By Steven T. Emr
The Tale of a Community Bank with a Twist
Here’s the typical scenario: a couple of local business people start talking about the “good old days” in banking, when they were dealing with their local community bank and everyone in the office knew them. The local bank president was active in the community and knew everyone in the local market. Getting your banking done was personal, quick and relatively easy. After several mergers with non-area big banks, the local bank, as well as the local banker, was gone. Getting something done was anything but personal, quick or easy.
The answer: let’s start a new local community bank. So they expand their group to a dozen or so local business owners including local attorneys, accountants and other professionals such as doctors, wealth managers, real estate developers, etc. and start the process to open a new bank. They contract with a consulting company to put together the necessary demographic data to support the application to obtain either a state or federal charter; they hire a CEO to take them through the 18-month to two-year process of raising $10 million or more in capital; they find a location; select a data-processing company; and hire 10 to 15 employees to open the bank.
When they open for business, they grow like a weed for the first year or two, because they are new and are generating some excitement in the local market by bringing back the traditional community bank model. In order to maintain their growth, they find they need to open a second, then a third and fourth office. As they open these offices two things occur: their profits plateau or decline because opening new offices is expensive; and their local community focus becomes more and more diluted as they move away from the main office location.
Then, over the next fix or six years, they grow the bank to $250,000, or if they are very successful to maybe $150 million. Then the day comes that the founding directors and investors ask the questions: “What do we do now?” “Where do we go from here?” “How do we get some return on our investment?” “How do we get liquidity in our stock?”
Sell the Bank
All too often, the answer is to sell the bank, which just starts this whole cycle all over again. Is there a different way to approach this situation?
Team Capital Bank, which opened its first bank in Flemington on Nov. 1, 2005, is trying a different model. Recognizing that size, profitability and liquidity in the stock are the keys to perpetuating a community bank beyond the five to seven year cycle, the founders of Team Capital Bank took a different approach – raise $30 million in capital in a private placement and use the initial funding to open not one, but several local community banks.
Then as the local community banks grow, leverage that growth to attract new capital in separate, non-competing geographic markets for new groups of local business people who want to open a community bank in their regions. The Team Capital Bank model is based on having five, six or more community banks, each of which will grow to $150 million to $250 million so that at the end of five to six years, the entire organization is somewhere around $1 billion in assets. At that point, taking the company public will hopefully generate liquidity, as well as a return for the initial and subsequent investors.
The model makes sense, but to execute this plan also takes a new way of thinking and implementing the marketing plan. While the new marketing paradigm, which is the basis of the Team Capital Bank model, is not a great new revelation, it does recognize those sometimes all-too-obvious assumptions and realities that have made community banks successful over the past several decades.
One thing Team Capital Bank has done is to debunk some of the myths of marketing, particularly as they relate to the New Jersey banking market. The first one is the old tried-and-true approach to growing a bank by opening offices in emerging growth markets.
The reality is that in New Jersey there are no potential emerging growth markets left. The often-quoted statistic that New Jersey is the most densely populated state in the United States bears that out. Not only is there no more room for more people in New Jersey, most municipalities are fighting hard to limit new growth.
That reality means that in order to establish and grow a new banking office, be it a branch of an existing bank or a new charter, one has to “steal” market share. The former reality of putting an office in the right growing geographic market (along with several other banks), which results in immediate deposit and loan growth for all banks in the market as the population explodes, is no longer a winning formula for success.
No Hidden Locations
What about another marketing staple of new office success, which says that in order to have a successful banking office you have to find the single best location, at the highest visibility corner that has easy access and egress, and plenty of parking? That is still a winning formula, however, in reality, there are no hidden locations that every bank and marketing company hasn’t already discovered. There are no “AAA” bank office locations hiding under a bushel barrel just waiting to be discovered.
These challenges to opening either a new bank or branch mean that bankers have to fall back on some new ways of growing a franchise based on some oft-overlooked truisms. Like the famous campaign statement of Bill Clinton: “It’s the economy, stupid!” in the banking arena: “It’s the people, stupid!” Banking is all about people: customers of course, but also employees, directors and investors. It’s also about the network of all those groups. The Team Capital Bank model leverages that basic fundamental of building a business.
