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									60 IndependentBanker 04|2007
                              Community bank start-ups provide superior
                             service to thrive in a sea of big-bank branches
                                                                 By Ginny Phillips

                                      n May of 2005, the Bank of

                                 I    Georgetown opened, focusing on
                                      serving young professionals and small
                                 businesses in Washington, D.C.—a
                                 metropolis whose a strong economy and
                                 relatively few community banks, made
                                 it ripe for a de novo local financial
                                   Michael Fitzgerald, the bank’s president
                                 and CEO, says Bank of Georgetown was
                                 formed to provide more community bank
                                 service options to counterbalance the
                                 dominating presence of big-bank chains
                                 in the city. “They’re good at what they’re
                                 able to do—they’re great at t aking
                                 deposits—but they’re not providing the
Illustration by Chris Winn

                                 full relationship side of loans,” he says.
                                                               04|2007 IndependentBanker 61
  De Novo Diversity                                                  no glass separating customers from employees.
  As communities big and small see an increase in immigration        “We wanted to bring in young, hip, edgy
  and diversity, tapping into ethnic markets makes good sense ...    people, and we wanted a look that caters
  and good profits.                                                  to that.”
     “We see de novos popping up in Hispanic and Asian commu-          The bank’s business plans for the next several
  nities, geared to those cultures,” says Mike Raab, analyst for     years call for continued growth in the area as
  SNL financial institutions group.“It’s very attractive—people      well as in nearby sections of Virginia and the
  feel more comfortable banking somewhere that mirrors their         central business District of Columbia, before
  own culture.”                                                      continued eastward expansion. “Our game plan
     Across the board, experts say, banks are targeting culturally   is not to be on every street corner,” says
  diverse niches with a variety of strategies from hiring Spanish-   Fitzgerald. “You have to look at what’s in your
  speaking employees to crafting entire marketing programs.
                                                                     market in terms of identifying target groups. We
  De novos are particularly well-suited to incorporate outreach
                                                                     have a huge opportunity with local business in
  to those markets as part of a fundamental business plan.
                                                                     the nation’s capital, with all the nonprofits and
     “The Hispanic community is growing and with it is the
                                                                     [with the] federal government.”
  Hispanic business community, which is a major target market,”
  says Leonard Rubin, a partner in Powell Goldstein LLP.               Like all community banks, the Bank of
     The Hispanic population makes up nearly a third of the          Georgetown has its own way of serving the
  population in Greeley, Colo., and the New Resource Bank has        special needs of its community. But the bank is
  developed programs tailored to the community. Along with 10        indicative of nationwide demand for services
             bilingual customer contact personnel, the bank also     that have sustained start-up community banks
                   started a program allowing customers with an      over the years within an industry of continued
                    account to send money directly to an account     consolidation.
                     in Mexico, bypassing multiple fees typically      While the number of new bank formations has
                      involved with checking cashing businesses      been steady during the last half of the past 10
                       and money wiring services.                    years, new formations lagged during the previous
                                                                     five years when the industry underwent an
                                                                     intense merger and acquisition wave. From 2002
                                                                     to 2006, there were 708 new FDIC-insured
                    The Bank of Georgetown, which has $115           community bank formations compared with
                 million in assets, carved a specific niche for an   1,052 during the previous five years combined.
                 urban market. The bank, which doesn’t have a          The explanation for the continued, steady
                 traditional teller line, instead focuses on a       rate of start-ups isn’t all about mergers and
                 sit-down presentation at a desk, no matter how      acquisitions, of course. Geography plays a clear
                 simple the transaction. In fact, the bank           role, with areas of high population growth—
                 doesn’t hire tellers at all. Customer service       Florida, Georgia, Texas, North Carolina,
                 representatives who handle loans or account         California—seeing corresponding de novo
                 openings incorporate typical teller duties. That    growth.
                 practice leads to a customer experience               Michael Micallef Jr. had launched another
                 characterized by more expertise and more            community bank in Florida in 2003 before
                 personal service.                                   leaving it to start Community Southern Bank in
                    Many of those customers are the young            Lakeland, Fla., which opened in August 2006
                 professionals whom the bank is seeking. “The        with $15 million in assets and has since grown
                 30-somethings and 40-somethings are the next        to $22 million in assets.
                 wave of business leaders, and they’re going to be     Population growth throughout Florida has
                 around for the next 20 or 30 years. That’s the      been rising for years, but the Lakeland site had
                 potential client for us, and this town’s full of    other advantages. Located between Orlando
                 them,” says Fitzgerald.                             and Tampa, Lakeland offers a prime market
                    The bank’s demographic focus was even            with 100,000 people in the city limits alone and
                 incorporated into the design of their facilities,   a strong industry presence, including the Publix
                 which have open, sit-down environments with         Supermarket corporate headquarters. Even if

62 IndependentBanker 04|2007
  “    You have to look at what’s in your market in terms of
       identifying target groups. We have a huge opportunity
       with local business in the nation’s capital, with all the nonprofits
       and [with the] federal government.

                 the national economy weakens, MGM, Disney,
                 Epcot—all under an hour away—will continue
                                                                      – Michael Fitzgerald, Bank of Georgetown

