Saturday, June 10, 2000

A bank for just folks

Peoples aims for disenchanted

By Jeff McKinney
The Cincinnati Enquirer

Jerry D. Williams, Thomas J. Noe, John E. Rathkamp
(Tony Jones photo)
| ZOOM |
        Thomas J. Noe figures that there could be no better time to launch a folksy bank.

        Though the Tristate is viewed as one of the nation's most competitive banking markets and the number of thrifts is dwindling, Mr. Noe and two other executives next month will begin marketing a folksy, community bank to go after people tired of bank megamergers.

        The company, known as Peoples Community Bank, will cater to people who prefer smaller community banking services; who are tired of multiple banking fees; and who don't want to deal with the larger banks that have gobbled up other community banks or thrifts in recent years.

        Peoples Community sprouted last month after Peoples Building, Loan and Savings Co. of Lebanon merged with Cincinnati's Oakley Improved Building and Loan. The two mutually owned thrifts then converted to a public company and paid $17 million in cash and stock to buy Harvest Home Financial Corp., parent of Harvest Home Savings Bank of Cheviot.

  • Headquarters: Lebanon.
  • Chief executive: Jerry D. Williams.
  • Employees: 35.
  • Primary business: Real estate lending, including home purchase, refinance and construction lending.
  • Branches: Lebanon, Blanchester, Oakley, Cheviot, Mack and North College Hill.
  • Assets: $300 million.
  Peoples Community Bank, formed in March by a unique public offering, merger and acquisition among three Cincinnati thrifts, has ambitious plans. A brief look at some:
  • Invest $3 million to build new administrative headquarters in West Chester to centralize the companies' main operations. Work has begun, and it's expected to open next spring.
  • Invest $2 million to open full-service branches, one in Maineville near the River's Bend development and another at an undetermined site in North Lebanon. They're expected to open by next summer.
  • Launch an extensive survey this summer to learn what products and services existing and potential customers want. Goal: Determine how the bank can differentiate itself from rivals.
  • Launch a $50,000 marketing campaign to sell its expanded products and services, including offering special promotions at this year's Homearama event in Warren County.
        The merger, the first of its type in the nation's thrift industry, is worth about $30 million. It will create an entity that will serve residents and businesses in Hamilton, Warren and Clinton counties.

        The combined institution initially will have assets of about $300 million and branches in Lebanon, Blanchester, Cheviot, North College Hill, Mack and Oakley, with about 20,000 customers.

        More important, it hopes to grab market share from some of the Tristate's banking powerhouses, such as Fifth Third and Provident. How? By primarily catering to dissatisfied customers of acquired thrifts who prefer the so-called homey, personal-service approach that community banks pride themselves on.

        In the last decade, some of the Tristate's most recognizable thrifts — including Hunter, Suburban Federal and Gateway Federal savings banks — have been gobbled up by big banks. Four of Cincinnati's 10 largest publicly traded banks have been bought since 1998. Three of those — Centennial Bank, Oak Hills Savings and Westwood Homestead Savings Bank, all west-side entities — decided to sell just last fall.

        While the deals cultivate more customers for buyers, many consumers also fear that they will bring higher fees as fewer players remain.

        “We believe there's a niche of people we can cater our services to, and we're hearing from many of the customers of the thrifts that were bought by larger banks,” said Mr. Noe, a director, senior vice president and chief financial officer of Peoples Community Bank.

        But industry observers and bank executives contend that the new company has a tough task ahead. In fact, they say it will be hard for Peoples to crack Cincinnati's supercompetitive banking market, persuade consumers to change where they bank, and offer new products and services and keep expenses in check after starting up a company.

        Indeed, Cincinnati's four largest banks — Fifth Third, Provident, Firstar and PNC — control 60 percent of the area's consumer deposits and are the largest lenders to local businesses.

        Still, the launch of entities such as Peoples could be prove to be enticing, largely because it follows a growing national trend.

        Many community banks have popped up in places such as Washington, D.C., the Southeast and Pacific Northwest, where there have been brisk acquisitions of smaller banks or thrifts by big banks, said Ron Riggins, managing director at RP Financial LC, an independent financial-services consulting firm based in Arlington, Va.

        He said community bank executives start their own operations after getting feedback from former customers of savings and loans who feel alienated.

        “It's very intriguing because we've seen some of these institutions build a nice customer base just from that niche,” Mr. Riggins said. “The jury is still out on how successful these will be, but it should be pretty interesting.”

        Mr. Noe is a seasoned banker who helped the parent of Enterprise Federal Savings Bank two years ago fetch a $33 million premium over its market value when the thrift was acquired by Fifth Third for $96 million. He thinks he and his team are up to the challenge.

        Mr. Noe said Peoples Community Bank will focus on unhappy consumers.

        He said the alliance hopes to win business by offering consumers and businesses personal service and lower fees than its larger rivals, and by aggressively selling products and services that sometimes disappear when larger banks acquire smaller ones.

        For example, Peoples Community Bank plans to offer free checking and savings accounts to individual and business customers, a first for Peoples and Oakley Improved. Other services Peoples might offer to set it apart include:

        • No monthly service fees on checking accounts.

        • Free first order of checks.

        • No points or title insurance on home loans.

        • Retaining and servicing the loans it generates rather than selling the loans on the secondary market.

        “We'll be offering an expanded menu of checking and savings accounts to help lower our costs of funds, instead of just CDs, the three companies' main source of funds in the past,” Mr. Noe said.

        He said 75 percent of the bank's loan portfolio will be home mortgages and 25 percent will be loans to businesses, primarily construction loans.

        Mr. Noe said the bank will make money the old-fashioned way: the difference between what it charges on loans and pays on deposits.

        He also said he's confident that Peoples can survive and remain independent. Many thrifts have been forced to sell in recent years because of pressure from investors who demanded higher returns.

        Mr. Noe estimated that Peoples will be able to initially offer investors an annual return on equity of 10 percent to 12 percent, compared with an industry average of 8 percent for most thrifts.

        “We could never say we won't sell, but we really don't have any intention to,” Mr. Noe said. “We have a game plan that we think will work and give our investors the type of returns they expect.”


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