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Beyond Bricks and Mortar

By Cassidy Norton

Less than 10 years ago, Genesee Regional Bank had four locations in Rochester, $40 million in assets and a cease-and-desist order, the result of an employee’s overly ambitious approach to lending. Now the bank has over $180 million in assets with just two branches, no plans to expand its physical locations and a driving commitment to providing the right kind of banking.

Purchased in 1996 by entrepreneurs E. Philip Saunders and Dan Gullace and renamed Genesee Regional Bank (GRB), it wasn’t a thriving banking institution – according to GRB’s current president, Phil Pecora, it was “more of a loan production shop.” But Saunders and Gullace didn’t buy the bank for its assets or its deposits – its New York banking license was a hotter commodity than the institution that owned it.
In a few short years, the partners’ vision of redeveloping the community banking presence in Rochester was derailed by a somewhat outdated notion of growth – that is, that the more presence one has in a community, the more customers will come to the institution, and the more the it will grow.
Saunders is “a storied entrepreneur,” Pecora said, “but a bank is a challenging institution, and they didn’t really have a good strategic plan. Banking has transformed so much in 20 years – the thinking was, to grow the bank, you add branches. But adding branches costs a lot of money.”
In 2001, Saunders ran into Pecora at a charity event and asked him what he was doing with his life. After seven years with M&T Bank, he was working for an investment firm and looking for a challenge.
GRB provided that. One of the first thing Pecora did as president and CEO was shut down two of GRB’s physical locations, leaving only the bank’s headquarters at the Pittsford branch and the satellite branch in Greece.
The closures were a response to the bank’s undercapitalization, but the resulting smaller size had unanticipated benefits when the economy collapsed last year.
A small institution is able to compete with larger banks, Pecora said, because it can offer the same banking services with better customer service. It is nimble and conservative, where larger banks are cumbersome and take larger risks.
“It’s true of GRB, and of other community banks across the country, that we have not only survived, but actually prospered, over the last 18 months,” he said, in part because of the bank’s small size.
Offering the same services as larger banks means investing heavily in technology, something that was difficult – and expensive – in the Internet’s early years. Now electronic banking services are expected by customers, and are inexpensive enough for smaller community banks to provide.
It is partially the advent of affordable e-banking technology that allowed GRB to grow its assets by more than $140 million in about six years.
“Fifteen years ago, technology was the death knell for community banks,” Pecora said. “It advanced so quickly and it was so expensive. Now it has allowed us to compete on the same level [as the large banks] and offer a higher level of customer service [at the same time]. It’s been an important facet in our growth, and proof that the old adage of bricks and mortar doesn’t have to be a growth strategy.”
GRB’s customers are mostly small business owners in the $1 million to $10 million range, though it does do some individual banking as well. And the institution’s steadfast commitment to the original purpose of a community bank – taking deposits from local institutions, and lending them to others, without exotic detours along the way – has served the bank well in recent years.
The process has “insulated us against the troubles of larger banks,” Pecora said. “Sticking to the basics has been lucrative. There has been a tremendous amount of growth without diverting from our core competitive advantage, and that is very exciting to me.”
Pecora said when he began at GRB, he calculated that the branches needed to make about $30 million each to break even financially, and swore he would not open another until it could clear $50 million. Today the Pittsford branch holds about $110 million of the bank’s assets; the Greece branch makes up the rest, easily achieving his earlier benchmark. So is it time to expand the bank’s physical presence in Rochester?
“Our two branches are 20 minutes away from each other, and we have clients from across all the communities in Rochester,” Pecora said, “so proximity doesn’t seem to be a problem. We haven’t hit any speed bumps along the way. There are certain quadrants where I could see opening up branches,” but there are no official plans to do so.

Cassidy Norton is the Associate Editor of Custom Publications for The Warren Group, publisher of Banking New York.

Posted on Monday, October 05, 2009 (Archive on Sunday, January 03, 2010)
Posted by Scott  Contributed by Scott


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