30 Years: Financial
Relationship Banking is the Key to Weathering Economic Ups and DownsStanding the Test of Time
Relationship Banking is the Key to Weathering Economic Ups and Downs
By Jason Dehart
Recession. Gas lines. High inflation. Reaganomics. The savings and loan collapse. Bank mergers. Gulf War One. 9-11. Wars in Afghanistan and Iraq. The real estate boom goes bust. Government bailouts. More recession. The last 30 years have been a rollercoaster, but through it all your friendly neighborhood Tallahassee banks and credit unions haven’t changed – at least in one important aspect.
“From 1978 to today, banking has changed, but let me tell you how banking has not changed,” said Alejandro “Alex” Sanchez, president of the Florida Bankers Association. “It’s still a personal, people-to-people profession.”
“The nature of small business tends to be such that a personal, ongoing relationship with a bank and a banker can help that small business grow and can typically meet financing needs that might be difficult
for a larger entity that doesn’t have local decision making,” said Matt Brown, president and CEO of Premier Bank.
“I really do hope we haven’t changed,” said Bill Smith, chairman, president and chief executive officer of Capital City Bank Group, founded in 1895 and perhaps the oldest continually operating family of banks in town. “I think it was, and still is, a very personal business. We work around the mantra that we want Capital City to be more than your bank, we want to be your banker.”
“Go back to the ’70s and ’80s, and everybody in the community knew their banker,” said Sammie Dixon Jr., chief executive officer of Prime Meridian Bank, which opened just this past year but is managed by a team of longtime community bankers.
Dixon said that changed in the 1990s as competition among banks increased and “everybody was just trying to grow as fast as they can.”
“Over the last 10 years, nobody had a banker – they had a bank that they went to. You never really spent the time to get to know the banker,” he said. “Now, all of a sudden, we’re talking about credit tightening. All of a sudden it’s important again to know your banker, so you can sit down with whoever your banker is and plead your case.”
Kathy Jones, Prime Meridian’s executive vice president and chief financial officer, said advances in technology can’t replace human interaction.
“Relationship banking has always been head and shoulders above transactional banking,” she said. “And I think that’s where community banking has a leg up on everybody else. We really do know our clients and can help them grow.”
“Our customer and community have a voice in the way we do business,” Brown said. “In the case of Premier Bank, the foundation of our bank is the Golden Rule, and it’s not hard to hold us accountable to that when the decision makers and owners live in the community.”
That sentiment is shared at Florida Commerce Credit Union. Like banks, the number of credit unions has grown significantly in Tallahassee.
“Personal banking has always been the core to the credit union movement,” said Mary Estes, the chief operating officer at Florida Commerce. “Today, the access has expanded to many electronic channels, but our members love knowing they can come in and talk to local decision makers.”
“Even with all the technology, it’s still about a banker getting together with that small business owner, reviewing his business plan and helping dreams come true,” said Sanchez of the bankers’ group. “So banking has not changed, because the human element is still key to every successful banker and to every community that is prospering and growing.”
One more thing that hasn’t changed, according to Sanchez, is the Federal Deposit Insurance Corporation (FDIC), which was founded in the Great Depression to protect customers’ money from bank failure. The safety and soundness of that backup continues to provide peace of mind.
“Since FDR signed that into law, not one penny has been lost in an FDIC bank account,” Sanchez said. “Today, the customer can keep insuring up to $250,000 (thanks to the Emergency Economic Stabilization Act of 2008).”
Technology Changes Banking
Thirty years have passed since the drive-through teller and automated teller machines were the big innovations in personal banking. Nowadays, of course, customers don’t even have to leave their living rooms or offices to make transactions.
“You have … ATMs,” Sanchez said. “And the convenience of being anywhere – on a cruise line, FSU football games, virtually anywhere in Leon County – and you need access to your money, you have access.
Their usage grew because as the convenience grew, it’s now a normal course of what every consumer expects. So that has changed banking tremendously.”
Estes said 25 or 30 years ago, technology was epitomized by a fast calculator and banking software that could display the member’s account balance.
“Technology has driven the changes we’ve seen in financial services over the last 25 years,” she said. “Instant, detailed account information, innovative products and the access consumers have to their money are just some of the ways technology has driven financial services.”
Back then, Estes said, loan applications used to take hours to input and review and a week just to get approval.
“Today, many online applications provide instant decisions to applicants,” she said. “It’s easier than ever for consumers to make comparisons if they want to, with most financial institutions having a wealth of information on their Web sites.”
Sanchez can relate to how hard it was to access one’s cash when away from home. When his family went on vacation back in the 1970s, they needed cash. So the only way to do that was to go inside and have the bank call the bank back home to OK the transaction.
“That would never happen today,” he said. “Because with an ATM card you can withdraw money in downtown Tallahassee or downtown Madrid. Instantaneously.”
