As you go through the plate-glass doors, you see chrome, glass, marble floors, sunlight … and then there’s that aroma, of brewed coffee and fresh-baked cookies. Fresh flowers adorn the teller counter. Love songs and dance music play softly in the background. The staff seems to have been waiting just for you to show up—even the platform officers’ desks all point to where you walk in. The branch manager’s office is all glass, allowing you to see, and be seen.
James Gibson, chairman, president, and CEO, offers a visitor a cookie, and inhales. “We grind our own coffee in every branch,” he explains. “Because it’s fresher, and because it smells good.” Gibson points out that even the napkins accompanying pots of Costa Rican and butterscotch-flavored coffees and branch-baked cookies are stacked decoratively, restaurant style. Everything you see—and some things you don’t see, but somehow feel—has been carefully calculated.
Who is Jim Gibson trying to please? Women.
“If women control two-thirds of household checking accounts, then who should you focus on?” asks Gibson rhetorically. But in his quest to make women happy (and come on, guys, we like cookies, too, don’t we?), Gibson doesn’t just set out to please their senses, but also their sense. Today’s women lead very busy lives, and Gibson and his team delved deep into what would make Integrity Bank serve them well. They studied the science of convenience, drawing heavily on the fast-food business to rethink the way a branch interacts with the public.
Calculated branch blueprint
Dozens of details went into the bank’s design, which Gibson sketched out and then challenged his architects, Crabtree, Rohrbaugh & Associates, to fit into an attractive 3,500 square-foot building. The bank, launched in 2003, is based in Camp Hill, near Harrisburg, the state’s capital. It has seven branches serving four southern Pennsylvania counties. Three more branches are in various stages of approval. All are open for extended hours Monday-Saturday, plus Sunday hours. ATM service is free worldwide to make up for the limited number of branches.
Gibson, a veteran community banker, has lots of research and stories backing up what he did, but one anecdote will suffice. A busy mother once told him he was crazy if he expected her to carry her child through the rain to use a walk-up ATM. And then she asked how his board would feel if she left her child alone in the car while she sprinted to the cash machine?
Hence, branches of $640 million-assets Integrity typically feature drive-up ATMs. These units and the commercial night depository are on the opposite side of the branch from the manned drive-through lanes. Gibson wanted to segregate ATM traffic, which he says tends to be noncustomers, and commercial traffic, from the free flow of retail drive-through customers.
Why such concentration on drive-through? Gibson goes by the numbers: 61% of his bank’s live transactions go through the bank’s drive-through lanes, versus 39% at the teller counter. It only makes sense, Gibson insists, to cater to the real flow. As a result, Integrity tellers share one large stand-up bullpen, where they can simply walk to the drive-through “wall”—it’s much more than just a window—if needed. Up to four tellers can serve customers in their cars.
We’ve been using the term “drive-through” for emphasis because Gibson insists on pulling traffic through drive-up lanes quickly, to minimize waiting. Again, the emphasis is on busy customers, frequently women with things to do besides banking.
Drive-up customers can be served two ways. First, there are two stations right on the side of the building. If both tellers are free, drivers pull ahead, so another customer can pull behind them for service. A bonus to these stations is that the drawers can also deliver cookies. There are also multiple outer islands—the number varying by branch—but with a key difference we’ll cover in a moment.
Tellers have unusually wide visibility. The drive-through side of the building consists of a huge window that wraps partially around both side walls for improved visibility. Tellers can see customers making the turn into the drive-through lanes. This has the look of an earthbound airport control tower, which actually is what it is.
The outer islands—each containing two stations—use pneumatic tubes. But here, too, Gibson does things differently. One difference is that ahead of each pair of stations is a weather-protected mini check stand. This contains deposit tickets and other forms that folks often forget to fill out in advance. It allows them to start prepping while a customer ahead of them is being served, instead of holding up the line by asking for a form, and having it delivered by tube.
Thus prepared, the driver advances to the first station on the island, and speaks to the teller remotely. (The island stations are staggered for visibility.) The customer places her materials in the pneumatic tube, and off they go to the teller. While the teller processes what’s received, the customer advances to the next station on the island. There, she receives receipts, cash, what have you via another tube, and is good to go. Meanwhile, two more customers have already flowed into the system, one at the first station and one at the check stand. Color coding inside the branch helps staff keep everything straight.
