Community banking

Banks are no different from other businesses — open to acquisitions and consolidations. Big entities are getting larger, and mid- and small-sized outfits are suddenly wearing new colors and being called different names.

This isn’t all bad.

Consolidation clears room for new startups — niche banks that are smaller in scope, target specific regions and cater to small and growing businesses, says Craig Johnson, president and CEO of Franklin Bank in Southfield, Mich. “There are a number of startup banks over the years that have taken a fair amount of market share away from bigger players by nibbling at their heels,” he says.

Smart Business spoke with Johnson for insight on community banking and what factors business owners should consider before opening accounts or applying for loans with any bank.

How does consolidation affect the customer — the business owner?
The perfect example in our market here is Standard Federal Bank, which was a very large bank and changed its name to LaSalle. Bank One is in the process of changing its name to Chase. Along with the name changes come policy, procedural and people changes.

Some customers decide the new organization isn’t the route they want to go, and as a result, many small business owners look for a community banking environment to do business.

How do consolidations affect business owners?
The general feeling is that as banks get bigger, they become less customer-focused. Certain functions get centralized outside the area. You hear it often — the ability to talk to someone becomes more difficult.

Business owners like to be able to go into their branches or call branches directly, and as banks get bigger they have centralized call centers. They almost discourage customers from calling branches directly. Thumb through the Yellow Pages and see how many banks have direct dial lines to branches. Many of them list 800 numbers instead.

What are advantages to working with a large bank, a national name?
Larger banks do bring a breadth of products and services to the market that many smaller banks economically can’t provide unless they enter a partnership agreement, typically with a larger bank. They may have a corresponding relationship with a larger financial institution that allows them to do such things as international banking.

What does community banking mean, then?
Typically, (community banks) are banks with assets up to $1 billion. You might call super-community banks those with assets up to $10 billion.

The argument many community bankers make is that they know their communities better than regional banks. Their decision-making for loans or other services is are local. The bigger regional banks have localized a lot of that, too. But some will say that in smaller, community banks, if a customer has an issue, he or she can walk into the president’s office and talk with the ultimate decision-maker. That is difficult to do in a large, regional bank, as decision-makers tend to be insulated within the field.

When are community banks best for business owners? And when should customers think big?
At a certain point, a business owner may outgrow community banks. But in a business’s infancy and as it grows, it is probably better served by starting out with a community bank because the owner can be closer to the decision-makers.

How can a business owner choose a bank?
Talk to two or three banks and get a feel for their philosophies. Talking with them in person will give you a good sense of their customer orientation. Can you talk to someone quickly who is knowledgeable about the products you are inquiring about?

Take time to research this decision, and take a look at convenience. Where is the bank located? What hours are they open? Do they offer niche services like courier? Do they have an Internet product that makes sense for you?

Then get down to fees on accounts. What are they charging on their deposit accounts, and what are their loan rates? Cheapest is not always best. You really need to pick a bank that will fit your needs today and as you grow, and that may not be the one with the least expensive fees.

Craig Johnson is president and CEO of Franklin Bank in Southfield, Mich. Reach him at (248) 386-9860.