Does Size Matter?

Bankers, Large And Small, Give You The Skinny On Questions You Should Ask Your Banker.

So you’re the owner of a business. Big bank, community bank, or something in between? What questions should you ask your prospective banker? We posed that question to several bankers: Chase’s Todd Ritterbusch, managing director Tarrant County, and Rena Nicholson, senior vice president and market manager; Comerica’s Fort Worth market president, Don Hellman; Southwest Bank’s CEO, Vernon Bryant; and Grant James, Tarrant County regional president of Community Trust Bank. “I think there’s a need for all of them,” says Bryant, whose bank is sixth in Tarrant County deposits with a 3.3 percent market share as of June 2014. “That’s what keeps all these communities going.”

Does my banker understand my business? Not surprisingly, all of our bankers recommended business owners ask this question.

“It’s about do I want to do business with a bank that knows the community and knows it well,” Bryant said.

His bankers are all highly experienced, he said. Southwest drilled roots in the community from the start, he said. When the bank opened, it sold stock to 437 local people.

“They had an incentive to bank with us, and they did bank with us,” Bryant said. “And they had an incentive to tell their best friends to bank with us, and a lot of those people bank with us.”

James, whose bank has the 20th largest Tarrant County deposit share at 0.67 percent, says his Fort Worth bankers are all local business people who grew up in the city. They hustle new business through networking and word-of-mouth referrals from clients, he said. “It’s very rare we make a cold call,” he said.

The questions he recommends business owners ask prospective bankers: “Do you have the expertise to handle my unique business? Is the banker I’m talking with formally trained to understand the other important characteristics of business enough to advise me? Are your products competitively efficient?”

Chase, through its mass, is able to provide a full array of services to business owners, from startup to large, Ritterbusch said. Chase has the largest deposit market share in Tarrant County, with 20.05 percent share.

The questions he recommends established businesses ask: “Does my banker understand my business? Does my banker have a clear understanding of my industry and its needs? How will they align their business with mine? Where are the lending decisions made? Who is providing the service to me?”

Comerica is positioned between the largest banks and community banks, carrying a full lineup of products and services but also the biggest Texas-based bank, with $69.3 billion in assets. Comerica has the eighth largest Tarrant County deposit share, at 2.2 percent.

The questions Hellman would ask: “Seek out the value a bank could provide to your enterprise. Can this bank help me grow? Do they have the creative loan structuring ideas to provide the capital I need? Is my capital structure sufficient to give me the liquidity I need? Owner-managed business should also consider how can a bank help me grow my personal net worth?”

Who makes the lending decisions, and where do they occur? Community banks say they have an advantage here, because they have simple decision-making hierarchy.

At Southwest, for example, front-line bankers have authority to make loans up to certain amounts based on experience, Bryant says. Two officers make decisions on loans of greater amounts up to $3-$4 million. A committee makes the decision on anything over that, up to the bank’s $40 million loan limit, he said. “We’re small enough to move fast,” he said.

Small lending limits are a limiter for many community banks. When Southwest was created, “I wanted to make sure we could be a primary banker for a lot of people,” Bryant said. “When you only have a $1.5 million lending limit, it’s hard to be a primary bank for a lot of people.”

Community Trust uses an automated credit approval system for consumer and business loans up to $1 million, one-signature approval by a regional credit officer for loans of up to $5 million, and credit committee approval up to $25 million, “which is our preferred hold limit,” James said. The bank has the legal capacity to go much higher, and will go higher for the right deal, he said.

Community banks follow the same regulations as money-center banks, but “what we have is flexibility,” James said.

“We can work through challenging opportunities and often find solutions because we look for acceptable ways to approve credit,” he said.

Of Chase’s decision-making structure, Ritterbusch says, “Chase bankers have broad lending authority here in Fort Worth without the need to seek approval outside the market.”

A small business owner’s relationship with Chase may begin at a branch and broaden from there, Ritterbusch said.

“As businesses expand, they often want a local banking presence across their entire footprint, not just their first location,” he said.

Comerica’s Hellman: “All of our local market managers have authority, and authorities vary based on line of business,” such as retail, small business, or middle market. “Turnaround is a key element of our success, and the approval process is seamless to our clients and prospects.”

Does my bank have a full array of technological and other products? At Chase, use of the bank’s mobile functions are up 54 percent on the western side of the Metroplex in the last year, Nicholson says. Chase touts a wide variety of mobile operations that customers can perform, including making deposits, transferring and wiring money, and paying bills.

“Our clients are looking to do business in innovative ways,” she said. “We give them the flexibility of time.”

Community banks have to make an extra effort to meet these needs, James acknowledges. His bank, for example, can handle payroll, treasury management, merchant collections, lockbox, foreign wire transactions, and other traditional commercial deposit services. Its mobile app allows remote deposits, money transfers, “pop money” sending and receiving funds via email and text message, and bill payments, among other functions. Southwest’s Bryant also touts his bank’s array of digital products and services, including online banking, bill pay, mobile banking, and remote deposit.

“There seems to be a wide disparity among community banks with respect to product offerings and the degree of product sophistication,” James said. “To be competitive, banks have to keep up with changing technology and be willing to pay for it.”

Chase touts its array of international lending and other services and wealth management as an advantage. “Fifty-seven percent of middle-market companies have some international business today,” Ritterbusch said. “Even small businesses are often buying and selling overseas.”

In Texas, Community Trust Bank doesn’t actively offer insurance and investment services in-house, but it makes them available through various affiliate relationships.

Will it cost more to do business at a community bank? While community banks may from time to time offer consumer loans at rates that are competitive compared to the big banks, big banks’ ability to fund loans with very low cost of deposit funds and package and sell big portfolios of consumer products gives them a very competitive edge in the consumer loan market, James said.

“Big banks today are flush with liquidity; they don’t pay much for deposits because they don’t have to,” he says. “The big banks’ status of ‘too big to fail’ has made them a safe haven for those large deposit customers who are sensitive to the FDIC insurance caps. The community bank doesn’t have that perceived safety net.”

Bryant of Southwest also points out that the smallest banks are most vulnerable to the costs of new federal regulations that came down after the most recent banking crisis. “They’re paying so much to keep up with regulations, they can’t make any money,” he said.

James says prospective customers should put a value on the relationship they’ll have with their community banker.

“I believe it is worth paying more to do business with a community banker, given that you can expect service, attention, some customization, and flexibility,” he said. “Having a banker that you can depend on can be as vital as having a personal physician or attorney. And none of them are a priority until you need them.”

Chase’s Ritterbusch: “Our high market share in Fort Worth and across the country provides the scale necessary to invest in innovative new products and services that increase the convenience for our customers in ways that many other banks simply cannot afford,” Ritterbusch said.

Comerica’s Hellman: “There is no question banks are seeing costs escalate due to increased regulatory cost burden; all banks are facing the same issue. At Comerica, we have been extremely focused on managing expenses, and we are fortunate to have one of the lowest costs of deposits among our peers.”