Independent banks use branches, perks to lure customers

Colorado˜s independent bankers that survived the onset of branch banking six years ago have taken the cue from well-heeled competitors such as Norwest and Bank One by providing customers with ATMs, special accounts, phone banking, branch banking, banking by personal computer and other customer perks.
Still, approximately 51 percent of the state˜s deposits are controlled by five large out-of-state banks, Norwest Bank, KeyBank, Colorado National Bank, Wells Fargo Bank and Bank One, according to the Colorado Division of Banking.
It hasn˜t been easy, but for some of the banks that have changed their ways to compete, it˜s paid off.
"The competition is stiffer now than ever," said Brent Beichle, vice president of Independent Bank of Kersey. "People really shop the (loan) rates. Norwest is probably lower than us, but they have a wider area and can offer lower rates."
Like a lot of banks, Independent Bank has used branch banking to compete and grow. In just the last two years, Independent Bank branched to Sterling, Wiggings, Wellington, Greeley, Platteville and Fort Lupton.
Barbara Walker, executive manager of the Independent Banker˜s Association of Colorado, said that when it comes to competition, the independents use every trick in the book.
"Independents are all over the map in product, services and technology," Walker said.
While some independent banks are big on customer perks such as discounted eye glasses or bank-organized vacations to Europe, the claim most often made is that the independents˜ own brand of local-grown service is what makes the real difference.
Jack Devereaux , a bank president in Loveland, said Home State Bank˜s competitive edge isn˜t new technology.
"The biggest thing is that we are locally owned," he said. "The employees aren˜t moved around, and they have a tendency to deal one-on-one with people rather than by telephone or computers."
Devereaux has been bank president at Home State Bank for 27 years. In the last three years, Home State Bank has expanded the investment center, moved more into the trust business and is marketing in everyway that they can, "even television," Devereaux said.
"Out-of-state banks coming in and buying the largest downtown bank has had as much of an affect on the banking business as anything," Devereaux said. "Newcomer (customers) can just transfer to that branch." Being competitive in the nineties did mean adding a few machines and acquiring a few branches. Home State Bank now has an ATM machine at Johnson˜s Corner, an ATM at their two branches and phone banking.
Some independents compete by giving customers both traditional and modern banking. Independents can offer fast loan turn around, locally made decisions and locally grown loan officers.
"We compete by providing a higher level of service," said First National Bank of Wyoming president Daniel Furfthy. "We don˜t have a bank philosophy dictated by a far-away market and you can still speak to a person instead of a toll-free number."
"We still have a lot of customers who bank the same," said Mark Kross, vice president of The First Security Bank in Fort Collins. "But the younger generation likes ATM machines. You˜ have customers who haven˜t been inside a bank in years." The First Security Bank is based in Nebraska and has branches in Fort Collins and Fort Lupton.
The First Security Bank˜s Fort Collins location is unique in that it˜s geared to elderly customers and features a "personal" banking concept where one teller will help each customer with all their needs at a teller desk. This system is not only handicap accessible, but it allows The First Security Bank to gear toward a small segment of the industry — real estate and small business owners — and to "serve the heck out of them," Kross said.
Although customer perks and electronic convenience are typical for large banks, they are fairly new to the smaller banks. They represent a compromise. A bank˜s life blood is its depositors, and most small bank executives maintain they can˜t hope to really compete with the special deals on customer savings and checking accounts or on loans provided by the larger banks.
"We refuse to compete with free checking," said Bill Farr, president of Farmers Bank in Eaton. "Other than with our senior accounts."
Refusal or inability to compete for some customers has hurt independent bankers. According to Walker, agricultural banks, such as Farmers Bank were hit hard when larger banks were allowed to enter the state and offer farmers less expensive rates.
"There is no question agricultural banks, which forever were the bastion of the independent bankers, are losing market share," she said. "There˜s (competition from) big banks, but also Federal government loan programs, money store lenders. And farmers are some of the most technology-driven customers in the country."
Farmer˜s Bank could blame competition from big banks for a decrease in the percentage of agriculture-related loans (28 percent in 1994, 19 percent today), but its expanding markets should also be factored in. In a little over four years, the bank branched twice, to Fort Collins and Ault, and doubled its total assets. Two more branches are planned for within the next year.
"Our growth is in real estate and small businesses," Farr said. While Norwest Bank goes for the big, $15 million loans, Farmers Bank provides a fast return with answers for loans for house and building construction. Farr said Farmers Bank recently wooed away a million-dollar loan from a large bank for a post office in Johnstown because "we had an answer for the project˜s construction company in Phoenix in less than a week." Farmers Bank pursued the loan when they discovered the company was seeking a lender, Farr said.
Farmers˜ branch banking moves have also been profitable. The bank˜s equity to asset˜s ratio is 5.74 percent. A healthy 25 percent return on equity is expected this year.
Farr said the top challenges independent banks face today are in deposits (to fund loan growth), marketing (each advertisement in each of the branch locations has to reflect researched knowledge about the community), and securities and investments. Farmers Bank has about 90 percent loans and 10 percent securities. Larger banks with their greater resources buy more stocks, and have greater liquidity.
According to Walker, branch banking has been both bad and good for the independents. Ten years ago there were twice as many banks in Colorado as there are now: (Keep in mind that regulations now allow bank to have several branches but call their system one bank.)
Average annual assets of the independent banks that have survived branch banking are $95 million compared to $35 million 10 years ago, she said. The Independent Banker˜s Association was created 25 years ago to stop branch banking. Today, many of its members, as well as officers and directors have branches.
"We˜re seeing small independents assets growing," she said. "Big banks are being pushed out by an outflow of customer awareness." She said this awareness is mainly due to superior customer service.