Your Father's Bank

Burke Herbert is old-fashioned to the core and doesn't want to be anything but a community bank. So why is Citigroup jealous?

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As the president and CEO of TCI, a small, thriving telecommunications company in Springfield, Va., Dan Testa figured he was the ideal small-business banking customer. TCI religiously ran about $8 million worth of business every year through its local bank, Riggs National. What sort of a bank would walk away from that?

Riggs would. That's what Testa rudely discovered some years ago upon fielding a call from his loan officer, who advised him that Riggs was shifting strategies to pursue bigger, more prestigious customers. "You don't fit our model anymore," Testa recalls being told. "You're too small."

Dumbfounded, Testa called Burke & Herbert Bank & Trust, a small bank in his hometown of Alexandria, Va. When he arrived at the main branch to open an account he was greeted in the lobby by none other than David Burke, then the bank's president and still its most senior officer. Burke welcomed Testa to the bank as if he were a visiting dignitary, gave him his direct phone number, and told him to call anytime. "I was overwhelmed. They treated me like royalty," Testa says. "You would have thought they didn't have any other customers."

Actually, Burke & Herbert has 50,000 of them, most drawn from within a 20-mile radius of its main branch in downtown Alexandria. Some of its customers are so loyal that they put Burke & Herbert bumper stickers on their cars. Others, spotting empty storefronts in their neighborhoods, call up and urge Burke & Herbert to fill the space with a new branch. Dan Testa expressed his enthusiasm by giving the bank plenty of business. After moving his commercial account to Burke & Herbert he moved his personal account, then refinanced his mortgage twice and took out a home equity line.

Merger Mania

Founded in 1852, Burke & Herbert is the oldest continually operating bank in Virginia and the state's 12th largest. The bank's headquarters has been housed on the same downtown Alexandria corner since 1871, and the business has been run mainly by the same family, the Burkes, for five generations now. (The last Herbert retired in 1940.) Along the way it has become something of a public trust and local institution. "The bank has these old-fashioned standards that offer a sense of comfort in a world that changes so drastically," says Bernard Fagelson, an attorney and a Burke & Herbert board member since 1961. "It meets the everyday challenges of business but never loses sight of the fact that people want a bank to make them feel secure."

Burke & Herbert tilts heavily away from what passes for progress. The bank finally broke down and put magnetic numbers on checks only after local supermarkets would no longer accept B&H checks from customers.

In practical terms, this means that Burke & Herbert tilts heavily in favor of face-to-face banking and away from what traditionally passes for progress. Until the late 1970s, accounts at the bank were identified by name, not number, and clerks memorized customers' handwriting to clear checks. The bank was the last in Virginia to buy a computer, and when it did, it promptly ridiculed the move, draping the bank in black crepe and running cartoon ads featuring hapless Burke & Herbert employees being sucked into the newfangled machine. The bank finally broke down and put magnetic numbers on checks only after local supermarkets would no longer accept Burke & Herbert checks from customers. It still has a total of just 16 ATM machines at its 15 branches.

You'd think that kind of quaint footdragging would be a recipe for insolvency. And if that didn't do the job, then control by the same family -- the blue blood no doubt thinning over the past century and a half -- certainly would. Not exactly.

Burke & Herbert is among the best-run banks in the country, based on an important industry yardstick called the efficiency ratio. Essentially, this ratio (derived by dividing noninterest expense by net operating revenue) measures the extent to which revenue is absorbed by overhead expenses, so a lower number translates into greater profitability. In the first quarter of this year Burke & Herbert's efficiency ratio was 43.3%, versus an industry average of 56.4%. Meanwhile, in the past 45 years Burke & Herbert has steadily increased its assets under control to nearly $1.25 billion from $9 million.

But the bank's efficiency and growth have not come at the expense of customer satisfaction. In a recent survey done by Washington Consumers' Checkbook magazine, Burke & Herbert posted the highest score in customer satisfaction among banks in the Washington, D.C., area. Ninety-three percent of the bank's customers characterized its service as superior. Riggs, the bank that drove Dan Testa into Burke & Herbert's arms, was considered superior by just 18% of its customers. "Ill treatment of customers by other banks is our best marketing strategy," says Hunt Burke, David Burke's cousin and the bank's president and COO.

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