A different approach to reducing CRE concentration
By Steve Cocheo, executive editor. This article originated when ABA Banking Journal tweeted, “What’s your favorite bank website?” You can follow us on Twitter at ABABankingJourn. Share social media strategy—or web favorites—at
SpurTheEconomy.com, Royal Bank America’s special small business website, aims to help the bank reduce CRE concentration
Community banks venturing into social media remain a minority of the industry, and those using Twitter represent a smaller slice of the pie yet. Many are simply dipping their toes.
But at Pennsylvania’s Royal Bank America, management has moved into Twitter and a related website in a big way. How big? Billboard-sized big.
A need to shift the message
This marketing effort came about as the result of a major change in the bank’s circumstances. Royal Bank America is the $1.14 billion-assets main subsidiary of Royal Bancshares of Pennsylvania, based in Narberth. Its prime markets are in southeastern Pennsylvania, as well as New Jersey.
Since the 1980s Royal Bank, publicly traded today, was under the control and active management of the Tabas family. Dan Tabas, who died several years ago, was patriarch of a clan active in commercial real estate development, hospitality, and entertainment—notably dinner theatre locations—and it was a natural development that the bank evolved increasingly into a real-estate lending specialist. At the end of 2008, the bank’s portfolio of nonresidential real estate and construction loans represented 71% of total loans.
“It was a market that we knew and understood,” says Robert Tabas, chairman and CEO of the bank, and son of Daniel Tabas.
However, as commercial real estate and construction and development began to deteriorate, the bank’s results began to suffer, and management came to realize diversification was needed.
While this was seen in 2007, some of what was already in place in the bank’s loan and investment portfolios had already planted seeds of trouble, and 2008 saw a large loss of $38.1 million. Among the reasons: a significant rise in loss provisions due to a higher level of nonperforming loans; impairment losses on mortgage-related securities and losses on other securities; falling interest income due to the substantial variable-rate lending done by the bank; and the payout of the former president’s contract when it was decided to make changes in the management team effective at the end of last year.
While this was going on, regulators stepped up their involvement, culminating in a consent agreement with FDIC and the Pennsylvania Department of Banking that was announced in mid-July 2009. The order addresses agreements to reduce classified assets, to preserve capital, and more. Plus mutual recognition of the need to diversify away from commercial real estate led the bank to step up non-real-estate small-business lending.
In series of moves starting last year, Robert Tabas, already chairman, became CEO as well, and COO James McSwiggan also became president. The bank hired a new chief credit officer, a new chief lending officer, and a new CFO, and also hired a banker to head up the new small-business operation, which includes a Small Business Administration loan function.
While real estate lending will remain a significant part of Royal’s business, the intent is to push the commercial real-estate lending ratios down. “We want to come out under the concentration limits,” says McSwiggan. Shifting to small-business lending “is the right product at the right time,” he adds. The bank has stepped up its marketing to make the case that while other institutions have pulled back from the small business market, it has funds to lend.
Thus was the concept of a marketing campaign born, including a link with the bank’s past. Bank officials say the effort has produced $24.2 million in small business loans thus far.
Shifting the marketing image
Royal Bank had become known as one of the go-to places for commercial real estate funds, and moving the market’s perception beyond that niche has taken a number of strategies.
Royal was never a traditional bank promoter, according to Marc Sanders, director of marketing. Indeed, for years the bank was known for headgear not generally connected with Pennsylvania: a cowboy hat. The controlling family’s patriarch, and longtime chairman of the bank, Daniel Tabas, became so identified with the hat that the photo released along with his official obituary in 2003 showed him wearing one. To this day, Royal sometimes refers to lenders as “loan rangers.”
The cowboy hats appeared in branches, and elsewhere. Notably, they were played up in the bank’s outdoor advertising. Sanders explains that the bulk of the bank’s advertising budget has long been spent on billboards, with comparatively little going into traditional media. This was an outgrowth of the family’s history in the hospitality business.
Long ago, Sanders says, management realized it could never outspend big banks’ ad budgets, so it decided to spend what it had on “quirky” and unusual approaches that would be more memorable than traditional media.