If this sounds like McDonalds, it’s by design. And while the idea of putting burgers in a tube system is unthinkable, on occasion ingenious tellers send out cookies via carrier. “We are in the people business, not the finance business,” says Gibson.
Theory behind the throughput
Prior to starting Integrity with his investors and directors, Gibson spent years working at Pennsylvania’s Commerce Bank/Harrisburg, an affiliate of New Jersey-based Commerce Bank, now TD Bank. Commerce then was under Vernon Hill, who billed it as the country’s most convenient bank. Gibson took what he learned there and built on it.
Everything he does comes from a deep desire to compete for retail deposits in the most efficient means possible, and to turn growing efficiency into shareholder return. Gibson focuses on ROE, which hit 15.03% in 2011. So far, 2012 bodes even better.
“If you are not focusing on giving your shareholders an excellent return, you ought to fire yourself and do something else,” he says.
Efficiency represents a key to strong returns, according to Gibson. Currently, the bank’s efficiency ratio stands at 51.56%, and Gibson thinks the bank can get that down into the 40s.
His main thrust for efficiency is to maximize the amount of deposits handled by each location, and this is why Gibson stresses rapid, convenient, pleasant, and friendly service. Happy customers bring more customers, pushing more through the bank’s infrastructure. Gibson declines to compete with aggressive rates: “If they come on price, they’ll leave on price.”
During an unannounced branch visit, Gibson asks a customer service representative how openings stand versus attrition that week, and she knows the answer without having to consult a screen or a printout. It’s what he expects. “The major focuses for a branch are to open accounts, open accounts, and open accounts,” he says.
Gibson picks new sites very precisely—“I only put my ladder where I can fill my baskets”—and acquires them by the most efficient means he can, depending on the owner’s desire. “We spend a lot for our locations,” says Gibson, “but these locations give back.”
He feels no need to own a site if he can lease it. And in some cases, he has used sale-leasebacks to free up capital for further investment after buying a site.
Being a de novo gave Gibson the advantage of not having a bunch of legacy branches that can’t accommodate Integrity’s concepts. Management knows what it wants and builds it, and it wants deposits, not to plant flags on a map.
“As the company grows, my costs should be relatively stable, but my profit should increase,” he explains. Gibson pays up to recruit strong branch managers and frontline staff. He illustrates the point of this while standing in an established branch.
That particular branch has $250 million in deposits, he points out, while the average branch of all providers in that market holds $50 million. “So I am paying one manager, instead of five,” he explains, “and I am paying four CSRs, instead of 20.” Gibson says its costs him approximately $500,000 annually to operate one of his branches.
Gibson believes Integrity’s design and staffing levels can handle as much as $300 million in deposits comfortably. “And at $300 million,” he says, “these branches can just print money.” Gibson says his growth target is to take Integrity to $1 billion in assets. At that size, with strong profits, he says, “we can continue to control our own future.”
Two key questions Gibson asks constantly are how many checking accounts the bank can open and where it can put deposits out at a nice profit. The bank makes mortgages, but sells everything, and does a smattering of consumer lending. But the bulk of its credit is commercial real estate lending, with some C&I lending. The bank maintains a loan-to-deposit ratio in the 90s.
Much of the CRE lending resides in a very specialized product: national tenant real estate leases. When land owners lease to big national-brand tenants, they obtain long-term agreements. They can borrow against these income streams. Integrity likes this niche, according to Gibson. Major companies aren’t bulletproof, but they have the staying power that Gibson says examiners will accept. Also safeguarding the bank are five-year call options.
Naysaying the pundits
While it offers online banking, remote deposit capture, and other modern banking options, Integrity continues to pursue a model based heavily on very basic banking methods. Gibson credits the bank’s success thus far to its delivery innovations in the branch and basic blocking and tackling.
Ask him about banking pundits’ predictions that the traditional branch is dying, that branches of the future will be cross-selling centers or gone, and that all routine transactions will be electronic. And ask him about Gen Yers, who reputedly don’t go into branches, ever.
Gibson laughs at it all. He believes most bank accounts are still opened in branches, and that, again, is why he builds them.
He also recalls an old Federal Reserve comic book, Alice in Debitland, that predicted a checkless society by 1990.
He shrugs at pundits. “If you don’t want to open accounts,” he says, “then don’t build a branch.”