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Merger Mania Creates New Banking Opportunities

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.

“Smaller 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,” says Frank Sorrentino III, chairman of Englewood Cliffs-based North Jersey Community Bank. “The 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.”

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 customers—especially small-business owners—may feel lost in the merger shuffle.

“If you have a bank come in and take over that’s headquartered thousands of miles away, they mighty not be as interested in some of the commercial business that the former bank was involved in,” says James M. Meredith, executive vice president of the New Jersey League of Community Bankers. “They may be a larger institution that has a different business plan that’s more interested in bigger deals.”

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 “if you’re not a $25-to-$50 million account, don’t call us.”

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? There’s 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 “de novos,” 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.

“The banking market is still hot,” says Doherty, citing two just-approved applications to open new banks in Vineland and Palisades Park.

“A lot of these de novo banks are being started by some of the bankers who lost their jobs because of the acquisition,” Meredith says. “These people who are very knowledgeable, very experienced and have a customer base that they’ve worked with for many years.

“These 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 doesn’t want,” Meredith adds. “The reason that these de novos are starting up is because they see a niche that’s not being filled.”

There should be plenty of potential customers. “In New Jersey, 90% of the companies are under $10 million in revenue,” says Paul Fitzgerald, CEO of North Jersey Community Bank. “This is really a small-business market. That’s the one we’re dedicated to in providing the service that we are looking for.”

North Jersey Community opened 18 months ago and now boasts $130 million in deposits. Chairman Sorrentino says that business comes from larger banks. “That $130 million is not newly created business in the Englewood Cliffs market,” Sorrentino says. “It’s existing business from other banks. This is money from people who are unhappy with their current bank relationship. They are running in our door.”

But how do these de novo banks connect with small-business owners in ways larger banks can’t?

“The great strength of the community bank is their knowledge of the local communities and their connections in the local communities,” says Ray Soifer, chairman of Soifer Consulting, an Arizona-based financial consulting firm, and former head of corporate strategy for Banker’s Trust. “After all, who starts the bank? It’s local people who are well-connected in the local business community.”

“It doesn’t really necessarily have anything to do with size; it’s really more of a mindset,” Meredith says. “How 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.”

While mega-merged banks may offer just what individuals want, “that’s much less true of the business community, the small and medium-sized business,” Soifer says. “If you are a business and you have a banker who knows your company and knows your business and understands you, you’ll want to move with him. That’s the great strength of a community bank.”

E-mail to jmcconville@njbiz.com