Christiana Bank & Trust Company

Transcription

1 Christiana Bank & Trust Company E We provide an environment for professional people to have the freedom to do what they know and what they like to do. And because of our size, they and others see very clearly their contributions to the overall business. Zissimos Frangopoulos President and CEO, Christiana Bank 2006 by RMA. Photos by Jim Graham. 8 The RMA Journal June 2006

2 xperience. Continuity. Control. Key elements in Christiana Bank s holistic approach to its enterprise. At the end of 2005, Christiana Bank & Trust Company of Greenville, Delaware, showed $166 million in total assets, $117 million in loans outstanding, and no nonperforming assets. It also had more than $1.8 billion in assets under administration in its trust business. The bank, which considers itself the renaissance of Delaware banking the way it should be, is capitalizing on its small size, its strong management, and its location in a state whose body of trust and tax laws have led people from throughout the U.S. and abroad to establish trusts in Delaware. Zissimos A. Frangopoulos is president and chief executive of this little giant that has about four dozen employees. Known as Ziss, Frangopoulos is on five of the bank s eight committees and chairs the loan committee and the asset/liability committee. Maury Hartigan, RMA s president and CEO, interviewed Frangopoulos and key staff in April. Marty Infanti is senior vice president for Risk Management and Administration, Chris Cusatis is senior vice president and CFO, and Tom Campbell is executive vice president for Trust. Three key elements contributing to Christiana s growth, strength, and positioning for the future are experience, continuity, and control. Paradoxically, another key element is freedom. But Christiana seems to be a paradox on more than one level. Maury Hartigan: Christiana seems to be a paradox that works. You re a small bank competing head-to-head with the competition with a few select products. Tell us about the bank s philosophy and what s behind it. Ziss Frangopoulos: The bank s basic philosophy is to deliver high-quality and highly professional service in a very personal and individual manner. Our goal is for the customer to feel a true relationship with the bank instead of feeling like an account number. In fact, many of our customers tell us how much they enjoy walking through the door and being greeted by name. The paradox you allude to is a paradox only on the surface. The reality is that technology helps us deliver this personal service, and it does so in two ways: 1. The ability to outsource, which I ll talk more about later, is a way to level the playing field in terms of capacity, resources, and the cost of doing business. 2. The younger portion of our customer base is savvy about and comfortable with technology. They prefer to conduct much of their business through our technology channel, and we are able to offer them service that ranks with any of our competitors. 9

3 Our goal is for the customer to feel a true relationship with the bank instead of feeling like an account number. 10 The RMA Journal June 2006 Maury Hartigan: You ve had a broad and interesting professional background. Tell us about the experiences and lessons you draw from as you lead your team at Christiana. Ziss Frangopoulos: Probably the most important attributes to running Christiana are 1) the willingness to listen and learn from others and 2) being able to work together as a team. To continue with the analogy of the paradox, I m running a bank that deals primarily in personal banking and trust, yet my 30-year career at Chemical Bank (and its various incarnations) covered all the facets of banking with the exception of retail banking and trust. That paradox is cleared when I explain that we already had firstclass professionals running the key businesses of the bank when I arrived. But I had the benefit of knowing and understanding the underlying dynamics on the financial side of the bank and how the various pieces interact with one another and fit together. In effect, we put together those three blocks of experience: the experience of people who really know the trust business, the experience of those who know the banking business, and the experience of knowing what makes a bank work financially. Maury Hartigan: Although the bank is only 12 years old, it was founded by seasoned bankers. How have you been able to retain your human talent at a time when all banks, including your competitors, are looking for experienced people? Ziss Frangopoulos: Many of the same aspects and attributes that make the bank an attractive place for our customers also make it an attractive place to work. Obviously, we are not the largest institution in our market, so we cannot be at the top of the ladder in the pay we offer. But we do provide an environment for professional people to have the freedom to do what they know and what they like to do. And because of our size, they and others see very clearly their contributions to the overall business, because each person s contribution makes a difference. Maury Hartigan: Grant Thornton s 13th Annual Survey of Bank Executives, released at the end of February, showed retaining deposits, retaining key employees, and attracting new business as most important to banks success. In 2005 Christiana Bank experienced 21% growth in total deposits, 12% in assets, and 59% in profits. How do you account for the growth, and do you think it s sustainable? Ziss Frangopoulos: There is no question that we ve had very good and strong growth. In part, our increasingly strong numbers have received the benefit of starting from a low base. As we grow larger, the impact of that benefit is diminished. We do not project our historical growth rates to continue in perpetuity, but I think we have very good opportunities to continue growing at a very good pace. The reason is the personalized approach we take. For example, one of our customers businesses entails a lot of daily activity through wire pay-

