NICHE BANKING.

Byline: BANKS By Joe Mosley The Register-Guard

Quick - name the local bank that a majority of Lane County dentists prefer.

OK, where do you go if you're a subdivision developer needing a start-up loan for a new project? How about an attorney looking to set up a trust account for a client?

Different niches, different banks - at least according to the marketing strategies of most locally based, community banks.

Those banks - typically defined as having less than $1 billion in assets - have tried in recent years to compete against the financial behemoths of the banking world by developing expertise in sliver-size segments of the commercial marketplace.

Thus, Eugene-based Pacific Continental Bank has loan officers in its Eugene, Portland and Seattle offices who specialize in the needs of dentists - whether it's a loan to expand the practice or a line of credit for new equipment.

"With smaller, community banks, they have to be somewhat selective," says Mick Reynolds, executive vice president and chief financial officer at Pacific Continental. "If you're trying to serve everybody, it's really difficult when competing against US Bank and Washington Mutual ... because they have so many more locations than we do."

So Reynolds' bank has carefully chosen its list of target clients: community-based businesses, nonprofit organizations and professional service providers, which range from dentists and doctors to tax-preparers and lawyers.

He says that through a combination of targeted marketing and developed expertise, Pacific Continental has brought 52 percent of Lane County's dental offices onto its customer list.

"We're able to more effectively specialize our products and services toward these individuals, so they know we have a lot more knowledge," Reynolds says.

Similarly, Eugene's LibertyBank has a long history of providing "acquisition and development" loans to developers of new subdivisions, and then following up with construction loans for the builders of houses in those same subdivisions.

And Summit Bank - one of Eugene's newest financial institutions, along with Century Bank - has quickly developed a specialty of setting up trust accounts for the law firms it has courted as clients.

"That's an account that requires some particular expertise that we have, and not every bank offers that," says Ann Marie Mehlum, president of Summit Bank.

"But the biggest way we differentiate ourselves is not by a particular industry, but how we can be responsive," Mehlum says. "We try to be creative, and not be boxed in by pages and pages of policy of what we can and can't do."

That kind of flexibility and attention to individual customers - small businesses, in particular - has been a hallmark of community banking across the country as homegrown institutions have staged a modest comeback from a decade of declines.

From 1985 through 1995, the number of community banks nationwide dropped from 14,351 to 9,612, according to the Federal Deposit Insurance Corp. That number continued to drop through 2003, when it had fallen to 7,337, but has since rebounded to 7,958.

The number of community banks in Oregon has decreased from 36 to 34 over the past couple years, but for a positive reason. Two institutions - PremierWest Bank of Medford and Columbia River Bank of The Dalles - have passed the $1 billion mark in total assets, graduating to the status of regional banks.

That leaves two of Eugene's four community banks at the top of the asset list for Oregon's community banks. LibertyBank now has $908 million, while Pacific Continental has $890 million.

"Historically, most community banks have hired loan officers (with expertise in specific areas) from larger banks," says Hank Hoell, executive vice president and chief operating officer for LibertyBank. "That is becoming less and less the trend today, but that is historically what has happened.

"Just now, we have developed our own banker development program," Hoell says. "We did not have that in place for a period of years, and here we are on the verge of $1 billion in assets. We have gotten to the size where we can not only afford to do it, it has become an operational requirement."

The reversal of fortunes for community banks has been widely attributed to an increase in start-ups that began in 1995 - a trend that includes the launching of Eugene's Summit and Century banks within months of each other in 2004.

And the common theme among the small, independent banks across the country has been their goal of connecting at the street level with the small businesses in their communities.

"We (focus on) companies ... with sales of less than $15 million annually, which probably includes 90-plus percent of the businesses in our Lane County market," says Tom Widmer, Century Bank's president. "We probably don't compete as well with national-type accounts, but we can provide a full range of services for businesses under those benchmarks.

"Our ability to be responsive is one of our biggest advantages."