So the bank’s latest marketing effort has been built around a special website, www.spurtheeconomy.com. The spur in the name and the graphics used wherever it is referred to carry a double meaning. The first is the obvious one—to stimulate economic activity through lending by Royal. The other is the pickup on the cowboy motif, says Sanders, symbolized now by the western-style spur depicted, instead of the traditional cowboy hat. One early billboard blared, “HATS OFF! SPURS ON! Royal Bank America Has Millions To Lend To Small Businesses!” The familiar cowboy hat is off to the side, and Robert Tabas is pictured in a business suit with a classic pair of western spurs strapped to his heels.
The message, outdoor and online
The Spur the Economy website opens with a shot of a billboard, and then the “camera” moves in for a close-up, which then morphs into the special Spur the Economy website.
Robert Tabas’ picture and a welcome message from him open the site, which features links to four key products—business lines of credit, remote deposit capture, free business checking, and business credit cards—and quick links to lenders and branches plus an online loan application. The bank is promoting its ability to close loans right in its branches, and, besides lines of credit, has been promoting equipment leasing and corporate credit cards.
The billboards and the special website are designed to speak directly to potential small business borrowers seeking working capital loans and other basic services.
“This is geared to people who self-identify themselves as growing small businesses,” says Sanders. The bank maintains eight billboards, currently, promoting the Spur program, most on major arteries of the Philadelphia metro area.
The Twitter factor
Most of the billboards feature the bank’s Twitter address, www.twitter.com/SpurTheEconomy. Sanders added the Twitter element to the bank’s mix to improve online visibility.
“I want to be where the conversations are,” explains Sanders. “We are open for business and we are one of the banks that are open for lending.”
The first “tweet” was: “Dipping toe in water …seems ok.”
The bank’s Twitter home page features a link to the Spur home page, as well as Sanders’ e-mail and phone number. In a display area customers are warned not to include account numbers or personal information in their tweets. In mid-August the bank had 335 followers.
Sanders learned his way around social media experimenting on his own before trying it for the bank on Twitter, beginning in late February. For instance, he runs a review log called “Burgatory” that reviews burger joints in his area.
“I’ve never been a fan of hard selling” on Twitter, he explains. “It’s supposed to be a conversation.”
So the Twitter account, while subtly promoting the Spur site and the bank in general, tends to focus more on passing on helpful information for small businesses and to highlight interesting local businesses (a recent example: Crazy Aaron’s Puttyworld) provide links to community events and information of interest. For instance, Phoenixville, Pa., holds an annual “Blobfest,” commemorating the filming there of the Steve McQueen horror/scifi classic. Sanders tweeted pictures taken in Phoenixville on the Spur Twitter site, and provided links to the photos, hosted on Twitpic, as well as commentary on the window painting done in the bank’s Phoenixville branch as part of the celebration. Another tweet promoted one of the other branch’s “breakfast business card exchange,” a networking event.
Occasionally, bank community services are promoted, such as Royal’s standing offer of free bottled water and soft drinks in its branches during the summer. (It’s sometimes the first thing you see on the bank’s regular website, www.royalbankamerica.com, which has a series of rotating looks for its home page.)
The intent behind going to Twitter and now Facebook is to expand the demographic the bank reaches through online efforts. Traditionally, its marketing was biased towards customers and prospects 45 and older, says Sanders.
“But you are seeing younger and younger entrepreneurs, now,” says Sanders. So the bank felt the effort to send its business-lending message to younger people through social media was worth a shot. That comes on top of the realization, Sanders says, that those target prospects are also the future customers for the bank. The next step for the Spur program will be live events publicized through the website and the social media.
Effort gathers momentum
While the bank’s challenges with its legacy commercial real estate loans continued through the second quarter, the Spur program is beginning to gain some traction.
A significant change in the bank’s lending philosophy concerns the size of loans, according to Tabas. For many years, management emphasized finding larger loans. Now, with the bank’s emphasis turned towards small-business lending, that has changed. In addition, the bank expects branch staff to develop relationships that will also pay off in local deposits (the FDIC/state order demanded the bank to reduce reliance on brokered deposits).
Bank president McSwiggan says the bank’s ideal customer has annual sales of between $400,000 and $500,000 annually. The bank prefers that companies it lends to for its own portfolio be seasoned. On the other hand, it does allow its SBA operation to look at start-up businesses.
“In this economy, it’s still a tough road,” says McSwiggan. BJ
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