How three banks expand revenue streams: spanning borders, offering phone-charging stations, and focusing on intangibles.
By Susan Thomas Springer
What strategies kept banks successful in 2016? The paths to prosperity are as varied as the communities they serve. These three-high performing banks have stayed true to their roots while reaching new revenue streams by being innovative and harnessing technology.
Find Blue Ocean
One bank discovered a profitable niche market by reaching beyond traditional geographic borders.
Government-guaranteed lending, where the Small Business Administration, U.S. Department of Agriculture or Farm Service Agency alleviate loan risk to small business owners who may not qualify for a traditional loan, allowed Almena State Bank to expand farther than its headquarters in Almena, Kan., where 400 or so people live.
This 80-year old bank, with only 28 employees, owns two airplanes that fly several days each week to meet potential customers and conduct follow-up visits. The bank expanded its market this way about five years ago, when the economic downturn made it clear growth was needed while avoiding risk. Almena State’s leader calls it a profitable tool.
“We don’t do a lot of marketing now because word travels in the business world – it’s amazing,” says Shad Chandler, chairman and president.
Almena State, $82 million in asset size, now provides loans to hospitality, farming, ranching and commercial clients around Texas, Missouri and Oklahoma. Technology enables these far-flung customers easy access to remote capture services and quick communication. In addition, the bank serves local customers in two locations. These services are ably managed with a top-notch team of employees since the bank’s small communities are progressive small towns where young people want to raise families.
“We have a strong incentive program and great employee retention,” says Chandler. “Everyone knows we’re at a disadvantage in the whole scheme of banking because we’re small — so we have to do it better.”
Chandler says one point of differentiation is that when customers call his bank, they talk to a real person. And when they call back in two years, they’ll probably talk with the same person.
Chandler sees a bright future. He’ll continue to manage capital and growth because he has no plans to go public. His team is watching for the day interest rates rise.
“An increase in rates should have no effect to our interest margin because we don’t do long-term fixed- rate lending – and if we do we hedge our liabilities,” say Chandler.
Based in Brooklyn, N.Y., Dime Community Bank has operated in the New York City area since 1864. Yet it has changed with the times as the community transformed from crime-ridden in the 1970s to a hipster haven today. With $5.6 billion in assets, Dime has 25 locations with three new branches scheduled to open in 2017. Today’s customers “carry their banks around with them in their pockets,” says President Kenneth Mahon, which is why one new branch features phone-charging stations and a coffee counter.
Dime, which did more than $1.5 billion in multifamily loan originations last year, is one of the largest multifamily lenders in the New York City market. While regulators may become concerned about risk in a bank with more than 300 percent concentration in commercial real estate, Dime has been several times higher than that for almost 20 years.
“Our view is that New York City multifamily loans are not really commercial real estate,” says Mahon. “It’s a residential loan.”
The typical Dime loan is a pre-war building from 10 to 40 units, some of them rent-regulated. There may be retail on the ground floor but most of the income is from the residential portion. This asset class has been profitable niche because it takes fewer people to originate a $1.6 million loan than it does a paper-intensive single-family loan.
“The keys to Dime’s profitability are twofold. It’s low operating expenses – you’ll see our efficiency ratio is below 50 percent – and the other is low credit cost,” says Mahon, who adds non-performers are practically zero.
Dime has offset the expense of staying current with cybersecurity by avoiding lavish headquarters and maintaining a fairly flat organization chart.
Technology enabled a big boost to the bottom line when the bank launched the DimeDirect Money Market Account in 2015. Promoted online, it features fast, automated account opening. Dime has lured deposits from across the county with its annual yield of 1.1 percent, one of the highest in the United States.
“Suddenly, a lot of people clicked through and opened accounts,” says Mahon. “It’s been a substantial part of funding our growth — more so even than bricks and mortar.”
Looking ahead, Mahon is focused on bringing the best employees into his growing organization. Human resources is identifying key characteristics for new hires to find the right fit and maintain the friendly working environment of a smaller bank.
Since Choice Financial was formed in 2001, the bank has grown through mergers and acquisitions to 19 locations in North Dakota and Minnesota, with $1.15 billion in assets and 230 full-time equivalent employees. Choice’s focus is business, commercial and agriculture, although it offers a wide array of products including consumer loans.
The bank has thrived through change thanks to its strong employee culture which includes balance between work and family, plus active community support such as the recent Swipe Out Hunger debit card program, which raised $40,000 for food banks.
“We tend to focus on the intangible things that we can bring to communities and customers to make their lives better and build our business at the same time,” says Brian Johnson, CEO of Choice Financial, headquartered in Fargo, N.D.
New employees are oriented at the Choice University, a program the bank developed to instill core values and teach a common language. Choice places employees in jobs according to their strengths rather than spending time trying to improve weaknesses. And because employees are spread out across two states, Choice increased the feeling of connection by installing video conference rooms where employees “can see enthusiasm and body language.”
Johnson says mergers and acquisitions often fail to live up to expectations, partly because it’s hard to merge people with different habits. Instead, his organization has prospered by embracing change as an opportunity.
“Hire people that buy into that culture and don’t fall in love with their desk and their title because we want to be an organization that’s progressive,” says Johnson.
Choice’s growth includes bringing wealth-management advisors, commercial insurance agents and a health benefits company on board to broaden the financial products available to customers.
Johnson recently served a three-year term on a community advisory board with a regional Federal Reserve Bank, where he participated in discussions on how to defray regulatory and technology costs for banks in the Midwest where the population is sparse compared to the coasts. Technology, which “the customer expects for free,” may not play direct into profitability yet grows the brand with the customer and makes bank an attractive partner for a merger.
“These costs and burdens force us to keep getting better and building bigger,” says Johnson.
Susan Thomas Springer is a contributing writer based in Sisters, Ore.