Smart Business: Build Your Own Bank

Local Davids Give Banking Goliaths a Run For Their Money

Entrepreneurs and Banking Professionals Combine Forces to Build Community Banks.

When larger banks buy out community banks it often results in disgruntled customers, displaced employees, and less service for small businesses. Now, local businessmen and bankers are building their own banks with an emphasis on investing in the communities they serve.

Building Banks for a Living

Ernest Garfield, who owns Interstate Bank Developers in Scottsdale, Ariz., acts as a consultant to start-up banks, seeking areas where they will not only be profitable, but where the people involved actually care about the communities the banks will serve.

Garfield's bank-building career was unplanned. After 11 years in public office, including a stint as Arizona's state treasurer, he was involved in lobbying, marketing and publishing when a friend suggested he start a local bank. The success of that venture led to the consulting work he enjoys today. Garfield has helped get 24 start-ups off the ground in Arizona, New Mexico, California, Idaho and Washington.

Garfield relies on several factors when he decides to found a community bank. "I do banks only in areas where I feel they’ll be successful, and only with people who are in it for the right reasons," he says. What are the right reasons? "Making a profit is essential," he says, "but there has to be more motivation than that. It works best when the people involved don’t have a personal agenda, when they’re intrigued by the idea of serving on a bank board and the knowledge they’ll pick up, and the good they can do in their community. It may sound idealistic, but I pretty well stick to that."

Lessons Learned

Oregon Business Bank in Lake Oswego, Ore., is one of Garfield's start-ups. Beginning in 1998 the group raised starting capital of $5 million as required by Oregon to become a financial institution. $2 million came from its dozen board members, including bank president James Shires.

Shires moved from Montana to take up his current post in March 1999. He is pleased with the positive impact the bank is having on the community. "You have to be a lot more flexible and responsive, and provide products and services to your customers on a personal basis that takes each individual situation into account," he says. "This approach will set you apart in the market, and allow you to gather much more opportunity."

The bank has also worked with other independent banks to fund larger loans. "We are able to serve a lot more middle-market customers than we would normally be able to handle because we have relationships with those other independent banks where we can sell each other pieces of our loans that are over our legal lending limits," he says. This practice, which is seamless to customers, allows the bank to compete with the big guys, making loans of more than $5 million.

New community banks are continuing to spring to life under Garfield's tutelage. One such is the Washington Business Bank in Olympia, Wash.

"We are in the final stages of the application process with the FDIC and the state of Washington," says board chairman Ernest L. Grubb. He meets with other board members every Wednesday at 6 a.m. because in addition to time spent in developing the new bank, he runs a demanding veterinarian practice. Ten local businesspeople invested just under $1 million dollars to get the ball rolling, and create a bank that will reflect their ideas of what personal banking is all about.

"We want all the conveniences of modern-day banking, but we want a bank with the personality of what banks were like 30 or 40 years ago -- where the banker was expected to know his customer," Grubb says. He explains that too often large banks don't want to make smaller loans to local businessmen trying to expand and grow. "We feel there's a natural target niche for small business for this bank to serve," he says. "Eventually, for small businesses we want to be their banker, all their employees' banker, and have the ability to act as a financial advisor to them as well."

The board is still raising an additional $4 million in capital it needs, and expects to open the bank sometime between June and August. Garfield meets with the bank regularly, as does a former government bank examiner who comes monthly to educate them on what it means to be bank board directors.

Although none of the board members were involved in banking before, a year of education has gone a long way towards helping them become savvy to the industry. Grubb has high expectations for the future of Washington Business Bank. "Hopefully," he says, "within 24 months we will be totally profitable."

VA-Interactive
Finance/Business Development

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