Bankers’ Hours column: Community banks beating out big banks for deposits
The business of banking, reduced to its rock bottom common denominator, is starkly simple: Making a profit on the movement of money. That’s the “what” of the banking equation. The “how” gets a bit more complicated.
Over the past 30 years the industry changed dramatically, fueled by mergers, acquisitions and failures. Banks became fewer, and institutions that were big in 1990 morphed into monsters, like the reptiles of prehistory thriving in an oxygen rich rain forest. The number of smaller banks, those under $1 billion in size, shrank dramatically as they were snapped up by the ravenous behemoths of banking’s brave new world. And many of them failed; they simply didn’t have the capital to weather the aftermath of the Meltdown of 2008. There are now four banks in the U.S. that are over $1 trillion in asset size.
Still, though much reduced in numbers, there are still plenty of smaller operations alive and well, the so-called community banks. And they and the TBTFs (Too Big To Fail) are fiercely fighting for the same wholesale product: deposits. The big guys and the little guys are still in the business of making money by moving money. Both big and small are focused on getting money, the raw material of banking, in the front door.
Surprisingly, community banks are winning that contest in many instances, despite the disparity in marketing investment: millions (or billions) on one side, thousands on the other. Why?
Cutting back to the post-apocalyptic financial landscape of 2008-2012, I recall a lot of community bank CEOs opining that excessive regulation and competition from the mega-banks, especially in digital marketing, were killing the community bank concept. They threw in the towel and sold out to one of the orcas cruising financial waters, gobbling up little fish in the banking business. They didn’t know how wrong they were.
The execs that didn’t sell were ripe for retirement anyway, and they were replaced by bright young guys and gals in their respective communities who knew nothing of the days when regulation was perceived as more benign, and who figured they were just as smart as anybody else in the nuances of the digital age. They also knew a good thing when they saw it. There’s no more profitable business on earth than banking, largely due to minimal cost of the wholesale product: money.
Like Hyman Roth speaking to Michael in “Godfather II,” they figured, “This is the business we’ve chosen,” and it’s a pretty good one. But they didn’t have just brains and confidence in the battle for depositors. They had, and have, built in advantages that the big banks can’t replicate.
First is flexibility. The small town banker can ramp up a community-oriented marketing concept in days. The branch manager of a TBTF operation doesn’t even try, because it would take months to go through several tiers of management for approval. The lockdown summer of 2020 has provided opportunities for creativity. I’ve noted with a definite feelings of nostalgia the resurrection of the drive-in movie concept. Municipalities, shopping centers and businesses have taken to showing movies in strategically placed parking lots and open spaces, and some community banks have grabbed at the chance. Sure, the guy or gal managing one of the big bank branches in town could, unilaterally, exhibit a film in the parking lot, but it would be a good way to get busted down to office boy/girl in rank when the boss heard about it.
Then there’s the marketing muscle inherent in the bank’s physical plant, its office, and it’s often overlooked by bankers at all levels. When I got into banking in pre-history (before the internet) people visited a banking office a lot more than they do today. Deposits and withdrawals were done in person or by mail. Back then, I was told by a very smart guy that a bank’s key marketing person is the lowest paid employee in the building: the teller. The position was an entry level gig, and the workers were almost exclusively women, but they were the face of the business, the person a customer would see and speak to during a transaction, i.e. deposit, withdrawal or loan payment.
Even with those community banks that do have branches, the offices aren’t the dead spaces that the rapidly proliferating branches of the big banks have become, generating few opportunities for cross selling. And cross selling is a mantra in banking. Increasingly, A TBTF branch may boast a maximum of three employees plus a security guard. Certainly, if you’re opening an account at First Mega Bank of the World, and wanted to ask, say, about a home loan, you’d be able to set up an appointment with a lending person. But at our (fictional) institution, the Second National Bank of Downriver, Montana, you’d probably be led right over to the person who runs the home loan operation. I knew of one CEO of a home-town operation that told the employees that, if they’re speaking to a customer who might want to talk to him, or that he’d like to meet, to bring the person to his office and introduce them. I always thought that this gentleman had a good grasp of basic marketing.
In the community bank office, there’s always someone that can help a customer, or help an employee assist a customer. Recently, my wife and I opened a couple of accounts at one of the Bigs. The young gentleman didn’t quite have the procedures firmly in place, no criticism of him — you should have seen me screw up the first savings account I opened. But he got more flustered as the process proceeded, which didn’t exactly put us at ease; at Second National, he’d have quietly checked with, probably, a head teller and come off looking like a veteran.
Finally, a couple of stories, one relevant to this piece, and one not so much, but it’s a good one and true:
In my first job at a savings and loan I was being trained by a lady who’d been a teller longer than I’d been on the planet at the time. She said, “Never ask a new customer the amount of their deposit until you do all of the paperwork. Then you’ll treat everybody like a millionaire.”
And, once, she was confronted by a young man with a gun, who demanded she hand over all of the cash in her drawer. Her response: “I’m not giving you anything until you put that gun down before you hurt somebody.” He did, and she did. Not a good idea, but a great story. (He was immediately apprehended).
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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