the customer,” DeLawder says. “For example, we have one investment manager, not 12. That way, we are able to gain some operating efficiencies and maintain robust levels of profitability. That’s important.”

Park’s return on equity and return on assets — the two most typical benchmarks used to measure financial health in the banking industry — are among the best. Its return on equity is traditionally in the 80th percentile or better among banks of similar size throughout the country, DeLawder says, and in the 90th percentile for return on assets. “It’s the model,” he says. “We think each of our banks does so well because, while they recognize they have one owner and that’s Park National, they all have ownership of what they do. It’s a psychological ownership. That is so important. And we stay out of their way — as long as they do well. That’s the caveat, and they all understand that.”

They also understand — and appreciate — that the road Park took to get where it is continues to be unique.

“Are we out of step with the rest of the world? That concerns us from time to time,” DeLawder says. “But look at our performance numbers, and they tell a good story. This model is still performing quite nicely.”

HOW TO REACH: Park National Corp., (614) 221-1884 or www.parknationalcorp.com