Niche Bank Targets White-Collar Market

Vying against giants like NationsBank, a start-up in an Atlanta suburb seeks customers among small service companies

For 21 years Nat Padget worked in banks that looked much the same. Gleaming marble floors, long rows of tellers, drive-up windows--the features were as familiar to him as the greenbacks that the banks handled every day. That's the scene Padget remembers at Milton National Bank, in the Atlanta suburb of Roswell, Ga., his last employer. He quit his job at Milton in October 1997 and last summer opened the Chattahoochee National Bank a few miles away, in Alpharetta.

Unlike Milton, however, Chattahoochee (named after a nearby river) has no tellers or drive-up windows. It's shoehorned into blandly anonymous quarters in a brick office building just off busy Highway 400 in Fulton County. Nothing in its architecture denotes it as a bank except its rooftop sign.

Chattahoochee looks different because it isn't trying to appeal to all the people in Fulton County. Its focus is on depositors and borrowers from a narrow slice of the local business community: white-collar service companies --such as computer consultants, insurance brokers, and engineers--that earn revenues of $3 million to $30 million. "We don't operate like the typical bank," says Padget. "But that's because we have a very specific customer with specific needs."

Chattahoochee exemplifies a new breed of specialized community bank that has emerged as a reaction to the industry's consolidation during the past decade. To be sure, most of the small banks that have sprung up look like Milton and operate in the same way. But among them, industry experts say, is a growing minority of start-ups that, like Chattahoochee, seek a highly specific market. "The wide-open consumer banks are getting harder to start," says Ed Furash, chairman of Monument Financial Group, a bank consulting firm in Alexandria, Va. "It's easier to get a leg up by going after a niche market."

The sweeping changes in the banking industry, as it happens, roughly coincide with the arc of Padget's career. In 1977 he graduated from Clemson University, in Clemson, S.C., and went to work as a national bank examiner in Georgia. Padget caught the tail end of an era, the era of the small, family-run community bank. By the mid 1980s, giants like NationsBank, Wachovia, and First Union were swallowing up Georgia's small-fry.

By then Padget had signed on as a loan officer with the National Bank of Georgia in Atlanta. He cultivated as his customers wealthy small-business owners, many of whom migrated north to fast-growing Fulton County in the early 1990s. To stay close to his customers, Padget joined Milton in 1993 as the bank's number two officer.

Itching for a bank of his own, Padget teamed up with T. Stephen Johnson, a consultant and bank investor in Atlanta. Johnson helped raise nearly $2 million in private investments. There followed in June 1998 an over-the-counter public offering by the bank's newly formed holding company, CNB Holding Inc., raising an additional $9.5 million. The offering took place a month before Chattahoochee opened its doors, which is not unusual for a new bank venture.

His financial backing in place, Padget embarked on a strategy to stretch his dollars by sharply limiting overhead. Thus, he leases the premises for Chattahoochee, paying $6,000 a month. To compensate for limited space and to save his borrowers time, Padget dispatches his six laptop-toting loan officers into the field and provides a courier service for check deposits. He further curtails operating expenses by angling for white-collar professionals as customers. They transact little business in cash, which is expensive to process.

Although Chattahoochee keeps expenses low, its loan rate averages an eighth of a point higher than what its large competitors charge. That's a premium that Padget reckons his borrowers will pay in exchange for financial expertise, personalized service, and fast access to capital. Not that all Padget's competitors are large banks. The market in Fulton County has become more crowded this year, with two start-ups, Peachtree Bank, in Duluth, and the North Atlanta National Bank, in Alpharetta, both fashioned in the Milton mold.

Despite greater competition, Padget insists that Chattahoochee is on course. Its assets have swelled to $23 million, and he's predicting the bank could be profitable within two years. Meanwhile, the local banking news is breaking his way. The Bank of North Georgia was recently snatched up by Synovus Financial Corp., a banking colossus based in Columbus. "Keep buying 'em up," urges Padget. "It just means more opportunity for us."

Retro as a virtue
"You'll find bankers who call you by name and greet you with a smile." So boasts an ad for the Merrill Merchants Bank, in Bangor, Maine. The image of the little bank that cares may seem retro in an industry increasingly known for hard-driving efficiency, impersonal modernity, and ATM machines.

Yet some small-scale community banks are seeking a competitive edge by turning quaintly personal service into a marketing asset. Merrill Merchants president Edwin Clift explains: "Given all the high-tech advances in banking service, our message is even more important today."

Merrill Merchants has gone to extraordinary lengths to get its message across. Its very name harks back to two nostalgia-laden community banks, Merrill Trust Co. and Merchants National Bank, that served the Maine city for most of the century and have now been consumed by mergers.

At mortgage closings Clift presents proud homeowners with a handcrafted model of their new house--a perfect replica down to the paint color and landscaping.

Banking landscape: many start-ups bloom
It's no secret that the banking industry is shrinking. With behemoths such as Bank of America and First Union gorging on smaller competitors, the total number of banks has plummeted to 9,143, down from more than 13,000 a decade ago. The frenzy of consolidation has left scores of bankers looking for work and some customers longing for what they imagine are gentler, kinder community banks. That, along with a vigorous economy, has created a strong crosscurrent of emerging new banks. In 1997 alone, more than 180 new bank charters were approved, according to the latest figures available from the Federal Deposit Insurance Corp.

Many of the new banks share similar traits. They're frequently financed by a cadre of local investors who may have recently cashed out of the hometown bank. While new banks are popping up all across the country, states such as Texas, California, Georgia, and Florida have been particularly favored. That's related to the population growth of these states, notes a recent study by the Federal Reserve Bank of Dallas.

The study also concludes that new banks are cropping up in areas where there's a dearth of small banks, such as Arizona and North Carolina. "In some areas community banks are competing against community banks," says Paul Katz, manager of member and state relations for America's Community Bankers, based in Washington, D.C. "But it's much harder to get a competitive edge."

Specialty Community Banks: A sampler of start-ups

Bank/Location Opened Niche
Enterprise Federal Savings Bank
Prince Georges County, Md.
1994 African American churches
Alpharetta, Ga.
1996 Internet users
Michigan Heritage Bank
Novi, Mich.
1997 Equipment leasing
Pacifica Bank
Bellevue, Wash.
1998 Asian small-business community
First Trust Bank
Charlotte, N.C.
1999 Small businesses, especially those owned by women