Investing where everyone knows your name

Leesport Bank in Wyomissing, Pa., may have less cachet than the likes of Merrill Lynch & Co. Inc. or Salomon Smith Barney.

But with those Wall Street firms and others mired in scandal, investing at a neighborhood bank should look good by comparison, according to executives at community and regional banks.

Such banks, once perceived as having all the investment prowess of an interest-bearing checking account, have made strides of late in building up their investment management offerings and financial adviser staffs.

Nowadays, finding a credit union that offers online trading or a small bank with teams of onsite financial planners isn’t that uncommon. To stay competitive, it’s a necessity.

Raymond H. Melcher Jr., president and chief executive of Leesport Financial Corp., the holding company for a $550 million bank and its wealth management unit, says it’s all about providing a range of services.

“If you have to say to somebody, `I can’t do an annuity for you, I can’t offer you mutual funds, I can’t offer you an asset-management account,’ then I think you are going to see people say, `Gee, you are falling short of being able to satisfy my financial needs,”‘ he says.

No hot shots

In today’s scandal-tainted environment, small banks like to think that they have some advantages over their larger competitors.

“Large banks have a lack of mobility, and so many mergers take place that it’s very hard to establish continuity,” says Peter Snyder, president and CEO of Addison Avenue Financial Partners LLC in Roseville, Calif., the investment arm of a $1.5 billion-asset credit union. “Small banks can be a little bit more nimble than some of the large banks.”

Also, their customers tend to be more conservative, which may fit better with a bank’s more conservative investment discipline, says Felice Larmer, president and CEO of FirstMerit Investment Services, a unit of FirstMerit Corp., an Akron, Ohio, bank with $10.5 billion in assets.

For example, the 30 financial consultants on her staff do not recommend individual stocks to clients.

“It’s extremely important for banks that the brokers they hire not be the hotshot churn-’em-and-burn-’em, old-style wirehouse brokers, but the relationship managers,” says Ms. Larmer. “I think we tend to look better by comparison.”

But banks with assets of $10 billion or less – still have just a small part of the investment pie. If they have a strong suit, it’s in selling insurance, according to a survey by Michael White Associates LLC, a bank insurance consulting company in Radnor, Pa.

A survey of 8,600 commercial banks and federally insured savings banks showed that those with more than $10 billion in assets received a total of $5 billion in fee income from mutual funds and annuities in 2001, or 89.8% of a total $5.51 billion. Banks with less than $10 billion in assets earned the remaining $510 million.

However, banks with assets of less than $10 billion accounted for 40.5% of the industry’s total insurance fee income revenue, almost $1.2 billion out of $2.98 billion, which includes sales of life and property-and-casualty insurance, and annuities.

“If you look at the participation of banks in funds and annuities, you can see there is still is a long way to go for the smaller banks,” says Michael White, whose survey is in its first year.

The reason, he says, is that some small banks may be concerned about cannibalizing their deposit base. Also, most third-party marketers of investment products focus on the larger banks.

Heywood Sloane, director for administration at the Bank Securities Association in Wayne, Pa., says smaller banks have an edge when it comes to being close to the customer and customizing products.

“They are going to know the people in their community better so when there’s a life event that changes for some or many of the people in a community, the smaller community bank is going to be sensitized to that more than a regional or national bank will be,” says Mr. Sloane.

At the tail end of the bull market, some banks got into the investment business, and they say it’s working out for them.

Leesport Financial started its business from scratch three years ago by buying a small investment advisory firm. Today it has $250 million under management and a team of eight financial advisers.