As the big get bigger, tiny banks vie for small-business accountsBIZ SPOTLIGHT – BANKING / FINANCE
At the rate that New Jersey banks are either bought, sold or created, you may need to tie a string around your finger to remember the name of the institution printed on your checks. Despite the consolidation, small businesses that overcome the confusion can still find banks eager to handle their relatively modest financial needs.
Over the last 15 years the Garden State banking industry has been in ferment. Since 1992 roughly 165 banks have changed hands, most through acquisition by larger bank chains. Such takeovers are usually a way for the parent company to extend its reach and enter new regions.
ÂSmaller banks are growing into medium-sized banks, being swallowed by bigger medium-sized banks and those are in turn are being taken over by big money-center banks,Â says Frank Sorrentino III, chairman of Englewood Cliffs-based North Jersey Community Bank. ÂThe big money-center banks are looking to get some geographic reach in suburban, affluent areas in northern New Jersey. New York City banks are looking to expand across the Hudson River.Â
For example, Bank of America, which acquired Boston-based Fleet Bank two years ago, is on the verge of displacing New York-based Citigroup as the largest bank chain the country. This is powerful position to be in, but not every customer is happy with the results.
Some observers say that when a bank gets too large, it loses a degree of intimacy with the community. Consequently customersÂespecially small-business ownersÂmay feel lost in the merger shuffle.
ÂIf you have a bank come in and take over thatÂs headquartered thousands of miles away, they mighty not be as interested in some of the commercial business that the former bank was involved in,Â says James M. Meredith, executive vice president of the New Jersey League of Community Bankers. ÂThey may be a larger institution that has a different business plan thatÂs more interested in bigger deals.Â
When that happens, small-business customers may quickly sense the change and become unhappy, says Sorrentino. Those running businesses worth less than $5 million may perceive an attitude that says Âif youÂre not a $25-to-$50 million account, donÂt call us.Â
So what options does a small-business operator have when his bank no longer offers the same hands-on service, nor considers him a valued customer? ThereÂs essentially one: look for another bank.
Fortunately for small-businesses, the same merger fever that made their old bank disappear has created fertile ground for new bank startups. These institutions, referred to as Âde novos,Â arise to fill gaps left in the market when large commercial banks have gobbled up a handful of community banks within one region.
The surge in de novo bank openings started in 1997 with the opening of Bank Americano in Elizabeth. Roughly 50 other de novo banks followed it since then, says Tim Doherty, spokesman for the New Jersey Bankers Association.
ÂThe banking market is still hot,Â says Doherty, citing two just-approved applications to open new banks in Vineland and Palisades Park.
ÂA lot of these de novo banks are being started by some of the bankers who lost their jobs because of the acquisition,Â Meredith says. ÂThese people who are very knowledgeable, very experienced and have a customer base that theyÂve worked with for many years.
ÂThese bankers see that void and they go and they raise the capital and they build a new bank and they target those customers that the other bank doesnÂt want,Â Meredith adds. ÂThe reason that these de novos are starting up is because they see a niche thatÂs not being filled.Â
There should be plenty of potential customers. ÂIn New Jersey, 90% of the companies are under $10 million in revenue,Â says Paul Fitzgerald, CEO of North Jersey Community Bank. ÂThis is really a small-business market. ThatÂs the one weÂre dedicated to in providing the service that we are looking for.Â
North Jersey Community opened 18 months ago and now boasts $130 million in deposits. Chairman Sorrentino says that business comes from larger banks. ÂThat $130 million is not newly created business in the Englewood Cliffs market,Â Sorrentino says. ÂItÂs existing business from other banks. This is money from people who are unhappy with their current bank relationship. They are running in our door.Â
But how do these de novo banks connect with small-business owners in ways larger banks canÂt?
ÂThe great strength of the community bank is their knowledge of the local communities and their connections in the local communities,Â says Ray Soifer, chairman of Soifer Consulting, an Arizona-based financial consulting firm, and former head of corporate strategy for BankerÂs Trust. ÂAfter all, who starts the bank? ItÂs local people who are well-connected in the local business community.Â
ÂIt doesnÂt really necessarily have anything to do with size; itÂs really more of a mindset,Â Meredith says. ÂHow well does that community banker know his marketplace? He lives there; he works there. It becomes a lot easier for a community bank to do business in that environment.Â
While mega-merged banks may offer just what individuals want, ÂthatÂs much less true of the business community, the small and medium-sized business,Â Soifer says. ÂIf you are a business and you have a banker who knows your company and knows your business and understands you, youÂll want to move with him. ThatÂs the great strength of a community bank.Â
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