While Team Capital Bank does not have a holding company structure, each community bank that it opens is started with its own board of directors drawn from the local market, investors from the market and a team of local bankers who have built a reputation and following in that market. For example, Team Capital Bank currently has three banks in the group: Bethlehem and Doylestown, Pa. and Flemington. Each of these “community banks” operates as a Team Capital Bank office and as such, for regulatory purposes, are listed as branches of Team Capital Bank. From a governance standpoint, however, the structure is very different. Each bank has a board of directors of about 12 to 20 members and local investors of about 70 to 200 who are associated with the local directors or operate a business in the local market.
The Team Capital Bank model enforces another common sense, but all too often overlooked requirement, that anyone who wanted to be an investor or director had to commit their banking relationship to Team Capital Bank, both personal and business. Since the original capital offering was a private placement, anyone who didn’t see the wisdom of moving their profitable banking relationship to the bank in which they were investing wasn’t invited to be an investor. By establishing this governance structure, Team Capital Bank hopes to grow significantly over the next several years while maintaining the local bank flavor and culture of each of its “community offices,” which are supported and run by local directors and investors and bankers.
Another mandate of the Team Capital Bank model is the staffing requirements of each community office. There are no tellers in any of the offices! That doesn’t mean that a customer can’t come into an offices and cash a check or make a deposit, but when they do, they are asked to be seated in a personal banking officer’s private cubicle, where the simplest to the more complex transaction can take place in comfort and privacy. Every customer-contact banker in each of the offices has been a well-known banker in the local market before joining Team Capital Bank. They are experienced bankers – most with a minimum of 15 years in the banking industry. An experienced banker serves every customer, regardless of the size of the transaction or the size of the relationship.
Even though Team Capital Bank’s community banking model provides for high-quality, high-touch, personal banking, because of the timing of its opening, it was able to open its doors with the latest in technology for its delivery systems. “Technology when you want it; people when you need them!”
One of the most important innovations was the implementation from day one of the remote capture machine to handle customer deposits from the customer’s location. No need to come into the office. Deposits can be scanned up until 5 p.m. everyday and the customer receives same-day credit and next-day availability for all their funds. Since there were no legacy systems to change or integrate, Team Capital Bank began offering the machine to all its customers. Because of the model, the customers were all known to the bankers and were for the most part directors and investors, thus minimizing the risks associated with this new technology. It has been a resounding success and has enabled the bank to sign up accounts without regard to geographic location.
With limited banking offices, the use of technology like remote capture, online banking and telephone access to experienced bankers when customers need them, Team Capital Bank has taken off. At its second anniversary, the bank had grown to $230 million in assets and had already produced several break-even months. It is currently in the process of opening a forth community bank in Somerset County using the same model. Five directors, all from the local Somerset County market, have joined the board and have begun contacting investors who will participate in another secondary capital offering to raise $4 million to $8 million in new capital. While capital is always important, with over $35 million currently supporting the $230 million company, the need for more capital could be questioned. The main reason for the new capital is to give local directors and investors in the new Somerset market an investment in their new bank. This will reinforce their decision to move their banking relationships to the new office. By attracting the right 70 to 80 investors in a market, an office could easily start off with $30 million to $40 million in deposits and grow from there as the network expands.
With a target of six community banks, each with assets of $150 million to $250 million, Team Capital Bank feels it will be in a strong position when it reaches the $1 billion level to address the liquidity problem many small community banks face. By reaching $1 billion in size, they hope to take their private company public and generate the liquidity needed to continue to satisfy investors. The challenge is to maintain the local governance by local people of each community bank and grow each community office to the target size without the need to expand through expensive traditional branches. If the model works, it will be a formula based on traditional banking truisms of local people running the local bank, leveraging the network of the right kind of banking customers but utilizing technology to grow and succeed.
Stephen T. Emr is president of Team Capital Bank. He can be reached via e-mail at firstname.lastname@example.org.