When Joey B. Bailey opened First Bank of Louisville, Ky., last April, he knew exactly what kind of customer he was going after.

In two words: blue collar.

"The customer who needs the most help is the small guy," said Mr. Bailey, chief executive officer of the $40 million-asset bank. The "small customer out there is being ignored by the large banks who very candidly have chosen to serve only the big customers."

Mr. Bailey's approach goes against the grain of such current banking industry fixations as merger strategies, investment products, and technology. But the basics are paying off. He and community bankers like him across the country say many of their competitors have left a profitable niche wide open.

Indeed, bankers say blue-collar consumers typically are less likely to haggle over rates, more likely to repay loans, and more willing to swallow fees than more affluent customers.

"Your lower-middle-class person is used to paying his way, used to paying fees and service charges," said Chris Hargrove, president of Professional Bank Services Inc., a consulting firm based in Louisville.

"They're much more happy to get the loan than concerned about rate."

According to an American Bankers Association survey, lower-wage workers are more likely to do business with small banks than large ones.

The 1996 survey found that 64.5% of customers at banks with $300 million or less in assets had an annual household income under $50,000. At banks with assets of $300 million to $999 million, the figure was 59.8%; for those with $1 billion or more in assets, 55.5%.

John Lawson, president of $85 million-asset Mount Sterling (Ky.) National Bank, has found the blue-collar niche to be a lucrative one. Mount Sterling is a unit of $750 million-asset Whitaker Bank Corp. of Lexington.

"The blue-collar market ends up being a better market than any other," Mr. Lawson said. Such consumers don't "object to service charges or paying a reasonable rate."

Small factories have been sprouting in Montgomery County, where Mount Sterling is located. Since 1990, About 3,000 jobs have been created in the county of 20,000 residents.

Mr. Lawson lets the county's three other banks clobber each other for relationships with its major employers-which produce food and automotive products. He goes after the people who work on the line.

"We've watched our competitors fight for the corporate business and just sit back and go after the blue-collar market," he said.

This strategy has paid dividends. Last year, the bank racked up a 1.8% return on assets, after costs related to its acquisition by Whitaker. The bank maintained a 1.5% return over the previous five years. Mount Sterling's net interest margin was 5.27% at yearend, putting it in the top quarter of its peer group.

Blue-collar consumers are a stable deposit source because they are more willing than wealthier people to sock away their savings in banks, said James W. Allen 3d, chief executive officer of $220 million-asset Harrisburg Bancshares, Houston.

"They're typically not as interested in the equity markets as they are in having a safe place for their funds," he said.

Moreover, lower-income bank customers are more likely than others to say they would buy mutual funds and other investment products from banks.

In the American Banker 1996 consumer survey, conducted by the Gallup Organization, 32% of bank customers with incomes between $20,000 and $40,000 were interested in obtaining mutual funds from a bank. That compared with 24% of all customers and 20% of those who earn more than $75,000.

Also, 39% of bank customers in the $20,000 to $40,000 range said they would be interested in obtaining financial planning services from a bank, compared with 31% of all customers and 22% of those earning $75,000 or more.

Blue-collar customers are also a plus on the credit side, according to Barry Hudson, chief executive officer of $101 million-asset First National Bank of Portland, Ind.

For one thing, he said, blue-collar customers tend to keep borrowing to a more advanced age than wealthier ones. "The blue-collar worker doesn't have the backup (resources)," Mr. Hudson said.

As evidence of this, Mr. Hudson said First National's loan portfolio grew 17% to about $85 million last year. The bank had a 1.7% return on assets and held its delinquency rate to 1%.

"That's as good as it gets," he said.

Mr. Allen at Harrisburg Bancshares said delinquencies crop up less because these customers avoid living beyond their means.

"They're not leveraged with too much consumer debt," he said. "In other parts of Houston, they try to finance their lifestyle with their credit cards."

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