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New banks strive to
fill the needs
of merger-weary customers
By Michelle
Samaad • Bankrate.com
It's quite common for strawberry farmers to bring
in pints of fresh, red berries for Hillsboro Bank employees. While
handing out the tasty fruit may not guarantee loan approval, it
does guarantee friendly smiles -- and that sure beats long teller
lines and high fees.
In the heart of the "strawberry capital of
the world" sits Hillsboro Bank in Plant City, a small town 22 miles
east of Tampa, Fla. The one-branch bank moved from a modular mobile
home, where six employees helped customers open checking accounts,
and opened its doors last July, says Ronald Daniel, the bank's president
and chief executive officer. Today, the bank boasts $25 million
in assets and has nine employees.
"This is a community effort," Daniel says,
"Our employees are either Plant City natives or have been in this
town for most of their lives."
Moving to the smaller
side of town
Hillsboro Bank joins more than 400 banks that have set up shop in
small towns, cities and suburbs since 1994, according to the Federal
Deposit Insurance Corp.
Bankers from larger institutions head many
of these startups. Most have been caught up in the wave of mega-merger
activity. Others saw an opportunity to fill a community banking
void. Some have yet to embrace online banking "just because customers
are not interested in it -- they want human interaction."
Daniel, a banker who's been in the business
for 35 years, has seen his share of closings and mergers. The final
straw came a few years ago when a large regional bank took over
the one he had started: "Been there, done that -- I just didn't
want to do the megabank thing again," he quips.
Hillsboro offers a broad mix of products, including
debit cards and home equity loans, and Daniel says the mistake some
banks make is trying to be everything to everyone.
"Larger banks are looking hard at the bottom
line so, unfortunately, customers coming into the branches may get
a feeling of indifference and coolness," Daniel reasons. "No matter
how hard they try, it's difficult for them to give that hometown
service."
Burgeoning
banks
New bank applications received by Florida regulators in 1998 were
nearly three times last year's levels, according to the state's
Division of Banking. Through mid-December, state regulators received
33 applications for startups, compared with only 12 in 1997. Central
Florida, which includes Tampa and Orlando, is one of the fastest-growing
areas in the nation for new financial institutions, according to
the FDIC. More charter applications were submitted from Tampa in
1997 than any other city.
A combination of good market conditions and
a pool of customers dissatisfied with big banks is helping startup
banks, community-banking specialists say. But whether they can continue
their rapid growth is another story.
Art Simon, director of banking for the Florida
Department of Banking and Finance, says community banks can survive
on a fraction of the business that the giants lose, but he disputes
the notion that small banks can go head-to-head with the big ones.
Yet local banks that serve a certain niche will almost always thrive,
he says.
"Despite an almost-negligible share of the
state's banking market, community banks can have a disproportionate
effect on competition," Simon says. "In short, they can go a long
way toward pushing down fees" because larger banks in the area may
want to keep rates low to attract customers.
Some advantages of new community banks include
lower fees, faster loan approval and a balance of automated banking
with human interaction.
Joseph H. Cady, a managing partner at CS Consulting
Group in San Diego, a firm catering to community banks, thinks that
at large institutions, managers "too often are focused on management's
priorities, rather than customers' (priorities)."
"What drives them is technology and cost-efficiency,
and that primarily benefits management and shareholders," Cady says.
"Surveys, however, show that customers want better rates and more
convenience."
Catering
to customers
As in Florida, Georgia startups cater to small business customers
and those who want a more personal touch in banking services. They
are easy to come by, particularly in Atlanta's affluent northern
suburbs, say some industry trackers.
Hoping to reach business owners and residents
of upscale Gwinnett County, Peachtree Bank in Duluth, Ga., opened
its doors in a "high-traffic area" last October. Five months later,
the bank has $28 million in assets and 17 employees, including a
mortgage originator.
The first few months meant "lots of trips to
the post office" to mail welcome letters to 13,000 prospective customers,
says Monty Watson, Peachtree's president and chief executive officer.
The bank also targeted 1,700 prospects from
shareholders' lists to make them aware of what Peachtree offers.
One person registered for and won free use of a Volkswagen Beetle
for a year, courtesy of the bank, without having to open an
account.
Watson is another ex-big banker who worked
his way up the ranks through regional banks in the area before,
he says, "losing the desire to go back into the large bank
environment."
"I spent the first 10 years of my career in
large banks and, professionally, I didn't want to deal with their
type of corporate politics," Watson explains.
He adds that having a "great deal of autonomy,
being able to remain closer to the customer and the marketplace
and more control over (his) destiny" were also driving factors to
head his own bank.
Peachtree Bank plans to target business owners,
but will have products for individual customers as well. "This is
an area that has seen a lot of acquisition of community banks in
the past." Watson says Duluth is "also one of the fastest-growing
areas in the state -- our bank aims to serve the needs of this growing
community."
