Jones Lang LaSalle
Small banks, big growth
Thursday, January 26, 2006
By ANDREW D. SMITH
The growth of mega-banks such as Wachovia and Bank of America may seem to threaten community banks.
But a quick look at the numbers suggests just the opposite.
The area's small banks are growing far faster than their larger competitors. Several of them grew by more than 20 percent last year.
What's more, investors apparently expect the trend to continue. Shares of many small banks trade at higher price/earnings ratios than any of the mega-banks.
Why such optimism about the small banks? Bank executives cite everything from lower employee turnover - which gives customers and employees time to bond - to the Internet - which effectively enables small banks to open a branch in every customer's home.
"In terms of products and services, we have as many relevant offerings as the mega-banks, and we have deep roots in this community that they just don't have," said Peter Inverso, chief executive at Roma Federal Savings Bank.
"Do we have branches in Nebraska? No. Do we have a line of international services? No. But our customers really don't have much use for branches in Nebraska or international services. They do, however, enjoy having nearby branches where the tellers know their names."
Roma's performance seems to prove Inverso's point.
During the past year, Roma opened its eighth branch (and new corporate headquarters) in Washington Town Center, and it announced plans for a ninth branch in Plumsted. Over the same period, the company's assets grew from $672 million to $798 million, a 19 percent increase.
Yardville National Bank enjoyed similar success.
Assets grew only 7 percent, to $3 billion from $2.8 billion during the year ended Sept. 30. But profits grew to $16.6 million during the first nine months of 2005, up 20.4 percent from $13.8 million during the same period in 2004.
Things looked even rosier at Hopewell Valley Community Bank.
Deposits at the bank grew to $173 million during the year ended Sept. 30, a 27 percent increase. Profits, meanwhile, grew to $1.2 million during the first nine months of 2005, a 36 percent increase.
Traditionally, small banks have relied on quality service and the personal touch to best larger competitors, but times are changing.
Small banks still believe they have an edge in service, but all of them admit that the big boys have narrowed the gap.
When Wachovia (then First Union) bought CoreStates and entered the local market, the company got a reputation for lousy service and lost thousands of customers.
In recent years, however, Wachovia has consistently earned excellent service reviews. And Bank of America, which re-branded Fleet branches last year, has always had an outstanding reputation.
Oddly, while big banks have been working to neutralize the small bank service advantage, small banks have been using technology to neutralize the big bank convenience advantage.
"People connect with their bank in (several) ways: in the branches, through the Internet, over the phone and at the ATM," said James Hyman, president of Hopewell Valley Community Bank.
"We obviously don't have hundreds of branches, but most bank customers only ever use one bank branch, so if we have one near a customer's home or office, that's almost as good as having 100 across the state.
"We have Internet banking, of course. We still have live people answering the phone. And as for ATMs, customers can use any ATM free. Not only do we not charge you to use another company's ATM, we refund whatever fee that other company charges you. It's like every ATM is one of our ATMs."
Of course, banks must attract more than depositors; they must also attract borrowers.
Generally speaking, small banks charge higher interest rates than large banks, but they compensate customers in two ways.
First, small banks lavish VIP treatment on clients too small to merit special attention at the big banks. Second, and more importantly, they make decisions faster.
"You've got to be quick to take advantage of many business opportunities, so it makes sense that people will pay us a bit extra for the speed we offer them. A lower rate from a big bank doesn't matter much if you get the money too late to do what you want to do," said Yardville CEO Patrick Ryan.
"When you deal with a bank like us, you deal directly with the important decision makers. I spend a fair amount of my time talking to small business owners who borrow money from this bank. I doubt the CEOs of any of the big banks can say that."
Small banks, big growth
Thursday, January 26, 2006
By ANDREW D. SMITH
The growth of mega-banks such as Wachovia and Bank of America may seem to threaten community banks.
But a quick look at the numbers suggests just the opposite.
The area's small banks are growing far faster than their larger competitors. Several of them grew by more than 20 percent last year.
What's more, investors apparently expect the trend to continue. Shares of many small banks trade at higher price/earnings ratios than any of the mega-banks.
Why such optimism about the small banks? Bank executives cite everything from lower employee turnover - which gives customers and employees time to bond - to the Internet - which effectively enables small banks to open a branch in every customer's home.
"In terms of products and services, we have as many relevant offerings as the mega-banks, and we have deep roots in this community that they just don't have," said Peter Inverso, chief executive at Roma Federal Savings Bank.
"Do we have branches in Nebraska? No. Do we have a line of international services? No. But our customers really don't have much use for branches in Nebraska or international services. They do, however, enjoy having nearby branches where the tellers know their names."
Roma's performance seems to prove Inverso's point.
During the past year, Roma opened its eighth branch (and new corporate headquarters) in Washington Town Center, and it announced plans for a ninth branch in Plumsted. Over the same period, the company's assets grew from $672 million to $798 million, a 19 percent increase.
Yardville National Bank enjoyed similar success.
Assets grew only 7 percent, to $3 billion from $2.8 billion during the year ended Sept. 30. But profits grew to $16.6 million during the first nine months of 2005, up 20.4 percent from $13.8 million during the same period in 2004.
Things looked even rosier at Hopewell Valley Community Bank.
Deposits at the bank grew to $173 million during the year ended Sept. 30, a 27 percent increase. Profits, meanwhile, grew to $1.2 million during the first nine months of 2005, a 36 percent increase.
Traditionally, small banks have relied on quality service and the personal touch to best larger competitors, but times are changing.
Small banks still believe they have an edge in service, but all of them admit that the big boys have narrowed the gap.
When Wachovia (then First Union) bought CoreStates and entered the local market, the company got a reputation for lousy service and lost thousands of customers.
In recent years, however, Wachovia has consistently earned excellent service reviews. And Bank of America, which re-branded Fleet branches last year, has always had an outstanding reputation.
Oddly, while big banks have been working to neutralize the small bank service advantage, small banks have been using technology to neutralize the big bank convenience advantage.
"People connect with their bank in (several) ways: in the branches, through the Internet, over the phone and at the ATM," said James Hyman, president of Hopewell Valley Community Bank.
"We obviously don't have hundreds of branches, but most bank customers only ever use one bank branch, so if we have one near a customer's home or office, that's almost as good as having 100 across the state.
"We have Internet banking, of course. We still have live people answering the phone. And as for ATMs, customers can use any ATM free. Not only do we not charge you to use another company's ATM, we refund whatever fee that other company charges you. It's like every ATM is one of our ATMs."
Of course, banks must attract more than depositors; they must also attract borrowers.
Generally speaking, small banks charge higher interest rates than large banks, but they compensate customers in two ways.
First, small banks lavish VIP treatment on clients too small to merit special attention at the big banks. Second, and more importantly, they make decisions faster.
"You've got to be quick to take advantage of many business opportunities, so it makes sense that people will pay us a bit extra for the speed we offer them. A lower rate from a big bank doesn't matter much if you get the money too late to do what you want to do," said Yardville CEO Patrick Ryan.
"When you deal with a bank like us, you deal directly with the important decision makers. I spend a fair amount of my time talking to small business owners who borrow money from this bank. I doubt the CEOs of any of the big banks can say that."
posted by Jones Lang LaSalle NJ News Blog at 11:08 AM
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