“Consumers have less and less free time, so convenience and service are key to them,” Estes said. “They want more convenient locations and electronic access to their account information, whether by using a debit card, online banking services, or completing transactions and receiving account alerts on their cell phone.”
Human Behavior Changed, Too
Technology is only part of the equation of change. Borrowing habits have changed as well. Our fathers and grandfathers hated loans; they would save their money and buy large items such as automobiles with cash. Thirty years ago, it was common for people to save their money so they could have equity when they had to borrow money.
“You know, we saved and saved and saved until we had 20 percent down to get into our first home,” said Prime Meridian’s Jones. “I think (equity) will come back. But there is a generation or two of individuals who only knew leveraging and borrowing as much as you possibly could. Because that’s the environment in which they grew up.”
“Today, people want to be able to go out and buy something but not put anything down and just pay it off over time,” Dixon said.
Banks began competing for that 100-percent-financing business, according to Chris Jensen, Prime Meridian’s president and senior lender.
“Because of competition … I think the industry got lax,” he said. “They felt like, ‘Oh well, I’ll finance 80 percent,’ but if a client goes to another bank and said they’ll do 90 percent, we start playing against each other. And that leveraging gets greater.”
Dixon adds that over the years, banks have put decidedly more “skin in the game” than those doing the borrowing. As a result, they have to mitigate their greater risk by asking for more information, and seeing more of a potential customer’s “financials” before moving a single dollar.
“So what’s happened over time is individuals used to mitigate that risk for themselves,” he said. “It’s gone from ‘I need to earn X’ to ‘I deserve Y.’ That’s the biggest shift, not just in the banks, but in the environment.
That’s the socioeconomic mindset of people. Everybody wants it right now. Well, when I lend money out, I’m not lending out my equity. I’m lending out my depositor’s deposits. So we have to be very careful. We have to be able to mitigate the risk in order to risk someone’s dollars.”
Longtime banker Fred McCord, former president and CEO of Barnett Bank of Tallahassee, has made another observation that ties in with this new mindset: Debt seems to be perpetual for some borrowers.
“One big change is credit granted on second mortgages, and as a result you don’t have the loan traffic you had years ago,” he said. “Borrowers are using revolving credit more than they are using credit cards.”
Challenges Then and Now
Estes, of Florida Commerce Credit Union, said that unless you go back to the Great Depression, the current economic and banking crisis far outstrips anything we’ve seen before – and that includes the savings and loan crisis of the 1980s.
“The government is not just taking financial institutions into receivership and selling off assets; it’s buying the assets and taking an equity position in banks to provide much-needed liquidity relief in addition to the assistance with troubled loans,” she said. “The megabanks of today got that way through mergers and acquisitions. They’ve now become too large to let fail, regardless of the risks they assumed. What’s disturbing is that the government has given no indication they want to curb that trend.”
Bankers aren’t all about making a profit for their shareholders. They’re about creating an environment in which their community can grow and thrive, according to Capital City’s Bank Group’s Smith.
“Historically we’ve done that by providing capital for businesses to expand,” said Premier Bank’s Brown. “We provide …analysis of small-business financial performance, their strengths and weaknesses, and with their CPA and attorney, critique their business plan and strategies for the future, (and) advise them of opportunities and dangers that we see in the local economy.”
“I would hope that Capital City has been a big part of helping the town grow – whether it be financing homes or businesses, that we have enabled our town to prosper,” Smith said.
Smith said that when it comes to promoting growth, he has noticed two separate mindsets in Tallahassee. There is the not-for-profit mindset of state government and education, and the for-profit mindset of businesses looking to create tangible wealth in their community.
“For those who work for government and education, they have to accumulate wealth in some other way other than having their business grow and owning a piece of it,” he said. “They clearly help our community grow – and I want to make nothing but compliments about the fact they help our community grow. They are the big drivers of this economy.”
Dixon agrees – universities and state government provide not only a great economic driver but stable paychecks as well.
“If you’re going to have an elephant in the room, the best elephant to have is state government,” he said. “In addition to that, we have what I call the three universities – we really only have two, but look at Tallahassee Community College and its 10,000 students. So those two entities – government and education – are two huge elephants in the room that help stabilize our economy.”
And while those big economic drivers help in their own way, Smith said for-profits drive a different kind of growth that also is necessary.
“We want new development, new opportunities for our children to have jobs and stay here,” he said. “Whether they want to teach in our school system, or whether they want to be great public servants. We want them to have opportunities, and those opportunities are afforded to us by the fact that we continue to grow and prosper as a community. We need start-ups like 850 Magazine to prosper, because 850 is employing some people today who weren’t there yesterday. But it’s got to make money in order to do that.”
One Final Analysis
It may seem like the proliferation of small community banks happened as a result of a backlash against megabanks, but Premier Bank’s Brown said there are other reasons for their numbers – at least in the Sunshine State. Florida’s growth, fueled by a wild real estate industry, “created an opening for new banks to come in and grow more quickly than they had in the past,” he said.
