NOVEMBER 15, 2004
THE DALLAS MORNING NEWS

Riches and Niches

Ieva M. Augstums, Staff Writer

Banks sprout up to focus on doctors, developers, even grocery shoppers

Next time you visit your bank, take a close look around. Some banks aren't what they seem anymore.

A new breed of niche banks is moving away from general deposit and lending activities and into diverse financial services targeting a narrowly focused customer base.

Consider:
SNB Bank of Dallas and Lone Star Bank will never practice medicine. They both, however, offer services that make them the equivalent of health care management firms.

HarVest Bank of Maryland, which is awaiting regulatory approval, plans to target bioscience, medical and technology companies as its customers.

ShoreBank Pacific in Washington State supports conservation and economic development.

And if you're in dental care, you may want to consider banking with PracticeBank in Florida. Also awaiting regulatory approval, it envisions a nationwide market -- first orthodontists, then dentists.

Analysts say a bank's niche isn't always apparent - some target specific religions or ethnic groups, for example, without excluding anyone.

"The whole definition of banks has changed," says Dr. Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn. "What services and what we provide customers today is going to vary a lot more than it used to."

Specialty banks still offer traditional checking and savings accounts. But they differ in that they cherry-pick their customers - communities, industries, people with special interests - and provide services specifically for those needs.

"If you think about it, these banks are taking a page from the credit union books," says Scott Alaniz, equity research analyst for Sandler O'Neill & Partners LP, an investment banking firm. "Smaller banks are having to do this because it is very difficult to be all banks to all people."

SNB Bank of Dallas, with branches in Frisco and North Dallas, is a sister bank of Stillwater National Bank of Oklahoma. Lone Star Bank, owned by Houston-based Southwest Bank of Texas, has five branches in the Dallas area.

Both cater to health care professionals, not only by providing loans to doctors, but also by providing services such as invoicing, accounts receivable, purchasing and payables, and medical record-keeping.

Both offer lockbox services, processing a customer's business mail and digitally scanning documents.

"We studied the particular needs of health care professionals across different specialties, and this is what they told us they wanted and needed," says Kim Myers, senior vice president and treasury management team leader for Lone Star Bank.

SNB has gone a step further. Southwest Bancorp Inc., its parent company, also owns Healthcare Strategic Support Inc., a health care consultant.

"We provide all the traditional banking services, but we want to make sure we are providing our clients with the best services," says SNB Bank of Dallas president Len McLaughlin. "We are focused on health care."

Word of mouth

Real estate is Inwood National Bank's niche. The 30-year-old privately owned Dallas bank's loan portfolio focuses on eight areas, including land development for single-family residences, industrial properties, churches and retail centers.

"We know a lot of players in the market, and they know us," says Gary Tipton, Inwood's president and chief executive. "We get a lot of our business by word of mouth."

Smaller banks have always had fairly narrow business plans, such as Dallas-based T-Bank, which isn't open yet but plans to target small-business owners in North Dallas and West Plano.

There's also Killeen-based First Convenience Bank, which entered the Dallas-Fort Worth market this year by taking over 36 locations inside Kroger stores that Washington Mutual Inc. had vacated. First Convenience primarily builds branches inside grocery stores.

"If you get the location and the services right, you can do quite well," Dr. Cornwall says.

Depression past
It wasn't always this way.

In 1933, the Glass-Steagall Act created and mandated that three industries - commercial banking, investment banking and insurance - remain separate.

For about 50 years, the law worked well.

"A typical customer went to a commercial bank for their money," says Dr. Scott MacDonald, president and chief executive of the Southwestern Graduate School of Banking Foundation. "They didn't have many other options."

But by the mid-1970s, investment banking companies found loopholes in the legislation and began offering banking-type products to customers through cash management accounts.

Soon after, insurance companies discovered unitary thrift charters, which meant that they, too, could offer banking services.

As these companies pulled customers - and money - away from banks, banks complained that they were limited in the products they could offer to compete.

Then came the Gramm-Leach-Bliley Act of 1999. The law removed legal barriers dating to the Great Depression and allowed banks, securities firms and insurance companies to form one-stop financial conglomerates marketing a range of products.

Too focused?
Banking regulators say it's too hard to quantify how big a slice niche banks command of the the $9.6 trillion banking market that's covered by the Federal Deposit Insurance Corp. Practically every bank says it specializes in something, if not many things.

But regulators are still wary of banks drifting from traditional practices and becoming too narrowly focused.

The Office of the Comptroller of the Currency, which regulates nationally chartered banks, requires banks with a narrow focus to get a "special-purpose charter," which can mean a longer approval process. The OCC requires that their business plans address how their "unique risks" will be mitigated.

"The banks have to have a good chance of success and understand that the nature of banking is risky," OCC spokesman Kevin Mukri said. "We don't want to charter a bank that will fail."

Professional Bank, which has one branch in the Lakewood area of Dallas, opened in January to lure customers from the large regional banks that have improved their wealth management divisions in recent years.

So far, so good. After 11 months in business, the bank has $26 million in assets.

It calls itself a small, hometown bank, and its customers are small-business owners, professionals and entrepreneurs.

"The Lakewood area has a high net worth," says Professional Bank chairman Jack Seifrick. "We very much believe that people will respond to and support our personalized service."

Niche banks have gotten very good at marketing their specialties and strengths, Dr. Cornwall says. While they do business with a very small percentage of the population, a customer will know if a niche bank is right for them.

"They will seek you out, and if their message resonates with you and meets your needs, then that's your bank," Dr. Cornwall says. "They're not for a mass majority of consumers, but those that do use them tend to benefit."

SOME TEXAS NICHE BANKS

LONE STAR BANK
A division of Southwest Bank of Texas
Founded: 1990
Headquarters: Houston
Assets: $7 billion
Employees: 2,300
Web site: www.swbanktx.com
Specialty: Health care

PROFESSIONAL BANK
Founded: 2004
Headquarters: Dallas
Assets: $26 million
Employees: 12
Web site: www.whosyourbanker.com
Specialty: Small businesses in Lakewood

SNB BANK OF DALLAS
A division of Stillwater National Bank
Founded: 1894 in Stillwater; Frisco branch opened in 2002
Headquarters: Stillwater, Okla.
Assets: $1.9 billion
Employees: 370
Web site: www.snbdallas.com
Specialty: Health care

INWOOD NATIONAL BANK
Founded: 1964
Headquarters: Dallas
Assets: $950 million
Employees: 220
Web site: www.inwoodbank.com
Specialty: Real estate

E-mail iaugstums@dallasnews.com