"When you're a new bank opening up, there are
a couple of things that are key to your success," says Dennis Burnette,
a bank executive recruiter based in Atlanta. "Management is No.
1; then, being in a market where there's good growth, which describes
most of Atlanta's 20 neighboring counties."
Even more important than local growth is local
competition. "There are a lot of dissatisfied customers who are
tired of waiting in line," he says.
When the local competition is banks such as
Wells Fargo and Bank of America, customer service becomes paramount,
but "the paths to gain new accounts are so different," says Dennis
Guldin, president of Nevada First Bank in Las Vegas.
Gambling
on growth
Las Vegas, home of glittering casinos, glitzy hotels and year-round
tourism, is also among the fastest-growing cities in the nation,
according to demographic reports. Here, new banks have a greater
chance for success because of the state's growing population, economic
growth and bank consolidation.
Guldin hoped to capitalize on the city's boom
when he opened the bank a little over a year ago. He notes, "We're
not out there aggressively competing with large banks on things
like car loans and home equity plans, but we're constantly getting
customers who have been turned away from the bigger banks because
their bank has merged with someone else."
Nevada First Bank caters to small- and medium-sized
businesses in the growth phase, and private-banking customers who
are in the process of buying businesses. This niche allows the bank
to home in on individual needs, Guldin says. "We have the ability
to turn things around a lot faster -- we don't get caught up in
sending information to another region of the country. All of the
directors are local, we meet every week and take care of loan customer
needs right away." At the bigger banks, it often takes more than
a week to get a loan approved due to outsourcing, Guldin says.
Ironically, Guldin worked at Bank of America
right out of college and went on to become the executive vice president
overseeing the real estate division at Wells Fargo. His 20-year
career saw position transfers, mergers, acquisitions and, finally,
"burnout."
"I had reached a point in my career where I
wanted to stay in Las Vegas and when this opportunity came along,
it meant that I had some control over my destiny," Guldin explains.
The bank has $55 million in assets, 12 employees
and a messenger who picks up deposits and delivers important papers
to customers for free. "Believe me," Guldin says, "the large banks
will often charge you for this." A new branch is scheduled to open
at the end of the year.
As a former big-bank executive, Guldin offers
this explanation of why more customers are moving away from the
larger banks to smaller community banks: "Things are being done
in processing centers to save money. People who have been good customers
with the bank for years are being turned away for loans based just
on credit scoring. We value our customers and look beyond credit
scoring to get loans approved."
Virtually
instant
While community banks tout warm and fuzzy human interaction, virtual
banks -- banks that are strictly on the Internet -- woo customers
who want instant banking without ever having to visit a branch.
At last count, there were six Internet banks, including First Internet
Bank of Indiana based in Indianapolis, which opened its cyber-doors
in February.
David Becker, the bank's chairman, has hit
the media circuit drumming up awareness for the latest cyber bank,
a tour that included a virtual launch at the Museum of Financial
Services in New York.
So far, the bank has more than 200 customers,
$16 million in assets and 12 employees. Online customers can take
advantage of checking, savings and money market accounts, certificates
of deposit, bill payments, balance transfers, credit cards, debit
cards and personal loans. The bank's Web site includes a "Chat Now"
button that connects a customer to a service representative between
8 a.m. and 8 p.m. EST on weekdays.
The banks also plans to offer mortgage and
brokerage services in the near future.
A competitive 5.12 percent yield on its money
market account is one of the bank's biggest draws. The other is
real-time access to account information 365 days a year, 24 hours
a day. First Internet allows its customers to see their "live" account
balances and transaction history adjusted -- the instant they authorize
an online transaction.
"Most traditional banks still 'batch' daily
transactions in each account and run them only once a day, usually
overnight," says Becker. "Our system allows a customer to reach
the Internet any time of the day or night and effect transactions
that are immediately reflected both on the screen and in their accounts."
The time is ripe for virtual banks to carve
their niche, Becker believes, simply because the Internet has reached
so many people who spend so much time on it.
"My 72-year-old father is probably not going
to be a customer of my bank, but my 16-year old son, who bought
his car over the Internet, will probably do his banking online,"
Becker says.
Virtual or not, customers appear to want the
combo package from banks: good rates, convenience and friendly customer
service.
"I have learned from my experiences that communities
are crying out for bankers who understand and can respond to their
concerns," says William R. Berkley, chairman and CEO of W.R. Berkley
Corp., a property and casualty insurance firm in Greenwich, Conn.
Berkley is a founder and chairman of the board at The Greenwich
Bank & Trust Co., which opened last February, and of Westport
National Bank in nearby Westport, Conn.
"If a customer has a problem with his or her
account, the customer does not want to be referred to a phone center
in South Dakota," Berkley says. "While they may have few of the
resources of giant banks, many community banks have engendered blind
loyalty -- that level of service is what the bigger people are going
to have to strive for. I don't see the little bank ever going away."
-- Posted: March 23, 1999
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