                                                                      of the need for a community bank tied to the
                                                                      city and the people. The chairman of
                 to propel the local market.                          Community Southern heard the rumblings,
                   Although other community banks have a              and when Micallef visited the area, he heard
                 branch in Lakeland, Community Southern is            the same thought echoed.
                 the only bank with its headquarters there.             At Lakeland, where the community had
                 “There’s a need for that,” Micallef says. “The       made its interest in a local bank clear,
                 bank is owned by residents, shareholders live        Community Southern organizers began trying
                 here, and the board of directors was born and        to satisfy those specific needs. When potential
                 raised here.”                                        customers expressed hesitancy about using only
                   The desire for a community bank had swelled        one branch with one ATM machine, the bank
                 and intensified for years before Community           crafted an arrangement with Publix
                 Southern came to pass. An earlier Lakeland           Supermarket so that Community Southern
                 community bank was sold a decade ago, and in         customers could use any of the 2,500 Publix
                 the following years, residents continued to talk     ATMs for free, along with any of the 1,000
                                                                           ATMs using the same service bureau
                                                                           as the bank.
                                                                              To answer the concern that a small bank
  New Banks, New Technology                                                can’t lend large sums of money,
  New technology can help any community bank, and                          Community Southern partnered with a
  particularly de novos, dramatically support client relationships.        bank in Orlando to handle larger
     “These de novos are challenging the status quo and are                multi-million dollar loans. A courier
  looking for innovative technology, especially for cash
                                                                           service will bring the transactions to the
  management capabilities and more robust service,” says Jana
                                                                           customer if the customer can’t come to
  Schmidt, vice president of business development for Harland
                                                                           the bank.
  Financial Solutions.
                                                                              While Community Southern’s niche is
     At the Washington, D.C.-based Bank of Georgetown, a
                                                                           providing responsive customer service, the
  commercial bank, desktop check scanning devices have proven
  a strong draw for small business clients.“We can’t get them in           bank also has touches as much about
  their offices fast enough,” says Michael Fitzgerald, president           welcoming friendliness as service. The
  and CEO.“We’ve got hundreds of clients, and we’re putting in             bank has its own cookie maker, so the
  several a week.”                                                         smell of baking cookies fills the lobby
     Fitzgerald mentioned one business based more than 10                  every morning, and staff delivers cookies to
  miles out of the city.“They’ve got to go by probably 100 bank            nearby businesses. When the new building
  branches to get to us, but they believe in what we were doing,           is completed, a large community room will
  so they decided to open a small account with us,” he says.               be free to the public for various nonprofit
  “When I mentioned we were going to test check-scanning                   meetings with coffee and cookies provided.
  technology, they said they’d love to be our first market test               The readiness of the community to
  case. It overcame the geographic hassle, and they moved other            participate was overwhelmingly evident
  accounts here.”                                                          when it came to raising capital. Regulators
     The client’s initial deposit was about $50,000, and now he            suggested a minimum of $9 million in
  has over $1 million in the bank.                                         stock to open the doors of the bank,

64 IndependentBanker 04|2007
                 according to Micallef. The bank settled on a        center, ensuring a live representative answers
                 goal of raising $9 million, with a maximum          every telephone call. Customers are also
                 limit of $15 million: It took in $20 million,       greeted at the front door, and if the assigned
                 most of which was raised within the county, and     greeters are occupied, the rest of the staff is
                 had to return $5 million.                           expected to fill any gap. The bank has
                    High levels of capital aren’t uncommon           eliminated virtually all fees other than overdraft
                 among today’s start-up community banks,             fees and those required by regulations.

                 according to Mike Raab, analyst for SNL
                 financial institutions group. “That’s been a
                 constant; they’ve been generating more capital
                                                                         We thought we saw the signs
                 regardless of fluctuating markets,” he says.
                 “More capital helps them become profitable              of it happening, and it did.
                                                                         People have had a long
                 [quicker], and bankers are looking at it as being
                 much safer.”
                    New Frontier Bank opened in Greeley,
                 Colo., in 1998 with $35 million in                      history here of wanting
                                           subscriptions, 60 per-
                                           cent over the original        to do business with

                                           goal. Bank organizers
By the Numbers                             anticipated a few             independent banks.
Community bank start-ups since 1994        independent banks
                                           being bought by                            – Joe Tennessen, New Frontier
     Number of New FDIC                    larger companies, and
Year Insured Institutions Formed           the timing proved           Customers may use any ATM machine in the
2006      190                              fortunate: The bank       world, and the bank picks up the cost. All
2005      179                              opened just ahead of      customer contact positions are overstaffed to
2004      128                              other banks being         ensure no waiting.
2003      117                              bought out.                 The Bank of Georgetown, Community
2002      94                                  “We thought we         Southern Bank and New Frontier Bank all
2001      145                              saw the signs of it       reflect the positive trends and possibilities for all
2000      223                              happening, and it did.    community banks in today’s financial services
1999      268                              People have had a         marketplace. As start-up banks, however, their
1998      217                              long history here         success is even more noteworthy.
1997      199                              of wanting to do            The basics stay the same regardless of market
1996      157                              business with inde-       or demographic trends, according to Rubin.
1995      111                              pendent banks,” says      That’s not to say that success depends on
1994      68                               Joe Tennessen, senior     nothing but timing and a promising market.
                            Source: FDIC
                                           vice president of           The best business plans differentiate the
                                           New Frontier.             delivery of services—the basic products may be
                                              Timing—and read-       the same as the competitors, but smart de novos
                 ing the market correctly—paid off. With more        set out to target specific markets and appeal to
                 than $1 billion in assets now and three             specific needs. “The difference is always the
                 locations, as of June 2006, the bank pulled a 26    business plan and management,” says Leonard
                 percent market share in the county ... with 75      Rubin, a partner in Powell Goldstein LLP.
                 banks in that market. With a goal of 34 percent       And the future of de novos? Expect an
                 deposit growth for the past year, the bank saw 64   increase in number for at least the next two
                 percent growth.                                     years, predicts Raab. ib
                    New Frontier Bank’s commitment to
                 customer service shows in very specific             Ginny Phillips is a free-lance writer in
                 strategies: Six operators man the information       Birmingham, Ala.

    66 IndependentBanker 04|2007

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