After 13 years of doing business with one of Cincinnati's largest banks, Robert and Judy Heaton switched to a smaller bank.

        The Evendale couple, owners of a vending company, shifted after the bigger bank bought another large bank. The Heatons said that shortly afterward they were treated like numbers rather than good customers.

Jerry Robinson, chairman of Spring Valley Bank, says his company has found a niche lending to entrepreneurs. (Dick Swaim photo) | ZOOM |

        That was a major loss for the acquiring bank, as the Heatons had multiple relationships — including checking, investment and business accounts — with the entity, a crucial element for banks of any size.

        The last straw came when the couple began getting hit with rising bank fees, had trouble finding answers to basic questions and started dealing with bank employees they never met.

        “It became a very frustrating process because you suddenly felt like you we're not being treated properly, though they've handled our money for years,” Mr. Heaton said.

        The couple recently turned to a major brokerage to handle their investments, another bank for mortgage, savings and checking needs and shifted their company's business to a smaller bank.

        That bank — Spring Valley Bank in Wyoming — is among four smaller banks that have popped up in Cincinnati since 1995.

        But industry observers expect many more smaller banks to open in the Tristate in the next few years, following a growing U.S. trend.

Cottage Savings Bank will open soon on Montgomery Road. Officers include president Barb Farris, director Hank Schneider (center) and senior vice president Rick Yeager. (Michael Snyder photo) | ZOOM |

        The reason: Former bank executives are finding gold in serving consumers and entrepreneurs frustrated by multibillion-dollar bank mergers and offering them personalized services in targeted areas.

        “I wouldn't be surprised at all to see another 10 open here in the next five years,” said James Gudmens, a Fifth Third Bank veteran who now runs Anderson Bank in Anderson Township. “There's a real need for these, and some people are starting to see that.”
       

Rash of mergers

        That's prompting organizers next month to open Cottage Savings Bank in Montgomery, hoping to offer personalized banking services to businesses and consumers in northeastern Hamilton County.

        The bank's debut also has attracted Main Street investors hoping to make a profit. Cottage Savings projected it would initially be capitalized with $5.5 million the organizers planned to raise in a private stock offering with a termination date of Jan. 31.

        But organizers extended the date to raise a maximum of $7 million in capital, largely fueled by the initial offering's success. The private stock placement is expected to close by month's end.

        “It went better than we expected so we're going for the maximum,” said Barb Farris, who will serve as the bank's president. “They (investors) see how well the other de novo banks have done, and they apparently see this as a good investment.”

        Cottage Savings, like other startup Tristate banks, hopes to profit from a void created by a rash of mergers of financial institutions that have left individuals and businesses with fewer community banks. Many customers feel intimidated by large banks and fewer banking options.

        Seven of the Tristate's largest thrifts have been bought since August 1998, leaving many neighborhoods with larger banks handling most of the money in those areas.

        “That would suggest that Cincinnati is ripe for these (startup) banks because there's a certain segment of the population that prefers smaller institutions,” said Ron Riggins, managing director at RP Financial, an independent financial-services consulting firm in Arlington, Va.

        He said most startup banks blossom because they identify with a particular customer base in a given area. For example, he said, such an entity might target smaller businesses that need financing that's harder to get at larger banks or can offer personalized banking products that appeal to consumers in a geographical area.

        That is precisely what's helping Spring Valley Bank in Wyoming win business, increase revenues and boost profits.
       

Found a niche

        Jerry Robinson, also owner of Cincinnati Gardens, started the bank 3 1/2 years ago after rounding up $5 million in capital from investors, meeting regulatory requirements in Ohio to open the bank.

        He said Spring Valley has a found a niche lending to entrepreneurs. The bank mainly serves companies seeking loans of $100,000 to $150,000. Larger banks often find it's not as profitable to handle loans less than $1 million.

        Whatever the reason, it's helped Spring Valley grow. The bank now has assets of $33 million, up from $18 million in 1999. Mr. Robinson projects that the bank will make $800,000 this year, up from $600,000 in fiscal 2000 and $100,000 in 1999.

        Mr. Robinson estimates that 75 percent of the bank's revenues come from businesses, with the rest from consumers.

        “We have a lot of repeat business and from word of mouth,” he said. “For example, we have a lot of customers who buy foreclosed property and come back to us when they move to other projects.”

        Mr. Robinson said that while he's comfortable with Spring Valley's growth, he wants to grow more. He said the bank could do that by acquisition, targeting other smaller banks or thrifts in the Cincinnati area with assets between $10 million to $50 million.

        He said such deals would allow the bank to apply its primary culture — real-estate financing — to the acquired entity. And Spring Valley would still be a small player as banks with $500 million or less in assets are considered community banks by industry standards.

Key difference

        In contrast, Anderson Bank gets about 50 percent of its business from individuals and 50 percent from businesses, largely because of the bank's attachment to the community.

        Mr. Gudmens said the bank's profits last year reached about $366,000, up from $142,000 in 1999. He said assets grew to $39 million from $31 million, while deposits rose to $33.4 million from $25.3 million in the same period.

        He said a key difference is the bank offers personalized services that set it apart from competitors.

        For example, Anderson Bank last year hired well-known Cincinnati banker Joe Hughes, most recently chief lending officer and executive vice president at Centennial Bank before its parent company was acquired two years ago by the parent of Provident Bank.

        Mr. Gudmens notes Mr. Hughes is a longtime Anderson resident who people know and is involved in the community by doing such things as sitting on the Anderson High School Booster Board.

        “He's brought a lot of business into the bank,” Mr. Gudmens said. “Having people like that that people can recognize and identify with makes a difference.”
       

Competitive factors

        But even with the growing popularity, it won't necessarily mean instant profits for the smaller banks or guarantee that they will continue to pop up like mushrooms.

        One reason, particularly in Greater Cincinnati: They're competing against some of the best-run, most aggressive and well-capitalized banks in the country, also eager to pick up customers.

        Another blow for smaller banks is they don't have the capital to offer convenience — for example, multiple branches, Internet banking and financial products such as insurance coverage. Mr. Riggins said that can make them less appealing to individuals and businesses.

        He also said it now costs about $10 million to $15 million for investors to launch a bank, well above the $5 million regulatory requirement in states such as Ohio. Higher technology and marketing costs have raised the expense.

        “The hurdle rate for capital is higher than before, and the competitive factors certainly have changed, so we'll see,” Mr. Riggins said.
       

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