CHARLOTTE - To compete better with community banks, Wachovia Corp. is arming its smaller-market branches with generalists who have more control over lending and marketing decisions.
"It's old-school in a sense, but it's a lot more effective," said Bill Holt, Wachovia's executive director of community banking, in an interview. "One size doesn't fit all."
In the nearly two years since First Union Corp. bought the old Wachovia and took its name, the nation's No. 3 consumer banking company has been quietly pursuing a two-track retail banking strategy, treating smaller, more rural locales differently from urban markets. It has made changes to 350 branches in more than 60 markets from Florida to Virginia. Five more markets are targeted for the makeovers this year.
"When we put the two companies together, we looked at the company and said we have a significant number of non-metro markets now," said Mr. Holt. "The model we were running in metro markets … doesn't work as well in rural areas."
In these community banking markets, local bankers work with various kinds of customers instead of focusing on specific groups such as consumers, small businesses, or medium-sized companies. Local executives get more authority on lending, advertising and marketing, and other key decisions, and incentives can be set according to local market goals and conditions, Mr. Holt said.
Wachovia's strategy is similar to one that U.S. Bancorp of Minneapolis, Zions Bancorp. of Salt Lake City, and a few other large banks have pursued in recent years as they try to improve results in smaller and often slower-growing parts of their franchises.
Industry experts say it makes sense for large banks to adopt a flexible approach to serving smaller markets.
"It's much more effective, as well as productive, to tailor their approach to the different dynamics and economics and competitive intensity of a community market versus a metro market," said Les Dinkin, a banking consultant and managing principal at NBW Consulting Group Inc. of Westport, Conn.
Since the mid-1990s, U.S. Bancorp has divided its network into about 1,240 metro banking branches and 960 community banking branches, each with its own strategy. In smaller markets, spokesman Steve Dale said, "this allows the market president to make market-specific decisions, whereas in our metro banks … the staff delivers products and services through individual lines of business."
At Wachovia, the model is similar in the 60 community banking markets spread across the Southeast, including Winchester, Front Royal, and Harrisonburg in Virginia; Boone, Wilmington, and Fayetteville in the Carolinas; Athens, Gainesville, Macon, and Columbus in Georgia; and Lakeland, Winter Haven, Gainesville, and Tallahassee in Florida.
The old First Union periodically sold branches in rural communities, on the theory that growth was better sought in urban areas. But Mr. Holt says the company now believes that selling off smaller markets would reduce revenues and profits.
Community banking accounted for about $730 million of revenues in 2002, or about 8% of the total in Wachovia's consumer and commercial bank. The 350 branches represent 13% of its 2,700 total and hold about $17 billion of deposits, or about 12% of the retail banking division's total at yearend.
Butch Rahman, Wachovia's president of community banking for Polk County, Fla., said the change has been "wonderful."
"It streamlines the focus for our non-metro areas. The [customer] segments are gone, and I now handle companies from anywhere from zero to $250 million in sales," he said. "That allows people to know who their bankers are."
Business also benefits because "I don't think like a line production officer, though I do have personal production goals," Mr. Rahman said. His incentives are set so that he thinks more like a small bank president, with goals of increasing loans, revenues, and profits. He and his employees have more control over advertising and charitable donations too.
The $348 billion-asset company is pursuing the new dual market strategy at the same time it is integrating the branch networks of its two predecessors, brought together in September 2001.
Wachovia has been tracking progress since the first quarter of 2002, and after a year the results suggest the strategy works, Mr. Holt said.
"The model is more efficient and it's more effective. The customer wants local decision-making. They want permanence in local leadership," he said.
Mr. Rahman said his 18-branch Florida market, which lies between Orlando and Tampa, increased deposits by 14%, to $719 million, and widened its market share from 15.7% to 17.5%.
At the same time, other large banks such as SunTrust Banks Inc. of Atlanta and Bank of America Corp. of Charlotte have been losing market share, primarily to community banks.
"We feel like we've found the right spot on the centralized-decentralized scale so that we can offer the strength of the fourth-largest bank in the country with the hometown service and feel of a community bank," Mr. Rahman said.
Gordon Goetzmann, a consultant at First Manhattan Consulting in New York, said a community banking model is a good offense for a giant bank trying to compete with local banks.
"The common belief is that you can't make money in these markets," Mr. Goetzmann said. "The reality is small banks, defined as those with 150 branches or less, are basically winning the battle out there in terms of overall growth.