4 Christiana Bank & Trust Company ments. The company banked with a local competitor and was being charged $30 per wire; at the same time, the customer maintained a multi-million-dollar balance at the bank. The actual cost to send a wire through the Fed is 50 cents, so we waived the transaction charge, and the company transferred all its balances to us. As non-interest-bearing accounts, those funds held on account compensate us many times over. So our growth comes primarily from attracting customers through services and tailored solutions. It is not from competing on price, because that would be a losing strategy. Maury Hartigan: What is your greatest source of new business? One doesn t see Christiana advertising that widely. Does growth come by word of mouth from satisfied customers? Ziss Frangopoulos: Yes, and that is equally true on the trust side and the banking side, although in slightly different ways. On the banking side, existing customers refer friends and colleagues here and we also use referral sources such as accountants, particularly in the case of small businesses because they know the operation of the bank, our approach, and our criteria. On the trust side, our primary source of business is referrals from attorneys and other advisors. Continuity of those referrals depends on 1) delivering the service the advisor was expecting to receive and 2) avoiding mistakes or disappointment. No bank can totally avoid mistakes, so when they do happen, we must take care of them as quickly as possible. Trust Thomas A. Campbell, EVP Maury Hartigan: Tell us about your client base and also about your loan portfolio. Let s begin with the commercial side. Ziss Frangopoulos: I d like to make a few general comments before deferring to Marty. On the commercial side of the business, our clients fall into three broad categories: 1. Professional groups, such as medical practices or smaller law firms, and, to a lesser extent, accounting firms. 2. Individuals involved in smallscale investment real estate for example, rental properties around the University of Delaware. 3. Other small businesses that cover a broad range of activities. Typically, we do secured lending, so in each of those three groups we could be talking about lending that is structured with collateral; in the third case in particular, the real estate quite often is owner occupied, and typically we look for an individual guarantee of the principal as part of the transaction. Zissimos A. Frangopoulos, President and CEO Accounting & Finance Chris Cusatis, SVP Banking & Administration Marty Infanti, SVP Marty Infanti: Our three lending officers average 30-plus years of experience, primarily in this marketplace, so they know the strong players as well as the players who perhaps we should not be doing business with. Because our officers spend so much time in this marketplace, they know the market trends as well as the industries that have performed well, and they have their own referral sources. As Ziss mentioned, our philosophy includes lending secured primarily by real estate. We also have loans secured by marketable securities, more typically in our private banking group. We rarely lend only against business receivables and inventory. One of the important things we know is that there are areas we don t know, and we stay away from those. Our approvals are given right in this room, and none of us including Ziss has individual lending authority. It always takes at least two of us, so we needn t worry about someone going off on his or her own. Because we have a relatively compact customer base, it s easier to keep track of pastdues, which we address quickly, at every loan committee, and try very hard to keep to a minimum. As a result, we have been able to reduce and maintain our nonperforming loans at none, and we re very proud of that. It s a lit- 11

5 tle good luck, a lot of good management, and some hard work to keep ourselves in this position. Maury Hartigan: I m hearing experience, continuity, and control. Would those words accurately portray what s behind your success? Marty Infanti: Very accurately. Everyone is very experienced, we ve been fortunate in our ability to keep the team together, and we keep an eye on things. Maury Hartigan: Do you see any problematic concentrations, given a possibly slowing economy? Marty Infanti: In general, one concern would be any part of the portfolio that is sensitive to interest rate changes, particularly in a rising-rate environment. However, industry concentrations in the commercial portfolio are quite frankly minimal, other than the risk of being susceptible to regional changes as a result of conducting our lending business primarily in New Castle County, Delaware. But other parts of Christiana s business serve to offset that risk. Maury Hartigan: Now let s turn to Christiana s special niche: trust services and asset management. You ve been able to create a competitive advantage in providing trust services because of Delaware s unique regulatory and legal climate. The huge list of trust services provided makes it sound like a very large operation. Ziss Frangopoulos: Our trust business falls into three broad categories: 1. Fiduciary services, both to individuals and to corporations. 2. Institutional services. 3. Investment management. The trust business is one of the areas where technology has enabled us to provide the same products and services as the largest players in the market by outsourcing the back-office and processing functions. At the same time, technology frees us to introduce the dimension of individual attention, where the customer, whenever he or she needs something, is dealing with an experienced professional with strong expertise not a call center. In a sense, of course, our trust business is a large organization, certainly in relative terms. If you look at head count, more than half of our staff is on the trust side and the rest are on the banking and administration side. We provide a long list of services, but we re very selective about the type of business we do as well as individual transactions. Basically, we do not venture into areas where success is volume dependent. We look for those transactions where individual expertise brings added value and where the functions and responsibilities are both clear and limited. We try to avoid transactions that give us and require wide discretion, because therein lies the potential for future problems. Maury Hartigan: Are you challenged by new regulatory requirements as well as heightened awareness of existing requirements to know your clients? Ziss Frangopoulos: Compliance with banking regulations is receiving increased scrutiny from regulators as well as boards of directors. Here at Christiana, we have a bank-wide compliance advisory committee; it s chaired by the head of our audit committee and has key participants from every area of the bank. Our outside counsel serves as advisor and consultant to the committee. Tom Campbell: Compliance clearly has become more difficult as we ve come under more and more regulations, but with the help of outside counsel and the firm that provides our internal audit services (another example of outsourcing), we ve put together a process to document who our customers are. Marty talked about the New Castle County concentration of the banking business. On the personal trust side, we have clients throughout the U.S., and, in fact, we have a trust subsidiary in Las Vegas. On the corporate trust side, we have clients across the U.S. and Europe. So we have a very detailed list of information we need to obtain before any account is opened, including passports, utility bills, and other data. In addition, almost 90% of our business is referrals from professionals people we ve worked with over long periods of time so we use our referral sources to help screen those customers. It s clearly something we take very seriously: We do everything we can to know the customer and the source of the funds, and we document that information in a permanent file. 12 The RMA Journal June 2006

6 Christiana Bank & Trust Company Maury Hartigan: Are you actively marketing the trust business outside the state of Delaware? Tom Campbell: Yes. Our strategy is to find niche businesses for which we can manage the risk involved, because there is significant risk in the trust business. All of our new accounts are brought in by sales professionals who come from large institutions and bring a lot of experience in their field. Three salespeople actively call on advisors to highnet-worth individuals and to corporations that have done the type of transactions we re looking for. Delaware and Nevada give us quite an advantage in the trust business. Delaware put into effect a Statutory Trust Act to avoid a lot of issues that can arise with common law trusts. Delaware s trust statutes are tailored to give planners a great deal of flexibility in managing and designing trust structures. You can separate the fiduciary function from the investment function; it s the preferred way to manage trusts in Delaware, whereas in a lot of jurisdictions the fiduciary responsibility for investments remains with the trustee. Delaware has the Court of Chancery as part of its court system. This court has limited subject-matter jurisdiction (essentially business, tax, trust, estate, and contractual matters) and hears cases without a jury. Recognized for the expertise of its judges, it lends itself to prompt and expert resolution of cases. Delaware also has a large body of corporate law with 200 years of precedent and is probably the premier jurisdiction for incorporations in the U.S. Maury Hartigan: It sounds like a business that s ripe for growth. Tom Campbell: Yes. People come to Delaware to protect their assets and to save on taxes. We have been able to build a network of referral sources around the country, which we are now expanding. We don t do any planning (financial, estate, or tax), which is different from a lot of institutions, especially larger ones. We see ourselves as providing services that help people facilitate and implement whatever structures their advisors put together. We can make decisions, and we re flexible. The buck basically stops with Ziss and me. We try to avoid those transactions with high volume or transactional intensity, and we compete in those areas where Many of the same aspects and attributes that make the bank an attractive place for our customers also make it an attractive place to work. experienced personnel make a difference. Since 1999, we ve been growing between 20% and 25% per year on the revenue side. Maury Hartigan: On the banking side, what has Christiana been doing in the area of compliance to ensure that you meet all the regulatory imperatives? Marty Infanti: As Tom said, compliance is something we live with every day. One of the challenges is that it changes frequently, because the regulators and the law enforcement community continue to try to make it more difficult for money to move through the financial system undetected. We obtain copies of passports and driver s licenses, and because of our outsourced technology platform, we can do online OFAC 1 [Office of Foreign Assets Control of the U.S. Department of the Treasury] checks, which are performed instantaneously, whenever we open an account. In the example of our customer who does 13

7 wire transfers all day long, there also are automatic OFAC checks. If we have a question about an individual or a country, it s done up front rather than after the fact. Occasionally, someone will approach us with a business opportunity that we walk away from, as it may cause us to run afoul of the regulators. It s just not worth it. Tom Campbell: We do coordinate how we perform due diligence, and while we may not have the same customer base all the time, we use the OFAC check that the banking group has in their technology platform to back up what we re doing. We have a close organization with just three divisions; everyone has worked together for a fairly long time, and we work together very well. Maury Hartigan: I get a sense of an enterprise risk philosophy here a holistic approach. Tom Campbell: Because we ve all worked for large organizations in the past, we all enjoy the fact that this is very much a small business. Chris Cusatis: Because we re a small shop, all of us participate in all areas. My area includes internal controls and safety and soundness that is, compliance with laws and regulations, including tax compliance and IRS reporting. It comes down to the same three words mentioned earlier: experience, control, and continuity. There is a single message at Christiana: There is a way to do the right thing, and it s okay to do the right thing. There s very clear direction provided by the regulatory authorities, and we just need to understand it and carry it out. We re serious about paying our taxes, and we re serious about complying with laws and regulations. As long as you don t allow yourself to be distracted from that single focus, it s really not that hard, whether your institution is large or small. Ziss Frangopoulos: Before Chris came to Christiana, I felt like the one-armed paperhanger trying to do both jobs at once. I couldn t be happier than when he finally made the decision to join us full time as CFO. Maury Hartigan: Tell us a little about your background, Chris. Chris Cusatis: After 20 years of working full time in banking and part time in academia, I decided that perhaps it was time to try the purely theoretical world of academia. I began teaching accounting and finance in a small private college in Pennsylvania. After doing that for several years, however, I found that I still needed a taste of the reality of the field, and I was fortunate enough to come here on a part-time basis to fill in. Once at Christiana, I realized this environment was as close as I could get to a laboratory setup for getting field experience and maintaining it. We had the opportunities to create, to grow, and to build. I have found a lot of people here having a good time doing what they are very good at. That just pulled me in. So there s an academic component to working at Christiana, but it s also the real world in that we have responsibilities to our regulators, our shareholders, and to one other. Maury Hartigan: Tell our readers a little about Christiana s role as a corporate citizen. Marty Infanti: First, we serve the community by paying our taxes, which are not insignificant. Second, from a corporate responsibility standpoint, I think it is a significant community benefit to provide meaningful and gainful employment to your employees. Third, we provide loans to the local community, along with some CRA lending. And fourth, we encourage individual participation in community affairs as one more way that we can give back to the community. Well over a thousand hours of employee time have been spent on various boards and local community interest groups; with a staff of less than 50 people, that s impressive. Tom Campbell: As an example, a member of my staff provides job shadowing for some of the students at the local vocationaltechnical schools. Another is a director of a community organization that provides assistance in the medical area. Maury Hartigan: Ziss, what advice do you have for readers who are 14 The RMA Journal June 2006

8 Christiana Bank & Trust Company community bankers looking to develop some unique capabilities that will allow them both to grow their business and to be recognized and rewarded for their contributions? Ziss Frangopoulos: That s not an easy question. I think you need to start by knowing and acknowledging both your strengths and your weaknesses. That will save time by preventing you from going down dead-ends and pursuing things that couldn t work to begin with. You need to be realistic about the economics of your business, and you need to be realistic in deciding whether, in fact, the environment that you re operating in allows a reasonable return. It goes back to the point I made earlier about growth in deposits: It s easy to be tempted into a race of buying money, but eventually that cannot be a winning strategy for a small community bank. Marty Infanti: You need to focus on what you do well and not try to do too many things. The key to success is having people who know what they re doing, have experience, and have the ability to focus and not get distracted. Most small institutions need to find niches in which they can compete successfully, then focus on those niches and staff them with experienced people. It comes down to service. The customer wants to talk with someone who knows what they re doing. Ziss Frangopoulos: There are many everyday products we do not offer, but we don t suffer by not offering them. For example, we do not have a credit card. That s a volume-driven business we could never sustain, and our customers already have more credit cards than they need. And we do not do the traditional 30- year mortgage; however, if a customer needs one, we will happily refer them to one or two other providers where we know the caliber and quality of service are top level. The customer doesn t have to go there; we do not have a financial interest in the transaction. We supplement our service by referrals and suggestions, but we do not try to provide a service that we cannot do well or be profitable in. Chris Cusatis: It sounds odd for a small shop to give advice to a big shop, except that a lot of us have come from big shops. Our small size gives us the ability to have a single message and a clear tone from the top as well as good communications and focus. Christiana Bank can provide an example in that area for every organization, and we hope we never lose that. The culture has been established for all of us to function for the good of the enterprise. And that s something that can get lost with size. Notes 1 Readers can get more information about the OFAC, especially as it applies to the financial sector, by reviewing FAQs at enforcement/ofac/faq/index.shtml#finance. There is a way to do the right thing, and it s okay to do the right thing. 15