Community bankers are making a big push into trust management, rushing to pick up clientele who might feel left out after bank mergers in their markets.

"Our philosophy is there will be monoliths and us," said Edward F. Walker Jr., the senior investment and trust officer of First National Bank of Hope, N.J. "We're hoping that the people the monoliths kick out will come to us."

First National, which has three branches in western New Jersey, competes with several large institutions, including Summit Bancorp., First Union Corp., Citicorp, and Chase Manhattan Corp.

"There is a niche a small bank can serve," said First National president Norman E. Beatty. "People who don't have $10 million dollars might have $1 million, and they are turned off by a lack of interest by major banks or 1- 800 numbers."

The chairwoman of the American Bankers Association's Trust and Investment Management Division, Jayne Lipe, could not agree more.

Ms. Lipe, who is executive vice president of Overton Bank and Trust Co., Fort Worth, wrote a 40-page guide for her colleagues called "Starting or Renewing a Trust Department." She said she wrote it after getting a barrage of phone calls from community bankers wanting to pick her brain. It was released last week as part of the ABA's Community BankTool program.

Community bankers say local service is their biggest competitive advantage in trust administration, which often involves arbitrating a family's personal matters as much as it does managing investments.

"They're serving the market that is used to the idea of having local decisions made," Ms. Lipe said. "People don't want to think about something going to another city on a decision that affects their grandchildren."

But she does expect superregional banks will continue to excel, because of their sophisticated trust administration systems and investment products.

In eight years, Ms. Lipe's bank built a trust department with $1.1 billion under management. Other community banks that have been upgrading their trust departments or plan to do so include PFF Bank and Trust Co., Pomona, Calif., Hagerstown Trust in western Maryland, and Central National Bank and Trust Co., Enid, Okla.

Before taking that step, though, bank executives say it's critical to make sure that your existing client base and community is big enough to sustain a trust department.

"There's not a great capitalization need to get a trust company started, but there is a great need for cash flow to keep it going," said David F. Doten, executive trust officer for PFF.

Getting into trust was a necessity at First National Bank of Hope, a $125-million banking company.

"Starting around 1992 I felt rather keenly that we were seeing a shift of money out of the bank, especially when folks died," Mr. Beatty said.

First National's trust division, which manages $35 million in 200 accounts, should turn its first profit this year, he added. Since inception, it has earned $60,000.

Trust and estate administration makes up 15% of the two-man division's work. Taxes are also a popular service. Most of the revenue comes from sales and management of IRAs, 401(k)s and mutual funds. The bank has added five mutual fund families-Fidelity Advisor, Putnam Investments, Fortis, John Hancock, and Oppenheimer-in the last two months to join the one it already had, Federated Investors.

Marketing is simple: signs in branch parking lots direct customers to the trust and investment department. Unlike large banks, there is no budget to lavishly entertain clients.

"It's not to the extent that bigger banks do: no soirees, no high teas," Mr. Walker said. "Our clients go from working class to professional. I don't think they're looking for that."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.