Not that everybody in banking agrees that community banks are better positioned to serve their small-business neighbors.

Robin Burk, regional president for US Bank, says large banks in many ways are wrongly portrayed as aloof or uncaring. In fact, she says, institutions such as US Bank provide a wide array of services to a broad range of customers.

"I really don't know why they think that, because I actually serve (small businesses) as well as the small banks," Burk says. "Actually, we have quite a few more resources available to small businesses than the community banks.

"There's just a perception that big is not always better, when you're dealing with small-business people."

The list of Oregon-based banks doesn't include large, national institutions such as US Bank, Wells Fargo and Washington Mutual - each with nationwide assets ranging from $200 billion to $400 billion.

Bank of America's Oregon charter tops the list of six regional banks based in the state, with $14.7 billion in assets - almost double the $7.4 billion in combined assets of all 34 community-size banks. Umpqua Bank, the second-largest regional bank in Oregon, has $7.3 billion in assets.

"We get a lot of customers from these larger financial institutions, (because) people get disenfranchised," says Reynolds, the Pacific Continental vice president.

"But we did not want to go head-to-head with them in some areas, like free checking, home equity (loans) or car loans," he says. "They can do so much more than we can, through volume. So we chose some very specific (market) segments that made sense from a funding standpoint."

For example, Pacific Continental's research showed that one targeted group - community-based businesses - borrows 2 1/2 times more money than it deposits.

Nonprofit corporations, on the other hand, deposit seven times more than they borrow. And the professional service provider segment - including dentists, doctors and lawyers - tends to be about even in loans and deposits.

"So it balances out," Reynolds says. "There are certain groups that borrow more ... and you've got to make up for that on the deposit side.

"Our other decision was that we prefer large commercial markets. We happened to start here in Eugene, and now we're in Eugene, Portland and Seattle - three of the four largest commercial markets in the Northwest."

Strategies have unfolded in similar ways at Eugene's other community banks.

LibertyBank's emphasis on development and construction loans goes back to its roots as a savings and loan.

It was purchased in 1984 by the Pape family, moved its headquarters from Medford to Eugene in 1987 and made the transition to state-chartered bank in 2003.

Along the way, LibertyBank has made in-roads in the niches of family owned businesses, architectural firms, accounting practices and law offices.

"Local decision-making, local underwriting and having a business served by a resource that is literally right down the street - it's the level of service you can count on," says Hoell, the LibertyBank vice president.

"It's not just knowing your industry, but knowing your specific business, that begins to create some differences between the small banks and the larger banks."

Widmer, the Century Bank president, says his institution focuses on small business clients but has not attempted to narrow its target to certain niches.

"We haven't really gone out and tried to isolate a single segment of that," he says. "We're not a general practitioner, but have maybe a little broader range (of target customers), rather than more specific."

At Summit Bank, Mehlum says a tightening focus hasn't been entirely intentional, but has been logical.

"We don't just have a list of five or six industries we cater to," she says. "But we are finding we have more expertise in the professional service industries (such as marketing firms, consultants and property managers)."

And the three-year-old bank doesn't paint itself into the corner of exclusively serving its business clients. It also seeks individual customers, particularly those whose businesses have relationships with the bank.

"We do provide all the personal banking for those individuals, also, and it is significant," Mehlum says. "So while we're not out there advertising for car loans, we will certainly finance a vehicle for our clients - and most of that is just for their convenience."

Summit is the seventh-smallest of Oregon's community banks, with $75.8 million in assets - Century is sixth-smallest, with $58.6 million - and as such, has had to limit the size of its loans and establish a broad base of business clients.

But Mehlum says that smallness also has allowed her bank to specialize in hands-on ways that would be difficult for larger institutions.

"That does occur in the big banks, but certainly the community banks tend to find niches where they can compete against the big banks and credit unions out there," she says. "It is a competitive marketplace. But I think community banks have some things to contribute that are unique."