“The other part is that some bankers across the Southeast in particular, as their banks were purchased by larger banks, felt a need to start a new bank to restore that local decision making,” Brown said.
However, Brown predicts there will be more bank consolidation in the future as small banks cope with rising operational costs.
“Yes, I do believe that as a result of the recent economic issues, particularly the impact of real estate on Florida banks, we will see more consolidation of banking over the next couple of years,” he said. “And I also believe that because of the cost of delivery of service, I would not be surprised to see banks who are friendly with each other form some consortium or service company to deliver basic back-office services to reduce cost.”
From the Pages of Tallahassee Magazine
Banking Through the Years
Despite the 13 percent inflation rate of the early 1980s, coupled with an oncoming recession, there was a certain amount of optimism in Tallahassee at the time. “Economic Growth Means No Slowdown Here,” says a story headline from the Spring 1981 issue of Tallahassee Magazine. Story author Lee Narr writes, “Despite the problems of inflation and recession which seriously disrupted the economy in most of the nation and many parts of Florida, 1980 turned out to be a generally good year for the Tallahassee area.”
Narr points out the following indices as proof: Tallahassee continued to be the sixth-fastest-growing metropolitan area in the United States; the local unemployment rate was 4.3 percent, the lowest in Florida at the time; Tallahassee had the fourth highest family income rate in the state; and the area’s economic growth was stimulated in part by the announcement that two major firms – Robbins & Myers Inc. and Westinghouse – would build new manufacturing plants here. (Today, however, you won’t find those names anywhere in town.)
Along with this economic growth was the community’s cadre of banks. In 1979, the top 10 banks in Leon County (as listed by the Tallahassee Chamber of Commerce) were First National, with $139.5 million in resources; Barnett Banks, with $126 million; Lewis State, with $67.9 million; Florida State, $30.4 million; Flagship Peoples, $27.2 million; Industrial National, $22.5 million; City National, $20.2 million; Southern Bank of Tallahassee, $18.3 million; Second National, $16.9 million; and Ellis National, with $12.8 million in resources.
Since then, banks have spread like wildflowers across the Tallahassee landscape. Today, you’ll see the names of more than 40 different banks, financial institutions, personal and home loan offices, and hundreds of branch offices and ATM locations.
In the November-December 2001 issue of Tallahassee Magazine, an ad for SunTrust discusses how much its business had grown nationally in 110 years. “We’ve added more than 1100 branches, 1800 ATMs, Check Cards, 24/7 Internet banking and hundreds of new products and services,” it reads.
A Premier Bank ad in the November-December 2004 issue of Tallahassee Magazine announces the opening of six new branches.
In that same issue, Peoples First makes its case for customer loyalty with the ad headline, “Banking With Us Is Like a Day At the Beach.”
Other banks have been quick to use widely recognized local landmarks in their ads. In the November-December 1998 issue, Wakulla Bank runs a “double-truck,” or two-page, ad featuring a peaceful photo of the St. Marks Lighthouse at sunset, with the single-word headline “Watchful” in big bold letters. “The steady light in the storm,” the ad says. “The beacon that brings you in. The haven that means ‘home safe.’ North Florida ways are truths we take to heart.”
Even a name change would bring about an ad campaign, as was the case when SunBank started using the name of its parent corporation, SunTrust. In an ad from the January-February 1996 issue, the headline reads “Same Bank. New Name” above a photo of a distinctive SunTrust sign. The explanatory text reads, “Why the change? Well, for years now we’ve been part of the SunTrust family of banks. And with six different names in four states, it only made sense to begin using our corporate name.”
Along with increased customer service came new ways for personal saving. In the early 1980s, the hot item in personal finance was the IRA – Individual Retirement Account. Those seemed to hold out promise for stable personal financial security. “During the past few months, America’s workers have been besieged with a marketing blitz urging them to invest in Individual Retirement Accounts,” Kristine M. Link writes in the Summer 1982 issue of the magazine. “The incentives to sign up are compelling … it’s easy to open an IRA … the biggest disadvantage to an IRA is that your money is theoretically tied up until you retire.”
Retirement was the theme of at least one ad promoting SunTrust. In the March-April 1996 issue, an ad warns of planning too late with the headline “Famous Last Words: “I’ll Get To Planning My Retirement As Soon As Things Slow Down A Little.” The timeless call-to-action text states, “Although retirement may seem a long way off, the sooner you start, the greater the potential reward down the road.”
In the January-February 2003 edition, a story about the history of Capital City Bank Group – Tallahassee’s oldest bank – states, “The Capital City Bank opened its doors in 1895 with one location, five directors and three employees. It has survived depressions, recessions, booms and busts, natural disasters and world wars.” Writer Dave Fiore adds that in 2003, the bank boasted consolidated total assets of more than $1.8 billion, with 58 offices in three states. In 2008, it has 70 offices. – Jason Dehart