Investors Savings Bank: Evolution, Not Revolution

Financial

Written by Eric Slack

Tuesday, 01 April 2008

Investors Savings Bank: Evolution, Not Revolution

Kevin Cummings describes this New Jersey bank’s effort to put “community” back in community banking.

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Success in the banking world is based on more than just assets. Although New Jersey’s Investors Savings Bank grew to $5 billion prior to a major shift in its business model three and a half years ago, the bank wasn’t in the best position to grow in a highly competitive environment. That is why the bank altered course, shedding its previous existence as a mutual bank and transforming the balance sheet to operate as a community bank.

Kevin Cummings, President and CEO

“The transformation story here can be a great example for a Harvard case study in change management. As a sleepy mutual savings and loan, the bank was focused on adding wholesale assets like investment securities instead of loans and wholesale funding from Wall Street banks instead of core deposits,” said Kevin Cummings, president and CEO, noting the bank also conducted an IPO in 2005. “So while the bank expanded to more than $5.5 billion in assets, the infrastructure to drive a retail organization wasn’t there. That is the culture change we have put in place over the last few years and continue to emphasize daily.”

One of the challenges the bank faced as it moved away from its wholesale philosophy was training the staff to think about banking differently. One primary change was redefining the responsibilities of its 46 branch managers. According to Cummings, branch managers previously focused on operational matters. Now in a redefined role as sales managers, they are out soliciting business by making presentations to businesses, civic organizations, and charities.

Without resorting to layoffs, the bank invested in internal training. It hired a full-time training director and brought in external consultants to help managers see opportunities in the marketplace. The company even brought in Ritz Carlton consultants for seminars on world-class service, attitude, and coaching. Although about half of the branch managers have been replaced over time, most of the replacements were due to retirements, promotions, and moves into operational positions.

The bank also needed to update its product line. Cummings said as of October 2006, the bank didn’t have a business checking account. Through additional services such as business checking and Internet banking, the company increased core deposits while increasing its loan portfolio from $750 million to more than $4 billion during the last five years.

Cummings also described a newer checking account for not-for-profits. In addition to expanding its product line, the move helped staff acclimate to the change in company culture. By bringing in the not-for-profit line, managers could make calls in friendlier situations. It also allowed the bank to hire six business development officers in two years to help branch staff call on potential business customers.

“By starting in the not-for-profit arena, people got used to getting out of the office and exchanging thoughts in a comfortable environment,” said Cummings. “We also found niches in the marketplace where we thought there was a lack of service from larger banks.”

Reaching out
While altering its business practices, Investors Savings Bank took care to educate the public at large about the changes. Without a massive marketing budget, the company refocused efforts on community-based strategies. The company still advertised with major regional newspapers and radio stations, but community activity became the primary source for spreading the word.

For instance, the bank started a $25 million charitable foundation as part of its IPO, which helped get the ISB name out into the market. Through involvement in efforts like New Eyes for the Needy, a charity that provides eyeglasses for poor children and adults, the bank established positive name recognition in its service area.

In 2007, an historic regional theatre called the Paper Mill Playhouse fell on hard financial times. The theatre opened in 1934, but when two national banks pulled their support, it was close to bankruptcy. One of ISB’s charitable foundation board members previously served on the theatre’s board and brought the two together. This led to an agreement on a $3.5 million loan in two weeks, keeping the theatre in business. The bank is now sponsoring the theatre’s 2008 season.

“Not many banks would have made that loan. We felt a neighbor was in trouble and made a community decision, not a business decision,” Cummings said. “These decisions are part of our efforts to be play a significant role in the marketplaces and communities we serve. This bank was the best-kept secret in New Jersey. Now we are using more of our resources to sponsor community events and work with the foundation to help raise our profile.”

Other investments made during the transition helped expand its capabilities further. Relocating to new headquarters in 2004 gave the bank space for a commercial real estate business in 2005. The company also recently created a technology security officer’s position to educate bank employees on Internet security and other precautions.

The bank is also currently acquiring a five-branch mutual bank operation, Summit Federal Savings Bank, which will increase ISB’s tangible book value by about $16 million. It also allows the bank to expand into high net worth markets in the state. With the current economic cycle leaving many banks unsure of what to do next, Investors Savings Bank is in a position to reap the benefits of the decision to change course.

“Many large national banks have capital restraints because of more assets on their balance sheet than anticipated, or they pulled out of markets due to credit concerns. They aren’t going after commercial real estate business aggressively,” Cummings said. “This is an opportunity a bank of our size can take advantage of. We are a large bank that can service a good size loan for large, well-known developers and builders. Loan customers in New Jersey like the fact that we can make loan decisions quickly and locally.“

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