Your Father's Bank

Consolidation is meant to produce a variety of results grouped under the broad umbrella of improved efficiency. A lot of customers, however, and especially small-business customers, will say that the one sure-fire result is a decline in service. Many small-business owners are accustomed to banking locally with familiar lenders who can serve their needs expeditiously. Consolidation means that suddenly local loan officers have no lending authority; the best they can do is fax an application up the line to a regional office. The next step is for the larger banks to spend millions marketing what are known as noncore products -- mutual funds, insurance, real estate brokerage services, and so on, with customers paying for all that marketing in the form of fees. Finally, the big banks cut back on the basics, such as low-cost checking accounts and having human beings answer the phone.

All this activity and, yet, increased efficiency remains elusive -- a mirage, in the words of David Wheelock, an economist with the Federal Reserve in St. Louis and an expert on the U.S. banking system. "The efficiency argument is very tenuous," says Wheelock. "Economies of scale are hard to realize." The reason for that is largely technological. "Real economies are realized in the back office -- processing checks and that sort of thing," says Wheelock. "But banks exhaust those economies at a very small scale." In other words, a bank with $1 billion in assets can run its back office operation just as efficiently as a bank with $50 billion in assets.

None of the five largest banks in the country -- Citigroup, Bank of America, J.P. Morgan Chase, Wachovia, and Wells Fargo -- has an efficiency ratio that can touch Burke & Herbert's 43.3% figure. The best in this group of mega-consolidators is Citigroup, which has an efficiency ratio of 48.1%; the least efficient is J.P. Morgan Chase at 68.4%.

Same Time, Same Place

The Northern Virginia market has seen so much consolidation that Burke & Herbert is an anomaly in the region. Needless to say, the bank has been the object of repeated buyout offers, all of which it has quickly rejected. "If we ever sold we'd get run out of town by our customers," says Hunt Burke. He says one suitor admitted to him that it pursued Burke & Herbert because it could use the goodwill associated with the bank's name to grease its dinnertime telemarketing pitches. That is, customers hearing Burke & Herbert's name would not immediately hang up.

The strong impression at Burke & Herbert is that current management won't be going anywhere anytime soon. The average tenure of the bank's 300 employees is five to seven years, and branch managers have been at their current locations, on average, for 8.4 years. The bank fills 95% of its openings above the teller level from within the ranks. "We let the customer deal with one person and let them know that they'll be here next year," says Erik Dorn, a vice president at the bank.

"We're really into nepotism here," deadpans Hunt Burke. A handful of branches are co-managed by family members, including a husband and wife team, a mother and daughter team, and a pair of sisters. Most banks prohibit such arrangements, fearing embezzlement schemes, but Burke & Herbert encourages them.

The bank also bucks the norm by preserving the traditional authority of branch managers. "We try to push autonomy out to the local branches and keep it there," says David Burke. If a loan request exceeds a branch manager's lending limit (usually about $75,000), he or she can fax the application over to one of the Burkes and get a response within 24 hours. If it exceeds the lending limit, it goes to the loan committee, which meets each Wednesday and will decide that day. (Burke & Herbert also has an engaged board whose 16 members meet each Thursday night for an hour.)

Al Simon, now 80, started his Washington-based company, Sodibar Systems, in 1948, banking with Burke & Herbert. "They don't put you through all this rigamarole and red tape," he says of the bank. "You can get answers right away." Simon, who leases beverage-dispensing equipment and sells soda down the Atlantic Seaboard, says that if he's traveling and sees a piece of expensive equipment, he simply writes a check for it. He then calls Burke & Herbert and gets the bank to cover the expense, no questions asked. "Today, I couldn't get away with that with any other bank," he says.

Open Door

On a typical weekday morning, the lobby at Burke & Herbert's main branch hums with as much conversation as it does commerce as customers meet and greet one another. A grandfather clock that has chimed opening and closing hours for the past 106 years stands near the front door, and the bank's six vice presidents sit, not hidden away in offices but in open alcoves. Tellers hand out not just lollipops but also dog biscuits.

The bank has been animal friendly since the 1970s, one of the legacies of Taylor Burke Jr., who ran the bank from 1963 to 1992 (he died three years ago). Taylor, father of Hunt, owned a parrot named Runyon, who perched during business hours in his office. When the parrot got too loud, Taylor would draw a water pistol from his desk and douse him. Taylor Burke may have been a comedian, but he was also a polymath who recited Shakespeare and issued salty memos. In one he advised the staff: "We want you to be always polite, but there is no law which says that you have to open accounts for obvious dingbats or paperhangers...You have my permission to make up rules on the spot. Just tell me what you've done so I can field the irate phone call." Burke also posed for bank advertisements as, among others, Whistler's mother, Batman, and Scrooge.

 PREV  1 | 2 | 3  NEXT