Provident of Ohio Toils to Jump-Start Retail

Personal finance guru Jean Chatzky drew a crowd of curious customers to a Provident Financial Group branch one evening last month.

Provident had hired Ms. Chatzky, a regular on NBC's "Today" show and a columnist for Money magazine, to dispense estate planning advice to the company's 530 best customers.

But instead of endorsing Provident's products, Ms. Chatzky-appearing via satellite on TV screens in 20 Cincinnati-area branches-urged customers to avoid certificates of deposit and to be wary of pitches for home-equity loans.

The event, a first for $8.6 billion-asset Provident, illustrated the company's recent emphasis on retail banking. Historically a middle-market business bank, Provident is working diligently to reposition itself as a sophisticated financial adviser to its consumer clients.

"Bankers are criticized for being order takers," said Gary Queen, managing director of Provident's capital management group, the arm of the company that handles investments, asset management, and trust products. "What we hope to do is change the direction and the perception of the bank."

Since beginning its retail initiative in 1996, Provident has remodeled its branches and revamped its marketing efforts to offer products as solutions to personal financial hurdles, and it is retraining branch employees as financial advisers.

Three years into the campaign, however, there is little evidence the effort is working.

While most of the banking industry posted double-digit profit increases last year, Provident's income grew only 6.9%, and its expenses soared by one-third.

What's more, deposits have grown only 15% since 1996, mainly through brokered and public-funds certificates of deposit.

Provident's commercial customers are still generating the bulk of the bank's income. For the first quarter, business clients contributed 68% of Provident's profits, and retail kicked in only 13%.

"Retail is still an inconsequential piece of the bottom line," said Joseph C. Duwan, a bank analyst at Keefe, Bruyette & Woods Inc. in New York.

"It's going slowly on the retail side," agreed Fred A. Cummings, a bank analyst at Cleveland-based McDonald & Co. Investments.

It would be cheaper for Provident to strengthen its retail operation by acquiring banks and branches rather than overhauling its existing operation, Mr. Cummings said.

Robert L. Hoverson, Provident's chief executive officer, acknowledged that the retail business has been slow to show improvement. But he predicted retail operations-which include a thriving auto leasing division- would account for 40% to 45% of income this year.

"A lot of this is starting to cook as we expected it to," he said, saying the bank's image has improved and its sales culture is stronger.

Provident's market research said the number of noncustomers who said they would most likely switch to Provident if they left their own bank has grown eightfold since 1996. And Provident employees are outscoring local competitors in "mystery shopping" tests, in which researchers pose as customers to test employees on their product knowledge and ability to sell.

Provident began aggressively targeting retail customers after Mr. Hoverson-then an executive vice president-concluded that its approach was disorganized, ineffective, and not as profitable as it could be.

Mr. Queen, who helped Mr. Hoverson develop the retail strategy, said a disjointed approach meant missed opportunities for Provident. "Every commercial customer could be a retail customer, and we weren't tapping into that," he said.

Provident's first step: to reorganize the bank's retail operations under one experienced manager.

Mr. Hoverson, a commercial banker, like most top-level veteran Provident executives, decided to hire retail-focused talent to lead the effort. He tapped Charles W. Sulerzyski, formerly Fidelity Investments' retail head, to be executive vice president in 1996.

Mr. Sulerzyski, who had spent most of his career at Bank One Corp. before joining Fidelity, started by overhauling Provident's branches. Most retail offices were outdated, 20-year-old buildings with poor lighting and overgrown landscaping.

"We've eliminated the embarrassments," Mr. Sulerzyski said, adding that an inner-city Cincinnati office got a $500,000 face-lift.

Technology has played a large role in the company's effort to become more retail-friendly. Television sets, linked by satellite hook-up, sit in Provident's branch lobbies broadcasting its commercials, product information, and financial planning advice.

The company also revamped its marketing.

Print and television ads, which began running last year, all feature simple, doodle-like cartoons and discuss personal financial hurdles. One ad, for example, promises access to a personal banker-"you get Joe's brain"-to a customer who takes out a $25,000 home equity loan.

"We compete based on information delivered to the customer in everyday English," Mr. Sulerzyski said.

In the branches, Provident markets its products through pamphlets that describe a personal financial goal, such as expanding a business or buying a first home, rather than outlining a particular kind of account or loan.

One pamphlet asks expectant parents to itemize on a work sheet the expenses that come with a new baby. At the end of the work sheet, if the customers' expenses are greater than income, the pamphlet suggests a home equity loan or a personal line of credit.

To make sure Provident's personal bankers are giving good advice, the company has sent 20% of its staff through certified financial planner courses. Since 1996, Provident's education effort for its retail employees has grown from virtually nothing to roughly $2,000 annually per person.

"I think for us to distinguish ourselves, we have to be able to handle the complex situation," Mr. Sulerzyski said. "We need to have people in the branches that can handle complex financial matters."

Despite the slow start, the two analysts who cover Provident said they support the bank's retail strategy, and they are giving Mr. Hoverson's team more time to show improvements. After all, the company is facing stiff competition from retail-focused banks such as local rival Fifth Third Bancorp and Milwaukee-based Firstar Corp.

"It's tough to turn around a retail business, especially in a very competitive market," McDonald's Mr. Cummings said.

Mr. Hoverson said the retail strategy is relatively low-risk because Provident has not abandoned its commitment to its core client, the middle- market business. Provident is trying to add a specialty, he said, not change direction.

"This is not bet-your-bank type of stuff," he said.

The analysts said that even if the retail initiative fails, the company could fall back on its commercial business, which "continues to hum along," according to Keefe Bruyette's Mr. Duwan.

Provident's commercial divisions have historically helped it post solid returns. Since 1989, Provident's return on equity has averaged 17%, compared with a peer group average of 14%, based on an analysis by Keefe Bruyette. Provident has also been more efficient than its peers, averaging a 56% efficiency ratio to the other banks' 62% in the past decade.

Mr. Hoverson is intent on returning Provident to those levels of profitability and efficiency.

Last summer, just a few months after taking over the chief executive job, Mr. Hoverson announced an initiative to bring Provident's costs back in line. The company's efficiency ratio had climbed to 57% by mid-1998, up from 48% at yearend 1997. So it shut down two nonbanking subsidiaries and pledged to eliminated 500 jobs, mainly through attrition.

Provident's efficiency ratio has since improved to 53%.

"Bob has more of a bottom-line focus," Mr. Duwan said.

"He got this company focused back on the basics," Mr. Cummings said. "He's a no-nonsense, numbers kind of guy."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER